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<SEC-DOCUMENT>0000950134-06-003508.txt : 20060222
<SEC-HEADER>0000950134-06-003508.hdr.sgml : 20060222
<ACCEPTANCE-DATETIME>20060222060148
ACCESSION NUMBER:		0000950134-06-003508
CONFORMED SUBMISSION TYPE:	8-K
PUBLIC DOCUMENT COUNT:		16
CONFORMED PERIOD OF REPORT:	20060215
ITEM INFORMATION:		Entry into a Material Definitive Agreement
ITEM INFORMATION:		Termination of a Material Definitive Agreement
ITEM INFORMATION:		Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant
ITEM INFORMATION:		Unregistered Sales of Equity Securities
ITEM INFORMATION:		Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year
ITEM INFORMATION:		Financial Statements and Exhibits
FILED AS OF DATE:		20060222
DATE AS OF CHANGE:		20060222

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			LAKES ENTERTAINMENT INC
		CENTRAL INDEX KEY:			0001071255
		STANDARD INDUSTRIAL CLASSIFICATION:	SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990]
		IRS NUMBER:				411913991
		STATE OF INCORPORATION:			MN
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		8-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-24993
		FILM NUMBER:		06634664

	BUSINESS ADDRESS:	
		STREET 1:		130 CHESHIERE LANE
		CITY:			MINNETONKA
		STATE:			MN
		ZIP:			55305
		BUSINESS PHONE:		6124499092

	MAIL ADDRESS:	
		STREET 1:		130 CHESHIRE LANE
		CITY:			MINNETONKA
		STATE:			MN
		ZIP:			55305

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	LAKES GAMING INC
		DATE OF NAME CHANGE:	19980929
</SEC-HEADER>
<DOCUMENT>
<TYPE>8-K
<SEQUENCE>1
<FILENAME>c02665e8vk.htm
<DESCRIPTION>FORM 8-K
<TEXT>
<HTML>
<HEAD>
<TITLE>e8vk</TITLE>
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<BODY bgcolor="#FFFFFF">
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 1pt solid black; font-size: 1pt">&nbsp;</DIV>




<DIV align="center" style="font-size: 14pt; margin-top: 12pt"><B>UNITED STATES<BR>
SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

<DIV align="center" style="font-size: 12pt"><B>WASHINGTON, D.C. 20549</B>
</DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 12pt"><B>FORM 8-K</B>
</DIV>


<DIV align="center" style="font-size: 12pt; margin-top: 12pt"><B>CURRENT REPORT</B>
</DIV>


<DIV align="center" style="font-size: 12pt; margin-top: 12pt"><B>Pursuant to Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">Date of Report (Date of earliest event reported): February&nbsp;15, 2006</DIV>

<DIV align="center" style="font-size: 24pt; margin-top: 12pt"><B><U>Lakes Entertainment, Inc.</U></B>
</DIV>

<DIV align="center" style="font-size: 10pt">(Exact name of registrant as specified in its charter)</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top">Minnesota<BR>
(State or other jurisdiction of<BR>
incorporation)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">0-24993<BR>
(Commission File Number)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">41-1913991<BR>
(IRS Employer<BR>
Identification No.)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="center">130 Cheshire Lane, Minnetonka, Minnesota<BR></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">55305</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="center">(Address of principal executive offices)<BR></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(Zip Code)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Registrant&#146;s telephone number, including area code: (952)&nbsp;449-9092
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Not Applicable<BR>
(Former name or former address, if changed since last report)
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT face="Wingdings">&#111;</FONT> Written communications pursuant to Rule&nbsp;425 under the Securities Act (17 CFR 230.425)

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT face="Wingdings">&#111;</FONT> Soliciting material pursuant to Rule&nbsp;14a-12 under the Exchange Act (17 CFR 240.14a-12)

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT face="Wingdings">&#111;</FONT> Pre-commencement communications pursuant to Rule&nbsp;14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT face="Wingdings">&#111;</FONT> Pre-commencement communications pursuant to Rule&nbsp;13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

</DIV>

<DIV style="width: 100%; border-bottom: 1pt solid black; margin-top: 10pt; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>







<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">








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<A name="toc"><DIV align="CENTER" style="page-break-before:always"><U><B>TABLE OF CONTENTS</B></U></DIV></A>

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</TR>
<TR><TD></TD><TD colspan="8"><A HREF="#000">Item&nbsp;1.01. Entry into a Material Definitive Agreement.</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#001">Item&nbsp;1.02. Termination of a Material Definitive Agreement.</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#002">Item&nbsp;2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#003">Item&nbsp;3.02 Unregistered Sales of Equity Securities.</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#004">Item&nbsp;5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#005">Item&nbsp;9.01. Financial Statements and Exhibits.</A></TD></TR>
<TR><TD colspan="9"><A HREF="c02665exv3w1.txt">Certificate of Designation</A></TD></TR>
<TR><TD colspan="9"><A HREF="c02665exv10w1.txt">Financing Agreement</A></TD></TR>
<TR><TD colspan="9"><A HREF="c02665exv10w2.txt">Securities Purchase Agreement</A></TD></TR>
<TR><TD colspan="9"><A HREF="c02665exv10w3.txt">Registration Rights Agreement</A></TD></TR>
<TR><TD colspan="9"><A HREF="c02665exv10w4.txt">Common Stock Purchase Warrant</A></TD></TR>
<TR><TD colspan="9"><A HREF="c02665exv10w5.txt">Security Agreement</A></TD></TR>
<TR><TD colspan="9"><A HREF="c02665exv10w6.txt">Pledge Agreement</A></TD></TR>
<TR><TD colspan="9"><A HREF="c02665exv10w7.txt">Mortgage, Assignment of Leases and Rents</A></TD></TR>
<TR><TD colspan="9"><A HREF="c02665exv10w8.txt">Deed of Trust, Assignment of Leases and Rents</A></TD></TR>
<TR><TD colspan="9"><A HREF="c02665exv10w9.txt">Deed of Trust, Assignment of Leases and Rents</A></TD></TR>
<TR><TD colspan="9"><A HREF="c02665exv10w10.txt">Deed of Trust, Assignment of Leases and Rents</A></TD></TR>
<TR><TD colspan="9"><A HREF="c02665exv10w11.txt">Employment Agreement - Lyle Berman</A></TD></TR>
<TR><TD colspan="9"><A HREF="c02665exv10w12.txt">Employment Agreement - Timothy J. Cope</A></TD></TR>
<TR><TD colspan="9"><A HREF="c02665exv99w1.htm">Press Release</A></TD></TR>
</TABLE>
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<!-- link2 "Item&nbsp;1.01. Entry into a Material Definitive Agreement." -->
<DIV align="left"><A NAME="000"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;1.01. Entry into a Material Definitive Agreement.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Loan Financing</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On February&nbsp;15, 2006, Lakes Entertainment, Inc. (&#147;<B>Lakes</B>&#148; or the &#147;<B>Company</B>&#148;) closed on a $50
million financing facility with PLKS Funding, LLC (the &#147;<B>Lender</B>&#148;), an affiliate of Prentice Capital
Management, LP (&#147;<B>Prentice Capital</B>&#148;) pursuant to the terms and conditions of a Financing Agreement
dated as of February&nbsp;15, 2006 (the &#147;<B>Financing Agreement</B>&#148;) among Lakes, PLKS Funding, LLC and
various subsidiaries of Lakes (the &#147;<B>Subsidiaries</B>&#148;) other than WPT Enterprises, Inc. (&#147;<B>WPTE</B>&#148;). An
initial draw of $25&nbsp;million was made under the facility, another $10&nbsp;million is immediately
available under the financing facility and the remaining $15&nbsp;million can be drawn in $5&nbsp;million
increments subject to the satisfaction of certain conditions. Any funds drawn on the facility bear
interest at the rate of 12% per annum, subject to adjustment based on the value of the collateral,
and are due and payable on the third anniversary of the closing date. Lakes may prepay the facility
in whole or in part at any time. Pursuant to the terms of the Financing Agreement, Lakes paid a
closing fee of $1.5&nbsp;million. Lakes is also subject to a loan servicing fee of $5,000 per month;
audit and field examination fees at the rate of $1,500 per day; and upon the occurrence of certain
events, a collateral maintenance fee equal to 2.00% of the aggregate principal amount of the loan
outstanding under the financing facility on the date of the first such event and an additional 2%
of the aggregate principal amount of the loan outstanding on such date on the date of each such
additional event.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The financing facility is secured by substantially all of the material assets of Lakes and the
Subsidiaries, including all of Lakes&#146; shares of WPTE, the proceeds from its management agreements
with Indian tribes, its real property located in California and Minnesota, its deposit and security
accounts, its equity interests in subsidiaries not involved in Indian gaming projects and
promissory notes relating to the casino project with the Pokagon Band of Potawatomi Indians in
Michigan pursuant to the terms and conditions of, among other agreements, a Security Agreement
dated as of February&nbsp;15, 2006 by Lakes and the Subsidiaries in favor of the Lender, and a Pledge
Agreement dated as of February&nbsp;15, 2006 by Lakes and the Subsidiaries in favor of the Lender.
Lakes is entitled to sell up to 3&nbsp;million of the approximate 12.5&nbsp;million WPTE shares it owns
without application to reduction of the amounts owing under the financing facility, subject to
certain conditions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The loan under the financing facility can be declared immediately due and payable upon the
occurrence of an event of default that is not cured within any applicable cure period. Events of
default include, but are not limited to, the following:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;the failure of Lakes or any of the Subsidiaries to pay principal and interest payable
under the Financing Agreement when due;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;any representation or warranty made in connection with the financing facility shall have
been incorrect in any material respect when made or deemed made;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;the
failure of Lakes or any of the Subsidiaries to perform or comply with the terms of the
financing facility and the documents relating to such financing facility;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;bankruptcy, insolvency, dissolution, liquidation, winding up, reorganization or similar
proceedings are institued against Lakes or any of the Subsidiaries, or Lakes or any of the
Subsidiaries is generally not paying its debts as such debts become due or shall admit in writing
its inability to pay its debts generally, or makes a general assignment for the benefit of
creditors;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;any security agreement, any pledge agreement, any mortgage or any other security document,
fails or ceases to create, subject to certain exceptions, a valid and perfected first priority lien
in favor of the agent for the benefit of the lender on any collateral securing the financing
facility;
</DIV>

<P align="center" style="font-size: 10pt">2
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;any bank at which any deposit account, blocked account, or lockbox account of Lakes or any
of the Subsidiaries constituting collateral is maintained fails to comply with any of the terms of
any deposit account, blocked account, lockbox account or similar agreement to which such bank is a
party or any securities intermediary, commodity intermediary or other financial institution at any
time in custody, control or possession of any investment property of Lakes or any subsidiary a
party to the financing facility fails to comply with any of the terms of any investment property
control agreement to which they are a party;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;any material damage to, or loss, theft or destruction of, any collateral, whether or not
insured, or any strike, lockout, labor dispute, embargo, condemnation, act of God or public enemy,
or other casualty which causes, for more than 15 consecutive days, the cessation or substantial
curtailment of revenue producing activities at any facility of Lakes or any of the Subsidiarues, if
any such event or circumstance could reasonably be expected to have a material adverse effect (as
defined in the Financing Agreement);
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;any cessation of a substantial part of the business of Lakes or any of the Subsidiaries to
the financing facility for a period which materially and adversely affects the ability of such
person to continue its business;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;any change of control (as defined in the Financing Agreement) occurs;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j)&nbsp;the loss, suspension or revocation of, or failure to renew, any license or permit now held
or hereafter acquired by Lakes or any of the Subsidiaries, if such loss, suspension, revocation or
failure to renew could reasonably be expected to have a material adverse effect (as defined in the
Financing Agreement);
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k)&nbsp;the failure to commence the construction (as defined in the Financing Agreement) by March
1, 2007 of at least one of the following casino projects: the planned casino on the Rancheria of
the Shingle Springs Band of Miwok Indians in El Dorado County, California; the planned casino on
the land of the Pokagon Band of Potawatomi Indians in New Buffalo Township, Michigan or the planned
casino on the Rancheria of the Jamul Indian Village near San Diego, California; or.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l)&nbsp;an event or development occurs which could reasonably be expected to have a material
adverse effect (as defined in the Financing Agreement).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As consideration for the financing, Lakes issued to PLKS Holdings, LLC, an affiliate of
Prentice Capital, an aggregate of 4.46&nbsp;million common stock purchase warrants at an exercise price
of $7.50 per share that expire in February&nbsp;2013. The warrants are subject to customary
anti-dilution protections. As of the date of the initial draw, only 1.25&nbsp;million of the warrants
are immediately exercisable. An additional 1.25&nbsp;million of the warrants are exercisable as
additional draws under the facility are made. The remaining 1.96&nbsp;million warrants are exercisable
only upon the occurrence of certain specified events relating to the loan collateral. The lender
has demand registration rights with respect to the Lakes common stock underlying the warrants and,
upon certain events, the WPTE shares pledged by Lakes to the lender. In certain circumstances,
cash penalties are payable if Lakes does not meet the registration deadlines applicable to the
pledged WPTE shares and the holders of the warrants can require Lakes to redeem the warrants if
Lakes fails to satisfy its registration obligations with respect to the Lakes common stock
underlying the warrants. Lakes has agreed to pay substantially all of the costs incurred in the
preparation and filing of these registration statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As part of the transaction, the Lakes Board of Directors authorized the creation of a new
class of Series&nbsp;A Convertible Preferred Stock, par value $0.01 per share to be sold to PLKS
Holdings, LLC. These preferred shares have no dividend rights, have voting rights only if there is
a default under the Financing Agreement, and become convertible into common stock of Lakes (on a
fixed one-to-one basis) only if and when the warrants are cancelled in accordance with the terms of
the warrants. The issuance of
</DIV>

<P align="center" style="font-size: 10pt">3
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">4,457,751 shares of the preferred stock by Lakes to PLKS Holdings, LLC is conditioned upon the
satisfaction of certain terms and conditions specified in the Financing Agreement. Lakes currently
expects to close on the sale of the preferred stock during the week of February&nbsp;20, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Approximately $10.2&nbsp;million of the initial draw under the financing facility was used to repay
in full Lakes&#146; December&nbsp;15, 2005 loan from the Lyle Berman Family Partnership (&#147;<B>Partnership</B>&#148;) and
the Partnership released its security interest in substantially all of the assets of Lakes. As a
result of repaying the Partnership loan prior to February&nbsp;28, 2006, the 2&nbsp;million common stock
purchase warrants previously issued to the Partnership were terminated.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Copies of the Company&#146;s material agreements relating to, and the press release announcing, the
financing facility are attached as exhibits to this Current Report.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Executive Employment Agreements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As part of the financing transaction described above, Lakes entered into employment agreements
dated as of February&nbsp;15, 2006 with Lyle Berman, the Chairman and Chief Executive Officer of Lakes,
and Timothy J. Cope, the President, Chief Financial Officer and Secretary of Lakes (each, an
"<B>Executive</B>&#148;) to employ the Executives as a member of Lakes senior management. Under the
agreements, the Executives are required to perform such duties as may be designated by the Lakes
Board of Directors from time to time. Each agreement has an initial term of 36&nbsp;months and the term
of the agreement automatically extends for successive one-year periods unless at least 60&nbsp;days
prior to the end of a term, Lakes or the Executive gives notice to the other of an election to terminate the
agreement at the end of the current term. In addition, the agreement may be terminated (a)&nbsp;upon
the death or disability (as defined in the agreement) of the Executive; (b)&nbsp;by Lakes for cause (as
defined in the agreement); (c)&nbsp;by Lakes without cause; (d)&nbsp;as a result of a constructive
termination (as defined in the agreement); or (e)&nbsp;by the Executive at any time upon providing 60
days advance written notice to Lakes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the terms of the agreements, Mr.&nbsp;Berman and Mr.&nbsp;Cope receive a base salary of $500,000
and $350,000, respectively, or such other amount as may be determined by Lakes in its sole
discretion, and a monthly travel and expense fee in the amount of $600. The Executives are also
entitled to participate in Lakes&#146; incentive compensation program established for senior executives
and to receive other benefits provided by Lakes to senior executives. Each of the agreements
provide that if the agreement is terminated due to the Executive&#146;s disability, the Executive is
entitled to receive an amount equal to six months of his then base salary and the continuation of
medical and dental benefits for the Executive and his dependents during the six months following
any such termination. If the Executive&#146;s employment agreement is terminated by Lakes without cause
or due to a constructive termination, the Executive is entitled to receive, in one lump sum
payment, severance benefits (the &#147;<B>Severance Benefits</B>&#148;) equal to his accrued and unpaid base salary
plus the equivalent of bonus or incentive compensation (based upon the average bonus percentage
rate for the two fiscal years of Lakes preceding the date of termination) for 12&nbsp;months, or for the
period of time remaining in the initial term, whichever is longer (the &#147;<B>Severance Period</B>&#148;) together
with the continuation of medical and dental benefits for the Executive and his dependents
throughout the Severance Period. Lakes&#146; obligations to continue the Severance Benefits during the
Severance Period ends immediately upon the Executive obtaining employment with another person or
entity in any capacity. Lakes&#146; obligation to provide the
Severance Benefits is conditioned on the
Executive entering into a satisfactory general release and covenant not to sue. In the event the
Executive resigns (for a reason other than constructive discharge) or Lakes terminates the
Executive&#146;s employment for cause, or the agreement terminates at the end of the initial or any
renewal term, the Executive is only entitled to payment for accrued and unpaid base salary and
benefits accrued prior to the effective date of his termination, earned but unused vacation pay,
and payment for unreimbursed business-related expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event that the Executive&#146;s employment is terminated within two years following a change
of control (as defined in the agreement) by Lakes without cause or due to a constructive discharge,
in addition to all compensation due and payable to or accrued for the benefit of the Executive
through the
</DIV>

<P align="center" style="font-size: 10pt">4
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">date of termination, the Executive is entitled to a lump sum payment equal to two times his annual
compensation (as defined in the agreement) as determined by Lakes&#146; independent auditor (the
&#147;Severance Payment&#148;) and Lakes is required to use its best efforts to convert any then existing
life insurance and accidental death and disability insurance policies to individual policies in the
Executive&#146;s name.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon the termination of the Executive&#146;s employment for any reason, including death,
disability, expiration of the initial term, nonrenewal, by Lakes with or without cause, by the
Executive with notice, due to a constructive discharge or within two years of a change of control,
all stock options held by the Executive immediately vest and become immediately exercisable by the
Executive or his legal representative for a period of two years following the date of termination
of the Executive&#146;s employment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event that any payment or distribution by Lakes to or for the benefit of the Executive
would constitute an &#147;excess parachute payment&#148; within the meaning of Section&nbsp;280G of the Internal
Revenue Code of 1986, as amended (the &#147;<B>Code</B>&#148;), the Executive is entitled to be paid an additional
amount (the &#147;<B>Gross-Up Payment</B>&#148;) such that the net amount retained by the Executive after deduction
of any excise tax imposed by the Code, and any federal, state and local income and employment tax
and excise tax imposed upon the Gross-Up Payment shall be equal to the Severance Payment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each employment agreement also contains customary confidentiality and a two-year
post-employment non-solicitation. Mr.&nbsp;Berman&#146;s employment agreement contains a non-compete
covenant that expires on the date the loan under the Financing Agreement is paid in full. Mr.
Cope&#146;s employment agreement contains two-year post-employment non-compete. Each employment
agreement also contains an arbitration clause.
</DIV>
<!-- link2 "Item&nbsp;1.02. Termination of a Material Definitive Agreement." -->
<DIV align="left"><A NAME="001"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;1.02. Termination of a Material Definitive Agreement.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following agreements were terminated as of February&nbsp;15, 2006 as a result of the Company
entering into the financing facility described in Item&nbsp;1.01 above under the caption &#147;<B>Loan
Financing</B>&#148;:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Loan Agreement dated as of December&nbsp;15, 2005 among the Company, Lakes Poker Tour, LLC
and the Lyle Berman Family Partnership (&#147;<B>Partnership</B>&#148;);</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Note dated December&nbsp;15, 2005 by the Company and Lakes Poker Tour, LLC in favor of the
Partnership;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Common Stock Purchase Warrant dated December&nbsp;15, 2005 by the Company in favor of the
Partnership;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Registration Rights Agreement dated as of December&nbsp;16, 2005 among WPTE, the Company and
the Partnership;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Guaranty dated December&nbsp;15, 2005 among the Company, various subsidiaries of the Company
and the Partnership;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Guaranty Security Agreement dated December&nbsp;15, 2005 among the Company, various
subsidiaries of the Company and the Partnership; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Stock Pledge Agreement dated December&nbsp;15, 2005 among the Company, Lakes Poker Tour, LLC
and the Partnership.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pursuant to the foregoing agreements, the Partnership had provided the Company with a $20&nbsp;million
financing facility secured by substantially all of the personal property of Lakes and its
subsidiaries other than WPTE, including all fees or rights to cash flow from the Company&#146;s casino
projects, as well as by its real property located in Minnetonka, Minnesota. The Company received
an initial draw of $10&nbsp;million
</DIV>
<P align="center" style="font-size: 10pt">5
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">under this financing facility on December&nbsp;16, 2005. Funds drawn under the facility were subject to
interest at the rate of 12% per annum and were due and payable on December&nbsp;16, 2008. No penalties
were incurred by the Company in connection with terminating this financing facility. Lyle Berman,
the Company&#146;s Chairman and Chief Executive Officer, does not have an ownership interest or other
beneficial interest in the Partnership. Neil Sell, a director of the Company, is one of the
trustees of the irrevocable trusts that are the partners in the Partnership.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The employment agreement dated as of February&nbsp;21, 2002 between the Company and Mr.&nbsp;Cope (the &#147;<B>Prior
Employment Agreement</B>&#148;) was terminated effective as of February&nbsp;15, 2006, the date that the Company
entered into a new employment agreement with Timothy J. Cope, its President and Chief Financial
Officer, as described in Item&nbsp;1.01 above under the caption &#147;<B>Executive Employment Agreements.</B>&#148; No
penalties were incurred by the Company in connection with the termination of the Prior Employment
Agreement. Under the terms of the Prior Employment Agreement, Mr.&nbsp;Cope was employed by the Company
as its President, Chief Financial Officer, Treasurer and Secretary for a base salary of $250,000
for an indefinite term.
</DIV>

<!-- link2 "Item&nbsp;2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant." -->
<DIV align="left"><A NAME="002"></A></DIV>


<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>Item&nbsp;2.03</B></TD>
    <TD>&nbsp;</TD>
    <TD><B>Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The discussion set forth in Item&nbsp;1.01 above under the caption &#147;<B>Loan Financing&#148; </B>is incorporated
into this Item&nbsp;2.03 by this reference.
</DIV>
<!-- link2 "Item&nbsp;3.02 Unregistered Sales of Equity Securities." -->
<DIV align="left"><A NAME="003"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;3.02
&nbsp;&nbsp;Unregistered Sales of Equity Securities.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As described in Item&nbsp;1.01 above under the caption &#147;<B>Loan Financing,</B>&#148; on February&nbsp;15, 2006, as
consideration for the Loan (as defined in Item&nbsp;1.01 above), the Company issued to PLKS Holdings,
LLC (&#147;<B>PLKS</B>&#148;), an affiliate of the Lender (as defined in Item&nbsp;1.01 above), seven-year warrants to
purchase an aggregate of up to 4,457,751 shares of the Company&#146;s common stock at an exercise price
of $7.50 per share (the &#147;<B>Warrants</B>&#148;) pursuant to the terms of the Securities Purchase Agreement (as
defined in Item&nbsp;1.01 above). In addition, as of February&nbsp;15, 2006, the Company is obligated to
issue to PLKS, subject to the satisfaction of certain conditions precedent set forth in the
Securities Purchase Agreement, 4,457,751 shares of Series&nbsp;A Convertible Preferred Stock (&#147;<B>Preferred
Stock</B>&#148;). The Preferred Stock converts into shares of the Company&#146;s common stock on a fixed
one-to-one basis if, but only if, the Warrants or the shares of the Company&#146;s common stock issued
pursuant to an exercise of the Warrants are cancelled by the Company in accordance with the terms
of the Warrants.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company sold the Warrants and will sell the Preferred Stock, subject to the satisfaction
or certain conditions precedent set forth in the Securities Purchase Agreement, in reliance upon
exemptions from the registration requirements of the Securities Act of 1933, as amended (the
"<B>Securities Act</B>&#148;) provided by Section&nbsp;4(2) of the Securities Act and the rules and regulations
promulgated thereunder based upon, among other things, written investment representations of the
purchasers in the Securities Purchase Agreement. In addition, the certificate representing the
Warrants bears a customary restrictive legend and the certificate(s) representing the shares of
Preferred Stock if and when issued, will bear a customary restrictive legend. The aggregate
purchase price of the Warrants was $10.00 and the aggregate purchase of the Preferred Stock is
$44,577.51. The Company anticipates closing on the sale of the Preferred Stock during the week of
February&nbsp;20, 2006. Copies of the Company&#146;s material agreements relating to, and the press release
announcing, the sale of the Warrants and the obligation to sell the Preferred Stock are attached as
exhibits to this Current Report.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No financial advisor or placement agent fees or compensation were or will be paid in
connection with the sale and issuance of the Warrants and the Preferred Stock.
</DIV>
<!-- link2 "Item&nbsp;5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year." -->
<DIV align="left"><A NAME="004"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.</B>
</DIV>


<P align="center" style="font-size: 10pt">6
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective February&nbsp;21, 2006, the Company amended its Articles of Incorporation, as amended, to
authorize 7,500,000 shares of Preferred Stock (as defined in Item&nbsp;3.02 above) and to designate the
rights and preferences of the Preferred Stock. A copy of the Company&#146;s Certificate of Designations
relating to the Preferred Stock is attached as an exhibit to this Current Report.
</DIV>
<!-- link2 "Item&nbsp;9.01. Financial Statements and Exhibits." -->
<DIV align="left"><A NAME="005"></A></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;9.01. Financial Statements and Exhibits.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Not Applicable
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;Not Applicable
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;Exhibits
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">3.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Lakes Entertainment, Inc. Certificate of Designation of Series&nbsp;A Convertible Preferred Stock
dated February&nbsp;21, 2006.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">10.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Financing Agreement dated as of February&nbsp;15, 2006 among Lakes Entertainment, Inc., various
subsidiaries of Lakes Entertainment, Inc., and PLKS Funding, LLC. (1)</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">10.2</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Securities Purchase Agreement dated as of February&nbsp;15, 2006 between Lakes Entertainment, Inc.
and PLKS Holdings, LLC including the Schedule of Buyers. (2)</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">10.3</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Registration Rights Agreement dated as of February&nbsp;15, 2006 between Lakes Entertainment, Inc.
and PLKS Holdings, LLC including schedules and exhibits thereto.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">10.4</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Common Stock Purchase Warrant dated February&nbsp;15, 2006 by Lakes Entertainment, Inc. in favor
of PLKS Holdings, LLC.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">10.5</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Security Agreement dated as of February&nbsp;15, 2006 among Lakes Entertainment, Inc. and various
subsidiaries of Lakes Entertainment, Inc. in favor or PLKS Funding, LLC. (3)</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">10.6</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Pledge Agreement dated as of February&nbsp;15, 2006 among Lakes Entertainment, Inc. and various
subsidiaries of Lakes Entertainment, Inc. in favor PLKS Funding, LLC. (4)</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">10.7</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated as of
February&nbsp;15, 2006 by Lakes Entertainment, Inc. in favor PLKS Funding, LLC.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">10.8</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated as
of February&nbsp;15, 2006 by Lakes Kean Argovitz Resorts-California, L.L.C. (Trustor) to Fidelity
National Title Insurance Company (Trustee) for the benefit of PLKS Funding, LLC (Beneficiary).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">10.9</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated as
of February&nbsp;15, 2006 by Lakes Kar Shingle Springs, L.L.C. (Trustor) to Fidelity National Title
Insurance Company (Trustee) for the benefit of PLKS Funding, LLC (Beneficiary).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">10.10</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated
as of February&nbsp;15, 2006 by Lakes Shingle Springs, Inc. (Trustor) to Fidelity National Title
Insurance Company (Trustee) for the benefit of PLKS Funding, LLC (Beneficiary).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">10.11</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Employment Agreement dated as of February&nbsp;15, 2006 between Lakes Entertainment,
Inc.(including its subsidiaries and affiliates) and Lyle Berman.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">7
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">10.12</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Employment Agreement dated as of February&nbsp;15, 2006 between Lakes Entertainment, Inc.
(including its subsidiaries and affiliates) and Timothy J. Cope.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">99.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Lakes Entertainment, Inc. Press Release dated February&nbsp;16, 2006.</TD>
</TR>

</TABLE>
</DIV>


<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Pursuant to Item&nbsp;601(b)(2) of Regulation&nbsp;S-K, other than Schedule&nbsp;1.01(a) included in Exhibit
10.1 attached to this Current Report and Exhibits B, C and I attached to this Current Report
as Exhibits 10.5, 10.6 and 10.4, respectively, the exhibits and schedules to the Financing
Agreement have been omitted. Lakes Entertainment, Inc. agrees to supplementally furnish such
exhibits and schedules upon request of the Securities and Exchange Commission.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Pursuant to Item&nbsp;601(b)(2) of Regulation&nbsp;S-K, other than the Schedule of Buyers included in
Exhibit&nbsp;10.2 attached to this Current Report, the schedules to the Securities Purchase
Agreement have been omitted. Lakes Entertainment, Inc. agrees to supplementally furnish such
schedules upon request of the Securities and Exchange Commission.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>Pursuant to Item&nbsp;601(b)(2) of Regulation&nbsp;S-K, the schedules to the Security Agreement have
been omitted. Lakes Entertainment, Inc. agrees to supplementally furnish such schedules upon
request of the Securities and Exchange Commission.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(4)</TD>
    <TD>&nbsp;</TD>
    <TD>Pursuant to Item&nbsp;601(b)(2) of Regulation&nbsp;S-K, the schedules to the Pledge Agreement have been
omitted. Lakes Entertainment, Inc. agrees to supplementally furnish such schedules upon
request of the Securities and Exchange Commission.</TD>
</TR>

</TABLE>



<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">8
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left"><FONT style="font-variant: SMALL-CAPS">LAKES ENTERTAINMENT, INC.</FONT><BR><BR>
(Registrant)<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: February 22, 2006&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/Timothy J. Cope
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top">Name:&nbsp;&nbsp;</TD>
    <TD colspan="2" align="left">Timothy J. Cope&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top">Title:&nbsp;&nbsp;</TD>
    <TD colspan="2" align="left">President and Chief Financial Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>


<P align="center" style="font-size: 10pt">9
</DIV>

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</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.1
<SEQUENCE>2
<FILENAME>c02665exv3w1.txt
<DESCRIPTION>CERTIFICATE OF DESIGNATION
<TEXT>
<PAGE>
                                                                     EXHIBIT 3.1


                            LAKES ENTERTAINMENT, INC.

                          CERTIFICATE OF DESIGNATION OF
                      SERIES A CONVERTIBLE PREFERRED STOCK

         The undersigned, the duly elected and qualified President of Lakes
Entertainment, Inc., a Minnesota Corporation (the "Company"), subject to the
Minnesota Business Corporations Act, does hereby certify that the Board of
Directors of the Company at a duly held meeting of the Board of Directors on
February 8, 2006 and in accordance with Minnesota Statutes, Section 302A.401,
adopted the following resolution:

RESOLVED, that, pursuant to authority expressly granted to the Company's Board
of Directors by the provisions of the Company's Articles of Incorporation, as
amended, the Company's Board of Directors hereby creates and authorizes the
issuance of a series of shares of preferred stock, $0.01 par value per share, of
the Company, such series to be called "Series A Convertible Preferred Stock" and
hereby adopts the Certificate of Designation of Series A Convertible Preferred
Stock attached hereto as Exhibit A, and hereby affixes, the designation and
number of shares, along with the voting rights as are set forth in said
Certificate of Designation of Series A Convertible Preferred Stock attached
hereto as Exhibit A.



         IN WITNESS WHEREOF, I have subscribed my name this 21st day of
February, 2006.


                                                  /S/ Timothy J. Cope
                                                  ------------------------------
                                                  Timothy J. Cope
                                                  President

<PAGE>


                                    EXHIBIT A


The designation of this series of preferred stock shall be "Series A Convertible
Preferred Stock" par value $0.01 per share (the "PREFERRED SHARES") of Lakes
Entertainment, Inc., a Minnesota corporation (the "COMPANY"). The number of
shares which shall constitute this Series shall be 7,500,000. Except as
otherwise defined herein, capitalized terms in this certificate of designations
of Preferred Shares of the Company (the "CERTIFICATE OF DESIGNATIONS") shall
have the meanings set forth in Section 18 of this Certificate of Designations.

     A. The only powers, preferences, rights, restrictions, and other matters
relating to the Series A Convertible Preferred Stock are as follows:

          1. CONVERSION OF PREFERRED SHARES.

               (a) Mechanics of Conversion. Subject to the terms and conditions
          hereof (including, without limitation, the limitations set forth in
          Section 1(f)), if either the Warrants or Warrant Shares (as defined in
          the Securities Purchase Agreement) of such Holder of Preferred Shares
          are cancelled (in accordance with Section 16 of the Warrant) or
          redeemed (the "CANCELLED WARRANT", and the shares of Common Stock of
          the Company into which such Cancelled Warrant is exercisable (subject
          to the satisfaction of the terms and conditions thereof), the
          "CANCELLED WARRANT SHARES") by the Company pursuant to the application
          of the terms and conditions of its Articles of Incorporation (as
          defined in the Securities Purchase Agreement) or applicable law, rule
          or regulation (the date of such event, the "CANCELLATION DATE"), all
          Preferred Shares issued and outstanding pursuant to this Certificate
          of Designations (including the Additional Preferred Shares (as defined
          in the Securities Purchase Agreement) received by such Holder upon the
          Cancellation Date in accordance with Section 4(o) of the Securities
          Purchase Agreement) shall immediately become convertible into shares
          of Common Stock of the Company (the "CONVERSION SHARES") on a one
          Preferred Share per one Conversion Share basis. Preferred Shares may
          be converted by any Holder on any day on or after the Cancellation
          Date by (i) delivery of a written notice, in the form attached hereto
          as Exhibit I (the "CONVERSION NOTICE"), of a Holder's election to
          convert some or all of its Preferred Shares and (ii) (A) payment to
          the Company of an amount equal to the applicable Conversion Price
          multiplied by the number of Conversion Shares as to which such
          Preferred Shares is being converted (the "AGGREGATE CONVERSION PRICE")
          in cash or wire transfer of immediately available funds or (B) by
          notifying the Company that such Preferred Shares are being converted
          pursuant to a Cashless Conversion (as defined in Section 1(d)). A
          Holder shall not be required to deliver an original Preferred Share
          certificate in order to effect a conversion hereunder. Execution and
          delivery of the Conversion Notice with respect to less than all of the
          Conversion Shares shall have the same effect as cancellation of the
          original Preferred Shares certificate and issuance of a new Preferred
          Shares certificate evidencing the right to convert the remaining
          number of Conversion Shares. On or before the second Business Day
          following the date on which the Company has received each of the
          Conversion Notice and the Aggregate Conversion Price (or notice of a
          Cashless Conversion) (the "CONVERSION DELIVERY DOCUMENTS" and the date
          the Company received the Conversion


                                      -1-
<PAGE>


          Delivery Documents, the "CONVERSION DELIVERY DOCUMENTS DATE"), the
          Company shall transmit by facsimile an acknowledgment of confirmation
          of receipt of the Conversion Delivery Documents to such Holder and the
          Company's transfer agent (the "TRANSFER AGENT"). On or before the
          third Business Day following the date on which the Company has
          received all of the Conversion Delivery Documents (the "SHARE DELIVERY
          DATE"), the Company shall (X) provided that the Transfer Agent is
          participating in The Depository Trust Company ("DTC") Fast Automated
          Securities Transfer Program, upon the request of such Holder, credit
          such aggregate number of shares of Common Stock to which such Holder
          is entitled pursuant to such conversion to such Holder's or its
          designee's balance account with DTC through its Deposit Withdrawal
          Agent Commission system, or (Y) if the Transfer Agent is not
          participating in the DTC Fast Automated Securities Transfer Program,
          issue and dispatch by overnight courier to the address as specified in
          the Conversion Notice, a certificate, registered in the Company's
          share register in the name of such Holder or its designee, for the
          number of shares of Common Stock to which such Holder is entitled
          pursuant to such conversion. Upon delivery to the Company of the
          properly executed and completed Conversion Delivery Documents, such
          Holder shall be deemed for all corporate purposes to have become a
          holder of record of the Conversion Shares with respect to which
          Preferred Shares have been converted, irrespective of the date of
          delivery of the certificates evidencing such Conversion Shares. If the
          original Preferred Shares certificate is submitted in connection with
          any conversion pursuant to this Section A.1(a) and the number of
          Conversion Shares represented by the Preferred Shares certificate
          submitted for conversion is greater than the number of Conversion
          Shares being acquired upon an conversion, then the Company shall as
          soon as practicable and in no event later than five Business Days
          after any conversion and at its own expense, issue a new Preferred
          Shares certificate representing the right to convert the number of
          Preferred Shares convertible immediately prior to such conversion
          under the Certificate of Designations, less (i) the number of
          Preferred Shares converted upon such conversion plus (ii) any
          Preferred Shares tendered pursuant to the cashless conversion
          provisions of Section A.1(d). No fractional shares of Common Stock are
          to be issued upon the conversion of Preferred Shares, but rather the
          number of shares of Common Stock to be issued shall be rounded up to
          the nearest whole number. The Company shall pay any and all taxes
          which may be payable with respect to the issuance and delivery of
          Conversion Shares upon conversion of Preferred Shares. NOTWITHSTANDING
          ANY PROVISION OF THIS CERTIFICATE OF DESIGNATIONS TO THE CONTRARY, (i)
          THE HOLDER PRO RATA ALLOCATION OF 500,000 PREFERRED SHARES (AS
          ADJUSTED FOR STOCK SPLITS, STOCK DIVIDENDS, REVERSE STOCK SPLITS,
          RECAPITALIZATIONS, RECLASSIFICATIONS AND SIMILAR EVENTS) SHALL NOT BE
          CONVERTIBLE UNLESS A WPT 75% COLLATERAL EVENT HAS OCCURRED, (II) THE
          HOLDER PRO RATA ALLOCATION OF 500,000 PREFERRED SHARES (AS ADJUSTED
          FOR STOCK SPLITS, STOCK DIVIDENDS, REVERSE STOCK SPLITS,
          RECAPITALIZATIONS, RECLASSIFICATIONS AND SIMILAR EVENTS) SHALL NOT BE
          CONVERTIBLE UNLESS A WPT 50% COLLATERAL EVENT HAS OCCURRED, (III) THE
          HOLDER PRO RATA ALLOCATION OF 457,751 PREFERRED SHARES (AS ADJUSTED
          FOR STOCK SPLITS, STOCK DIVIDENDS, REVERSE STOCK SPLITS,
          RECAPITALIZATIONS, RECLASSIFICATIONS AND SIMILAR EVENTS) SHALL NOT BE
          CONVERTIBLE UNLESS A WPT 25% COLLATERAL EVENT HAS OCCURRED, (IV) THE
          HOLDER PRO RATA ALLOCATION OF 500,000 PREFERRED SHARES (AS ADJUSTED
          FOR STOCK SPLITS, STOCK DIVIDENDS, REVERSE STOCK SPLITS,
          RECAPITALIZATIONS, RECLASSIFICATIONS AND SIMILAR EVENTS) SHALL NOT BE
          CONVERTIBLE UNLESS A WPT LEGISLATION EVENT HAS OCCURRED AND (V) AS OF
          ANY GIVEN DATE, ONLY SUCH NUMBER OF THE HOLDER PRO RATA ALLOCATION OF
          THE OTHER 2,500,000 PREFERRED SHARES (AS ADJUSTED FOR STOCK SPLITS,
          STOCK DIVIDENDS, REVERSE STOCK SPLITS, RECAPITALIZATIONS,
          RECLASSIFICATIONS AND SIMILAR EVENTS) EQUAL TO (x) (I) (1) THE HOLDER
          PRO RATA


                                      -2-

<PAGE>


          ALLOCATION OF 2,500,000 (AS ADJUSTED FOR STOCK SPLITS, STOCK
          DIVIDENDS, REVERSE STOCK SPLITS, RECAPITALIZATIONS, RECLASSIFICATIONS
          AND SIMILAR EVENTS) LESS (2) ANY CONVERSION SHARES RECEIVED UPON
          CONVERSION OF PREFERRED SHARES PURSUANT TO THIS SECTION 1(a)(II) PRIOR
          TO SUCH DATE (AS ADJUSTED FOR STOCK SPLITS, STOCK DIVIDENDS, REVERSE
          STOCK SPLITS, RECAPITALIZATIONS, RECLASSIFICATIONS AND SIMILAR EVENTS)
          MULTIPLIED BY (II) THE PRINCIPAL AMOUNT OF THE FINANCING FACILITY
          DRAWN BY THE COMPANY ON OR PRIOR TO SUCH DATE, DIVIDED BY (y) THE
          MAXIMUM PRINCIPAL AMOUNT OF THE FINANCING FACILITY, WHICH MAY BE DRAWN
          BY THE COMPANY AS OF SUCH DATE OR ON OR PRIOR TO SUCH DATE HAS BEEN
          DRAWN BY THE COMPANY (SUCH AMOUNT, THE "PRO RATA CONVERTIBLE AMOUNT")
          SHALL BE CONVERTIBLE.


               (b) Conversion Price. For purposes of issued and outstanding
          Preferred Shares, "CONVERSION PRICE" means (i) with respect to any
          Additional Preferred Shares, the purchase price paid by the Company to
          a Holder pursuant to the redemption of the corresponding Warrant
          Shares held by such Holder in accordance with the Articles of
          Incorporation or (ii) with respect to all other Preferred Shares, the
          Exercise Price of the Warrant held by such Holder as of the
          Cancellation Date, as further adjusted in accordance herewith.


               (c) Company's Failure to Timely Deliver Securities. If the
          Company shall fail for any reason or for no reason to issue to a
          Holder within three (3) Business Days of receipt of the Conversion
          Delivery Documents, a certificate for the number of shares of Common
          Stock to which such Holder is entitled and register such shares of
          Common Stock on the Company's share register or to credit such
          Holder's balance account with DTC for such number of shares of Common
          Stock to which such Holder is entitled upon such Holder's conversion
          of Preferred Shares, and if on or after such Business Day such Holder
          purchases (in an open market transaction or otherwise) shares of
          Common Stock to deliver in satisfaction of a sale by such Holder of
          shares of Common Stock issuable upon such conversion that such Holder
          anticipated receiving from the Company (a "BUY-IN"), then the Company
          shall, within three (3) Business Days after such Holder's request and
          in such Holder's discretion, either (i) pay cash to such Holder in an
          amount equal to such Holder's total purchase price (including
          brokerage commissions, if any) for the shares of Common Stock so
          purchased (the "BUY-IN PRICE"), at which point the Company's
          obligation to deliver such certificate (and to issue such shares of
          Common Stock) shall terminate, or (ii) promptly honor its obligation
          to deliver to such Holder a certificate or certificates representing
          such shares of Common Stock and pay cash to such Holder in an amount
          equal to the excess (if any) of the Buy-In Price over the product of
          (A) such number of shares of Common Stock, times (B) the Closing Bid
          Price on the Conversion Delivery Documents Date.


               (d) Cashless Conversion. Notwithstanding anything contained
          herein to the contrary, if a Registration Statement (as defined in the
          Registration Rights Agreement) covering the Conversion Shares that are
          the subject of the Conversion Notice (the "UNAVAILABLE CONVERSION
          SHARES") is not available for the resale of such Unavailable
          Conversion Shares, a Holder may, in its sole discretion, convert some
          or all of its Preferred Shares, in lieu of making the cash payment
          otherwise contemplated to be made to the Company upon such conversion
          in


                                      -3-

<PAGE>


          payment of the Aggregate Conversion Price, and elect instead to
          receive upon such conversion the "Net Number" of shares of Common
          Stock determined according to the following formula (a "CASHLESS
          CONVERSION"):


                           Net Number = (A x B) - (A x C)
                                        -----------------

                                                B

                           For purposes of the foregoing formula:

                  A= the total number of Conversion Shares with respect to which
                  Preferred Shares are then being converted.

                  B= the Closing Sale Price of the shares of Common Stock (as
                  reported by Bloomberg) on the date immediately preceding the
                  date of the Conversion Notice.

                  C= the Conversion Price then in effect for the applicable
                  Conversion Shares at the time of such conversion.


               (e) Disputes. In the case of a dispute as to the determination of
          the Conversion Price or the arithmetic calculation of the Conversion
          Shares, the Company shall promptly issue to such Holder the number of
          Conversion Shares that are not disputed and resolve such dispute in
          accordance with Section 12.

               (f) (i) Limitations on Exercises; Beneficial Ownership. The
          Company shall not effect the conversion of Preferred Shares, and a
          Holder shall not have the right to conversion of Preferred Shares, to
          the extent that after giving effect to such conversion, such Person
          (together with such Person's affiliates) would beneficially own
          (directly or indirectly through Conversion Shares or otherwise) in
          excess of 4.99% (the "MAXIMUM PERCENTAGE") of the shares of Common
          Stock outstanding immediately after giving effect to such conversion.
          For purposes of the foregoing sentence, the aggregate number of shares
          of Common Stock beneficially owned (directly or indirectly through
          Conversion Shares or otherwise) by such Person and its affiliates
          shall include the number of shares of Common Stock issuable upon
          conversion of Preferred Shares with respect to which the determination
          of such sentence is being made, but shall exclude shares of Common
          Stock which would be issuable upon (i) conversion of the remaining,
          unconverted portion of Preferred Shares beneficially owned by such
          Person and its affiliates and (ii) conversion or exercise of the
          unconverted or unexercised portion of any other securities of the
          Company beneficially owned by such Person and its affiliates
          (including, without limitation, any convertible notes or convertible
          preferred stock or warrants) subject to a limitation on conversion or
          exercise analogous to the limitation contained herein. Except as set
          forth in the preceding sentence, for purposes of this subsection,
          beneficial ownership shall be calculated in accordance with Section
          13(d) of the Securities Exchange Act of 1934, as amended. For purposes
          of this Certificate of Designations, in determining the number of
          outstanding shares of Common Stock, a Holder may rely on the number of
          outstanding shares of Common Stock as reflected in (1) the Company's
          most recent Form 10-K, Form 10-Q, Current Report on Form 8-K


                                      -4-

<PAGE>

          or other public filing with the Securities and Exchange Commission, as
          the case may be, (2) a more recent public announcement by the Company
          or (3) any other notice by the Company or the Transfer Agent setting
          forth the number of shares of Common Stock outstanding. For any reason
          at any time, upon the written or oral request of a Holder, the Company
          shall within one Business Day confirm orally and in writing to such
          Holder the number of shares of Common Stock then outstanding. In any
          case, the number of outstanding shares of Common Stock shall be
          determined after giving effect to the conversion or exercise of
          securities of the Company, including the Preferred Shares, by a Holder
          and its affiliates since the date as of which such number of
          outstanding shares of Common Stock was reported. By written notice to
          the Company, a Holder may increase or decrease the Maximum Percentage
          to any other percentage not in excess of 9.99% specified in such
          notice; provided that (i) any such increase will not be effective
          until the sixty-first (61st) day after such notice is delivered to the
          Company, and (ii) any such increase or decrease will apply only to
          such Holder and not to any other holder of Preferred Shares; provided,
          that any such notice shall be deemed an agreement by such Holder to
          provide the Gaming Authority information, respond to questions and
          consent to the investigation, all as set forth in Article 8(A) of the
          Articles of Incorporation (as defined in the Securities Purchase
          Agreement).

               (ii) Principal Market Regulation. At all times, irrespective of
          whether the Company is listed on the Principal Market, the Company
          shall not be obligated to issue any shares of Common Stock upon
          conversion of Preferred Shares if the issuance of such shares of
          Common Stock would exceed the aggregate number of shares of Common
          Stock which the Company may issue upon conversion or exercise or
          otherwise, as applicable, of the Preferred Shares without breaching
          the rules or regulations of the Principal Market as if the Company
          were regulated by such rules or regulations (the "EXCHANGE CAP"),
          except that such limitation shall not apply in the event that the
          Company (A) obtains the approval of its stockholders as required by
          the applicable rules of the Principal Market for issuances of Common
          Stock in excess of such amount or (B) obtains a written opinion from
          outside counsel to the Company that such approval is not required,
          which opinion shall be reasonably satisfactory to the Required
          Holders. Until such approval or written opinion is obtained, no
          purchaser of Preferred Shares pursuant to the Securities Purchase
          Agreement (individually, a "PURCHASER" and collectively, the
          "PURCHASERS") shall be issued in the aggregate, upon conversion or
          exercise or otherwise, as applicable, of Preferred Shares, shares of
          Common Stock in an amount greater than the product of the Exchange Cap
          multiplied by a fraction, the numerator of which is the number of
          Preferred Shares issued to such Purchaser pursuant to the Securities
          Purchase Agreement on the Additional Closing Date (as defined in the
          Securities Purchase Agreement) and the denominator of which is the
          aggregate number of Preferred Shares issued to the Purchasers pursuant
          to the Securities Purchase Agreement on the Additional Closing Date
          (with respect to each Purchaser, the "EXCHANGE CAP ALLOCATION"). In
          the event that any Purchaser shall sell or otherwise transfer any of
          such Purchaser's Preferred Shares, the transferee, if a registered
          Holder of such Preferred Shares, shall be allocated a pro rata portion
          of such Purchaser's Exchange Cap Allocation, and the restrictions of
          the prior sentence shall apply to such transferee with respect to the
          portion of the Exchange Cap Allocation allocated to such transferee.
          In the event that any Holder of Preferred Shares shall convert all of
          such Holder's Preferred Shares into a number of shares of



                                      -5-


<PAGE>

          Common Stock which, in the aggregate, is less than such Holder's
          Exchange Cap Allocation, then the difference between such Holder's
          Exchange Cap Allocation and the number of shares of Common Stock
          actually issued to such Holder shall be allocated to the respective
          Exchange Cap Allocations of the remaining registered Holders of
          Preferred Shares on a pro rata basis in proportion to the aggregate
          number of Preferred Shares then held by each such Holder. To the
          extent required by the Principal Market, the provisions of the
          Exchange Cap shall be modified to comply with the applicable rules and
          regulations of the Principal Market, provided that any such changes
          shall not, in such Holder's reasonable discretion, materially change
          the terms of the transaction contemplated hereby.

               Notwithstanding anything in Preferred Shares to the contrary, the
          Company shall be entitled to treat the registered Holder of Preferred
          Shares as such appears in its records, as the owner of Preferred
          Shares for all purposes; provided that such records are kept current
          using a reasonably satisfactory and customary method intended for such
          purpose.

     2. ADJUSTMENT OF CONVERSION PRICE AND NUMBER OF PREFERRED SHARES. The
Conversion Price and the number of Preferred Shares shall be adjusted from time
to time as follows:

          (a) Adjustment upon Issuance of shares of Common Stock. If and
     whenever on or after the Cancellation Date (i) the Company issues or sells,
     or in accordance with this Section A.2 is deemed to have issued or sold,
     any shares of Common Stock (including the issuance or sale of shares of
     Common Stock owned or held by or for the account of the Company, but
     excluding shares of Common Stock deemed to have been issued by the Company
     in connection with any Excluded Securities for a consideration per share
     (the "NEW ISSUANCE PRICE") less than a price (the "APPLICABLE PRICE") equal
     to the Conversion Price in effect immediately prior to such issue or sale
     or deemed issuance or sale (the foregoing a "DILUTIVE ISSUANCE"), then
     immediately after such Dilutive Issuance the Conversion Price then in
     effect shall be reduced to an amount equal to the New Issuance Price. Upon
     each such adjustment of the Conversion Price hereunder, the Company will
     issue an additional number of Preferred Shares resulting from the following
     calculation to each Holder such that after such issuance the number of
     Preferred Shares equals (x) the product of (i) the Common Stock Deemed
     Outstanding immediately following such adjustment and Dilutive Issuance and
     (ii) the number of Preferred Shares held by such Holder prior to such
     adjustment and Dilutive Issuance, divided by (y) the Common Stock Deemed
     Outstanding immediately prior to such adjustment and Dilutive Issuance. For
     purposes of determining the adjusted Conversion Price under this Section
     A.2(a), the following shall be applicable:

          (i) Issuance of Options. If the Company in any manner grants any
          Options and the lowest price per share for which one share of Common
          Stock is issuable upon the exercise of any such Option or upon
          conversion, exercise or exchange of any Convertible Securities
          issuable upon exercise of any such Option is less than the Applicable
          Price, then such share of Common Stock shall be deemed to be
          outstanding and to have been issued and sold by the Company at the
          time of the granting or sale of such Option



                                      -6-

<PAGE>

          for such price per share. For purposes of this Section A.2(a)(i), the
          "lowest price per share for which one share of Common Stock is
          issuable upon exercise of such Options or upon exercise, conversion or
          exchange of such Convertible Securities" shall be equal to the sum of
          the lowest amounts of consideration (if any) received or receivable by
          the Company with respect to any one share of Common Stock upon the
          granting or sale of the Option, upon exercise of the Option and upon
          exercise, conversion or exchange of any Convertible Security issuable
          upon exercise of such Option. No further adjustment of the Conversion
          Price or number of Preferred Shares shall be made upon the actual
          issuance of such shares of Common Stock or of such Convertible
          Securities upon the exercise of such Options or upon the actual
          issuance of such shares of Common Stock upon exercise, conversion or
          exchange of such Convertible Securities.

          (ii) Issuance of Convertible Securities. If the Company in any manner
          issues or sells any Convertible Securities and the lowest price per
          share for which one share of Common Stock is issuable upon the
          exercise, conversion or exchange thereof is less than the Applicable
          Price, then such share of Common Stock shall be deemed to be
          outstanding and to have been issued and sold by the Company at the
          time of the issuance or sale of such Convertible Securities for such
          price per share. For the purposes of this Section A.2(a)(ii), the
          "lowest price per share for which one share of Common Stock is
          issuable upon the exercise, conversion or exchange" shall be equal to
          the sum of the lowest amounts of consideration (if any) received or
          receivable by the Company with respect to one share of Common Stock
          upon the issuance or sale of the Convertible Security and upon
          exercise, conversion or exchange of such Convertible Security. No
          further adjustment of the Conversion Price or number of Preferred
          Shares or Conversion Shares shall be made upon the actual issuance of
          such shares of Common Stock upon exercise, conversion or exchange of
          such Convertible Securities, and if any such issue or sale of such
          Convertible Securities is made upon exercise of any Options for which
          adjustment of Preferred Shares has been or is to be made pursuant to
          other provisions of this Section A.2(a), no further adjustment of the
          Conversion Price or number of Preferred Shares shall be made by reason
          of such issue or sale.

          (iii) Change in Option Price or Rate of Exercise. If the purchase
          price provided for in any Options, the additional consideration, if
          any, payable upon the issue, exercise, conversion or exchange of any
          Convertible Securities, or the rate at which any Convertible
          Securities are exercisable into or convertible or exchangeable for
          shares of Common Stock increases or decreases at any time, the
          Conversion Price and the number of Preferred Shares in effect at the
          time of such increase or decrease shall be adjusted to the Conversion
          Price and the number of Preferred Shares and Conversion Shares which
          would have been in effect at such time had such


                                      -7-


<PAGE>


          Options or Convertible Securities provided for such increased or
          decreased purchase price, additional consideration or increased or
          decreased exercise rate, as the case may be, at the time initially
          granted, issued or sold. For purposes of this Section A.2(a)(iii), if
          the terms of any Option or Convertible Security that was outstanding
          as of the date of issuance of a Conversion Share are increased or
          decreased in the manner described in the immediately preceding
          sentence, then such Option or Convertible Security and the shares of
          Common Stock deemed issuable upon exercise, conversion or exchange
          thereof shall be deemed to have been issued as of the date of such
          increase or decrease. No adjustment pursuant to this Section A.2(a)
          shall be made if such adjustment would result in an increase of the
          Conversion Price then in effect or a decrease in the number of
          Preferred Shares or Conversion Shares.

          (iv) Calculation of Consideration Received. In case any Option is
          issued in connection with the issue or sale of other securities of the
          Company, together comprising one integrated transaction in which no
          specific consideration is allocated to such Options by the parties
          thereto, the Options will be deemed to have been issued for a
          consideration of $0.01. If any shares of Common Stock, Options or
          Convertible Securities are issued or sold or deemed to have been
          issued or sold for cash, the consideration received therefor will be
          deemed to be the net amount received by the Company therefor. If any
          shares of Common Stock, Options or Convertible Securities are issued
          or sold for a consideration other than cash, the amount of such
          consideration received by the Company will be the fair value of such
          consideration, except where such consideration consists of securities,
          in which case the amount of consideration received by the Company will
          be the Closing Sale Price of such security on the date of receipt. If
          any shares of Common Stock, Options or Convertible Securities are
          issued to the owners of the non-surviving entity in connection with
          any merger in which the Company is the surviving entity, the amount of
          consideration therefor will be deemed to be the fair value of such
          portion of the net assets and business of the non-surviving entity as
          is attributable to such shares of Common Stock, Options or Convertible
          Securities, as the case may be. The fair value of any consideration
          other than cash or securities will be determined in good faith by the
          Company's Board of Directors. If the Required Holders disagree with
          such fair value determination they shall, within ten (10) days of
          receipt of notice of such determination (the "VALUATION EVENT"),
          provide notice of such disagreement and the fair value of such
          consideration will be determined within five (5) Business Days after
          the tenth day following the Valuation Event by an independent,
          reputable appraiser jointly selected by the Company and the Required
          Holders. The determination of such appraiser shall be final and
          binding upon all parties absent manifest error and the fees and
          expenses of such appraiser shall be borne by the Company.


                                       -8-

<PAGE>


          (v) Record Date. If the Company takes a record of a holders of shares
          of Common Stock for the purpose of entitling them (A) to receive a
          dividend or other distribution payable in shares of Common Stock,
          Options or in Convertible Securities or (B) to subscribe for or
          purchase shares of Common Stock, Options or Convertible Securities,
          then such record date will be deemed to be the date of the issue or
          sale of the shares of Common Stock deemed to have been issued or sold
          upon the declaration of such dividend or the making of such other
          distribution or the date of the granting of such right of subscription
          or purchase, as the case may be.

          (b) Adjustment upon Subdivision or Combination of shares of Common
     Stock. If the Company at any time on or after the Subscription Date
     subdivides (by any stock split, stock dividend, recapitalization or
     otherwise) one or more classes of its outstanding shares of Common Stock
     into a greater number of shares, the Conversion Price in effect immediately
     prior to such subdivision will be proportionately reduced and the number of
     Preferred Shares will be proportionately increased. If the Company at any
     time on or after the Subscription Date combines (by combination, reverse
     stock split or otherwise) one or more classes of its outstanding shares of
     Common Stock into a smaller number of shares, the Conversion Price in
     effect immediately prior to such combination will be proportionately
     increased and the number of Preferred Shares will be proportionately
     decreased. Any adjustment under this Section A.2(b) shall become effective
     at the close of business on the date the subdivision or combination becomes
     effective.

          (c) Other Events. If any event occurs of the type contemplated by the
     provisions of this Section A.2 but not expressly provided for by such
     provisions (including, without limitation, the granting of stock
     appreciation rights, phantom stock rights or other rights with equity
     features), then the Company's Board of Directors will make an appropriate
     adjustment in the Conversion Price and the number of Preferred Shares so as
     to protect the rights of a Holder; provided that no such adjustment
     pursuant to this Section A.2(c) will increase the Conversion Price or
     decrease the number of Preferred Shares as otherwise determined pursuant to
     this Section A.2.


                                      -9-

<PAGE>


     3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or make
any dividend or other distribution of its assets (or rights to acquire its
assets) to holders of shares of Common Stock, by way of return of capital or
otherwise (including, without limitation, any distribution of cash, stock or
other securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (a "DISTRIBUTION"), at any time after the issuance of the
Preferred Shares, then, in each such case:

          (a) any Conversion Price in effect immediately prior to the close of
     business on the record date fixed for the determination of holders of
     shares of Common Stock entitled to receive the Distribution shall be
     reduced, effective as of the close of business on such record date, to a
     price determined by multiplying such Conversion Price by a fraction of
     which (i) the numerator shall be the Closing Bid Price of the shares of
     Common Stock on the Trading Day immediately preceding such record date
     minus the value of the Distribution (as determined in good faith by the
     Company's Board of Directors) applicable to one share of Common Stock, and
     (ii) the denominator shall be the Closing Bid Price of the shares of Common
     Stock on the Trading Day immediately preceding such record date; and

          (b) the number of Conversion Shares shall be increased to a number of
     shares equal to the number of shares of Common Stock obtainable immediately
     prior to the close of business on the record date fixed for the
     determination of holders of shares of Common Stock entitled to receive the
     Distribution multiplied by the reciprocal of the fraction set forth in the
     immediately preceding paragraph (a).

     4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

          (a) Purchase Rights. In addition to any adjustments pursuant to
     Section A.2 above, if at any time the Company grants, issues or sells any
     Options, Convertible Securities or rights to purchase stock, warrants,
     securities or other property pro rata to the record holders of any class of
     shares of Common Stock (the "PURCHASE RIGHTS"), then such Holder will be
     entitled to acquire, upon the terms applicable to such Purchase Rights, the
     aggregate Purchase Rights which such Holder could have acquired if such
     Holder had held the number of shares of Common Stock acquirable upon
     complete conversion of such Holder's Preferred Shares then held (without
     regard to any limitations on the conversion of such Preferred Shares)
     immediately before the date on which a record is taken for the grant,
     issuance or sale of such Purchase Rights, or, if no such record is taken,
     the date as of which the record holders of shares of Common Stock are to be
     determined for the grant, issue or sale of such Purchase Rights.

          (b) Fundamental Transactions. If the Company enters into or is party
     to a Fundamental Transaction, then a Holder shall have the right to either
     (A) purchase and receive upon the basis and upon the terms and conditions
     herein specified and in lieu of the Conversion Shares immediately
     theretofore issuable upon conversion of any Preferred Shares held by such
     Holder, such shares of stock, securities or assets (including cash) as
     would have been issuable or payable with respect to or in exchange for a
     number of Conversion Shares equal to the number of Conversion Shares
     immediately theretofore issuable upon conversion of the Preferred Shares


                                      -10-

<PAGE>


     held by such Holder, had such Fundamental Transaction not taken place or
     (B) require the repurchase of the Preferred Shares held by such Holder for
     a purchase price, payable in cash within five (5) Trading Days after such
     request, equal to the Black Scholes Value of the remaining unconverted
     portion of the Preferred Shares held by such Holder on the date of such
     request. The terms of any agreement pursuant to which a Fundamental
     Transaction is effected shall include terms requiring any such successor or
     surviving entity and such Holder to comply with the provisions of this
     Section A.4(b). The provisions of this Section shall apply similarly and
     equally to successive Fundamental Transactions and shall be applied without
     regard to any limitations on the conversion of Preferred Shares.

     5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Articles of Incorporation, Bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Certificate of Designations, and will at all times in good faith carry
out all the provisions of this Certificate of Designations and take all action
as may be required to protect the rights of a Holder. Without limiting the
generality of the foregoing, the Company (i) shall not increase the par value of
any shares of Common Stock receivable upon the conversion of Preferred Shares
above the Conversion Price then in effect, (ii) shall take all such actions as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock upon the
conversion of issued and outstanding Preferred Shares, and (iii) shall, so long
as any of Preferred Shares are outstanding, take all action necessary to reserve
and keep available out of its authorized and unissued shares of Common Stock,
solely for the purpose of effecting the conversion of Preferred Shares, 130% of
the number of shares of Common Stock as shall from time to time be necessary to
effect the conversion of Preferred Shares then outstanding (without regard to
any limitations on conversion).

     6. PREFERRED SHARE HOLDER NOT DEEMED A COMMON STOCKHOLDER. Except as
otherwise specifically provided herein, a Holder, solely in such Person's
capacity as a holder of Preferred Shares, shall not be entitled to vote or
receive dividends or be deemed a Holder of Common Stock of the Company for any
purpose, nor shall anything contained in this Certificate of Designations be
construed to confer upon a Holder, solely in such Person's capacity as a Holder
of Preferred Shares, any of the rights of a shareholder of the Company or any
right to vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise) other than as provided under the Minnesota
Business Corporation Act, receive notice of meetings, receive dividends or
subscription rights, or otherwise, prior to the issuance to a Holder of the
Conversion Shares which such Person is then entitled to receive upon the due
conversion of Preferred Shares except as otherwise set forth in Section 16
herein. In addition, nothing contained in Preferred Shares shall be construed as
imposing any liabilities on a Holder to purchase any securities (upon conversion
of Preferred Shares or otherwise) or as a holder of Common Stock of the Company,
whether such liabilities are asserted by the Company or by creditors of the
Company. Notwithstanding this Section 6, the Company shall provide a Holder with
copies of the same notices and other information given to the holders of Common
Stock of the Company generally, contemporaneously with the giving thereof to
such shareholders.


                                      -11-
<PAGE>


     7. TRANSFER OF PREFERRED SHARES; PREFERRED SHARE REGISTER.

          (a) A Holder may assign some or all of the Preferred Shares and the
     accompanying rights hereunder held by such Holder without the consent of
     the Company; provided that such assignment is in compliance with applicable
     securities laws and the Company is, within a reasonable time after such
     transfer or assignment, furnished with written notice of (a) the name and
     address of such transferee or assignee and (b) the number of Preferred
     Shares transferred or assigned.

          (b) The Company shall maintain at its principal executive offices (or
     such other office or agency of the Company as it may designate by notice to
     the Holders), a register for the Preferred Shares, in which the Company
     shall record the name and address of the persons in whose name the
     Preferred Shares have been issued, as well as the name and address of each
     transferee. The Company may treat the person in whose name any Preferred
     Share is registered on the register as the owner and holder thereof for all
     purposes, notwithstanding any notice to the contrary, but in all events
     recognizing any properly made transfers.

     8. NOTICES. Whenever notice is required to be given to Holders of Preferred
Shares, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Securities Purchase Agreement. The Company
shall provide a Holder with prompt written notice of all actions taken with
respect to issued and outstanding Preferred Shares, including in reasonable
detail a description of such action and the reason therefore. Without limiting
the generality of the foregoing, the Company will give written notice to a
Holder (i) as soon as practicable upon any adjustment of the Conversion Price,
setting forth in reasonable detail, and certifying, the calculation of such
adjustment and (ii) at least ten days prior to the date on which the Company
closes its books or takes a record (A) with respect to any dividend or
distribution upon the shares of Common Stock, (B) with respect to any grants,
issuances or sales of any Options, Convertible Securities or rights to purchase
stock, warrants, securities or other property to holders of shares of Common
Stock or (C) for determining rights to vote with respect to any Fundamental
Transaction, dissolution or liquidation, provided in each case that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to a Holder.

     9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the
provisions of this Certificate of Designations may be amended (subject to the
terms and conditions of the Minnesota Business Corporation Act) and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained the written
consent of the Required Holders; provided that no such action may increase the
conversion price of any Preferred Share or decrease the number of shares or
class of stock obtainable upon conversion of any Preferred Share without the
written consent of a Holder. No such amendment shall be effective to the extent
that it applies to less than all of the Holders of Preferred Shares then
outstanding.


                                      -12-

<PAGE>


     10. SEVERABILITY. If any provision of this Certificate of Designations or
the application thereof becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of the terms of
this Certificate of Designations will continue in full force and effect.

     11. GOVERNING LAW. This Certificate of Designations shall be governed by
and construed and enforced in accordance with, and all questions concerning the
construction, validity, interpretation and performance of this Certificate of
Designations shall be governed by, the internal laws of the State of Minnesota,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of Minnesota or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than the State of
Minnesota.

     12. CONSTRUCTION; HEADINGS. This Certificate of Designations shall be
deemed to be jointly drafted by the Company and all the Buyers (as defined in
the Securities Purchase Agreement) and shall not be construed against any person
as the drafter hereof. The headings of this Certificate of Designations are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Certificate of Designations.

     13. DISPUTE RESOLUTION. In the case of a dispute as to the determination of
the Conversion Price or the arithmetic calculation of the Preferred Shares (in
accordance with Section A.2 or otherwise as set forth herein) or Conversion
Shares, the Company shall submit the disputed determinations or arithmetic
calculations via facsimile within two Business Days of receipt of the Conversion
Notice giving rise to such dispute, as the case may be, to a Holder. If a Holder
and the Company are unable to agree upon such determination or calculation of
the Conversion Price or the Preferred Shares or the Conversion Shares within
five Business Days of such disputed determination or arithmetic calculation
being submitted to such Holder, then the Company shall, within five Business
Days submit via facsimile (a) the disputed determination of the Conversion Price
to an independent, reputable investment bank selected by the Company and
approved by such Holder or (b) the disputed arithmetic calculation of the
Preferred Shares or Conversion Shares to the Company's independent, outside
accountant. The Company shall cause at its expense the investment bank or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and a Holder of the results no later than ten Business
Days from the time it receives the disputed determinations or calculations. Such
investment bank's or accountant's determination or calculation, as the case may
be, shall be binding upon all parties absent demonstrable error.

     14. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The
remedies provided in this Certificate of Designations shall be cumulative and in
addition to all other remedies available under this Certificate of Designations
and the Securities Purchase Agreement, at law or in equity (including a decree
of specific performance and/or other injunctive relief), and nothing herein
shall limit the right of a Holder right to pursue actual damages for any failure
by the Company to comply with the terms of this Certificate of Designations. The
Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to a Holder and that the remedy at law for any such breach may
be inadequate. The Company therefore agrees that, in the event of any such
breach or threatened


                                      -13-


<PAGE>

breach of this Certificate of Designations, a Holder of Preferred Shares shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.

     15. [Intentionally Omitted]

     16. VOTING.

          (a) The holders of a majority of the outstanding shares of Preferred
     Shares shall, upon the continuing occurrence of an "Event of Default" as
     defined in the Financing Agreement (as defined in the Securities Purchase
     Agreement), be entitled to appoint a number of directors, determined in
     accordance with Section A.16(b) below, to serve on the Company's Board of
     Directors (the "SERIES A DIRECTORS"); provided, however, that (a) such
     Series A Directors must meet the requirements of NASDAQ Marketplace Rule
     4200(a)(15) as independent directors, and (b) if required, the consent and
     approval of any federal, state, or other Gaming Authority has been obtained
     with respect to such Series A Directors. Should any Series A Director be
     found unsuitable by a Gaming Authority or should the Company have
     reasonable ground to find that such Series A Director will be found
     unsuitable, such Series A Director shall immediately resign and the Holders
     of a majority of the then outstanding shares of Preferred Shares shall have
     the right to appoint a suitable replacement.

          (b) The number of Series A Directors permitted to be appointed
     pursuant to these provisions shall be calculated, as of the date of any
     appointment of Series A Directors hereunder (an "APPOINTMENT DATE"), by
     multiplying the Series A Director Ratio (as defined below) by the total
     number of members of the Company's Board of Directors (immediately after
     the appointment of a Series A Director hereunder). In the event that the
     number of Series A Directors calculated as provided hereunder is a
     fractional amount, it will be rounded up to the nearest whole number if the
     fraction is equal to or greater than 0.50 and down to the nearest whole
     number if it is less than 0.50.

     17. DISQUALIFICATION CLAIM; REDEMPTION.

          (a) The Company shall take no action without reasonable justification,
     either alone or together with any regulatory agency, that would impair a
     Holder's right to lawfully hold Preferred Shares, Conversion Shares or any
     other rights in connection with the Company. In the event the Company or
     any of its officers, agents, employees or representatives are notified or
     obtain knowledge from any source, including but not limited to a Gaming
     Authority, that a Holder (or any of them) is or may be in danger of being
     considered to be a Disqualified Holder (as defined in the Articles of
     Incorporation) (solely as a result of the failure to obtain or the loss or
     non-reinstatement of any material license or franchise from any Gaming
     Authority held by the Company or any of its Subsidiaries (as defined in the
     Securities Purchase Agreement) to conduct any material portion of the
     business of the Company or any of its Subsidiaries, which license or
     franchise is conditioned upon some or all of the holders of capital stock
     of the Company meeting certain criteria) or the equivalent under any
     provision of law, or for any other reason it is claimed by any Gaming
     Authority that such Holder's Preferred Shares or Conversion Shares in the


                                      -14-

<PAGE>


     Company (or any warrants or other rights related to the issuance,
     acquisition or holding of shares of capital stock in the Company) cannot be
     issued to or held by such Holder, or will not be issued to or permitted to
     be held by such Holder, based on any claim related to such Holder's
     suitability for holding an interest in the Company under applicable gaming
     laws (collectively and separately a "DISQUALIFICATION CLAIM", and the
     occurrence of such Disqualified Claim, a "REGULATORY REDEMPTION EVENT"),
     such Holder shall be immediately notified by the Company in writing of the
     Disqualification Claim and provided with all information available to the
     Company and any of its officers, agents, employees or representatives
     (including but not limited to information acquired by Company's attorneys)
     relating to the Disqualification Claim together with any documents related
     thereto.

          (b) Upon obtaining knowledge of the Disqualification Claim, and in
     addition to its duty to disclose its information regarding such claim to
     such Holder, the Company shall immediately investigate and conduct
     reasonable due diligence in good faith with respect to such
     Disqualification Claim and share with such Holder all information so
     obtained. The Company shall not assert any attorney-client or work product
     privilege in connection with such disclosure.

          (c) The Company shall fully cooperate with such Holder in presenting
     to any Gaming Authority or other governmental entity (including a tribal
     governmental entity) that may be considering the Disqualification Claim all
     evidence or other information available to it that would in any way support
     such Holder's contention that the Disqualification Claim was without merit
     or that requiring divesture of or a prohibition on such Holder's
     participation in the Company, directly or indirectly, was unwarranted, or
     that would reasonably assist such Holder in any other way in supporting its
     contention.

          (d) So long as such Holder challenges the Disqualification Claim in a
     proceeding conducted in accordance with applicable law ("PROCEEDING"), and
     until such challenge is finally resolved, including the exhaustion of all
     appeals (including the availability of any extraordinary writs), and if a
     Mandatory Redemption (as defined below) of the Preferred Shares or
     Conversion Shares in question is required during the pendency of the
     Proceeding, the Company shall be the only party acquiring the Preferred
     Shares or Conversion Shares of the Disqualified Holder (the "HELD SHARES")
     and shall continue holding such shares pending the final outcome of the
     Proceeding. The Held Shares shall not be sold, transferred, assigned,
     encumbered or diluted in any way. In the event of such Mandatory
     Redemption, the Redemption Price shall be paid to such Holder without
     prejudice to the recovery by the Holder of the Held Shares, if applicable.

          (e) In the event it is finally determined in the Proceeding that such
     Holder is required to divest himself or itself of such Preferred Shares or
     Conversion Shares and such Mandatory Redemption has not yet occurred, the
     Company shall effect such Mandatory Redemption in accordance with Section
     A.17(g) and (h) below. In the event it is finally determined in the
     Proceeding that such Holder should not have been required to divest himself
     or itself of such Preferred Shares or Conversion Shares, the Company shall
     cause the Company to return the Held Shares to such Holder.


                                      -15-

<PAGE>

          (f) Any holding or transfer of the Held Shares shall be subject to
     applicable laws, provided that the Company shall fully cooperate with a
     Holder, if so entitled, in recovering the Held Shares.

          (g) Mandatory Redemption. Upon the occurrence of a Regulatory
     Redemption Event, if required by a Gaming Authority, the Company shall
     redeem (a "MANDATORY REDEMPTION") all, but not less than all, of the
     Preferred Shares and any Conversion Shares at a price per Preferred Share
     or Conversion Share, as applicable, in cash equal to the Mandatory
     Redemption Price (as defined below).

          (h) Mechanics of Mandatory Redemption. At any time after a Regulatory
     Redemption Event, the Company may redeem all of the outstanding Preferred
     Shares and Conversion Shares of a Holder by delivering written notice
     thereof via facsimile and overnight courier ("NOTICE OF MANDATORY
     REDEMPTION") to the Holders thereof, which Notice of Mandatory Redemption
     shall indicate the date of such redemption (the "MANDATORY REDEMPTION
     DATE") and the applicable Mandatory Redemption Price (the date of such
     Notice, the "NOTICE OF MANDATORY REDEMPTION DATE"). The Notice of Mandatory
     Redemption shall state (i) the Trading Day selected for the Mandatory
     Redemption in accordance with Section A.17(g), which Trading Day shall be
     at least ten (10) Business Days but not more than sixty (60) Business Days
     following the Notice of Mandatory Redemption Date (the "MANDATORY
     REDEMPTION DATE"), (ii) the number of Preferred Shares of such Holder
     subject to the Mandatory Redemption, and (ii) the aggregate Mandatory
     Redemption Price of the Preferred Shares and Conversion Shares, as
     applicable, subject to Mandatory Redemption from all of the Holders of the
     Preferred Shares and Conversion Shares pursuant to this Section A.17 and
     (iii) the aggregate Mandatory Redemption Price of the Preferred Shares and
     Conversion Shares subject to Mandatory Redemption from such Holder pursuant
     to this Section A.17.

     18. REDEMPTION OPTION UPON PUT DATE.

          (a) In addition to all other rights of the Holders contained herein,
     at any time after the Cancellation Date, if a Registration Rights Default
     occurs and is continuing (as defined in the Registration Rights Agreement)
     (a "PUT DATE"), each Holder shall have the right, at such Holder's option,
     to require the Company to redeem all or a portion of such Holder's
     Preferred Shares (a "REDEMPTION AT OPTION OF HOLDER REQUEST") at a price
     per Preferred Share equal to such amount with respect to any Preferred
     Share equal to (x) the arithmetic average of the Closing Sale Prices of the
     Common Stock during the ten (10) consecutive Trading Days prior to such
     Redemption at Option of Holder Request less (y) the Conversion Price of
     such Preferred Share (the "REDEMPTION AT OPTION OF HOLDER PRICE") .

          (b) Mechanics of Redemption at Option of Buyer. At any time after the
     Put Date, any Holder of Preferred Shares then outstanding may require the
     Company to redeem up to all of such Holder's Preferred Shares by delivering
     written notice thereof via facsimile and overnight courier ("NOTICE OF
     REDEMPTION AT OPTION OF Holder") to the Company, which Notice of Redemption
     at Option of Holder shall indicate the number of Preferred Shares that such
     Holder is electing to redeem.


                                      -16-




<PAGE>


          (c) Payment of Redemption at Option of Holder Price. Upon the
     Company's receipt of a Notice(s) of Redemption at Option of Buyer from any
     Holder, the Company shall within three (3) Business Days of such receipt
     notify each other Holder by facsimile of the Company's receipt of such
     notice(s). The Company shall deliver on the seventh (7th) Business Day
     after the Company's receipt of the first Notice of Redemption at Option of
     Holder the applicable Redemption at Option of Holder Price to all Holders
     that deliver a Notice of Redemption at Option of Holder prior to the
     seventh (7th) Business Day after the Company's receipt of the first Notice
     of Redemption at Option of Holder (such date, the "REDEMPTION AT OPTION OF
     HOLDER DATE"). If the Company is unable to redeem all of the Preferred
     Shares submitted for redemption, the Company shall (i) redeem a pro rata
     amount from each Holder providing a Notice of Redemption at Option of
     Holder prior to the Redemption at Option of Holder Date based on the number
     of Preferred Shares submitted for redemption by such Holder relative to the
     total number of Preferred Shares submitted for redemption by all Holders
     prior to the Redemption at Option of Holder Date and (ii) in addition to
     any remedy such Holder may have under this Certificate of Designation and
     the Securities Purchase Agreement, pay to each such Holder interest at the
     rate of 1.5% per month (prorated for partial months) in respect of each
     unredeemed Preferred Share until paid in full. The Holders and Company
     agree that in the event of the Company's redemption of any Preferred Shares
     under this Section A.17, the Holders' damages would be uncertain and
     difficult to estimate because of the parties' inability to predict future
     interest rates and the uncertainty of the availability of a suitable
     substitute investment opportunity for the Holders. Accordingly, any
     redemption premium due under this Section A.17 is intended by the parties
     to be, and shall be deemed, a reasonable estimate of the Holders' actual
     loss of its investment opportunity and not as a penalty.

          (d) Void Redemption. In the event that the Company does not pay the
     Redemption at Option of Holder Price within the time period set forth in
     Section A.17(c), at any time thereafter and until the Company pays such
     unpaid applicable Redemption at Option of Holder Price in full, a Holder
     shall have the option to, in lieu of redemption, require the Company to
     promptly return to such Holder any or all of the Preferred Shares that were
     submitted for redemption by such Holder under this Section A.17 and for
     which the applicable Redemption at Option of Holder Price (together with
     any interest thereon) has not been paid, by sending written notice thereof
     to the Company via facsimile (the "VOID OPTIONAL REDEMPTION NOTICE"). Upon
     the Company's receipt of such Void Optional Redemption Notice, (i) the
     Notice of Redemption at Option of Holder shall be null and void with
     respect to those Preferred Shares subject to the Void Optional Redemption
     Notice, (ii) the Company shall immediately return any Preferred Shares
     subject to the Void Optional Redemption Notice, and (iii) the Conversion
     Price of such returned Preferred Shares shall be adjusted to the lesser of
     (A) the Conversion Price as in effect on the date on which the Void
     Optional Redemption Notice is delivered to the Company and (B) the
     arithmetic average of the Closing Sale Prices of the Common Stock during
     the ten (10) consecutive Trading Days prior to the date on which the Void
     Optional Redemption Notice is delivered to the Company.

          (e) Miscellaneous. A Holder's delivery of a Void Optional Redemption
     Notice and exercise of its rights following such notice shall not effect
     the Company's obligations to make any payments which have accrued prior to
     the date of such


                                      -17-



<PAGE>


     notice. In the event of a redemption pursuant to this Section A.17 of less
     than all of the Preferred Shares represented by a particular Preferred
     Shares Certificate, the Company shall promptly cause to be issued and
     delivered to the Holder of such Preferred Shares a Preferred Shares
     Certificate representing the remaining Preferred Shares which have not been
     redeemed, if necessary.

     19. TERMINATION. On the Expiration Date, any Preferred Shares remaining
outstanding hereunder shall be &nbsp;cancelled.

     20. CERTAIN DEFINITIONS. Capitalized terms not otherwise defined herein
shall have the meaning as set forth in the Securities Purchase Agreement. For
purposes of this Certificate of Designations, the following terms shall have the
following meanings:

          (a) "APPROVED STOCK PLAN" means any employee benefit plan which has
     been approved by the Board of Directors of the Company, pursuant to which
     the Company's securities may be issued to any employee, officer, director
     or consultant for services provided to the Company.

          (b) "AGGREGATE CONVERSION PRICE" has the meaning as set forth in
     Section A.1(a).

          (c) "BLACK SCHOLES VALUE" means the value of Preferred Shares based on
     the Black and Scholes Option Pricing Model obtained from the "OV" function
     on Bloomberg determined as of the day immediately following the public
     announcement of the applicable Fundamental Transaction and reflecting (i) a
     risk-free interest rate corresponding to the U.S. Treasury rate for a
     period equal to the remaining term of Preferred Shares as of such date of
     request and (ii) an expected volatility equal to the greater of 60% and the
     100 day volatility obtained from the HVT function on Bloomberg.

          (d) "BLOOMBERG" means Bloomberg Financial Markets.

          (e) "BUSINESS DAY" means any day other than Saturday, Sunday or other
     day on which commercial banks in The City of New York are authorized or
     required by law to remain closed.

          (f) "BUYER" shall have the meaning as set forth in the Securities
     Purchase Agreement.

          (g) "CANCELLATION DATE" has the meaning as set forth in Section
     A.1(a).

          (h) "CANCELLED WARRANT" has the meaning as set forth in Section
     A.1(a).

          (i) "CANCELLED WARRANT SHARES" has the meaning as set forth in Section
     A.1(a).


                                      -18-



<PAGE>


          (j) "CERTIFICATE OF DESIGNATIONS" has the meaning as set forth in the
     initial paragraph of Exhibit A.

          (k) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for any
     security as of any date, the last closing bid price and last closing trade
     price, respectively, for such security on the Principal Market, as reported
     by Bloomberg, or, if the Principal Market begins to operate on an extended
     hours basis and does not designate the closing bid price or the closing
     trade price, as the case may be, then the last bid price or last trade
     price, respectively, of such security prior to 4:00:00 p.m., New York Time,
     as reported by Bloomberg, or, if the Principal Market is not the principal
     securities exchange or trading market for such security, the last closing
     bid price or last trade price, respectively, of such security on the
     principal securities exchange or trading market where such security is
     listed or traded as reported by Bloomberg, or if the foregoing do not
     apply, the last closing bid price or last trade price, respectively, of
     such security in the over-the-counter market on the electronic bulletin
     board for such security as reported by Bloomberg, or, if no closing bid
     price or last trade price, respectively, is reported for such security by
     Bloomberg, the average of the bid prices, or the ask prices, respectively,
     of any market makers for such security as reported in the "pink sheets" by
     Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the
     Closing Bid Price or the Closing Sale Price cannot be calculated for a
     security on a particular date on any of the foregoing bases, the Closing
     Bid Price or the Closing Sale Price, as the case may be, of such security
     on such date shall be the fair market value as mutually determined by the
     Company and a Holder. If the Company and a Holder are unable to agree upon
     the fair market value of such security, then such dispute shall be resolved
     pursuant to Section 12. All such determinations to be appropriately
     adjusted for any stock dividend, stock split, stock combination or other
     similar transaction during the applicable calculation period.

          (l) "COMMON STOCK" means (i) the Company's shares of Common Stock,
     $0.01 par value per share, and (ii) any share capital into which such
     Common Stock shall have been changed or any share capital resulting from a
     reclassification of such Common Stock.

          (m) "COMMON STOCK DEEMED OUTSTANDING" means, at any given time, the
     number of shares of Common Stock actually outstanding at such time, plus
     the number of shares of Common Stock deemed to be outstanding pursuant to
     Sections A.2(a)(i) and A.2(a)(ii) hereof regardless of whether the Options
     or Convertible Securities are actually convertible at such time, but
     excluding any shares of Common Stock owned or held by or for the account of
     the Company or issuable upon conversion of the Preferred Shares.

          (n) "COMPANY" has the meaning as set forth in the initial paragraph of
     Exhibit A.

          (o) CONVERSION DELIVERY DOCUMENTS DATE" has the meaning as set forth
     in Section A.1(a).

          (p) "CONVERSION NOTICE" has the meaning as set forth in Section
     A.1(a).


                                      -19-

<PAGE>


          (q) "CONVERSION SHARES" has the meaning as set forth in Section
     A.1(a).

          (r) "CONVERTIBLE SECURITIES" means any stock or securities (other than
     Options) directly or indirectly convertible into or convertible or
     exchangeable for shares of Common Stock.

          (s) "ELIGIBLE MARKET" means the Principal Market, the American Stock
     Exchange, The New York Stock Exchange, Inc., the Nasdaq Capital Market or
     the NASD OTC Bulletin Board.

          (t) "EXCLUDED SECURITIES" means any Common Stock issued or issuable:
     (i) in connection with any Approved Stock Plan; (ii) upon conversion of
     Preferred Shares; (iii) pursuant to a bona fide firm commitment
     underwritten public offering with a nationally recognized underwriter which
     generates gross proceeds to the Company in excess of either (A) $20,000,000
     (other than an "at-the-market offering" as defined in Rule 415(a)(4) under
     the 1933 Act and "equity lines") and at a purchase price of no less than
     $6.00 per share (as adjusted for stock splits, stock dividends, reverse
     stock splits, recapitalizations, reclassifications and similar events) or
     (B) $30,000,000 (other than an "at-the-market offering" as defined in Rule
     415(a)(4) under the 1933 Act and "equity lines") (each, an "EXCLUDED
     OFFERING"); (iv) in connection with any acquisition by the Company, whether
     through an acquisition of stock or a merger of any business, assets or
     technologies the primary purpose of which is not to raise equity capital in
     an amount not to exceed, in the aggregate 20% of the outstanding shares of
     Common Stock in any calendar year; and (vi) upon conversion of any Options
     or Convertible Securities which are outstanding on the day immediately
     preceding the Issuance Date, provided that the terms of such Options or
     Convertible Securities are not amended, modified or changed on or after the
     Issuance Date.

          (u) "EXPIRATION DATE" means the date seven years after the Issuance
     Date (as defined in the Warrants) or, if such date falls on a day other
     than a Business Day or on which trading does not take place on the
     Principal Market (a "HOLIDAY"), the next date that is not a Holiday.

          (v) "FAIR MARKET VALUE" means the closing sale price of the shares of
     Common Stock (as reported by the Bloomberg Financial Markets) on the last
     Trading Day immediately preceding the Appointment Date. In the event that a
     closing sale price is not reported by the Bloomberg Financial Markets, the
     Fair Market Value shall be as mutually determined by the Company's Board of
     Directors and the Required Holders in good faith.

          (w) "FINANCING AGREEMENT" shall have the meaning as set forth in the
     Securities Purchase Agreement.

          (x) "FINANCING FACILITY" shall have the meaning as set forth in the
     Securities Purchase Agreement.


                                      -20-

<PAGE>


          (y) "FUNDAMENTAL TRANSACTION" means that the Company shall, directly
     or indirectly, in one or more related transactions, (i) consolidate or
     merge with or into (whether or not the Company is the surviving
     corporation) another Person, or (ii) sell, assign, transfer, convey or
     otherwise dispose of all or substantially all of the properties or assets
     of the Company to another Person, or (iii) allow another Person to make a
     purchase, tender or exchange offer that is accepted by a Holders of more
     than the 50% of either the outstanding shares of Common Stock (not
     including any shares of Common Stock held by the Person or Persons making
     or party to, or associated or affiliated with the Persons making or party
     to, such purchase, tender or exchange offer), or (iv) consummate a stock
     purchase agreement or other business combination (including, without
     limitation, a reorganization, recapitalization, spin-off or scheme of
     arrangement) with another Person whereby such other Person acquires more
     than the 50% of the outstanding shares of Common Stock (not including any
     shares of Common Stock held by the other Person or other Persons making or
     party to, or associated or affiliated with the other Persons making or
     party to, such stock purchase agreement or other business combination), or
     (v) reorganize, recapitalize or reclassify its Common Stock.

          (z) "GAMING AUTHORITY" means any of the "Gaming Authorities" as such
     term is defined in the Articles of Incorporation of the Company in effect
     as of the Subscription Date.

          (aa) "HOLDER" means any holder of issued and outstanding Preferred
     Shares.

          (bb) "HOLDER PRO RATA ALLOCATION" means with respect to any number of
     Conversion Shares, (x) such number of Conversion Shares multiplied by (y)
     (i) the number of Preferred Shares held by such Holder on the Subscription
     Date divided by (ii) 4,457,751.

          (cc) "ISSUANCE DATE" means with respect to any Preferred Share, the
     date of issuance of such Preferred Share by the Company.

          (dd) "MANDATORY REDEMPTION" has the meaning as set forth in Section
     A.17(g).

          (ee) "MANDATORY REDEMPTION DATE" has the meaning as set forth in
     Section A.17(h).

          (ff) "MANDATORY REDEMPTION PRICE" means in the case of a Regulatory
     Redemption Event, the sum of (i) with respect to Conversion Shares, the
     arithmetic average of the Closing Sale Prices of the Common Stock during
     the ten (10) consecutive Trading Days prior to such Notice of Mandatory
     Redemption, (ii) solely with respect to Preferred Shares that are not
     Additional Preferred Shares, the Black Scholes Value of the remaining
     unconverted portion of Preferred Shares on the Notice of Mandatory
     Redemption Date, and (iii) solely with respect to Additional Preferred
     Shares, an amount, if greater than zero, equal to (x) the arithmetic
     average of the Closing Sale Prices of the Common Stock during the ten (10)
     consecutive Trading Days prior to such Notice of Mandatory Redemption less
     (y) the Conversion Price of such Additional Preferred Shares.


                                      -21-


<PAGE>

          (gg) "NOTICE OF MANDATORY REDEMPTION " has the meaning as set forth in
     Section A.17(h).

          (hh) "NOTICE OF REDEMPTION AT OPTION OF HOLDER" has the meaning as set
     forth in Section A.18(b).

          (ii) "OPTIONS" means any rights, warrants or options to subscribe for
     or purchase shares of Common Stock or Convertible Securities.

          (jj) "PERSON" means an individual, a limited liability company, a
     partnership, a joint venture, a corporation, a trust, an unincorporated
     organization, any other entity and a government or any department or agency
     thereof.

          (kk) "PREFERRED SHARES" has the meaning as set forth in the initial
     paragraph of this Certificate of Designations.

          (ll) "PRINCIPAL MARKET" means the NASDAQ National Market.

          (mm) "PUT DATE" has the meaning as set forth in Section A.18(a).

          (nn) "REDEMPTION AT OPTION OF HOLDER" has the meaning as set forth in
     Section A.18(b).

          (oo) " REDEMPTION AT OPTION OF HOLDER DATE" has the meaning as set
     forth in Section A.18(c).

          (pp) "REGISTRATION RIGHTS AGREEMENT" means that certain registration
     rights agreement by and among the Company and the Buyers.

          (qq) "REQUIRED HOLDERS" means a Holders of Preferred Shares
     representing at least a majority of shares of Common Stock underlying
     Preferred Shares then outstanding.

          (rr) "SECURITIES PURCHASE AGREEMENT" means that certain Securities
     Purchase Agreement, dated as of February __, 2006 (the "SUBSCRIPTION
     DATE"), by and among the Company and the investors (the "BUYERS") referred
     to therein.

          (ss) "SERIES A DIRECTOR RATIO" means the quotient of the total amount
     of the Loan (as defined in the Financing Agreement) then outstanding
     divided by the Total Market Capitalization (as defined below) of the
     Company.

          (tt) "TOTAL MARKET CAPITALIZATION" means the sum of (a) the product of
     the total number of outstanding shares of the Company's common stock par
     value $0.01 per


                                      -22-


<PAGE>

     share ("COMMON STOCK") multiplied by the Fair Market Value (as defined
     below) of one share of Common Stock plus (b) the total amount of the Loan
     (as defined in the Financing Agreement) then outstanding.

          (uu) "TRADING DAY" means any day on which the Common Stock are traded
     on the Principal Market, or, if the Principal Market is not the principal
     trading market for the Common Stock, then on the principal securities
     exchange or securities market on which the Common Stock are then traded;
     provided that "Trading Day" shall not include any day on which the Common
     Stock are scheduled to trade on such exchange or market for less than 4.5
     hours or any day that the Common Stock are suspended from trading during
     the final hour of trading on such exchange or market (or if such exchange
     or market does not designate in advance the closing time of trading on such
     exchange or market, then during the hour ending at 4:00:00 p.m., New York
     Time).

          (vv) "VOID OPTIONAL REDEMPTION NOTICE" has the meaning as set forth in
     Section A.18(d).

          (ww) "WPT LEGISLATION EVENT" means the concurrent existence of the
     following conditions: (i) any applicable federal, state, local
     governmental, or tribal law or regulation (including laws or regulations of
     any of their respective subdivisions or agencies) shall have been enacted
     that could reasonably be expected to materially adversely affect any Loan
     Party (as defined in the Financing Agreement) or World Poker (as defined in
     the Financing Agreement), and (ii) the value of the Collateral (as defined
     in the Financing Agreement) shall be less than 100% of the principal amount
     of the Loan (as defined in the Securities Purchase Agreement) outstanding
     under the Financing Agreement.

          (xx) "WPT 25% COLLATERAL EVENT" means such date whereby the value of
     the Collateral (as defined in the Financing Agreement) is less than or
     equal to 25% of the principal amount of the Loan outstanding under the
     Financing Agreement.

          (yy) "WPT 50% COLLATERAL EVENT" means such date whereby the value of
     the Collateral (as defined in the Financing Agreement) is less than or
     equal to 50% of the principal amount of the Loan outstanding under the
     Financing Agreement.

          (zz) "WPT 75% COLLATERAL EVENT" means such date whereby the value of
     the Collateral (as defined in the Financing Agreement) is less than or
     equal to 75% of the principal amount of the Loan outstanding under the
     Financing Agreement.

                                      -23-

<PAGE>



                                    EXHIBIT I


               TO BE EXECUTED BY THE REGISTERED HOLDER TO CONVERT
                       PREFERRED SHARES INTO COMMON STOCK

                            LAKES ENTERTAINMENT, INC.

     The undersigned holder hereby elects to convert the attached Series A
Convertible Preferred Stock, par value $0.01 per share(s) (the "PREFERRED
SHARES") into _________________ of the shares of Common Stock ("CONVERSION
SHARES") of Lakes Entertainment, Inc., a Minnesota corporation (the "COMPANY").
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Certificate of Designations of such
Preferred Shares (the "CERTIFICATE OF DESIGNATIONS").

     1. Form of Conversion Price. The Holder intends that payment of the
Conversion Price shall be made as:

     ________  a "Cash Conversion" with respect to __________ Conversion Shares;
                 -----------------
     and/or

     ________  a "Cashless Conversion" with respect to __________ Conversion
                 --------------------
     Shares.


     2. Payment of Conversion Price. In the event that the holder has elected a
Cash Conversion with respect to some or all of the Conversion Shares to be
issued pursuant hereto, the holder shall pay the aggregate Conversion Price in
the sum of $___________________ to the Company in accordance with the terms of
the Certificate of Designations.

     3. Delivery of Conversion Shares. The Company shall deliver to the holder
__________ Conversion Shares in accordance with the terms of the Certificate of
Designations.


Date: _______________ __, ______


________________________________
   Name of Registered Holder

By:
      __________________________
      Name:
      Title:

_________________________________
....Tax ID or SSN of Registered Holder


_________________________________

_________________________________
....Street Address of Registered Holder


<PAGE>


                                 ACKNOWLEDGMENT


         The Company hereby acknowledges this Conversion Notice and hereby
directs WELLS FARGO BANK, N.A. to issue the below indicated number of shares of
Common Stock of the Company to the recipient listed below and deliver the
certificate representing such shares to the address listed below in accordance
with the Transfer Agent Instructions dated February __, 2006 from the Company
and acknowledged and agreed to by WELLS FARGO BANK, N.A.


NAME, ADDRESS AND SOCIAL SECURITY OR TAX ID NO.       NO. OF SHARES
- -----------------------------------------------       -------------


- -----------------------------------------             -------------
Name of Recipient

- -----------------------------------------
Street Address

- -----------------------------------------
City, State, Zip Code

Tax ID or SSN:
               --------------------------


                                            LAKES ENTERTAINMENT, INC.



                                            By:
                                                --------------------------------
                                                   Name:
                                                   Title:

<PAGE>



     B. Except as specifically provided above or as provided under the Minnesota
Business Corporation Act, the Preferred Shares shall have no other right,
preferences, privileges, or obligations.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>3
<FILENAME>c02665exv10w1.txt
<DESCRIPTION>FINANCING AGREEMENT
<TEXT>
<PAGE>
                                                                    EXHIBIT 10.1
                                                                  EXECUTION COPY

                               FINANCING AGREEMENT

          Financing Agreement, dated as of February 15, 2006, by and among Lakes
Entertainment, Inc., a Minnesota corporation (the "Parent"), the subsidiaries of
the Parent listed as a "Borrower" on the signature pages hereto (each a
"Borrower" and collectively, the "Borrowers"), each other subsidiary of the
Parent that becomes a "Guarantor" in accordance with the terms hereof (each a
"Guarantor" and collectively, the "Guarantors"), the financial institutions from
time to time party hereto (each a "Lender" and collectively, the "Lenders"), and
PLKS Funding, LLC, a Delaware limited liability company ("PLKS"), as a Lender
and as agent for the Lenders (in such capacity, the "Agent").

                                    RECITALS

          The Borrowers have asked the Lenders to extend credit to the Borrowers
consisting of term loans in the aggregate principal amount of up to $50,000,000
(the "Financing Facility"). The proceeds of the term loan shall be used to
refinance existing debt and for other general corporate and other working
capital purposes of the Borrowers and to pay fees and expenses related to this
Agreement and the transactions contemplated herein. The Lenders are severally,
and not jointly, willing to extend such credit to the Borrowers subject to the
terms and conditions hereinafter set forth.

          In consideration of the premises and the covenants and agreements
contained herein, the parties hereto 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:

          "Account Debtor" means each debtor, customer or obligor in any way
obligated on or in connection with any Account Receivable.

          "Account Receivable" means, with respect to any Person, any and all
rights of such Person to payment for goods sold and/or services rendered,
including accounts, general intangibles, payment intangibles and any and all
such rights evidenced by chattel paper, instruments or documents, whether due or
to become due and whether or not earned by performance, and whether now or
hereafter acquired or arising in the future, and any proceeds arising therefrom
or relating thereto.

          "Action" has the meaning specified therefor in Section 11.12.

          "Affiliate" means, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person. For purposes of
this definition, "control" of a Person means the power,

<PAGE>

directly or indirectly, either to (i) vote 10% or more of the Capital Stock
having ordinary voting power for the election of directors of such Person or
(ii) direct or cause the direction of the management and policies of such Person
whether by contract or otherwise. Notwithstanding anything herein to the
contrary, in no event shall the Agent or any Lender be considered an "Affiliate"
of any Loan Party.

          "After Acquired Property" has the meaning specified therefor in
Section 6.01(o).

          "Agent" has the meaning specified therefor in the preamble hereto.

          "Agent Advances" has the meaning specified therefor in Section
9.08(a).

          "Agent's Account" means an account at a bank designated by the Agent
from time to time as the account into which the Loan Parties shall make all
payments to the Agent for the benefit of the Agent and the Lenders under this
Agreement and the other Loan Documents.

          "Agreement" means this Financing Agreement, including all amendments,
modifications and supplements and any exhibits or schedules to any of the
foregoing, and shall refer to the Agreement as the same may be in effect at the
time such reference becomes operative.

          "Assignment and Acceptance" means an assignment and acceptance entered
into by an assigning Lender and an assignee, and accepted by the Agent, in
accordance with Section 11.07 hereof and substantially in the form of Exhibit F
hereto or such other form acceptable to the Agent.

          "Authorized Officer" means, with respect to any Person, the chief
executive officer, chief financial officer, president, general counsel, or
executive vice president of such Person.

          "Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C.
Section 101, et seq.), as amended, and any successor statute.

          "Berman Employment Agreement" means the Employment Agreement, dated as
of the date hereof, between Lyle Berman and the Parent.

          "Berman Loan" means the loan made under that certain Loan Agreement,
dated as of December 15, 2005, among Parent, Lakes Poker Tour, LLC, and the Lyle
Berman Family Partnership (which is to be repaid in full with the proceeds of
the initial Loan made on the date hereof).

          "Blocked Account" has the meaning specified therefor in Section
7.01(a).

          "Blocked Account Agreement" means a control agreement in form and
substance reasonably acceptable to the Agent with respect to a Blocked Account.

          "Blocked Account Bank" has the meaning specified therefor in Section
7.01(a).

          "Board" means the Board of Governors of the Federal Reserve System of
the United States.


                                      -2-

<PAGE>

          "Board of Directors" means, with respect to any Person, the board of
directors (or comparable managers) of such Person or any committee thereof duly
authorized to act on behalf of the board.

          "Borrower" has the meaning specified therefor in the preamble hereto.

          "Business Day" means any day excluding Saturday, Sunday and any day
which is a legal holiday under the laws of the State of New York, or is a day on
which banking institutions located in any such states are closed.

          "Business Plan" shall mean Parent's business plan as updated at least
semi-annually and which is intended to reflect anticipated revenues and expenses
related to corporate overhead for at least the following six month period, new
projects up to $5,000,000 in the aggregate, and funds needed in the reasonable
judgment of the Parent for the development, funding and operation of any
Projects for at least the following six month period (including guaranteed
minimum payments to Indian Tribes with respect thereto) or new projects in
accordance with the terms hereof.

          "Capital Expenditures" means, with respect to any Person for any
period, the sum of (i) the aggregate of all expenditures by such Person and its
Subsidiaries during such period that in accordance with GAAP are or should be
included in "property, plant and equipment" or in a similar fixed asset account
on its balance sheet, whether such expenditures are paid in cash or financed and
including all Capitalized Lease Obligations paid or payable during such period,
and (ii) to the extent not covered by clause (i) above, the aggregate of all
expenditures by such Person and its Subsidiaries during such period to acquire
by purchase or otherwise the business or fixed assets of, or the Capital Stock
of, any other Person.

          "Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated and whether or not voting) of corporate stock, and (ii) with
respect to any Person that is not a corporation, any and all partnership,
membership or other equity interests of such Person.

          "Capitalized Lease" means, with respect to any Person, any lease of
real or personal property by such Person as lessee which is (i) required under
GAAP to be capitalized on the balance sheet of such Person or (ii) a transaction
of a type commonly known as a "synthetic lease" (i.e. a lease transaction that
is treated as an operating lease for accounting purposes but with respect to
which payments of rent are intended to be treated as payments of principal and
interest on a loan for Federal income tax purposes).

          "Capitalized Lease Obligations" means, with respect to any Person,
obligations of such Person and its Subsidiaries under Capitalized Leases, and,
for purposes hereof, the amount of any such obligation shall be the capitalized
amount thereof determined in accordance with GAAP.

          "Change in Law" has the meaning specified therefor in Section 3.04(a).


                                      -3-

<PAGE>

          "Change of Control" means each occurrence of any of the following:

          (a) the acquisition, directly or indirectly, by any person or group
(within the meaning of Section 13(d)(3) of the Exchange Act) of beneficial
ownership of more than 33% of the aggregate outstanding voting power of the
Capital Stock of the Parent;

          (b) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Parent
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the shareholders of the Parent was approved by
a vote of at least a majority the directors of the Parent then still in office
who were either directors at the beginning of such period, or whose election or
nomination for election was previously approved) cease for any reason to
constitute a majority of the Board of Directors of the Parent;

          (c) the Parent shall cease to have beneficial ownership (as defined in
Rule 13d-3 under the Exchange Act) of 100% of the aggregate voting power of the
Capital Stock of each other Loan Party, free and clear of all Liens (other than
any Liens granted hereunder and Permitted Liens);

          (d) (i) any Loan Party consolidates or amalgamates with or merges into
another entity (other than as permitted by Section 6.02(c)), or conveys,
transfers or leases all or substantially all of its property and assets to
another Person, or (ii) any entity consolidates or amalgamates with or merges
into any Loan Party in a transaction pursuant to which the outstanding voting
Capital Stock of such Loan Party is reclassified or changed into or exchanged
for cash, securities or other property, other than any such transaction
described in this clause (ii) in which either (A) in the case of any such
transaction involving the Parent, no person or group (within the meaning of
Section 13(d)(3) of the Exchange Act) has, directly or indirectly, acquired
beneficial ownership of more than 33% of the aggregate outstanding voting
Capital Stock of the Parent or (B) in the case of any such transaction involving
a Loan Party other than the Parent, the Parent has beneficial ownership of 100%
of the aggregate voting power of all Capital Stock of the resulting, surviving
or transferee entity; or

          (e) Lyle Berman is no longer actively involved in the day to day
operations and management of the business of the Parent (other than as a result
of his death).

          "Collateral" means all of the property and assets and all interests
therein and proceeds thereof now owned or hereafter acquired by any Person upon
which a Lien is granted or purported to be granted by such Person as security
for all or any part of the Obligations.

          "Collateral Assignment of Life Insurance Policy" shall mean a
collateral assignment of the Life Insurance Policy whereby Loan Parties shall
collaterally assign all of Credit Parties' rights in the Life Insurance Policy
to Agent for itself and the benefit of the Lenders, in form and substance to
Agent in its Permitted Discretion.

          "Commitments" means, with respect to each Lender, the commitment of
such Lender to make the Loan to the Borrowers in the amount set forth in
Schedule 1.01(A) hereto, as the same may be terminated or reduced from time to
time in accordance with the terms of this Agreement.


                                      -4-

<PAGE>

          "Common Stock" means the Common Stock of the Parent, $0.01 par value.

          "Contingent Obligation" means, with respect to any Person, any
obligation of such Person guaranteeing or intended to guarantee any
Indebtedness, leases, dividends or other obligations ("primary obligations") of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, (i) the direct or indirect guaranty,
endorsement (other than for collection or deposit in the ordinary course of
business), co-making, discounting with recourse or sale with recourse by such
Person of the obligation of a primary obligor, (ii) the obligation to make
take-or-pay or similar payments, if required, regardless of nonperformance by
any other party or parties to an agreement, (iii) any obligation of such Person,
whether or not contingent, (A) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (B) to advance or
supply funds (1) for the purchase or payment of any such primary obligation or
(2) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (C) to
purchase property, assets, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the primary
obligor to make payment of such primary obligation or (D) otherwise to assure or
hold harmless the holder of such primary obligation against loss in respect
thereof. The amount of any Contingent Obligation shall be deemed to be an amount
equal to the stated or determinable amount of the primary obligation with
respect to which such Contingent Obligation is made (or, if less, the maximum
amount of such primary obligation for which such Person may be liable pursuant
to the terms of the instrument evidencing such Contingent Obligation) or, if not
stated or determinable, the maximum reasonably anticipated liability with
respect thereto (assuming such Person is required to perform thereunder), as
determined by such Person in good faith.

          "Current Value" has the meaning specified therefor in Section 6.01(o).

          "Default" means an event which, with the giving of notice or the lapse
of time or both, would constitute an Event of Default.

          "Disposition" means any transaction, or series of related
transactions, pursuant to which any Person or any of its Subsidiaries sells,
assigns, transfers or otherwise disposes of any property or assets (whether now
owned or hereafter acquired) to any other Person, in each case, whether or not
the consideration therefor consists of cash, securities or other assets owned by
the acquiring Person.

          "Dollar," "Dollars" and the symbol "$" each means lawful money of the
United States of America.

          "Effective Date" means the date, on or before February 15, 2006, on
which (i) except as provided in this Agreement or otherwise agreed by the Agent
(as determined by the closing of the transactions contemplated hereby and the
provisions hereunder), all definitive loan documentation, including with
limitation all documentation relating to the Warrants and Preferred Stock is
executed by the Loan Parties and the Lender, (ii) all of the conditions
precedent set forth in Section 4.01 are satisfied or waived and (iii) the
initial $25,000,000 Loan is made.


                                      -5-

<PAGE>

          "Employee Plan" means an employee benefit plan (other than a
Multiemployer Plan) covered by Title IV of ERISA and maintained (or that was
maintained at any time during the six (6) calendar years preceding the date of
any borrowing hereunder) for employees of any Loan Party or any of its ERISA
Affiliates.

          "Environmental Actions" means any complaint, summons, citation,
notice, directive, order, claim, litigation, investigation, judicial or
administrative proceeding, judgment, letter or other communication from any
Person or Governmental Authority involving violations of Environmental Laws or
Releases of Hazardous Materials (i) from any assets, properties or businesses
owned or operated by any Loan Party or any of its Subsidiaries or any
predecessor in interest; (ii) from adjoining properties or businesses; or (iii)
onto any facilities which received Hazardous Materials generated by any Loan
Party or any of its Subsidiaries or any predecessor in interest.

          "Environmental Laws" 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
Clean Water 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.) and the Occupational Safety and Health Act (29 U.S.C. Section 651 et
seq.), as such laws may be amended or otherwise modified from time to time, and
any other present or future federal, state, local or foreign statute, ordinance,
rule, regulation, order, judgment, decree, permit, license or other binding
determination of any Governmental Authority imposing liability or establishing
standards of conduct for protection of the environment or other government
restrictions relating to the protection of the environment or the Release,
deposit or migration of any Hazardous Materials into the environment.

          "Environmental Liabilities and Costs" means all liabilities, monetary
obligations, Remedial Actions, losses, damages, punitive damages, consequential
damages, treble damages, costs and expenses (including all reasonable fees,
disbursements and expenses of counsel, experts and consultants and costs of
investigations and feasibility studies), fines, penalties, sanctions and
interest incurred as a result of any claim or demand by any Governmental
Authority or any third party, and which relate to any environmental condition or
a Release of Hazardous Materials from or onto (i) any property presently or
formerly owned by any Loan Party or any of its Subsidiaries or (ii) any facility
which received Hazardous Materials generated by any Loan Party or any of its
Subsidiaries.

          "Environmental Lien" means any Lien in favor of any Governmental
Authority for Environmental Liabilities and Costs.

          "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, and regulations
thereunder, in each case, as in effect from time to time. References to sections
of ERISA shall be construed also to refer to any successor sections.

          "ERISA Affiliate" means, with respect to any Person, any trade or
business (whether or not incorporated) which is a member of a group of which
such Person is a member


                                      -6-

<PAGE>

and which would be deemed to be a "controlled group" within the meaning of
Sections 414(b), (c), (m) and (o) of the Internal Revenue Code.

          "Event of Default" means any of the events set forth in Section 8.01.

          "Excess Cash Amount" shall mean, on each Excess Cash Payment Date, the
amount equal to (which amount shall in no event be less than $0) (v) cash on
hand on such Excess Cash Payment Date, less (w) cash or in-kind payments due in
the next six months on account of any contractual or other arrangements such as
(but not limited to) management and consulting agreements, promissory notes,
loan agreement and other agreements with Indian Tribes or related to the
Projects or other projects in accordance with the terms hereof, less (x) cash
received by a Loan Party as a result of the incurrence of construction
indebtedness in excess of the amount referred to in (w) above, less (y) the
amount of cash necessary in the reasonable judgment of the Loan Parties for the
development, funding, and operation of any Projects or new projects developed in
accordance herewith over the next six months, less (z) sufficient cash which, in
the reasonable judgment of the Parent, will fund six months of corporate
overhead, in the case of (x), (y), and (z), in accordance with the Business
Plan.

          "Excess Cash Payment Date" shall mean the last day of each June and
December during the term hereof

          "Exchange Act" means the Securities Exchange Act of 1934, as amended.

          "Excluded Account" has the meaning given thereto in the Security
Agreement.

          "Excluded Subsidiary" shall mean those Subsidiaries listed on Schedule
1.01(C) and any newly-formed Subsidiary which the Parent has notified the Agent
that such newly-formed Subsidiary should be an Excluded Subsidiary pursuant to
Section 6.01(t).

          "Extraordinary Receipts" means any cash in excess of $500,000 in the
aggregate received since the Effective Date by the Parent or any of its
Subsidiaries not in the ordinary course of business (and not consisting of
proceeds described in Section 2.05(c)(i), (ii) or (iii) hereof), including,
without limitation, (i) foreign, United States, state or local tax refunds, (ii)
pension plan reversions, (iii) proceeds of insurance, (iv) judgments, proceeds
of settlements or other consideration of any kind in connection with any cause
of action, (v) condemnation awards (and payments in lieu thereof), (vi)
indemnity payments and (vii) any purchase price adjustment received in
connection with any purchase agreement. Dividends and distributions received by
Parent or any of its Subsidiaries shall be deemed to be received in the ordinary
course of business.

          "Facility" means the real property in Minnesota and California owned
by the Loan Party identified with respect to such property and as more fully set
forth on Schedule 5.01(p) hereto, including, without limitation, the land on
which each such facility is located, all buildings and other improvements
thereon, all fixtures located at or used in connection with each such facility,
all whether now or hereafter existing.

          "Federal Funds Rate" means, for any period, a fluctuating interest
rate per annum equal to, for each day during such period, the weighted average
of the rates on overnight Federal


                                      -7-

<PAGE>

funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers, as published on the next succeeding Business Day by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it.

          "Filing Covenant" has the meaning specified therefor in Section
6.01(q).

          "Financial Statements" means (i) the audited consolidated balance
sheet of the Parent and its Subsidiaries for the Fiscal Year ended January 2,
2005, and the related consolidated statement of operations, shareholders' equity
and cash flows for the Fiscal Year then ended, and (ii) the monthly unaudited
balance sheet of the Parent and its Subsidiaries for the month ending
immediately prior to the Effective Date (or if not yet available, the second
immediately preceding month).

          "Financing Facility" has the meaning specified therefor in the
recitals hereto.

          "Fiscal Quarter" means the fiscal quarter of the Parent and its
Subsidiaries consistent with Parent's existing accounting practices.

          "Fiscal Year" means the fiscal year of the Parent and its Subsidiaries
consistent with Parent's existing accounting practices.

          "GAAP" means generally accepted accounting principles in effect from
time to time in the United States, applied on a consistent basis.

          "Grand Casino Litigation" means that certain litigation pertaining to
the establishment of the Parent as a public corporation via a distribution of
its common stock to the shareholders of Grand Casino and the agreement governing
the sharing and allocation of tax benefits accruing to Grand Casinos and certain
Affiliates of Grand Casinos.

          "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, taxing, regulatory or administrative powers or functions of or
pertaining to government.

          "Guarantor" means each other Person which guarantees, pursuant to
Section 6.01(b) or otherwise, all or any part of the Obligations.

          "Guaranty" means each guaranty substantially in the form of Exhibit A,
made by any other Guarantor in favor of the Agent for the benefit of the Agent
and the Lenders pursuant to Section 6.01(b) or otherwise.

          "Hazardous Material" means (a) any element, compound or chemical that
is defined, listed or otherwise classified as a contaminant, pollutant, toxic
pollutant, toxic or hazardous substance, extremely hazardous substance or
chemical, hazardous waste, special waste, or solid waste under Environmental
Laws or that is likely to cause immediately, or at


                                      -8-

<PAGE>

some future time, harm to or have an adverse effect on, the environment or risk
to human health or safety, including, without limitation, any pollutant,
contaminant, waste, hazardous waste, toxic substance or dangerous good which is
defined or identified in any Environmental Law and which is present in the
environment in such quantity or state that it contravenes any Environmental Law;
(b) petroleum and its refined products; (c) polychlorinated biphenyls; (d) any
substance exhibiting a hazardous waste characteristic, including, without
limitation, corrosivity, ignitability, toxicity or reactivity as well as any
radioactive or explosive materials; and (e) any raw materials, building
components (including, without limitation, asbestos-containing materials) and
manufactured products containing hazardous substances listed or classified as
such under Environmental Laws.

          "Hedging Agreement" means any interest rate, foreign currency,
commodity or equity swap, collar, cap, floor or forward rate agreement, or other
agreement or arrangement designed to protect against fluctuations in interest
rates or currency, commodity or equity values (including, without limitation,
any option with respect to any of the foregoing and any combination of the
foregoing agreements or arrangements), and any confirmation executed in
connection with any such agreement or arrangement.

          "Highest Lawful Rate" means, with respect to the Agent or any Lender,
the maximum non-usurious interest rate, if any, that at any time or from time to
time may be contracted for, taken, reserved, charged or received on the
Obligations under laws applicable to the Agent or such Lender which are
currently in effect or, to the extent allowed by law, under such applicable laws
which may hereafter be in effect and which allow a higher maximum non-usurious
interest rate than applicable laws now allow.

          "IGRA" has the meaning specified therefor in Section 5.01(i).

          "Inactive Subsidiary" means the Subsidiaries listed on Schedule
1.01(B) hereto.

          "Indebtedness" means, with respect to any Person, without duplication,
(i) all indebtedness of such Person for borrowed money; (ii) all obligations of
such Person for the deferred purchase price of property or services (other than
undisputed trade payables or other undisputed accounts payable incurred in the
ordinary course of such Person's business and not outstanding for more than 120
days after the date such payable was created, which trade payables and other
accounts payable shall not be deemed to constitute Indebtedness); (iii) all
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments or upon which interest payments are customarily made; (iv)
all reimbursement, payment or other obligations and liabilities of such Person
created or arising under any conditional sales or other title retention
agreement with respect to property used and/or acquired by such Person, even
though the rights and remedies of the lessor, seller and/or lender thereunder
may be limited to repossession or sale of such property; (v) all Capitalized
Lease Obligations of such Person; (vi) all obligations and liabilities,
contingent or otherwise, of such Person, in respect of letters of credit,
acceptances and similar facilities; (vii) all obligations and liabilities,
calculated on a basis satisfactory to the Agent and in accordance with accepted
practice, of such Person under Hedging Agreements; (viii) all monetary
obligations under any receivables factoring, receivable sales or similar
transactions and all monetary obligations under any synthetic lease, tax
ownership/operating lease, off-balance sheet financing or similar financing;
(ix) all Contingent Obligations;


                                      -9-

<PAGE>

(x) liabilities incurred under Title IV of ERISA with respect to any plan (other
than a Multiemployer Plan) covered by Title IV of ERISA and maintained for
employees of such Person or any of its ERISA Affiliates; (xi) withdrawal
liability incurred under ERISA by such Person or any of its ERISA Affiliates
with respect to any Multiemployer Plan; and (xii) all obligations referred to in
clauses (i) through (xi) of this definition of another Person secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) a Lien upon property owned by such Person, even
though such Person has not assumed or become liable for the payment of such
Indebtedness. The Indebtedness of any Person shall include the Indebtedness of
any partnership of or joint venture in which such Person is a general partner or
a joint venturer. Notwithstanding the foregoing, the Indebtedness of any Loan
Party shall not include contractual obligations to make guarantied minimum
payments to Indian Tribes, in accordance with the Projects, or other projects
developed to the extent permitted hereunder, it being understood and agreed that
such obligations shall be deemed to be loans subject to the provisions of
Section 6.02(e).

          "Indemnified Matters" has the meaning specified therefor in Section
11.15.

          "Indemnitees" has the meaning specified therefor in Section 11.15.

          "Indian Tribe" means an Indian tribe or an instrumentality, component,
or other Affiliate thereof.

          "Initial Shares" has the meaning specified in Section 2.01(b)(i).

          "Insolvency Proceeding" means any proceeding commenced by or against
any Person under any provision of the Bankruptcy Code or under any other
bankruptcy or insolvency law, assignments for the benefit of creditors, formal
or informal moratoria, compositions, or extensions generally with creditors, or
proceedings seeking reorganization, arrangement, or other similar relief.

          "Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended (or any successor statute thereto) and the regulations thereunder.

          "Inventory" means, with respect to any Person, all goods and
merchandise of such Person, including, without limitation, all raw materials,
work-in-process, packaging, supplies, materials and finished goods of every
nature used or usable in connection with the shipping, storing, advertising or
sale of such goods and merchandise, whether now owned or hereafter acquired, and
all such other property the sale or other disposition of which would give rise
to an Account Receivable or cash.

          "Iowa" shall mean those certain two casinos on the land of the Iowa
Tribe of Oklahoma in Oklahoma.

          "Jamul" shall mean that certain casino on the Rancheria of the Jamul
Indian Village near San Diego, California.

          "Jamul Indians" shall mean the Jamul Indian Village, a federally
recognized tribe.


                                      -10-

<PAGE>

          "Jamul Development and Management Agreement" shall mean that certain
First Amended and Restated Memorandum of Agreement regarding Gaming Development
and Management Agreements, dated as of October 22, 2004, between the Jamul
Indians and Lakes Argovitz.

          "Kickapoo Tribe" shall mean the Kickapoo Traditional Tribe of Texas
Indian Tribe.

          "Kickapoo Indebtedness" shall mean Indebtedness or other obligations
of the Kickapoo Tribe owing to one or more Loan Parties in a principal amount
not to exceed $6,333,563.

          "Lakes Argovitz" means Lakes Kean Argovitz Resorts-California, LLC, a
Delaware limited liability company.

          "Lakes Gaming Michigan" means Great Lakes Gaming of Michigan, LLC, a
Minnesota limited liability company.

          "Lakes Shingle Springs" means Lakes KAR-Shingle Springs, LLC, a
Delaware limited liability company.

          "Lease" means any lease of real property to which any Loan Party or
any of its Subsidiaries is a party as lessor or lessee.

          "Lender" has the meaning specified therefor in the preamble hereto.

          "Liabilities" has the meaning specified therefor in Section 2.07.

          "Lien" means any mortgage, deed of trust, pledge, lien (statutory or
otherwise), security interest, charge or other encumbrance or security or
preferential arrangement of any nature, including, without limitation, any
conditional sale or title retention arrangement, any Capitalized Lease and any
assignment, deposit arrangement or financing lease intended as, or having the
effect of, security.

          "Life Insurance Policy" shall mean one or more current, valid and
fully paid key man life insurance policies insuring the life of Lyle Berman in
the aggregate amount of $20,000,000 until payment in full in cash of the
Obligations and termination of the Commitments and (i) which provides that no
Person (other than pursuant to the Collateral Assignment of Life Insurance
Policy, Agent) has any rights thereto, (ii) is issued by a carrier and otherwise
is in form and substance acceptable to Agent in its Permitted Discretion, (iii)
expressly provides that it cannot be altered, amended or modified in any
material respect (including, without limitation, with respect to amounts of
coverage, beneficiaries and/or loss payees and additional insureds) or canceled
without thirty (30) calendar days' prior written notice to Agent and (iv) that,
pursuant to the Collateral Assignment of Life Insurance Policy, it inures to the
benefit of Agent, for the benefit of itself and the benefit of the Lenders.

          "Loan" means, collectively, the loans made by the Lenders to the
Borrowers pursuant to Section 2.01.


                                      -11-

<PAGE>

          "Loan Account" means an account maintained hereunder by the Agent on
its books of account at the Payment Office and, with respect to the Borrowers,
in which the Borrowers will be charged with all Loans made to, and all other
Obligations incurred by, the Borrowers.

          "Loan Document" means this Agreement, any Guaranty, any Security
Agreement, any Pledge Agreement, any Mortgage, any UCC Filing Authorization
Letter, Collateral Assignment of Life Insurance Policy, the Warrants, the
Registration Rights Agreement, the Securities Purchase Agreement and any other
agreement, instrument, and other document executed and delivered at any time
pursuant hereto or thereto or otherwise evidencing or securing any Loan or any
other Obligation.

          "Loan Party" means any Borrower and any Guarantor.

          "Maintenance Covenant" has the meaning specified therefor in Section
6.01(q).

          "Management and Consulting Agreements" shall mean, collectively, the
Jamul Development and Management Agreement, Pokagon Development Agreement,
Pokagon Management Agreement and Shingle Springs Development and Management
Agreement, and any other management, development or consulting or loan agreement
executed by a Loan Party and a third party (including an Indian Tribe) with
respect to a Project or a new project permitted in accordance with the terms
hereof.

          "Material Adverse Effect" means a material adverse effect on any of
(i) the operations, business, assets, properties, condition (financial or
otherwise) or prospects of any Borrower or the Borrowers taken as a whole, (ii)
the ability of any Loan Party to perform any of its obligations under any Loan
Document to which it is a party, (iii) the legality, validity or enforceability
of this Agreement or any other Loan Document, (iv) the rights and remedies of
the Agent or any Lender under any Loan Document, or (v) the validity, perfection
or priority of a Lien in favor of the Agent for the benefit of the Lenders on
any of the Collateral. Notwithstanding the foregoing, in no event shall a
Material Adverse Effect be caused by any adverse litigation filed against any
Loan Party that prevents or enjoins the actual construction of the Pokagon,
Shingle Springs or Jamul (it being understood that such preventing or enjoining
could create an Event of Default under Section 8.01(v) if such section is
otherwise applicable).

          "Material Contract" means, with respect to any Person, (i) all
contracts relating to the Projects (including, without limitation, that certain
proposed development, financing, and services agreement relating to Jamul) that
if terminated or violated could reasonably be expected to have a Material
Adverse Effect and (ii) each contract or agreement to which such Person or any
of its Subsidiaries is a party involving aggregate consideration payable to or
by such Person or such Subsidiary of $1,000,000 or more.

          "Maturity Date" means February 15, 2009, or such earlier date on which
any Loan shall become due and payable in accordance with the terms of this
Agreement and the other Loan Documents.

          "Moody's" means Moody's Investors Service, Inc. and any successor
thereto.


                                      -12-

<PAGE>

          "Mortgage" means a mortgage, deed of trust or deed to secure debt, in
form and substance satisfactory to the Agent, made by a Loan Party in favor of
the Agent for the benefit of the Agent and the Lenders, securing the Obligations
and delivered to the Agent pursuant to Section 4.01(d), Section 6.01(b), Section
6.01(o) or otherwise.

          "Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which any Loan Party or any of its ERISA
Affiliates has contributed to, or has been obligated to contribute, at any time
during the preceding six (6) years.

          "Net Cash Proceeds" means, (i) with respect to any Disposition by any
Person or any of its Subsidiaries, the amount of cash received (directly or
indirectly) from time to time (whether as initial consideration or through the
payment or disposition of deferred consideration) by or on behalf of such Person
or such Subsidiary, in connection therewith after deducting therefrom only, (A)
reasonable expenses related thereto incurred by such Person or such Subsidiary
in connection therewith, (B) transfer taxes paid to any taxing authorities by
such Person or such Subsidiary in connection therewith, and (C) net income taxes
to be paid in connection with such Disposition (after taking into account any
tax credits or deductions and any tax sharing arrangements) and (ii) with
respect to the issuance or incurrence of any Indebtedness by any Person or any
of its Subsidiaries, or the sale or issuance by any Person or any of its
Subsidiaries of any shares of its Capital Stock, the aggregate amount of cash
received (directly or indirectly) from time to time (whether as initial
consideration or through the payment or disposition of deferred consideration)
by or on behalf of such Person or such Subsidiary in connection therewith, after
deducting therefrom only (A) reasonable expenses related thereto incurred by
such Person or such Subsidiary in connection therewith, (B) transfer taxes paid
by such Person or such Subsidiary in connection therewith and (C) net income
taxes to be paid in connection therewith (after taking into account any tax
credits or deductions and any tax sharing arrangements); in each case of clause
(i) and (ii) to the extent, but only to the extent, that the amounts so deducted
are (x) actually paid to a Person that, except in the case of reasonable
out-of-pocket expenses, is not an Affiliate of such Person or any of its
Subsidiaries and (y) properly attributable to such transaction or to the asset
that is the subject thereof.

          "Notice of Borrowing" has the meaning specified therefor in Section
2.02(a).

          "Obligations" means all present and future indebtedness, obligations,
and liabilities of each Loan Party to the Agent and the Lenders under the Loan
Documents, whether or not the right of payment in respect of such claim is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
disputed, undisputed, legal, equitable, secured, unsecured, and whether or not
such claim is discharged, stayed or otherwise affected by any proceeding
referred to in Section 8.01. Without limiting the generality of the foregoing,
the Obligations of each Loan Party under the Loan Documents include (a) the
obligation to pay principal, interest, charges, expenses, fees, attorneys' fees
and disbursements, indemnities and other amounts payable by such Person under
the Loan Documents, and (b) the obligation of such Person to reimburse any
amount in respect of any of the foregoing that the Agent or any Lender (in its
sole discretion) may elect to pay or advance on behalf of such Person.


                                      -13-

<PAGE>

          "Operating Lease Obligations" means all obligations for the payment of
rent for any real or personal property under leases or agreements to lease,
other than Capitalized Lease Obligations.

          "Parent" has the meaning specified therefor in the preamble hereto.

          "Participant Register" has the meaning specified therefor in Section
11.07(g).

          "Payment Office" means the Agent's office located at 623 Fifth Avenue,
32nd Floor, New York, New York 10022, or at such other office or offices of the
Agent as may be designated in writing from time to time by the Agent to the
Parent.

          "Pawnee" shall mean those certain three (3) casinos on the land of the
Pawnee Nation in Oklahoma.

          "Pawnee Guaranty" means a guaranty by a Loan Party in a maximum amount
not to exceed $15,000,000 in respect of Pawnee.

          "PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereto.

          "Permitted Indebtedness" means:

          (a) any Indebtedness owing to the Agent and any Lender under this
Agreement and the other Loan Documents;

          (b) to the extent not otherwise constituting Permitted Indebtedness,
any other Indebtedness listed on Schedule 6.02(b), and the extension of
maturity, refinancing or modification of the terms thereof; provided, however,
that (i) such extension, refinancing or modification is pursuant to terms that
are not less favorable to the Loan Parties and the Lenders than the terms of the
Indebtedness being extended, refinanced or modified and (ii) after giving effect
to such extension, refinancing or modification, the amount of such Indebtedness
is not greater than the amount of Indebtedness outstanding immediately prior to
such extension, refinancing or modification;

          (c) Indebtedness evidenced by Capitalized Lease Obligations entered
into in order to finance Capital Expenditures made by the Loan Parties in
accordance with the provisions of Section 6.02(g), which Indebtedness, when
aggregated with the principal amount of all Indebtedness incurred under this
clause (c) and clause (d) of this definition, does not exceed $250,000 at any
time outstanding;

          (d) Indebtedness permitted by clauses (d), (e), and (j) of the
definition of "Permitted Liens";

          (e) the Pawnee Guaranty and other guaranties, other Contingent
Obligations and other Indebtedness permitted under Section 6.02(e);

          (f) with the written consent of the Agent, Subordinated Indebtedness;


                                      -14-

<PAGE>

          (g) [Intentionally Omitted];

          (h) Indebtedness of any Loan Party to a Borrower or of a Borrower to a
Loan Party.

          (i) Indebtedness of Lakes Jamul Development, LLC and Lakes
Gaming-Mississippi, LLC in an aggregate principal amount not in excess of
$600,000,000, to be incurred after the Effective Date: (A) in order to provide
financing for Lakes Jamul Development, LLC, with respect to the construction of
Jamul (the "Jamul Indebtedness") which Jamul Indebtedness may be secured by
Liens on any secured promissory note (and collateral therefor) evidencing such
construction financing and on other assets arising solely out of Jamul and owned
by Lakes Jamul Development LLC, to which Liens the Agent will subordinate any
Liens of the Agent in the same assets (other than the mortgage of the Agent in
respect thereof); and (B) for Lakes Gaming-Mississippi, LLC to finance the
construction of Vicksburg (the "Vicksburg Indebtedness"), which Vicksburg
Indebtedness may be secured by Liens solely on assets of Vicksburg, to which
Liens the Agent will subordinate any Liens of the Agent in the same assets, in
each case in accordance with the Project Business Plan.

          "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 six months from the date of acquisition thereof; (ii)
commercial paper, maturing not more than 270 days after the date of issue rated
P-1 by Moody's or A-1 by Standard & Poor's; (iii) certificates of deposit
maturing not more than 270 days after the date of issue, issued by commercial
banking institutions and money market or demand deposit accounts maintained at
commercial banking institutions, each of which is a member of the Federal
Reserve System and has a combined capital and surplus and undivided profits of
not less than $500,000,000 (iv) repurchase agreements having maturities of not
more than 90 days from the date of acquisition which are entered into with major
money center banks included in the commercial banking institutions described in
clause (iii) above and which are secured by readily marketable direct
obligations of the United States Government or any agency thereof, (v) money
market accounts maintained with mutual funds having assets in excess of
$2,500,000,000; and (vi) tax exempt securities rated A or higher by Moody's or
A+ or higher by Standard & Poor's.

          "Permitted Liens" means:

          (a) Liens securing the Obligations;

          (b) Liens for taxes, assessments and governmental charges the payment
of which is not required under Section 6.01(c);

          (c) Liens imposed by law, such as carriers', warehousemen's,
mechanics', materialmen's and other similar Liens arising (provided they are
subordinate to the Agent's Liens on Collateral) in the ordinary course of
business and securing obligations (other than Indebtedness for borrowed money)
that are not overdue by more than 30 days or are being contested in good faith
and by appropriate proceedings promptly initiated and diligently


                                      -15-

<PAGE>

conducted, and a reserve or other appropriate provision, if any, as shall be
required by GAAP shall have been made therefor;

          (d) to the extent not otherwise constituting Permitted Liens, Liens
described on Schedule 6.02(a), but not the extension of coverage thereof to
other property or the extension of maturity, refinancing or other modification
of the terms thereof or the increase of the Indebtedness secured thereby;

          (e) (i) purchase money Liens on equipment acquired or held by any Loan
Party or any of its Subsidiaries in the ordinary course of its business to
secure the purchase price of such equipment or Indebtedness incurred solely for
the purpose of financing the acquisition of such equipment or (ii) Liens
existing on such equipment at the time of its acquisition; provided, however,
that (A) no such Lien shall extend to or cover any other property of any Loan
Party or any of its Subsidiaries, (B) the principal amount of the Indebtedness
secured by any such Lien shall not exceed the lesser of 80% of the fair market
value or the cost of the property so held or acquired and (C) the aggregate
principal amount of Indebtedness secured by any or all such Liens shall not
exceed $1,000,000 during the term of this Agreement;

          (f) deposits and pledges of cash securing (i) obligations incurred in
respect of workers' compensation, unemployment insurance or other forms of
governmental insurance or benefits, (ii) the performance of bids, tenders,
leases, contracts (other than for the payment of money) and statutory
obligations or (iii) obligations on surety or appeal bonds, but only to the
extent such deposits or pledges are made or otherwise arise in the ordinary
course of business and secure obligations not past due;

          (g) easements, zoning restrictions and similar encumbrances on real
property and minor irregularities in the title thereto that do not (i) secure
obligations for the payment of money or (ii) materially impair the value of such
property or its use by any Loan Party or any of its Subsidiaries in the normal
conduct of such Person's business;

          (h) Liens securing Indebtedness permitted by subsections (b) and (c)
of the definition of Permitted Indebtedness;

          (i) [Intentionally Omitted]

          (j) Liens in the Pokagon Account securing obligations of Lakes Gaming
Michigan under the Pokagon Development Agreement;

          (k) [Intentionally Omitted]

          (l) other Liens securing guaranties, other Contingent Obligations and
other Indebtedness permitted by subsection (e) of the definition of Permitted
Indebtedness, but only to the extent such Liens exist as of the Effective Date,
are thereafter granted as contemplated by or in accordance with the Business
Plan, or are otherwise granted with the written consent of the Required Lenders
(not to be unreasonably withheld if no Event of Default shall have occurred and
be continuing); and


                                      -16-

<PAGE>

          (m) Liens securing Indebtedness permitted by subsection (i) of the
definition of Permitted Indebtedness.

          "Periodic Project Development Report" has the meaning specified
therefor in Section 6.01(a).

          "Person" means an individual, corporation, limited liability company,
partnership, association, joint-stock company, trust, unincorporated
organization, joint venture or other enterprise or entity or Governmental
Authority.

          "Phase I ESA" has the meaning specified therefor in Section 4.01(d).

          "Plan" means any Employee Plan or Multiemployer Plan.

          "Plan Reconciliation Report" shall mean a report prepared by the
Parent listing the financial projections of the Parent and its Subsidiaries
delivered pursuant to Section 6.01(a)(vii) for the most recent Fiscal Quarter
along with actual financial results together with an summary and analysis
prepared by the chief financial officer of the Parent discussing the deviations,
if any.

          "Pledge Agreement" means a Pledge and Security Agreement made by each
Loan Party in favor of the Agent for the benefit of the Lenders, substantially
in the form of Exhibit C, securing the Obligations and delivered to the Agent.

          "Pokagon" shall mean that certain casino on the land of the Pokagon
Band of Potawatomi Indians in New Buffalo Township, Michigan.

          "Pokagon Account" means the Account (account number 15522000 or
5522000) maintained at US Bank National Association referred to and as defined
in the Pokagon Development Agreement which at any time shall not contain an
amount in the aggregate in excess of $2,500,000.

          "Pokagon Indians" shall mean the Pokagon Band of Potawatomi Indians, a
federally recognized tribe.

          "Pokagon Development Agreement" shall mean that certain Third Amended
and Restated Development Agreement, dated as of January 25, 2006, between the
Pokagon Band of Potawatomi Indians, and Great Lakes Gaming of Michigan, LLC

          "Pokagon Management Agreement" shall mean that certain Third Amended
and Restated Management Agreement, dated as of January 25, 2006, between the
Pokagon Band of Potawatomi Indians, and Great Lakes Gaming of Michigan, LLC.

          "Post-Default Rate" means a rate of interest per annum equal to the
rate of interest otherwise in effect from time to time pursuant to the terms of
this Agreement plus 6.00%.

          "Preferred Certificate of Designation" means the Parent's Preferred
Certificate of Designation, dated as of the date hereof.


                                      -17-

<PAGE>

          "Preferred Shares" has the meaning specified therefor in the
Securities Purchase Agreement.

          "Prentice" has the meaning specified therefor in the preamble hereto.

          "Project Business Plan" shall mean the project business plan of the
Parent, dated as of the date hereof, and attached as Exhibit G hereto which
shall include development plans for each Project including, without limitation,
the square footage of each casino to be developed on each such Project, the
approximate number of slot machines and other gaming devices or tables to be
included in such Project and the amount of construction financing (it being
understood that a variance of up to 15% of any construction financing shall be
considered an acceptable variance in the amount of such construction financing),
by phase, to be required in respect of each such Project.

          "Pro Rata Share" means (i) with respect to the initial $25,000,000
Loan made on the Effective Date, the percentage obtained by dividing (A) such
Lender's Commitment by (B) the Total Commitment; and (ii) otherwise, a fraction,
the numerator of which shall be the aggregate unpaid principal amount of such
Lender's portion of the Loan and the denominator of which shall be the aggregate
unpaid principal amount of the Loan.

          "Projects" shall mean the currently existing projects at Pokagon,
Shingle Springs, Vicksburg, Jamul, Iowa or Pawnee.

          "Rating Agencies" has the meaning specified therefor in Section 2.07.

          "Reference Bank" means JPMorgan Chase Bank, its successors or any
other commercial bank designated by the Agent to Parent from time to time.

          "Reference Rate" means the rate of interest publicly announced by the
Reference Bank in New York, New York from time to time as its reference rate,
base rate or prime rate. The reference rate, base rate or prime rate is
determined from time to time by the Reference Bank as a means of pricing some
loans to its borrowers and neither is tied to any external rate of interest or
index nor necessarily reflects the lowest rate of interest actually charged by
the Reference Bank to any particular class or category of customers. Each change
in the Reference Rate shall be effective from and including the date such change
is publicly announced as being effective.

          "Register" has the meaning specified therefor in Section 11.07(d).

          "Registered Loan" has the meaning specified therefor in Section
11.07(d).

          "Registration Rights Agreement" means the Registration Rights
Agreement, in form and substance satisfactory to the Agent, by and between the
Parent and the Lenders, with respect to certain registration rights of the
Lenders with respect to the Warrant Shares.

          "Regulation T", "Regulation U" and "Regulation X" mean, respectively,
Regulations T, U and X of the Board or any successor, as the same may be amended
or supplemented from time to time.


                                      -18-

<PAGE>

          "Related Fund" means, with respect to any Person, an Affiliate of such
Person, or a fund or account managed by such Person or an Affiliate of such
Person.

          "Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, seeping, migrating,
dumping or disposing of any Hazardous Material (including the abandonment or
discarding of barrels, containers and other closed receptacles containing any
Hazardous Material) into the indoor or outdoor environment, including, without
limitation, the movement of Hazardous Materials through or in the ambient air,
soil, surface or ground water, or property.

          "Remedial Action" means all actions taken to (i) clean up, remove,
remediate, contain, treat, monitor, assess, evaluate or in any other way address
Hazardous Materials in the indoor or outdoor environment; (ii) prevent or
minimize a Release or threatened Release of Hazardous Materials so they do not
migrate or endanger or threaten to endanger public health or welfare or the
indoor or outdoor environment; (iii) perform pre-remedial studies and
investigations and post-remedial operation and maintenance activities; or (iv)
perform any other actions authorized by 42 U.S.C. Section 9601.

          "Reportable Event" means an event described in Section 4043 of ERISA
(other than an event not subject to the provision for 30-day notice to the PBGC
under the regulations promulgated under such Section).

          "Required Lenders" means Lenders whose Pro Rata Shares of the Loan
aggregate at least 51%.

          "SEC" means the Securities and Exchange Commission or any other
similar or successor agency of the Federal government administering the
Securities Act.

          "Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the SEC thereunder,
all as the same shall be in effect from time to time.

          "Securities Purchase Agreement" means the Securities Purchase
Agreement, dated as of the date hereof, among the Parent and the investors
listed on the Schedule of Buyers attached thereto.

          "Securitization" has the meaning specified therefor in Section 2.07.

          "Securitization Parties" has the meaning specified therefor in Section
2.07.

          "Security Agreement" means a Security Agreement made by a Loan Party
in favor of the Agent for the benefit of the Agent and the Lenders,
substantially in the form of Exhibit B, securing the Obligations and delivered
to the Agent.

          "Shingle Springs" shall mean that certain casino on the Rancheria of
the Shingle Springs Band of Miwok Indians in El Dorado County, California.


                                      -19-

<PAGE>

          "Shingle Springs Indians" shall mean the Shingle Spring Band of Miwok
Indians, a federally recognized tribe.

          "Shingle Springs Development and Management Agreement" shall mean that
certain First Amended and Restated Memorandum of Agreement regarding Gaming
Development and Management Agreement, dated as of October 13, 2003, between
Shingle Springs Indians and Lakes Shingle Springs, as amended by that certain
June 16, 2004 Amendment to First Amended and Restated Memorandum of Agreement
regarding Gaming Development and Management Agreement, dated June 16, 2004,
between the Shingle Springs Indians and Lakes Shingle Springs.

          "Solvent" means, with respect to any Person on a particular date, that
on such date (i) the fair value of the property of such Person is not less than
the total amount of the liabilities of such Person, (ii) the present fair
salable value of the assets of such Person is not less than the amount that will
be required to pay the probable liability of such Person on its existing debts
as they become absolute and matured, (iii) such Person is able to realize upon
its assets and pay its debts and other liabilities, contingent obligations and
other commitments as they mature in the normal course of business, (iv) such
Person does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and liabilities
mature, and (v) such Person is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which such Person's
property would constitute unreasonably small capital.

          "Standard & Poor's" means Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc. and any successor thereto.

          "Subordinated Indebtedness" means Indebtedness of any Loan Party the
terms of which are satisfactory to the Agent and which has been expressly
subordinated in right of payment to all Indebtedness of such Loan Party under
the Loan Documents (i) by the execution and delivery of a subordination
agreement, in form and substance satisfactory to the Agent, or (ii) otherwise on
terms and conditions (including, without limitation, subordination provisions,
payment terms, interest rates, covenants, remedies, defaults and other material
terms) satisfactory to the Agent.

          "Subsidiary" means, with respect to any Person at any date, any
corporation, limited or general partnership, limited liability company, trust,
estate, association, joint venture or other business entity (i) the accounts of
which would be consolidated with those of such Person in such Person's
consolidated financial statements if such financial statements were prepared in
accordance with GAAP or (ii) of which more than 50% of (A) the outstanding
Capital Stock having (in the absence of contingencies) ordinary voting power to
elect a majority of the board of directors or other managing body of such
Person, (B) in the case of a partnership or limited liability company, the
interest in the capital or profits of such partnership or limited liability
company or (C) in the case of a trust, estate, association, joint venture or
other entity, the beneficial interest in such trust, estate, association or
other entity business is, at the time of determination, owned or controlled
directly or indirectly through one or more intermediaries, by such Person. In no
event shall an Inactive Subsidiary be considered a Subsidiary unless pursuant to
Section 6.01(s) hereof. Notwithstanding the foregoing, except with respect to
the relevant


                                      -20-

<PAGE>

reporting obligations in Section 6.01(a), World Poker shall not be deemed a
Subsidiary under this Agreement (but for purposes of Section 6.01(a) only, World
Poker shall be deemed a Subsidiary only in each case where the applicable
reporting requirement has been historically prepared by the Parent on a
consolidated basis).

          "Taxes" has the meaning specified therefor in Section 2.08(a).

          "Termination Event" means (i) a Reportable Event with respect to any
Employee Plan, (ii) any event that causes any Loan Party or any of its ERISA
Affiliates to incur liability under Section 409, 502(i), 502(l), 515, 4062,
4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 4971 or 4975 of the
Internal Revenue Code, (iii) the filing of a notice of intent to terminate an
Employee Plan or the treatment of an Employee Plan amendment as a termination
under Section 4041 of ERISA, (iv) the institution of proceedings by the PBGC to
terminate an Employee Plan, or (v) any other event or condition which might
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Employee Plan.

          "Title Insurance Policy" means a mortgagee's loan policy, in form and
substance satisfactory to the Agent, together with all endorsements made from
time to time thereto, including, but not limited to, a zoning endorsement,
issued by or on behalf of a title insurance company satisfactory to the Agent,
insuring the Lien created by a Mortgage in an amount and on terms satisfactory
to the Agent, delivered to the Agent.

          "Total Commitment" means the sum of the amounts of the Lenders'
Commitments.

          "Transferee" has the meaning specified therefor in Section 2.08(a).

          "UCC Filing Authorization Letter" means a letter duly executed by each
Loan Party authorizing the Agent to file appropriate financing statements on
Form UCC-1 without the signature of such Loan Party in such office or offices as
may be necessary or, in the opinion of the Agent, desirable to perfect the
security interests purported to be created by each Security Agreement, each
Pledge Agreement and each Mortgage.

          "Uniform Commercial Code" has the meaning specified therefor in
Section 1.03.

          "Vicksburg" shall mean that certain casino owned by Lakes
Gaming-Mississippi, LLC on land near Vicksburg, Mississippi.

          "WARN" has the meaning specified therefor in Section 5.01(aa).

          "Warrants" has the meaning assigned to such term in the Securities
Purchase Agreement.

          "Warrant Shares" has the meaning assigned to such term in the
Warrants.

          "World Poker" means WPT Enterprises, Inc., a Delaware corporation.


                                      -21-

<PAGE>

          "World Poker Collateral Shares" means 12,480,000 World Poker Shares
upon which a Lien is granted by Parent as security for all or any part of the
Obligations.

          "World Poker Shares" means the Capital Stock of World Poker (as
adjusted for stock splits, stock dividends, reverse stock splits,
recapitalizations, reclassifications and similar events).

          "WPT 25% Collateral Event" has the meaning specified therefor in the
Warrant.

          "WPT 50% Collateral Event" has the meaning specified therefor in the
Warrant.

          "WPT 75% Collateral Event" has the meaning specified therefor in the
Warrant.

          "WPT Effective Date" has the meaning specified therefor in Section
6.01(q).

          "WPT Legislation Event" has the meaning specified therefor in the
Warrant.

          "WPT Registration Delay Payments" has the meaning specified therefor
in Section 6.01(q).

          Section 1.02 Terms Generally. The definitions of terms herein shall
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". The word "will"
shall be construed to have the same meaning and effect as the word "shall".
Unless the context requires otherwise, (a) any definition of or reference to any
agreement, instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference
herein to any Person shall be construed to include such Person's successors and
assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar
import, shall be construed to refer to this Agreement in its entirety and not to
any particular provision hereof, (d) all references herein to Articles,
Sections, Exhibits and Schedules shall be construed to refer to Articles and
Sections of, and Exhibits and Schedules to, this Agreement and (e) the words
"asset" and "property" shall be construed to have the same meaning and effect
and to refer to any right or interest in or to assets and properties of any kind
whatsoever, whether real, personal or mixed and whether tangible or intangible.
References in this Agreement to "determination" by the Agent include good faith
estimates by the Agent (in the case of quantitative determinations) and good
faith beliefs by the Agent (in the case of qualitative determinations).

          Section 1.03 Accounting and Other Terms. Unless otherwise expressly
provided herein, each accounting term used herein shall have the meaning given
it under GAAP applied on a basis consistent with those used in preparing the
Financial Statements. All terms used in this Agreement which are defined in
Article 8 or Article 9 of the Uniform Commercial Code as in effect from time to
time in the State of New York (the "Uniform Commercial Code") and which are not
otherwise defined herein shall have the same meanings herein as set forth
therein, provided that terms used herein which are defined in the Uniform
Commercial Code as in effect in the State


                                      -22-

<PAGE>

of New York on the date hereof shall continue to have the same meaning
notwithstanding any replacement or amendment of such statute except as the Agent
may otherwise determine.

          Section 1.04 Time References. Unless otherwise indicated herein, all
references to time of day refer to Eastern Standard Time or Eastern daylight
saving time, as in effect in New York City on such day. For purposes of the
computation of a period of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
means "to but excluding"; provided, however, that with respect to a computation
of fees or interest payable to the Agent or any Lender, such period shall in any
event consist of at least one full day.

                                   ARTICLE II

                                    THE LOANS

          Section 2.01 Commitments. (a) Subject to the terms and conditions and
relying upon the representations and warranties herein set forth, each Lender
severally agrees to make the Loans to the Borrowers at any time and from time to
time from the Effective Date to the Maturity Date, or until the earlier
reduction of its Commitment to zero in accordance with the terms hereof, in an
aggregate principal amount of Loans at any time outstanding not to exceed the
amount of such Lender's Commitment, as such Commitment may be terminated or
reduced in accordance with the provisions of this Agreement. Notwithstanding
anything to the contrary contained herein, the Lenders shall not be obligated to
make Loans in an aggregate principal amount in excess of $35,000,000 unless (i)
9,480,000 (plus any Initial Shares included as provided below) of the World
Poker Collateral Shares have a market value for a prior 10 day volume weighted
average of $50,000,000 (it being understood that (x) in computing such market
value, the Parent may contribute for purposes of such calculation all or part of
the Initial Shares to attain such $50,000,000 market value and (y) that all or
any part of such Initial Shares may be withdrawn after being computed for such
purpose for more than 45 days if and to the extent that for the 10 day period
prior to such proposed withdrawal, the volume weighted average of 9,480,000 of
the World Poker Collateral Shares is at least equal to $50,000,000), and (ii)
either (A) construction financing has been drawn upon for the commencement of
construction for at least one of the following casinos in accordance with the
Project Business Plan and no litigation, governmental or regulatory, labor,
tribal or other action has had the effect of enjoining or preventing in any
material respect to the actual construction thereof : Shingle Springs, Pokagon
or Jamul, or (B) the Parent has received gross proceeds in an aggregate amount
of not less than $20,000,000 since the Effective Date from the issuance of the
Common Stock.

               (b) The aggregate principal amount of the Loan made by the
Lenders shall not exceed the Total Commitment (and in the case of the Loan made
on the Effective Date, $25,000,000). Any principal amount of a Loan which is
repaid or prepaid may not be reborrowed. The Total Commitment shall be reduced
dollar-for-dollar by:

                    (i) the proceeds of the sale of World Poker Collateral
Shares, net of customary and ordinary transaction costs (which for the avoidance
of doubt shall exclude any taxes other than transfer taxes due of a result of
such sale) for similar sales (which in no event shall exceed 4% of the gross
proceeds of such sale) in excess of 3,000,000 World Poker


                                      -23-

<PAGE>

Collateral Shares (such 3,000,000 shares as reduced by any shares contributed in
accordance with clause (a) above) (such shares, the "Initial Shares"), to the
extent, and in the amount, that such proceeds exceed the then outstanding
principal balance of the Loan; and

                    (ii) with respect to the Initial Shares, an amount, if any,
equal to the differential between the price at which such Initial Shares are
sold and $6.00 per share (as adjusted for stock splits, stock dividends, reverse
stock splits, recapitalizations, reclassifications and similar events) (such
that, by way of example, if 3,000,000 Initial Shares were sold at $5.00, the
reduction would be $3,000,000).

          Section 2.02 Making the Loan. (a) The Parent shall give the Agent
prior telephonic notice (immediately confirmed in writing, in substantially the
form of Exhibit D hereto (a "Notice of Borrowing")), not later than 12:00 noon
(New York City time) on the date which is five (5) Business Days prior to the
date of the proposed Loan (or such shorter period as the Agent is willing to
accommodate from time to time, but in no event later than 12:00 noon (New York
City time) on the borrowing date of the proposed Loan). Such Notice of Borrowing
shall be irrevocable (and the Borrowers shall be bound to make a borrowing in
accordance therewith) and shall specify (i) the principal amount of the proposed
Loan (which, in the case of Loans requested on the Effective Date, shall be
$25,000,000, and in the case of Loans requested after the Effective Date, shall
be drawn in up to five additional draws each in a minimum amount of $5,000,000
and in multiples of $100,000 (or such smaller amount as the Agent is willing to
accommodate) in excess thereof), and (ii) the proposed borrowing date, which
must be a Business Day. The Agent and the Lenders may act without liability upon
the basis of written, telecopied or telephonic notice believed by the Agent in
good faith to be from Parent (or from any Authorized Officer thereof designated
in writing purportedly from Parent to the Agent). Each Borrower hereby waives
the right to dispute the Agent's record of the terms of any such telephonic
Notice of Borrowing. The Agent and each Lender shall be entitled to rely
conclusively on any Authorized Officer's authority to request a Loan on behalf
of the Borrowers until the Agent receives written notice to the contrary. The
Agent and the Lenders shall have no duty to verify the authenticity of the
signature appearing on any written Notice of Borrowing. The Borrowers hereby
agree that the Initial Purchase Price (as defined in the Securities Purchase
Agreement) of $10.00 for the Warrants and the Additional Purchase Price (as
defined in the Securities Purchase Agreement) of $44,577.51 for the Preferred
Shares shall be deemed paid in full as of the Effective Date as part of the net
funding from the initial Loan made on the Effective Date in accordance with the
Payment Direction Letter.

               (b) Except as otherwise provided in this subsection 2.02(b), all
Loans under this Agreement shall be made by the Lenders simultaneously and
proportionately to their Pro Rata Shares of the Total Commitment, it being
understood that no Lender shall be responsible for any default by any other
Lender in that other Lender's obligations to make a Loan requested hereunder,
nor shall the Commitment of any Lender be increased or decreased as a result of
the default by any other Lender in that other Lender's obligation to make a Loan
requested hereunder, and each Lender shall be obligated to make the Loans
required to be made by it by the terms of this Agreement regardless of the
failure by any other Lender.


                                      -24-

<PAGE>

          Section 2.03 Repayment of Loans; Evidence of Debt.

               (a) The outstanding principal of the Loans shall be due and
repayable on the Maturity Date (subject to earlier repayment as provided below)
together with any and all accrued and unpaid interest thereon.

               (b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing the Indebtedness of the Borrowers to
such Lender resulting from each Loan made by such Lender, including the amounts
of principal and interest payable and paid to such Lender from time to time
hereunder.

               (c) The Agent shall maintain accounts in which it shall record
(i) the amount of each Loan made hereunder, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Borrowers to each
Lender hereunder and (iii) the amount of any sum received by the Agent hereunder
for the account of the Lenders and each Lender's share thereof.

               (d) The entries made in the accounts maintained pursuant to
paragraph (c) or (d) of this Section shall be prima facie evidence of the
existence and amounts of the obligations recorded therein, absent manifest
error; provided that the failure of any Lender or the Agent to maintain such
accounts or any error therein shall not in any manner affect the obligation of
the Borrowers to repay the Loans in accordance with the terms of this Agreement.

               (e) Any Lender may request that Loans made by it be evidenced by
a promissory note. In such event, the Borrowers shall execute and deliver to
such Lender a promissory note payable to the order of such Lender (or, if
requested by such Lender, to such Lender and its registered assigns) in a form
furnished by the Agent and reasonably acceptable to Parent. Thereafter, the
Loans evidenced by such promissory note and interest thereon shall at all times
(including after assignment pursuant to Section 11.07) be represented by one or
more promissory notes in such form payable to the order of the payee named
therein (or, if such promissory note is a registered note, to such payee and its
registered assigns).

          Section 2.04 Interest.

               (a) Loan. Each Loan shall bear interest on the principal amount
thereof from time to time outstanding, from the date such Loan is made,
continued or converted, as the case may be, until such principal amount of such
Loan is paid in full, at a rate per annum equal to 12.00%. To the extent it is
determined by the Lenders upon advice of counsel that the issuance of Preferred
Shares, the exercise in the case of the Warrants or voting in the case of
Preferred Shares with respect to board rights requires consent or approval by
any state, federal or other gaming authority, the Parent will use reasonable
commercial efforts to obtain such consent or approval.

               (b) Additional Interest. (i) Upon a WPT Legislation Event, (A)
the obligation to make additional loans under the Financing Facility may, at the
option of the Lenders, terminate and (B) the then outstanding balance of the
Loans shall bear interest at a rate 6% in excess of the rate then in effect
until the value of the World Poker Collateral Shares is


                                      -25-

<PAGE>

equal to or greater than 100% of the principal amount of the loans outstanding
under the Financing Facility.

                    (ii) without limiting any other section hereof, if a WPT 75%
Collateral Event has occurred and is continuing the then outstanding balance of
the loans shall bear interest at a rate 6% in excess of the rate then in effect
until the date on which, if any, a WPT 75% Collateral Event shall no longer be
occurring.

                    (iii) without limiting any other section hereof, if a WPT
50% Collateral Event has occurred and is continuing the then outstanding balance
of the loans shall bear interest at a rate 6% in excess of the rate then in
effect until the date on which, if any, a WPT 50% Collateral Event shall no
longer be occurring.

                    (iv) without limiting any other section hereof, if a WPT 25%
Collateral Event has occurred and is continuing the then outstanding balance of
the loans shall bear interest at a rate 6% in excess of the rate then in effect
until the date on which, if any, a WPT 25% Collateral Event shall no longer be
occurring.

               (c) Default Interest. To the extent permitted by law, upon the
occurrence and during the continuance of an Event of Default, the principal of,
and all accrued and unpaid interest on, all Loans, fees, indemnities or any
other Obligations of the Loan Parties under this Agreement and the other Loan
Documents, shall bear interest, from the date such Event of Default occurred
until the date such Event of Default is cured or waived in writing in accordance
herewith, at a rate per annum equal at all times to the Post-Default Rate.

               (d) Interest Payment. Interest on each Loan shall be payable
monthly, in arrears, on the first day of each month, commencing on the first day
of the month following the month in which such Loan is made and at maturity
(whether upon demand, by acceleration or otherwise). Interest at the
Post-Default Rate shall be payable on demand. Each Borrower hereby authorizes
the Agent to, and the Agent may, from time to time, charge the Loan Account
pursuant to Section 3.01 with the amount of any interest payment due hereunder.

               (e) General. All interest shall be computed on the basis of a
year of 360 days for the actual number of days, including the first day but
excluding the last day, elapsed.

          Section 2.05 Reduction and Termination of Commitment; Prepayment of
Loans.

               (a) Reduction and Termination of Commitments. The Total
Commitment and the Commitment of each Lender shall automatically and permanently
terminate at 5:00 p.m. (New York City time) on the Maturity Date. Each Loan will
permanently reduce the Total Commitment and each Lender's Pro Rata Share
thereof. Notwithstanding anything to the contrary contained herein, the Total
Commitment shall be permanently reduced on a dollar-for-dollar basis by the
proceeds of any World Poker Shares sold by any Loan Party after the Effective
Date in excess of the Initial Shares provided, however, that to the extent that
any portion of such Initial Shares are sold for less than $6.00 per share (as
adjusted for stock splits, stock dividends, reverse stock splits,
recapitalizations, reclassifications and similar events), the amount by which
the Total Commitment is reduced shall be the differential between the price at
which any such Initial Shares are sold and $6.00 per share (such that by way of
example, if


                                      -26-

<PAGE>

3,000,000 Initial Shares were sold at $5.00, the Total Commitment would be
reduced by $3,000,000).

               (b) Optional Prepayment. The Borrowers may, upon at least five
(5) Business Days' prior written notice to the Agent, prepay, without penalty or
premium, the principal of the Loans, in whole or in part from time to time. Each
prepayment made pursuant to this clause (b) shall be accompanied by the payment
of accrued interest to the date of such payment on the amount prepaid.

               (c) Mandatory Prepayment.

                    (i) Immediately upon any Disposition by any Loan Party or
its Subsidiaries pursuant to Section 6.02(c)(ii), the Borrowers shall prepay the
outstanding amount of the Loans in an amount equal to 100% of the Net Cash
Proceeds received by such Person in connection with such Disposition to the
extent that the aggregate amount of Net Cash Proceeds received by all Loan
Parties and their Subsidiaries (and not paid to the Agent as a prepayment of the
Loans) shall exceed for all such Dispositions since the Effective Date the sum
of $250,000. Nothing contained in this subsection (i) shall permit any Loan
Party or any of its Subsidiaries to make a Disposition of any property other
than in accordance with Section 6.02(c)(ii).

                    (ii) Upon the issuance or incurrence by any Loan Party or
any of its Subsidiaries of any Indebtedness (other than Indebtedness referred to
in clauses (a), (b), (c), (d), (e), (g), (h) and (i) of the definition of
Permitted Indebtedness), the Borrowers shall prepay the outstanding amount of
the Loans in an amount equal to 100% of the Net Cash Proceeds received by such
Person in connection therewith, provided that, if the Net Cash Proceeds received
by such Person in connection with any construction indebtedness exceed the costs
of such construction financed by such construction indebtedness, the Borrowers
shall prepay the outstanding amount of the Loans in an amount equal to 20% of
the excess amount of such Net Cash Proceeds. The provisions of this subsection
(ii) shall not be deemed to be implied consent to any such issuance or
incurrence otherwise prohibited by the terms and conditions of this Agreement.

                    (iii) Upon the sale by any Loan Party or any of its
Subsidiaries of any World Poker Shares (other than the Initial Shares), the
Borrowers shall prepay the outstanding amount of the Loans in an amount equal to
100% of the Net Cash Proceeds received by such Loan Party in connection
therewith.

                    (iv) Upon the receipt by any Loan Party or any of its
Subsidiaries of any Extraordinary Receipts, the Borrowers shall prepay the
outstanding Loans in an amount equal to 100% of such Extraordinary Receipts, net
of any reasonable expenses incurred in collecting such Extraordinary Receipts.

                    (v) Not less frequently than semi-annually, the Borrowers
(or any Loan Party in receipt of the following) shall prepay the outstanding
amount of the Loans in an amount equal to the Excess Cash Amount.

                    (vi) Notwithstanding the foregoing, the Loan Parties shall
be permitted, without being obligated to make a mandatory prepayment, to sell an
unlimited


                                      -27-

<PAGE>

numbers of shares of Capital Stock of the Parent, in each case, at not less than
the fair market value (it being understood that fair market value may be
impacted as a result of lack of liquidity and similar market factors impacting
the value of the securities sold) and such Net Cash Proceeds may be used for
general corporate purposes so long as not in violation of the terms of this
Agreement.

                    (vii) Without limiting any increased payments of interest or
fees hereunder as otherwise may be in effect, no prepayment made pursuant to
this subsection (c) shall be subject to penalty or premium.

               (d) [Intentionally Omitted].

               (e) Interest and Fees. The amount of any prepayment made pursuant
to this Section 2.05 shall be allocated between principal of the Loan and
accrued interest on the principal amount being prepaid to the date of prepayment
without the need for any additional payment by any Loan Party, unless such
prepayment would reduce the amount of the outstanding Loans to zero, in which
case such prepayment shall be accompanied by the payment of all fees accrued to
such date pursuant to Section 2.06. Notwithstanding the foregoing, however, in
no event shall the amount prepaid be less than the mandatory prepayment proceeds
unless all Obligations hereunder are paid in full.

               (f) Cumulative Prepayments. Except as otherwise expressly
provided in this Section 2.05, payments with respect to any subsection of this
Section 2.05 are in addition to payments made or required to be made under any
other subsection of this Section 2.05.

          Section 2.06 Fees.

               (a) Closing Fee. On or prior to the Effective Date, the Borrowers
shall pay to Prentice Capital Management, LP for the account of the Lenders, in
accordance with their Pro Rata Shares, a non-refundable closing fee (the
"Closing Fee") equal to $1,500,000 which shall be deemed fully earned when paid.

               (b) Loan Servicing Fee. From and after the Effective Date and
until the later of the date on which all Obligations are paid in full and the
date on which the Commitments are terminated, the Borrowers shall pay to
Prentice Capital Management, LP a non-refundable loan servicing fee (the "Loan
Servicing Fee") equal to $5,000 each month, which shall be deemed fully earned
when paid and which shall be due and payable on the Effective Date and monthly
in advance thereafter on the first day of each calendar month commencing on the
first day of the calendar month immediately following the Effective Date.

               (c) Collateral Maintenance Fee. Commencing on the date that each
of a WPT Legislative Event, a WPT 25% Collateral Event, WPT 50% Collateral Event
or a WPT 75% Collateral Event shall occur, if any, the Borrowers shall pay to
Prentice Capital Management, LP a collateral maintenance fee equal to, 2.00% of
the aggregate principal amount of the Loans outstanding on such date on the date
of the first such event and an additional 2% of the aggregate principal amount
of the Loans outstanding on such date on the date of each such additional event
thereafter (it being understood that once a 2% fee is payable with respect to an
applicable event as aforesaid such fee shall not reduce if the percentage
increases). Such fee


                                      -28-

<PAGE>

shall be due and payable on each date that a WPT Legislative Event, a WPT 25%
Collateral Event, WPT 50% Collateral Event or a WPT 75% Collateral Event shall
occur.

               (d) Audit and Collateral Monitoring Fees. The Borrowers
acknowledge that pursuant to Section 6.01(f), representatives of the Agent may
visit any or all of the Loan Parties and/or conduct audits, inspections,
valuations, appraisals and/or field examinations of any or all of the Loan
Parties at any time and from time to time, upon reasonable advance notice and at
reasonable times (it being understood that during the continuance of an Event of
Default, notice may be shorter), in a manner so as to not unduly disrupt the
business of the Loan Parties. The Borrowers agree to pay (i) $1,500 per day per
examiner plus the examiner's out-of-pocket costs and reasonable expenses
incurred in connection with all such visits, audits, inspections, valuations,
appraisals and field examinations and (ii) the cost of all visits, audits,
inspections, valuations, appraisals and field examinations conducted by a third
party on behalf of the Agent; provided, however, that payments under this
Section 2.07(d) shall not exceed an aggregate of $25,000 in any twelve (12)
month period prior to an Event of Default.

          Section 2.07 Securitization. The Loan Parties hereby acknowledge that
the Lenders and their Affiliates may sell or securitize the Loans (a
"Securitization") through the pledge of the Loans as collateral security for
loans to the Lenders or their Affiliates or through the sale of the Loans or the
issuance of direct or indirect interests in the Loans, which loans to the
Lenders or their Affiliates or direct or indirect interests will be rated by
Moody's, Standard & Poor's or one or more other rating agencies (the "Rating
Agencies"). The Loan Parties shall cooperate with the Lenders and their
Affiliates to effect the Securitization including, without limitation, by (a)
amending this Agreement and the other Loan Documents, and executing such
additional documents, as reasonably requested by the Lenders in connection with
the Securitization, provided that (i) any such amendment or additional
documentation does not impose material additional costs on the Loan Parties and
(ii) any such amendment or additional documentation does not materially
adversely affect the rights, or materially increase the obligations, of the Loan
Parties under the Loan Documents or change or affect in a manner adverse to the
Loan Parties the financial terms of the Loans, (b) providing such information as
may be reasonably requested by the Lenders in connection with the rating of the
Loans or the Securitization, and (c) providing in connection with any rating of
the Loans a certificate (i) agreeing to indemnify the Lenders and their
Affiliates, any of the Rating Agencies, or any party providing credit support or
otherwise participating in the Securitization (collectively, the "Securitization
Parties"), in a manner that is customary for such transactions, for any losses,
claims, damages or liabilities (the "Liabilities") to which the Lenders, their
Affiliates or such Securitization Parties may become subject insofar as the
Liabilities arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Loan Document or in any
writing delivered by or on behalf of any Loan Party to the Lenders in connection
with any Loan Document or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, and such indemnity shall survive any
transfer by the Lenders or their successors or assigns of the Loans and (ii)
agreeing to reimburse the Lenders and their Affiliates for any legal or other
expenses reasonably incurred by such Persons in connection with defending the
Liabilities.


                                      -29-

<PAGE>

          Section 2.08 Taxes. (a) Any and all payments by any Loan Party
hereunder shall be made free and clear of and without deduction for any and all
present or future taxes, levies, imposts, deductions, charges or withholdings,
and all liabilities with respect thereto, excluding taxes imposed on the net
income of the Agent or any Lender (or any transferee or assignee thereof (any
such entity, a "Transferee")) by the jurisdiction in which such Person is
organized or has its principal lending office (all such nonexcluded taxes,
levies, imposts, deductions, charges withholdings and liabilities, collectively
or individually, "Taxes"). If any Loan Party shall be required to deduct any
Taxes from or in respect of any sum payable hereunder to the Agent or any Lender
(or any Transferee), (i) the sum payable shall be increased by the amount (an
"additional amount") necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
2.08) the Agent or such Lender (or such Transferee) shall receive an amount
equal to the sum it would have received had no such deductions been made, (ii)
such Loan Party shall make such deductions and (iii) such Loan Party shall pay
the full amount deducted to the relevant Governmental Authority in accordance
with applicable law.

               (b) In addition, each Loan Party agrees to pay to the relevant
Governmental Authority in accordance with applicable law any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies that arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement
("Other Taxes"). Each Loan Party shall deliver to the Agent, and each Lender
official receipts in respect of any Taxes or Other Taxes payable hereunder
promptly after payment of such Taxes or Other Taxes.

               (c) The Loan Parties hereby jointly and severally indemnify and
agree to hold each Agent and each Lender harmless from and against Taxes and
Other Taxes (including, without limitation, Taxes and Other Taxes imposed on any
amounts payable under this Section 2.08) paid by such Person, whether or not
such Taxes or Other Taxes were correctly or legally asserted. Such
indemnification shall be paid within 10 days from the date on which any such
Person makes written demand therefor specifying in reasonable detail the nature
and amount of such Taxes or Other Taxes.

               (d) Each Lender (or Transferee) that is organized under the laws
of a jurisdiction other than the United States, any State thereof or the
District of Columbia (a "Non-U.S. Lender") shall deliver to the Agent and Parent
two properly completed and duly executed copies of either U.S. Internal Revenue
Service Form W-8BEN or Form W-8ECI, or, in the case of a Non-U.S. Lender
claiming exemption from U.S. Federal withholding tax under Section 871(h) or
881(c) of the Code with respect to payments of "portfolio interest", a Form
W-8BEN, or any subsequent versions thereof or successors thereto (and, if such
Non-U.S. Lender delivers a Form W-8, a certificate representing that such
Non-U.S. Lender is not a bank for purposes of Section 881(c) of the Internal
Revenue Code, is not a 10-percent shareholder (within the meaning of Section
871(h)(3)(B) of the Internal Revenue Code) of the Parent and is not a controlled
foreign corporation related to the Parent (within the meaning of Section
864(d)(4) of the Internal Revenue Code)), in each case claiming complete
exemption from U.S. Federal withholding tax on payments by the Loan Parties
under this Agreement. Such forms shall be delivered by each Non-U.S. Lender on
or before the date it becomes a party to this Agreement (or, in the case of a
Transferee that is a participation holder, on or before the date such


                                      -30-

<PAGE>

participation holder becomes a Transferee hereunder) and on or before the date,
if any, such Non-U.S. Lender changes its applicable lending office by
designating a different lending office (a "New Lending Office"). In addition,
each Non-U.S. Lender shall deliver such forms within 20 days after receipt of a
written request therefor from Parent or the Agent. Notwithstanding any other
provision of this Section 2.08, a Non-U.S. Lender shall not be required to
deliver after the date hereof any form pursuant to this Section 2.08 that such
Non-U.S. Lender is not legally able to deliver.

               (e) The Loan Parties shall not be required to indemnify any
Non-U.S. Lender, or pay any additional amounts to any Non-U.S. Lender, in
respect of United States Federal withholding tax pursuant to this Agreement to
the extent that (i) the obligation to withhold amounts with respect to United
States Federal withholding tax existed on the date such Non-U.S. Lender became a
party to this Agreement (or, in the case of a Transferee that is a participation
holder, on the date such participation holder became a Transferee hereunder) or,
with respect to payments to a New Lending Office, the date such Non-U.S. Lender
designated such New Lending Office with respect to a Loan; provided, however,
that this clause (i) shall not apply to the extent the indemnity payment or
additional amounts any Transferee, or Lender (or Transferee) through a New
Lending Office, would be entitled to receive (without regard to this clause (i))
do not exceed the indemnity payment or additional amounts that the person making
the assignment, participation or transfer to such Transferee, or Lender (or
Transferee) making the designation of such New Lending Office, would have been
entitled to receive in the absence of such assignment, participation, transfer
or designation, or (ii) the obligation to pay such additional amounts would not
have arisen but for a failure by such Non-U.S. Lender to comply with the
provisions of clause (d) above.

               (f) Any Lender (or Transferee) claiming any indemnity payment or
additional payment amounts payable pursuant to this Section 2.08 shall use
reasonable efforts (consistent with legal and regulatory restrictions) to file
any certificate or document reasonably requested in writing by Parent or to
change the jurisdiction of its applicable lending office if the making of such a
filing or change would avoid the need for or reduce the amount of any such
indemnity payment or additional amount which may thereafter accrue, would not
require such Lender (or Transferee) to disclose any information such Lender (or
Transferee) deems confidential and would not, in the sole determination of such
Lender (or Transferee), be otherwise disadvantageous to such Lender (or
Transferee).

               (g) The obligations of the Loan Parties under this Section 2.08
shall survive the termination of this Agreement and the payment of the Loans and
all other amounts payable hereunder.

                                  ARTICLE III

                      FEES, PAYMENTS AND OTHER COMPENSATION

          Section 3.01 Payments; Computations and Statements. The Borrowers will
make each payment under this Agreement not later than 12:00 noon (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 Agent's Account. All payments received by
the Agent after 12:00 noon (New York


                                      -31-

<PAGE>

City time) on any Business Day will be credited to the Loan Account on the next
succeeding Business Day. All payments shall be made by the Borrowers without
set-off, counterclaim, deduction or other defense to the Agent and the Lenders.
Except as provided in Section 2.02, after receipt, the Agent will promptly
thereafter cause to be distributed like funds relating to the payment of
principal ratably to the Lenders in accordance with their Pro Rata Shares and
like funds relating to the payment of any other amount payable to any Lender to
such Lender, in each case to be applied in accordance with the terms of this
Agreement, provided that the Agent will cause to be distributed all interest and
fees received from or for the account of the Borrowers not less than once each
month and in any event promptly after receipt thereof. The Lenders and the
Borrowers hereby authorize the Agent to, and the Agent may, from time to time,
charge the Loan Account of the Borrowers with any amount due and payable by the
Borrowers under any Loan Document. The Lenders and the Borrowers confirm that
any charges which the Agent may so make to the Loan Account of the Borrowers as
herein provided will be made as an accommodation to the Borrowers and solely at
the Agent'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 or fees, as
the case may be. All computations of fees shall be made by the Agent on the
basis of a year of 360 days for the actual number of days (including the first
day but excluding the last day) occurring in the period for which such fees are
payable. Each determination by the Agent of an interest rate or fees hereunder
shall be conclusive and binding for all purposes in the absence of manifest
error.

          Section 3.02 Sharing of Payments, Etc. Except as provided in Section
2.02 hereof, if any Lender shall obtain any payment (whether voluntary,
involuntary, through the exercise of any right of set-off, or otherwise) on
account of any Obligation in excess of its ratable share of payments on account
of similar obligations obtained by all the Lenders, such Lender shall forthwith
purchase from the other Lenders such participations in such similar obligations
held by them as shall be necessary to cause such purchasing Lender to share the
excess payment ratably with each of them; provided, however, that if all or any
portion of such excess payment is thereafter recovered from such purchasing
Lender, such purchase from each Lender shall be rescinded and such Lender shall
repay to the purchasing Lender the purchase price to the extent of such recovery
together with an amount equal to such Lender's ratable share (according to the
proportion of (i) the amount of such Lender's required repayment to (ii) the
total amount so recovered from the purchasing Lender of any interest or other
amount paid by the purchasing Lender in respect of the total amount so
recovered). The Borrowers agree that any Lender so purchasing a participation
from another Lender pursuant to this Section 3.02 may, to the fullest extent
permitted by law, exercise all of its rights (including the Lender's right of
set-off) with respect to such participation as fully as if such Lender were the
direct creditor of the Borrowers in the amount of such participation.

          Section 3.03 Apportionment of Payments. Subject to Section 2.02
hereof:

               (a) all payments of principal and interest in respect of
outstanding Loans, all payments of fees (other than the audit and collateral
monitoring fee provided for in Section 2.06(d)) and all other payments in
respect of any other Obligations, shall be allocated by the Agent among such of
the Lenders as are entitled thereto, in proportion to their respective Pro


                                      -32-

<PAGE>

Rata Shares or otherwise as provided herein or, in respect of payments not made
on account of Loans, as designated by the Person making payment when the payment
is made.

               (b) After the occurrence and during the continuance of an Event
of Default, the Agent may, and upon the direction of the Required Lenders shall,
apply all payments in respect of any Obligations and all proceeds of the
Collateral, subject to the provisions of this Agreement, (i) first, ratably to
pay the Obligations in respect of any fees, expense reimbursements, indemnities
and other amounts then due to the Agent until paid in full; (ii) second, ratably
to pay the Obligations in respect of any fees and indemnities then due to the
Lenders until paid in full; (iii) third, ratably to pay interest due in respect
of the Loans until paid in full; (iv) fourth, ratably to pay principal of the
Loans until paid in full; and (v) fifth, to the ratable payment of all other
Obligations then due and payable.

               (c) For purposes of Section 3.03(b), "paid in full" with respect
to interest shall include interest accrued after the commencement of any
Insolvency Proceeding irrespective of whether a claim for such interest is
allowable in such Insolvency Proceeding.

               (d) In the event of a direct conflict between the priority
provisions of this Section 3.03 and other provisions contained in any other Loan
Document, it is the intention of the parties hereto that both such priority
provisions in such documents shall be read together and construed, to the
fullest extent possible, to be in concert with each other. In the event of any
actual, irreconcilable conflict that cannot be resolved as aforesaid, the terms
and provisions of this Section 3.03 shall control and govern.

          Section 3.04 Increased Costs and Reduced Return. (a) If any Lender or
the Agent shall have determined that the adoption or implementation of, or any
change in, any law, rule, treaty or regulation, or any policy, guideline or
directive of, or any change in, the interpretation or administration thereof by,
any court, central bank or other administrative or Governmental Authority, or
compliance by any Lender or the Agent or any Person controlling such Lender or
the Agent with any directive of, or guideline from, any central bank or other
Governmental Authority or the introduction of, or change in, any accounting
principles applicable to any Lender or the Agent or any Person controlling such
Lender or the Agent (in each case, whether or not having the force of law)
(each, a "Change in Law"), shall (i) subject such Lender or the Agent, or any
Person controlling such Lender or the Agent to any tax, duty or other charge
with respect to this Agreement or any Loan made by such Lender or the Agent, or
change the basis of taxation of payments to such Lender or the Agent or any
Person controlling such Lender or the Agent of any amounts payable hereunder
(except for taxes on the overall net income of such Lender or the Agent or any
Person controlling such Lender or the Agent), (ii) impose, modify or deem
applicable any reserve, special deposit or similar requirement against any Loan
or against assets of or held by, or deposits with or for the account of, or
credit extended by, such Lender or the Agent or any Person controlling such
Lender or the Agent or (iii) impose on such Lender or the Agent or any Person
controlling such Lender or the Agent or any other condition regarding this
Agreement, and the result of any event referred to in clauses (i), (ii) or (iii)
above shall be to increase the cost to such Lender or the Agent of making any
Loan or agreeing to make any Loan or to reduce any amount received or receivable
by such Lender or the Agent hereunder, then, upon demand by any such Lender or
the Agent, the Borrowers shall pay


                                      -33-

<PAGE>

to such Lender or the Agent such additional amounts as will compensate such
Lender or the Agent for such increased costs or reductions in amount.

               (b) If any Lender or the Agent shall have determined that any
Change in Law either (i) affects or would affect the amount of capital required
or expected to be maintained by such Lender or the Agent or any Person
controlling such Lender or the Agent, and such Lender or the Agent determines
that the amount of such capital is increased as a direct or indirect consequence
of any Loans made or maintained or any guaranty or participation with respect
thereto, such Lender's or the Agent's or such other controlling Person's other
obligations hereunder, or (ii) has or would have the effect of reducing the rate
of return on such Lender's or the Agent's or such other controlling Person's
capital to a level below that which such Lender or the Agent or such controlling
Person could have achieved but for such circumstances as a consequence of any
Loans made or maintained or any guaranty or participation with respect thereto
or any agreement to make Loans or such Lender's or the Agent's or such other
controlling Person's other obligations hereunder (in each case, taking into
consideration, such Lender's or the Agent's or such other controlling Person's
policies with respect to capital adequacy), then, upon demand by such Lender or
the Agent, the Borrowers shall pay to such Lender or the Agent from time to time
such additional amounts as will compensate such Lender or the Agent for such
cost of maintaining such increased capital or such reduction in the rate of
return on such Lender's or the Agent's or such other controlling Person's
capital.

               (c) All amounts payable under this Section 3.04 shall bear
interest from the date that is ten (10) days after the date of demand by any
Lender or the Agent until payment in full to such Lender or the Agent at the
Reference Rate (provided, however, that if the Loans are voluntarily prepaid in
whole in accordance with Section 2.05(b) prior to the end of such ten (10) day
period, no amounts shall be payable under this Section 3.04). A certificate of
such Lender or the Agent claiming compensation under this Section 3.04,
specifying the event herein above described and the nature of such event shall
be submitted by such Lender or the Agent to Parent, setting forth the additional
amount due and an explanation of the calculation thereof, and such Lender's or
the Agent's reasons for invoking the provisions of this Section 3.04, and shall
be final and conclusive absent manifest error.

          Section 3.05 Joint and Several Liability of the Borrowers. (a)
Notwithstanding anything in this Agreement or any other Loan Document to the
contrary, each of the Borrowers hereby accepts joint and several liability
hereunder and under the other Loan Documents in consideration of the financial
accommodations to be provided by the Agent and the Lenders under this Agreement
and the other Loan Documents, for the mutual benefit, directly and indirectly,
of each of the Borrowers and in consideration of the undertakings of the other
Borrowers to accept joint and several liability for the Obligations. Each of the
Borrowers, jointly and severally, hereby irrevocably and unconditionally
accepts, not merely as a surety but also as a co-debtor, joint and several
liability with the other Borrowers, with respect to the payment and performance
of all of the Obligations (including, without limitation, any Obligations
arising under this Section 3.05), it being the intention of the parties hereto
that all of the Obligations shall be the joint and several obligations of each
of the Borrowers without preferences or distinction among them. If and to the
extent that any of the Borrowers shall fail to make any payment with respect to
any of the Obligations as and when due or to perform any of the Obligations in
accordance with the terms thereof, then in each such event, the other Borrowers


                                      -34-

<PAGE>

will make such payment with respect to, or perform, such Obligation. Subject to
the terms and conditions hereof, the Obligations of each of the Borrowers under
the provisions of this Section 3.05 constitute the absolute and unconditional,
full recourse Obligations of each of the Borrowers, enforceable against each
such Person to the full extent of its properties and assets, irrespective of the
validity, regularity or enforceability of this Agreement, the other Loan
Documents or any other circumstances whatsoever.

               (b) The provisions of this Section 3.05 are made for the benefit
of the Agent, the Lenders and their successors and assigns, and may be enforced
by them from time to time against any or all of the Borrowers as often as
occasion therefor may arise and without requirement on the part of the Agent,
the Lenders or such successors or assigns first to marshal any of its or their
claims or to exercise any of its or their rights against any of the other
Borrowers or to exhaust any remedies available to it or them against any of the
other Borrowers or to resort to any other source or means of obtaining payment
of any of the Obligations hereunder or to elect any other remedy. The provisions
of this Section 3.05 shall remain in effect until all of the Obligations shall
have been paid in full or otherwise fully satisfied.

               (c) Each of the Borrowers hereby agrees that it will not enforce
any of its rights of contribution or subrogation against the other Borrowers
with respect to any liability incurred by it hereunder or under any of the other
Loan Documents, any payments made by it to the Agent or the Lenders with respect
to any of the Obligations or any Collateral, until such time as all of the
Obligations have been paid in full in cash. Any claim which any Borrower may
have against any other Borrower with respect to any payments to the Agent or the
Lenders hereunder or under any other Loan Documents are hereby expressly made
subordinate and junior in right of payment, without limitation as to any
increases in the Obligations arising hereunder or thereunder, to the prior
payment in full in cash of the Obligations.

                                   ARTICLE IV

                               CONDITIONS TO LOANS

          Section 4.01 Conditions Precedent to Effectiveness. This Agreement
shall become effective as of the Business Day (the "Effective Date") when each
of the following conditions precedent shall have been satisfied in a manner
satisfactory to the Agent:

               (a) Payment of Fees, Etc. The Borrowers shall have paid on or
before the date of this Agreement all fees, costs, expenses and taxes then
payable pursuant to Section 2.06 and Section 11.04 hereof.

               (b) Representations and Warranties; No Event of Default. The
following statements shall be true and correct: (i) the representations and
warranties contained in ARTICLE V and in each other Loan Document, certificate
or other writing delivered to the Agent or any Lender pursuant hereto or thereto
on or prior to the Effective Date are true and correct on and as of the
Effective Date as though made on and as of such date and (ii) no Default or
Event of Default shall have occurred and be continuing on the Effective Date or
would result from this Agreement or the other Loan Documents becoming effective
in accordance with its or their respective terms.


                                      -35-

<PAGE>

               (c) Legality. The making of the initial Loans shall not
contravene any law, rule or regulation applicable to the Agent or any Lender.

               (d) Delivery of Documents. The Agent shall have received on or
before the Effective Date the following, each in form and substance satisfactory
to the Agent in its sole discretion and, unless indicated otherwise, dated the
Effective Date:

                    (i) this Agreement, duly executed by each of the parties
thereto;

                    (ii) a Security Agreement, duly executed by each Loan Party;

                    (iii) a Pledge Agreement, duly executed by each Loan Party,
together with the original stock certificates representing all of the common
stock of such Loan Party's subsidiaries other than Excluded Subsidiaries,
accompanied by undated stock powers executed in blank and other proper
instruments of transfer, and a Notice of Pledge of Uncertificated Securities and
Control Agreement, duly executed by Lakes Entertainment, Inc., together with an
Acknowledgement in respect thereof executed by World Poker with respect to the
World Poker Collateral Shares;

                    (iv) a Mortgage with respect to each Facility, duly executed
by the applicable Loan Party and in suitable form for recording in an
appropriate office and creating a continuing first priority lien in favor of the
Lenders. The Agent shall be satisfied that if the Agent exercises remedies under
any Mortgage, upon acceleration, if any, of the Obligations under the Financing
Facility, the Agent may foreclose and sell to a third party free and clear of
any interest under any Indian Tribe party to any Material Contract;

                    (v) evidence of the recording of such Mortgages in such
office or offices as may be necessary or, in the opinion of the Agent, desirable
to perfect the Lien purported to be created thereby or to otherwise protect the
rights of the Agent and the Lenders thereunder;

                    (vi) a pro forma Title Insurance Policy with respect to the
property owned by the Parent in Minnesota, a pro forma Title Insurance Policy
with respect to Jamul, and a preliminary Title Insurance Policy with respect to
Shingle Springs;

                    (vii) an ALTA survey of the property owned by the Parent in
Minnesota, in form and substance satisfactory to the Agent, certified to the
issuer of the Title Insurance Policy;

                    (viii) a UCC Filing Authorization Letter, duly executed by
each Loan Party, together with appropriate financing statements on Form UCC-1
duly filed in such office or offices as may be necessary or, in the opinion of
the Agent, desirable to perfect the security interests purported to be created
by each Security Agreement, each Pledge Agreement and each Mortgage;

                    (ix) UCC search reports (which include tax and judgment lien
reports) listing all effective financing statements which name as debtor any
Loan Party and


                                      -36-

<PAGE>

which are filed in the offices referred to in paragraph (viii) above, together
with copies of such financing statements, none of which, except as otherwise
agreed in writing by the Agent, shall cover any of the Collateral and the
results of searches for any tax Lien and judgment Lien filed against such Person
or its property, which results, except as otherwise agreed to in writing by the
Agent, shall not show any such Liens;

                    (x) a copy of the resolutions of each Loan Party, certified
as of the Effective Date by an Authorized Officer thereof, authorizing (A) the
borrowings hereunder and the transactions contemplated by the Loan Documents to
which such Loan Party is or will be a party, and (B) the execution, delivery and
performance by such Loan Party of each Loan Document to which such Loan Party is
or will be a party and the execution and delivery of the other documents to be
delivered by such Person in connection herewith and therewith;

                    (xi) a certificate of an Authorized Officer of each Loan
Party, certifying the names and true signatures of the representatives of such
Loan Party authorized to sign each Loan Document to which such Loan Party is or
will be a party and the other documents to be executed and delivered by such
Loan Party in connection herewith and therewith, together with evidence of the
incumbency of such authorized officers;

                    (xii) except with respect to the State of Louisiana where a
dispute regarding taxes is currently ongoing and as to which the aggregate tax
liabilities with penalties shall not exceed $12,000,000 plus interest, fees and
penalties thereon accrued from the date hereof, a certificate of the appropriate
official(s) of the state of organization and each state of foreign qualification
of each Loan Party certifying as to the subsistence in good standing of, and the
payment of taxes by, such Loan Party in such states;

                    (xiii) a true and complete copy of the charter, certificate
of formation, certificate of limited partnership or other publicly filed
organizational document of each Loan Party certified as of a recent date not
more than 30 days prior to the Effective Date by an appropriate official of the
state of organization of such Loan Party which shall set forth the same complete
name of such Loan Party as is set forth herein and the organizational number of
such Loan Party, if an organized number is issued in such jurisdiction;

                    (xiv) a copy of the charter and by-laws, limited liability
company agreement, operating agreement, agreement of limited partnership or
other organizational document of each Loan Party, together with all amendments
thereto, certified as of the Effective Date by an Authorized Officer of such
Loan Party;

                    (xv) (A) an opinion of Gray Plant Mooty, counsel to the Loan
Parties, (B) local counsel opinions and (C) Hamilton Quigley & Twait, gaming
counsel to the Loan Parties, each substantially in the form of Exhibit E and
each as to such matters as the Agent may reasonably request, including, without
limitation, an opinion that the execution, delivery and performance under the
Mortgages set forth in subsection (iv) above does not violate any Material
Contracts;

                    (xvi) a certificate of an Authorized Officer of each Loan
Party, certifying as to the matters set forth in subsection (b) of this Section
4.01;


                                      -37-

<PAGE>

                    (xvii) a copy of the Financial Statements and the financial
projections described in Section 5.01(g)(ii) hereof, certified as of the
Effective Date as true and correct by an Authorized Officer of the Parent;

                    (xviii) the Project Business Plan, in form and substance
satisfactory to the Agent;

                    (xix) evidence of the insurance coverage required by Section
6.01 and the terms of each Security Agreement and each Mortgage and such other
insurance coverage with respect to the business and operations of the Loan
Parties as the Agent may reasonably request in each case, where requested by the
Agent, with such endorsements as to the named insureds or loss payees thereunder
as the Agent may request and providing that the issuer will endeavor to give,
before such policy may be terminated or canceled (by the insurer or the insured
thereunder), 30 days' prior written notice to the Agent and each such named
insured or loss payee, together with evidence of the payment of all premiums due
in respect thereof for such period as the Agent may request;

                    (xx) a certificate of an Authorized Officer of Parent,
certifying the names and true signatures of the persons that are authorized to
provide Notices of Borrowing and all other notices under this Agreement and the
other Loan Documents;

                    (xxi) copies of each Material Contract as in effect on the
Effective Date, certified as true and correct copies thereof by an Authorized
Officer of Parent, together with a certificate of an Authorized Officer of
Parent stating that such agreements remain in full force and effect and that
none of the Loan Parties has breached or defaulted in any of its obligations
under such agreements;

                    (xxii) to the extent already performed and in the possession
of the Parent and requested by the Agent, a Phase I Environmental Site
Assessment ("Phase I ESA") of each Facility, in form and substance and by an
independent firm satisfactory to the Agent;

                    (xxiii) such depository account, blocked account, lockbox
account and similar agreements and other documents, each in form and substance
satisfactory to the Agent, as the Agent may request with respect to the
Borrowers' cash management system;

                    (xxiv) the Warrants and the Preferred Shares required to be
delivered on or prior to the Effective Date pursuant to the Securities Purchase
Agreement, duly executed by the Parent;

                    (xxv) the Registration Rights Agreement, duly executed by
the Parent;

                    (xxvi) the Securities Purchase Agreement, duly executed by
the parties thereto;

                    (xxvii) The Certificate of Designations in the form attached
as Exhibit A to the Securities Purchase Agreement shall have been filed on or
prior to the Effective


                                      -38-

<PAGE>

Date with the Secretary of State of the State of Minnesota and shall be in full
force and effect, enforceable against the Parent in accordance with its terms
and shall not have been amended;

                    (xxviii) Evidence of the filing of a certificate of
designation in the State of Minnesota with respect to the Preferred Shares; and

                    (xxix) an employment contract with Lyle Berman in his
capacity as a senior executive officer of the Parent, which employment contract
shall be of a duration of at least three (3) years, satisfactory to the Agent in
form and substance (including with respect to non-competition provisions);

                    (xxx) such other agreements, instruments, approvals,
opinions and other documents, each satisfactory to the Agent in form and
substance, as the Agent may reasonably request.

               (e) Material Adverse Effect. The Agent shall have determined, in
its sole judgment, that no event or development shall have occurred since
January 2, 2005, which could have a Material Adverse Effect, including, without
limitation, the commencement of any litigation that, if adversely determined
could reasonably be expected to result in a Material Adverse Effect.

               (f) Approvals. All consents, authorizations and approvals of, and
filings and registrations with, and all other actions in respect of, any
Governmental Authority or other Person required in connection with the making of
the Loans or the conduct of the Loan Parties' business shall have been obtained
and shall be in full force and effect.

               (g) Proceedings; Receipt of Documents. All proceedings in
connection with the making of the Loan and the other transactions contemplated
by this Agreement and the other Loan Documents, and all documents incidental
hereto and thereto, shall be satisfactory to the Agent and its counsel, and the
Agent and such counsel shall have received all such information and such
counterpart originals or certified or other copies of such documents as the
Agent or such counsel may reasonably request.

               (h) Due Diligence. The Agent shall have completed its business,
legal and collateral due diligence with respect to each Loan Party, including,
without limitation, (i) a review of Loan Parties' books and records, (ii) a
collateral field examination and audit, (iii) review of the results of the
financial and collateral due diligence conducted by third parties acceptable to
the Lender, (iv) Inventory and equipment appraisals, in each case performed by
an appraiser selected by the Lender, (v) review of the Business Plan and interim
financial statements, (vi) background checks on key management, (vii) review of
ERISA, regulatory, environmental, intellectual property, litigation, tax,
licensing, certification and permit matters and labor matters, with results
satisfactory to the Lender, in its sole discretion, (viii) review of accounting
procedures of the Loan Parties and World Poker, (ix) consultation with
specialized gaming counsel and (x) other diligence deemed necessary or desirable
by the Lender, and in each case the results thereof shall be acceptable to the
Agent, in its sole and absolute discretion. The Agent shall be satisfied in its
sole discretion with the results of its review of all Material


                                      -39-

<PAGE>

Contracts of the Loan Parties and no consent (or approval) of any third party to
the transactions contemplated hereby shall be required under such contracts.

                    (i) World Poker Shares.

               (a) Public Pre-Announcement of Financials. World Poker shall have
made a formal public pre-announcement, in a manner reasonably satisfactory to
the Agent, of its estimated earnings, revenues and performance for any or all of
its business segment (including, without limitation, its online business
segment) for such period, which announcement shall be made not less than ten
(10) Business Days prior to the Effective Date.

               (b) The 10 Business Day weighted average of World Poker Shares
prior to the Effective Date shall not have been less than $3.89 per share (as
adjusted for stock splits, stock dividends, reverse stock splits,
recapitalizations, reclassifications and similar events) on the Nasdaq National
Market and such share price shall not be less than $3.89 per share (as adjusted
for stock splits, stock dividends, reverse stock splits, recapitalizations,
reclassifications and similar events) on the date prior to the Effective Date.

               (c) The Agent shall be satisfied that the World Poker Collateral
Shares pledged to the Lenders are not subject to securities law restrictions
(other than as a result of a failure to register such World Poker Collateral
Shares or with respect to prohibitions on trading while in possession of
material non-public information) which restrict the ability of such Lenders to
sell such shares based on the Parent's ownership of such shares or the fact that
officers of the Parent have seat on the board of directors of World Poker.

          Section 4.02 Conditions Precedent to the Loans. The obligation of the
Agent or any Lender to make any Loan is subject to the fulfillment, in a manner
satisfactory to the Agent, of each of the following conditions precedent:

               (a) Payment of Fees, Etc. The Borrowers shall have paid all fees,
costs, expenses and taxes then payable by the Borrowers pursuant to this
Agreement and the other Loan Documents, including, without limitation, Section
2.06 and Section 11.04 hereof.

               (b) Representations and Warranties; No Event of Default. The
following statements shall be true and correct, and the submission by Parent to
the Agent of a Notice of Borrowing with respect to each such Loan, and the
Borrowers' acceptance of the proceeds of such Loan shall each be deemed to be a
representation and warranty by each Loan Party on the date of such Loan that:
(i) the representations and warranties contained in ARTICLE V and in each other
Loan Document, certificate or other writing delivered to the Agent or any Lender
pursuant hereto or thereto on or prior to the date of such Loan are true and
correct in all material respects on and as of such date as though made on and as
of such date, (ii) at the time of and after giving effect to the making of such
Loan and the application of the proceeds thereof, no Default or Event of Default
has occurred and is continuing or would result from the making of the Loan to be
made on such date and (iii) the conditions set forth in this Section 4.02 have
been satisfied as of the date of such request.

               (c) Legality. The making of such Loan shall not contravene any
law, rule or regulation applicable to the Agent or any Lender.


                                      -40-

<PAGE>

               (d) Notices. The Agent shall have received a Notice of Borrowing
pursuant to Section 2.02 hereof.

               (e) Delivery of Documents. The Agent shall have received such
other agreements, instruments, approvals, opinions and other documents, each in
form and substance satisfactory to the Agent, as the Agent may reasonably
request, including the most recent Plan Reconciliation Report.

               (f) Proceedings; Receipt of Documents. All proceedings in
connection with the making of such Loan and the other transactions contemplated
by this Agreement and the other Loan Documents, and all documents incidental
hereto and thereto, shall be satisfactory to the Agent and its counsel, and the
Agent and such counsel shall have received all such information and such
counterpart originals or certified or other copies of such documents, in form
and substance satisfactory to the Agent, as the Agent or such counsel may
reasonably request.

          Section 4.03 Conditions Subsequent to the Initial Loans. The
obligation of the Lenders to continue to make or maintain Loans is subject to
the fulfillment of each of the conditions subsequent set forth below (the
failure by the Loan Parties to so perform or cause to be performed constituting
an Event of Default):

               (a) Pledged Debt. Within one (1) Business Day of the Effective
Date, Agent shall have received the original Pledged Debt represented by
promissory notes in respect of Pokagon.

               (b) Business Plan. Within ten (10) days of the Effective Date,
Agent shall have received the Business Plan in form and substance satisfactory
to the Agent.

               (c) Goldman Sachs Account. Within thirty (30) days of the
Effective Date, Agent shall have received a securities account control
agreement, reasonably satisfactory to it, in respect of the Loan Parties account
020526281 maintained with Goldman Sachs.

               (d) Life Insurance Policy. Within forty-five (45) days of the
Effective Date, Agent shall have received (i) a copy of the Life Insurance
Policy and (ii) a collateral assignment of life insurance policy, in respect of
the Life Insurance Policy.

               (e) Surveys. Within sixty (60) days of the Effective Date, Agent
shall have received an ALTA survey of Jamul and Shingle Springs (which in the
case of Shingle Springs may be an affidavit of no change from a survey
engineer), in form and substance satisfactory to the Agent, certified to the
Agent and to the issuer of the Title Insurance Policy.

                                   ARTICLE V

                         REPRESENTATIONS AND WARRANTIES

          Section 5.01 Representations and Warranties. Each Loan Party hereby
represents and warrants to the Agent and the Lenders as follows (it being
understood that, with respect to each other Loan Document (other than the
Warrants, the Registration Rights


                                      -41-

<PAGE>

Agreement and the Securities Purchase Agreement) executed contemporaneously with
this Agreement, any representation or warranty in such other Loan Document that
is duplicative or otherwise substantially similar to any representation or
warranty contained in this Article V shall be deemed modified or otherwise
qualified to the extent the representation in this Article V is modified or
otherwise qualified, whether or not expressly so stated):

               (a) Organization, Good Standing, Etc. Each Loan Party (i) is a
corporation, limited liability company or limited partnership duly organized,
validly existing and in good standing under the laws of the state or
jurisdiction of its organization, (ii) has all requisite power and authority to
conduct its business as now conducted and as presently contemplated and, in the
case of the Borrowers, to make the borrowings hereunder, and to execute and
deliver each Loan Document to which it is a party, and to consummate the
transactions contemplated thereby, and (iii) is duly qualified to do business
and is 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.

               (b) Authorization, Etc. The execution, delivery and performance
by each Loan Party of each Loan Document to which it is or will be a party, (i)
have been duly authorized by all necessary action, (ii) do not and will not
contravene its charter or by-laws, its limited liability company or operating
agreement or its certificate of partnership or partnership agreement, as
applicable, or any applicable law or any Material Contract, (iii) do not and
will not result in or require the creation of any Lien (other than pursuant to
any Loan Document) upon or with respect to any of its properties, and (iv) do
not and will not result in any default, noncompliance, suspension, revocation,
impairment, forfeiture or nonrenewal of any material permit, license,
authorization, or approval applicable to any operations or properties, including
the Projects.

               (c) Governmental Approvals. No authorization or approval or other
action by, and no notice to or filing with, any Governmental Authority is
required in connection with the due execution, delivery and performance by any
Loan Party of any Loan Document to which it is or will be a party.

               (d) Enforceability of Loan Documents. This Agreement is, and each
other Loan Document to which any Loan Party 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, except as
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws.

               (e) Subsidiaries. Schedule 5.01(e) is a complete and correct
description of the name, jurisdiction of incorporation and ownership of the
outstanding Capital Stock of such Subsidiaries of the Parent in existence on the
date hereof. All of the issued and outstanding shares of Capital Stock of such
Subsidiaries have been validly issued and are fully paid and nonassessable, and
the holders thereof are not entitled to any preemptive, first refusal or other
similar rights. Except as indicated on such Schedule, all such Capital Stock is
owned by the Parent or one or more of its wholly-owned Subsidiaries, free and
clear of all Liens. Except as disclosed in Schedule 5.01(e), there are no
outstanding debt or equity securities of the Parent or any of its Subsidiaries
and no outstanding obligations of the Parent or any of its Subsidiaries


                                      -42-

<PAGE>

convertible into or exchangeable for, or warrants, options or other rights for
the purchase or acquisition from the Parent or any of its Subsidiaries, or other
obligations of any Subsidiary to issue, directly or indirectly, any shares of
Capital Stock of any Subsidiary of the Parent.

               (f) Litigation; Commercial Tort Claims. Except as set forth in
Schedule 5.01(f), (i) there are no claims, actions, suits, investigations,
litigation or proceedings, pending or, to the knowledge of any Loan Party,
threatened, in any court or before any arbitrator or governmental
instrumentality which relate to the Financing Facility or which has any
reasonable likelihood of having a Material Adverse Effect on (A) the condition
(financial or otherwise), operations, performance, properties, assets,
liabilities, business or prospects of any Loan Party or any Subsidiary of a Loan
Party, (B) the ability of any Loan Party to perform its Obligations under the
Loan Documents or (C) the ability of the Agent to enforce the Loan documents,
(ii) as of the Effective Date, none of the Loan Parties holds any commercial
tort claims in respect of which a claim has been filed in a court of law or a
written notice by an attorney has been given to a potential defendant, and (iii)
no Loan Party has any continuing indemnification obligation pursuant to the
Grand Casino Litigation.

               (g) Financial Condition.

                    (i) The Financial Statements, copies of which have been
delivered to the Agent and each Lender, fairly present the consolidated
financial condition of the Parent and its Subsidiaries as at the respective
dates thereof and the consolidated results of operations of the Parent and its
Subsidiaries for the fiscal periods ended on such respective dates, all in
accordance with GAAP.

                    (ii) The Parent has heretofore furnished to the Agent and
each Lender the projected annual balance sheets, income statements and
statements of cash flows of the Parent and its Subsidiaries for the Fiscal Years
ending in 2006 through 2008, which projected financial statements shall be
updated from time to time pursuant to Section 6.01(a)(vii). Such projections, as
so updated, shall be believed by the Parent at the time furnished to be
reasonable, shall have been prepared on a reasonable basis and in good faith by
the Parent, and shall have been based on assumptions believed by the Parent to
be reasonable at the time made and upon the best information then reasonably
available to the Parent, and the Parent shall not be aware of any facts or
information that would lead it to believe that such projections, as so updated,
are incorrect or misleading in any material respect.

               (h) Compliance with Law and Contract, Etc. No Loan Party is in
violation of its organizational documents, any law, rule, regulation, judgment
or order of any Governmental Authority applicable to it or any of its property
or assets, or any material term of any Material Contract) binding on or
otherwise affecting it or any of its properties, and no default or event of
default has occurred and is continuing with respect to such Material Contract.

               (i) Compliance with Gaming Laws. Except as set forth in Schedule
5.01(i), no Loan Party is in violation of the Indian Gaming Regulatory Act of
1988 ("IGRA"), 25 U.S.C. Sec. 2701 et seq. or any regulations promulgated
thereunder by the National Indian Gaming Commission pursuant to IGRA, the
tribal-state gaming compact in any relevant state or any regulations referenced
therein, or any other federal or state law that relates or applies to


                                      -43-

<PAGE>

Indian gaming except for technical violations or those where a violation would
be of de minimus effect.

               (j) ERISA. Except as set forth on Schedule 5.01(j), (i) each
Employee Plan is in substantial compliance with ERISA and the Internal Revenue
Code, (ii) no Termination Event has occurred nor is reasonably expected to occur
with respect to any Employee Plan, (iii) the most recent annual report (Form
5500 Series) with respect to each Employee Plan, including any required Schedule
B (Actuarial Information) thereto, copies of which have been filed with the
Internal Revenue Service and delivered to the Agent, is complete and correct and
fairly presents the funding status of such Employee Plan, and since the date of
such report there has been no material adverse change in such funding status,
(iv) copies of each agreement entered into with the PBGC, the U.S. Department of
Labor or the Internal Revenue Service with respect to any Employee Plan have
been delivered to the Agent, (v) no Employee Plan had an accumulated or waived
funding deficiency or permitted decrease which would create a deficiency in its
funding standard account or has applied for an extension of any amortization
period within the meaning of Section 412 of the Internal Revenue Code at any
time during the previous 60 months, and (vi) no Lien imposed under the Internal
Revenue Code or ERISA exists or is likely to arise on account of any Employee
Plan within the meaning of Section 412 of the Internal Revenue Code. Except as
set forth on Schedule 5.01(j), no Loan Party or any of its ERISA Affiliates has
incurred any withdrawal liability under ERISA with respect to any Multiemployer
Plan, or is aware of any facts indicating that it or any of its ERISA Affiliates
may in the future incur any such withdrawal liability. No Loan Party or any of
its ERISA Affiliates nor any fiduciary of any Employee Plan has (i) engaged in a
nonexempt prohibited transaction described in Sections 406 of ERISA or 4975 of
the Internal Revenue Code that could have more than a de minimus effect, (ii)
failed to pay any required installment or other payment required under Section
412 of the Internal Revenue Code on or before the due date for such required
installment or payment, (iii) engaged in a transaction within the meaning of
Section 4069 of ERISA or (iv) incurred any liability to the PBGC which remains
outstanding other than the payment of premiums, and there are no premium
payments which have become due which are unpaid. There are no pending or, to the
best knowledge of any Loan Party, threatened claims, actions, proceedings or
lawsuits (other than claims for benefits in the normal course) asserted or
instituted against (i) any Employee Plan or its assets, (ii) any fiduciary with
respect to any Employee Plan, or (iii) any Loan Party or any of its ERISA
Affiliates with respect to any Employee Plan. Except as required by Section
4980B of the Internal Revenue Code, no Loan Party or any of its ERISA Affiliates
maintains an employee welfare benefit plan (as defined in Section 3(1) of ERISA)
which provides health or welfare benefits (through the purchase of insurance or
otherwise) for any retired or former employee of any Loan Party or any of its
ERISA Affiliates or coverage after a participant's termination of employment.

               (k) Taxes, Etc. All Federal, state and local tax returns and
other reports required by applicable law to be filed before the Effective Date
by any Loan Party have been filed, or extensions have been obtained, and all
taxes, assessments and other governmental charges imposed upon any Loan Party or
any property of any Loan Party and which have become due and payable on or prior
to the Effective Date 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 on the Financial Statements
in accordance with GAAP


                                      -44-

<PAGE>

(including, without limitation, with respect to an ongoing dispute with the
State of Louisiana and ongoing ordinary course audit being conducted by the
Internal Revenue Service regarding aggregate tax liabilities not to exceed
$12,000,000 plus interest, fees and penalties thereon accrued from the date
hereof).

               (l) Regulations T, U and X. No Loan Party is or will be engaged
in the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulation T, U or X), and no proceeds of
any 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) Nature of Business. No Loan Party is engaged in any business
other than (i) developing and managing casino operations, (ii) creating
internally branded entertainment and consumer products driven by the
development, production and marketing of televised programming based on gaming
themes, (iii) buying, patenting and licensing rights for new table game concepts
to market/distribute and license to casinos and (iv) any business activity
reasonably related thereto and approved in writing by the Agent.

               (n) Adverse Agreements, Etc. No Loan Party is a party to any
agreement or instrument, or subject to any charter, limited liability company
agreement, partnership agreement or other corporate, partnership or limited
liability company restriction or any judgment, order, regulation, ruling or
other requirement of a court or other Governmental Authority, which has, or
could reasonably be expected to have, a Material Adverse Effect.

               (o) Permits, Etc. Each Loan Party has, and is in material
compliance with, all material permits, licenses, authorizations, approvals,
entitlements and accreditations required for such Loan Party lawfully to own,
lease, manage or operate or to acquire each business currently owned, leased,
managed or operated by such Person. No condition exists or event has occurred
which, in itself or with the giving of notice or lapse of time or both, would
result in the suspension, revocation, impairment, forfeiture or non-renewal of
any such permit, license, authorization, approval, entitlement or accreditation,
and there is no claim that any thereof is not in full force and effect.

               (p) Properties. (i) Each Loan Party has good and marketable title
to, valid leasehold interests in, or valid licenses or other rights to use, all
property and assets material to its business, free and clear of all Liens,
except Permitted Liens. All such properties and assets are in good working order
and condition, ordinary wear and tear excepted.

                    (ii) Schedule 5.01(p) sets forth a complete and accurate
list, as of the Effective Date, of the location, by state and street address (or
if no street address is available, other identifying information), of all real
property owned or leased by each Loan Party. As of the Effective Date, each Loan
Party has valid leasehold interests in the Leases described on Schedule 5.01(p)
to which it is a party. Schedule 5.01(p) sets forth with respect to each such
Lease, the commencement date, termination date, renewal options (if any) and
annual base rents. Each such Lease is valid and enforceable in accordance with
its terms in all material respects and is in full force and effect. No consent
or approval of any landlord or other third party in connection with any such
Lease is necessary for any Loan Party to enter into and


                                      -45-

<PAGE>

execute the Loan Documents to which it is a party, except as set forth on
Schedule 5.01(p). To the best knowledge of any Loan Party, no other party to any
such Lease is in default of its obligations thereunder, and no Loan Party (or
any other party to any such Lease) has at any time delivered or received any
notice of default which remains uncured under any such Lease and, as of the
Effective Date, no event has occurred which, with the giving of notice or the
passage of time or both, would constitute a default under any such Lease.

               (q) Full Disclosure. Each Loan Party has disclosed to the Agent
all agreements, instruments and corporate or other restrictions to which it is
subject, and all other matters known to it, that, individually or in the
aggregate, could result in a Material Adverse Effect. None of the other reports,
financial statements, certificates or other information furnished by or on
behalf of any Loan Party to the Agent in connection with the negotiation of this
Agreement or delivered hereunder (as modified or supplemented by other
information so furnished) contains any material misstatement of fact or omits to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which it was made, not misleading; provided that,
with respect to projected financial information, each Loan Party represents only
that such information was prepared in good faith based upon assumptions believed
to be reasonable at the time prepared. There is no contingent liability or fact
that may have a Material Adverse Effect which has not been set forth in a
footnote included in the Financial Statements or a Schedule hereto.

               (r) Operating Lease Obligations. On the Effective Date, none of
the Loan Parties has any Operating Lease Obligations other than the Operating
Lease Obligations set forth on Schedule 5.01(r).

               (s) Environmental Matters. Except as set forth on Schedule
5.01(s), (i) the operations of each Loan Party are in material compliance with
all Environmental Laws; (ii) to the knowledge of any Loan Party, there has been
no Release at any of the properties owned or operated by any Loan Party or a
predecessor in interest, or at any disposal or treatment facility which received
Hazardous Materials generated by any Loan Party or any predecessor in interest
which could have a Material Adverse Effect; (iii) no Environmental Action has
been asserted against any Loan Party or, to the knowledge of any Loan Party, any
predecessor in interest nor does any Loan Party have knowledge or notice of any
threatened or pending Environmental Action against any Loan Party or any
predecessor in interest which could have a Material Adverse Effect; (iv) to the
knowledge of any Loan Party, no Environmental Actions have been asserted against
any facilities that may have received Hazardous Materials generated by any Loan
Party or any predecessor in interest which could have a Material Adverse Effect;
(v) to the knowledge of any Loan Party, no property now or formerly owned or
operated by a Loan Party has been used as a treatment or disposal site for any
Hazardous Material; (vi) no Loan Party has failed to report to the proper
Governmental Authority any Release which is required to be so reported by any
Environmental Laws which could have a Material Adverse Effect; (vii) each Loan
Party holds all licenses, permits and approvals required under any Environmental
Laws in connection with the operation of the business carried on by it, except
for such licenses, permits and approvals as to which a Loan Party's failure to
maintain or comply with could not have a Material Adverse Effect; and (viii) no
Loan Party has received any notification pursuant to any Environmental Laws that
(A) any work, repairs, construction or Capital Expenditures are required to be
made in respect as a condition of continued compliance


                                      -46-

<PAGE>

with any Environmental Laws, or any license, permit or approval issued pursuant
thereto or (B) any license, permit or approval referred to above is about to be
reviewed, made, subject to limitations or conditions, revoked, withdrawn or
terminated, in each case, except as could not have a Material Adverse Effect.

               (t) Insurance. Each Loan Party keeps its property 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) worker's compensation insurance in the amount required by
applicable law, (iii) public liability insurance, which shall include product
liability insurance, in the amount customary with companies in the same or
similar business against claims for personal injury or death on properties
owned, occupied or controlled by it, and (iv) such other insurance as may be
required by law or as may be reasonably required by the Agent (including,
without limitation, against larceny, embezzlement or other criminal
misappropriation). Schedule 5.01(t) sets forth a list of all insurance
maintained by each Loan Party on the Effective Date.

               (u) Use of Proceeds. The proceeds of the Loan shall be used to
(a) pay the Berman Loan in full in the amount of $10,203,333.28, (b) fees and
expenses in connection with this Agreement and the transactions contemplated
hereby and (c) fund working capital of the Borrowers. The proceeds of the Loan
may not be used to purchase margin stock (within the meaning of Regulation T, U
or X).

               (v) Solvency. After giving effect to the transactions
contemplated by this Agreement and immediately before and immediately after
giving effect to the Loan, the Loan Parties on a consolidated basis are and will
be Solvent.

               (w) Location of Bank Accounts. Schedule 5.01(w) sets forth a
complete and accurate list as of the Effective Date of all deposit, checking and
other bank accounts, all securities and other accounts maintained with any
broker dealer and all other similar accounts maintained by each Loan Party,
together with a description thereof (i.e., the bank or broker dealer at which
such deposit or other account is maintained and the account number and the
purpose thereof).

               (x) Intellectual Property. Except as set forth on Schedule
5.01(x), each Loan Party owns or licenses or otherwise has the right to use all
licenses, permits, patents, patent applications, trademarks, trademark
applications, service marks, tradenames, copyrights, copyright applications,
computer software, franchises, authorizations, non-governmental licenses and
permits and other intellectual property rights that are necessary for the
operation of its business, to the knowledge of any Loan Party without
infringement upon or conflict with the rights of any other Person with respect
thereto, except for such infringements and conflicts which, individually or in
the aggregate, could not have a Material Adverse Effect. Each Loan Party has
taken all action reasonably necessary to protect the secrecy, confidentiality
and value of all its material proprietary information, trade secrets and
know-how and to maintain and protect each item of intellectual property that
they own or use that is necessary for the operation of such Loan Party's
business. Set forth on Schedule 5.01(x) is a complete and accurate list as of
the Effective Date of each material agreement to which a Loan Party is a party
or is otherwise obligated with respect to any intellectual property, including
agreements with current or former


                                      -47-

<PAGE>

employees, consultants or contractors regarding the use, non-disclosure or
development of intellectual property, and all other licenses, permits, patents,
patent applications, trademarks, trademark applications, service marks,
tradenames, copyrights, copyright applications, computer software, franchises,
authorizations, non-governmental licenses and permits and other intellectual
property rights of each Loan Party. To the knowledge of any Loan Party, no
slogan or other advertising device, product, process, method, substance, part or
other material now employed, or now contemplated to be employed, by any Loan
Party infringes upon or conflicts with any rights owned by any other Person. No
claim or litigation regarding any of the foregoing is pending or threatened in
writing, except for such infringements and conflicts which could not have,
individually or in the aggregate, a Material Adverse Effect. To the best
knowledge of each Loan Party, no patent, invention, device, application,
principle or any statute, law, rule, regulation, standard or code is pending or
proposed, which, individually or in the aggregate, could have a Material Adverse
Effect.

               (y) Material Contracts. Set forth on Schedule 5.01(y) is a
complete and accurate list as of the Effective Date of all Material Contracts of
each Loan Party, showing the parties and subject matter thereof and amendments
and modifications thereto. Each such Material Contract (i) is in full force and
effect and is binding upon and enforceable against each Loan Party that is a
party thereto and, to the best knowledge of such Loan Party, all other parties
thereto in accordance with its terms, (ii) except as permitted by Section
6.02(r), has not been otherwise amended or modified, (iii) is not in default due
to the action of any Loan Party or, to the best knowledge of any Loan Party, any
other party thereto (other than the default of the Kickapoo Tribe in respect of
the Kickapoo Indebtedness), and (iv) no consent (or approval) of any third party
to the transactions contemplated hereby shall be required under such Material
Contracts.

               (z) Holding Company and Investment Company Acts. None of the Loan
Parties 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.

               (aa) Employee and Labor Matters. There is (i) no unfair labor
practice complaint pending or, to the best knowledge of any Loan Party,
threatened against any Loan Party before any Governmental Authority and no
grievance or arbitration proceeding pending or threatened against any Loan Party
which arises out of or under any collective bargaining agreement, (ii) no
strike, labor dispute, slowdown, stoppage or similar action or grievance pending
or threatened against any Loan Party or (iii) to the best knowledge of any Loan
Party, no union representation question existing with respect to the employees
of any Loan Party and no union organizing activity taking place with respect to
any of the employees of any Loan Party. No Loan Party or any of its ERISA
Affiliates has incurred any liability or obligation under the Worker Adjustment
and Retraining Notification Act ("WARN") or similar state law, which remains
unpaid or unsatisfied. The hours worked and payments made to employees of any
Loan Party have not been in violation of the Fair Labor Standards Act or any
other applicable legal requirements. All material payments due from any Loan
Party on account of wages and


                                      -48-

<PAGE>

employee health and welfare insurance and other benefits have been paid or
accrued as a liability on the books of such Loan Party.

               (bb) Customers and Suppliers. There exists no actual or
threatened in writing, termination, cancellation or limitation of, or
modification to or change in, the business relationship between (i) any Loan
Party, on the one hand, and any customer or any group thereof, on the other
hand, whose agreements with any Loan Party are individually or in the aggregate
material to the business or operations of such Loan Party, or (ii) any Loan
Party, on the one hand, and any material supplier thereof, on the other hand;
and, to the knowledge of any Loan Party, there exists no present state of facts
or circumstances that could give rise to or result in any such termination,
cancellation, limitation, modification or change.

               (cc) No Bankruptcy Filing. No Loan Party is contemplating either
an Insolvency Proceeding or the liquidation of all or a major portion of such
Loan Party's assets or property, and no Loan Party has any knowledge of any
Person contemplating an Insolvency Proceeding against it.

               (dd) Separate Existence. No Loan Party has at all times since its
formation identified itself as being a division of any other Person.

               (ee) Name; Jurisdiction of Organization; Organizational ID
Number; Chief Place of Business; Chief Executive Office; FEIN. Schedule 5.01(ee)
sets forth a complete and accurate list as of the date hereof of (i) the exact
legal name of each Loan Party, (ii) the jurisdiction of organization of each
Loan Party, (iii) the organizational identification number of each Loan Party
(or indicates that such Loan Party has no organizational identification number),
(iv) each place of business of each Loan Party, (v) the chief executive office
of each Loan Party and (vi) the federal employer identification number of each
Loan Party.

               (ff) Tradenames. Schedule 5.01(ff) hereto sets forth a complete
and accurate list as of the Effective Date of all tradenames, business names or
similar appellations used by each Loan Party or any of its divisions or other
business units during the past five years.

               (gg) Locations of Collateral. Other than Collateral consisting of
real property, there is no location at which any Loan Party has any Collateral
(except for Inventory in transit) other than (i) those locations listed on
Schedule 5.01(gg) and (ii) any other locations approved in writing by the Agent
from time to time. No tangible Collateral is stored at a warehouse.

               (hh) Security Interests. The Security Agreement creates in favor
of the Agent, for the benefit of the Lenders, a legal, valid and enforceable
security interest in the Collateral secured thereby. Upon the filing of the
UCC-1 financing statements described in Section 4.01(d)(viii) and the recording
of the Collateral Assignments for Security referred to in each Security
Agreement in the United States Patent and Trademark Office and the United States
Copyright Office, as applicable, such security interests in and Liens on the
Collateral granted thereby shall be perfected, first priority security interests
(other than as to Permitted Liens that have priority) to the extent such
security interests can be perfected by such filing and recording, and no further
recordings or filings are or will be required in connection with the creation,


                                      -49-

<PAGE>

perfection or enforcement of such security interests and Liens, other than (i)
the filing of continuation statements in accordance with applicable law, (ii)
the recording of the Collateral Assignments for Security pursuant to each
Security Agreement in the United States Patent and Trademark Office and the
United States Copyright Office, as applicable, with respect to after-acquired
U.S. patent and trademark applications and registrations and U.S. copyrights and
(iii) the recordation of appropriate evidence of the security interest in the
appropriate foreign registry with respect to all foreign intellectual property.

               (ii) Inactive Subsidiaries. No Inactive Subsidiary has any
operations or liabilities. The Inactive Subsidiaries have, in aggregate, assets
of which the fair market value is no greater than $100,000.

               (jj) Schedules. All of the information which is required to be
scheduled to this Agreement is set forth on the Schedules attached hereto, is
correct and accurate in all material respects and does not omit to state any
information material thereto.

               (kk) Representations and Warranties in Documents; No Default. All
representations and warranties set forth in this Agreement and the other Loan
Documents are true and correct in all respects at the time as of which such
representations were made and on the Effective Date. No Event of Default has
occurred and is continuing and no condition exists which constitutes a Default
or an Event of Default.

               (ll) Pokagon Account. Schedule 5.01(ll) lists the balance in the
Pokagon Account on the date hereof and the amount required to be on deposit in
the Pokagon Account pursuant to the Pokagon Management Agreement on the last day
of each month during the term of this Agreement.

               (mm) Certain Patent. Patent 6,118,490 is owned by Lakes Gaming,
Inc. (but is incorrectly registered in the name of International Learning Group,
Inc. with the United States Patent and Trademark Office), has no material
current or anticipated value as of the date hereof and is not material to the
business of the Loan Parties or any Projects.

                                   ARTICLE VI

                          COVENANTS OF THE LOAN PARTIES

          Section 6.01 Affirmative Covenants. So long as any principal of or
interest on any Loan or any other Obligation (whether or not due) shall remain
unpaid or any Lender shall have any Commitment hereunder, Parent will, and will
cause each Loan Party to (unless the requirement hereunder is expressly that of
the Parent) unless the Required Lenders shall otherwise consent in writing:

               (a) Reporting Requirements. Furnish, through electronic mail,
facsimile, or delivery, to the Agent and each Lender:

                    (i) as soon as available and in any event within 30 days
after the end of each Fiscal Quarter of the Parent and its Subsidiaries
commencing with the first Fiscal Quarter of the Parent and its Subsidiaries
ending after the Effective Date, unaudited consolidated


                                      -50-

<PAGE>

and unaudited consolidating balance sheets, unaudited consolidated and unaudited
consolidating statements of operations and retained earnings and unaudited
consolidated and unaudited consolidating statements of cash flows of the Parent
and its Subsidiaries 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, setting forth in each case in comparative form the
figures for the corresponding date or period of the immediately preceding Fiscal
Year, all in reasonable detail and certified by an Authorized Officer of the
Parent as fairly presenting, in all material respects, the financial position of
the Parent and its Subsidiaries as of the end of such quarter and the results of
operations and cash flows of the Parent and its Subsidiaries for such quarter,
in accordance with GAAP applied in a manner consistent with that of the most
recent audited financial statements of the Parent and its Subsidiaries furnished
to the Agent and the Lenders, subject to normal year-end adjustments;

                    (ii) as soon as available, and in any event within 90 days
after the end of each Fiscal Year of the Parent and its Subsidiaries, audited
consolidated and unaudited consolidating balance sheets, audited consolidated
and unaudited consolidating statements of operations and retained earnings and
audited consolidated and unaudited consolidating statements of cash flows of the
Parent and its Subsidiaries as at the end of such Fiscal Year, setting forth in
each case in comparative form the corresponding figures for the immediately
preceding Fiscal Year, all in reasonable detail and prepared in accordance with
GAAP, and accompanied by a report and an unqualified opinion, prepared in
accordance with generally accepted auditing standards, of independent certified
public accountants of recognized standing selected by the Parent and
satisfactory to the Agent (which opinion shall be without (A) a "going concern"
or like qualification or exception, or (B) any qualification or exception as to
the scope of such audit, together with a written statement of such accountants
(1) to the effect that, in making the examination necessary for their
certification of such financial statements, they have not obtained any knowledge
of the existence of an Event of Default or a Default and (2) if such accountants
shall have obtained any knowledge of the existence of an Event of Default or
such Default, describing the nature thereof;

                    (iii) [Intentionally Omitted];

                    (iv) as soon as available, and in any event within 30 days
after the end of each fiscal month of the Parent and its Subsidiaries commencing
with the first fiscal month of the Parent and its Subsidiaries ending after the
Effective Date, internally prepared unaudited consolidated and unaudited
consolidating balance sheets, unaudited consolidated and unaudited consolidating
statements of operations and retained earnings and unaudited consolidated and
unaudited consolidating statements of cash flows as at the end of such fiscal
month, and for the period commencing at the end of the immediately preceding
Fiscal Year and ending with the end of such fiscal month, all in reasonable
detail and certified by an Authorized Officer of the Parent as fairly
presenting, in all material respects, the financial position of the Parent and
its Subsidiaries as at the end of such fiscal month and the results of
operations, retained earnings and cash flows of the Parent and its Subsidiaries
for such fiscal month, in accordance with GAAP applied in a manner consistent
with that of the most recent audited financial statements furnished to the Agent
and the Lenders, subject to normal year-end adjustments;


                                      -51-

<PAGE>

                    (v) simultaneously with the delivery of the financial
statements of the Parent and its Subsidiaries required by clauses (i), (ii) and
(iii) of this Section 6.01(a), a certificate of an Authorized Officer of the
Parent stating that such Authorized Officer has reviewed the provisions of this
Agreement and the other Loan Documents and has made or caused to be made under
his or her supervision a review of the condition and operations of the Parent
and its Subsidiaries during the period covered by such financial statements with
a view to determining whether the Parent and its Subsidiaries were in compliance
with all of the provisions of this Agreement and such Loan Documents at the
times such compliance is required hereby and thereby, and that such review has
not disclosed, and such Authorized Officer has no knowledge of, the existence
during such period of an Event of Default or Default or, if an Event of Default
or Default existed, describing the nature and period of existence thereof and
the action which the Parent and its Subsidiaries propose to take or have taken
with respect thereto;

                    (vi) [Intentionally Omitted].

                    (vii) (A) as soon as available and in any event not later
than 60 days prior to the end of each Fiscal Year, financial projections,
supplementing and superseding the financial projections referred to in Section
5.01(g)(ii), prepared on a monthly basis and otherwise in form and substance
satisfactory to the Agent, for the immediately succeeding Fiscal Year for the
Parent and its Subsidiaries and (B) as soon as available and in any event not
later than 30 days prior to the end of each Fiscal Quarter, financial
projections, supplementing and superseding the financial projections referred to
in Section 5.01(g)(ii), prepared on a monthly basis and otherwise in form and
substance satisfactory to the Agent, for each remaining quarterly period in such
Fiscal Year, all such financial projections to be reasonable, to be prepared on
a reasonable basis and in good faith, and to be based on assumptions believed by
the Parent to be reasonable at the time made and from the best information then
available to the Parent;

                    (viii) as soon as available and in any event within 10 days
of the end of each Fiscal Quarter, a (x) Periodic Project Development Report
with respect to the Projects (which shall include the same general type of
information as in the Project Business Plan in addition to an update with
respect to each Project or new project developed in accordance herewith on (A)
litigation and legislation that may affect the completion or progress of any
such Project or project, (B) the financing of such Project or project, (C) a
construction update on such Project or project (including with respect to
subcontractors) and (D) if construction on such Project or project has been
completed, an update on the financial performance of such Project or project
(including a comparison against the projections)) in form and substance
satisfactory to the Agent (a "Periodic Project Development Report"), and all
such Periodic Project Development Reports to be reasonably acceptable to the
Agent, to be prepared on a reasonable basis and in good faith, and to be based
on assumptions believed by the Parent to be reasonable at the time made and from
the best information then available to the Parent and (y) a Plan Reconciliation
Report.

                    (ix) as soon as possible, and in any event within 3 days
after the occurrence of a breach under or a termination of any of the Management
and Consulting Agreements, any other loan agreement or other agreement with
Indian Tribes, or any Material Contract, in each case by any party thereto, the
written statement of an Authorized Officer of


                                      -52-

<PAGE>

Parent setting forth the details of breach or termination and the action which
the affected Loan Party proposes to take with respect thereto

                    (x) promptly after submission to any Governmental Authority,
all documents and information furnished to such Governmental Authority in
connection with any investigation of any Loan Party other than routine inquiries
by such Governmental Authority;

                    (xi) as soon as possible, and in any event within 3 days
after the occurrence of an Event of Default or Default or the occurrence of any
event or development that could have a Material Adverse Effect, the written
statement of an Authorized Officer of Parent setting forth the details of such
Event of Default or Default or other event or development having a Material
Adverse Effect and the action which the affected Loan Party proposes to take
with respect thereto;

                    (xii) (A) as soon as possible and in any event within 10
days after any Loan Party or any ERISA Affiliate thereof knows or has reason to
know that (1) any Reportable Event with respect to any Employee Plan has
occurred, (2) any other Termination Event with respect to any Employee Plan has
occurred, or (3) an accumulated funding deficiency has been incurred or an
application has been made to the Secretary of the Treasury for a waiver or
modification of the minimum funding standard (including installment payments) or
an extension of any amortization period under Section 412 of the Internal
Revenue Code with respect to an Employee Plan, a statement of an Authorized
Officer of Parent setting forth the details of such occurrence and the action,
if any, which such Loan Party or such ERISA Affiliate proposes to take with
respect thereto, (B) promptly and in any event within three days after receipt
thereof by any Loan Party or any ERISA Affiliate thereof from the PBGC, copies
of each notice received by any Loan Party or any ERISA Affiliate thereof of the
PBGC's intention to terminate any Plan or to have a trustee appointed to
administer any Plan, (C) promptly and in any event within 10 days after the
filing thereof with the Internal Revenue Service if requested by the Agent,
copies of each Schedule B (Actuarial Information) to the annual report (Form
5500 Series) with respect to each Employee Plan and Multiemployer Plan, (D)
promptly and in any event within 10 days after any Loan Party or any ERISA
Affiliate thereof knows or has reason to know that a required installment within
the meaning of Section 412 of the Internal Revenue Code has not been made when
due with respect to an Employee Plan, (E) promptly and in any event within 3
days after receipt thereof by any Loan Party or any ERISA Affiliate thereof from
a sponsor of a Multiemployer Plan or from the PBGC, a copy of each notice
received by any Loan Party or any ERISA Affiliate thereof concerning the
imposition or amount of withdrawal liability under Section 4202 of ERISA or
indicating that such Multiemployer Plan may enter reorganization status under
Section 4241 of ERISA, and (F) promptly and in any event within 10 days after
any Loan Party or any ERISA Affiliate thereof sends notice of a plant closing or
mass layoff (as defined in WARN) to employees, copies of each such notice sent
by such Loan Party or such ERISA Affiliate thereof;

                    (xiii) promptly after the commencement thereof but in any
event not later than 5 days after service of process with respect thereto on, or
the obtaining of knowledge thereof by, any Loan Party, notice of each action,
suit or proceeding before any court or other Governmental Authority or other
regulatory body or any arbitrator which, if adversely determined, could have a
Material Adverse Effect;


                                      -53-

<PAGE>

                    (xiv) as soon as possible and in any event within 5 days
after execution, receipt or delivery thereof, copies of any material notices
that any Loan Party executes or receives in connection with any Material
Contract;

                    (xv) as soon as possible and in any event within 5 days
after execution, receipt or delivery thereof, copies of any material notices
that any Loan Party executes or receives in connection with the sale or other
Disposition of the Capital Stock of, or all or substantially all of the assets
of, any Loan Party;

                    (xvi) promptly after the sending or filing thereof, copies
of all statements, reports and other information any Loan Party sends to any
holders of its Indebtedness or its securities or files with the SEC or any
national (domestic or foreign) securities exchange;

                    (xvii) promptly upon receipt thereof, copies of all
financial reports (including, without limitation, management letters), if any,
submitted to any Loan Party by its auditors in connection with any annual or
interim audit of the books thereof; and

                    (xviii) promptly upon request, such other information
concerning the condition or operations, financial or otherwise, of any Loan
Party as the Agent may from time to time may reasonably request.

               (b) Additional Guaranties and Collateral Security. Cause:

                    (i) each Subsidiary of any Loan Party not in existence on
the Effective Date, to execute and deliver to the Agent promptly and in any
event within 3 days after the formation, acquisition or change in status thereof
(A) a Guaranty guaranteeing the Obligations, (B) a Security Agreement, (C) if
such Subsidiary has any Subsidiaries, a Pledge Agreement together with (x)
certificates evidencing all of the Capital Stock of any Person (other than an
Excluded Subsidiary) owned by such Subsidiary, (y) undated stock powers executed
in blank with signature guaranteed, and (z) such opinion of counsel and such
approving certificate of such Subsidiary as the Agent may reasonably request in
respect of complying with any legend on any such certificate or any other matter
relating to such shares, (D) one or more Mortgages creating on the real property
of such Subsidiary a perfected, first priority Lien on such real property
(subject only to Permitted Liens), a Title Insurance Policy covering such real
property, a current ALTA survey thereof and a surveyor's certificate, each in
form and substance satisfactory to the Agent, together with such other
agreements, instruments and documents as the Agent may require whether
comparable to the documents required under Section 6.01(o) or otherwise, and (E)
such other agreements, instruments, approvals, legal opinions or other documents
reasonably requested by the Agent in order to create, perfect, establish the
first priority (subject only to Permitted Liens) of or otherwise protect any
Lien purported to be covered by any such Security Agreement, Pledge Agreement or
Mortgage or otherwise to effect the intent that such Subsidiary shall become
bound by all of the terms, covenants and agreements contained in the Loan
Documents and that all property and assets of such Subsidiary shall become
Collateral for the Obligations; and

                    (ii) each owner of the Capital Stock of any such Subsidiary
(other than an Excluded Subsidiary) to execute and deliver promptly and in any
event within 3


                                      -54-

<PAGE>

days after the formation or acquisition of such Subsidiary a Pledge Agreement,
together with (A) certificates evidencing all of the Capital Stock of such
Subsidiary, (B) undated stock powers or other appropriate instruments of
assignment executed in blank with signature guaranteed, (C) such opinion of
counsel and such approving certificate of such Subsidiary as the Agent may
reasonably request in respect of complying with any legend on any such
certificate or any other matter relating to such shares and (D) such other
agreements, instruments, approvals, legal opinions or other documents requested
by the Agent.

               (c) Compliance with Laws, Etc. Comply, and cause each of its
Subsidiaries to comply, in all material respects with all applicable laws
(including, without limitation, IGRA and any regulations promulgated thereunder
by the National Indian Gaming Commission pursuant thereto, the tribal-state
gaming compact in any relevant state and any regulations referenced therein, and
any other federal or state law that relates or applies to Indian gaming), rules,
regulations, orders (including, without limitation, all Environmental Laws
judgments and awards (including any settlement of any claim that, if breached,
could give rise to any of the foregoing), 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 its properties, and (ii) paying all lawful claims which if unpaid
might become a Lien or charge upon any of its 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 in
accordance with GAAP.

               (d) Preservation of Existence, Etc. Except as otherwise permitted
by Section 6.02(c), maintain and preserve, and cause each of its Subsidiaries to
maintain and preserve, its existence, rights and privileges and become or
remain, and cause each of its Subsidiaries to 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.

               (e) Keeping of Records and Books of Account. Keep, and cause each
of its Subsidiaries to keep, adequate records and books of account, with
complete entries made to permit the preparation of financial statements in
accordance with GAAP.

               (f) Inspection Rights. Permit, and cause each of its Subsidiaries
to permit, the agents and representatives of the Agent at any time and from time
to time during normal business hours and upon reasonable advance notice (it
being understood that during the continuance of an Event of Default such notice
may be shorter), at the expense of the Borrowers, to examine and make copies of
and abstracts from its records and books of account, to visit and inspect its
properties, to verify materials, leases, notes, accounts receivable, deposit
accounts and its other assets, to conduct audits, physical counts, valuations,
appraisals, Phase I ESAs or examinations and to discuss its affairs, finances
and accounts with any of its directors, officers, managerial employees,
independent accountants or any of its other representatives. In furtherance of
the foregoing, each Loan Party hereby authorizes its independent accountants,
and the independent accountants of each of its Subsidiaries, to discuss the
affairs, finances and accounts of such Person (independently or together with
representatives of such Person) with the agents and representatives of the Agent
in accordance with this Section 6.01(f).


                                      -55-

<PAGE>

               (g) Maintenance of Properties, Etc. Except as otherwise permitted
by Section 6.02(c), maintain and preserve, and cause each of its Subsidiaries to
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, and cause each of its Subsidiaries to comply
in all material respects, at all times with the provisions of all leases to
which it is a party as lessee or under which it occupies property, so as to
prevent any loss or forfeiture thereof or thereunder.

               (h) Maintenance of Insurance. (i) Maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible and reputable insurance
companies or associations (including, without limitation, comprehensive general
liability, hazard, rent and business interruption insurance) with respect to its
properties (including all real properties leased or owned by it) and business,
in such amounts and covering such risks as is required by any Governmental
Authority having jurisdiction with respect thereto or as is carried generally in
accordance with sound business practice by companies in similar businesses
similarly situated and in any event in amount, adequacy and scope reasonably
satisfactory to the Agent, and (ii) cause the Life Insurance Policy to be fully
paid and in full force and effect at all times. All policies covering the
Collateral are to be made payable to the Agent for the benefit of the Lenders,
as its interests may appear, in case of loss, under a standard non-contributory
"lender" or "secured party" clause and are to contain such other provisions as
the Agent may require to fully protect the Lenders' interest in the Collateral
and to any payments to be made under such policies. All certificates of
insurance are to be delivered to the Agent and the policies are to be premium
prepaid, with the loss payable and additional insured endorsement in favor of
the Agent and such other Persons as the Agent may designate from time to time,
and shall provide that the insurer shall endeavor to give not less than 30 days'
prior written notice to the Agent of the exercise of any right of cancellation.
If any Loan Party or any of its Subsidiaries fails to maintain such insurance,
the Agent may arrange for such insurance, but at the Borrowers' expense and
without any responsibility on the Agent's part for obtaining the insurance, the
solvency of the insurance companies, the adequacy of the coverage, or the
collection of claims. Upon the occurrence and during the continuance of an Event
of Default, the Agent shall have the sole right, in the name of the Lenders, any
Loan Party and its Subsidiaries, to file claims under any insurance policies, to
receive, receipt and give acquittance for any payments that may be payable
thereunder, and to execute any and all endorsements, receipts, releases,
assignments, reassignments or other documents that may be necessary to effect
the collection, compromise or settlement of any claims under any such insurance
policies. The Borrowers shall maintain the Life Insurance Policy.

               (i) Obtaining of Permits, Etc. Obtain, maintain and preserve, and
cause each of its Subsidiaries to obtain, maintain and preserve, and take all
necessary action to timely renew, all material permits, licenses,
authorizations, approvals, entitlements and accreditations which are necessary
or useful in the proper conduct of its business.

               (j) Environmental. (i) Keep any property either owned or operated
by it or any of its Subsidiaries free of any Environmental Liens; (ii) comply,
and cause each of its Subsidiaries to comply, in all material respects with
Environmental Laws and provide to the Agent any documentation of such compliance
which the Agent may reasonably request; (iii) provide the Agent written notice
within five (5) Business Days of any Release of a


                                      -56-

<PAGE>

Hazardous Material in excess of any reportable quantity from or onto property at
any time owned or operated by it or any of its Subsidiaries and take any
Remedial Actions required to abate said Release; (iv) provide the Agent with
written notice within ten (10) Business Days of the receipt of any of the
following: (A) notice that an Environmental Lien has been filed against any
property of any Loan Party or any of its Subsidiaries; (B) commencement of any
Environmental Action or notice that an Environmental Action will be filed
against any Loan Party or any of its Subsidiaries; and (C) notice of a
violation, citation or other administrative order which could have a Material
Adverse Effect and (v) defend, indemnify and hold harmless the Agent and the
Lenders and their transferees, and their respective 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 (A) the generation,
presence, disposal, Release or threatened Release of any Hazardous Materials on,
under, in, originating or emanating from any property at any time owned or
operated by any Loan Party or any of its Subsidiaries (or its predecessors in
interest or title), (B) any personal injury (including wrongful death) or
property damage (real or personal) arising out of or related to the presence or
Release of such Hazardous Materials, (C) any request for information,
investigation, lawsuit brought or threatened, settlement reached or order by a
Governmental Authority relating to the presence or Release of such Hazardous
Materials, (D) any violation of any Environmental Law and/or (E) any
Environmental Action filed against the Agent or any Lender.

               (k) Further Assurances. Take such action and execute, acknowledge
and deliver, and cause each of its Subsidiaries to take such action and execute,
acknowledge and deliver, at its sole cost and expense, such agreements,
instruments or other documents as the Agent may require from time to time in
order (i) to carry out more effectively the purposes of this Agreement and the
other Loan Documents, (ii) to subject to valid and perfected first priority
Liens, subject to Permitted Liens, any of the Collateral, (iii) to establish and
maintain the validity and effectiveness of any of the Loan Documents and the
validity, perfection and priority of the Liens intended to be created thereby,
and (iv) to better assure, convey, grant, assign, transfer and confirm unto the
Agent and each Lender the rights now or hereafter intended to be granted to it
under this Agreement or any other Loan Document. In furtherance of the
foregoing, to the maximum extent permitted by applicable law, each Loan Party
(i) authorizes the Agent to execute any such agreements, instruments or other
documents in such Loan Party's name and to file such agreements, instruments or
other documents in any appropriate filing office, (ii) authorizes the Agent to
file any financing statement required hereunder or under any other Loan
Document, and any continuation statement or amendment with respect thereto, in
any appropriate filing office without the signature of such Loan Party, and
(iii) ratifies the filing of any financing statement, and any continuation
statement or amendment with respect thereto, filed without the signature of such
Loan Party prior to the date hereof.

               (l) Change in Collateral; Collateral Records. (i) Give the Agent
not less than 30 days' prior written notice of any change in the location of any
Collateral, other than to locations set forth on Schedule 5.01(gg) and with
respect to which the Agent has filed financing statements and otherwise fully
perfected its Liens thereon, (ii) advise the Agent promptly, in sufficient
detail, of any material adverse change relating to the type, quantity or quality
of the Collateral or the Lien granted thereon and (iii) execute and deliver, and
cause each of its Subsidiaries to execute and deliver, to the Agent for the
benefit of the Lenders from time to time,


                                      -57-

<PAGE>

solely for the Agent's convenience in maintaining a record of Collateral, such
written statements and schedules as the Agent may reasonably require,
designating, identifying or describing the Collateral.

               (m) Landlord Waivers; Collateral Access Agreements. (i) At any
time any Collateral with a book value in excess of $200,000 (when aggregated
with all other Collateral at the same location) is located on any real property
of a Loan Party (whether such real property is now existing or acquired after
the Effective Date) which is not owned by a Loan Party, use commercially
reasonable efforts to obtain written subordinations or waivers, in form and
substance satisfactory to the Agent, of all present and future Liens to which
the owner or lessor of such premises may be entitled to assert against the
Collateral.

               (n) Subordination. Cause all Indebtedness and other obligations
now or hereafter owed by it to any of its Affiliates, to be subordinated in
right of payment and security to the Obligations owing to the Agent and the
Lenders in accordance with a subordination agreement in form and substance
satisfactory to the Agent.

               (o) After Acquired Real Property. Upon the acquisition by it or
any of its Subsidiaries after the date hereof of any fee-owned interest (whether
fee or leasehold) in any real property (wherever located) (each such fee-owned
interest being an "After Acquired Property") with a Current Value (as defined
below) in excess of $500,000, immediately so notify the Agent, setting forth
with specificity a description of the fee-owned interest acquired, the location
of the real property, any structures or improvements thereon and either an
appraisal or such Loan Party's good-faith estimate of the current value of such
real property (for purposes of this Section, the "Current Value"). The Agent
shall notify such Loan Party whether it intends to require a Mortgage and the
other documents referred to below. Upon receipt of such notice requesting a
Mortgage, the Person which has acquired such After Acquired Property shall
promptly furnish to the Agent the following, each in form and substance
satisfactory to the Agent: (i) a Mortgage with respect to such real property and
related assets located at the After Acquired Property, each duly executed by
such Person and in recordable form; (ii) evidence of the recording of the
Mortgage referred to in clause (i) above in such office or offices as may be
necessary or, in the opinion of the Agent, desirable to create and perfect a
valid and enforceable first priority lien (subject to Permitted Liens) on the
property purported to be covered thereby or to otherwise protect the rights of
the Agent and the Lenders thereunder, (iii) a Title Insurance Policy, (iv) a
survey of such real property, certified to the Agent and to the issuer of the
Title Insurance Policy by a licensed professional surveyor reasonably
satisfactory to the Agent, (v) Phase I ESAs with respect to such real property,
certified to the Agent by a company reasonably satisfactory to the Agent, and
(vi) such other documents or instruments (including guarantees and opinions of
counsel) as the Agent may reasonably require. The Borrowers shall pay all fees
and expenses, including reasonable attorneys' fees and expenses, and all title
insurance charges and premiums, in connection with each Loan Party's obligations
under this Section 6.01(o).

               (p) Fiscal Year. Maintain the existing Fiscal Year-end of the
Parent and its Subsidiaries.

               (q) World Poker Collateral Shares.


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<PAGE>

                    (i) If at any time (A) an Event of Default shall have
occurred and be continuing or (B) during the occurrence of a WPT 75% Collateral
Event, a WPT 50% Collateral Event, a WPT 25% Collateral Event, or a WPT
Legislative Event, or (c) at any time, the Agent, in its reasonable and good
faith judgment believes an Event of Default or the occurrence of a WP 75%
Collateral Event, a WPT 50% Collateral Event, a WPT 25% Collateral Event or a
WPT Legislative Event is likely to occur within the next 90 days, then upon
receipt by the Parent from the Agent of a written request that World Poker
register all or a portion of the World Poker Shares (a "WPT Demand Notice", and
the date of such notice, the "WPT Demand Notice Date"), then the Parent shall
use its reasonable best efforts to cause World Poker to prepare, and, as soon as
practicable but in no event later than the 30 days after the WPT Demand Notice
Date, (such date, the "Filing Deadline"), file with the SEC a registration
statement on Form S-3 (or Form S-1, if Form S-3 is not available) under the
Securities Act (the "WPT Registration Statement") covering the resale of all of
the World Poker Collateral Shares (the "Filing Covenant"). The Parent shall use
its best efforts to have the WPT Registration Statement declared effective (the
"WPT Effective Date") by the SEC as soon as practicable, but in no event later
than the 90 days after the Filing Deadline (unless the WPT Registration
Statement is subject to a full review by the SEC, in which case no later than
120 days after the Filing Deadline) (the "Effectiveness Covenant"). If the
Parent fails to comply in all respects with the Filing Covenant or the
Effectiveness Covenant at any time, then, as partial relief for the damages to
any holder by reason of any such delay in or reduction of its ability to sell
the World Poker Collateral Shares (which remedy shall not be exclusive of any
other remedies available at law or in equity), upon the occurrence and
continuance of an Event of Default, the Borrowers shall pay to each Lender on
each of the following dates relating to such WPT Registration Statement an
amount in cash equal to one percent (1.0%) of the principal amount of the Loan
drawn by any of the Borrowers pursuant to this Agreement on or prior to such
date: (A) the initial day of any breach of the Filing Covenant and on every
thirtieth day (pro rated for periods totaling less than thirty days) thereafter
until the WPT Registration Statement has been filed with the SEC; and (B) the
initial day of any breach of the Effectiveness Covenant and on every thirtieth
day (pro rated for periods totaling less than thirty days) thereafter until the
WPT Registration Statement has been declared effective by the SEC (it being
understood that such 1% payment is payable whether or not the best efforts
requirements set forth above have been complied with and such payment
requirement shall terminate on the WPT Effective Date).

                    (ii) On any day after the WPT Effective Date sales of all of
the World Poker Collateral Shares required to be included on such WPT
Registration Statement cannot be made pursuant to such WPT Registration
Statement (including, without limitation, because of a failure to keep such WPT
Registration Statement effective, to disclose such information as is necessary
for sales to be made pursuant to such WPT Registration Statement or to register
a sufficient number of shares of World Poker Shares) (a "Maintenance Covenant
Failure") then, as partial relief for the damages to any holder by reason of any
such delay in or reduction of its ability to sell the World Poker Collateral
Shares (which remedy shall not be exclusive of any other remedies available at
law or in equity), the Borrowers shall pay to the Lender on each of the
following dates relating to such WPT Registration Statement an amount in cash
equal to one percent (1.0%) of the outstanding principal amount of the Loan
drawn by any of the Borrowers pursuant to this Agreement on or prior to such
date: (A) the initial day of a Maintenance Covenant Failure and (B) on every
thirtieth day (pro rated for periods totaling less than thirty days) thereafter
until such Maintenance Covenant Failure is cured.


                                      -59-

<PAGE>

                    (iii) The payments to which a holder shall be entitled
pursuant to clause (q)(i) and (ii) are referred to herein as the "WPT
Registration Delay Payments." WPT Registration Delay Payments shall be paid on
the earlier of (A) the last day of the calendar month during which such WPT
Registration Delay Payments are incurred and (B) the third Business Day after
the event or failure giving rise to the WPT Registration Delay Payments is
cured. In the event the Borrowers fail to make within three (3) days after the
date payable WPT Registration Delay Payments in a timely manner, such WPT
Registration Delay Payments shall bear interest at the rate of two percent
(2.0%) per month (prorated for partial months) until paid in full.

               (r) Equity Rights. The Parent and/or any Loan Party, if relevant,
hereby grant to the Lenders (x) a right of first refusal to purchase any equity
or equity linked security of the Parent proposed to be issued or sold to any
Person (based on a bona fide offer of same) upon the same terms and conditions
as such proposed issuance or sale upon which such shares were to be sold to such
Person and all agreements to sell shares of the Parent shall be subject to the
Agent's right of first refusal (which shall be exercised with twenty-four (24)
hours of notice of such offer) on behalf of the Lender and (y) a right of first
offer to purchase any World Poker Shares proposed to be sold by any Loan Party
(which shall be exercised with twenty-four (24) hours of notice of such offer)
(it being understood that if the Agent declines to purchase such shares, such
shares may not be sold at a price lower than 10% of the original price without
triggering another offer to the Lenders). Notwithstanding the foregoing, the
following are excluded from the right of first refusal hereunder: (w) any sale,
the proceeds of which are to pay off in full all obligations pursuant to
Financing Facility, (x) the sale of up to 2,000,000 World Poker Shares to a
strategic buyer (which shall include a buyer with whom World Poker is seeking a
business alliance including, without limitation, International Game Technology),
(y) rights to acquire equity of a Loan Party outstanding as of the Effective
Date and listed on Schedule 5.01(e); and (z) rights to acquire equity pursuant
to options granted after the Effective Date to any Loan Party's officers,
directors, employees, or consultants and listed on Schedule 5.01(e).

               (s) Inactive Subsidiaries. In the event the Inactive Subsidiaries
have assets, the aggregate fair market value of which exceeds $100,000, cause
one or more Inactive Subsidiaries to execute and deliver a Guaranty to the Agent
such that the aggregate fair market value of the assets of the remaining
Inactive Subsidiaries does not exceed $100,000. Upon delivery of such Guaranty,
such Inactive Subsidiary shall be deemed to be a Subsidiary and a Loan Party.

               (t) New Subsidiaries. In the event a Loan Party shall create,
form, acquire or otherwise own an additional or new Subsidiary, the Parent shall
give notice to the Agent of its creation, formation, acquisition or other
ownership such new Subsidiary. If such new Subsidiary is formed for the purpose
of being a party to or a beneficiary of a contract, instrument or other
agreement with an Indian Tribe and the Parent desires that such new Subsidiary
be an Excluded Subsidiary, then such notice shall contain a representation of
the Parent that the Parent has consulted with reputable law firm with an
expertise in Indian gaming matters and that upon advice of such counsel, a
pledge of the Capital Stock of such new Subsidiary would reasonably be expected
to require the review or approval of an Indian gaming authority.


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<PAGE>

               (u) Change Relating to Jamul. Notwithstanding anything herein to
the contrary, in the event that Lakes Jamul Development, LLC is no longer the
holder of the Management and Consulting Agreement related to the Jamul project,
then the holder of such Management and Consulting Agreement shall immediately
grant a security interest to the Agent in and to the Payment Rights (as defined
in the Security Agreement) with respect to such agreement.

          Section 6.02 Negative Covenants. So long as any principal of or
interest on any Loan or any other Obligation (whether or not due) shall remain
unpaid or any Lender shall have any Commitment hereunder, each Loan Party shall
not, unless the Required Lenders shall otherwise consent in writing:

               (a) Liens, Etc. Create, incur, assume or suffer to exist, or
permit any of its Subsidiaries to create, incur, assume or suffer to exist, any
Lien upon or with respect to any of its properties, whether now owned or
hereafter acquired; file or suffer to exist under the Uniform Commercial Code or
any similar law or statute of any jurisdiction, a financing statement (or the
equivalent thereof) that names it or any of its Subsidiaries as debtor; sign or
suffer to exist any security agreement authorizing any secured party thereunder
to file such financing statement (or the equivalent thereof); sell any of its
property or assets subject to an understanding or agreement, contingent or
otherwise, to repurchase such property or assets (including sales of accounts
receivable) with recourse to it or any of its Subsidiaries or assign or
otherwise transfer, or permit any of its Subsidiaries to assign or otherwise
transfer, any account or other right to receive income; other than, as to all of
the above, Permitted Liens.

               (b) Indebtedness.

                    (i) Create, incur, assume, guarantee or suffer to exist, or
otherwise become or remain liable with respect to, or permit any of its
Subsidiaries to create, incur, assume, guarantee or suffer to exist or otherwise
become or remain liable with respect to, any Indebtedness other than Permitted
Indebtedness.

                    (ii) Forgiveness of any Indebtedness owed to any Loan Party
on the date hereof unless otherwise consented to by the Required Lenders.

               (c) Fundamental Changes; Dispositions. Wind-up, liquidate or
dissolve, or merge, consolidate or amalgamate with any Person, or convey, sell,
lease or sublease, transfer or otherwise dispose of, whether in one transaction
or a series of related transactions, all or any part of its business, property
or assets, whether now owned or hereafter acquired (or agree to do any of the
foregoing), or purchase or otherwise acquire, whether in one transaction or a
series of related transactions, all or substantially all of the assets of any
Person (or any division thereof) (or agree to do any of the foregoing), or
permit any of its Subsidiaries to do any of the foregoing; provided, however,
that

                    (i) any wholly-owned Subsidiary of any Loan Party (other
than a Borrower) may be merged into such Loan Party or another wholly-owned
Subsidiary of such Loan Party, or may consolidate with another wholly-owned
Subsidiary of such Loan Party, so long as (A) no other provision of this
Agreement would be violated thereby, (B) such Loan


                                      -61-

<PAGE>

Party gives the Agent at least 60 days' prior written notice of such merger or
consolidation, (C) no Default or Event of Default shall have occurred and be
continuing either before or after giving effect to such transaction, (D) the
Lenders' rights in any Collateral, including, without limitation, the existence,
perfection and priority of any Lien thereon, are not adversely affected by such
merger or consolidation and (E) if not a Loan Party, the surviving Subsidiary,
if any, is a party to a Guaranty and a Security Agreement and the Capital Stock
of which Subsidiary (other than an Excluded Subsidiary) is the subject of a
Pledge Agreement, in each case, which is in full force and effect on the date of
and immediately after giving effect to such merger or consolidation;

                    (ii) any Loan Party and its Subsidiaries may (A) sell
Inventory in the ordinary course of business, and (B) dispose of obsolete or
worn-out equipment in the ordinary course of business;

                    (iii) (A) Parent may sell any number of shares of the
Capital Stock of the Parent as permitted by Section 2.05(c)(vi), and (B)
notwithstanding any provision in any Loan Document to the contrary, unless, a
Default or Event of Default shall have occurred and be continuing, the Loan
Parties may sell World Poker Shares (and the Agent shall release such shares for
such purpose so long as the proceeds of such sale shall be immediately used to
prepay the Loans hereunder subject to Section 2.05(c)(iii)).

                    (iv) the Loan Parties may release, transfer, or convey the
properties referenced in Section 7.04 as contemplated thereby and other real
property not constituting Collateral.

               (d) Change in Nature of Business. Make, or permit any of its
Subsidiaries to make, any change in the nature of its business as described in
Section 5.01(m).

               (e) Loans, Advances, Investments, Etc. Make or commit or agree to
make any loan, advance, guarantee of obligations, other extension of credit or
capital contributions to, or hold or invest in or commit or agree to hold or
invest in, or purchase or otherwise acquire or commit or agree to purchase or
otherwise acquire any shares of the Capital Stock, bonds, notes, debentures or
other securities of, or make or commit or agree to make any other investment in,
any other Person, or purchase or own any futures contract or otherwise become
liable for the purchase or sale of currency or other commodities at a future
date in the nature of a futures contract, or permit any of its Subsidiaries to
do any of the foregoing, except for: (i) in connection with one or more Projects
or new projects in accordance with the terms hereof, any loan, advance,
guarantee of obligations or other extension of credit (A) outstanding as of the
Effective Date as listed on Schedule 6.02(e), (B) to be made following the
Effective Date as contemplated by and in accordance with the Business Plan (but
not including any Contingent Obligation of any Loan Party related to the
Projects or other projects developed in accordance herewith except the Pawnee
Guaranty) (which together with Capital Expenditures pursuant to clause (g) below
shall not exceed $5,000,000 in respect of new projects developed in accordance
with the terms hereof), or (C) otherwise made with the written consent of the
Required Lenders (not to be unreasonably withheld if no Event of Default shall
have occurred and be continuing), (ii) the Pawnee Guaranty, (iii) investments
existing on the date hereof, as set forth on Schedule 6.02(e) hereto, but not
any increase in the amount thereof as set forth in such Schedule or any other


                                      -62-

<PAGE>

modification of the terms thereof, (iv) temporary loans and advances by the
Parent to a Subsidiary (in accordance with the Business Plan) that owns the
Projects or a new project to be developed in accordance herewith, (v) Permitted
Investments (vi) Investments in Subsidiaries (other than Inactive Subsidiaries,
provided each such Subsidiary is a Loan Party) and Investments in Inactive
Subsidiaries in an aggregate amount for all such Inactive Subsidiaries not to
exceed $100,000 at any one time, and (vii) loans and advances to employees for
moving, entertainment, travel and other similar expenses in the ordinary course
of business not to exceed $250,000 in the aggregate at any time outstanding.

               (f) Lease Obligations. Create, incur or suffer to exist, or
permit any of its Subsidiaries to create, incur or suffer to exist, any
obligations 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 leases or agreements to
lease other than (A) Capitalized Lease Obligations which would not cause the
aggregate amount of all obligations under Capitalized Leases entered into after
the Effective Date owing by all Loan Parties and their Subsidiaries in any
Fiscal Year to exceed the amounts set forth in Section 6.02(g), and (B)
Operating Lease Obligations which would not cause the aggregate amount of all
Operating Lease Obligations owing by all Loan Parties and their Subsidiaries in
any Fiscal Year to exceed $200,000.

               (g) Capital Expenditures. Make or commit or agree to make, or
permit any of its Subsidiaries to make or commit or agree to make, (i) any
Capital Expenditure (by purchase or Capitalized Lease) that would cause the
aggregate amount of all Capital Expenditures made by the Loan Parties and their
Subsidiaries to exceed (A) $2,500,000 in any Fiscal Year or (B) together with
any loans, advances, guarantees of obligations or other extensions of credit
pursuant to clause (e)(i) above in respect of new projects developed in
accordance with the terms hereof, $5,000,000 in aggregate during the term of the
Loan, and (ii) any Capital Expenditures not disclosed to the Agent with respect
to any Project or other project permitted under the terms hereof prior to the
date hereof unless otherwise consented to by the Required Lenders, which consent
shall not be unreasonably withheld.

               (h) Restricted Payments. (i) Declare or pay any dividend or other
distribution, direct or indirect, on account of any Capital Stock of any Loan
Party or any of its Subsidiaries, now or hereafter outstanding, (ii) make any
repurchase, redemption, retirement, defeasance, sinking fund or similar payment,
purchase or other acquisition for value, direct or indirect, of any Capital
Stock of any Loan Party or any direct or indirect parent of any Loan Party, now
or hereafter outstanding, (iii) make any payment to retire, or to obtain the
surrender of, any outstanding warrants, options or other rights for the purchase
or acquisition of shares of any class of Capital Stock of any Loan Party, now or
hereafter outstanding, (iv) return any Capital Stock to any shareholders or
other equity holders of any Loan Party or any of its Subsidiaries, or make any
other distribution of property, assets, shares of Capital Stock, warrants,
rights, options, obligations or securities thereto as such or (v) pay any
management fees or any other fees or expenses (including the reimbursement
thereof by any Loan Party or any of its Subsidiaries) pursuant to any
management, consulting or other services agreement to any of the shareholders or
other equityholders of any Loan Party or any of its Subsidiaries or other
Affiliates, or to any other Subsidiaries or Affiliates of any Loan Party;
provided, however, (A) any Loan Party may pay dividends to the Parent (1) in
amounts necessary to pay customary


                                      -63-

<PAGE>

expenses of the Parent in the ordinary course of its business as a public
holding company (including salaries and related reasonable and customary
expenses incurred by employees of the Parent) and (2) in amounts necessary to
pay taxes when due and owing by the Parent and (B) any Subsidiary of any
Borrower may pay dividends to such Borrower, and (C) any Loan Party may fulfill
its contractual obligations owing to Kevin M. Kean and/or Jerry A. Argovitz
under agreements existing as of the Effective Date, as they may be amended from
time to time (such amendments shall not increase the Loan Parties' obligations
to such Persons by more than $500,000, without the written consent of the
Required Lenders) ), provided that, in each case of clauses (A) and (B) above,
at the election of the Agent, which the Agent may and, upon the direction of the
Required Lenders, shall make by notice to Parent, no such payment shall be made
if an Event of Default shall have occurred and be continuing or would result
from the making of any such payment.

               (i) Federal Reserve Regulations. Permit any Loan or the proceeds
of any Loan under this Agreement to be used for any purpose that would cause
such Loan to be a margin loan under the provisions of Regulation T, U or X of
the Board.

               (j) Transactions with Affiliates. Enter into, renew, extend or be
a party to, or permit any of its Subsidiaries to enter into, renew, extend or be
a party to, any transaction or series of related transactions (including,
without limitation, the purchase, sale, lease, transfer or exchange of property
or assets of any kind or the rendering of services of any kind) with any
Affiliate, except (i) in the ordinary course of business in a manner and to an
extent consistent with past practice and necessary or desirable for the prudent
operation of its business, for fair consideration and on terms no less favorable
to it or its Subsidiaries than would be obtainable in a comparable arm's length
transaction with a Person that is not an Affiliate thereof, (ii) transactions
with another Loan Party, including, without limitation, transactions involving
Permitted Indebtedness and (iii) transactions permitted by Section 6.02(e).

               (k) Limitations on Dividends and Other Payment Restrictions
Affecting Subsidiaries. Create or otherwise cause, incur, assume, suffer or
permit to exist or become effective any consensual encumbrance or restriction of
any kind on the ability of any Subsidiary of any Loan Party (i) to pay dividends
or to make any other distribution on any shares of Capital Stock of such
Subsidiary owned by any Loan Party or any of its Subsidiaries, (ii) to pay or
prepay or to subordinate any Indebtedness owed to any Loan Party or any of its
Subsidiaries, (iii) to make loans or advances to any Loan Party or any of its
Subsidiaries or (iv) to transfer any of its property or assets to any Loan Party
or any of its Subsidiaries, or permit any of its Subsidiaries to do any of the
foregoing; provided, however, that nothing in any of clauses (i) through (iv) of
this Section 6.02(k) shall prohibit or restrict compliance with:

                         (A) this Agreement and the other Loan Documents;

                         (B) any agreements in effect on the date of this
Agreement and described on Schedule 6.02(k);

                         (C) any applicable law, rule or regulation (including,
without limitation, applicable currency control laws and applicable state
corporate statutes restricting the payment of dividends in certain
circumstances);


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<PAGE>

                         (D) in the case of clause (iv) any agreement setting
forth customary restrictions on the subletting, assignment or transfer of any
property or asset that is a lease, license, conveyance or contract of similar
property or assets; or

                         (E) in the case of clause (iv) any agreement,
instrument or other document evidencing a Permitted Lien from restricting on
customary terms the transfer of any property or assets subject thereto.

               (l) Limitation on Issuance of Capital Stock. Issue or sell or
enter into any agreement or arrangement for the issuance and sale of, or permit
any of its Subsidiaries to issue or sell or enter into any agreement or
arrangement for the issuance and sale of, any shares of its Capital Stock, any
securities convertible into or exchangeable for its Capital Stock or any
warrants, except as permitted under Section 6.02(c).

               (m) Modifications of Indebtedness, Organizational Documents and
Certain Other Agreements; Etc. (i) Amend, modify or otherwise change (or permit
the amendment, modification or other change in any manner of) any of the
material provisions of any of its or its Subsidiaries' Indebtedness or of any
instrument or agreement (including, without limitation, any purchase agreement,
indenture, loan agreement or security agreement) relating to any such
Indebtedness if such amendment, modification or change would shorten the final
maturity or average life to maturity of, or require any payment to be made
earlier than the date originally scheduled on such Indebtedness, would increase
the interest rate applicable to such Indebtedness, would change the
subordination provision, if any, of such Indebtedness, or would otherwise be
adverse to the Lenders or the issuer of such Indebtedness in any respect, (ii)
except for the Obligations, make any voluntary or optional payment, prepayment,
redemption, defeasance, sinking fund payment or other acquisition for value of
any of its or its Subsidiaries' Indebtedness (including, without limitation, by
way of depositing money or securities with the trustee therefor before the date
required for the purpose of paying any portion of such Indebtedness when due),
or refund, refinance, replace or exchange any other Indebtedness for any such
Indebtedness (except to the extent such Indebtedness is otherwise expressly
permitted by the definition of "Permitted Indebtedness"), or make any payment,
prepayment, redemption, defeasance, sinking fund payment or repurchase of any
outstanding Indebtedness as a result of any asset sale, change of control,
issuance and sale of debt or equity securities or similar event, or give any
notice with respect to any of the foregoing, (iii) except as permitted by
Section 6.02(c), amend, modify or otherwise change its name, jurisdiction of
organization, organizational identification number or FEIN or (iv) amend, modify
or otherwise change its certificate of incorporation or bylaws (or other similar
organizational documents), including, without limitation, by the filing or
modification of any certificate of designation, or any agreement or arrangement
entered into by it, with respect to any of its Capital Stock (including any
shareholders' agreement), or enter into any new agreement with respect to any of
its Capital Stock, except any such amendments, modifications or changes or any
such new agreements or arrangements pursuant to this clause (iv) that either
individually or in the aggregate, could not have a Material Adverse Effect.

               (n) Investment Company Act of 1940. Engage in any business, enter
into any transaction, use any securities or take any other action or permit any
of its Subsidiaries to do any of the foregoing, that would cause it or any of
its Subsidiaries to become subject to the registration requirements of the
Investment Company Act of 1940, as amended, by virtue of being


                                      -65-

<PAGE>

an "investment company" or a company "controlled" by an "investment company" not
entitled to an exemption within the meaning of such Act.

               (o) Compromise of Accounts Receivable or Notes Receivable.
Without limiting Section 6.02(b) hereunder, compromise or adjust any Account
Receivable or note receivable (or extend the time of payment thereof) or grant
any discounts, allowances or credits or permit any of its Subsidiaries to do so
other than, provided no Default or Event of Default has occurred and is
continuing, in the ordinary course of its business; provided, however, in no
event shall any such discount, allowance or credit exceed $1,000,000 in the
aggregate. Notwithstanding the foregoing, the Loan Parties may compromise,
adjust, or grant any discounts, allowances or credits with respect to the
Kickapoo Indebtedness.

               (p) ERISA. (i) Engage, or permit any ERISA Affiliate to engage,
in any transaction described in Section 4069 of ERISA; (ii) engage, or permit
any ERISA Affiliate to engage, in any prohibited transaction described in
Section 406 of ERISA or 4975 of the Internal Revenue Code for which a statutory
or class exemption is not available or a private exemption has not previously
been obtained from the U.S. Department of Labor if such transaction could have
more than a de minimus effect on the Loan Party's ability to make payments under
this Agreement; (iii) adopt or permit any ERISA Affiliate to adopt any employee
welfare benefit plan within the meaning of Section 3(1) of ERISA which provides
benefits to employees after termination of employment other than as required by
Section 601 of ERISA or applicable law; (iv) fail to make any contribution or
payment to any Multiemployer Plan which it or any ERISA Affiliate may be
required to make under any agreement relating to such Multiemployer Plan, or any
law pertaining thereto; or (v) fail, or permit any ERISA Affiliate to fail, to
pay any required installment or any other payment required under Section 412 of
the Internal Revenue Code on or before the due date for such installment or
other payment.

               (q) Environmental. Permit the use, handling, generation, storage,
treatment, Release or disposal of Hazardous Materials at any property owned or
leased by it or any of its Subsidiaries, except in compliance with Environmental
Laws and so long as such use, handling, generation, storage, treatment, Release
or disposal of Hazardous Materials does not result in a Material Adverse Effect.

               (r) Certain Agreements.

                    (i) Agree to any amendment or modification, termination, or
other change to or waiver of any of its rights under any Material Contract or
the Berman Employment Agreement, except for (A) any amendment or modification,
termination, or other change to or waiver that is de minimus or of de minimus
effect, or (B) any amendment, modification, or other change to or waiver of any
of its rights under any Material Contract relating to or executed in connection
with a Project or other project permitted hereby, to the extent any such
amendment, modification or other change to or waiver of rights is necessary in
response to commentary or requirements of any Governmental Authority, including,
without limitation, the National Indian Gaming Commission or to ensure the
compliance of such Material Contract with applicable law.


                                      -66-

<PAGE>

                    (ii) Enter into any additional Material Contracts for a
project other than the Projects which would require the expenditure (via loans,
payments or otherwise), in excess of $5,000,000 in the aggregate for the term
hereof provided, that no such additional Materials Contract shall be entered
into when an Event of Default hereunder has occurred or is continuing.

               (s) Inactive Subsidiaries. Permit any Inactive Subsidiaries to
(i) have any operations or engage in any business or activity or (ii) have
assets, the fair market value of which is, in aggregate, more than $100,000.

               (t) Pokagon Account. In no event shall the Pokagon Account have a
balance as of the last day of each fiscal month greater than $2,500,000.

                                  ARTICLE VII

                      MANAGEMENT, COLLECTION AND STATUS OF
                    ACCOUNTS RECEIVABLE AND OTHER COLLATERAL

          Section 7.01 Collection of Accounts Receivable; Management of
Collateral. (a) On or prior to the Effective Date, the Loan Parties shall
maintain one or more deposit accounts as identified on Schedule 7.01 hereto
(collectively, the "Blocked Accounts") with the financial institutions set forth
on Schedule 7.01 hereto or such other financial institutions selected by the
Loan Parties and acceptable to the Agent in its sole discretion (each being
referred to as a "Blocked Account Bank") which Blocked Accounts together with
the securities accounts referred to below shall be under the "control" (as
defined in Section 9-104(a) of the Uniform Commercial Code) of the Agent. No
Loan Party, may, without the written consent of the Agent, maintain any deposit
account or securities account not subject to a Blocked Account Agreement (other
than the Pokagon Account and the other Excluded Accounts) or a securities
account control agreement (except with respect to the Goldman Sachs account
referred to in Section 4.03(a), but only until such time as such control
agreement is required to be in place pursuant to Section 4.03(a)), as the case
may be, and all current deposit and securities accounts other than the Pokagon
Account and other Excluded Accounts are disclosed on Schedule 7.01. Until the
Agent has advised the Loan Parties to the contrary after the occurrence and
during the continuance of an Event of Default, the Loan Parties may and will
enforce, collect and receive all amounts owing on the Collateral (including
proceeds of material contacts set forth in Schedule 7.01) of the Loan Parties
for the Agent's benefit and on the Agent's behalf, but at the Loan Parties'
expense; such privilege shall terminate, at the election of the Agent, upon the
occurrence and during the continuance of an Event of Default. All checks,
drafts, notes, money orders, acceptances, cash and other evidences of
Indebtedness received directly by the Loan Parties, shall be held by the Loan
Parties in trust for the Agent and the Lenders and upon receipt be deposited by
the Loan Parties in original form and no later than the next Business Day after
receipt thereof into a Blocked Account. To the extent the Agent has exercised
its rights in respect of the Blocked Accounts following an Event of Default,
Agent shall charge the Loan Account on the last day of each month with two (2)
collection days for all such collections and under such circumstances no checks,
drafts or other instruments received by the Agent shall constitute final payment
to the Agent unless and until such checks, drafts or instruments have actually
been collected.


                                      -67-

<PAGE>

               (b) After the occurrence and during the continuance of an Event
of Default, the Agent may send a notice of assignment and/or notice of the
Lenders' security interest to any and all Account Debtors or third parties
holding or otherwise concerned with any of the Collateral, and thereafter the
Agent shall have the sole right to collect the Accounts Receivable and/or take
possession of the Collateral and the books and records relating thereto. The
Loan Parties shall not, without prior written consent of the Agent, grant any
extension of time of payment of any Account Receivable, compromise or settle any
Account Receivable for less than the full amount thereof, release, in whole or
in part, any Person or property liable for the payment thereof, or allow any
credit or discount whatsoever thereon, except, in the absence of a continuing
Event of Default, as permitted by Section 6.02(o).

               (c) Each Loan Party hereby appoints the Agent or its designee on
behalf of the Agent as the Loan Parties' attorney-in-fact with power exercisable
during the continuance of an Event of Default to endorse any Loan Party's name
upon any notes, acceptances, checks, drafts, money orders or other evidences of
payment relating to the Collateral and to do all other acts and things necessary
to carry out this Agreement. All acts of said attorney or designee are hereby
ratified and approved, and said attorney or designee shall not be liable for any
acts of omission or commission (other than acts of omission or commission
constituting gross negligence or willful misconduct as determined by a final
judgment of a court of competent jurisdiction), or for any error of judgment or
mistake of fact or law; this power being coupled with an interest is irrevocable
until all of the Loans and other Obligations under the Loan Documents are paid
in full and all of the Loan Documents are terminated.

               (d) The Agent shall not, under any circumstance or in any event
whatsoever, have any liability for any error or omission or delay of any kind
occurring in the settlement, collection or payment with respect to the
Collateral (other than acts of omission or commission constituting gross
negligence or willful misconduct as determined by a final judgment of a court of
competent jurisdiction). The Agent, by anything herein or in any assignment or
otherwise, do not assume any of the obligations under any contract or agreement
assigned to the Agent and shall not be responsible in any way for the
performance by any Loan Party of any of the terms and conditions thereof.

               (e) If any Collateral includes a charge for any tax payable to
any Governmental Authority, the Agent is hereby authorized (but in no event
obligated) in its discretion to pay the amount thereof to the proper taxing
authority for the Loan Parties' account and to charge the Loan Parties therefor.
The Loan Parties shall notify the Agent if any Collateral includes any taxes due
to any such Governmental Authority and, in the absence of such notice, the Agent
shall have the right to retain the full proceeds of such Collateral and shall
not be liable for any taxes that may be due by reason of the sale and delivery
creating such Collateral.

               (f) Notwithstanding any other terms set forth in the Loan
Documents, the rights and remedies of the Agent and the Lenders herein provided,
and the obligations of the Loan Parties set forth herein, are cumulative of, may
be exercised singly or concurrently with, and are not exclusive of, any other
rights, remedies or obligations set forth in any other Loan Document or as
provided by law.


                                      -68-

<PAGE>

          Section 7.02 Status of Collateral. With respect to Collateral of any
Loan Party at the time the Collateral becomes subject to the Agent's Lien, each
Loan Party covenants, represents and warrants: (a) such Loan Party shall be the
sole owner, free and clear of all Liens (except for the Liens granted in the
favor of the Agent for the benefit of the Lenders and Permitted Liens), and
shall be fully authorized to sell, transfer, pledge and/or grant a security
interest in each and every item of said Collateral; (b) [Intentionally Omitted];
(c) none of the transactions underlying or giving rise to any Material Contract
shall violate any applicable state or federal laws or regulations, except for
technical violations or those where a violation would be of de minimus effect,
and all documents relating thereto shall be legally sufficient under such laws
or regulations and shall be legally enforceable by the Loan Party that is a
party thereto in accordance with their terms; (d) no agreement under which any
deduction or offset of any kind, may be granted or shall have been made by such
Loan Party at or before the time such Material Contract is created; (e) all
agreements, instruments and other documents relating to any Material Contract
shall be true and correct and in all material respects what they purport to be;
(f) all signatures and endorsements that appear on all material agreements,
instruments and other documents relating to any Material Contract shall be
genuine and all signatories and endorsers shall have full capacity to contract;
(g) such Loan Party shall maintain books and records pertaining to said
Collateral in such detail, form and scope as the Agent shall reasonably require;
and (h) if any amount payable under or in connection with any Material Contract
(other than with respect to Excluded Debt, as defined in the Pledge Agreement)
is evidenced by a promissory note or other instrument, such promissory note or
instrument shall be immediately pledged, endorsed, assigned and delivered to the
Agent for the benefit of the Lenders as additional Collateral.

          Section 7.03 Collateral Custodian. Upon the occurrence and during the
continuance of any Default or Event of Default, the Agent may at any time and
from time to time employ and maintain on the premises of any Loan Party a
custodian selected by the Agent who shall have full authority to do all acts
necessary to protect the Agent's and the Lenders' interests. Each Loan Party
hereby agrees to, and to cause its Subsidiaries to, cooperate with any such
custodian and to do whatever the Agent may reasonably request to preserve the
Collateral. All costs and expenses incurred by the Agent by reason of the
employment of the custodian shall be the responsibility of the Borrowers and
charged to the Loan Account.

          Section 7.04 Release of Certain Properties. Notwithstanding anything
to the contrary contained herein or in any other Loan Document, to the extent
the Parent currently has any obligation to release properties in Jamul and
Shingle Springs, in each case, upon the happening of certain events or on
specific dates, the Lenders shall release such properties or mortgages thereon
upon such events or at such dates.

          Section 7.05 Negative Pledge. No Loan Party shall grant a security
interest to any party other than Agent in and to (a) any Management and
Consulting Agreement or any rights thereunder (other than related to Jamul) (b)
any promissory note made by any Indian Tribe in favor of any Loan Party (other
than related to Jamul to the extent required by a construction lender to Lakes
Jamul Development, LLC), (c) the stock of any Excluded Subsidiary or (d) any
real property not subject to a mortgage in favor of the Agent.


                                      -69-

<PAGE>

                                  ARTICLE VIII

                                EVENTS OF DEFAULT

          Section 8.01 Events of Default. If any of the following Events of
Default shall occur and be continuing:

               (a) any Borrower or any Guarantor shall fail to pay any principal
of any Loan, payable under this Agreement or any other Loan Document when due
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise) (including with respect to increased rates and fees upon the
occurrence of certain events set forth hereunder);

               (b) any Borrower or any Guarantor shall fail to pay any interest
on any Loan, any Agent Advance, or any fee, (including, without limitation,
under 6.01(q) hereof), indemnity or other amount payable under this Agreement or
any other Loan Document within 3 Business Days when due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) (including
with respect to increased rates and fees upon the occurrence of certain events
set forth hereunder);

               (c) any representation or warranty made or deemed made by or on
behalf of any Borrower or any Guarantor or by any officer of the foregoing under
or in connection with any Loan Document or under or in connection with any
report, certificate, or other document delivered to the Agent or any Lender
pursuant to any Loan Document shall have been incorrect in any material respect
when made or deemed made;

               (d) any Borrower or any Guarantor shall fail to perform or comply
with any covenant or agreement contained in Sections 6.01(q), 6.02 or 7.01 or
any Borrower or any Guarantor shall fail to perform or comply with any covenant
or agreement contained in any Security Agreement to which it is a party, any
Pledge Agreement to which it is a party or any Mortgage to which it is a party
(and any such failure shall continue beyond any grace period applicable
thereto);

               (e) any Borrower or any Guarantor shall fail to perform or comply
with any other term, covenant or agreement contained in (i) any Loan Document
(other than the Securities Purchase Agreement and the Registration Rights
Agreement) to be performed or observed by it and, except as set forth in
subsections (a), (b), (c) and (d) of this Section 8.01, such failure, if capable
of being remedied, shall remain unremedied for thirty (30) days or (ii) the
Securities Purchase Agreement or the Registration Rights Agreement to be
performed and observed by it (other than (x) as a result of a failure as to
which there is an additional fee or higher interest rate payable as a result
thereof or additional warrants to be issued hereunder or thereunder or (y) or
that is not otherwise material to the rights under such agreements), and such
failure, if capable of being remedied, shall remain unremedied for the forty
(40) days;

               (f) any Borrower or any Guarantor shall fail to pay any principal
of or interest or premium on any of its Indebtedness (excluding Indebtedness
evidenced by this Agreement), to the extent that the aggregate principal amount
of all such Indebtedness exceeds $500,000, when due (whether by scheduled
maturity, required prepayment, acceleration, demand


                                      -70-

<PAGE>

or otherwise) and such failure shall continue after the applicable grace period,
if any, specified in the agreement or instrument relating to such Indebtedness,
or any other default under any agreement or instrument relating to any such
Indebtedness, or any other event, shall occur and shall continue after the
applicable grace period, if any, specified in such agreement or instrument, if
the effect of such default or event is to accelerate, or to permit the
acceleration of, the maturity of such Indebtedness; or any such Indebtedness
shall be declared to be due and payable, or required to be prepaid (other than
by a regularly scheduled required prepayment), redeemed, purchased or defeased
or an offer to prepay, redeem, purchase or defease such Indebtedness shall be
required to be made, in each case, prior to the stated maturity thereof;

               (g) any Borrower or any Guarantor (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 any 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 Borrower or
any Guarantor 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
any such Person or for any substantial part of its property, and either such
proceeding shall remain undismissed or unstayed for a period of sixty (60) days
or any of the actions sought in such proceeding (including, without limitation,
the entry of an order for relief against any such Person 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 material provision (as determined by the Agent) of any
Loan Document shall at any time for any reason (other than pursuant to the
express terms thereof) cease to be valid and binding on or enforceable against
any Borrower or any Guarantor intended to be a party thereto, or the validity or
enforceability thereof shall be contested by any party thereto, or a proceeding
shall be commenced by any Borrower or any Guarantor or any Governmental
Authority having jurisdiction over any of them, seeking to establish the
invalidity or unenforceability thereof, or any Borrower or any Guarantor shall
deny in writing that it has any liability or obligation purported to be created
under any Loan Document;

               (j) any Security Agreement, any Pledge Agreement, any Mortgage or
any other security document, after delivery thereof pursuant hereto, shall for
any reason fail or cease to create a valid and perfected and, except to the
extent permitted by the terms hereof or thereof and subject to Permitted Liens,
first priority Lien in favor of the Agent for the benefit of the Lenders on any
Collateral purported to be covered thereby;


                                      -71-

<PAGE>

               (k) any bank at which any deposit account, blocked account, or
lockbox account of any Loan Party constituting Collateral is maintained shall
fail to comply with any of the terms of any deposit account, blocked account,
lockbox account or similar agreement to which such bank is a party or any
securities intermediary, commodity intermediary or other financial institution
at any time in custody, control or possession of any investment property of any
Loan Party shall fail to comply with any of the terms of any investment property
control agreement to which such Person is a party;

               (l) one or more judgments, orders or awards (or any settlement of
any claim that, if breached, could result in a judgment, order or award) for the
payment of money exceeding $2,000,000 in the aggregate shall be rendered against
any Borrower or any Guarantor and remain unsatisfied and either (i) enforcement
proceedings shall have been commenced by any creditor upon any such judgment,
order, award or settlement, or (ii) there shall be a period of 10 consecutive
days after entry thereof during which a stay of enforcement of any such
judgment, order, award or settlement, by reason of a pending appeal or
otherwise, shall not be in effect; or (iii) at any time during which a stay of
enforcement of any such judgment, order, award or settlement, by reason of a
pending appeal or otherwise, is in effect, such judgment, order, award or
settlement, by reason of a pending appeal or otherwise, is in effect, such
judgment, order, award or settlement is not bonded in the full amount of such
judgment, order, award or settlement; provided, however, that any such judgment,
order, award or settlement shall not give rise to an Event of Default under this
subsection (l) if and for so long as (A) the amount of such judgment, order,
award or settlement is covered by a valid and binding policy of insurance
between the defendant and the insurer covering full payment thereof and (B) such
insurer has been notified, and has not disputed the claim made for payment, of
the amount of such judgment, order, award or settlement;

               (m) [Intentionally Omitted];

               (n) any material damage to, or loss, theft or destruction of, any
Collateral, whether or not insured, or any strike, lockout, labor dispute,
embargo, condemnation, act of God or public enemy, or other casualty which
causes, for more than fifteen (15) consecutive days, the cessation or
substantial curtailment of revenue producing activities at any facility of any
Loan Party, if any such event or circumstance could reasonably be expected to
have a Material Adverse Effect;

               (o) any cessation of a substantial part of the business of any
Borrower or Guarantor for a period which materially and adversely affects the
ability of such Person to continue its business;

               (p) any Change of Control occurs;

               (q) the loss, suspension or revocation of, or failure to renew,
any license or permit now held or hereafter acquired by any Borrower or any
Guarantor, if such loss, suspension, revocation or failure to renew could
reasonably be expected to have a Material Adverse Effect;


                                      -72-

<PAGE>

               (r) the indictment, or the threatened indictment of any Borrower
or any Guarantor under any criminal statute, or commencement or threatened
commencement of criminal or civil proceedings against any Borrower or any
Guarantor, pursuant to which statute or proceedings the penalties or remedies
sought or available include forfeiture to any Governmental Authority of any
material portion of the property of such Person;

               (s) any Borrower or any Guarantor or any of its ERISA Affiliates
shall have made a complete or partial withdrawal from a Multiemployer Plan, and,
as a result of such complete or partial withdrawal, any Borrower or any
Guarantor or any of its ERISA Affiliates incurs a withdrawal liability in an
annual amount exceeding $200,000; or a Multiemployer Plan enters reorganization
status under Section 4241 of ERISA, and, as a result thereof any Borrower's or
any Guarantor's or any of its ERISA Affiliates' annual contribution requirements
with respect to such Multiemployer Plan increases in an annual amount exceeding
$200,000;

               (t) any Termination Event with respect to any Employee Plan shall
have occurred, and, 30 days after notice thereof shall have been given to any
Borrower or any Guarantor by the Agent, (i) such Termination Event (if
correctable) shall not have been corrected, and (ii) the then current value of
such Employee Plan's vested benefits exceeds the then current value of assets
allocable to such benefits in such Employee Plan by more than $200,000 (or, in
the case of a Termination Event involving liability under Section 409, 502(i),
502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 4971
or 4975 of the Internal Revenue Code, the liability is in excess of such
amount);

               (u) any Borrower or any Guarantor shall be liable for any
Environmental Liabilities and Costs the payment of which could reasonably be
expected to have a Material Adverse Effect;

               (v) failure to commence the construction of at least one of
Shingle Springs, Pokagon or Jamul by March 1, 2007 in accordance with the
Project Business Plan (it being understood that the Parent shall be deemed to
have commenced such construction if the construction financing has been drawn
upon for one such Project and no litigation, governmental or regulatory, labor,
tribal or other action has had the effect of enjoining or preventing in any
material respect, the actual construction thereof); or

               (w) an event or development occurs which could reasonably be
expected to have a Material Adverse Effect;

          then, and in any such event, the Agent may, and shall at the request
of the Required Lenders, by notice to Parent, (i) terminate or reduce all
Commitments, whereupon all Commitments shall immediately be so terminated or
reduced, (ii) declare all or any portion of the Loans then outstanding to be due
and payable, whereupon all or such portion of the aggregate principal of all
Loans, all accrued and unpaid interest thereon, all fees and all other amounts
payable under this Agreement and the other Loan Documents shall become due and
payable immediately, without presentment, demand, protest or further notice of
any kind, all of which are hereby expressly waived by each Loan Party and (iii)
exercise any and all of its other rights and remedies under applicable law,
hereunder and under the other Loan Documents; provided, however, that upon the
occurrence of any Event of Default described in subsection (g) or (h) of


                                      -73-

<PAGE>

this Section 8.01 with respect to any Loan Party, without any notice to any Loan
Party or any other Person or any act by the Agent or any Lender, all Commitments
shall automatically terminate and all Loans then outstanding, together with all
accrued and unpaid interest thereon, all fees and all other amounts due under
this Agreement and the other Loan Documents shall become due and payable
automatically and immediately, without presentment, demand, protest or notice of
any kind, all of which are expressly waived by each Loan Party.

                                   ARTICLE IX

                                      AGENT

          Section 9.01 Appointment. Each Lender (and each subsequent maker of
any Loan by its making thereof) hereby irrevocably appoints and authorizes the
Agent to perform the duties of the Agent as set forth in this Agreement
including: (i) to receive on behalf of each Lender any payment of principal of
or interest on the Loans outstanding hereunder and all other amounts accrued
hereunder for the account of the Lenders and paid to the Agent, and, subject to
Section 2.02 of this Agreement, to distribute promptly to each Lender its Pro
Rata Share of all payments so received; (ii) to distribute to each Lender copies
of all material notices and agreements received by the Agent and not required to
be delivered to each Lender pursuant to the terms of this Agreement, provided
that the Agent shall not have any liability to the Lenders for the Agent's
inadvertent failure to distribute any such notices or agreements to the Lenders;
(iii) to maintain, in accordance with its customary business practices, ledgers
and records reflecting the status of the Obligations, the Loans, and related
matters and to maintain, in accordance with its customary business practices,
ledgers and records reflecting the status of the Collateral and related matters;
(iv) to execute or file any and all financing or similar statements or notices,
amendments, renewals, supplements, documents, instruments, proofs of claim,
notices and other written agreements with respect to this Agreement or any other
Loan Document; (v) to make the Loans and Agent Advances, for the Agent or on
behalf of the applicable Lenders as provided in this Agreement or any other Loan
Document; (vi) to perform, exercise, and enforce any and all other rights and
remedies of the Lenders with respect to the Loan Parties, the Obligations, or
otherwise related to any of same to the extent reasonably incidental to the
exercise by the Agent of the rights and remedies specifically authorized to be
exercised by the Agent by the terms of this Agreement or any other Loan
Document; (vii) to incur and pay such fees necessary or appropriate for the
performance and fulfillment of its functions and powers pursuant to this
Agreement or any other Loan Document; and (viii) subject to Section 9.03 of this
Agreement, to take such action as the Agent deems appropriate on its behalf to
administer the Loans and the Loan Documents and to exercise such other powers
delegated to the Agent by the terms hereof or the other Loan Documents
(including, without limitation, the power to give or to refuse to give notices,
waivers, consents, approvals and instructions and the power to make or to refuse
to make determinations and calculations) together with such powers as are
reasonably incidental thereto to carry out the purposes hereof and thereof. As
to any matters not expressly provided for by this Agreement and the other Loan
Documents (including, without limitation, enforcement or collection of the
Loans), the Agent shall not be required to exercise any discretion or take any
action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the Required Lenders, and such instructions of the Required Lenders shall be
binding upon all Lenders and all makers of Loans.


                                      -74-

<PAGE>

          Section 9.02 Nature of Duties. The Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement or in the
other Loan Documents. The duties of the Agent shall be mechanical and
administrative in nature. The Agent shall not have by reason of this Agreement
or any other Loan Document a fiduciary relationship in respect of any Lender.
Nothing in this Agreement or any other Loan Document, express or implied, is
intended to or shall be construed to impose upon the Agent any obligations in
respect of this Agreement or any other Loan Document except as expressly set
forth herein or therein. Each Lender shall make its own independent
investigation of the financial condition and affairs of the Loan Parties in
connection with the making and the continuance of the Loans hereunder and shall
make its own appraisal of the creditworthiness of the Loan Parties and the value
of the Collateral, and the Agent shall have no duty or responsibility, either
initially or on a continuing basis, to provide any Lender with any credit or
other information with respect thereto, whether coming into its possession
before the initial Loan hereunder or at any time or times thereafter, provided
that, upon the reasonable request of a Lender, the Agent shall provide to such
Lender any documents or reports delivered to the Agent by the Loan Parties
pursuant to the terms of this Agreement or any other Loan Document. If the Agent
seeks the consent or approval of the Required Lenders to the taking or
refraining from taking any action hereunder, the Agent shall send notice thereof
to each Lender. The Agent shall promptly notify each Lender any time that the
Required Lenders have instructed the Agent to act or refrain from acting
pursuant hereto.

          Section 9.03 Rights, Exculpation, Etc. The Agent and its directors,
officers, agents or employees shall not be liable for any action taken or
omitted to be taken by them under or in connection with this Agreement or the
other Loan Documents, except for their own gross negligence or willful
misconduct as determined by a final judgment of a court of competent
jurisdiction. Without limiting the generality of the foregoing, the Agent (i)
may treat the payee of any Loan as the owner thereof until the Agent receives
written notice of the assignment or transfer thereof, pursuant to Section 11.07
hereof, signed by such payee and in form satisfactory to the Agent; (ii) may
consult with legal counsel (including, without limitation, counsel to the Agent
or counsel to the Loan Parties), independent public accountants, and other
experts selected by any of them and shall not be liable for any action taken or
omitted to be taken in good faith by any of them in accordance with the advice
of such counsel or experts; (iii) make no warranty or representation to any
Lender and shall not be responsible to any Lender for any statements,
certificates, warranties or representations made in or in connection with this
Agreement or the other Loan Documents; (iv) shall not have any duty to ascertain
or to inquire as to the performance or observance of any of the terms, covenants
or conditions of this Agreement or the other Loan Documents on the part of any
Person, the existence or possible existence of any Default or Event of Default,
or to inspect the Collateral or other property (including, without limitation,
the books and records) of any Person; (v) shall not be responsible to any Lender
for the due execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or the other Loan Documents or any other
instrument or document furnished pursuant hereto or thereto; and (vi) shall not
be deemed to have made any representation or warranty regarding the existence,
value or collectibility of the Collateral, the existence, priority or perfection
of the Agent's Lien thereon, or any certificate prepared by any Loan Party in
connection therewith, nor shall the Agent be responsible or liable to the
Lenders for any failure to monitor or maintain any portion of the Collateral.
The Agent shall not be liable for any apportionment or distribution of payments
made in good faith pursuant to Section 3.03, and if


                                      -75-

<PAGE>

any such apportionment or distribution is subsequently determined to have been
made in error the sole recourse of any Lender to whom payment was due but not
made, shall be to recover from other Lenders any payment in excess of the amount
which they are determined to be entitled. The Agent may at any time request
instructions from the Lenders with respect to any actions or approvals which by
the terms of this Agreement or of any of the other Loan Documents the Agent is
permitted or required to take or to grant, and if such instructions are promptly
requested, the Agent shall be absolutely entitled to refrain from taking any
action or to withhold any approval under any of the Loan Documents until it
shall have received such instructions from the Required Lenders. Without
limiting the foregoing, no Lender shall have any right of action whatsoever
against the Agent as a result of the Agent acting or refraining from acting
under this Agreement or any of the other Loan Documents in accordance with the
instructions of the Required Lenders.

          Section 9.04 Reliance. The Agent shall be entitled to rely upon any
written notices, statements, certificates, orders or other documents or any
telephone message believed by it in good faith to be genuine and correct and to
have been signed, sent or made by the proper Person, and with respect to all
matters pertaining to this Agreement or any of the other Loan Documents and its
duties hereunder or thereunder, upon advice of counsel selected by it.

          Section 9.05 Indemnification. To the extent that the Agent is not
reimbursed and indemnified by any Loan Party, the Lenders will reimburse and
indemnify the Agent from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses, advances
or disbursements of any kind or nature whatsoever which may be imposed on,
incurred by, or asserted against the Agent in any way relating to or arising out
of this Agreement or any of the other Loan Documents or any action taken or
omitted by the Agent under this Agreement or any of the other Loan Documents, in
proportion to each Lender's Pro Rata Share, including, without limitation,
advances and disbursements made pursuant to Section 9.08; provided, however,
that no Lender shall be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses, advances
or disbursements for which there has been a final judicial determination that
such liability resulted from the Agent's gross negligence or willful misconduct.
The obligations of the Lenders under this Section 9.05 shall survive the payment
in full of the Loans and the termination of this Agreement.

          Section 9.06 Agent Individually. With respect to its Pro Rata Share of
the Total Commitment hereunder and the Loans made by it, the Agent shall have
and may exercise the same rights and powers hereunder and is subject to the same
obligations and liabilities as and to the extent set forth herein for any other
Lender or maker of a Loan. The terms "Lenders" or "Required Lenders" or any
similar terms shall, unless the context clearly otherwise indicates, include the
Agent in its individual capacity as a Lender or one of the Required Lenders. The
Agent and its Affiliates may accept deposits from, lend money to, and generally
engage in any kind of banking, trust or other business with any Borrower as if
it were not acting as the Agent pursuant hereto without any duty to account to
the other Lenders.

          Section 9.07 Successor Agent. (a) The Agent may resign from the
performance of all its functions and duties hereunder and under the other Loan
Documents at any time by giving at least thirty (30) Business Days' prior
written notice to the Parent and each


                                      -76-

<PAGE>

Lender. Such resignation shall take effect upon the acceptance by a successor
Agent of appointment pursuant to clauses (b) and (c) below or as otherwise
provided below.

               (b) Upon any such notice of resignation, the Required Lenders
shall appoint a successor Agent. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
Agent, and the Agent shall be discharged from its duties and obligations under
this Agreement and the other Loan Documents. After the Agent's resignation
hereunder as the Agent, the provisions of this ARTICLE IX shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was the
Agent under this Agreement and the other Loan Documents.

               (c) If a successor Agent shall not have been so appointed within
said thirty (30) Business Day period, the Agent shall then appoint a successor
Agent who shall serve as the Agent until such time, if any, as the Required
Lenders appoint a successor Agent as provided above.

          Section 9.08 Collateral Matters.

               (a) The Agent may from time to time make such disbursements and
advances ("Agent Advances") which the Agent, in its sole discretion, deems
necessary or desirable to preserve, protect, prepare for sale or lease or
dispose of the Collateral or any portion thereof, to enhance the likelihood or
maximize the amount of repayment by the Borrowers of the Loans and other
Obligations or to pay any other amount chargeable to the Borrowers pursuant to
the terms of this Agreement, including, without limitation, costs, fees and
expenses as described in Section 11.04. The Agent Advances shall be repayable on
demand and be secured by the Collateral. The Agent Advances shall constitute
Obligations hereunder which may be charged to the Loan Account in accordance
with Section 3.01. The Agent shall notify each Lender and Parent in writing of
each such Agent Advance, which notice shall include a description of the purpose
of such Agent Advance. Without limitation to its obligations pursuant to Section
9.05, each Lender agrees that it shall make available to the Agent, upon the
Agent's demand, in Dollars in immediately available funds, the amount equal to
such Lender's Pro Rata Share of each such Agent Advance. If such funds are not
made available to the Agent by such Lender, the Agent shall be entitled to
recover such funds on demand from such Lender, together with interest thereon
for each day from the date such payment was due until the date such amount is
paid to the Agent, at the Federal Funds Rate for three Business Days and
thereafter at the Reference Rate.

               (b) The Lenders hereby irrevocably authorize the Agent, at its
option and in its discretion, to release any Lien granted to or held by the
Agent upon any Collateral upon termination of the Total Commitment and payment
and satisfaction of all Loans all other Obligations; or constituting property
being sold or disposed of in compliance with the terms of this Agreement and the
other Loan Documents or which the Lenders have otherwise agreed to release in
compliance with the terms of this Agreement or any other Loan Document;; or
constituting property in which the Loan Parties owned no interest at the time
the Lien was granted or at any time thereafter; or if approved, authorized or
ratified in writing by the Lenders.


                                      -77-

<PAGE>

Upon request by the Agent at any time, the Lenders will confirm in writing the
Agent's authority to release particular types or items of Collateral pursuant to
this Section 9.08(b).

               (c) Without in any manner limiting the Agent's authority to act
without any specific or further authorization or consent by the Lenders (as set
forth in Section 9.08(b)), each Lender agrees to confirm in writing, upon
request by the Agent, the authority to release Collateral conferred upon the
Agent under Section 9.08(b). Upon receipt by the Agent of confirmation from the
Lenders of its authority to release any particular item or types of Collateral,
and upon prior written request by any Loan Party, the Agent shall (and is hereby
irrevocably authorized by the Lenders to) execute such documents as may be
necessary to evidence the release of the Liens granted to the Agent for the
benefit of the Lenders upon such Collateral; provided, however, that (i) the
Agent shall not be required to execute any such document on terms which, in the
Agent's opinion, would expose the Agent to liability or create any obligations
or entail any consequence other than the release of such Liens without recourse
or warranty, and (ii) such release shall not in any manner discharge, affect or
impair the Obligations or any Lien upon (or obligations of any Loan Party in
respect of) all interests in the Collateral retained by any Loan Party.

               (d) The Agent shall have no obligation whatsoever to any Lender
to assure that the Collateral exists or is owned by the Loan Parties or is cared
for, protected or insured or has been encumbered or that the Lien granted to the
Agent pursuant to this Agreement or any other Loan Document has been properly or
sufficiently or lawfully created, perfected, protected or enforced or is
entitled to any particular priority, or to exercise at all or in any particular
manner or under any duty of care, disclosure or fidelity, or to continue
exercising, any of the rights, authorities and powers granted or available to
the Agent in this Section 9.08 or in any other Loan Document, it being
understood and agreed that in respect of the Collateral, or any act, omission or
event related thereto, the Agent may act in any manner it may deem appropriate,
in its sole discretion, given the Agent's own interest in the Collateral as one
of the Lenders and that the Agent shall have no duty or liability whatsoever to
any other Lender, except as otherwise provided herein.

          Section 9.09 Agency for Perfection. Each Lender hereby appoints the
Agent and each other Lender as agent and bailee for the purpose of perfecting
the security interests in and liens upon the Collateral in assets which, in
accordance with Article 9 of the Uniform Commercial Code, can be perfected only
by possession or control (or where the security interest of a secured party with
possession or control has priority over the security interest of another secured
party) and the Agent and each Lender hereby acknowledges that it holds
possession of or otherwise controls any such Collateral for the benefit of the
Agent and the Lenders as secured party. Should any Lender obtain possession or
control of any such Collateral, such Lender shall notify the Agent thereof, and,
promptly upon the Agent's request therefor shall deliver such Collateral to the
Agent or in accordance with the Agent's instructions. In addition, the Agent
shall also have the power and authority hereunder to appoint such other
sub-agents as may be necessary or required under applicable state law or
otherwise to perform its duties and enforce its rights with respect to the
Collateral and under the Loan Documents. Each Loan Party by its execution and
delivery of this Agreement hereby consents to the foregoing.


                                      -78-

<PAGE>

                                    ARTICLE X

                             [INTENTIONALLY OMITTED]

                                   ARTICLE XI

                                  MISCELLANEOUS

          Section 11.01 Notices, Etc. All notices and other communications
provided for hereunder shall be in writing and shall be mailed, telecopied or
delivered, if to any Loan Party, at the following address:

          Lakes Entertainment, Inc.
          130 Cheshire Lane, Suite 101
          Minnetonka, Minnesota 55305
          Attention: Damon E. Schramm, Esq. and Timothy J. Cope
          Telephone: (952) 449-9092
          Telecopier: (952) 449-9353

          with a copy to:

          Gray Plant Mooty Mooty & Bennett, PA
          500 IDS Center
          80 South Eighth Street
          Minneapolis, Minnesota 55402
          Attention: Daniel Tenenbaum, Esq.
          Telephone: (612) 632-3000
          Telecopier: (612) 632-4050

          if to the Agent, to it at the following address:

          c/o Prentice Capital Management, LP
          623 Fifth Avenue, 32nd Floor
          New York, New York 10022
          Attention: Michael Weiss
          Telephone: (212) 756-8045
          Telecopier: (212) 756-1480

          with a copy to:

          Schulte Roth & Zabel LLP
          919 Third Avenue
          New York, New York 10022
          Attention: Nancy R. Finkelstein, Esq.
          Telephone: 212-756-2419
          Telecopier: 212-593-5955


                                      -79-

<PAGE>

          or, as to each party, at such other address as shall be designated by
such party in a written notice to the other parties complying as to delivery
with the terms of this Section 11.01. All such notices and other communications
shall be effective, (i) if mailed, when received or three days after deposited
in the mails, whichever occurs first, (ii) if telecopied, when transmitted and
confirmation received, or (iii) if delivered, upon delivery, except that notices
to the Agent pursuant to ARTICLE II and shall not be effective until received by
the Agent.

          Section 11.02 Amendments, Etc. No amendment or waiver of any provision
of this Agreement, and no consent to any departure by any Loan Party therefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Required Lenders or by the Agent with the consent of the Required
Lenders, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given, provided, however, that
no amendment, waiver or consent shall (i) increase the Commitment of any Lender,
reduce the principal of, or interest on, the Loans payable to any Lender, reduce
the amount of any fee payable for the account of any Lender, or postpone or
extend any date fixed for any payment of principal of, or interest or fees on,
the Loans payable to any Lender without the written consent of any Lender
affected thereby, (ii) increase the Total Commitment without the written consent
of each Lender, (iii) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Loans that is required for the Lenders
or any of them to take any action hereunder, (iv) amend the definition of
"Required Lenders" or "Pro Rata Share", or (v) release all or a substantial
portion of the Collateral (except as otherwise provided in this Agreement and
the other Loan Documents), subordinate any Lien granted in favor of the Agent
for the benefit of the Lenders, or release any Borrower or any Guarantor, (vi)
amend, modify or waive Section 3.02 or this Section 11.02 of this Agreement.
Notwithstanding the foregoing, no amendment, waiver or consent shall, unless in
writing and signed by the Agent, affect the rights or duties of the Agent (but
not in its capacity as a Lender) under this Agreement or the other Loan
Documents.

          Section 11.03 No Waiver; Remedies, Etc. No failure on the part of the
Agent or any 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 Agent and the Lenders 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 Agent and the Lenders
under any Loan Document against any party thereto are not conditional or
contingent on any attempt by the Agent and the Lenders to exercise any of their
rights under any other Loan Document against such party or against any other
Person.

          Section 11.04 Expenses; Taxes; Attorneys' Fees. The Borrowers will pay
on demand, all costs and expenses incurred by or on behalf of the Agent (and, in
the case of clauses (b) through (m) below, each Lender), regardless of whether
the transactions contemplated hereby are consummated, including, without
limitation, reasonable fees, costs, client charges and expenses of counsel for
the Agent (and, in the case of clauses (b) through (m) below, each Lender),
accounting, due diligence, periodic field audits, physical counts, valuations,
investigations, searches and filings, monitoring of assets, appraisals of
Collateral, title searches and reviewing environmental assessments,
miscellaneous disbursements, examination, travel,


                                      -80-

<PAGE>

lodging and meals, arising from or relating to: (a) the negotiation,
preparation, execution, delivery, performance and administration of this
Agreement and the other Loan Documents (including, without limitation, the
preparation of any additional Loan Documents pursuant to Section 6.01(b) or the
review of any of the agreements, instruments and documents referred to in
Section 6.01(f)), (b) any requested amendments, waivers or consents to this
Agreement or the other Loan Documents whether or not such documents become
effective or are given, (c) the preservation and protection of any of the
Lenders' rights under this Agreement or the other Loan Documents, (d) the
defense of any claim or action asserted or brought against the Agent or any
Lender by any Person that arises from or relates to this Agreement, any other
Loan Document, the Agent's or the Lenders' claims against any Loan Party, or any
and all matters in connection therewith, (e) the commencement or defense of, or
intervention in, any court proceeding arising from or related to this Agreement
or any other Loan Document, (f) the filing of any petition, complaint, answer,
motion or other pleading by the Agent or any Lender, or the taking of any action
in respect of the Collateral or other security, in connection with this
Agreement or any other Loan Document, (g) the protection, collection, lease,
sale, taking possession of or liquidation of, any Collateral or other security
in connection with this Agreement or any other Loan Document, (h) any attempt to
enforce any Lien or security interest in any Collateral or other security in
connection with this Agreement or any other Loan Document, (i) any attempt to
collect from any Loan Party, (j) all liabilities and costs arising from or in
connection with the past, present or future operations of any Loan Party
involving any damage to real or personal property or natural resources or harm
or injury alleged to have resulted from any Release of Hazardous Materials on,
upon or into such property, (k) any Environmental Liabilities and Costs incurred
in connection with the investigation, removal, cleanup and/or remediation of any
Hazardous Materials present or arising out of the operations of any facility of
any Loan Party, (l) any Environmental Liabilities and Costs incurred in
connection with any Environmental Lien; or (m) the receipt by the Agent or any
Lender of any advice from professionals with respect to any of the foregoing.
Without limitation of the foregoing or any other provision of any Loan Document:
(x) the Borrowers agree to pay all stamp, document, transfer, recording or
filing taxes or fees and similar impositions now or hereafter determined by the
Agent or any Lender to be payable in connection with this Agreement or any other
Loan Document, and the Borrowers agree to save the Agent and each Lender
harmless from and against any and all present or future claims, liabilities or
losses with respect to or resulting from any omission to pay or delay in paying
any such taxes, fees or impositions, (y) the Borrowers agree to pay all broker
fees that may become due in connection with the transactions contemplated by
this Agreement and the other Loan Documents, and (z) if the Borrowers fail to
perform any covenant or agreement contained herein or in any other Loan
Document, the Agent may itself perform or cause performance of such covenant or
agreement, and the expenses of the Agent incurred in connection therewith shall
be reimbursed on demand by the Borrowers.

          Section 11.05 Right of Set-off. Upon the occurrence and during the
continuance of any Event of Default, the Agent or any Lender may, and is hereby
authorized to, at any time and from time to time, without notice to any Loan
Party (any such notice being expressly waived by the Loan Parties) and to the
fullest extent permitted by law, set off and apply any and all deposits (general
or special, time or demand, provisional or final) at any time held and other
Indebtedness at any time owing by the Agent or such Lender to or for the credit
or the account of any Loan Party against any and all obligations of the Loan
Parties either now or hereafter existing under any Loan Document, irrespective
of whether or not the Agent or such


                                      -81-

<PAGE>

Lender shall have made any demand hereunder or thereunder and although such
obligations may be contingent or unmatured. The Agent and each Lender agrees to
notify such Loan Party promptly after any such set-off and application made by
the Agent or such Lender provided that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of the Agent and
the Lenders under this Section 11.05 are in addition to the other rights and
remedies (including other rights of set-off) which the Agent and the Lenders may
have under this Agreement or any other Loan Documents of law or otherwise.

          Section 11.06 Severability. 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 affecting the validity or
enforceability of such provision in any other jurisdiction.

          Section 11.07 Assignments and Participations.

               (a) This Agreement and the other Loan Documents shall be binding
upon and inure to the benefit of each Loan Party and the Agent and each Lender
and their respective successors and assigns; provided, however, that none of the
Loan Parties may assign or transfer any of its rights hereunder or under the
other Loan Documents without the prior written consent of each Lender and any
such assignment without the Lenders' prior written consent shall be null and
void.

               (b) Each Lender may assign, upon 45 days prior written notice to
the Parent (it being understood this is only a notification requirement not a
consent right and that such obligation to notify shall not apply to PLKS Funding
LLC, Prentice Capital Management, LP or its affiliates), to one or more other
lenders or other entities all or a portion of its rights and obligations under
this Agreement (including, without limitation, all or a portion of its
Commitments, the Loans made by it); provided, however, that (i) such assignment
is in an amount which is at least $1,000,000 or a multiple of $1,000,000 in
excess thereof (or the remainder of such Lender's Commitment) (except such
minimum amount shall not apply to an assignment by a Lender to (x) an Affiliate
of such Lender or a Related Fund of such Lender or (y) a group of new Lenders,
each of whom is an Affiliate or Related Fund of each other to the extent the
aggregate amount to be assigned to all such new Lenders is at least $1,000,000
or a multiple of $1,000,000 in excess thereof), (ii) the parties to each such
assignment shall execute and deliver to the Agent, for its acceptance, an
Assignment and Acceptance, together with any promissory note subject to such
assignment and such parties shall deliver to the Agent a processing and
recordation fee of $5,000 (except the payment of such fee shall not be required
in connection with an assignment by a Lender to an Affiliate of such Lender or
Related Fund of such Lender), (iii) except as provided in Section 11.07(b)(iv),
any such assignment shall be made with the written consent of the Agent, and
(iv) no written consent of the Agent shall be required (1) in connection with
any assignment by a Lender to an Affiliate of such Lender or a Related Fund of
such Lender or (2) if such assignment is in connection with any merger,
consolidation, sale, transfer, or other disposition of all or any substantial
portion of the business or loan portfolio of such Lender. Upon such execution,
delivery and acceptance, from and after the effective date specified in each
Assignment and Acceptance, which effective date shall be at least three Business
Days after the delivery thereof to the Agent (or such shorter period as shall be
agreed to by the Agent and the parties to such assignment), (A) the assignee
thereunder shall


                                      -82-

<PAGE>

become a "Lender" hereunder and, in addition to the rights and obligations
hereunder held by it immediately prior to such effective date, have the rights
and obligations hereunder that have been assigned to it pursuant to such
Assignment and Acceptance and (B) the assigning Lender thereunder shall, to the
extent that rights and obligations hereunder have been assigned by it pursuant
to such Assignment and Acceptance, relinquish its rights and be released from
its obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such Lender shall cease to be a party
hereto).

               (c) By executing and delivering an Assignment and Acceptance, the
assigning Lender and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than as provided in
such Assignment and Acceptance, the assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
any other Loan Document or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement or any other Loan Document
furnished pursuant hereto; (ii) the assigning Lender makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of any Loan Party or any of its Subsidiaries or the performance or observance by
any Loan Party of any of its obligations under this Agreement or any other Loan
Document furnished pursuant hereto; (iii) such assignee confirms that it has
received a copy of this Agreement and the other Loan Documents, together with
such other documents and information it has deemed appropriate to make its own
credit analysis and decision to enter into such Assignment and Acceptance; (iv)
such assignee will, independently and without reliance upon the assigning
Lender, the Agent or any Lender and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under this Agreement and the other Loan
Documents; (v) such assignee appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under this Agreement
and the other Loan Documents as are delegated to the Agent by the terms hereof
and thereof, together with such powers as are reasonably incidental hereto and
thereto; and (vi) such assignee agrees that it will perform in accordance with
their terms all of the obligations which by the terms of this Agreement and the
other Loan Documents are required to be performed by it as a Lender.

               (d) The Agent shall, acting solely for this purpose as a
non-fiduciary agent of the Borrowers, maintain, or cause to be maintained at the
Payment Office, a copy of each Assignment and Acceptance delivered to and
accepted by it and a register (the "Register") for the recordation of the names
and addresses of the Lenders and the Commitments of, and the principal amount of
the Loans (and stated interest thereon) (the "Registered Loans") owing to each
Lender from time to time. The entries in the Register shall be conclusive and
binding for all purposes, absent manifest error, and the Borrowers, the Agent
and the Lenders shall treat each Person whose name is recorded in the Register
as a Lender hereunder for all purposes of this Agreement. The Register shall be
available for inspection by Parent and any Lender at any reasonable time and
from time to time upon reasonable prior notice.

               (e) Upon its receipt of an Assignment and Acceptance executed by
an assigning Lender and an assignee, together with any promissory notes subject
to such assignment, the Agent shall, if the Agent consents to such assignment
and if such Assignment


                                      -83-

<PAGE>

and Acceptance has been completed (i) accept such Assignment and Acceptance and
(ii) record the information contained therein in the Register.

               (f) A Registered Loan (and the registered note, if any,
evidencing the same) may be assigned or sold in whole or in part only by
registration of such assignment or sale on the Register (and each registered
note shall expressly so provide). Any assignment or sale of all or part of such
Registered Loan (and the registered note, if any, evidencing the same) may be
effected only by registration of such assignment or sale on the Register,
together with the surrender of the registered note, if any, evidencing the same
duly endorsed by (or accompanied by a written instrument of assignment or sale
duly executed by) the holder of such registered note, whereupon, at the request
of the designated assignee(s) or transferee(s), one or more new registered notes
in the same aggregate principal amount shall be issued to the designated
assignee(s) or transferee(s). Prior to the registration of assignment or sale of
any Registered Loan (and the registered note, if any, evidencing the same), the
Agent shall treat the Person in whose name such Registered Loan (and the
registered note, if any, evidencing the same) is registered as the owner thereof
for the purpose of receiving all payments thereon and for all other purposes,
notwithstanding notice to the contrary.

               (g) In the event that any Lender sells participations in a
Registered Loan, such Lender shall maintain a register for this purpose as a non
fiduciary agent of the Borrowers on which it enters the name of all participants
in the Registered Loans held by it and the principal amount (and stated
interests thereon) of the portion of the Registered Loan that is the subject of
the participation (the "Participant Register"). A Registered Loan (and the
registered note, if any, evidencing the same) may be participated in whole or in
part only by registration of such participation on the Participant Register (and
each registered note shall expressly so provide). Any participation of such
Registered Loan (and the registered note, if any, evidencing the same) may be
effected only by the registration of such participation on the Participant
Register.

               (h) Any foreign Person who purchases or is assigned or
participates in any portion of such Registered Loan shall comply with Section
2.08(d).

               (i) Each Lender may sell participations to one or more banks or
other entities in or to all or a portion of its rights and obligations under
this Agreement and the other Loan Documents (including, without limitation, all
or a portion of its Commitments and the Loans made by it); provided, that (i)
such Lender's obligations under this Agreement (including without limitation,
its Commitments hereunder) and the other Loan Documents shall remain unchanged;
(ii) such Lender shall remain solely responsible to the other parties hereto for
the performance of such obligations, and the Borrowers, the Agent and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement and
the other Loan Documents; and (iii) a participant shall not be entitled to
require such Lender to take or omit to take any action hereunder except (A)
action directly effecting an extension of the maturity dates or decrease in the
principal amount of the Loans, (B) action directly effecting an extension of the
due dates or a decrease in the rate of interest payable on the Loans or the fees
payable under this Agreement, or (C) actions directly effecting a release of all
or a substantial portion of the Collateral or any Loan Party (except as set
forth in Section 9.08 of this Agreement or any other Loan Document). The Loan
Parties agree that each participant shall be entitled to the benefits of Section
2.08 and Section 3.04 of this


                                      -84-

<PAGE>

Agreement with respect to its participation in any portion of the Commitments
and the Loans as if it was a Lender.

          Section 11.08 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. Delivery of an executed counterpart
of this Agreement by telecopier shall be equally as effective as delivery of an
original executed counterpart of this Agreement. Any party delivering an
executed counterpart of this Agreement by telecopier also shall deliver an
original executed counterpart of this Agreement but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability, and
binding effect of this Agreement. The foregoing shall apply to each other Loan
Document mutatis mutandis.

          Section 11.09 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN
RESPECT OF SUCH OTHER LOAN DOCUMENT) 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 THE STATE OF NEW YORK.

          Section 11.10 CONSENT TO JURISDICTION; SERVICE OF PROCESS AND VENUE.
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 IN THE COUNTY OF
NEW YORK OR OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH LOAN PARTY HEREBY
IRREVOCABLY ACCEPTS IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY,
THE JURISDICTION OF THE AFORESAID COURTS. EACH LOAN PARTY HEREBY IRREVOCABLY
APPOINTS THE SECRETARY OF STATE OF THE STATE OF NEW YORK AS ITS AGENT FOR
SERVICE OF PROCESS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING AND FURTHER
IRREVOCABLY CONSENTS 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 THE PARENT AT ITS ADDRESS FOR
NOTICES AS SET FORTH IN SECTION 11.01 AND TO THE SECRETARY OF STATE OF THE STATE
OF NEW YORK, SUCH SERVICE TO BECOME EFFECTIVE TEN (10) DAYS AFTER SUCH MAILING.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT AND THE LENDERS TO SERVICE OF
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR
OTHERWISE PROCEED AGAINST ANY LOAN PARTY IN ANY OTHER JURISDICTION. EACH LOAN
PARTY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE JURISDICTION OR
LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO
ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM. TO THE EXTENT THAT ANY LOAN PARTY HAS OR HEREAFTER MAY ACQUIRE ANY
IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY


                                      -85-

<PAGE>

LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT,
ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS
PROPERTY, EACH LOAN PARTY HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF
ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.

          Section 11.11 WAIVER OF JURY TRIAL, ETC. EACH LOAN PARTY, THE AGENT
AND EACH LENDER HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AGREEMENT OR THE
OTHER LOAN DOCUMENTS, 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 FINANCING 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 LOAN
PARTY CERTIFIES THAT NO OFFICER, REPRESENTATIVE, AGENT OR ATTORNEY OF THE AGENT
OR ANY LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE AGENT OR ANY
LENDER WOULD NOT, IN THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM, SEEK
TO ENFORCE THE FOREGOING WAIVERS. EACH LOAN PARTY HEREBY ACKNOWLEDGES THAT THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND THE LENDERS ENTERING INTO
THIS AGREEMENT.

          Section 11.12 Consent by the Agent and Lenders. Except as otherwise
expressly set forth herein to the contrary, if the consent, approval,
satisfaction, determination, judgment, acceptance or similar action (an
"Action") of the Agent or any Lender shall be permitted or required pursuant to
any provision hereof or any provision of any other agreement to which any Loan
Party is a party and to which the Agent or any Lender has succeeded thereto,
such Action shall be required to be in writing and may be withheld or denied by
the Agent or such Lender, in its sole discretion, with or without any reason,
and without being subject to question or challenge on the grounds that such
Action was not taken in good faith.

          Section 11.13 No Party Deemed Drafter. Each of the parties hereto
agrees that no party hereto shall be deemed to be the drafter of this Agreement.

          Section 11.14 Reinstatement; Certain Payments. If any claim is ever
made upon the Agent or any Lender for repayment or recovery of any amount or
amounts received by the Agent or such Lender in payment or on account of any of
the Obligations, the Agent or such Lender shall give prompt notice of such claim
to each other Lender and Parent, and if the Agent or such Lender repays all or
part of such amount by reason of (i) any judgment, decree or order of any court
or administrative body having jurisdiction over the Agent or such Lender or any
of its property, or (ii) any good faith settlement or compromise of any such
claim effected by the Agent or such Lender with any such claimant, then and in
such event each Loan Party agrees that (A) any such judgment, decree, order,
settlement or compromise shall be binding upon it notwithstanding the
cancellation of any Indebtedness hereunder or under the other Loan Documents or
the termination of this Agreement or the other Loan Documents, and (B) it shall


                                      -86-

<PAGE>

be and remain liable to the Agent or such Lender hereunder for the amount so
repaid or recovered to the same extent as if such amount had never originally
been received by the Agent or such Lender.

          Section 11.15 Indemnification.

               (a) General Indemnity. In addition to each Loan Party's other
Obligations under this Agreement, each Loan Party agrees to, jointly and
severally, defend, protect, indemnify and hold harmless the Agent and each
Lender and all of their respective officers, directors, employees, attorneys,
consultants and agents (collectively called the "Indemnitees") from and against
any and all losses, damages, liabilities, obligations, penalties, fees,
reasonable costs and expenses (including, without limitation, reasonable
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 or in connection
with any of the following: (i) the negotiation, preparation, execution or
performance or enforcement of this Agreement, any other Loan Document or of any
other document executed in connection with the transactions contemplated by this
Agreement, (ii) the Agent's or any Lender's furnishing of funds to the Borrowers
under this Agreement or the other Loan Documents, including, without limitation,
the management of any such Loans, (iii) any matter relating to the financing
transactions contemplated by this Agreement or the other Loan Documents or by
any document executed in connection with the transactions contemplated by this
Agreement or the other Loan Documents, or (iv) any claim, litigation,
investigation or proceeding relating to any of the foregoing, whether or not any
Indemnitee is a party thereto (collectively, the "Indemnified Matters");
provided, however, that the Loan Parties shall not have any obligation to any
Indemnitee under this subsection (a) for any Indemnified Matter caused by the
gross negligence or willful misconduct of such Indemnitee, as determined by a
final judgment of a court of competent jurisdiction.

               (b) Environmental Indemnity. Without limiting Section 11.15(a)
hereof, each Loan Party agrees to, jointly and severally, defend, indemnify, and
hold harmless the Indemnitees against any and all Environmental Liabilities and
Costs and all other claims, demands, penalties, fines, liability (including
strict liability), losses, damages, costs and expenses (including without
limitation, reasonable legal fees and expenses, consultant fees and laboratory
fees), arising out of (i) any Releases or threatened Releases (x) at any
property presently or formerly owned or operated by any Loan Party or any
Subsidiary of any Loan Party, or any predecessor in interest, or (y) of any
Hazardous Materials generated and disposed of by any Loan Party or any
Subsidiary of any Loan Party, or any predecessor in interest; (ii) any
violations of Environmental Laws; (iii) any Environmental Action relating to any
Loan Party or any Subsidiary of any Loan Party, or any predecessor in interest;
(iv) any personal injury (including wrongful death) or property damage (real or
personal) arising out of exposure to Hazardous Materials used, handled,
generated, transported or disposed by any Loan Party or any Subsidiary of any
Loan Party, or any predecessor in interest; and (v) any breach of any warranty
or representation regarding environmental matters made by the Loan Parties in
Section 5.01(s) or the breach of any covenant made by the Loan Parties in
Section 6.01(j). Notwithstanding the foregoing, the Loan Parties shall not have
any obligation to any Indemnitee under this subsection (b) regarding any
potential environmental matter covered hereunder which is caused by the gross


                                      -87-

<PAGE>

negligence or willful misconduct of such Indemnitee, as determined by a final
judgment of a court of competent jurisdiction.

               (c) The indemnification for all of the foregoing losses, damages,
fees, costs and expenses of the Indemnitees are chargeable against the Loan
Account. To the extent that the undertaking to indemnify, pay and hold harmless
set forth in this Section 11.15 may be unenforceable because it is violative of
any law or public policy, each Loan Party shall, jointly and severally,
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 indemnities set forth in this Section 11.15
shall survive the repayment of the Obligations and discharge of any Liens
granted under the Loan Documents.

          Section 11.16 Parent as Agent for Borrowers. Each Borrower hereby
irrevocably appoints Parent as the borrowing agent and attorney-in-fact for the
Borrowers which appointment shall remain in full force and effect unless and
until the Agent shall have received prior written notice signed by all of the
Borrowers that such appointment has been revoked and that another Borrower has
been so appointed. Each Borrower hereby irrevocably appoints and authorizes
Parent (i) to provide to the Agent and receive from the Agent all notices with
respect to Loans obtained for the benefit of any Borrower and all other notices
and instructions under this Agreement and (ii) to take such action as Parent
deems appropriate on its behalf to obtain Loans and to exercise such other
powers as are reasonably incidental thereto to carry out the purposes of this
Agreement. It is understood that the handling of the Loan Account and Collateral
of the Borrowers in a combined fashion, as more fully set forth herein, is done
solely as an accommodation to the Borrowers in order to utilize the collective
borrowing powers of the Borrowers in the most efficient and economical manner
and at their request, and that neither the Agent nor the Lenders shall incur
liability to the Borrowers as a result hereof. Each of the Borrowers expects to
derive benefit, directly or indirectly, from the handling of the Loan Account
and the Collateral in a combined fashion since the successful operation of each
Borrower is dependent on the continued successful performance of the integrated
group. To induce the Agent and the Lenders to do so, and in consideration
thereof, each of the Borrowers hereby jointly and severally agrees to indemnify
the Indemnitees and hold the Indemnitees harmless against any and all liability,
expense, loss or claim of damage or injury, made against such Indemnitee by any
of the Borrowers or by any third party whosoever, arising from or incurred by
reason of (a) the handling of the Loan Account and Collateral of the Borrowers
as herein provided, (b) the Agent and the Lenders relying on any instructions of
Parent, or (c) any other action taken by the Agent or any Lender hereunder or
under the other Loan Documents.

          Section 11.17 Records. The unpaid principal of and interest on the
Loans, the interest rate or rates applicable to such unpaid principal and
interest, the duration of such applicability, the Commitments, and the accrued
and unpaid fees payable pursuant to Section 2.06 hereof, including, without
limitation, shall at all times be ascertained from the records of the Agent,
which shall be conclusive and binding absent manifest error.

          Section 11.18 Binding Effect. This Agreement shall become effective
when it shall have been executed by each Loan Party, the Agent and each Lender
and when the conditions precedent set forth in Section 4.01 hereof have been
satisfied or waived in writing by the Agent, and thereafter shall be binding
upon and inure to the benefit of each Loan Party, the


                                      -88-

<PAGE>

Agent and each Lender, and their respective successors and assigns, except that
the Loan Parties shall not have the right to assign their rights hereunder or
any interest herein without the prior written consent of each Lender, and any
assignment by any Lender shall be governed by Section 11.07 hereof.

          Section 11.19 Interest. It is the intention of the parties hereto that
the Agent and each Lender shall conform strictly to usury laws applicable to it.
Accordingly, if the transactions contemplated hereby or by any other Loan
Document would be usurious as to the Agent or any Lender under laws applicable
to it (including the laws of the United States of America and the State of New
York or any other jurisdiction whose laws may be mandatorily applicable to the
Agent or such Lender notwithstanding the other provisions of this Agreement),
then, in that event, notwithstanding anything to the contrary in this Agreement
or any other Loan Document or any agreement entered into in connection with or
as security for the Obligations, it is agreed as follows: (i) the aggregate of
all consideration which constitutes interest under law applicable to the Agent
or any Lender that is contracted for, taken, reserved, charged or received by
the Agent or such Lender under this Agreement or any other Loan Document or
agreements or otherwise in connection with the Obligations shall under no
circumstances exceed the maximum amount allowed by such applicable law, any
excess shall be canceled automatically and if theretofore paid shall be credited
by the Agent or such Lender on the principal amount of the Obligations (or, to
the extent that the principal amount of the Obligations shall have been or would
thereby be paid in full, refunded by the Agent or such Lender, as applicable, to
the Borrowers); and (ii) in the event that the maturity of the Obligations is
accelerated by reason of any Event of Default under this Agreement or otherwise,
or in the event of any required or permitted prepayment, then such consideration
that constitutes interest under law applicable to the Agent or any Lender may
never include more than the maximum amount allowed by such applicable law, and
excess interest, if any, provided for in this Agreement or otherwise shall be
canceled automatically by the Agent or such Lender, as applicable, as of the
date of such acceleration or prepayment and, if theretofore paid, shall be
credited by the Agent or such Lender, as applicable, on the principal amount of
the Obligations (or, to the extent that the principal amount of the Obligations
shall have been or would thereby be paid in full, refunded by the Agent or such
Lender to the Borrowers). All sums paid or agreed to be paid to the Agent or any
Lender for the use, forbearance or detention of sums due hereunder shall, to the
extent permitted by law applicable to the Agent or such Lender, be amortized,
prorated, allocated and spread throughout the full term of the Loans until
payment in full so that the rate or amount of interest on account of any Loans
hereunder does not exceed the maximum amount allowed by such applicable law. If
at any time and from time to time (x) the amount of interest payable to the
Agent or any Lender on any date shall be computed at the Highest Lawful Rate
applicable to the Agent or such Lender pursuant to this Section 11.19 and (y) in
respect of any subsequent interest computation period the amount of interest
otherwise payable to the Agent or such Lender would be less than the amount of
interest payable to the Agent or such Lender computed at the Highest Lawful Rate
applicable to the Agent or such Lender, then the amount of interest payable to
the Agent or such Lender in respect of such subsequent interest computation
period shall continue to be computed at the Highest Lawful Rate applicable to
the Agent or such Lender until the total amount of interest payable to the Agent
or such Lender shall equal the total amount of interest which would have been
payable to the Agent or such Lender if the total amount of interest had been
computed without giving effect to this Section 11.19.


                                      -89-

<PAGE>

          For purposes of this Section 11.19, the term "applicable law" shall
mean that law in effect from time to time and applicable to the loan transaction
between the Borrowers, on the one hand, and the Agent and the Lenders, on the
other, that lawfully permits the charging and collection of the highest
permissible, lawful non-usurious rate of interest on such loan transaction and
this Agreement, including laws of the State of New York and, to the extent
controlling, laws of the United States of America.

          The right to accelerate the maturity of the Obligations does not
include the right to accelerate any interest that has not accrued as of the date
of acceleration.

          Section 11.20 Confidentiality. The Agent and each Lender agrees (on
behalf of itself and each of its affiliates, directors, officers, employees and
representatives) to use its best efforts to keep confidential, in accordance
with its reasonable and customary procedures for handling confidential
information of this nature and in accordance with safe and sound practices of
comparable lenders, any non-public information supplied to it by the Loan
Parties pursuant to this Agreement or the other Loan Documents which is
identified in writing by the Loan Parties as being confidential at the time the
same is delivered to such Person (and which at the time is not, and does not
thereafter become, publicly available or available to such Person from another
source not known to be subject to a confidentiality obligation to such Person
not to disclose such information), provided that nothing herein shall limit the
disclosure of any such information (i) to the extent required by statute, rule,
regulation or judicial process, (ii) to counsel for the Agent or any Lender,
(iii) to examiners, auditors, accountants or Securitization Parties, (iv) in
connection with any litigation to which the Agent or any Lender is a party or
(v) to any assignee or participant (or prospective assignee or participant) so
long as such assignee or participant (or prospective assignee or participant)
first agrees, in writing, to be bound by confidentiality provisions similar in
substance to this Section 11.20. Notwithstanding the foregoing, the Agent and
each Lender may disclose to any and all Persons, without limitation of any kind,
the tax treatment and tax structure of the financing contemplated by this
Agreement, and all materials of any kind (including opinions or other tax
analyses) that are provided to the Agent or any Lender relating to such tax
treatment and tax structure. The Agent and each Lender agrees that, upon receipt
of a request or identification of the requirement for disclosure pursuant to
clause (iv) hereof, it will make reasonable efforts to keep the Loan Parties
informed of such request or identification; provided that the each Loan Party
acknowledges that the Agent and each Lender may make disclosure as required or
requested by any Governmental Authority or representative thereof and that the
Agent and each Lender may be subject to review by Securitization Parties or
other regulatory agencies and may be required to provide to, or otherwise make
available for review by, the representatives of such parties or agencies any
such non-public information. The Agent and Lenders agree not to trade in the
Capital Stock of the Parent at any time they shall be in receipt of material,
non-public information

          Section 11.21 Integration. This Agreement, together with the other
Loan Documents, reflects the entire understanding of the parties with respect to
the transactions contemplated hereby and shall not be contradicted or qualified
by any other agreement, oral or written, before the date hereof.

                [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]


                                      -90-

<PAGE>

          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.

                                        BORROWERS:

                                        LAKES ENTERTAINMENT, INC.


                                        By: /S/ Timothy J. Cope
                                            ------------------------------------
                                        Name: Timothy J. Cope
                                        Title: President and Chief Financial
                                               Officer


                                        BORDERS LAND COMPANY, LLC
                                        GREAT LAKES GAMING OF MICHIGAN, LLC
                                        LAKES CLOVERDALE, LLC
                                        LAKES GAMING AND RESORTS, LLC
                                        LAKES GAME DEVELOPMENT, LLC
                                        LAKES GAMING-MISSISSIPPI, LLC
                                        LAKES IOWA CONSULTING, LLC
                                        LAKES IOWA MANAGEMENT, LLC
                                        LAKES JAMUL, INC.
                                        LAKES JAMUL DEVELOPMENT, LLC
                                        LAKES KAR SHINGLE SPRINGS, L.L.C.
                                        LAKES KEAN ARGOVITZ RESORTS-CALIFORNIA,
                                        L.L.C.
                                        LAKES KICKAPOO CONSULTING, LLC
                                        LAKES KICKAPOO MANAGEMENT, LLC
                                        LAKES NIPMUC, LLC
                                        LAKES PAWNEE CONSULTING, LLC
                                        LAKES PAWNEE MANAGEMENT, LLC
                                        LAKES POKER TOUR, LLC
                                        LAKES SHINGLE SPRINGS, INC.


                                        By: /S/ Timothy J. Cope
                                            ------------------------------------
                                        Name: Timothy J. Cope
                                        Title: Chief Financial Officer of each
                                               of the above listed entities.

                        Signature Page to Loan Agreement

<PAGE>

                                        AGENT AND LENDER:

                                        PLKS FUNDING, LLC

                                        BY: PRENTICE CAPITAL MANAGEMENT, LP AS
                                            MANAGER


                                        By: /S/ Michael Weiss
                                            ------------------------------------
                                        Name: Michael Weiss
                                        Title: Chief Financial Officer

                        Signature Page to Loan Agreement

<PAGE>

                               FINANCING AGREEMENT

                          DATED AS OF FEBRUARY 15, 2006

                                  BY AND AMONG

                            LAKES ENTERTAINMENT, INC.

                                       AND

            THE SUBSIDIARIES OF LAKES ENTERTAINMENT, INC. LISTED AS A
                    "BORROWER" ON THE SIGNATURE PAGES HERETO
                                  AS BORROWERS,

         EACH OTHER SUBSIDIARY OF LAKES ENTERTAINMENT, INC. THAT BECOMES
               A "GUARANTOR" IN ACCORDANCE WITH THE TERMS HEREOF,
                                 AS GUARANTORS,

                   THE LENDERS FROM TIME TO TIME PARTY HERETO,
                                   AS LENDERS,

                                       AND

                               PLKS FUNDING, LLC,
                                    AS AGENT

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
ARTICLE I DEFINITIONS; CERTAIN TERMS.....................................     1
   Section 1.01     Definitions..........................................     1
   Section 1.02     Terms Generally......................................     22
   Section 1.03     Accounting and Other Terms...........................     22
   Section 1.04     Time References......................................     23

ARTICLE II THE LOANS.....................................................     23
   Section 2.01     Commitments..........................................     23
   Section 2.02     Making the Loan......................................     24
   Section 2.03     Repayment of Loans; Evidence of Debt.................     25
   Section 2.04     Interest.............................................     25
   Section 2.05     Reduction and Termination of Commitment;
                    Prepayment of Loans..................................     26
   Section 2.06     Fees.................................................     28
   Section 2.07     Securitization.......................................     29
   Section 2.08     Taxes................................................     30

ARTICLE III FEES, PAYMENTS AND OTHER COMPENSATION........................     31
   Section 3.01     Payments; Computations and Statements................     31
   Section 3.02     Sharing of Payments, Etc.............................     32
   Section 3.03     Apportionment of Payments............................     32
   Section 3.04     Increased Costs and Reduced Return...................     33
   Section 3.05     Joint and Several Liability of the Borrowers.........     34

ARTICLE IV CONDITIONS TO LOANS...........................................     35
   Section 4.01     Conditions Precedent to Effectiveness................     35
   Section 4.02     Conditions Precedent to the Loans....................     40
   Section 4.03     Conditions Subsequent to the Initial Loans...........     41

ARTICLE V REPRESENTATIONS AND WARRANTIES.................................     41
   Section 5.01     Representations and Warranties.......................     41

ARTICLE VI COVENANTS OF THE LOAN PARTIES.................................     50
   Section 6.01     Affirmative Covenants................................     50
   Section 6.02     Negative Covenants...................................     61

ARTICLE VII MANAGEMENT, COLLECTION AND STATUS OF ACCOUNTS RECEIVABLE AND
                    OTHER COLLATERAL.....................................     67
   Section 7.01     Collection of Accounts Receivable; Management of
                    Collateral...........................................     67
   Section 7.02     Status of Collateral.................................     69
   Section 7.03     Collateral Custodian.................................     69
   Section 7.04     Release of Certain Properties........................     69
   Section 7.05     Negative Pledge......................................     69
</TABLE>


                                      -i-

<PAGE>

<TABLE>
<S>                                                                         <C>
ARTICLE VIII EVENTS OF DEFAULT...........................................     70
   Section 8.01     Events of Default....................................     70

ARTICLE IX AGENT.........................................................     74
   Section 9.01     Appointment..........................................     74
   Section 9.02     Nature of Duties.....................................     75
   Section 9.03     Rights, Exculpation, Etc.............................     75
   Section 9.04     Reliance.............................................     76
   Section 9.05     Indemnification......................................     76
   Section 9.06     Agent Individually...................................     76
   Section 9.07     Successor Agent......................................     76
   Section 9.08     Collateral Matters...................................     77
   Section 9.09     Agency for Perfection................................     78

ARTICLE X [INTENTIONALLY OMITTED]........................................     79

ARTICLE XI MISCELLANEOUS.................................................     79
   Section 11.01    Notices, Etc.........................................     79
   Section 11.02    Amendments, Etc......................................     80
   Section 11.03    No Waiver; Remedies, Etc.............................     80
   Section 11.04    Expenses; Taxes; Attorneys' Fees.....................     80
   Section 11.05    Right of Set-off.....................................     81
   Section 11.06    Severability.........................................     82
   Section 11.07    Assignments and Participations.......................     82
   Section 11.08    Counterparts.........................................     85
   Section 11.09    GOVERNING LAW........................................     85
   Section 11.10    CONSENT TO JURISDICTION; SERVICE OF PROCESS AND
                    VENUE................................................     85
   Section 11.11    WAIVER OF JURY TRIAL, ETC............................     86
   Section 11.12    Consent by the Agent and Lenders.....................     86
   Section 11.13    No Party Deemed Drafter..............................     86
   Section 11.14    Reinstatement; Certain Payments......................     86
   Section 11.15    Indemnification......................................     87
   Section 11.16    Parent as Agent for Borrowers........................     88
   Section 11.17    Records..............................................     88
   Section 11.18    Binding Effect.......................................     88
   Section 11.19    Interest.............................................     89
   Section 11.20    Confidentiality......................................     90
   Section 11.21    Integration..........................................     90
</TABLE>


                                      -ii-

<PAGE>

                              SCHEDULE AND EXHIBITS

<TABLE>
<S>                 <C>
Schedule 1.01(A)    Lenders and Lenders' Commitments
Schedule 1.01(B)    Inactive Subsidiaries
Schedule 1.01(C)    Excluded Subsidiaries
Schedule 5.01(e)    Capital Stock of Subsidiaries
Schedule 5.01(f)    Litigation; Commercial Tort Claims
Schedule 5.01(i)    Violations of Gaming Laws
Schedule 5.01(j)    ERISA
Schedule 5.01(p)    Real Property
Schedule 5.01(r)    Operating Lease Obligations
Schedule 5.01(s)    Environmental Matters
Schedule 5.01(t)    Insurance
Schedule 5.01(w)    Bank Accounts
Schedule 5.01(x)    Intellectual Property
Schedule 5.01(y)    Material Contracts
Schedule 5.01(ee)   Name; Jurisdiction of Organization; Organizational
                    ID Number; Chief  Place of Business; Chief Executive
                    Office; FEIN
Schedule 5.01(ff)   Tradenames
Schedule 5.01(gg)   Collateral Locations
Schedule 5.01(ll)   Pokagon Account
Schedule 6.02(a)    Existing Liens
Schedule 6.02(b)    Existing Indebtedness
Schedule 6.02(e)    Existing Investments
Schedule 6.02(k)    Limitations on Dividends and Other Payment Restrictions
Schedule 7.01       Blocked Account Banks and Blocked Accounts
</TABLE>

<TABLE>
<S>         <C>
Exhibit A   Form of Guaranty
Exhibit B   Form of Security Agreement
Exhibit C   Form of Pledge Agreement
Exhibit D   Form of Notice of Borrowing
Exhibit E   Form of Opinion of Counsel
Exhibit F   Form of Assignment and Acceptance
Exhibit G   Project Business Plan
Exhibit I   Form of Warrant Certificate
</TABLE>


                                     -iii-

<PAGE>

                                SCHEDULE 1.01(A)

                        LENDERS AND LENDERS' COMMITMENTS

<TABLE>
<CAPTION>
      Lender         Commitment
      ------         ----------
<S>                 <C>
PLKS Funding, LLC   $50,000,000
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>4
<FILENAME>c02665exv10w2.txt
<DESCRIPTION>SECURITIES PURCHASE AGREEMENT
<TEXT>
<PAGE>
                                                                    EXHIBIT 10.2
                                                                  EXECUTION COPY

                          SECURITIES PURCHASE AGREEMENT

          SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of February
__, 2006, by and among Lakes Entertainment, Inc., a Minnesota corporation, with
headquarters located at 130 Cheshire Lane, Suite 101, Minnetonka, MN 55305 (the
"COMPANY"), and the investors listed on the Schedule of Buyers attached hereto
(individually, a "BUYER" and collectively, the "BUYERS").

          WHEREAS:

          A. The Company and each Buyer is executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act of 1933, as amended (the "1933 ACT"), and
Rule 506 of Regulation D ("REGULATION D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the 1933 Act.

          B. The Company has authorized a new series of preferred shares of the
Company designated as Series A Convertible Preferred Stock, the terms of which
are set forth in the certificate of designations for such series of convertible
preferred shares (the "CERTIFICATE OF DESIGNATIONS") in the form attached hereto
as Exhibit A (together with any convertible preferred shares issued in
replacement thereof in accordance with the terms thereof, the "PREFERRED
SHARES"), which Preferred Shares shall be convertible into shares of the
Company's Common Stock, par value $0.01 per share (the "COMMON STOCK") (as
converted, the "CONVERSION SHARES"), in accordance with the terms of the
Certificate of Designations.

          C. Each Buyer wishes to purchase, and the Company wishes to sell, upon
the terms and conditions stated in this Agreement, at the Initial Closing (as
defined in Section 1(a)(i) below), a warrant, in substantially the form attached
hereto as Exhibit B (collectively, the "WARRANTS"), to acquire that number of
shares of Common Stock set forth opposite such Buyer's name in column (4) on the
Schedule of Buyers (as exercised, collectively, the "WARRANT SHARES"). The
aggregate number of Warrant Shares for all Buyers shall be 4,457,751.

          D. Each Buyer wishes to purchase, upon the satisfaction of certain
conditions, and the Company wishes to sell, upon the terms and conditions stated
in this Agreement, at the Additional Closing (as defined in Section 1(a)(ii)
below), that aggregate number of Preferred Shares set forth opposite such
Buyer's name in column (3) on the Schedule of Buyers (which aggregate number for
all Buyers shall be 4,457,751)

          E. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement, substantially in the form attached hereto as Exhibit C (the
"REGISTRATION RIGHTS AGREEMENT"), pursuant to which the Company will agree to
provide certain registration rights with respect to the Registrable Securities
(as defined in the Registration Rights Agreement) under the 1933 Act and the
rules and regulations promulgated thereunder, and applicable state securities
laws.

<PAGE>

          F. The Preferred Shares, the Conversion Shares, the Warrants and the
Warrant Shares collectively are referred to herein as the "SECURITIES".

          G. Contemporaneously herewith, the Company and certain of its
subsidiaries entered into financing arrangements (the "FINANCING FACILITY") with
the Buyers, as secured lenders, and as more fully set forth in a financing
agreement (the "FINANCING AGREEMENT"), by and among the Company and its
subsidiaries (as defined in the Financing Agreement), as borrowers
(collectively, the "BORROWERS"), PLKS Funding, LLC, as administrative agent and
collateral agent (in such capacity the "AGENT"), and the Buyers, as lenders, and
certain other security and ancillary documents related thereto (the "SECURITY
DOCUMENTS"), pursuant to which, subject to the satisfaction of certain borrowing
conditions, the Buyers made available to the Borrowers a $50 million secured
multiple-draw term loan (the "FINANCING").

          NOW, THEREFORE, the Company and each Buyer hereby agree as follows:

          1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.

               (a) Purchase of Preferred Shares and Warrants.

                    (i) Subject to the satisfaction (or waiver) of the
     conditions set forth in Sections 6(a) and 7(a) below, the Company shall
     issue and sell to each Buyer, and each Buyer severally, but not jointly,
     agrees to purchase from the Company on the Initial Closing Date (as defined
     below) (the "INITIAL CLOSING"), Warrants to acquire that number of Warrant
     Shares as is set forth opposite such Buyer's name in column (4) on the
     Schedule of Buyers.

                    (ii) Subject to the satisfaction (or waiver) of the
     conditions set forth in Sections 6(b) and 7(b) below, the Company shall
     issue and sell to each Buyer, and each Buyer severally, but not jointly,
     agrees to purchase from the Company on the Additional Closing Date (as
     defined below) (the "ADDITIONAL CLOSING"), the number of Preferred Shares,
     as is set forth opposite such Buyer's name in column (3) on the Schedule of
     Buyers.

               (b) Initial Closing. The date and time of the Initial Closing
(the "INITIAL CLOSING DATE") shall be 10:00 a.m., New York City time, on the
date hereof (or such later date as is mutually agreed to by the Company and each
Buyer) after notification of satisfaction (or waiver) of the conditions to the
Initial Closing set forth in Sections 6(a) and 7(a) below at the offices of
Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New York 10022.

               (c) Additional Closing Date. The date and time of the Additional
Closing (the "ADDITIONAL CLOSING DATE") shall be 10:00 a.m., New York City time,
on the second Business Day (or such later date as is mutually agreed to by the
Company and each Buyer) after the satisfaction (or waiver) of the conditions to
the Additional Closing set forth in Sections 6(b) and 7(b) below at the offices
of Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New York 10022. As used
herein, "BUSINESS DAY" means any day other than Saturday, Sunday or other day on
which commercial banks in The City of New York are authorized or required by law
to remain closed.


                                       2

<PAGE>

               (d) Purchase Price.

                    (i) The aggregate purchase price for the Warrants to be
     purchased by each such Buyer at the Closing (the "INITIAL PURCHASE PRICE")
     shall be $10.00.

                    (ii) The aggregate purchase price for the Preferred Shares
     to be purchased by each such Buyer at the Closing (the "ADDITIONAL PURCHASE
     PRICE", and together with the Initial Purchase Price, the "PURCHASE PRICE")
     shall be $44,577.51.

                    (iii) The Buyers and the Company agree that the Financing,
     the Preferred Shares and the Warrants constitute an "investment unit" for
     purposes of Section 1273(c)(2) of the Internal Revenue Code of 1986, as
     amended (the "CODE"). On the Additional Closing Date, PLKS Holdings, LLC
     ("PRENTICE") and the Company will determine the allocation of the issue
     price of such investment unit between the Financing, the Preferred Shares
     and the Warrants in accordance with Section 1273(c)(2) of the Code and
     Treasury Regulation Section 1.1273-2(h), and neither the Buyers nor the
     Company shall take any position inconsistent with such allocation in any
     tax return or in any judicial or administrative proceeding in respect of
     taxes.

               (e) Form of Payment.

                    (i) On the Initial Closing Date, each Buyer shall pay its
     portion of the Initial Purchase Price to the Company for the Warrants to be
     issued and sold to such Buyer at the Initial Closing and (B) the Company
     shall deliver to each Buyer the Warrants (exercisable for the number of
     shares of Common Stock as is set forth opposite such Buyer's name in column
     (4) on the Schedule of Buyers), each duly executed on behalf of the Company
     and registered in the name of such Buyer or its designee.

                    (ii) On the Additional Closing Date, (A) each Buyer shall
     pay its portion of the Additional Purchase Price to the Company for the
     Preferred Shares to be issued and sold to such Buyer at the Additional
     Closing and (B) the Company shall deliver to each Buyer the Preferred
     Shares (in such denominations as is set forth opposite such Buyer's name in
     column (3) on the Schedule of Buyers), each duly executed on behalf of the
     Company and registered in the name of such Buyer or its designee.

          2. BUYER'S REPRESENTATIONS AND WARRANTIES. Each Buyer represents and
warrants with respect to only itself that:

               (a) No Sale or Distribution. Such Buyer is acquiring the
Preferred Shares and the Warrants, and upon conversion of the Preferred Shares
and exercise of the Warrants (other than pursuant to a Cashless Exercise (as
defined in the Warrants)) will acquire the Conversion Shares issuable upon
conversion of the Preferred Shares and the Warrant Shares issuable upon exercise
of the Warrants, for its own account and not with a view towards, or for resale
in connection with, the sale or distribution thereof, except pursuant to sales
registered or exempted under the 1933 Act; provided, however, that by making the
representations herein, such Buyer does not agree to hold any of the Securities
for any minimum or other specific term


                                       3

<PAGE>

and reserves the right to dispose of the Securities at any time in accordance
with or pursuant to a registration statement or an exemption under the 1933 Act.
Such Buyer is acquiring the Securities hereunder in the ordinary course of its
business. Such Buyer does not presently have any agreement or understanding,
directly or indirectly, with any Person to distribute any of the Securities. For
purposes hereof, "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.

               (b) Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D and has
substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to the Company so that the Buyer
is capable of evaluating the merits and risks of its investment in the Company
and has the capacity to protect its own interests.

               (c) Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.

               (d) Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
that have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
herein. Such Buyer understands that its investment in the Securities involves a
high degree of risk and is able to afford a complete loss of such investment.
Such Buyer has sought such accounting, legal and tax advice as it has considered
necessary to make an informed investment decision with respect to its
acquisition of the Securities.

               (e) Experience. The Buyer has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of its investment in the Company and has the capacity to protect its own
interests. The Buyer acknowledges that investment in the Securities is a
speculative risk. The Buyer is able to fend for itself in the transactions
contemplated by this Agreement, can bear the economic risk of its investment in
the Securities (including possible complete loss of such investment) for an
indefinite period of time, and has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and risks of
the investment in the Securities. The Buyer understands that nothing in this
Agreement or any other materials presented to the Buyer in connection with the
purchase and sale of the Securities constitutes legal, tax or investment advice.
The Buyer has consulted such legal, tax and investment advisors as the Buyer, in
its sole discretion, has deemed necessary or appropriate.


                                       4

<PAGE>

               (f) No Governmental Review. Such Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.

               (g) Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) such
Buyer provides the Company with reasonable assurance that such Securities can be
sold, assigned or transferred pursuant to Rule 144 or Rule 144A promulgated
under the 1933 Act, as amended, (or a successor rule thereto) (collectively,
"RULE 144"); (ii) any sale of the Securities made in reliance on Rule 144 may be
made only in accordance with the terms of Rule 144 and further, if Rule 144 is
not applicable, any resale of the Securities under circumstances in which the
seller (or the Person (as defined in Section 2(a)) through whom the sale is
made) may be deemed to be an underwriter (as that term is defined in the 1933
Act) may require compliance with some other exemption under the 1933 Act or the
rules and regulations of the SEC thereunder; and (iii) neither the Company nor
any other Person is under any obligation to register the Securities under the
1933 Act or any state securities laws or to comply with the terms and conditions
of any exemption thereunder.

               (h) Legends. Such Buyer understands that the certificates or
other instruments representing the Preferred Shares and the Warrants and, until
such time as the resale of the Conversion Shares and the Warrant Shares have
been registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Conversion Shares and the
Warrant Shares, except as set forth below, shall bear any legend as required by
the "blue sky" laws of any state and a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of such
stock certificates):

          [NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
          CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
          [CONVERTIBLE][EXERCISABLE] HAVE BEEN][THE SECURITIES REPRESENTED BY
          THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE SECURITIES ACT OF
          1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES
          MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
          ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
          UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF
          COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
          REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD


                                       5

<PAGE>

          PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE
          FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA
          FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY
          THE SECURITIES.

Upon written request of the Buyer, the legend set forth above shall be removed
and the Company shall issue a certificate without such legend to the holder of
the Securities upon which it is stamped, if, unless otherwise required by state
securities laws, (i) such Securities are registered for resale under the 1933
Act, (ii) in connection with a sale, assignment or other transfer, such holder
provides the Company with an opinion of counsel, in a generally acceptable form,
to the effect that such sale, assignment or transfer of the Securities may be
made without registration under the applicable requirements of the 1933 Act, or
(iii) such holder provides the Company with reasonable assurance that the
Securities can be sold, assigned or transferred pursuant to Rule 144 or Rule
144A.

               (i) Authorization; Validity; Enforcement. This Agreement and the
Registration Rights Agreement have been duly and validly authorized, executed
and delivered on behalf of such Buyer and shall constitute the legal, valid and
binding obligations of such Buyer enforceable against such Buyer in accordance
with their respective terms, except as such enforceability may be limited by
general principles of equity or to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors' rights and
remedies.

               (j) No Conflicts. The execution, delivery and performance by such
Buyer of this Agreement and the Registration Rights Agreement to which such
Buyer is a party and the consummation by such Buyer of the transactions
contemplated hereby and thereby will not (i) result in a violation of the
organizational documents of such Buyer or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
such Buyer is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws) applicable to such Buyer, except in the case of clauses (ii) and (iii)
above, for such conflicts, defaults, rights or violations which would not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the ability of such Buyer to perform its obligations
hereunder.

               (k) Residency. Such Buyer is a resident of that jurisdiction
specified below its address on the Schedule of Buyers.

          3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
reconfirms its representations and warranties made to each of the Buyers in the
Financing Agreement and each other Loan Document (as defined in the Financing
Agreement) (collectively, the "TRANSACTION DOCUMENTS") and incorporates them by
reference herein, mutatis mutandis. In addition, the Company represents and
warrants to each of the Buyers that:


                                       6

<PAGE>

               (a) Certificate of Designations. As of the Closing, the
Certificate of Designations in the form attached as Exhibit A shall have been
filed on or prior to the Additional Closing Date with the Secretary of State of
the State of Minnesota and shall be in full force and effect, enforceable
against the Company in accordance with its terms and shall not have been
amended.

               (b) Issuance of Securities. The issuance of the Preferred Shares
and the Warrants are duly authorized and free from all taxes, liens and charges
with respect to the issue thereof, and the Preferred Shares shall be entitled to
the rights and preferences as set forth in the Certificate of Designations. As
of the Initial Closing, a number of shares of Common Stock shall have been duly
authorized and reserved for issuance which equals or exceeds 130% of the
aggregate of the maximum number of shares of Common Stock issuable upon exercise
of the Warrants as of the trading day immediately preceding the Initial Closing
Date. As of the Additional Closing Date, a number of shares of Common Stock
shall have been duly authorized and reserved for issuance which equals or
exceeds 130% of the aggregate of the maximum number of shares of Common Stock
issuable upon conversion of the Preferred Shares of the trading day immediately
preceding the Additional Closing Date. Upon issuance, conversion or exercise in
accordance with the Preferred Shares or the Warrants, as the case may be, the
Conversion Shares and the Warrant Shares, respectively, will be validly issued,
fully paid and nonassessable and free from all preemptive or similar rights,
taxes, liens and charges with respect to the issue thereof, with the holders
being entitled to all rights accorded to a holder of Common Stock. Assuming the
accuracy of each of the representations and warranties set forth in Section 2 of
this Agreement, the offer and issuance by the Company of the Securities is
exempt from registration under the 1933 Act.

               (c) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance of the Preferred Shares and Warrants and reservation for issuance and
issuance of the Conversion Shares and Warrant Shares) will not (i) result in a
violation of any Articles of Incorporation, certificate of formation, any
certificate of designations or other constituent documents of the Company or any
of its Subsidiaries, any capital stock of the Company or any of its Subsidiaries
or bylaws of the Company or any of its Subsidiaries or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) in any material respect under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of The OTC Bulletin Board
(the "PRINCIPAL MARKET")) applicable to the Company or any of its Subsidiaries
or any of its Subsidiaries or by which any property or asset of the Company or
any of its Subsidiaries is bound or affected, except, in the case of clause
(iii), for such violations as would not be reasonably expected to have a
Material Adverse Effect. For the purpose of this Agreement, "MATERIAL ADVERSE
EFFECT" means a material adverse effect on any of (i) the operations, business,
assets, properties, condition (financial or otherwise) or prospects of the
Company or any of its Subsidiaries taken as a whole, (ii) the ability of the
Company or any of its Subsidiaries to perform any of its obligations under any
Transaction Document to which it is a party, (iii) the legality, validity or
enforceability of this Agreement or any other Transaction


                                       7

<PAGE>

Document, (iv) the rights and remedies of the Agent or any Lender (as defined in
the Financing Agreement) under any Transaction Document, or (v) the validity,
perfection or priority of a Lien (as defined in the Financing Agreement) in
favor of the Agent for the benefit of the Lenders on any of the Collateral (as
defined in the Financing Agreement); provided, however, that, notwithstanding
the foregoing, in no event shall a Material Adverse Effect be caused by any
adverse litigation filed against the Company or any of its Subsidiaries unless
such litigation prevents or enjoins the actual construction of the Pokagon,
Shingle Springs or Jamul Projects (in each case, as defined in the Financing
Agreement).

               (d) Listing Requirements. The Company is not in violation of the
listing requirements of the Principal Market and has no knowledge of any facts
that would reasonably lead to delisting or suspension of the Common Stock in the
foreseeable future.

               (e) Acknowledgment Regarding Buyer's Purchase of Securities. The
Company acknowledges and agrees that each Buyer is acting solely in the capacity
of an arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby. The Company further acknowledges
that no Buyer is acting as a financial advisor or fiduciary of the Company (or
in any similar capacity) with respect to the Transaction Documents and the
transactions contemplated hereby and thereby, and any advice given by a Buyer or
any of its representatives or agents in connection with the Transaction
Documents and the transactions contemplated hereby and thereby is merely
incidental to such Buyer's purchase of the Securities. The Company further
represents to each Buyer that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.

               (f) No General Solicitation; Placement Agent's Fees. Neither the
Company, nor any of its affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with the offer or sale of the
Securities. The Company has not engaged any placement agent or other agent in
connection with the sale of the Securities.

               (g) No Integrated Offering. None of the Company, its
Subsidiaries, any of their affiliates, and any Person acting on their behalf
has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would require
registration of any of the Securities under the 1933 Act or cause this offering
of the Securities to be integrated with prior offerings by the Company for
purposes of the 1933 Act or any applicable stockholder approval provisions,
including, without limitation, under the rules and regulations of any exchange
or automated quotation system on which any of the securities of the Company are
listed or designated as of the date of this Agreement. Except as otherwise
required by the Transaction Documents, none of the Company, its Subsidiaries,
their affiliates and any Person acting on their behalf will take any action or
steps referred to in the preceding sentence that would require registration of
any of the Securities under the 1933 Act or cause the offering of the Securities
to be integrated with other offerings.

               (h) Dilutive Effect. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the Preferred
Shares and the Warrant Shares issuable upon exercise of the Warrants will
increase in certain circumstances in accordance with the respective terms of the
Certificate of Designations and the Warrant. The


                                       8

<PAGE>

Company further acknowledges that, its obligation to issue Conversion Shares
upon conversion of the Preferred Shares in accordance with this Agreement and
the Certificate of Designations and its obligation to issue the Warrant Shares
upon exercise of the Warrants in accordance with this Agreement and the Warrants
is, in each case, except as provided in the Certificate of Designations and the
Warrant, respectively, absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of other
stockholders of the Company.

               (i) Application of Takeover Protections; Rights Agreement. Except
as set forth on Schedule 3(i), the Company and its board of directors have taken
all necessary action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under the Articles
of Incorporation (as defined in Section 3(m)) or the laws of the state of its
incorporation which is or could become applicable to any Buyer as a result of
the transactions contemplated by this Agreement, including, without limitation,
the Company's issuance of the Securities and any Buyer's ownership of the
Securities. Except for the Company's Rights Agreement dated as of May 12, 2000,
the Company has not adopted a stockholder rights plan or similar arrangement
relating to accumulations of beneficial ownership of Common Stock or a change in
control of the Company.

               (j) SEC Documents; Financial Statements. During the three (3)
years prior to the date hereof, the Company has filed all reports, schedules,
forms, statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the Securities Exchange Act of 1934,
as amended (the "1934 ACT") (all of the foregoing filed prior to the date hereof
and all exhibits included therein and financial statements, notes and schedules
thereto and documents incorporated by reference therein being hereinafter
referred to as the "SEC DOCUMENTS"). The Company has delivered to the Buyers or
their respective representatives true, correct and complete copies of the SEC
Documents not available on the EDGAR system. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. Except as set forth on Schedule 3(j), as
of their respective dates, the financial statements of the Company included in
the SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Buyers which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 2(d) of this Agreement, contains any untrue statement of
a material fact or omits to


                                       9

<PAGE>

state any material fact necessary in order to make the statements therein, in
the light of the circumstance under which they are or were made and not
misleading.

               (k) Sarbanes-Oxley Act. The Company is in compliance with any and
all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective
as of the date hereof, and any and all applicable rules and regulations
promulgated by the SEC thereunder that are effective as of the date hereof,
except where such noncompliance would not have, individually or in the
aggregate, a Material Adverse Effect.

               (l) Transactions With Affiliates. Except as set forth in the SEC
Documents filed at least two days prior to the date hereof and other than the
grant of stock options disclosed on Schedule 3(l) or the employment agreement
required under the Transaction Documents, none of the officers, directors or
employees of the Company is presently a party to any transaction with the
Company or any of its Subsidiaries (other than for ordinary course services as
employees, officers or directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any such officer, director or employee or, to the knowledge of the
Company, any corporation, partnership, trust or other entity in which any such
officer, director, or employee has a substantial interest or is an officer,
director, trustee or partner.

               (m) Equity Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of 200,000,000 shares, $0.01 par value per
share. After giving effect to the filing of the Certificate of Designations with
the office of the Secretary of State of the State of Minnesota, 7,500,000 of
such shares will be designated Series A Convertible Preferred Stock, of which as
of the date hereof, none are issued and outstanding. Of the remainder,
22,299,909 shares are issued and outstanding shares of Common Stock and
5,500,000 shares of Common Stock are reserved for issuance pursuant to the
Company's stock option and purchase plans. All of such outstanding shares have
been, or upon issuance will be, validly issued and are fully paid and
nonassessable. Except as disclosed in Schedule 3(m): (i) none of the Company's
share capital is subject to preemptive rights or any other similar rights or any
liens or encumbrances suffered or permitted by the Company; (ii) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any share capital of the
Company or any of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional share capital of the Company or any of its
Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any share capital of the
Company or any of its Subsidiaries; (iii) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except the
Registration Rights Agreement); (iv) there are no outstanding securities or
instruments of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries; (iv) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of


                                       10

<PAGE>

the Securities; (vi) the Company does not have any stock appreciation rights or
"phantom stock" plans or agreements or any similar plan or agreement; and (vii)
the Company and its Subsidiaries have no liabilities or obligations required to
be disclosed in the SEC Documents but not so disclosed in the SEC Documents,
other than those incurred in the ordinary course of the Company's or its
Subsidiaries' respective businesses and which, individually or in the aggregate,
do not or would not have a Material Adverse Effect. The Company has made
available to the Buyer true, correct and complete copies of the Company's
Amended and Restated Articles of Incorporation, as amended and as in effect on
the date hereof (the "ARTICLES OF INCORPORATION"), and the Company's Bylaws, as
amended and as in effect on the date hereof (the "BYLAWS"), and the terms of all
securities convertible into, or exercisable or exchangeable for, shares of
Common Stock and the material rights of the holders thereof in respect thereto.

               (n) Internal Accounting and Disclosure Controls. The Company and
each of its Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset and liability accountability, (iii) access to assets or
incurrence of liabilities is permitted only in accordance with management's
general or specific authorization and (iv) the recorded accountability for
assets and liabilities is compared with the existing assets and liabilities at
reasonable intervals and appropriate action is taken with respect to any
difference. The Company maintains disclosure controls and procedures (as such
term is defined in Rule 13a-14 under the 1934 Act) that are effective in
ensuring that information required to be disclosed by the Company in the reports
that it files or submits under the 1934 Act is recorded, processed, summarized
and reported, within the time periods specified in the rules and forms of the
SEC, including, without limitation, controls and procedures designed in to
ensure that information required to be disclosed by the Company in the reports
that it files or submits under the 1934 Act is accumulated and communicated to
the Company's management, including its principal executive officer or officers
and its principal financial officer or officers, as appropriate, to allow timely
decisions regarding required disclosure.

               (o) Off Balance Sheet Arrangements. There is no transaction,
arrangement, or other relationship between the Company and an unconsolidated or
other off balance sheet entity that is required to be disclosed by the Company
in its Exchange Act filings and is not so disclosed or that otherwise would be
reasonably likely to have a Material Adverse Effect.

               (p) Transfer Taxes. On the Closing Date, all stock transfer or
other taxes (other than income or similar taxes) which are required to be paid
in connection with the sale and transfer of the Securities to be sold to each
Buyer hereunder will be, or will have been, fully paid or provided for by the
Company, and all laws imposing such taxes will be or will have been complied
with.

               (q) Manipulation of Price. The Company has not, and to its
knowledge no one acting on its behalf has, (i) taken, directly or indirectly,
any action designed to cause or to result in the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
any of the Securities, (ii) sold, bid for, purchased, or paid any compensation


                                       11

<PAGE>

for soliciting purchases of, any of the Securities, or (iii) paid or agreed to
pay to any person any compensation for soliciting another to purchase any other
securities of the Company.

               (r) Acknowledgement Regarding Buyers' Trading Activity. Anything
in this Agreement or elsewhere herein to the contrary notwithstanding, but
subject to compliance by the Buyers with applicable law, it is understood and
acknowledged by the Company (i) that none of the Buyers have been asked to
agree, nor has any Buyer agreed, to desist from purchasing or selling, long
and/or short, securities of the Company, or "derivative" securities based on
securities issued by the Company or to hold the Securities for any specified
term; (ii) that past or future open market or other transactions by any Buyer,
including, without limitation, short sales or "derivative" transactions, before
or after the closing of this or future private placement transactions, may
negatively impact the market price of the Company's publicly-traded securities;
(iii) that any Buyer, and counter parties in "derivative" transactions to which
any such Buyer is a party, directly or indirectly, presently may have a "short"
position in the Common Stock, and (iv) that each Buyer shall not be deemed to
have any affiliation with or control over any arm's length counter-party in any
"derivative" transaction. The Company further understands and acknowledges that
(a) one or more Buyers may engage in hedging activities at various times during
the period that the Securities are outstanding, including, without limitation,
during the periods that the value of the Warrant Shares deliverable with respect
to Securities are being determined and (b) such hedging activities (if any)
could reduce the value of the existing stockholders' equity interests in the
Company at and after the time that the hedging activities are being conducted.

          4. COVENANTS.

               (a) Best Efforts. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.

               (b) Form D and Blue Sky. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for or to qualify the
Securities for sale to the Buyers at the Closing pursuant to this Agreement
under applicable securities or "Blue Sky" laws of the states of the United
States (or to obtain an exemption from such qualification), and shall provide
evidence of any such action so taken to the Buyers on or prior to the Closing
Date. The Company shall make all filings and reports relating to the offer and
sale of the Securities required under applicable securities or "Blue Sky" laws
of the states of the United States following the Closing Date.

               (c) Reporting Status. Until the date on which the Investors (as
defined in the Registration Rights Agreement) shall have sold all the Conversion
Shares and Warrant Shares and none of the Preferred Shares or Warrants is
outstanding, (the "REPORTING PERIOD"), the Company shall use its best efforts to
timely file all reports required to be filed with the SEC pursuant to the 1934
Act, and the Company shall continue to use its best efforts to timely file
reports under the 1934 Act even if the 1934 Act or the rules and regulations
thereunder would otherwise no longer require such filings.


                                       12

<PAGE>

               (d) Financial Information. The Company agrees to send the
following to each Investor during the Reporting Period (i) unless the following
are filed with the SEC through EDGAR and are available to the public through the
EDGAR system, within one (1) Business Day after the filing thereof with the SEC,
a copy of its Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q,
any Current Reports on Form 8-K and any registration statements (other than on
Form S-8) or amendments filed pursuant to the 1933 Act, (ii) on the same day as
the release thereof, facsimile copies of all press releases issued by the
Company or any of its Subsidiaries, and (iii) copies of any notices and other
information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to the
stockholders.

               (e) Listing. The Company shall use its best efforts to promptly
secure the listing of all of the Registrable Securities (as defined in the
Registration Rights Agreement) upon each national securities exchange and
automated quotation system, if any, upon which the Common Stock is then listed
(subject to official notice of issuance) and shall maintain, so long as any
other shares of Common Stock shall be so listed and in accordance with the
Preferred Shares and Warrants, such listing of all Registrable Securities from
time to time issuable under the terms of the Transaction Documents. The Company
shall use its best efforts to maintain the Common Stocks' authorization for
quotation on the Principal Market. Neither the Company nor any of its
Subsidiaries shall take any action which would be reasonably expected to result
in the delisting or suspension of the Common Stock on the Principal Market;
provided, however, that the Company makes no covenant regarding the trading
price of the Common Stock. The Company shall pay all fees and expenses in
connection with satisfying its obligations under this Section 4(e).

               (f) Pledge of Securities. The Company acknowledges and agrees
that the Securities may be pledged by an Investor (as defined in the
Registration Rights Agreement) in connection with a bona fide margin agreement
or other loan or financing arrangement that is secured by the Securities. The
pledge of Securities shall not be deemed to be a transfer, sale or assignment of
the Securities hereunder, and no Investor effecting a pledge of Securities shall
be required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other Transaction
Document, including, without limitation, Section 2(g) hereof; provided that an
Investor and its pledgee shall be required to comply with the provisions of
Section 2(g) hereof in order to effect a sale, transfer or assignment of
Securities to such pledgee. The Company hereby agrees to execute and deliver
such documentation as a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by an Investor.

               (g) Disclosure of Transactions and Other Material Information. On
or before 8:30 a.m., New York City time, on the fourth Business Day following
the date of this Agreement, the Company shall file a Current Report on Form 8-K
describing the terms of the transactions contemplated by the Transaction
Documents in the form required by the 1934 Act and attaching the material
Transaction Documents (including, without limitation, this Agreement (and all
schedules to this Agreement), the form of the Certificate of Designations, the
form of Warrant, and the form of the Registration Rights Agreement) as exhibits
to such filing (including all attachments, the "8-K FILING"). Subject to the
foregoing, neither the Company nor any Buyer shall issue any press releases or
any other public statements with respect to the transactions


                                       13

<PAGE>

contemplated hereby; provided, however, that the Company shall be entitled,
without the prior approval of any Buyer, to make any press release or other
public disclosure with respect to such transactions (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith and (ii) as is
required by applicable law and regulations (provided that in the case of clause
(i) each Buyer shall be consulted by the Company in connection with any such
press release or other public disclosure prior to its release).

               (h) Additional Registration Statements. At any time following the
Demand Notice Date (as defined in the Registration Rights Agreement) and until
the date that the Registration Statement (as defined in the Registration Rights
Agreement) is first declared effective by the SEC (the "EFFECTIVE DATE"), the
Company shall not file a registration statement under the 1933 Act relating to
securities that are not the Securities.

               (i) Additional Warrants; Variable Securities; Dilutive Issuances.
So long as any Buyer beneficially owns any Securities, the Company shall not
issue any other securities that would cause a breach or default under the
Financing Facility. For so long as any Preferred Shares or Warrants remain
outstanding, the Company shall not, in any manner, issue or sell any rights,
warrants or options to subscribe for or purchase Common Stock or directly or
indirectly convertible into or exchangeable or exercisable for Common Stock at a
price which varies or may vary with the market price of the Common Stock,
including by way of one or more reset(s) to any fixed price unless the
conversion, exchange or exercise price of any such security cannot be less than
the then applicable Exercise Price (as defined in the Warrants) with respect to
the Common Stock into which any Warrant is exercisable. For so long as any
Preferred Shares or Warrants remain outstanding, the Company shall not, in any
manner, enter into or affect any Dilutive Issuance (as defined in the Warrants)
if the effect of such Dilutive Issuance is to cause the Company to be required
to issue upon exercise of any Warrant any shares of Common Stock in excess of
that number of shares of Common Stock which the Company may issue upon exercise
of the Warrants without breaching the Company's obligations under the rules or
regulations of the Nasdaq National Market as if the Company were regulated by
such rules or regulations and irrespective as to whether the Company is listed
on the Nasdaq National Market.

               (j) Corporate Existence. So long as any Buyer beneficially owns
any Securities, the Company shall not be party to any Fundamental Transaction
(as defined in the Warrants) unless the Company is in compliance with the
applicable provisions governing Fundamental Transactions set forth in the
Warrants.

               (k) Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 130% of the number of shares of Common Stock issuable
upon conversion of the Preferred Shares and exercise of the Warrants issued at
the Closing.

               (l) Conduct of Business. The business of the Company and its
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations could not
result, either individually or in the aggregate, in a Material Adverse Effect.

               (m) Most Favored Registration Rights. If the Company at any time
grants any registration rights to any Person with respect to any securities of
the Company or any of its


                                       14

<PAGE>

Subsidiaries with terms or conditions more favorable than the terms and
conditions set forth in the Registration Rights Agreement, such more favorable
terms and conditions shall be deemed to be included in the Registration Rights
Agreement and the Buyers shall be entitled to the benefits thereof.

               (n) NASDAQ Approval. In the event the Company does not receive
the approval of Nasdaq pursuant to Section 6(b)(ii), subject to applicable
corporate law, the parties shall work in good faith to modify the terms and
conditions of the Certificate of Designations in a manner acceptable to Nasdaq
and to preserve as closely as possible the terms and conditions of the
Certificate of Designations. If, notwithstanding, such good faith efforts by the
parties, they are unable to create a certificate of designations acceptable to
Nasdaq, the parties agree to modify and file a certificate of designations which
excludes all of the items contained in the Certificate of Designations other
than Sections 16 and 19 as it existed as of the Initial Closing Date and to
amend and restate the Warrants to replace Section 16(f) of such Warrants with
Sections A.17(g) and A.17(h) of the Certificate of Designations, mutatis
mutandis.

               (o) Issuance of Preferred Shares upon Cancellation. Concurrently
with the occurrence of a Cancellation (as defined in the Warrants), the Company
shall issue to each holder of Warrants such number of additional Preferred
Shares equal to the sum of (i) such number of Warrant Shares held by such holder
on the date of such Cancellation (the "ADDITIONAL PREFERRED SHARES") and (ii)
(x) the number of Warrant Shares into which such Warrant is then exercisable
(without regard to any limitations on exercise) immediately prior to such
Cancellation less (y) the number of Preferred Shares held by such holder
immediately prior to such Cancellation.

          5. REGISTER; TRANSFER AGENT INSTRUCTIONS.

               (a) Register. The Company shall maintain at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to each holder of Securities), a register for the Preferred
Shares and the Warrants, in which the Company shall record the name and address
of the Person in whose name the Preferred Shares and the Warrants have been
issued (including the name and address of each transferee), the face amount of
Preferred Shares held by such Person, the number of Warrant Shares issuable upon
exercise of the Warrants held by such Person and the number of Preferred Shares
held by such Person. The Company shall keep the register open and available at
all times during business hours for inspection of any Buyer or its legal
representatives.

               (b) Transfer Agent Instructions. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates or credit shares to the applicable balance accounts
at The Depository Trust Company ("DTC"), registered in the name of each Buyer or
its respective nominee(s), for the Conversion Shares, and the Warrant Shares
issued at the Initial Closing or upon conversion of the Preferred Shares or
exercise of the Warrants in such amounts as specified from time to time by each
Buyer to the Company upon conversion of the Preferred Shares or exercise of the
Warrants in the form of Exhibit D attached hereto (the "IRREVOCABLE TRANSFER
AGENT INSTRUCTIONS"). The Company warrants that no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section 5(b), and
stop transfer instructions to give effect to Section 2(h) hereof, will be given
by the Company to its transfer agent, and that the Securities shall otherwise be
freely transferable


                                       15

<PAGE>

on the books and records of the Company as and to the extent provided in this
Agreement and the other Transaction Documents. If a Buyer effects a sale,
assignment or transfer of the Securities in accordance with Section 2(g), the
Company shall permit the transfer and shall promptly instruct its transfer agent
to issue one or more certificates or credit shares to the applicable balance
accounts at DTC in such name and in such denominations as specified by such
Buyer to effect such sale, transfer or assignment. In the event that such sale,
assignment or transfer involves Conversion Shares or Warrant Shares sold,
assigned or transferred pursuant to an effective registration statement or
pursuant to Rule 144, the transfer agent shall issue such Securities to the
Buyer, assignee or transferee, as the case may be, without any restrictive
legend. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to a Buyer. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 5(b) will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 5(b), that a
Buyer shall be entitled, in addition to all other available remedies, to an
order and/or injunction restraining any breach and requiring immediate issuance
and transfer, without the necessity of showing economic loss and without any
bond or other security being required.

          6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

               (a) The obligation of the Company hereunder to issue and sell the
Warrants to each Buyer at the Initial Closing is subject to the satisfaction, at
or before the Initial Closing Date, of each of the following conditions,
provided that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion by providing each Buyer
with prior written notice thereof:

                    (i) Such Buyer shall have executed each of the Transaction
     Documents to which it is a party and delivered the same to the Company.

                    (ii) Such Buyer and each other Buyer shall have delivered to
     the Company the Initial Purchase Price.

                    (iii) The representations and warranties of such Buyer shall
     be true and correct in all material respects (except for those
     representations and warranties that are qualified by materiality or
     Material Adverse Effect, which shall be true and correct in all respects)
     as of the date when made and as of the Closing Date as though made at that
     time (except for representations and warranties that speak as of a specific
     date), and such Buyer shall have performed, satisfied and complied in all
     material respects with the covenants, agreements and conditions required by
     this Agreement to be performed, satisfied or complied with by such Buyer at
     or prior to the Closing Date.

               (b) The obligation of the Company hereunder to issue and sell the
Preferred Shares to each Buyer at the Additional Closing is subject to the
satisfaction, at or before the Additional Closing Date, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion by providing
each Buyer with prior written notice thereof:

                    (i) Such Buyer and each other Buyer shall have delivered to
     the Company the Additional Purchase Price.


                                       16

<PAGE>

                    (ii) The Company shall have obtained the consent of Nasdaq
     to the terms and conditions of the Certificate of Designations.

          7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.

               (a) The obligation of each Buyer hereunder to purchase the
Warrants at the Initial Closing is subject to the satisfaction, at or before the
Initial Closing Date, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion by providing the Company with prior written
notice thereof:

                    (i) The Company shall have duly executed and delivered to
     such Buyer (i) each of the Transaction Documents and (ii) the related
     Warrants (in such amounts as such Buyer shall request) being purchased by
     such Buyer at the Initial Closing pursuant to this Agreement.

                    (ii) Such Buyer shall have received the opinion of Gray
     Plant Mooty, the Company's counsel, dated as of the Initial Closing Date,
     in substantially the form of Exhibit E-1 attached hereto.

                    (iii) The Company shall have delivered to such Buyer a copy
     of the Irrevocable Transfer Agent Instructions, in the form of Exhibit D
     attached hereto, which instructions shall have been delivered to and
     acknowledged in writing by the Company's transfer agent.

                    (iv) Company shall have delivered to such Buyer a
     certificate evidencing the formation and good standing of the Company and
     each of its Subsidiaries in such entity's jurisdiction of formation issued
     by the Secretary of State (or comparable office) of such jurisdiction, as
     of a date within 10 days of the Initial Closing Date.

                    (v) The Company shall have delivered to such Buyer a
     certificate evidencing the Company's qualification as a foreign corporation
     and good standing issued by the Secretary of State of the State of
     Minnesota as of a date within 10 days of the Initial Closing Date.

                    (vi) The Company shall have delivered to such Buyer a
     certified copy of the Articles of Incorporation as certified by the
     Secretary of State of the State of Minnesota within 10 days of the Initial
     Closing Date.

                    (vii) The Company shall have delivered to such Buyer a
     certificate, executed by the Secretary of the Company and dated as of the
     Initial Closing Date, as to (i) the resolutions consistent with Section
     3(b) as adopted by the Company's Board of Directors in a form reasonably
     acceptable to such Buyer, (ii) the Articles of Incorporation and (iii) the
     Bylaws, each as in effect at the Initial Closing in the form attached
     hereto as Exhibit F.

                    (viii) The representations and warranties of the Company
     shall be true and correct in all material respects (except for those
     representations and warranties


                                       17

<PAGE>

     that are qualified by materiality or Material Adverse Effect, which shall
     be true and correct in all respects) as of the date when made and as of the
     Initial Closing Date as though made at that time (except for
     representations and warranties that speak as of a specific date) and the
     Company shall have performed, satisfied and complied in all material
     respects with the covenants, agreements and conditions required by the
     Transaction Documents to be performed, satisfied or complied with by the
     Company at or prior to the Initial Closing Date. Such Buyer shall have
     received a certificate, executed by the Chief Financial Officer of the
     Company, dated as of the Initial Closing Date, to the foregoing effect and
     as to such other matters as may be reasonably requested by such Buyer in
     the form attached hereto as Exhibit G.

                    (ix) The Company shall have delivered to such Buyer a letter
     from the Company's transfer agent certifying the number of shares of Common
     Stock outstanding as of a date within five days of the Initial Closing
     Date.

                    (x) The Common Stock (i) shall be designated for quotation
     or listed on the Principal Market and (ii) shall not have been suspended,
     as of the Initial Closing Date, by the SEC or the Principal Market from
     trading on the Principal Market nor shall suspension by the SEC or the
     Principal Market have been threatened, as of the Initial Closing Date,
     either (A) in writing by the SEC or the Principal Market or (B) by falling
     below the minimum listing maintenance requirements of the Principal Market.

                    (xi) The Company shall have obtained all governmental,
     regulatory or third party consents and approvals, if any, necessary for the
     sale of the Warrants.

                    (xii) Within six (6) Business Days prior to the Initial
     Closing, the Company shall have delivered or caused to be delivered to each
     Buyer a perfection certificate, duly completed and executed by the Company
     and each of the Subsidiaries, in form and substance satisfactory to the
     Buyers.

                    (xiii) The Company shall have delivered to such Buyer such
     other documents relating to the transactions contemplated by this Agreement
     as such Buyer or its counsel may reasonably request.

               (b) The obligation of each Buyer hereunder to purchase the
Preferred Shares at the Additional Closing is subject to the satisfaction, at or
before the Additional Closing Date, of each of the following conditions,
provided that these conditions are for each Buyer's sole benefit and may be
waived by such Buyer at any time in its sole discretion by providing the Company
with prior written notice thereof:

                    (i) The Company shall have duly executed and delivered to
     such Buyer (A) each of the Transaction Documents and (B) the Preferred
     Shares (in such numbers as is set forth across from such Buyer's name in
     column (3) of the Schedule of Buyers) being purchased by such Buyer at the
     Additional Closing pursuant to this Agreement.


                                       18

<PAGE>

                    (ii) Such Buyer shall have received the opinion of Gray
     Plant Mooty, the Company's counsel, dated as of the Additional Closing
     Date, in substantially the form of Exhibit E-2 attached hereto.

                    (iii) The Company shall have delivered to such Buyer a
     certificate, executed by the Secretary of the Company and dated as of the
     Additional Closing Date, as to (i) the resolutions consistent with Section
     3(b) as adopted by the Company's Board of Directors in a form reasonably
     acceptable to such Buyer, (ii) the Articles of Incorporation and (iii) the
     Bylaws, each as in effect at the Additional Closing Date in the form
     attached hereto as Exhibit F.

                    (iv) The representations and warranties of the Company shall
     be true and correct in all material respects (except for those
     representations and warranties that are qualified by materiality or
     Material Adverse Effect, which shall be true and correct in all respects)
     as of the date when made and as of the Additional Closing Date as though
     made at that time (except for representations and warranties that speak as
     of a specific date) and the Company shall have performed, satisfied and
     complied in all material respects with the covenants, agreements and
     conditions required by the Transaction Documents to be performed, satisfied
     or complied with by the Company at or prior to the Additonal Closing Date.
     Such Buyer shall have received a certificate, executed by the Chief
     Financial Officer of the Company, dated as of the Additional Closing Date,
     to the foregoing effect and as to such other matters as may be reasonably
     requested by such Buyer in the form attached hereto as Exhibit G.

                    (v) The Certificate of Designations in the form attached as
     Exhibit A shall have been filed on or prior to the Additional Closing Date
     with the Secretary of State of the State of Minnesota and shall be in full
     force and effect, enforceable against the Company in with its terms and
     shall not have been amended.

                    (vi) The Company shall have obtained all governmental,
     regulatory or third party consents and approvals, if any, necessary for the
     sale of the Securities, including, without limitation, the consent of
     Nasdaq to the terms and conditions of the Certificate of Designations.

                    (vii) The Company shall have delivered to such Buyer such
     other documents relating to the transactions contemplated by this Agreement
     as such Buyer or its counsel may reasonably request.

          8. TERMINATION. In the event that the Closing shall not have occurred
with respect to a Buyer on or before five (5) Business Days from the date hereof
due to the Company's or such Buyer's failure to satisfy the conditions set forth
in Sections 6 and 7 above (and the nonbreaching party's failure to waive such
unsatisfied condition(s)), the nonbreaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other party.

          9. MISCELLANEOUS.


                                       19

<PAGE>

               (a) Governing Law; Jurisdiction; Jury Trial. All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than the State of New
York. Each party hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in The City of New York, Borough of Manhattan,
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

               (b) Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.

               (c) Headings. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Agreement.

               (d) Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.

               (e) Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between the Buyers, the Company, their
affiliates and Persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of at least a majority of the Preferred Shares, and any
amendment to this Agreement made in conformity with the provisions of this
Section 9(e) shall be binding on all Buyers and holders of Securities. No
provision hereof may be waived other than by an instrument in writing signed by
the party against whom


                                       20

<PAGE>

enforcement is sought. No such amendment shall be effective to the extent that
it applies to less than all of the holders of the Preferred Shares then
outstanding. No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of the Transaction
Documents unless the same consideration also is offered to all of the parties to
the Transaction Documents, holders of Preferred Shares or holders of the
Warrants, as the case may be. The Company has not, directly or indirectly, made
any agreements with any Buyers relating to the terms or conditions of the
transactions contemplated by the Transaction Documents except as set forth in
the Transaction Documents.

               (f) Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered: (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one Business Day
after deposit with an overnight courier service, in each case properly addressed
to the party to receive the same. The addresses and facsimile numbers for such
communications shall be:

          If to the Company:

          If to the Company:

          Lakes Entertainment, Inc.
          130 Cheshire Lane, Suite 101
          Minnetonka, MN 55305
          Telephone: (952) 449-9092
          Facsimile: (952 449-9353
          Attention: Damon E. Schramm, Esq. Timothy Cope

          with a copy to:

          Gray Plant Mooty
          500 IDS Center
          80 South Eighth Street
          Minneapolis, MN 55402
          Telephone: (612) 632-3050
          Facsimile: (612) 632-4050
          Attention: Daniel R. Tenenbaum, Esq.

     If to the Transfer Agent:

          Wells Fargo Bank Minnesota, N.A.
          Stock Transfer Department
          161 North Concord Exchange
          South St. Paul, MN 55075
          Telephone: (651) 306-4498
          Facsimile: (651) 450-4078


                                       21

<PAGE>

          Attention: Cindy Gesme

If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers, with copies to such Buyer's representatives as set forth on the Schedule
of Buyers,

          with a copy (for informational purposes) to:

          Schulte Roth & Zabel LLP
          919 Third Avenue
          New York, New York 10022
          Telephone: (212) 756-2000
          Facsimile: (212) 593-5955
          Attention: Eleazer N. Klein, Esq.
                     Nancy Finkelstein, Esq.

or to such other address and/or facsimile number and/or to the attention of such
other Person as the recipient party has specified by written notice given to
each other party five (5) days prior to the effectiveness of such change.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or (C)
provided by an overnight courier service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from an overnight courier
service in accordance with clause (i), (ii) or (iii) above, respectively.

               (g) Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Preferred Shares or the Warrants. The
Company shall not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the holders of at least a majority of the
Preferred Shares then outstanding, including by including by way of a
Fundamental Transaction (unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Warrants). A
Buyer may assign some or all of its rights hereunder without the consent of the
Company in connection with a transfer by such Buyer of any of the Securities, in
which event such assignee shall be deemed to be a Buyer hereunder with respect
to such assigned rights

               (h) No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.

               (i) Survival. Unless this Agreement is terminated under Section
8, the representations and warranties of the Company and the Buyers contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9
shall survive the Additional Closing. Each Buyer shall be responsible only for
its own representations, warranties, agreements and covenants hereunder.

               (j) Further Assurances. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and documents,
as any other party may reasonably request


                                       22

<PAGE>

in order to carry out the intent and accomplish the purposes of this Agreement
and the consummation of the transactions contemplated hereby.

               (k) Indemnification. In consideration of each Buyer's execution
and delivery of the Transaction Documents and acquiring the Securities
thereunder and in addition to all of the Company's other obligations under the
Transaction Documents, the Company shall defend, protect, indemnify and hold
harmless each Buyer and each other holder of the Securities and all of their
stockholders, partners, members, officers, directors, employees and direct or
indirect investors and any of the foregoing Persons' agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"INDEMNITEES") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any material inaccuracy in any representation or warranty made by the Company in
the Transaction Documents or any inaccuracy in any representation or warranty in
the Transaction Documents that is qualified by materiality or Material Adverse
Effect, (b) any breach of any covenant, agreement or obligation of the Company
contained in the Transaction Documents or (c) any cause of action, suit or claim
brought or made against such Indemnitee by a third party (including for these
purposes a derivative action brought on behalf of the Company) and arising out
of or resulting from (i) the execution, delivery, performance or enforcement of
the Transaction Documents, (ii) any transaction financed or to be financed in
whole or in part, directly or indirectly, with the proceeds of the issuance of
the Securities, or (iii) the status of such Buyer or holder of the Securities as
an investor in the Company pursuant to the transactions contemplated by the
Transaction Documents; provided that indemnification pursuant to this clause
(iii) shall not be available to the extent arising primarily from such Buyer's
fraud, gross negligence or willful misconduct. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities that is permissible under applicable law. Except as
otherwise set forth herein, the mechanics and procedures with respect to the
rights and obligations under this Section 9(k) shall be the same as those set
forth in Section 6 of the Registration Rights Agreement.

               (l) No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.

               (m) Remedies. Each Buyer and each holder of the Securities shall
have all rights and remedies set forth in the Transaction Documents and all
rights and remedies which such holders have been granted at any time under any
other agreement or contract and all of the rights which such holders have under
any law. Any Person having any rights under any provision of this Agreement
shall be entitled to enforce such rights specifically (without posting a bond or
other security), to recover damages by reason of any breach of any provision of
this Agreement and to exercise all other rights granted by law. Furthermore, the
Company recognizes that in the event that it fails to perform, observe, or
discharge any or all of its obligations under the Transaction Documents, any
remedy at law may prove to be inadequate


                                       23

<PAGE>

relief to the Buyers. The Company therefore agrees that the Buyers shall be
entitled to seek temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages and without posting a bond or
other security.

               (n) Rescission and Withdrawal Right. Notwithstanding anything to
the contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Buyer exercises a right, election, demand or
option under a Transaction Document and the Company does not timely perform its
related obligations within the periods therein provided, then such Buyer may
rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights

               (o) Payment Set Aside. To the extent that the Company makes a
payment or payments to the Buyers hereunder or pursuant to any of the other
Transaction Documents or the Buyers enforce or exercise their rights hereunder
or thereunder, and such payment or payments or the proceeds of such enforcement
or exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, foreign, state or federal law, common law or equitable cause of
action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.

               (p) Independent Nature of Buyers' Obligations and Rights. The
obligations of each Buyer under any Transaction Document are several and not
joint with the obligations of any other Buyer, and no Buyer shall be responsible
in any way for the performance of the obligations of any other Buyer under any
Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall be
deemed to constitute the Buyers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Buyers are
in any way acting in concert or as a group with respect to such obligations or
the transactions contemplated by the Transaction Documents. Each Buyer confirms
that it has independently participated in the negotiation of the transaction
contemplated hereby with the advice of its own counsel and advisors. Each Buyer
shall be entitled to independently protect and enforce its rights, including,
without limitations, the rights arising out of this Agreement or out of any
other Transaction Documents, and it shall not be necessary for any other Buyer
to be joined as an additional party in any proceeding for such purpose.

                            [SIGNATURE PAGE FOLLOWS]


                                       24

<PAGE>

          IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.

                                        COMPANY:

                                        LAKES ENTERTAINMENT, INC.


                                        By: /S/ Timothy J. Cope
                                            ------------------------------------
                                        Name: Timothy J. Cope
                                        Title: President and Chief Financial
                                               Officer


               [Signature Page to Securities Purchase Agreement]

<PAGE>

          IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.

                                        BUYERS:

                                        PLKS HOLDINGS, LLC

                                        By: Prentice Capital Management, LP,
                                            as Manager


                                        By: /S/ Michael Weiss
                                            ------------------------------------
                                        Name: Michael Weiss
                                        Title: Chief Financial Officer

               [Signature Page to Securities Purchase Agreement]

<PAGE>

                               SCHEDULE OF BUYERS

<TABLE>
<CAPTION>
                                                           (3)
                                                        AGGREGATE      (4)        (5)        (6)
                                                         NUMBER     AGGREGATE   INITIAL  ADDITIONAL                (7)
        (1)                        (2)                OF PREFERRED  NUMBER OF  PURCHASE   PURCHASE       LEGAL REPRESENTATIVE'S
       BUYER          ADDRESS AND FACSIMILE NUMBER       SHARES      WARRANTS    PRICE      PRICE     ADDRESS AND FACSIMILE NUMBER
- ------------------    ----------------------------    ------------  ---------  --------  ----------  -----------------------------
<S>                 <C>                               <C>           <C>        <C>       <C>         <C>
PLKS HOLDINGS, LLC  c/o Prentice Capital Management,    4,457,751   4,457,751   $10.00   $44,577.51  Schulte Roth & Zabel LLP
                    LP                                                                               919 Third Avenue
                    623 Fifth Avenue                                                                 New York, New York 10022
                    32nd Floor                                                                       Attention: Eleazer Klein, Esq.
                    New York, NY 10022                                                               Facsimile: (212) 593-5955
                    Attention: Michael Zimmerman                                                     Telephone: (212) 756-2376
                    Charles Phillips
                    Facsimile: 212-756-1464
</TABLE>

<PAGE>

                                    EXHIBITS

<TABLE>
<S>           <C>
Exhibit A     Form of Certificate of Designations
Exhibit B     Form of Warrant
Exhibit C     Form of Registration Rights Agreement
Exhibit D     Form of Irrevocable Transfer Agent Instructions
Exhibit E-1   Form of Initial Closing Opinion of Company's Counsel
Exhibit E-2   Form of Additional Closing Opinion of Company's Counsel
Exhibit F     Form of Secretary's Certificate
Exhibit G     Form of Officers Certificate
</TABLE>

                                      SCHEDULES

<TABLE>
<S>             <C>
Schedule 3(i)   Application of Takeover Protections; Rights Agreement
Schedule 3(j)   SEC Documents; Financial Statements
Schedule 3(l)   Transaction with Affiliates
Schedule 3(m)   Equity Capitalization
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>5
<FILENAME>c02665exv10w3.txt
<DESCRIPTION>REGISTRATION RIGHTS AGREEMENT
<TEXT>
<PAGE>
                                                                    EXHIBIT 10.3
                                                                  EXECUTION COPY

                          REGISTRATION RIGHTS AGREEMENT

          REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of February
__, 2006, by and among Lakes Entertainment, Inc., a Minnesota corporation, with
headquarters located at 130 Cheshire Lane, Suite 101, Minnetonka, MN 55305 (the
"COMPANY"), and the undersigned buyers (each, a "BUYER", and collectively, the
"BUYERS").

          WHEREAS:

          A. In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the "SECURITIES PURCHASE AGREEMENT"),
the Company has agreed, upon the terms and subject to the conditions set forth
in the Securities Purchase Agreement, to issue and sell to each Buyer (i) shares
of Company's Series A Convertible Preferred Stock, par value $0.01 per share
(the "PREFERRED SHARES"), which will, among other things, be convertible into a
certain number of shares of the Company's common stock, $0.01 par value per
share (the "COMMON STOCK", as converted, the "CONVERSION SHARES") in accordance
with the terms of the certificate of designations for the Preferred Shares (the
"CERTIFICATE OF DESIGNATIONS"), and (ii) warrants (the "WARRANTS"), which will
be exercisable to purchase shares of Common Stock (as exercised collectively,
the "WARRANT SHARES").

          B. Contemporaneously herewith, the Company and certain of its
subsidiaries entered into financing arrangements (the "FINANCING FACILITY") with
the Buyers, as secured lenders, and as more fully set forth in a financing
agreement (the "FINANCING AGREEMENT"), by and among the Company and its
Subsidiaries (as defined in the Financing Agreement), as borrowers
(collectively, the "BORROWERS"), PLKS Funding, LLC, as administrative agent and
collateral agent (in such capacity the "AGENT"), and the Buyers, as lenders, and
certain other security and ancillary documents related thereto (the "SECURITY
DOCUMENTS"), pursuant to which, subject to the satisfaction of certain borrowing
conditions, the Buyers made available to the Borrowers a $50 million secured
multiple-draw term loan (the "FINANCING").

          C. To induce the Buyers to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 ACT"), and
applicable state securities laws.

          NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Buyers hereby agree as follows:

          1. Definitions.

          Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Securities Purchase Agreement. As
used in this Agreement, the following terms shall have the following meanings:

<PAGE>

               a. "BUSINESS DAY" means any day other than Saturday, Sunday or
any other day on which commercial banks in the City of New York are authorized
or required by law to remain closed.

               b. "CLOSING DATE" shall have the meaning set forth in the
Securities Purchase Agreement.

               c. "EFFECTIVE DATE" means the date the Registration Statement has
been declared effective by the SEC.

               d. "EFFECTIVENESS DEADLINE" means the date that is 120 days after
the Filing Deadline.

               e. "FILING DEADLINE" means the date that is 45 days after the
Demand Notice Date.

               f. "INVESTOR" means a Buyer or any transferee or assignee thereof
to whom a Buyer assigns its rights under this Agreement and who agrees to become
bound by the provisions of this Agreement in accordance with Section 9 and any
transferee or assignee thereof to whom a transferee or assignee assigns its
rights under this Agreement and who agrees to become bound by the provisions of
this Agreement in accordance with Section 9.

               g. "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.

               h. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 and the declaration or ordering of effectiveness of such Registration
Statement(s) by the SEC.

               i. "REGISTRABLE SECURITIES" means (i) the Conversion Shares
issued or issuable upon conversion of the Preferred Shares, (ii) the Warrant
Shares issued or issuable upon exercise of the Warrants, and (iii) any shares of
Common Stock issued or issuable with respect to the Conversion Shares, the
Preferred Shares, the Warrant Shares and the Warrants as a result of any stock
split, stock dividend, recapitalization, exchange or similar event or otherwise,
without regard to any limitations on conversions of the Preferred Shares or
exercises of the Warrants. Notwithstanding the foregoing, Registrable Securities
shall not mean securities sold by an Investor to the public either pursuant to a
Registration Statement or pursuant to Rule 144 under the Securities Act of 1933,
as amended, and the rules and regulations thereunder, or any similar successor
statute (collectively, the "1933 ACT") or securities eligible for sale pursuant
to Rule 144(k).

               j. "REGISTRATION STATEMENT" means a registration statement or
registration statements of the Company filed under the 1933 Act pursuant to Rule
415 covering the Registrable Securities.


                                       2

<PAGE>

               k. "REQUIRED HOLDERS" means the holders of at least a majority of
the Registrable Securities.

               l. "REQUIRED REGISTRATION AMOUNT" for the Registration Statement
means 130% of the number of Conversion Shares and Warrant Shares issued and
issuable pursuant to the Preferred Shares and Warrants as of the trading day
immediately preceding the applicable date of determination, all subject to
adjustment as provided in Section 2(e).

               m. "RULE 415" means Rule 415 under the 1933 Act or any successor
rule providing for offering securities on a continuous or delayed basis.

               n. "SEC" means the United States Securities and Exchange
Commission.

          2. Registration.

               a. Mandatory Registration. At any time after the date that is 180
days from the date hereof, if the Company shall at any time and from time to
time receive from the Required Holders a written request that the Required
Holders have a present intent to sell their Registrable Securities and desire
that the Company register all or a portion of the Registrable Securities (a
"DEMAND NOTICE", and the date of such Notice, the "DEMAND NOTICE DATE"), at one
or more times, then the Company shall prepare, and, as soon as practicable but
in no event later than the Filing Deadline, file with the SEC the Registration
Statement on Form S-1 or another appropriate form available for use by the
Company permitting registration of Registrable Securities for resales as
contemplated herein, covering the number of Registrable Securities as may be
requested by an Investor to be included in such Registration Statement. The
Company shall deliver a copy of the Demand Notice to all other holders of
Registrable Securities promptly following receipt of the Demand Notice. The
Registration Statement prepared pursuant hereto shall register for resale at
least the number of shares of Common Stock equal to the Required Registration
Amount determined as of date the Registration Statement is initially filed with
the SEC. The Registration Statement shall contain (except if otherwise directed
by the Required Holders) the "Selling Shareholders" and "Plan of Distribution"
sections in substantially the form attached hereto as Exhibit B. The Company
shall use its best efforts to have the Registration Statement declared effective
by the SEC as soon as practicable, but in no event later than the Effectiveness
Deadline. Promptly following effectiveness of such Registration Statement, the
Company shall file the final prospectus used in connection with such
Registration Statement, after insertion of all applicable dates and other
missing information and the removal of all notices of the preliminary nature of
the prospectus, with the SEC, which prospectus is to be filed pursuant to Rule
424 promulgated under the 1933 Act. Notwithstanding the foregoing, if the
Company has filed a registration statement (an "EXCLUDED OFFERING REGISTRATION
STATEMENT") pursuant to an Excluded Offering (as defined in the Warrant), then
the Required Holders shall not be permitted to submit a Demand Notice to the
Company until such time as the earlier to occur of (x) 270 days after the
initial filing of the Excluded Offering Registration Statement and (y) the
effective date of such Excluded Offering Registration Statement.

               b. Allocation of Registrable Securities. The initial number of
Registrable Securities included in any Registration Statement and any increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number


                                       3

<PAGE>

of Registrable Securities held by each Investor at the time the Registration
Statement covering such initial number of Registrable Securities or increase
thereof is declared effective by the SEC. In the event that an Investor sells or
otherwise transfers any of such Investor's Registrable Securities, each
transferee shall be allocated a pro rata portion of the then remaining number of
Registrable Securities included in such Registration Statement for such
transferor. Any shares of Common Stock included in a Registration Statement and
which remain allocated to any Person which ceases to hold any Registrable
Securities covered by such Registration Statement shall be allocated to the
remaining Investors, pro rata based on the number of Registrable Securities then
held by such Investors which are covered by such Registration Statement. In no
event shall the Company include any securities other than Registrable Securities
on any Registration Statement without the prior written consent of the Required
Holders, which consent shall not be unreasonably withheld.

               c. Legal Counsel. Subject to Section 5 hereof, the Required
Holders shall have the right to select one legal counsel to review and oversee
any registration pursuant to this Section 2 ("LEGAL COUNSEL"), which shall be
Schulte Roth & Zabel LLP or such other counsel as thereafter designated by the
Required Holders. The Company and Legal Counsel shall reasonably cooperate with
each other in performing the Company's obligations under this Agreement.

               d. Eligibility for Form S-3. The Company shall undertake to
register the Registrable Securities on Form S-3 promptly after the Company meets
the requirements for use of such form, provided that the Company shall maintain
the effectiveness of the Registration Statement then in effect until such time
as a Registration Statement on Form S-3 covering the Registrable Securities has
been declared effective by the SEC.

               e. Sufficient Number of Shares Registered. In the event the
number of shares available under a Registration Statement filed pursuant to
Section 2(a) is insufficient to cover all of the Registrable Securities required
to be covered by such Registration Statement or an Investor's allocated portion
of the Registrable Securities pursuant to Section 2(b), the Company shall amend
the applicable Registration Statement, or file a new Registration Statement (on
the short form available therefor, if applicable), or both, so as to cover at
least the Required Registration Amount as of the trading day immediately
preceding the date of the filing of such amendment or new Registration
Statement, in each case, as soon as practicable, but in any event not later than
thirty (30) days after the necessity therefor arises. The Company shall use its
best efforts to cause such amendment and/or new Registration Statement to become
effective as soon as practicable following the filing thereof. For purposes of
the foregoing provision, the number of shares available under a Registration
Statement shall be deemed "insufficient to cover all of the Registrable
Securities" if at any time the number of shares of Common Stock available for
resale under the Registration Statement is less than the product determined by
multiplying (i) the Required Registration Amount as of such time by (ii) 0.90.
The calculation set forth in the foregoing sentence shall be made without regard
to any limitations on the conversion of the Preferred Shares or the exercise of
the Warrants and such calculation shall assume that the Preferred Shares are
then convertible into shares of Common Stock at the then prevailing Conversion
Price (as defined in the Certificate of Designations) and that the Warrants are
then exercisable for shares of Common Stock at the then prevailing Exercise
Price (as defined in the Warrants).


                                       4

<PAGE>

               f. Registration Rights Default. The following events shall
constitute a "REGISTRATION RIGHTS DEFAULT": (1) the Company fails to have a
Registration Statement covering all of the Registrable Securities required to be
covered thereby and required to be filed by the Company pursuant to this
Agreement declared effective by the SEC on or prior to 270 days after the Demand
Notice Date or (2) the Company's failure to use its best efforts results in any
of the following (i) a Registration Statement covering all of the Registrable
Securities required to be covered thereby and required to be filed by the
Company pursuant to this Agreement is (A) not filed with the SEC on or before
the Filing Deadline (a "FILING FAILURE") or (B) not declared effective by the
SEC on or before the Effectiveness Deadline (an "EFFECTIVENESS FAILURE") or (ii)
on any day after the Effective Date sales of all of the Registrable Securities
required to be included on such Registration Statement cannot be made (other
than during an Allowable Grace Period (as defined in Section 3(r)) pursuant to
such Registration Statement (including, without limitation, because of a failure
to keep such Registration Statement effective, to disclose such information as
is necessary for sales to be made pursuant to such Registration Statement or to
register a sufficient number of shares of Common Stock) (a "MAINTENANCE
FAILURE").

          3. Related Obligations.

          At such time as the Company is obligated to file a Registration
Statement with the SEC pursuant to Section 2(a), 2(d) or 2(e), the Company will
use its best efforts to effect the registration of the Registrable Securities in
accordance with the intended method of disposition thereof and, pursuant
thereto, the Company shall have the following obligations:

               a. The Company shall submit to the SEC, promptly after the
Company learns that no review of a particular Registration Statement will be
made by the staff of the SEC or that the staff has no further comments on a
particular Registration Statement, as the case may be, a request for
acceleration of effectiveness of such Registration Statement to a time and date
promptly after the submission of such request. The Company shall keep each
Registration Statement effective pursuant to Rule 415 to cover Registrable
Securities until the earlier of (i) the date as of which the Investors may sell
all of the Registrable Securities covered by such Registration Statement without
restriction pursuant to Rule 144(k) (or any successor thereto) promulgated under
the 1933 Act or (ii) the date on which the Investors shall have sold all of the
Registrable Securities covered by such Registration Statement (the "REGISTRATION
PERIOD").

               b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement. In the case of amendments and supplements to a Registration Statement
which are required to be filed pursuant to this Agreement (including pursuant to
this Section 3(b)) by reason of the Company filing a report on Form 10-Q, Form
10-K or any analogous report under the Securities Exchange Act of 1934, as
amended (the "1934 ACT"), the Company shall have incorporated such


                                       5

<PAGE>

report by reference into such Registration Statement, if applicable, or shall
file such amendments or supplements with the SEC promptly after the day on which
the 1934 Act report is filed which created the requirement for the Company to
amend or supplement such Registration Statement.

               c. The Company shall (A) deliver to Legal Counsel (i) each
Registration Statement prior to its filing with the SEC and (ii) all amendments
and supplements to all Registration Statements (except for Annual Reports on
Form 10-K, and Reports on Form 10-Q and any similar or successor reports) prior
to their filing with the SEC. The Company shall not submit a request for
acceleration of the effectiveness of a Registration Statement or any amendment
or supplement thereto without the prior approval of Legal Counsel, which consent
shall not be unreasonably withheld. The Company shall furnish to Legal Counsel,
without charge, (i) copies of any correspondence from the SEC or the staff of
the SEC to the Company or its representatives relating to any Registration
Statement, (ii) promptly after the same is prepared and filed with the SEC, one
copy of any Registration Statement and any amendment(s) thereto, including
financial statements and schedules, all documents incorporated therein by
reference, if requested by an Investor, and all exhibits, unless such filings
are not readily available in electronic format, and (iii) upon the effectiveness
of any Registration Statement, one copy of the prospectus included in such
Registration Statement and all amendments and supplements thereto. The Company
shall reasonably cooperate with Legal Counsel in performing the Company's
obligations pursuant to this Section 3.

               d. The Company shall upon written request furnish to each
Investor whose Registrable Securities are included in any Registration
Statement, without charge, (i) promptly after the same is prepared and filed
with the SEC, at least one copy of such Registration Statement and any
amendment(s) thereto, including financial statements and schedules, all
documents incorporated therein by reference, if requested by an Investor, all
exhibits and each preliminary prospectus, (ii) promptly after the effectiveness
of any Registration Statement, ten (10) copies of the prospectus included in
such Registration Statement and all amendments and supplements thereto (or such
other number of copies as such Investor may reasonably request) and (iii) such
other documents, including copies of any preliminary or final prospectus, as
such Investor may reasonably request from time to time in order to facilitate
the disposition of the Registrable Securities owned by such Investor.

               e. The Company shall use its best efforts to (i) register and
qualify, unless an exemption from registration and qualification applies, the
resale by Investors of the Registrable Securities covered by a Registration
Statement under such other securities or "blue sky" laws of a number of
jurisdictions in the United States as may be reasonably requested by the
Investors, (ii) prepare and file in those jurisdictions, such amendments
(including post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof during
the Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection with any
of the foregoing or as a condition thereto to (x) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(e), (y) subject itself to general taxation in any such jurisdiction,
or (z) file a general consent to service of process in any such jurisdiction.
The Company shall


                                       6

<PAGE>

promptly notify Legal Counsel and each Investor who holds Registrable Securities
of the receipt by the Company of any notification with respect to the suspension
of the registration or qualification of any of the Registrable Securities for
sale under the securities or "blue sky" laws of any jurisdiction in the United
States or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.

               f. The Company shall notify Legal Counsel and each Investor in
writing of the happening of any event, as promptly as practicable after becoming
aware of such event, as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading (provided that in no event shall such
notice contain any material, nonpublic information), and, subject to Section
3(r), promptly prepare a supplement or amendment to such Registration Statement
to correct such untrue statement or omission, and deliver ten (10) copies of
such supplement or amendment to Legal Counsel and each Investor (or such other
number of copies as Legal Counsel or such Investor may reasonably request). The
Company shall also promptly notify Legal Counsel and each Investor in writing
(i) when a prospectus or any prospectus supplement or post-effective amendment
has been filed, and when a Registration Statement or any post-effective
amendment has become effective (notification of such effectiveness shall be
delivered to Legal Counsel and each Investor by facsimile on the same day of
such effectiveness and by overnight mail), (ii) of any request by the SEC for
amendments or supplements to a Registration Statement or related prospectus or
related information, and (iii) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.

               g. The Company shall use its reasonable efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify Legal Counsel and each Investor who
holds Registrable Securities being sold of the issuance of such order and the
resolution thereof or its receipt of actual notice of the initiation or threat
of any proceeding for such purpose.

               h. At the reasonable request of any Investor, the Company shall
furnish to such Investor, on the date of the effectiveness of the Registration
Statement and thereafter from time to time on such dates as an Investor may
reasonably request an opinion, dated as of such date, of counsel representing
the Company for purposes of such Registration Statement, in form, scope and
substance as is customarily given in an underwritten public offering, addressed
to the Investors.

               i. [omitted]

               j. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws or any government regulatory authority relating to the gaming
industry, (ii) the disclosure of such information is necessary to avoid or
correct a misstatement or omission in any Registration Statement, (iii) the


                                       7

<PAGE>

release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.

               k. The Company shall use its best efforts either to (i) cause all
of the Registrable Securities covered by a Registration Statement to be listed
on each securities exchange on which securities of the same class or series
issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure designation and quotation of all of the Registrable Securities
covered by a Registration Statement on the Nasdaq National Market or (iii) if,
despite the Company's best efforts to satisfy, the preceding clauses (i) and
(ii) the Company is unsuccessful in satisfying the preceding clauses (i) and
(ii), to secure the inclusion for quotation on The Nasdaq SmallCap Market for
such Registrable Securities and, without limiting the generality of the
foregoing, to use its best efforts to arrange for at least two market makers to
register with the National Association of Securities Dealers, Inc. ("NASD") as
such with respect to such Registrable Securities. The Company shall pay all fees
and expenses in connection with satisfying its obligation under this Section
3(k).

               l. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, facilitate
the timely preparation and delivery of certificates (not bearing any restrictive
legend) representing the Registrable Securities sold pursuant to a Registration
Statement and enable such certificates to be in such denominations or amounts,
as the case may be, as the Investors may reasonably request and registered in
such names as the Investors may request.

               m. If requested by an Investor, the Company shall (i) as soon as
practicable incorporate in a prospectus supplement or post-effective amendment
such information as an Investor reasonably requests to be included therein
relating to the sale and distribution of Registrable Securities, including,
without limitation, information with respect to the number of Registrable
Securities being offered or sold, the purchase price being paid therefor and any
other terms of the offering of the Registrable Securities to be sold in such
offering; (ii) as soon as practicable make all required filings of such
prospectus supplement or post-effective amendment after being notified of the
matters to be incorporated in such prospectus supplement or post-effective
amendment; and (iii) as soon as practicable, supplement or make amendments to
any Registration Statement if reasonably requested by an Investor holding any
Registrable Securities.

               n. [omitted]

               o. The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with, and in the manner provided by, the provisions of


                                       8

<PAGE>

Rule 158 under the 1933 Act) covering a period of twelve-months beginning not
later than the first day of the Company's fiscal quarter next following the
effective date of a Registration Statement.

               p. The Company shall otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC in connection with any
registration hereunder.

               q. Within five (5) Business Days after a Registration Statement
which covers Registrable Securities is ordered effective by the SEC, the Company
shall deliver, and shall cause legal counsel for the Company to deliver, to the
transfer agent for such Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such Registration Statement)
confirmation that such Registration Statement has been declared effective by the
SEC in a form similar to that attached hereto as Exhibit A.

               r. Notwithstanding anything to the contrary herein, at any time
after the Registration Statement has been declared effective by the SEC, the
Company may delay the disclosure of material, non-public information concerning
the Company the disclosure of which at the time is not, in the good faith
opinion of the Board of Directors of the Company and its counsel, in the best
interest of the Company and, consistent with the recommendations of counsel to
the Company, otherwise required (a "GRACE PERIOD"); provided, that the Company
shall promptly (i) notify the Investors in writing of the existence of material,
non-public information giving rise to a Grace Period (provided that in each
notice the Company will not disclose the content of such material, non-public
information to the Investors) and the date on which the Grace Period will begin,
and (ii) notify the Investors in writing of the date on which the Grace Period
ends; and, provided further, that no Grace Period shall exceed fifteen (15)
consecutive days and during any three hundred sixty five (365) day period such
Grace Periods shall not exceed an aggregate of sixty (60) days and the first day
of any Grace Period must be at least two (2) trading days after the last day of
any prior Grace Period (each, an "ALLOWABLE GRACE PERIOD"). For purposes of
determining the length of a Grace Period above, the Grace Period shall begin on
and include the date the Investors receive the notice referred to in clause (i)
and shall end on and include the later of the date the Investors receive the
notice referred to in clause (ii) and the date referred to in such notice. The
provisions of Section 3(g) hereof shall not be applicable during the period of
any Allowable Grace Period. Upon expiration of the Grace Period, the Company
shall again be bound by the first sentence of Section 3(f) with respect to the
information giving rise thereto unless such material, non-public information is
no longer applicable. Notwithstanding anything to the contrary, the Company
shall use its best efforts to cause its transfer agent to deliver unlegended
shares of Common Stock to a transferee of an Investor in accordance with the
terms of the Securities Purchase Agreement in connection with any sale of
Registrable Securities with respect to which an Investor has entered into a
contract for sale, and delivered a copy of the prospectus included as part of
the applicable Registration Statement, prior to the Investor's receipt of the
notice of a Grace Period and for which the Investor has not yet settled.

          4. Obligations of the Investors.

               a. At least five (5) Business Days prior to the first anticipated
filing date of a Registration Statement, the Company shall notify each Investor
in writing of the information


                                       9

<PAGE>

the Company requires from each such Investor. It shall be a condition precedent
to the obligations of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities and any shares of capital
stock of a particular Investor that such Investor shall furnish to the Company
in writing such information regarding itself, the Registrable Securities held by
it and the intended method of disposition of the Registrable Securities held by
it as shall be reasonably required to effect the effectiveness of the
registration of such Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably request.

               b. Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of any
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from such Registration Statement.

               c. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(g) or
the first sentence of 3(f), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to any Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3(g) or the
first sentence of 3(f) or receipt of notice that no supplement or amendment is
required. Notwithstanding anything to the contrary, the Company shall cause its
transfer agent to deliver unlegended shares of Common Stock to a transferee of
an Investor in accordance with the terms of the Securities Purchase Agreement in
connection with any sale of Registrable Securities pursuant to a Registration
Statement with respect to which an Investor has entered into a contract for sale
prior to the Investor's receipt of a notice from the Company of the happening of
any event of the kind described in Section 3(g) or the first sentence of 3(f)
and for which the Investor has not yet settled.

               d. Each Investor covenants and agrees that it will comply with
the prospectus delivery requirements of the 1933 Act as applicable to it in
connection with sales of Registrable Securities pursuant to the Registration
Statement.

          5. Expenses of Registration.

          All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, and
fees and disbursements of counsel for the Company shall be paid by the Company.
The Company shall also reimburse the Investors for the fees and disbursements of
Legal Counsel in connection with registration, filing or qualification pursuant
to Sections 2 and 3 of this Agreement which amount shall be limited to $10,000
in the aggregate irrespective of the number of registrations, filings or
qualifications made pursuant to this Agreement.


                                       10

<PAGE>

          6. Indemnification.

          In the event any Registrable Securities are included in a Registration
Statement under this Agreement:

               a. To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor, the directors,
officers, members, partners, employees, agents, representatives of, and each
Person, if any, who controls any Investor within the meaning of the 1933 Act or
the 1934 Act (each, an "INDEMNIFIED PERSON"), against any losses, claims,
damages, liabilities, judgments, fines, penalties, charges, costs, reasonable
attorneys' fees, amounts paid in settlement or expenses, joint or several,
(collectively, "CLAIMS") incurred in investigating, preparing or defending any
action, claim, suit, inquiry, proceeding, investigation or appeal taken from the
foregoing by or before any court or governmental, administrative or other
regulatory agency, body or the SEC, whether pending or threatened, whether or
not an indemnified party is or may be a party thereto ("INDEMNIFIED DAMAGES"),
to which any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon: (i) any untrue statement or alleged untrue statement of a
material fact in a Registration Statement or any post-effective amendment
thereto or in any filing made in connection with the qualification of the
offering under the securities or other "blue sky" laws of any jurisdiction in
which Registrable Securities are offered ("BLUE SKY FILING"), or the omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in the light of the circumstances under which
the statements therein were made, not misleading, (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement or (iv) any violation of this
Agreement (the matters in the foregoing clauses (i) through (iv) being,
collectively, "VIOLATIONS"). Subject to Section 6(c), the Company shall
reimburse the Indemnified Persons, promptly as such expenses are incurred and
are due and payable upon receipt of documentation reasonably satisfactory to the
Company of such expenses, for any legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim by an
Indemnified Person arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information timely furnished in writing to
the Company in accordance with the terms and conditions of this Agreement by
such Indemnified Person for such Indemnified Person expressly for use in
connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto; (ii) shall not be available to the
extent such Claim is based on a failure of the Investor to deliver or to cause
to be delivered the prospectus made available by the Company, including a
corrected prospectus, if such prospectus or corrected prospectus was timely made
available by the Company pursuant to Section 3(d); and (iii) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written


                                       11

<PAGE>

consent of the Company, which consent shall not be unreasonably withheld or
delayed. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall survive
the transfer of the Registrable Securities by the Investors pursuant to Section
9.

               b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, its directors, officers,
employees, agents, representatives of, and each Person, if any, who controls the
Company within the meaning of the 1933 Act or the 1934 Act (each, an
"INDEMNIFIED PARTY"), against any Claim or Indemnified Damages to which any of
them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar
as such Claim or Indemnified Damages arise out of or are based upon any
Violation, in each case to the extent, and only to the extent, that such
Violation occurs in reliance upon and in conformity with written information
timely furnished to the Company upon receipt of reasonable documentation
reasonably satisfactory to the Company of such expenses by such Investor
expressly for use in connection with such Registration Statement; and, subject
to Section 6(c), such Investor will reimburse any legal or other expenses
reasonably incurred by an Indemnified Party in connection with investigating or
defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to contribution
contained in Section 7 shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of such
Investor, which consent shall not be unreasonably withheld or delayed; provided,
further, however, that the Investor shall be liable under this Section 6(b) for
only that amount of a Claim or Indemnified Damages as does not exceed the
proceeds to such Investor as a result of the sale of Registrable Securities
pursuant to such Registration Statement. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
Indemnified Party and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section 6(b)
with respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.

               c. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a Claim,
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one counsel for such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential


                                       12

<PAGE>

differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. In the case of an
Indemnified Person, legal counsel referred to in the immediately preceding
sentence shall be selected by the Investors holding at least a majority in
interest of the Registrable Securities included in the Registration Statement to
which the Claim relates. The Indemnified Party or Indemnified Person shall
cooperate fully with the indemnifying party in connection with any negotiation
or defense of any such action or Claim by the indemnifying party and shall
furnish to the indemnifying party all information reasonably available to the
Indemnified Party or Indemnified Person which relates to such action or Claim.
The indemnifying party shall keep the Indemnified Party or Indemnified Person
reasonably apprised at all times as to the status of the defense or any
settlement negotiations with respect thereto. No indemnifying party shall be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent, provided, however, that the indemnifying party shall
not unreasonably withhold, delay or condition its consent. No indemnifying party
shall, without the prior written consent of the Indemnified Party or Indemnified
Person, consent to entry of any judgment or enter into any settlement or other
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party or Indemnified Person of a
release from all liability in respect to such Claim or litigation. Following
indemnification as provided for hereunder, the indemnifying party shall be
subrogated to all rights of the Indemnified Party or Indemnified Person with
respect to all third parties, firms or corporations relating to the matter for
which indemnification has been made. The failure to deliver written notice to
the indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action.

               d. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified Damages
are incurred.

               e. The indemnity agreements contained herein shall be in addition
to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.

          7. Contribution.

          To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no Person involved in the sale of Registrable Securities which Person is
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) in connection with such sale shall be entitled to contribution
from any Person involved in such sale of Registrable Securities who was not
guilty of fraudulent misrepresentation; and (ii) contribution by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities pursuant to
such Registration Statement.


                                       13

<PAGE>

          8. Reports Under the 1934 Act.

          With a view to making available to the Investors the benefits of Rule
144 promulgated under the 1933 Act or any other similar rule or regulation of
the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration ("RULE 144"), the Company agrees to
us its best efforts to:

               a. make and keep public information available, as those terms are
understood and defined in Rule 144;

               b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements and the filing of such reports
and other documents is required for the applicable provisions of Rule 144; and

               c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company, if true, that it has complied with the reporting requirements of Rule
144, the 1933 Act and the 1934 Act, and (ii) a copy of the most recent annual
report of the Company and such other reports and documents so filed by the
Company if such filings are not readily available in electronic format.

          9. Assignment of Registration Rights.

          The rights under this Agreement shall be assignable by the Investors
to any transferee of all or any portion of such Investor's Registrable
Securities if: (i) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment; (ii) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or assignee, and
(b) the securities with respect to which such registration rights are being
transferred or assigned; (iii) immediately following such transfer or assignment
the further disposition of such securities by the transferee or assignee is
restricted under the 1933 Act and applicable state securities laws; (iv) at or
before the time the Company receives the written notice contemplated by clause
(ii) of this sentence the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein; and (v) such
transfer shall have been made in accordance with the applicable requirements of
the Securities Purchase Agreement.

          10. Amendment of Registration Rights.

          Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the Required Holders. Any amendment or waiver effected in accordance with
this Section 10 shall be binding upon each Investor and the Company. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the Registrable Securities. No consideration shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of any of this Agreement unless the same consideration also is offered
to all of the parties to this Agreement.


                                       14

<PAGE>

          11. Holdback Arrangements.

          The Company and each Holder of Restricted Securities agrees, if
requested in writing by the sole or lead managing underwriter in connection with
an Excluded Offering, each Holder shall enter into a lock-up agreement,
reasonably satisfactory to the Required Holders (each a "LOCK-UP AGREEMENT"),
for such period of time reasonably requested by the sole or lead managing
underwriter not to exceed one hundred and eighty (180) days, beginning on the
effective date of the Registration Statement for such Excluded Offering (except
as part of such underwritten offering or pursuant to registrations on Forms S-4,
S-8 or S-3 (to the extent such form relates solely to a stock purchase or
dividend reinvestment plan)). Notwithstanding the foregoing, the Holders of
Restricted Securities shall not be obligated to enter into the Lock-Up Agreement
unless (A) all officers and directors of the Company and all Persons holding at
least 1% of the Company's voting securities and/or securities of the Company
convertible into, or exercisable or exchangeable for, voting securities of the
Company enter into identical agreements, with the agreement of the Holders
(including the proviso set forth in the immediately preceding sentence) being on
no more onerous terms than any other agreements entered into by any other Person
(the "OTHER LOCK-UP AGREEMENTS"), and (B) the Lock-Up Agreement is explicitly
conditioned on the Holder receiving the benefits of any release or modification
of any Other Lock-Up Agreement for any other Person and (ii) the Lock-Up
Agreement shall automatically terminate upon any release or termination of any
Other Lock-Up Agreement of any other Person.

          12. Miscellaneous.

               a. A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the such record owner of such Registrable Securities.

               b. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); (iii) upon receipt, when sent by electronic
mail (provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iv) one Business Day after
deposit with a nationally recognized overnight delivery service, in each case
properly addressed to the party to receive the same. The addresses and facsimile
numbers for such communications shall be:

     If to the Company:

          Lakes Entertainment, Inc.
          130 Cheshire Lane, Suite 101
          Minnetonka, MN 55305
          Telephone: (952) 449-9092


                                       15

<PAGE>

          Facsimile: (952) 449-9353
          Attention: Damon E. Schramm, Esq.
                     Timothy Cope

          with a copy to:

          Gray Plant Mooty
          80 So. 8th Street, Suite 500
          Minneapolis, MN 55402
          Telephone: (612) 632-3200
          Facsimile: (612) 632-3000
          Attention: Daniel R. Tenenbaum, Esq.

     If to Legal Counsel:

          Schulte Roth & Zabel LLP
          919 Third Avenue
          New York, New York 10022
          Telephone: (212) 756-2000
          Facsimile: (212) 593-5955
          Attention: Eleazer N. Klein, Esq.
                     Nancy Finkelstein, Esq.

If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers attached hereto, with copies to such Buyer's representatives as set forth
on the Schedule of Buyers, or to such other address and/or facsimile number
and/or to the attention of such other Person as the recipient party has
specified by written notice given to each other party five (5) days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a courier or overnight courier
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

               c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.

               d. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
The City of New York, Borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees


                                       16

<PAGE>

not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.

               e. This Agreement, the other Transaction Documents (as defined in
the Securities Purchase Agreement) and the instruments referenced herein and
therein constitute the entire agreement among the parties hereto with respect to
the subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement, the other Transaction Documents and the instruments
referenced herein and therein supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof.

               f. Subject to the requirements of Section 9, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of each of the parties hereto.

               g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

               h. This Agreement may be executed in identical counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.

               i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as any other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

               j. All consents and other determinations required to be made by
the Investors pursuant to this Agreement shall be made, unless otherwise
specified in this Agreement, by the Required Holders.


                                       17

<PAGE>

               k. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent and no rules of
strict construction will be applied against any party.

               l. This Agreement is intended for the benefit of the parties
hereto and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.

               m. The obligations of each Buyer hereunder are several and not
joint with the obligations of any other Buyer, and no provision of this
Agreement is intended to confer any obligations on any Buyer vis-a-vis any other
Buyer. Nothing contained herein, and no action taken by any Buyer pursuant
hereto, shall be deemed to constitute the Buyers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Buyers are in any way acting in concert or as a group with
respect to such obligations or the transactions contemplated herein.

                                   * * * * * *


                                       18

<PAGE>

          IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be
duly executed as of the date first written above.

                                        COMPANY:

                                        LAKES ENTERTAINMENT, INC.


                                        By: /S/ Timothy J. Cope
                                            ------------------------------------
                                        Name: Timothy J. Cope
                                        Title: President and Chief Financial
                                               Officer

<PAGE>

          IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

                                        BUYERS:

                                        PLKS HOLDINGS, LLC

                                        BY: PRENTICE CAPITAL MANAGEMENT, LP, AS
                                            MANAGER


                                        By: /S/ Michael Weiss
                                            ------------------------------------
                                        Name: Michael Weiss
                                        Title: Chief Financial Officer

<PAGE>

                               SCHEDULE OF BUYERS

<TABLE>
<CAPTION>
                               BUYER'S ADDRESS             BUYER'S REPRESENTATIVE'S ADDRESS
       BUYER                 AND FACSIMILE NUMBER                AND FACSIMILE NUMBER
       -----                 --------------------          --------------------------------
<S>                  <C>                                   <C>
PLKS HOLDINGS, LLC   c/o Prentice Capital Management, LP   Schulte Roth & Zabel LLP
                     623 Fifth Avenue                      919 Third Avenue
                     32nd Floor                            New York, New York 10022
                     New York, NY 10022                    Attention: Eleazer Klein, Esq.
                     Attention: Michael Zimmerman          Facsimile: (212) 593-5955
                     Charles Phillips                      Telephone: (212) 756-2376
                     Facsimile: 212-756-1464
</TABLE>

<PAGE>

                                                                       EXHIBIT A

     FORM OF WRITTEN CONFIRMATION OF EFFECTIVENESS OF REGISTRATION STATEMENT

Wells Fargo Bank, N.A.
Stock Transfer Department
161 North Concord Exchange
South St. Paul, MN 55075
Fax: (651) 450-4078
Attn: Cindy Gesme

          Re: Lakes Entertainment, Inc.

Ladies and Gentlemen:

     Reference is made to the requests by the persons and entities listed on the
enclosed Exhibit A ("SHAREHOLDERS") [Exhibit A will be a list of the selling
shareholders included in the registration statement referenced below] to
transfer up to ______________ shares (the "SHARES") of the common stock, $0.01
par value, of Lakes Entertainment, Inc. (the "COMPANY") issuable upon the
conversion of the Company's Series A Convertible Preferred Stock, $0.01 par
value, held by certain of the Shareholders, and up to ___________ shares of the
Company's common stock issuable upon exercise of outstanding common stock
purchase warrants (the "WARRANT SHARES") owned by certain of the Shareholders.

     We have examined the records of the Company and such other documents as we
deemed appropriate. As a registration statement on [Form S-1] is effective with
respect to transfers of the Shares and the Warrant Shares, and we have no
objection to transfers by the Shareholders of the Shares or the Warrant Shares,
and the certificates issued in connection with such transfers need not bear the
standard restrictive legend.

                                        Very truly yours,

                                        [ISSUER'S COUNSEL]


                                        By:
                                            ------------------------------------

CC: Damon E. Schramm, Esq.
    [LIST NAMES OF HOLDERS]


                                       1

<PAGE>

                                    EXHIBIT A

<TABLE>
<CAPTION>
NAME OF SHAREHOLDER   NO. OF SHARES   NO. OF WARRANT SHARES
- -------------------   -------------   ---------------------
<S>                   <C>             <C>

</TABLE>


                                       2

<PAGE>

                                                                       EXHIBIT B

                              SELLING STOCKHOLDERS

     The shares of Common Stock being offered by the selling stockholders are
issuable upon conversion of the preferred shares and upon exercise of the
warrants. For additional information regarding the issuance of those preferred
shares and warrants, see "Private Placement of Shares of Common Stock, Preferred
Shares and Warrants " above. We are registering the shares of Common Stock in
order to permit the selling stockholders to offer the shares for resale from
time to time. Except for the ownership of the Preferred Shares and the Warrants
issued pursuant to the Securities Purchase Agreement, the selling stockholders
have not had any material relationship with us within the past three years.

     The table below lists the selling stockholders and other information
regarding the beneficial ownership of the shares of Common Stock by each of the
selling stockholders. The second column lists the number of shares of Common
Stock beneficially owned by each selling stockholder, based on its ownership of
the preferred shares and warrants, as of ________, 200_, assuming conversion of
all preferred shares and exercise of the warrants held by the selling
stockholders on that date, without regard to any limitations on conversions or
exercise.

     The third column lists the shares of Common Stock being offered by this
prospectus by each selling Stockholder.

     In accordance with the terms of a registration rights agreement among the
Company and the selling stockholders, this prospectus generally covers the
resale of at least 130% of the sum of (i) the number of shares of Common Stock
issuable upon conversion of the preferred shares as of the trading day
immediately preceding the date the registration statement is initially filed
with the SEC and (ii) the number of shares of Common Stock issuable upon
exercise of the related warrants as of the trading day immediately preceding the
date the registration statement is initially filed with the SEC. Because the
conversion price of the preferred shares may be adjusted and the exercise price
of the warrants may be adjusted, the number of shares that will actually be
issued may be more or less than the number of shares being offered by this
prospectus. The fourth column assumes the sale of all of the shares offered by
the selling stockholders pursuant to this prospectus.

     Under the terms of the preferred shares and the warrants, a selling
stockholder may not convert the preferred shares or exercise the warrants to the
extent such conversion or exercise would cause such selling stockholder,
together with its affiliates, to beneficially own a number of shares of Common
Stock which would exceed 4.99% of our then outstanding shares of Common Stock
following such conversion or exercise, excluding for purposes of such
determination shares of Common Stock issuable upon conversion of the preferred
shares that have not been converted and upon exercise of the warrants that have
not been exercised. The number of shares in the second column does not reflect
this limitation. The selling stockholders may sell all, some or none of their
shares in this offering. See "Plan of Distribution."


                                       1

<PAGE>

<TABLE>
<CAPTION>
                                                       MAXIMUM NUMBER OF SHARES
                             NUMBER OF SHARES OWNED  TO BE SOLD PURSUANT TO THIS  NUMBER OF SHARES OWNED
NAME OF SELLING STOCKHOLDER     PRIOR TO OFFERING             PROSPECTUS              AFTER OFFERING
- ---------------------------  ----------------------  ---------------------------  ----------------------
<S>                          <C>                     <C>                          <C>
PLKS Holdings, LLC (1)
</TABLE>

(1)  Prentice Capital Management, L.P. has investment and voting power with
     respect to the securities held by PLKS Holdings, LLC. Mr. Michael Zimmerman
     controls Prentice Capital Management, L.P. Each of Prentice Capital
     Management and Mr. Zimmerman disclaim beneficial ownership of any of these
     securities.


                                       2

<PAGE>

                              PLAN OF DISTRIBUTION

     We are registering the shares of Common Stock issuable upon conversion of
the preferred shares and upon exercise of the warrants to permit the resale of
these shares of Common Stock by the holders of the preferred shares and warrants
from time to time after the date of this prospectus. We will not receive any of
the proceeds from the sale by the selling stockholders of the shares of Common
Stock. We will bear all fees and expenses incident to our obligation to register
the shares of Common Stock.

     The selling stockholders may sell all or a portion of the shares of Common
Stock beneficially owned by them and offered hereby from time to time directly
or through one or more underwriters, broker-dealers or agents. If the shares of
Common Stock are sold through underwriters or broker-dealers, the selling
stockholders will be responsible for underwriting discounts or commissions or
agent's commissions. The shares of Common Stock may be sold in one or more
transactions at fixed prices, at prevailing market prices at the time of the
sale, at varying prices determined at the time of sale, or at negotiated prices.
These sales may be effected in transactions, which may involve crosses or block
transactions,

     -    on any national securities exchange or quotation service on which the
          securities may be listed or quoted at the time of sale;

     -    in the over-the-counter market;

     -    in transactions otherwise than on these exchanges or systems or in the
          over-the-counter market;

     -    through the writing of options, whether such options are listed on an
          options exchange or otherwise;

     -    ordinary brokerage transactions and transactions in which the
          broker-dealer solicits purchasers;

     -    block trades in which the broker-dealer will attempt to sell the
          shares as agent but may position and resell a portion of the block as
          principal to facilitate the transaction;

     -    purchases by a broker-dealer as principal and resale by the
          broker-dealer for its account;

     -    an exchange distribution in accordance with the rules of the
          applicable exchange;

     -    privately negotiated transactions;

     -    short sales;

     -    sales pursuant to Rule 144;


                                       1

<PAGE>

     -    broker-dealers may agree with the selling securityholders to sell a
          specified number of such shares at a stipulated price per share;

     -    a combination of any such methods of sale; and

     -    any other method permitted pursuant to applicable law.

     If the selling stockholders effect such transactions by selling shares of
Common Stock to or through underwriters, broker-dealers or agents, such
underwriters, broker-dealers or agents may receive commissions in the form of
discounts, concessions or commissions from the selling stockholders or
commissions from purchasers of the shares of Common Stock for whom they may act
as agent or to whom they may sell as principal (which discounts, concessions or
commissions as to particular underwriters, broker-dealers or agents may be in
excess of those customary in the types of transactions involved). In connection
with sales of the shares of Common Stock or otherwise, the selling stockholders
may enter into hedging transactions with broker-dealers, which may in turn
engage in short sales of the shares of Common Stock in the course of hedging in
positions they assume. The selling stockholders may also sell shares of Common
Stock short and deliver shares of Common Stock covered by this prospectus to
close out short positions and to return borrowed shares in connection with such
short sales. The selling stockholders may also loan or pledge shares of Common
Stock to broker-dealers that in turn may sell such shares.

     The selling stockholders may pledge or grant a security interest in some or
all of the preferred shares and warrants or shares of Common Stock owned by them
and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell the shares of Common Stock from
time to time pursuant to this prospectus or any amendment to this prospectus
under Rule 424(b)(3) or other applicable provision of the Securities Act of
1933, as amended, amending, if necessary, the list of selling stockholders to
include the pledgee, transferee or other successors in interest as selling
stockholders under this prospectus. The selling stockholders also may transfer
and donate the shares of Common Stock in other circumstances in which case the
transferees, donees, pledgees or other successors in interest will be the
selling beneficial owners for purposes of this prospectus.

     The selling stockholders and any broker-dealer participating in the
distribution of the shares of Common Stock may be deemed to be "underwriters"
within the meaning of the Securities Act, and any commission paid, or any
discounts or concessions allowed to, any such broker-dealer may be deemed to be
underwriting commissions or discounts under the Securities Act. At the time a
particular offering of the shares of Common Stock is made, a prospectus
supplement, if required, will be distributed which will set forth the aggregate
amount of shares of Common Stock being offered and the terms of the offering,
including the name or names of any broker-dealers or agents, any discounts,
commissions and other terms constituting compensation from the selling
stockholders and any discounts, commissions or concessions allowed or reallowed
or paid to broker-dealers.

     Under the securities laws of some states, the shares of Common Stock may be
sold in such states only through registered or licensed brokers or dealers. In
addition, in some states the shares of Common Stock may not be sold unless such
shares have been registered or qualified


                                       2

<PAGE>

for sale in such state or an exemption from registration or qualification is
available and is complied with.

     There can be no assurance that any selling stockholder will sell any or all
of the shares of Common Stock registered pursuant to the shelf registration
statement, of which this prospectus forms a part.

     The selling stockholders and any other person participating in such
distribution will be subject to applicable provisions of the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder, including,
without limitation, Regulation M of the Exchange Act, which may limit the timing
of purchases and sales of any of the shares of Common Stock by the selling
stockholders and any other participating person. Regulation M may also restrict
the ability of any person engaged in the distribution of the shares of Common
Stock to engage in market-making activities with respect to the shares of Common
Stock. All of the foregoing may affect the marketability of the shares of Common
Stock and the ability of any person or entity to engage in market-making
activities with respect to the shares of Common Stock.

     We will pay all expenses of the registration of the shares of Common Stock
pursuant to the registration rights agreement; provided, however, that a selling
stockholder will pay all underwriting discounts and selling commissions, if any.
We will indemnify the selling stockholders against liabilities, including some
liabilities under the Securities Act, in accordance with the registration rights
agreements, or the selling stockholders will be entitled to contribution. We may
be indemnified by the selling stockholders against civil liabilities, including
liabilities under the Securities Act, that may arise from any written
information furnished to us by the selling stockholder specifically for use in
this prospectus, in accordance with the related registration rights agreement,
or we may be entitled to contribution.

     Once sold under the shelf registration statement, of which this prospectus
forms a part, the shares of Common Stock will be freely tradable in the hands of
persons other than our affiliates.


                                       3
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.4
<SEQUENCE>6
<FILENAME>c02665exv10w4.txt
<DESCRIPTION>COMMON STOCK PURCHASE WARRANT
<TEXT>
<PAGE>
                                                                    EXHIBIT 10.4

                                     WARRANT

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISEABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
BY THE SECURITIES.

                            LAKES ENTERTAINMENT, INC.

                        WARRANT TO PURCHASE COMMON STOCK

Warrant No.: PC- 1
Number of Shares of Common Stock: 4,457,751( the "INITIAL WARRANT SHARES")
Date of Issuance: February 15, 2006 ("ISSUANCE DATE")

          Lakes Entertainment, Inc., a Minnesota corporation (the "COMPANY"),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, PLKS HOLDINGS, LLC, the registered
holder hereof or its permitted assigns (the "HOLDER"), is entitled, subject to
the terms set forth below, to purchase from the Company, at the Exercise Price
(as defined below) then in effect, upon surrender of this Warrant to Purchase
Common Stock (including any Warrants to Purchase Common Stock issued in
exchange, transfer or replacement hereof, the "WARRANT"), at any time or times
on or after the Issuance Date, but not after 11:59 p.m., New York Time, on the
Expiration Date (as defined below), FOUR MILLION FOUR HUNDRED AND FIFTY SEVEN
THOUSAND SEVEN HUNDRED AND FIFTY ONE (4,457,751) fully paid nonassessable shares
of Common Stock (as defined below) (the "WARRANT SHARES"). Except as otherwise
defined herein, capitalized terms in this Warrant shall have the meanings set
forth in Section 18. This Warrant is one of the Warrants to purchase Common
Stock (the "SPA WARRANTS") issued pursuant to Section 1 of that certain
Securities Purchase Agreement, dated as of February 15, 2006 (the "SUBSCRIPTION
DATE"), by and among the Company and the investors (the "BUYERS") referred to
therein (the "SECURITIES PURCHASE AGREEMENT").

          1. EXERCISE OF WARRANT.

               (a) Mechanics of Exercise. Subject to the terms and conditions
hereof (including, without limitation, the limitations set forth in Section
1(f)), this Warrant may be
<PAGE>

exercised by the Holder on any day on or after the Issuance Date, in whole or in
part, by (i) delivery of a written notice, in the form attached hereto as
Exhibit A (the "EXERCISE NOTICE"), of the Holder's election to exercise this
Warrant and (ii) (A) payment to the Company of an amount equal to the applicable
Exercise Price multiplied by the number of Warrant Shares as to which this
Warrant is being exercised (the "AGGREGATE EXERCISE PRICE") in cash or wire
transfer of immediately available funds or (B) by notifying the Company that
this Warrant is being exercised pursuant to a Cashless Exercise (as defined in
Section 1(d)). The Holder shall not be required to deliver the original Warrant
in order to effect an exercise hereunder. Execution and delivery of the Exercise
Notice with respect to less than all of the Warrant Shares shall have the same
effect as cancellation of the original Warrant and issuance of a new Warrant
evidencing the right to purchase the remaining number of Warrant Shares. On or
before the second Business Day following the date on which the Company has
received each of the Exercise Notice and the Aggregate Exercise Price (or notice
of a Cashless Exercise) (the "EXERCISE DELIVERY DOCUMENTS" and the date the
Company received the Exercise Delivery Documents, the "EXERCISE DELIVERY
DOCUMENTS DATE"), the Company shall transmit by facsimile an acknowledgment of
confirmation of receipt of the Exercise Delivery Documents to the Holder and the
Company's transfer agent (the "TRANSFER AGENT"). On or before the third Business
Day following the date on which the Company has received all of the Exercise
Delivery Documents (the "SHARE DELIVERY DATE"), the Company shall (X) provided
that the Transfer Agent is participating in The Depository Trust Company ("DTC")
Fast Automated Securities Transfer Program, upon the request of the Holder,
credit such aggregate number of shares of Common Stock to which the Holder is
entitled pursuant to such exercise to the Holder's or its designee's balance
account with DTC through its Deposit Withdrawal Agent Commission system, or (Y)
if the Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and dispatch by overnight courier to the address as
specified in the Exercise Notice, a certificate, registered in the Company's
share register in the name of the Holder or its designee, for the number of
shares of Common Stock to which the Holder is entitled pursuant to such
exercise. Upon delivery to the Company of properly executed and completed
Exercise Delivery Documents, the Holder shall be deemed for all corporate
purposes to have become the holder of record of the Warrant Shares with respect
to which this Warrant has been exercised, irrespective of the date of delivery
of the certificates evidencing such Warrant Shares. If the original Warrant is
submitted in connection with any exercise pursuant to this Section 1(a) and the
number of Warrant Shares represented by this Warrant submitted for exercise is
greater than the number of Warrant Shares being acquired upon an exercise, then
the Company shall as soon as practicable and in no event later than five
Business Days after any exercise and at its own expense, issue a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under this
Warrant, less (i) the number of Warrant Shares purchased upon such exercise plus
(ii) any Warrant Shares tendered pursuant to the cashless exercise provisions of
Section 1(d). No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock to be
issued shall be rounded up to the nearest whole number. The Company shall pay
any and all taxes which may be payable with respect to the issuance and delivery
of Warrant Shares upon exercise of this Warrant. NOTWITHSTANDING ANY PROVISION
OF THIS WARRANT TO THE CONTRARY, (I) THE HOLDER PRO RATA ALLOCATION OF 500,000
WARRANT SHARES (AS ADJUSTED FOR STOCK SPLITS, STOCK DIVIDENDS, REVERSE STOCK
SPLITS, RECAPITALIZATIONS, RECLASSIFICATIONS AND SIMILAR EVENTS) SHALL NOT BE
EXERCISABLE UNLESS A WPT 75% COLLATERAL


                                      -2-

<PAGE>

EVENT HAS OCCURRED, (II) THE HOLDER PRO RATA ALLOCATION OF 500,000 WARRANT
SHARES (AS ADJUSTED FOR STOCK SPLITS, STOCK DIVIDENDS, REVERSE STOCK SPLITS,
RECAPITALIZATIONS, RECLASSIFICATIONS AND SIMILAR EVENTS) SHALL NOT BE
EXERCISABLE UNLESS A WPT 50% COLLATERAL EVENT HAS OCCURRED, (III) THE HOLDER PRO
RATA ALLOCATION OF 457,751 WARRANT SHARES (AS ADJUSTED FOR STOCK SPLITS, STOCK
DIVIDENDS, REVERSE STOCK SPLITS, RECAPITALIZATIONS, RECLASSIFICATIONS AND
SIMILAR EVENTS) SHALL NOT BE EXERCISABLE UNLESS A WPT 25% COLLATERAL EVENT HAS
OCCURRED, (IV) THE HOLDER PRO RATA ALLOCATION OF 500,000 WARRANT SHARES (AS
ADJUSTED FOR STOCK SPLITS, STOCK DIVIDENDS, REVERSE STOCK SPLITS,
RECAPITALIZATIONS, RECLASSIFICATIONS AND SIMILAR EVENTS) SHALL NOT BE
EXERCISABLE UNLESS A WPT LEGISLATION EVENT HAS OCCURRED AND (V) AS OF ANY GIVEN
DATE, ONLY SUCH NUMBER OF THE HOLDER PRO RATA ALLOCATION OF THE OTHER 2,500,000
WARRANT SHARES (AS ADJUSTED FOR STOCK SPLITS, STOCK DIVIDENDS, REVERSE STOCK
SPLITS, RECAPITALIZATIONS, RECLASSIFICATIONS AND SIMILAR EVENTS) EQUAL TO (X)
(I) (1) THE HOLDER PRO RATA ALLOCATION OF 2,500,000 (AS ADJUSTED FOR STOCK
SPLITS, STOCK DIVIDENDS, REVERSE STOCK SPLITS, RECAPITALIZATIONS,
RECLASSIFICATIONS AND SIMILAR EVENTS) LESS (2) ANY WARRANT SHARES RECEIVED UPON
EXERCISE OF THIS WARRANT PURSUANT TO THIS SECTION 1(A)(II) PRIOR TO SUCH DATE
(AS ADJUSTED FOR STOCK SPLITS, STOCK DIVIDENDS, REVERSE STOCK SPLITS,
RECAPITALIZATIONS, RECLASSIFICATIONS AND SIMILAR EVENTS) MULTIPLIED BY (II) THE
PRINCIPAL AMOUNT OF THE FINANCING FACILITY DRAWN BY THE COMPANY ON OR PRIOR TO
SUCH DATE, DIVIDED BY (Y) THE MAXIMUM PRINCIPAL AMOUNT OF THE FINANCING
FACILITY, WHICH MAY BE DRAWN BY THE COMPANY AS OF SUCH DATE OR ON OR PRIOR TO
SUCH DATE HAS BEEN DRAWN BY THE COMPANY (SUCH AMOUNT, THE "PRO RATA EXERCISABLE
AMOUNT") SHALL BE EXERCISABLE.

               (b) Exercise Price. For purposes of this Warrant, "EXERCISE
PRICE" means $7.50, subject to adjustment as provided herein.

               (c) Company's Failure to Timely Deliver Securities. If the
Company shall fail for any reason or for no reason to issue to the Holder within
three (3) Business Days of receipt of the Exercise Delivery Documents, a
certificate for the number of shares of Common Stock to which the Holder is
entitled and register such shares of Common Stock on the Company's share
register or to credit the Holder's balance account with DTC for such number of
shares of Common Stock to which the Holder is entitled upon the Holder's
exercise of this Warrant, and if on or after such Business Day the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Holder of shares of Common Stock
issuable upon such exercise that the Holder anticipated receiving from the
Company (a "BUY-IN"), then the Company shall, within three (3) Business Days
after the Holder's request and in the Holder's discretion, either (i) pay cash
to the Holder in an amount equal to the Holder's total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so purchased (the
"BUY-IN PRICE"), at which point the Company's obligation to deliver such
certificate (and to issue such shares of Common Stock) shall terminate, or (ii)
promptly honor its obligation to deliver to the Holder a certificate or
certificates representing such shares of Common Stock and pay cash to the Holder
in an amount equal to the excess (if any) of the Buy-In Price over the product
of (A) such number of shares of Common Stock, times (B) the Closing Bid Price on
the Exercise Delivery Documents Date.

               (d) Cashless Exercise. Notwithstanding anything contained herein
to the contrary, if a Registration Statement (as defined in the Registration
Rights Agreement) covering the Warrant Shares that are the subject of the
Exercise Notice (the "UNAVAILABLE WARRANT


                                      -3-

<PAGE>

SHARES") is not available for the resale of such Unavailable Warrant Shares, the
Holder may, in its sole discretion, exercise this Warrant in whole or in part
and, in lieu of making the cash payment otherwise contemplated to be made to the
Company upon such exercise in payment of the Aggregate Exercise Price, elect
instead to receive upon such exercise the "Net Number" of shares of Common Stock
determined according to the following formula (a "CASHLESS EXERCISE"):

               Net Number = (A x B) - (A x C)
                            -----------------
                                    B

               For purposes of the foregoing formula:

          A= the total number of Warrant Shares with respect to which this
          Warrant is then being exercised.

          B= the Closing Sale Price of the shares of Common Stock (as reported
          by Bloomberg) on the date immediately preceding the date of the
          Exercise Notice.

          C= the Exercise Price then in effect for the applicable Warrant Shares
          at the time of such exercise.

               (e) Disputes. In the case of a dispute as to the determination of
the Exercise Price or the arithmetic calculation of the Warrant Shares, the
Company shall promptly issue to the Holder the number of Warrant Shares that are
not disputed and resolve such dispute in accordance with Section 12.

               (f) (i) Limitations on Exercises; Beneficial Ownership. The
Company shall not effect the exercise of this Warrant, and the Holder shall not
have the right to exercise this Warrant, to the extent that after giving effect
to such exercise, such Person (together with such Person's affiliates) would
beneficially own (directly or indirectly through Warrant Shares or otherwise) in
excess of 4.99% (the "MAXIMUM PERCENTAGE") of the shares of Common Stock
outstanding immediately after giving effect to such exercise. For purposes of
the foregoing sentence, the aggregate number of shares of Common Stock
beneficially owned (directly or indirectly through Warrant Shares or otherwise)
by such Person and its affiliates shall include the number of shares of Common
Stock issuable upon exercise of this Warrant with respect to which the
determination of such sentence is being made, but shall exclude shares of Common
Stock which would be issuable upon (i) exercise of the remaining, unexercised
portion of this Warrant beneficially owned by such Person and its affiliates and
(ii) exercise or conversion of the unexercised or unconverted portion of any
other securities of the Company beneficially owned by such Person and its
affiliates (including, without limitation, any convertible notes or convertible
preferred stock or warrants) subject to a limitation on conversion or exercise
analogous to the limitation contained herein. Except as set forth in the
preceding sentence, for purposes of this subsection, beneficial ownership shall
be calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended. For purposes of this Warrant, in determining the number of
outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company's most recent


                                      -4-

<PAGE>

Form 10-K, Form 10-Q, Current Report on Form 8-K or other public filing with the
Securities and Exchange Commission, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company or the
Transfer Agent setting forth the number of shares of Common Stock outstanding.
For any reason at any time, upon the written or oral request of the Holder, the
Company shall within one Business Day confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding. In any case, the
number of outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company, including the
SPA Securities and the SPA Warrants, by the Holder and its affiliates since the
date as of which such number of outstanding shares of Common Stock was reported.
By written notice to the Company, the Holder may increase or decrease the
Maximum Percentage to any other percentage not in excess of 9.99% specified in
such notice; provided that (i) any such increase will not be effective until the
sixty-first (61st) day after such notice is delivered to the Company, and (ii)
any such increase or decrease will apply only to the Holder and not to any other
holder of SPA Warrants; provided, that any such notice shall be deemed an
agreement by such Holder to provide the Gaming Authority information, respond to
questions and consent to the investigation, all as set forth in Article 8(A) of
the Articles of Incorporation (as defined in the Securities Purchase Agreement).

               (ii) Principal Market Regulation. At all times, irrespective of
whether the Company is listed on the Principal Market, the Company shall not be
obligated to issue any shares of Common Stock upon exercise of this Warrant if
the issuance of such shares of Common Stock would exceed the aggregate number of
shares of Common Stock which the Company may issue upon conversion or exercise
or otherwise, as applicable, of the SPA Securities and SPA Warrants without
breaching the rules or regulations of the Principal Market as if the Company
were regulated by such rules or regulations (the "EXCHANGE CAP"), except that
such limitation shall not apply in the event that the Company (A) obtains the
approval of its stockholders as required by the applicable rules of the
Principal Market for issuances of Common Stock in excess of such amount or (B)
obtains a written opinion from outside counsel to the Company that such approval
is not required, which opinion shall be reasonably satisfactory to the Required
Holders. Until such approval or written opinion is obtained, no purchaser of the
SPA Warrants pursuant to the Securities Purchase Agreement (individually, a
"PURCHASER" and collectively, the "PURCHASERS") shall be issued in the
aggregate, upon conversion or exercise or otherwise, as applicable, of SPA
Securities or SPA Warrants, shares of Common Stock in an amount greater than the
product of the Exchange Cap multiplied by a fraction, the numerator of which is
the number of SPA Warrants issued to such Purchaser pursuant to the Securities
Purchase Agreement on the Initial Closing Date and the denominator of which is
the aggregate number of SPA Warrants issued to the Purchasers pursuant to the
Securities Purchase Agreement on the Initial Closing Date (with respect to each
Purchaser, the "EXCHANGE CAP ALLOCATION"). In the event that any Purchaser shall
sell or otherwise transfer any of such Purchaser's SPA Warrants, the transferee,
if a registered Holder of such SPA Warrants, shall be allocated a pro rata
portion of such Purchaser's Exchange Cap Allocation, and the restrictions of the
prior sentence shall apply to such transferee with respect to the portion of the
Exchange Cap Allocation allocated to such transferee. In the event that any
holder of SPA Warrants shall exercise all of such holder's SPA Warrants into a
number of shares of Common Stock which, in the aggregate, is less than such
Holder's Exchange Cap Allocation, then the difference between such Holder's
Exchange Cap Allocation and the number of shares of Common Stock actually issued
to such Holder shall be allocated to the respective Exchange Cap


                                      -5-

<PAGE>

Allocations of the remaining registered Holders of SPA Warrants on a pro rata
basis in proportion to the aggregate number of SPA Warrants then held by each
such Holder. To the extent required by the Principal Market, the provisions of
the Exchange Cap shall be modified to comply with the applicable rules and
regulations of the Principal Market, provided that any such changes shall not,
in the Holder's reasonable discretion, materially change the terms of the
transaction contemplated hereby.

          Notwithstanding anything in this Warrant to the contrary, the Company
shall be entitled to treat the registered Holder of this Warrant as such appears
in its records, as the owner of this Warrant for all purposes; provided that
such records are kept current using a reasonably satisfactory and customary
method intended for such purpose.

          2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
Exercise Price and the number of Warrant Shares shall be adjusted from time to
time as follows:

               (a) Adjustment upon Issuance of shares of Common Stock. If and
whenever on or after the Subscription Date (i) the Company issues or sells, or
in accordance with this Section 2 is deemed to have issued or sold, any shares
of Common Stock (including the issuance or sale of shares of Common Stock owned
or held by or for the account of the Company, but excluding shares of Common
Stock deemed to have been issued by the Company in connection with any Excluded
Securities for a consideration per share (the "NEW ISSUANCE PRICE") less than a
price (the "APPLICABLE PRICE") equal to the Exercise Price in effect immediately
prior to such issue or sale or deemed issuance or sale (the foregoing a
"DILUTIVE ISSUANCE"), then immediately after such Dilutive Issuance the Exercise
Price then in effect shall be reduced to an amount equal to the New Issuance
Price. Upon each such adjustment of the Exercise Price hereunder, the number of
Warrant Shares shall be adjusted to the number of shares of Common Stock equal
to (x) the product of (i) the Common Stock Deemed Outstanding immediately
following such adjustment and Dilutive Issuance and (ii) the number of Warrant
Shares acquirable upon exercise of this Warrant immediately prior to such
adjustment and Dilutive Issuance, divided by (y) the Common Stock Deemed
Outstanding immediately prior to such adjustment and Dilutive Issuance. For
purposes of determining the adjusted Exercise Price under this Section 2(a), the
following shall be applicable:

               (i) Issuance of Options. If the Company in any manner grants any
               Options and the lowest price per share for which one share of
               Common Stock is issuable upon the exercise of any such Option or
               upon conversion, exercise or exchange of any Convertible
               Securities issuable upon exercise of any such Option is less than
               the Applicable Price, then such share of Common Stock shall be
               deemed to be outstanding and to have been issued and sold by the
               Company at the time of the granting or sale of such Option for
               such price per share. For purposes of this Section 2(a)(i), the
               "lowest price per share for which one share of Common Stock is
               issuable upon exercise of such Options or upon conversion,
               exercise or exchange of such Convertible Securities" shall be
               equal to the sum of the lowest amounts of consideration (if any)
               received or receivable by the Company with respect to any one
               share of Common Stock upon the


                                      -6-

<PAGE>

               granting or sale of the Option, upon exercise of the Option and
               upon conversion, exercise or exchange of any Convertible Security
               issuable upon exercise of such Option. No further adjustment of
               the Exercise Price or number of Warrant Shares shall be made upon
               the actual issuance of such shares of Common Stock or of such
               Convertible Securities upon the exercise of such Options or upon
               the actual issuance of such shares of Common Stock upon
               conversion, exercise or exchange of such Convertible Securities.

               (ii) Issuance of Convertible Securities. If the Company in any
               manner issues or sells any Convertible Securities and the lowest
               price per share for which one share of Common Stock is issuable
               upon the conversion, exercise or exchange thereof is less than
               the Applicable Price, then such share of Common Stock shall be
               deemed to be outstanding and to have been issued and sold by the
               Company at the time of the issuance or sale of such Convertible
               Securities for such price per share. For the purposes of this
               Section 2(a)(ii), the "lowest price per share for which one share
               of Common Stock is issuable upon the conversion, exercise or
               exchange" shall be equal to the sum of the lowest amounts of
               consideration (if any) received or receivable by the Company with
               respect to one share of Common Stock upon the issuance or sale of
               the Convertible Security and upon conversion, exercise or
               exchange of such Convertible Security. No further adjustment of
               the Exercise Price or number of Warrant Shares shall be made upon
               the actual issuance of such shares of Common Stock upon
               conversion, exercise or exchange of such Convertible Securities,
               and if any such issue or sale of such Convertible Securities is
               made upon exercise of any Options for which adjustment of this
               Warrant has been or is to be made pursuant to other provisions of
               this Section 2(a), no further adjustment of the Exercise Price or
               number of Warrant Shares shall be made by reason of such issue or
               sale.

               (iii) Change in Option Price or Rate of Conversion. If the
               purchase price provided for in any Options, the additional
               consideration, if any, payable upon the issue, conversion,
               exercise or exchange of any Convertible Securities, or the rate
               at which any Convertible Securities are convertible into or
               exercisable or exchangeable for shares of Common Stock increases
               or decreases at any time, the Exercise Price and the number of
               Warrant Shares in effect at the time of such increase or decrease
               shall be adjusted to the Exercise Price and the number of Warrant
               Shares which would have been in effect at such time had such
               Options or Convertible Securities provided for such increased or
               decreased purchase price, additional consideration or increased
               or decreased conversion rate, as the case may be, at the time
               initially granted, issued or sold. For purposes of this Section
               2(a)(iii), if the terms of any Option or Convertible Security
               that was outstanding as of the date of issuance of this Warrant
               are increased or decreased in the manner described in the
               immediately preceding sentence, then such Option or Convertible
               Security and the


                                      -7-

<PAGE>

               shares of Common Stock deemed issuable upon exercise, conversion
               or exchange thereof shall be deemed to have been issued as of the
               date of such increase or decrease. No adjustment pursuant to this
               Section 2(a) shall be made if such adjustment would result in an
               increase of the Exercise Price then in effect or a decrease in
               the number of Warrant Shares.

               (iv) Calculation of Consideration Received. In case any Option is
               issued in connection with the issue or sale of other securities
               of the Company, together comprising one integrated transaction in
               which no specific consideration is allocated to such Options by
               the parties thereto, the Options will be deemed to have been
               issued for a consideration of $0.01. If any shares of Common
               Stock, Options or Convertible Securities are issued or sold or
               deemed to have been issued or sold for cash, the consideration
               received therefor will be deemed to be the net amount received by
               the Company therefor. If any shares of Common Stock, Options or
               Convertible Securities are issued or sold for a consideration
               other than cash, the amount of such consideration received by the
               Company will be the fair value of such consideration, except
               where such consideration consists of securities, in which case
               the amount of consideration received by the Company will be the
               Closing Sale Price of such security on the date of receipt. If
               any shares of Common Stock, Options or Convertible Securities are
               issued to the owners of the non-surviving entity in connection
               with any merger in which the Company is the surviving entity, the
               amount of consideration therefor will be deemed to be the fair
               value of such portion of the net assets and business of the
               non-surviving entity as is attributable to such shares of Common
               Stock, Options or Convertible Securities, as the case may be. The
               fair value of any consideration other than cash or securities
               will be determined in good faith by the Company's Board of
               Directors. If the Required Holders disagree with such fair value
               determination they shall, within ten (10) days of receipt of
               notice of such determination (the "VALUATION EVENT"), provide
               notice of such disagreement and the fair value of such
               consideration will be determined within five (5) Business Days
               after the tenth day following the Valuation Event by an
               independent, reputable appraiser jointly selected by the Company
               and the Required Holders. The determination of such appraiser
               shall be final and binding upon all parties absent manifest error
               and the fees and expenses of such appraiser shall be borne by the
               Company.

               (v) Record Date. If the Company takes a record of the holders of
               shares of Common Stock for the purpose of entitling them (A) to
               receive a dividend or other distribution payable in shares of
               Common Stock, Options or in Convertible Securities or (B) to
               subscribe for or purchase shares of Common Stock, Options or
               Convertible Securities, then such record date will be deemed to
               be the date of the issue or sale of the shares of Common Stock
               deemed to have been issued or sold upon the


                                      -8-

<PAGE>

               declaration of such dividend or the making of such other
               distribution or the date of the granting of such right of
               subscription or purchase, as the case may be.

               (b) Adjustment upon Subdivision or Combination of shares of
Common Stock. If the Company at any time on or after the Subscription Date
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect immediately prior to such
subdivision will be proportionately reduced and the number of Warrant Shares
will be proportionately increased. If the Company at any time on or after the
Subscription Date combines (by combination, reverse stock split or otherwise)
one or more classes of its outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect immediately prior to such
combination will be proportionately increased and the number of Warrant Shares
will be proportionately decreased. Any adjustment under this Section 2(b) shall
become effective at the close of business on the date the subdivision or
combination becomes effective.

               (c) Other Events. If any event occurs of the type contemplated by
the provisions of this Section 2 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the Exercise
Price and the number of Warrant Shares so as to protect the rights of the
Holder; provided that no such adjustment pursuant to this Section 2(c) will
increase the Exercise Price or decrease the number of Warrant Shares as
otherwise determined pursuant to this Section 2.

          3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or
make any dividend or other distribution of its assets (or rights to acquire its
assets) to holders of shares of Common Stock, by way of return of capital or
otherwise (including, without limitation, any distribution of cash, stock or
other securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (a "DISTRIBUTION"), at any time after the issuance of this
Warrant, then, in each such case:

               (a) any Exercise Price in effect immediately prior to the close
of business on the record date fixed for the determination of holders of shares
of Common Stock entitled to receive the Distribution shall be reduced, effective
as of the close of business on such record date, to a price determined by
multiplying such Exercise Price by a fraction of which (i) the numerator shall
be the Closing Bid Price of the shares of Common Stock on the Trading Day
immediately preceding such record date minus the value of the Distribution (as
determined in good faith by the Company's Board of Directors) applicable to one
share of Common Stock, and (ii) the denominator shall be the Closing Bid Price
of the shares of Common Stock on the Trading Day immediately preceding such
record date; and

               (b) the number of Warrant Shares shall be increased to a number
of shares equal to the number of shares of Common Stock obtainable immediately
prior to the close of business on the record date fixed for the determination of
holders of shares of Common Stock


                                      -9-

<PAGE>

entitled to receive the Distribution multiplied by the reciprocal of the
fraction set forth in the immediately preceding paragraph (a).

          4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

               (a) Purchase Rights. In addition to any adjustments pursuant to
Section 2 above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of shares of Common
Stock (the "PURCHASE RIGHTS"), then the Holder will be entitled to acquire, upon
the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which the Holder could have acquired if the Holder had held the number of shares
of Common Stock acquirable upon complete exercise of this Warrant (without
regard to any limitations on the exercise of this Warrant) immediately before
the date on which a record is taken for the grant, issuance or sale of such
Purchase Rights, or, if no such record is taken, the date as of which the record
holders of shares of Common Stock are to be determined for the grant, issue or
sale of such Purchase Rights.

               (b) Fundamental Transactions. If the Company enters into or is
party to a Fundamental Transaction, then the Holder shall have the right to
either (A) purchase and receive upon the basis and upon the terms and conditions
herein specified and in lieu of the Warrant Shares immediately theretofore
issuable upon exercise of this Warrant, such shares of stock, securities or
assets (including cash) as would have been issuable or payable with respect to
or in exchange for a number of Warrant Shares equal to the number of Warrant
Shares immediately theretofore issuable upon exercise of this Warrant, had such
Fundamental Transaction not taken place or (B) require the repurchase of this
Warrant for a purchase price, payable in cash within five (5) Trading Days after
such request, equal to the Black Scholes Value of the remaining unexercised
portion of this Warrant on the date of such request. The terms of any agreement
pursuant to which a Fundamental Transaction is effected shall include terms
requiring any such successor or surviving entity and Holder to comply with the
provisions of this Section 4(b). The provisions of this Section shall apply
similarly and equally to successive Fundamental Transactions and shall be
applied without regard to any limitations on the exercise of this Warrant.

          5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Articles of Incorporation, Bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, and will at all times in good faith carry out all the
provisions of this Warrant and take all action as may be required to protect the
rights of the Holder. Without limiting the generality of the foregoing, the
Company (i) shall not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, (ii) shall take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant, and
(iii) shall, so long as any of the SPA Warrants are outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the exercise of the
SPA Warrants, 130% of the number of shares of Common Stock as shall from


                                      -10-

<PAGE>

time to time be necessary to effect the exercise of the SPA Warrants then
outstanding (without regard to any limitations on exercise).

          6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise
specifically provided herein, the Holder, solely in such Person's capacity as a
holder of this Warrant, shall not be entitled to vote or receive dividends or be
deemed the holder of share capital of the Company for any purpose, nor shall
anything contained in this Warrant be construed to confer upon the Holder,
solely in such Person's capacity as the Holder of this Warrant, any of the
rights of a shareholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance to the Holder of the Warrant Shares which such
Person is then entitled to receive upon the due exercise of this Warrant. In
addition, nothing contained in this Warrant shall be construed as imposing any
liabilities on the Holder to purchase any securities (upon exercise of this
Warrant or otherwise) or as a shareholder of the Company, whether such
liabilities are asserted by the Company or by creditors of the Company.
Notwithstanding this Section 6, the Company shall provide the Holder with copies
of the same notices and other information given to the shareholders of the
Company generally, contemporaneously with the giving thereof to the
shareholders.

          7. REISSUANCE OF WARRANTS.

               (a) Transfer of Warrant. If this Warrant is to be transferred,
the Holder shall surrender this Warrant to the Company, whereupon the Company
will forthwith issue and deliver upon the order of the Holder a new Warrant (in
accordance with Section 7(d)), registered as the Holder may request,
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less then the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred.

               (b) Lost, Stolen or Mutilated Warrant. Upon receipt by the
Company of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to the Company in
customary form and, in the case of mutilation, upon surrender and cancellation
of this Warrant, the Company shall execute and deliver to the Holder a new
Warrant (in accordance with Section 7(d)) representing the right to purchase the
Warrant Shares then underlying this Warrant.

               (c) Exchangeable for Multiple Warrants. Subject to compliance
with applicable state and/or federal securities laws, this Warrant is
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new Warrant or Warrants (in accordance with Section 7(d))
representing in the aggregate the right to purchase the number of Warrant Shares
then underlying this Warrant, and each such new Warrant will represent the right
to purchase such portion of such Warrant Shares as is designated by the Holder
at the time of such surrender; provided, however, that no Warrants for
fractional shares of Common Stock shall be given.


                                      -11-

<PAGE>

               (d) Issuance of New Warrants. Whenever the Company is required to
issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i)
shall be of like tenor with this Warrant, (ii) shall represent, as indicated on
the face of such new Warrant, the right to purchase the Warrant Shares then
underlying this Warrant (or in the case of a new Warrant being issued pursuant
to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder
which, when added to the number of shares of Common Stock underlying the other
new Warrants issued in connection with such issuance, does not exceed the number
of Warrant Shares then underlying this Warrant), (iii) shall have an issuance
date, as indicated on the face of such new Warrant which is the same as the
Issuance Date, and (iv) shall have the same rights and conditions as this
Warrant.

          8. NOTICES. Whenever notice is required to be given under this
Warrant, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Securities Purchase Agreement. The Company
shall provide the Holder with prompt written notice of all actions taken
pursuant to this Warrant, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the
foregoing, the Company will give written notice to the Holder (i) as soon as
practicable upon any adjustment of the Exercise Price, setting forth in
reasonable detail, and certifying, the calculation of such adjustment and (ii)
at least ten days prior to the date on which the Company closes its books or
takes a record (A) with respect to any dividend or distribution upon the shares
of Common Stock, (B) with respect to any grants, issuances or sales of any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property to holders of shares of Common Stock or (C) for
determining rights to vote with respect to any Fundamental Transaction,
dissolution or liquidation, provided in each case that such information shall be
made known to the public prior to or in conjunction with such notice being
provided to the Holder.

          9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the
provisions of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Required
Holders; provided that no such action may increase the exercise price of any SPA
Warrant or decrease the number of shares or class of stock obtainable upon
exercise of any SPA Warrant without the written consent of the Holder. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the SPA Warrants then outstanding.

          10. SEVERABILITY. If any provision of this Warrant or the application
thereof becomes or is declared by a court of competent jurisdiction to be
illegal, void or unenforceable, the remainder of the terms of this Warrant will
continue in full force and effect.

          11. GOVERNING LAW. This Warrant shall be governed by and construed and
enforced in accordance with, and all questions concerning the construction,
validity, interpretation and performance of this Warrant shall be governed by,
the internal laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York.

          12. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly


                                      -12-

<PAGE>

drafted by the Company and all the Buyers and shall not be construed against any
person as the drafter hereof. The headings of this Warrant are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Warrant.

          13. DISPUTE RESOLUTION. In the case of a dispute as to the
determination of the Exercise Price or the arithmetic calculation of the Warrant
Shares, the Company shall submit the disputed determinations or arithmetic
calculations via facsimile within two Business Days of receipt of the Exercise
Notice giving rise to such dispute, as the case may be, to the Holder. If the
Holder and the Company are unable to agree upon such determination or
calculation of the Exercise Price or the Warrant Shares within five Business
Days of such disputed determination or arithmetic calculation being submitted to
the Holder, then the Company shall, within five Business Days submit via
facsimile (a) the disputed determination of the Exercise Price to an
independent, reputable investment bank selected by the Company and approved by
the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to
the Company's independent, outside accountant. The Company shall cause at its
expense the investment bank or the accountant, as the case may be, to perform
the determinations or calculations and notify the Company and the Holder of the
results no later than ten Business Days from the time it receives the disputed
determinations or calculations. Such investment bank's or accountant's
determination or calculation, as the case may be, shall be binding upon all
parties absent demonstrable error.

          14. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The
remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and the Securities Purchase
Agreement, at law or in equity (including a decree of specific performance
and/or other injunctive relief), and nothing herein shall limit the right of the
Holder right to pursue actual damages for any failure by the Company to comply
with the terms of this Warrant. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach of this
Warrant, the holder of this Warrant shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.

          15. TRANSFER. Subject to compliance with applicable state and/or
federal securities laws, this Warrant may be offered for sale, sold, transferred
or assigned without the consent of the Company, except as may otherwise be
required by Section 2(f) of the Securities Purchase Agreement.

          16. DISQUALIFYING CLAIM; CANCELLATION.

               (a) The Company shall take no action without reasonable
justification, either alone or together with any regulatory agency, that would
impair the Holder's right to lawfully hold this Warrant, Warrant Shares or any
other rights in connection with the Company. In the event the Company or any of
its officers, agents, employees or representatives are notified or obtain
knowledge from any source, including but not limited to a Gaming Authority (as
defined in the Articles of Incorporation), that the Holder is or may be in
danger of being considered to be a Disqualified Holder (as defined in the
Articles of Incorporation) or the


                                      -13-

<PAGE>

equivalent under any agreement or provision of law, or for any other reason it
is claimed by anyone for any reason that the Holder's Warrants or Warrant Shares
in the Company (or any warrants or other rights related to the issuance,
acquisition or holding of shares of capital stock in the Company) cannot be
issued to or held by the Holder, or will not be issued to or permitted to be
held by the Holder, based on any claim related to the Holder's suitability for
holding an interest in the Company under applicable gaming laws (collectively
and separately a "DISQUALIFICATION CLAIM"), the Holder shall be immediately
notified by the Company in writing of the Disqualification Claim and provided
with all information available to the Company and any of its officers, agents,
employees or representatives (including but not limited to information acquired
by Company's attorneys) relating to the Disqualification Claim together with any
documents related thereto.

               (b) Upon obtaining knowledge of the Disqualification Claim, and
in addition to its duty to disclose its information regarding such claim to the
Holder, the Company shall immediately investigate and conduct reasonable due
diligence in good faith with respect to such Disqualification Claim and share
with the Holder all information so obtained. The Company shall not assert any
attorney-client or work product privilege in connection with such disclosure.

               (c) The Company shall fully cooperate with the Holder in
presenting to any Gaming Authority or other governmental entity (including a
tribal governmental entity) that may be considering the Disqualification Claim
all evidence or other information available to it that would in any way support
the Holder's contention that the Disqualification Claim was without merit or
that requiring divesture of or a prohibition on the Holder's participation in
the Company, directly or indirectly, was unwarranted, or that would reasonably
assist the Holder in any other way in supporting its contention.

               (d) So long as such Holder challenges the Disqualification Claim
in a proceeding conducted in accordance with applicable law ("PROCEEDING"), and
until such challenge is finally resolved, including the exhaustion of all
appeals (including the availability of any extraordinary writs), and if a
divestiture of the Warrants or Warrant Shares in question is required during the
pendency of the Proceeding, the Company shall be the only party acquiring the
Warrants or Warrant Shares of the Disqualified Holder (the "HELD SECURITIES")
and shall continue holding such Warrant and Warrant Shares pending the final
outcome of the Proceeding. The Held Securities shall not be sold, transferred,
assigned, encumbered or diluted in any way.

               (e) In the event it is finally determined in the Proceeding that
the Holder is required to divest himself or itself of such Warrants or Warrant
Shares, the Company shall effect a Cancellation in accordance with Section 16(f)
below. In the event it is finally determined in the Proceeding that such Holder
should not have been required to divest himself or itself of such Warrant or
Warrant Shares, the Company shall cause the Company to return the Held
Securities to such Holder. Any holding or transfer of the Held Securities shall
be subject to applicable laws, provided that the Company shall fully cooperate
with a Holder, if so entitled, in recovering the Held Securities.

               (f) Cancellation. If the Company is required by a Gaming
Authority to cause the Holder to divest itself of the Warrant and/or Warrant
Shares, the Company shall deliver


                                      -14-

<PAGE>

a notice to each Holder (a "CANCELLATION NOTICE") with such order of such Gaming
Authority certifying that the terms of this Section 16(f) have been met. No
cancellation pursuant to this Section 16(f) shall be valid unless the Holder is
entitled to receive upon a cancellation of this Warrant, SPA Securities
exercisable into shares of Common Stock equal to the Warrant Shares exercisable
hereunder immediately prior to such event; provided, however, that nothing in
this Warrant shall be deemed to waive or amend any term in the Articles of
Incorporation. Following the Holder's receipt of a Cancellation Notice, this
Warrant shall automatically be cancelled and become null and void (a
"CANCELLATION"). Notwithstanding anything herein to the contrary, the Company
shall not be permitted to deliver a Cancellation Notice to a holder of SPA
Warrants without delivering such a notice, in proportionate amounts, to all
other holders of SPA Warrants.

          17. REDEMPTION OPTION UPON PUT DATE.

               (a) In addition to all other rights of the Holder contained
herein, at any time after Registration Rights Default occurs and is continuing
(as defined in the Registration Rights Agreement) (a "PUT DATE"), the Holder
shall have the right, at such Holder's option, to require the Company to redeem
all or a portion of the Holder's Warrants (a "REDEMPTION AT OPTION OF HOLDER
REQUEST") at a price per Warrant Share equal to (x) the arithmetic average of
the Closing Sale Price of the Common Stock during the ten (10) consecutive
Trading Days prior to such Redemption at Option of Holder Request less (y) the
Exercise Price (the "REDEMPTION AT OPTION OF HOLDER PRICE").

               (b) Mechanics of Redemption at Option of Buyer. At any time after
the Put Date, the Holder of this Warrant may require the Company to redeem up to
all of such Holder's Warrant, in whole or in part, by delivering written notice
thereof via facsimile and overnight courier ("NOTICE OF REDEMPTION AT OPTION OF
HOLDER") to the Company, which Notice of Redemption at Option of Holder shall
indicate the number of Warrant Shares that such Holder is electing to redeem.

               (c) Payment of Redemption at Option of Holder Price. Upon the
Company's receipt of a Notice(s) of Redemption at Option of Buyer from the
Holder, the Company shall within three (3) Business Days of such receipt notify
each holder of SPA Warrants by facsimile of the Company's receipt of such
notice(s). The Company shall deliver on the seventh (7th) Business Day after the
Company's receipt of the first Notice of Redemption at Option of Holder (such
date, the "REDEMPTION AT OPTION OF HOLDER DATE")the applicable Redemption at
Option of Holder Price to all holders of SPA Warrants that deliver a Notice of
Redemption at Option of Holder prior to the Redemption at Option of Holder Date.
If the Company is unable to redeem all of the Warrants submitted for redemption,
the Company shall (i) redeem a pro rata amount from each holder of SPA Warrants
on the Redemption at Option of Holder Date based on the number of Warrant Shares
of the Warrants submitted for redemption by such holder of SPA Warrants relative
to the total number of Warrant Shares of the Warrants submitted for redemption
by all holders of SPA Warrants prior to the Redemption at Option of Holder Date
and (ii) in addition to any remedy such holder of SPA Warrants may have under
this Warrant and the Securities Purchase Agreement, pay to each holder of SPA
Warrants interest at the rate of 1.5% per month (prorated for partial months) in
respect of each unredeemed Warrant until paid in full. The Holder and Company
agree that in the event of the Company's redemption of any Warrant under this
Section 17, the Holder's damages would be uncertain and difficult to


                                      -15-

<PAGE>

estimate because of the parties' inability to predict future interest rates and
the uncertainty of the availability of a suitable substitute investment
opportunity for the Holder. Accordingly, any redemption premium due under this
Section 17 is intended by the parties to be, and shall be deemed, a reasonable
estimate of the Holder's actual loss of its investment opportunity and not as a
penalty.

               (d) Void Redemption. In the event that the Company does not pay
the full Redemption at Option of Holder Price within the time period set forth
in Section 17(c), at any time thereafter and until the Company pays such unpaid
applicable Redemption at Option of Holder Price in full, the Holder shall have
the option to, in lieu of redemption, require the Company to promptly return to
the Holder any or all of the Warrant Shares that were submitted for redemption
by the Holder under this Section 17 and for which the applicable Redemption at
Option of Holder Price (together with any interest thereon) has not been paid,
by sending written notice thereof to the Company via facsimile (the "VOID
OPTIONAL REDEMPTION NOTICE"). Upon the Company's receipt of such Void Optional
Redemption Notice, (i) the Notice of Redemption at Option of Holder shall be
null and void with respect to those Warrant Shares subject to the Void Optional
Redemption Notice, (ii) the Company shall immediately return any Warrant Shares
subject to the Void Optional Redemption Notice, and (iii) the Exercise Price of
such returned Warrant Shares shall be adjusted to the lesser of (A) the
Conversion Price as in effect on the date on which the Void Optional Redemption
Notice is delivered to the Company and (B) the arithmetic average of the Closing
Sale Prices of the Common Stock during the ten (10) consecutive Trading Days
prior to the date on which the Void Optional Redemption Notice is delivered to
the Company.

               (e) Miscellaneous. The Holder's delivery of a Void Optional
Redemption Notice and exercise of its rights following such notice shall not
effect the Company's obligations to make any payments which have accrued prior
to the date of such notice. In the event of a redemption pursuant to this
Section 17 of less than all of the Warrant Shares represented by a particular
Warrant, the Company shall promptly cause to be issued and delivered to the
Holder of such Warrant a new Warrant representing the right to acquire the
remaining Warrant Shares which have not been redeemed, if necessary.

          18. CERTAIN DEFINITIONS. For purposes of this Warrant, the following
terms shall have the following meanings:

               (a) "APPROVED STOCK PLAN" means any employee benefit plan which
has been approved by the Board of Directors of the Company, pursuant to which
the Company's securities may be issued to any employee, officer, director or
consultant for services provided to the Company.

               (b) "BLACK SCHOLES VALUE" means the value of this Warrant based
on the Black and Scholes Option Pricing Model obtained from the "OV" function on
Bloomberg determined as of the day immediately following the public announcement
of the applicable Fundamental Transaction and reflecting (i) a risk-free
interest rate corresponding to the U.S. Treasury rate for a period equal to the
remaining term of this Warrant as of such date of request and (ii) an expected
volatility equal to the greater of 60% and the 100 day volatility obtained from
the HVT function on Bloomberg.


                                      -16-

<PAGE>

               (c) "BLOOMBERG" means Bloomberg Financial Markets.

               (d) "BUSINESS DAY" means any day other than Saturday, Sunday or
other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.

               (e) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for any
security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 12. All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.

               (f) "COMMON STOCK" means (i) the Company's shares of Common
Stock, $0.01 par value per share, and (ii) any share capital into which such
Common Stock shall have been changed or any share capital resulting from a
reclassification of such Common Stock.

               (g) "COMMON STOCK DEEMED OUTSTANDING" means, at any given time,
the number of shares of Common Stock actually outstanding at such time, plus the
number of shares of Common Stock deemed to be outstanding pursuant to Sections
2(a)(i) and 2(a)(ii) hereof regardless of whether the Options or Convertible
Securities are actually exercisable at such time, but excluding any shares of
Common Stock owned or held by or for the account of the Company or issuable upon
conversion and exercise, as applicable, of the SPA Securities and the Warrants.

               (h) "CONVERTIBLE SECURITIES" means any stock or securities (other
than Options) directly or indirectly convertible into or exercisable or
exchangeable for shares of Common Stock.


                                      -17-

<PAGE>

               (i) "ELIGIBLE MARKET" means the Principal Market, the American
Stock Exchange, The New York Stock Exchange, Inc., the Nasdaq Capital Market or
the NASD OTC Bulletin Board.

               (j) "EXCLUDED SECURITIES" means any Common Stock issued or
issuable: (i) in connection with any Approved Stock Plan; (ii) upon exercise of
the SPA Warrants; (iii) pursuant to a bona fide firm commitment underwritten
public offering with a nationally recognized underwriter which generates gross
proceeds to the Company in excess of either (A) $20,000,000 (other than an
"at-the-market offering" as defined in Rule 415(a)(4) under the 1933 Act and
"equity lines") and at a purchase price of no less than $6.00 per share (as
adjusted for stock splits, stock dividends, reverse stock splits,
recapitalizations, reclassifications and similar events) or (B) $30,000,000
(other than an "at-the-market offering" as defined in Rule 415(a)(4) under the
1933 Act and "equity lines") (each, an "EXCLUDED OFFERING"); (iv) in connection
with any acquisition by the Company, whether through an acquisition of stock or
a merger of any business, assets or technologies the primary purpose of which is
not to raise equity capital in an amount not to exceed, in the aggregate 20% of
the outstanding shares of Common Stock in any calendar year; and (vi) upon
conversion of any Options or Convertible Securities which are outstanding on the
day immediately preceding the Issuance Date, provided that the terms of such
Options or Convertible Securities are not amended, modified or changed on or
after the Issuance Date.

               (k) "EXPIRATION DATE" means the date seven years after the
Issuance Date or, if such date falls on a day other than a Business Day or on
which trading does not take place on the Principal Market (a "HOLIDAY"), the
next date that is not a Holiday.

               (l) "FINANCING AGREEMENT" shall have the meaning as set forth in
the Securities Purchase Agreement.

               (m) "FINANCING FACILITY" shall have the meaning as set forth in
the Securities Purchase Agreement.

               (n) "FUNDAMENTAL TRANSACTION" means that the Company shall,
directly or indirectly, in one or more related transactions, (i) consolidate or
merge with or into (whether or not the Company is the surviving corporation)
another Person, or (ii) sell, assign, transfer, convey or otherwise dispose of
all or substantially all of the properties or assets of the Company to another
Person, or (iii) allow another Person to make a purchase, tender or exchange
offer that is accepted by the holders of more than the 50% of either the
outstanding shares of Common Stock (not including any shares of Common Stock
held by the Person or Persons making or party to, or associated or affiliated
with the Persons making or party to, such purchase, tender or exchange offer),
or (iv) consummate a stock purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with another Person whereby such other Person acquires
more than the 50% of the outstanding shares of Common Stock (not including any
shares of Common Stock held by the other Person or other Persons making or party
to, or associated or affiliated with the other Persons making or party to, such
stock purchase agreement or other business combination), or (v) reorganize,
recapitalize or reclassify its Common Stock.


                                      -18-

<PAGE>

               (o) "GAMING AUTHORITY" means any of the "Gaming Authorities" as
such term is defined in the Articles of Incorporation of the Company in effect
as of the Subscription Date.

               (p) "HOLDER PRO RATA ALLOCATION" means with respect to any number
of Warrant Shares, (x) such number of Warrant Shares multiplied by (y) (i) the
number of Initial Warrant Shares divided by (ii) 4,457,751.

               (q) "OPTIONS" means any rights, warrants or options to subscribe
for or purchase shares of Common Stock or Convertible Securities.

               (r) "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.

               (s) "PRINCIPAL MARKET" means the NASDAQ National Market.

               (t) "REGISTRATION RIGHTS AGREEMENT" means that certain
registration rights agreement by and among the Company and the Buyers.

               (u) "REQUIRED HOLDERS" means the holders of the SPA Warrants
representing at least a majority of shares of Common Stock underlying the SPA
Warrants then outstanding.

               (v) "SPA SECURITIES" means the Preferred Stock issued pursuant to
the Securities Purchase Agreement.

               (w) "TRADING DAY" means any day on which the Common Stock are
traded on the Principal Market, or, if the Principal Market is not the principal
trading market for the Common Stock, then on the principal securities exchange
or securities market on which the Common Stock are then traded; provided that
"Trading Day" shall not include any day on which the Common Stock are scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock are suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00:00 p.m., New York Time).

               (x) "WPT LEGISLATION EVENT" means the concurrent existence of the
following conditions: (i) any applicable federal, state, local governmental, or
tribal law or regulation (including laws or regulations of any of their
respective subdivisions or agencies) shall have been enacted that could
reasonably be expected to materially adversely affect any Loan Party (as defined
in the Financing Facility) or World Poker (as defined in the Financing
Facility), and (ii) the value of the Collateral (as defined in the Financing
Agreement) shall be less than 100% of the principal amount of the Loan (as
defined in the Securities Purchase Agreement) outstanding under the Financing
Agreement.


                                      -19-

<PAGE>

               (y) "WPT 25% COLLATERAL EVENT" means such date whereby the value
of the Collateral (as defined in the Financing Agreement) is less than or equal
to 25% of the principal amount of the Loan outstanding under the Financing
Agreement.

               (z) "WPT 50% COLLATERAL EVENT" means such date whereby the value
of the Collateral (as defined in the Financing Agreement) is less than or equal
to 50% of the principal amount of the Loan outstanding under the Financing
Agreement.

               (aa) "WPT 75% COLLATERAL EVENT" means such date whereby the value
of the Collateral (as defined in the Financing Agreement) is less than or equal
to 75% of the principal amount of the Loan outstanding under the Financing
Agreement.

                            [SIGNATURE PAGE FOLLOWS]


                                      -20-

<PAGE>

     IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common
Stock to be duly executed as of the Issuance Date set out above.

                                        LAKES ENTERTAINMENT, INC.


                                        By: /S/ Timothy J. Cope
                                            ------------------------------------
                                        Name: Timothy J. Cope
                                        Title: President and
                                               Chief Financial Officer

<PAGE>

                                                                       EXHIBIT A

                                 EXERCISE NOTICE

            TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
                        WARRANT TO PURCHASE COMMON STOCK

                            LAKES ENTERTAINMENT, INC.

     The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("WARRANT SHARES") of Lakes
Entertainment, Inc., a Minnesota corporation (the "COMPANY"), evidenced by the
attached Warrant to purchase Common Stock (the "WARRANT"). Capitalized terms
used herein and not otherwise defined shall have the respective meanings set
forth in the Warrant.

     1. Form of Exercise Price. The Holder intends that payment of the Exercise
Price shall be made as:

          __________ a "Cash Exercise" with respect to _________________ Warrant
               Shares; and/or

          __________ a "Cashless Exercise" with respect to _______________
               Warrant Shares.

     2. Payment of Exercise Price. In the event that the holder has elected a
Cash Exercise with respect to some or all of the Warrant Shares to be issued
pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the Warrant.

     3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.

Date: _______________, ______

- ---------------------------------
Name of Registered Holder


By:
    ---------------------------------
Name:
      -------------------------------
Title:
       ------------------------------

- -------------------------------------
....Tax ID or SSN of Registered Holder

- -------------------------------------

- -------------------------------------
Street Address of Registered Holder

<PAGE>

                                 ACKNOWLEDGMENT

     The Company hereby acknowledges this Exercise Notice and hereby directs
WELLS FARGO BANK, N.A. to issue the below indicated number of shares of Common
Stock of the Company to the recipient listed below and deliver the certificate
representing such shares to the address listed below in accordance with the
Transfer Agent Instructions dated February __, 2006 from the Company and
acknowledged and agreed to by WELLS FARGO BANK, N.A.

<TABLE>
<CAPTION>
NAME, ADDRESS AND SOCIAL SECURITY OR TAX ID NO.   NO. OF SHARES
- -----------------------------------------------   -------------
<S>                                               <C>

- -------------------------------------             -------------
Name of Recipient

- -------------------------------------
Street Address

- -------------------------------------
City, State, Zip Code

Tax ID or SSN:
               ----------------------
</TABLE>

                                        LAKES ENTERTAINMENT, INC.


                                        By:
                                            ------------------------------------
                                        Name:
                                              ----------------------------------
                                        Title:
                                               ---------------------------------

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>7
<FILENAME>c02665exv10w5.txt
<DESCRIPTION>SECURITY AGREEMENT
<TEXT>
<PAGE>
                                                                    EXHIBIT 10.5

                                                                  EXECUTION COPY

          SECURITY AGREEMENT, dated as of February 15, 2006, made by each of the
Grantors referred to below in favor of PLKS Funding, LLC, a Delaware limited
liability company, in its capacity as agent for the Lenders (as such term is
defined below) party to the Financing Agreement referred to below (in such
capacity, together with its successors and permitted assigns, the "Agent").

                                   WITNESSETH:

          WHEREAS, Lakes Entertainment, Inc., a Minnesota corporation (the
"Parent"), the subsidiaries of the Parent listed as a "Borrower" on the
signature pages thereto (together with the Parent, each a "Borrower" and
collectively, the "Borrowers"), each other subsidiary of the Parent that becomes
a "Guarantor" in accordance with the terms thereof (collectively, the
"Guarantors" and, together with the Borrowers, each a "Grantor" and collectively
the "Grantors"), the lenders from time to time party thereto (each a "Lender"
and collectively, the "Lenders"), and the Agent are parties to a Financing
Agreement, dated as of the date hereof (such agreement, as amended, restated,
supplemented or otherwise modified from time to time, including any replacement
agreement therefor, being hereinafter referred to as the "Financing Agreement");

          WHEREAS, pursuant to the Financing Agreement, the Lenders have agreed
to make certain loans (each a "Loan" and collectively, the "Loans"), to the
Borrowers in an aggregate principal amount at any one time outstanding not to
exceed the Total Commitment (as defined in the Financing Agreement);

          WHEREAS, it is a condition precedent to the Lenders making any Loan
and providing any other financial accommodation to the Borrowers pursuant to the
Financing Agreement that each Grantor shall have executed and delivered to the
Agent a security agreement providing for the grant to the Agent for the benefit
of the Agent and the Lenders of a security interest in all personal property of
such Grantor except as may be excepted in the Loan Documents;

          WHEREAS, the Grantors are mutually dependent on each other in the
conduct of their respective businesses as an integrated operation, with the
credit needed from time to time by each Grantor often being provided through
financing obtained by the other Grantors and the ability to obtain such
financing being dependent on the successful operations of all of the Grantors as
a whole; and

          WHEREAS, each Grantor has determined that the execution, delivery and
performance of this Agreement directly benefit, and are in the best interest of,
such Grantor;

          NOW, THEREFORE, in consideration of the premises and the agreements
herein and in order to induce the Lenders to make and maintain the Loans and
provide other financial accommodations to the Borrowers pursuant to the
Financing Agreement, the Grantors hereby jointly and severally agree with the
Agent, for the benefit of the Lenders, as follows:

<PAGE>

          SECTION 1. Definitions.

          (a) Reference is hereby made to the Financing Agreement for a
statement of the terms thereof. All terms used in this Agreement and the
recitals hereto which are defined in the Financing Agreement or in Article 9 of
the Uniform Commercial Code as in effect from time to time in the State of New
York (the "Code") and which are not otherwise defined herein shall have the same
meanings herein as set forth therein; provided that terms used herein which are
defined in the Code as in effect in the State of New York on the date hereof
shall continue to have the same meaning notwithstanding any replacement or
amendment of such statute except as the Agent may otherwise determine.

          (b) The following terms shall have the respective meanings provided
for in the Code: "Accounts", "Cash Proceeds", "Chattel Paper", "Commercial Tort
Claim", "Commodity Account", "Commodity Contracts", "Deposit Account",
"Documents", "Equipment", "Fixtures", "General Intangibles", "Goods",
"Instruments", "Inventory", "Investment Property", "Letter-of-Credit Rights",
"Noncash Proceeds", "Payment Intangibles", "Proceeds", "Promissory Notes",
"Record", "Security Account", "Software", and "Supporting Obligations".

          (c) 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:

               "Agreement" means this Security Agreement, including all
amendments, modifications and supplements and any exhibits or schedules to any
of the foregoing, and shall refer to the Agreement as the same may be in effect
at the time such reference becomes operative.

               "Copyright Licenses" means all licenses, contracts or other
agreements, whether written or oral, naming any Grantor as licensee or licensor
and providing for the grant of any right to use or sell any works covered by any
copyright (including, without limitation, all Copyright Licenses set forth in
Schedule II hereto).

               "Copyrights" means all domestic and foreign copyrights, whether
registered or unregistered, including, without limitation, all copyright rights
throughout the universe (whether now or hereafter arising) in any and all media
(whether now or hereafter developed), in and to all original works of authorship
fixed in any tangible medium of expression, acquired or used by any Grantor
(including, without limitation, all copyrights described in Schedule II hereto),
all applications, registrations and recordings thereof (including, without
limitation, applications, registrations and recordings in the United States
Copyright Office or in any similar office or agency of the United States or any
other country or any political subdivision thereof), and all reissues,
divisions, continuations, continuations in part and extensions or renewals
thereof.

               "Excluded Accounts" means (i) Deposit Accounts specially and
exclusively used for petty cash (provided that the aggregate balance of the
funds on deposit in all such petty cash Deposit Accounts shall not exceed
$25,000), payroll, payroll taxes and other


                                      -2-

<PAGE>

employee wage and benefit payments to or for the benefit of a Grantor's salaried
employees, (ii) the Pokagon Account, and (iii) any Deposit Account in which the
average monthly cash deposits do not exceed $100,000.

               "Excluded Debt" is defined in the Pledge Agreement.

               "Indian Gaming Authority" is defined in the Pledge Agreement.

               "Intellectual Property" means the Copyrights, Trademarks and
Patents.

               "Licenses" means the Copyright Licenses, the Trademark Licenses
and the Patent Licenses.

               "Patent Licenses" means all licenses, contracts or other
agreements, whether written or oral, naming any Grantor as licensee or licensor
and providing for the grant of any right to manufacture, use or sell any
invention covered by any Patent (including, without limitation, all Patent
Licenses set forth in Schedule II hereto).

               "Patents" means all domestic and foreign letters patent, design
patents, utility patents, industrial designs, inventions, trade secrets, ideas,
concepts, methods, techniques, processes, proprietary information, technology,
know-how, formulae, rights of publicity and other general intangibles of like
nature, now existing or hereafter acquired (including, without limitation, all
domestic and foreign letters patent, design patents, utility patents, industrial
designs, inventions, trade secrets, ideas, concepts, methods, techniques,
processes, proprietary information, technology, know-how and formulae described
in Schedule II hereto), all applications, registrations and recordings thereof
(including, without limitation, applications, registrations and recordings in
the United States Patent and Trademark Office, or in any similar office or
agency of the United States or any other country or any political subdivision
thereof), and all reissues, divisions, continuations, continuations in part and
extensions or renewals thereof.

               "Trademark Licenses" means all licenses, contracts or other
agreements, whether written or oral, naming any Grantor as licensor or licensee
and providing for the grant of any right concerning any Trademark, together with
any goodwill connected with and symbolized by any such trademark licenses,
contracts or agreements and the right to prepare for sale or lease and sell or
lease any and all Inventory now or hereafter owned by any Grantor and now or
hereafter covered by such licenses (including, without limitation, all Trademark
Licenses described in Schedule II hereto).

               "Trademarks" means all domestic and foreign trademarks, service
marks, collective marks, certification marks, trade names, business names,
d/b/a's, Internet domain names, trade styles, designs, logos and other source or
business identifiers and all general intangibles of like nature, now or
hereafter owned, adopted, acquired or used by any Grantor (including, without
limitation, all domestic and foreign trademarks, service marks, collective
marks, certification marks, trade names, business names, d/b/a's, Internet
domain names, trade styles, designs, logos and other source or business
identifiers described in Schedule II hereto), all applications, registrations
and recordings thereof (including, without limitation, applications,
registrations and recordings in the United States Patent and Trademark Office or
in any similar


                                      -3-

<PAGE>

office or agency of the United States, any state thereof or any other country or
any political subdivision thereof), and all reissues, extensions or renewals
thereof, together with all goodwill of the business symbolized by such marks and
all customer lists, formulae and other Records of any Grantor relating to the
distribution of products and services in connection with which any of such marks
are used.

          SECTION 2. Grant of Security Interest. As collateral security for all
of the Obligations (as defined in Section 3 hereof), each Grantor hereby pledges
to the Agent, and grants to the Agent, for the benefit of the Lenders, a
continuing security interest in, all personal property of such 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 Accounts;

          (b) all Chattel Paper (whether tangible or electronic);

          (c) the Commercial Tort Claims specified on Schedule VI hereto;

          (d) all Deposit Accounts, all cash, and all other property from time
to time deposited therein and the monies and property in the possession or under
the control of any Agent or any Lender or any affiliate, representative, agent
or correspondent of the Agent or any Lender;

          (e) all Documents;

          (f) all Equipment;

          (g) all Fixtures;

          (h) all General Intangibles (including, without limitation, all
Payment Intangibles and any Grantor's option to purchase real property);

          (i) all Goods;

          (j) all Instruments (including, without limitation, Promissory Notes);

          (k) all Inventory;

          (l) all Investment Property;

          (m) all Copyrights, Patents and Trademarks, and all Licenses;

          (n) all Letter-of-Credit Rights;

          (o) all Supporting Obligations;

          (p) all other tangible and intangible personal property of such
Grantor (whether or not subject to the Code), including, without limitation, all
bank and other accounts


                                      -4-

<PAGE>

and all cash and all investments therein, all proceeds, products, offspring,
accessions, rents, profits, income, benefits, substitutions and replacements of
and to any of the property of such Grantor described in the preceding clauses of
this Section 2 (including, without limitation, any proceeds of insurance thereon
and all causes of action, claims and warranties now or hereafter held by such
Grantor in respect of any of the items listed above), and all books,
correspondence, files and other Records, including, without limitation, all
tapes, disks, cards, Software, data and computer programs in the possession of
or under the control of such Grantor or any other Person from time to time
acting for such Grantor that at any time evidence or contain information
relating to any of the property described in the preceding clauses of this
Section 2 or are otherwise necessary or helpful in the collection or realization
thereof; and

          (q) all Proceeds, including all Cash Proceeds and Noncash Proceeds,
and products of any and all of the foregoing Collateral; in each case howsoever
such Grantor's interest therein may arise or appear (whether by ownership,
security interest, claim or otherwise) provided, however, that the interest of
any Grantor in the following shall not be included as Collateral:

               (i) the Pokagon Account and other Excluded Accounts;

               (ii) any rights or interests in any contract with an Indian
Tribe, the valid grant or enforcement of a security interest or lien therein to
the Agent (A) would give such Indian Tribe a legally enforceable right to
terminate its obligations thereunder, (B) is prohibited by the terms thereof and
such prohibition has not been waived or cannot be waived under applicable law,
(C) requires the consent of the other party to such contract and such consent,
to the extent required by the terms thereof, has not been obtained, or (D)
requires the review or approval of applicable Indian Gaming Authority which has
not been obtained (but, for the avoidance of doubt, it is understood that the
Lien granted herein on such Grantor's right to receive payments with respect to
any such rights or interests (the "Payment Rights") shall be included as
Collateral whether or not the grant of such right is permitted under such
contract with such Indian Tribe, provided that in no event will the Agent be
permitted to assume any other rights of a Grantor under any such contract, and
provided further that such Lien in the Payment Rights shall not be enforceable
against or otherwise impose any duty or obligation on such Indian Tribe.

               (iii) the Capital Stock of any Excluded Subsidiary, Excluded Debt
(as defined in the Pledge Agreement), and any other Collateral or proceeds
expressly excluded in or by the terms of the Pledge Agreement, and

               (iv) the Lease Intended As Security, dated as of December 3,
1999, between Banc of America Leasing & Capital, LLC, 30084 and Lakes Gaming,
Inc., a Minnesota corporation, as amended, and all aircraft described in that
lease, as amended.


                                      -5-

<PAGE>

          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 punctual payment by each Grantor, as and when due and payable
(whether by stated maturity, by acceleration or otherwise), of all amounts from
time to time owing by it in respect of the Financing Agreement and the other
Loan Documents, including, without limitation, (i) all principal of and interest
on the Loans (including, without limitation, all interest that accrues after the
commencement of any Insolvency Proceeding of any Loan Party, irrespective of
whether a claim therefor is allowed in such Insolvency Proceeding), (ii) in the
case of a Guarantor, all amounts from time to time owing by such Guarantor in
respect of its guaranty made pursuant to Article X of the Financing Agreement or
under any other Guaranty to which it is a party, including all obligations
guaranteed by such Guarantor and (iii) all fees, commissions, expense
reimbursements, indemnifications and all other amounts due or to become due
under any Loan Document; and

          (b) the due performance and observance by each Grantor of all of its
other obligations from time to time existing in respect of the Loan Documents.

          SECTION 4. Representations and Warranties. Each Grantor jointly and
severally represents and warrants (but to the extent any representation or
warranty in this Section 4 is substantively the same as a representation or
warranty contained in Article V of the Financing Agreement and such
representation or warranty is qualified by a materiality or other qualifier in
the Financing Agreement, such representation or warranty herein shall be subject
to the same materiality or other qualifier as in Article V of the Financing
Agreement) as follows:

          (a) Schedule I hereto sets forth (i) the exact legal name of each
Grantor and (ii) the organizational identification number of each Grantor or
states that no such organizational identification number exists.

          (b) Each Grantor (i) is a corporation, limited liability company or
limited partnership duly organized, validly existing and/or in good standing (as
applicable) under the laws of the state or jurisdiction of its organization as
set forth on Schedule I hereto, (ii) has all requisite power and authority to
conduct its business as now conducted and as presently contemplated and to
execute, deliver and perform this Agreement and each other Loan Document to be
executed and delivered by it pursuant hereto and to consummate the transactions
contemplated hereby and thereby, and (iii) is duly qualified to do business and
is in good standing (except in the case of Louisiana where a dispute regarding
taxes is currently ongoing and as to which the aggregate tax liability shall not
exceed an amount indicated in Section 5.01(k) of the Financing Agreement) 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,
other than in such jurisdictions where the failure to be so qualified and in
good standing could not reasonably be expected to have a Material Adverse
Effect.

          (c) The execution, delivery and performance by each Grantor of this
Agreement and each other Loan Document to which such Grantor is or will be a
party (i) have been duly authorized by all necessary action, (ii) do not and
will not contravene its charter or by-


                                      -6-

<PAGE>

laws, its limited liability company or operating agreement or its certificate of
partnership or partnership agreement, as applicable, or any applicable law or
any Material Contract binding on or otherwise affecting such Grantor or any of
its properties, (iii) do not and will not result in or require the creation of
any Lien (other than pursuant to any Loan Document) upon or with respect to any
of its properties and (iv) do not and will not result in any default,
noncompliance, suspension, revocation, impairment, forfeiture or nonrenewal of
any permit, license, authorization or approval applicable to it or its
operations or any of its properties.

          (d) This Agreement is, and each other Loan Document to which any
Grantor is or will be a party, when executed and delivered, will be, a legal,
valid and binding obligation of such Grantor, enforceable against such Grantor
in accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws.

          (e) Except as disclosed in Schedule 5.01(f) to the Financing
Agreement, there is no pending or, to the best knowledge of any Grantor,
threatened action, suit, proceeding or claim affecting any Grantor or its
properties, before any Governmental Authority or any arbitrator, or any order,
judgment or award by any Governmental Authority or arbitrator, that may
adversely affect the grant by any Grantor, or the perfection, of the security
interest purported to be created hereby in the Collateral, or the exercise by
the Agent of any of its rights or remedies hereunder in any manner other than a
de minimus amount.

          (f) All Federal and foreign and all state and local tax returns and
other reports required by applicable law to be filed by any Grantor have been
filed, or extensions have been obtained, and all taxes, assessments and other
governmental charges imposed upon any Grantor or any property of such Grantor
(including, without limitation, all federal income and social security taxes on
employee's wages and all sales taxes) and 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 (including in the case of Louisiana where a
dispute regarding taxes is currently ongoing and as to which the aggregate tax
liabilities with penalties shall not exceed an amount indicated in Section
4.01(d)(xii) of the Financing Agreement) 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 in
accordance with GAAP.

          (g) All Equipment, Fixtures, Goods and Inventory now existing are, and
all Equipment, Fixtures, Goods and Inventory hereafter existing will be, located
and/or based at the addresses specified therefor in Schedule III hereto (as
amended, supplemented or otherwise modified from time to time in accordance with
the terms hereof). Each Grantor's chief place of business and chief executive
office, the place where such Grantor keeps its Records concerning Accounts and
all originals of all Chattel Paper are located at the addresses specified
therefor in Schedule III hereto. None of the Accounts is evidenced by Promissory
Notes or other Instruments other than Promissory Notes and Instruments delivered
to the Agent pursuant to the terms of the Pledge Agreement except to the extent
they may constitute Excluded Debt. Set forth in Schedule IV hereto is a complete
and accurate list, as of the date of this Agreement, of each Deposit Account,
Securities Account and Commodities Account of each Grantor, together with the
name and address of each institution at which each such Account is maintained,
the account number for each such Account and a description of the purpose of
each such Account. Set forth in Schedule II hereto is (i) a complete and correct
list of each trade name used by each


                                      -7-

<PAGE>

Grantor and (ii) the name of, and each trade name used by, each Person from
which such Grantor has acquired any substantial part of the Collateral within
four months prior to the date hereof.

          (h) Each Grantor has delivered to the Agent complete and correct
copies of each License described in Schedule II hereto, including all schedules
and exhibits thereto, which represents all of the Licenses material to such
Grantor's business and existing on the date of this Agreement. Each such License
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 any Grantor or any of its Affiliates in respect
thereof. Each such License now existing is, and each other License which is
material to such Grantor's business will be, the legal, valid and binding
obligation of the parties thereto, enforceable against such parties in
accordance with its terms. No default by any Grantor, or, to the best knowledge
of each Grantor, any other party thereto has occurred under any such License,
nor does any defense, offset, deduction or counterclaim exist thereunder in
favor of any such party.

          (i) The Grantors own and control, or otherwise possess adequate rights
to use, all Trademarks, Patents and Copyrights, which are the only trademarks,
patents, copyrights, inventions, trade secrets, proprietary information and
technology, know-how, formulae, and rights of publicity necessary to conduct
their business in substantially the same manner as conducted as of the date
hereof. Schedule II hereto sets forth a true and complete list of all
Intellectual Property and Licenses owned or used by each Grantor as of the date
hereof which are material to such Grantor's business. All such Intellectual
Property is subsisting and in full force and effect, has not been adjudged
invalid or unenforceable, is valid and enforceable and has not been abandoned in
whole or in part. Except as set forth in Schedule II, no such Intellectual
Property is the subject of any licensing or franchising agreement. No Grantor
has any knowledge of any conflict with the rights of others to any Intellectual
Property, and, to the best knowledge of each Grantor, no Grantor is now
infringing or in conflict with any such rights of others in any material respect
and no other Person is now infringing or in conflict in any material respect
with any such properties, assets and rights owned or used by any Grantor. No
Grantor has received any written notice that it is violating or has violated in
any material respect, the trademarks, patents, copyrights, inventions, trade
secrets, proprietary information and technology, know-how, formulae, rights of
publicity or other intellectual property rights of any third party.

          (j) The Grantors are and will be at all times the sole and exclusive
owners of, or otherwise have and will have adequate rights in, the Collateral
free and clear of any Lien except for (i) the Lien created by this Agreement and
(ii) the Permitted Liens. 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 (A) such as may have been filed in favor of
the Agent relating to this Agreement and (B) such as may have been filed to
perfect or protect any Permitted Lien.

          (k) The exercise by the Agent of any of its rights and remedies
hereunder will not contravene any law or any Material Contract and will not
result in, or require the creation of, any Lien upon or with respect to any of
its properties.


                                      -8-

<PAGE>

          (l) No authorization or approval or other action by, and no notice to
or filing with, any Governmental Authority or other regulatory body, or any
other Person, is required for (i) the grant by any Grantor, or the perfection,
of the security interest purported to be created hereby in the Collateral or
(ii) the exercise by the Agent of any of its rights and remedies hereunder,
except (A) for the filing under the Uniform Commercial Code as in effect in the
applicable jurisdiction of the financing statements described in Schedule V
hereto, all of which financing statements have been duly filed and are in full
force and effect, (B) with respect to the perfection of the security interest
created hereby in the Intellectual Property, for the recording of the
appropriate Assignment for Security, substantially in the form of Exhibit A
hereto in the United States Patent and Trademark Office or the United States
Copyright Office, as applicable, (C) with respect to the perfection of the
security interest created hereby in foreign Intellectual Property and Licenses,
for registrations and filings in jurisdictions located outside of the United
States and covering rights in such jurisdictions relating to the Intellectual
Property and Licenses, (D) with respect to any action that may be necessary to
obtain control in Collateral described in Sections 5(i) and 5(k) hereof, the
taking of such action and (E) the taking possession of all Documents, Chattel
Paper, Instruments and cash constituting Collateral.

          (m) This Agreement creates in favor of the Agent for the benefit of
the Agent and the Lenders a legal, valid and enforceable security interest in
the Collateral, as security for the Obligations. The Agent's having possession
of all Instruments, Documents, Chattel Paper and cash constituting Collateral
and obtaining control of all Collateral described in Sections 5(i) and 5(k)
hereof and the Pledge Agreement from time to time, the recording of the
appropriate Assignment for Security executed pursuant hereto in the United
States Patent and Trademark Office and the United States Copyright Office, as
applicable, and the filing of the financing statements described in Schedule V
hereto and, with respect to the Intellectual Property hereafter existing and not
covered by an appropriate Assignment for Security, the recording in the United
States Patent and Trademark Office or the United States Copyright Office, as
applicable, of appropriate instruments of assignment, result in the perfection
of such security interests. Such security interests are, or in the case of
Collateral in which any Grantor obtains rights after the date hereof, will be,
perfected, first priority security interests, subject only to the Permitted
Liens and the taking of actions described in this Section 5(m). Such recordings
and filings and all other action necessary or desirable to perfect and protect
such security interest have been duly taken, except for (i) the Agent's having
possession of Instruments, Documents, Chattel Paper and cash constituting
Collateral after the date hereof, (ii) the Agent obtaining control of any
Collateral described in Sections 5(i) and 5(k) of this Agreement after the date
hereof, and (iii) the other filings and recordations described in Section 4(l)
hereof.

          (n) As of the date hereof, no Grantor holds any Commercial Tort Claims
or is aware of any such pending claims, except for such claims described in
Schedule VI.

          (o) The partnership interests or membership interests of each Grantor
(other than the Parent) in each of its Subsidiaries that is a partnership or a
limited liability company are not (i) dealt in or traded on securities exchanges
or in securities markets, (ii) securities for purposes of Article 8 of any
relevant Uniform Commercial Code, (iii) investment company securities within the
meaning of Section 8-103 of any relevant Uniform Commercial Code and (iv)
evidenced by a certificate. Such partnership interests or membership interests
constitute General Intangibles.


                                      -9-

<PAGE>

          SECTION 5. Covenants as to the Collateral. So long as any of the
Obligations shall remain outstanding and all Commitments shall not have expired
or terminated, unless the Agent shall otherwise consent in writing:

          (a) Further Assurances. Each 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 Agent may reasonably request in order to (i) enable the Agent to perfect and
protect the security interest purported to be created hereby; (ii) enable the
Agent to exercise and enforce its rights and remedies hereunder in respect of
the Collateral; or (iii) otherwise effect the purposes of this Agreement,
including, without limitation: (A) marking conspicuously all Chattel Paper,
Licenses and Records pertaining to the Collateral with a legend, in form and
substance satisfactory to the Agent, indicating that such Chattel Paper, License
or Collateral is subject to the security interest created hereby, (B) if any
Account shall be evidenced by Promissory Notes or other Instruments or Chattel
Paper, delivering and pledging to the Agent hereunder such Promissory Notes (as
provided in the Pledge Agreement), Instruments or Chattel Paper, duly endorsed
and accompanied by executed instruments of transfer or assignment, all in form
and substance satisfactory to the Agent, (C) executing and filing (to the
extent, if any, that such Grantor's signature is required thereon) or
authenticating the filing of, such financing or continuation statements, or
amendments thereto, as may be necessary or desirable or that the Agent may
request in order to perfect and preserve the security interest purported to be
created hereby, (D) furnishing to the Agent from time to time statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as the Agent may reasonably request,
all in reasonable detail, (E) if any Collateral shall be in the possession of a
third party, notifying such Person of the Agent's security interest created
hereby and obtaining a written acknowledgment from such Person that such Person
holds possession of the Collateral for the benefit of the Agent, which such
written acknowledgement shall be in form and substance reasonably satisfactory
to the Agent, (F) if at any time after the date hereof, any Grantor acquires or
holds any Commercial Tort Claim, immediately notifying the Agent in a writing
signed by such Grantor setting forth a brief description of such Commercial Tort
Claim and granting to the Agent a security interest therein and in the proceeds
thereof, which writing shall incorporate the provisions hereof and shall be in
form and substance satisfactory to the Agent, and (G) taking all actions
required by any earlier versions of the Uniform Commercial Code or by other law,
as applicable, in any relevant Uniform Commercial Code jurisdiction, or by other
law as applicable in any foreign jurisdiction.

          (b) Location of Equipment and Inventory. Each Grantor will keep the
Equipment and Inventory (other than used Equipment and Inventory sold in the
ordinary course of business in accordance with Section 5(g) hereof) at one or
more of the locations specified therefor in Section 4(g) hereof or, upon not
less than 20 days' prior written notice to the Agent accompanied by a new
Schedule III hereto indicating each new location of the Equipment and Inventory,
at such other locations in the continental United States or Canada, as the
Grantors may elect, provided that (i) all action has been taken to grant to the
Agent a perfected, first priority security interest in such Equipment and
Inventory (subject only to Permitted Liens), and (ii) the Agent's rights in such
Equipment and Inventory, including, without limitation, the existence,
perfection and priority of the security interest created hereby in such
Equipment and Inventory, are not adversely affected thereby.


                                      -10-

<PAGE>

          (c) Condition of Equipment. Each Grantor will maintain or cause the
Equipment which is necessary to the proper conduct of its business to be
maintained and preserved in good condition, repair and working order, ordinary
wear and tear excepted, and will forthwith, or in the case of any loss or damage
to any Equipment promptly after the occurrence thereof, make or cause to be made
all repairs, replacements and other improvements in connection therewith which
are necessary or desirable, consistent with past practice, or which the Agent
may request to such end. Each Grantor will promptly furnish to the Agent a
statement describing in reasonable detail any loss or damage in excess of
$50,000 to any such Equipment.

          (d) Taxes, Etc. Each Grantor jointly and severally agrees to 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 otherwise provided in the Financing Agreement.

          (e) Insurance.

               (i) Each Grantor will, at its own expense, maintain insurance
(including, without limitation, comprehensive general liability, hazard, rent
and business interruption insurance) with respect to all of its properties,
including, without limitation, its Equipment and Inventory and all real
properties leased or owned by it in such amounts, against such risks, in such
form as is required by the Credit Agreement.

               (ii) Reimbursement under any liability insurance maintained by
any 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, any proceeds of insurance maintained
by a Grantor pursuant to this Section 5(e) shall be paid to the Agent for the
benefit of the Agent and the Lenders in accordance with the terms of the
Financing Agreement.

               (iii) Upon the occurrence and during the continuance of an Event
of Default or upon any insurance payment in respect of any Equipment or
Inventory, all insurance payments in respect of such Equipment or Inventory
shall be paid to the Agent for the benefit of the Agent and the Lenders and
applied as specified in Section 7(b) hereof.

          (f) Provisions Concerning the Accounts and the Licenses.

               (i) No Grantor shall change (A) its name, organizational
identification number or FEIN, or (B) its jurisdiction of incorporation as set
forth in Section 4(b) hereof, except that a Grantor may (x) change its name,
organizational identification number or FEIN or its jurisdiction of
incorporation in connection with a transaction permitted by Section 6.02(c) of
the Financing Agreement and (y) change its name upon at least 30 days' prior
written notice by the Administrative Borrower to the Agent of such change and so
long as, at the time of such written notification, such Person provides any
financing statements or fixture filings necessary to perfect and continue
perfected the Agent's Liens. Each Grantor shall (x) immediately notify the Agent
upon obtaining an organizational identification number, if on the date hereof
such Grantor did not have such identification number, and (y) keep adequate
records concerning the Accounts and


                                      -11-

<PAGE>

Chattel Paper and permit representatives of the Agent pursuant to the terms of
the Financing Agreement to inspect and make abstracts from such Records and
Chattel Paper.

               (ii) Each Grantor will, except as otherwise provided in this
subsection (f), continue to collect, at its own expense, all amounts due or to
become due under the Accounts in accordance with its usual business practices
and the terms of the Loan Documents. In connection with such collections, each
Grantor may (and upon the occurrence and during the continuance of an Event of
Default, at the Agent's direction, will) take such action as such Grantor or
(after the occurrence and during the continuance of an Event of Default) the
Agent, as the case may be, deem necessary or advisable to enforce collection or
performance of the Accounts; provided, however, that the Agent shall have the
right at any time, upon the occurrence and during the continuance of an Event of
Default, to notify the Account Debtors or obligors under any Accounts of the
assignment of such Accounts to the Agent and to direct such Account Debtors or
obligors to make payment of all amounts due or to become due to such Grantor
thereunder directly to the Agent or its designated agent and, upon such
notification and at the expense of such Grantor and to the extent permitted by
law, to enforce collection of any such Accounts and to adjust, settle or
compromise the amount or payment thereof, in the same manner and to the same
extent as such Grantor might have done. After receipt by any Grantor of a notice
from the Agent that the Agent has notified, intends to notify, or has enforced
or intends to enforce a Grantor's rights against the Account Debtors or obligors
under any Accounts as referred to in the proviso to the immediately preceding
sentence, (A) all amounts and proceeds (including Instruments) received by such
Grantor in respect of the Accounts shall be received in trust for the benefit of
the Agent hereunder, shall be segregated from other funds of such Grantor and
shall be forthwith paid over to the Agent or its designated agent in the same
form as so received (with any necessary endorsement) to be held as cash
collateral and either (i) credited to the Loan Account so long as no Event of
Default shall have occurred and be continuing or (ii) if an Event of Default
shall have occurred and be continuing, applied as specified in Section 7(b)
hereof, and (B) such Grantor will not adjust, settle or compromise the amount or
payment of any Account or release wholly or partly any Account Debtor or obligor
thereof or allow any credit or discount thereon. In addition, upon the
occurrence and during the continuance of an Event of Default, the Agent may (in
its sole and absolute discretion) direct any or all of the banks and financial
institutions with which any Grantor either maintains a Deposit Account or a
lockbox or deposits the proceeds of any Accounts to send immediately to the
Agent or its designated agent by wire transfer (to such account as the Agent
shall specify, or in such other manner as the Agent shall direct) all or a
portion of such securities, cash, investments and other items held by such
institution. Any such securities, cash, investments and other items so received
by the Agent or its designated agent shall (in the sole and absolute discretion
of the Agent) be held as additional Collateral for the Obligations or
distributed in accordance with Section 7 hereof.

               (iii) Upon the occurrence and during the continuance of any
breach or default under any License described in Schedule II hereto by any party
thereto other than a Grantor, (A) the relevant Grantor will, promptly after
obtaining knowledge thereof, give the Agent written notice of the nature and
duration thereof, specifying what action, if any, it has taken and proposes to
take with respect thereto, (B) no Grantor will, without the prior written
consent of the Agent, 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) after the occurrence and during the continuance of an
Event of Default, each Grantor will, upon written instructions from


                                      -12-

<PAGE>

the Agent and at such Grantor's expense, take such action as the Agent may deem
necessary or advisable in respect thereof.

               (iv) Each Grantor will, at its expense, promptly deliver to the
Agent a copy of each notice or other communication received by it by which any
other party to any License referred to in Schedule II hereto which purports to
exercise any of its rights or affect any of its obligations thereunder, together
with a copy of any reply by such Grantor thereto.

               (v) Each Grantor will exercise promptly and diligently each and
every right which it may have under each License described in Schedule II hereto
(other than any right of termination) and will duly perform and observe in all
respects all of its obligations under each such License and will take all action
necessary to maintain such Licenses in full force and effect. No Grantor will,
without the prior written consent of the Agent, cancel, terminate, amend or
otherwise modify in any respect, or waive any provision of, any such License.

          (g) Transfers and Other Liens.

               (i) Except to the extent expressly permitted by Section 6.02(c)
or 7.04 of the Financing Agreement, no Grantor will sell, assign (by operation
of law or otherwise), lease, license, exchange or otherwise transfer or dispose
of any of the Collateral.

               (ii) Except to the extent expressly permitted by the Financing
Agreement or hereunder, no Grantor will create, suffer to exist or grant any
Lien upon or with respect to any Collateral.

          (h) Intellectual Property.

               (i) If applicable, each Grantor has duly executed and delivered
the applicable Assignment for Security in the form attached hereto as Exhibit A.
Each Grantor (either itself or through licensees) will, and will cause each
licensee thereof to, take all action necessary to maintain all of the
Intellectual Property in full force and effect, including, without limitation,
using the proper statutory notices and markings and using the Trademarks on each
applicable trademark class of goods in order to so maintain the Trademarks in
full force, free from any claim of abandonment for non-use, and no Grantor will
(nor permit any licensee thereof to) do any act or knowingly omit to do any act
whereby any Intellectual Property may become invalidated; provided, however,
that so long as no Event of Default has occurred and is continuing, no Grantor
shall have an obligation to use or to maintain any Intellectual Property (A)
that relates solely to any product or work, that has been, or is in the process
of being, discontinued, abandoned or terminated, (B) that is being replaced with
Intellectual Property substantially similar to the Intellectual Property that
may be abandoned or otherwise become invalid, so long as the failure to use or
maintain such Intellectual Property does not materially adversely affect the
validity of such replacement Intellectual Property and so long as such
replacement Intellectual Property is subject to the Lien created by this
Agreement, (C) that is substantially the same as another Intellectual Property
that is in full force, so long the failure to use or maintain such Intellectual
Property does not materially adversely affect the validity of such replacement
Intellectual Property and so long as such other Intellectual Property is subject
to the Lien and security interest created by this Agreement or (D) that is not
material to the business of any Grantor or any line of business of any


                                      -13-

<PAGE>

Grantor. Each Grantor will cause to be taken all necessary steps in any
proceeding before the United States Patent and Trademark Office and the United
States Copyright Office or any similar office or agency in any other country or
political subdivision thereof to maintain each registration of the Intellectual
Property (other than the Intellectual Property described in the proviso to the
immediately preceding sentence), including, without limitation, filing of
renewals, affidavits of use, affidavits of incontestability and opposition,
interference and cancellation proceedings and payment of maintenance fees,
filing fees, taxes or other governmental fees. If any Intellectual Property is
infringed, misappropriated, diluted or otherwise violated in any material
respect by a third party, the Grantors shall (x) in the case of any Intellectual
Property described in Schedule II hereto, upon obtaining knowledge of such
infringement, misappropriation, dilution or other violation, promptly notify the
Agent and (y) to the extent the Grantors shall deem appropriate under the
circumstances, promptly sue for infringement, misappropriation, dilution or
other violation, seek injunctive relief where appropriate and recover any and
all damages for such infringement, misappropriation, dilution or other
violation, or take such other actions as the Grantors shall deem appropriate
under the circumstances to protect such Intellectual Property. Each Grantor
shall furnish to the Agent, from time to time upon the Agent's request (which,
unless an Event of Default has occurred and is continuing, shall be made no more
frequently than quarterly), statements and schedules further identifying and
describing the Intellectual Property and Licenses, and such other reports in
connection with the Intellectual Property and Licenses as the Agent may
reasonably request, all in reasonable detail. Following receipt by the Agent of
any such statements, schedules or reports, the Grantors shall modify this
Agreement by amending Schedule II hereto to include any Intellectual Property or
License, as the case may be, which becomes part of the Collateral under this
Agreement, and shall execute and authenticate such documents and do such acts as
shall be necessary or, in the reasonable business judgment of the Agent,
desirable to subject such Intellectual Property and Licenses to the Lien and
security interest created by this Agreement. Notwithstanding anything herein to
the contrary, upon the occurrence and during the continuance of an Event of
Default, no Grantor may abandon or otherwise permit any Intellectual Property to
become invalid without the prior written consent of the Agent, and if any
Intellectual Property is infringed, misappropriated, diluted or otherwise
violated in any material respect by a third party, the Grantors will take such
action as the Agent shall deem appropriate under the circumstances to protect
such Intellectual Property.

               (ii) Upon request of the Agent, each Grantor shall execute,
authenticate and deliver any and all assignments, agreements, instruments,
documents and papers as the Agent may reasonably request to evidence the Agent's
security interest hereunder in such Intellectual Property and the General
Intangibles of such Grantor relating thereto or represented thereby, and each
Grantor hereby appoints the Agent its attorney-in-fact to execute and/or
authenticate and file all such writings for the foregoing purposes, all acts of
such attorney being hereby ratified and confirmed, and such power (being coupled
with an interest) shall be irrevocable until the termination of all Commitments,
the indefeasible repayment of all of the Obligations in full and the termination
of each of the Loan Documents. In the event that any Grantor shall (A) obtain
rights to any new Trademarks necessary for the operation of its business, or any
reissue, renewal or extension of any existing Trademark necessary for the
operation of its business, (B) obtain rights to or develop any new patentable
inventions, or become entitled to the benefit of any Patent, or any reissue,
division, continuation, renewal, extension or continuation-in-part of any
existing Patent or any improvement thereof (whether pursuant to any license or
otherwise), (C) obtain rights to or develop any new works protectable


                                      -14-

<PAGE>

by Copyright, or become entitled to the benefit of any rights with respect to
any Copyright or any registration or application therefor, or any renewal or
extension of any existing Copyright or any registration or application therefor,
or (D) obtain rights to or develop new other Intellectual Property, the
provisions of Section 2 hereof shall automatically apply thereto and such
Grantor shall give to the Agent prompt notice thereof in accordance with the
terms of this Agreement and the Financing Agreement. Except as otherwise
provided herein or in the Financing Agreement each Grantor, either itself or
through any agent, employee, licensee or designee, shall give the Agent written
notice of each application for the registration of any Trademark or Copyright or
the issuance of any Patent with the United States Patent and Trademark Office or
the United States Copyright Office, as applicable, or in any similar office or
agency of the United States or any country or any political subdivision thereof.

          (i) Deposit, Commodities and Securities Accounts. Prior to the date
hereof, each Grantor shall cause each bank and other financial institution
referred to in Schedule IV hereto to execute and deliver to the Agent a control
agreement, in form and substance reasonably satisfactory to the Agent, duly
executed by such Grantor and such bank or financial institution, or enter into
other arrangements in form and substance satisfactory to the Agent, pursuant to
which such institution shall irrevocably agree, inter alia, that (i) it will
comply at any time with the instructions originated by the Agent to such bank or
financial institution directing the disposition of cash, Commodity Contracts,
securities, Investment Property and other items from time to time credited to
such account, without further consent of such Grantor, (ii) all cash, Commodity
Contracts, securities, Investment Property and other items of such Grantor
deposited with such institution shall be subject to a perfected, first priority
security interest in favor of the Agent, (iii) any right of set off, banker's
Lien or other similar Lien, security interest or encumbrance shall be fully
waived as against the Agent and (iv) upon receipt of written notice from the
Agent during the continuance of an Event of Default, such bank or financial
institution shall immediately send to the Agent by wire transfer (to such
account as the Agent shall specify, or in such other manner as the Agent shall
direct) all such cash, the value of any Commodity Contracts, securities,
Investment Property and other items held by it. Unless an Event of Default shall
have occurred and be continuing, the Agent shall not originate any instructions
or give any notice to any such bank or financial institution under any such
control agreement, including but not limited to, instructions, the effect of
which would be to (x) direct the disposition of cash, Commodity Contracts,
securities, Investment Property and other items from time to time credited to
such account, without further consent of such Grantor or (y) direct such bank or
financial institution to send to the Agent by wire transfer all such cash, the
value of any Commodity Contracts, securities, Investment Property and other
items held by it. Without the prior written consent of the Agent, no Grantor
shall make or maintain any Deposit Account, Commodity Account or Securities
Account except for the accounts set forth in Schedule IV hereto. The provisions
of this paragraph 5(i) shall not apply to (i) Deposit Accounts for which the
Agent is the depositary, or (ii) Excluded Accounts.

          (j) [Intentionally Omitted].

          (k) Control. Each Grantor hereby agrees to take any or all action that
may be necessary or desirable or that the Agent may request in order for the
Agent to obtain control in accordance with the Pledge Agreement, the Security
Agreement and with Sections 9-104, 9-105,


                                      -15-

<PAGE>

9-106, and 9-107 of the Code with respect to the following Collateral: (i)
Deposit Accounts, (ii) Electronic Chattel Paper, (iii) Investment Property and
(iv) Letter-of-Credit Rights.

          (l) Inspection and Reporting. Each Grantor shall permit the Agent or
any agents or representatives thereof or such professionals or other Persons as
the Agent and the Lenders may designate (i) to examine and make copies of and
abstracts from such Grantor's records and books of account, (ii) to visit and
inspect its properties, (iii) to verify materials, leases, notes, Accounts,
Inventory and other assets of such Grantor from time to time, (iv) to conduct
audits, physical counts, appraisals and/or valuations, Phase I ESAs and Phase II
Environmental Site Assessments or examinations at the locations of such Grantor
and (v) to discuss such Grantor's affairs, finances and accounts with any of its
directors, officers, managerial employees, independent accountants or any of its
other representatives, in each case as provided in the Financing Agreement.

          (m) Partnership and Limited Liability Company Interest. No Grantor
that is a partnership or a limited liability company shall, nor shall any
Grantor with any Subsidiary that is a partnership or a limited liability
company, permit such partnership interests or membership interests to (i) be
dealt in or traded on securities exchanges or in securities markets, (ii) become
a security for purposes of Article 8 of any relevant Uniform Commercial Code,
(iii) become an investment company security within the meaning of Section 8-103
of any relevant Uniform Commercial Code or (iv) be evidenced by a certificate.
Each Grantor agrees that such partnership interests or membership interests
shall constitute General Intangibles.

          SECTION 6. Additional Provisions Concerning the Collateral.

          (a) Each Grantor hereby (i) authorizes the Agent at any time and from
time to time to file financing statements, continuation statements and
amendments thereto that describe the Collateral as all assets of such Grantor or
words of similar effect and that contain any other information required by Part
5 of Article 9 of the UCC for the sufficiency or filing office acceptance of any
financing statement, continuation statement or amendment, including whether such
Grantor is an organization, the type of organization and any organizational
identification number issued to such Grantor, and (ii) ratifies such
authorization to the extent that the Agent has filed any such financing or
continuation statements, or amendments thereto prior to the date hereof. Each
Grantor agrees to furnish any such information to the Agent promptly upon
request.

          (b) Each Grantor hereby irrevocably appoints the Agent as its
attorney-in-fact and proxy (exercisable after the occurrence and during
continuance of an Event of Default), with full authority in the place and stead
of such Grantor and in the name of such Grantor or otherwise, from time to time
in the Agent's discretion, to take any action and to execute any instrument
which the Agent may deem necessary or advisable to accomplish the purposes of
this Agreement (subject to the rights of a Grantor under this Agreement),
including, without limitation, (i) to obtain and adjust insurance required to be
paid to the Agent for the benefit of the Agent and Lenders 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, endorse, and collect any drafts or
other instruments, documents and chattel paper in connection with clause (i) or
(ii) above, (iv) to file any claims or


                                      -16-

<PAGE>

take any action or institute any proceedings which the Agent may deem necessary
or desirable for the collection of any Collateral or otherwise to enforce the
rights of the Agent and the Lenders with respect to any Collateral, and (v) to
execute assignments, licenses and other documents to enforce the rights of the
Agent and the Lenders with respect to any Collateral. This power is coupled with
an interest and is irrevocable until the termination of all Commitments and the
indefeasible repayment of all of the Obligations in full.

          (c) For the purpose of enabling the Agent to exercise rights and
remedies hereunder, at such time as the Agent shall be lawfully entitled to
exercise such rights and remedies, and for no other purpose, each Grantor hereby
grants to the Agent, to the extent assignable, an irrevocable, non-exclusive
license (exercisable without payment of royalty or other compensation to any
Grantor and following the occurrence and during continuance of an Event of
Default) to use, assign, license or sublicense any Intellectual Property now
owned or hereafter acquired by any Grantor, wherever the same may be located,
including in such license reasonable access to all media in which any of the
licensed items may be recorded or stored and to all computer programs used for
the compilation or printout thereof. Notwithstanding anything contained herein
to the contrary, but subject to the provisions of the Financing Agreement that
limit the right of a Grantor to dispose of its property and Section 5(h) hereof,
so long as no Event of Default shall have occurred and be continuing, each
Grantor may exploit, use, enjoy, protect, license, sublicense, assign, sell,
dispose of or take other actions with respect to the Intellectual Property in
the ordinary course of its business. In furtherance of the foregoing, unless an
Event of Default shall have occurred and be continuing, the Agent shall from
time to time, upon the request of a Grantor, execute and deliver any
instruments, certificates or other documents, in the form so requested, which
such Grantor shall have certified are appropriate (in such Grantor's judgment)
to allow it to take any action permitted above (including relinquishment of the
license provided pursuant to this clause (c) as to any Intellectual Property).
Further, upon the termination of all Commitments and the indefeasible payment in
full of the all of the Obligations, the Agent (subject to Section 10(e) hereof)
shall release and reassign to the Grantors all of the Agent's right, title and
interest in and to the Intellectual Property, and the Licenses, all without
recourse, representation or warranty whatsoever and at the Grantor's sole
expense. The exercise of rights and remedies hereunder by the Agent shall not
terminate the rights of the holders of any licenses or sublicenses theretofore
granted by any Grantor in accordance with the second sentence of this clause
(c). Each Grantor hereby releases the Agent from any claims, causes of action
and demands at any time arising out of or with respect to any actions taken or
omitted to be taken by the Agent under the powers of attorney granted herein
other than actions taken or omitted to be taken through the Agent's gross
negligence or willful misconduct, as determined by a final determination of a
court of competent jurisdiction.

          (d) If any Grantor fails to perform any agreement contained herein as
and when required, the Agent may itself perform, or cause performance of, such
agreement or obligation, in the name of such Grantor or the Agent, and the
expenses of the Agent incurred in connection therewith shall be jointly and
severally payable by the Grantors pursuant to Section 8 hereof and shall be
secured by the Collateral.

          (e) The powers conferred on the Agent 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


                                      -17-

<PAGE>

actually received by it hereunder, the Agent 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.

          (f) Anything herein to the contrary notwithstanding (i) each Grantor
shall remain liable under the Licenses and otherwise with respect to any of the
Collateral 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 Agent of any of its rights hereunder shall not release any
Grantor from any of its obligations under the Licenses or otherwise in respect
of the Collateral, and (iii) the Agent shall not have any obligation or
liability by reason of this Agreement under the Licenses or with respect to any
of the other Collateral, nor shall the Agent be obligated to perform any of the
obligations or duties of any Grantor thereunder or to take any action to collect
or enforce any claim for payment assigned hereunder.

          SECTION 7. Remedies Upon Default. If any Event of Default shall have
occurred and be continuing (except as it may be limited in the Pledge
Agreement):

          (a) The Agent may exercise in respect of the Collateral, in addition
to any other rights and remedies provided for herein or otherwise available to
it, all of the rights and remedies of a secured party upon default under the
Code (whether or not the Code applies to the affected Collateral), and also may
(i) take absolute control of the Collateral, including, without limitation,
transfer into the Agent's name or into the name of its nominee or nominees (to
the extent the Agent has not theretofore done so) and thereafter receive, for
the benefit of the Agent, all payments made thereon, give all consents, waivers
and ratifications in respect thereof and otherwise act with respect thereto as
though it were the outright owner thereof, (ii) require each Grantor to, and
each Grantor hereby agrees that it will at its expense and upon request of the
Agent forthwith, assemble all or part of the Collateral as directed by the Agent
and make it available to the Agent at a place or places to be designated by the
Agent that is reasonably convenient to both parties, and the Agent may enter
into and occupy any premises owned or leased by any Grantor where the Collateral
or any part thereof is located or assembled for a reasonable period in order to
effectuate the Agent's rights and remedies hereunder or under law, without
obligation to any Grantor in respect of such occupation, and (iii) without
notice except as specified below and without any obligation to prepare or
process the Collateral for sale, (A) sell the Collateral or any part thereof in
one or more parcels at public or private sale, at any of the Agent'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 Agent may deem commercially reasonable
and/or (B) lease, license or dispose of the Collateral or any part thereof upon
such terms as the Agent may deem commercially reasonable. Each Grantor agrees
that, to the extent notice of sale or any other disposition of the Collateral
shall be required by law, at least 10 days' prior notice to a Grantor of the
time and place of any public sale or the time after which any private sale or
other disposition of the Collateral is to be made shall constitute reasonable
notification. The Agent shall not be obligated to make any sale or other
disposition of Collateral regardless of notice of sale having been given. The
Agent 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. Each Grantor hereby
waives any claims against the Agent and the Lenders 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


                                      -18-

<PAGE>

obtained at a public sale or was less than the aggregate amount of the
Obligations, even if the Agent accepts the first offer received and does not
offer the Collateral to more than one offeree, and waives all rights that such
Grantor may have to require that all or any part of the Collateral be marshalled
upon any sale (public or private) thereof. Each Grantor hereby acknowledges that
(i) any such sale of the Collateral by the Agent shall be made without warranty,
(ii) the Agent may specifically disclaim any warranties of title, possession,
quiet enjoyment or the like, and (iii) such actions set forth in clauses (i) and
(ii) above shall not adversely effect the commercial reasonableness of any such
sale of the Collateral. In addition to the foregoing, (i) upon notice to any
Grantor from the Agent, each Grantor shall cease any use of the Intellectual
Property or any trademark, patent or copyright similar thereto for any purpose
described in such notice; (ii) the Agent may, at any time and from time to time,
upon 10 days' prior notice to any Grantor, license, whether general, special or
otherwise, and whether on an exclusive or non-exclusive basis, any of the
Intellectual Property, throughout the universe for such term or terms, on such
conditions, and in such manner, as the Agent shall in its sole discretion
determine; and (iii) the Agent may, at any time, pursuant to the authority
granted in Section 6 hereof (such authority being effective upon the occurrence
and during the continuance of an Event of Default), execute and deliver on
behalf of a Grantor, one or more instruments of assignment of the Intellectual
Property (or any application or registration thereof), in form suitable for
filing, recording or registration in any country.

          (b) Any cash held by the Agent as Collateral and all Cash Proceeds
received by the Agent in respect of any sale of or collection from, or other
realization upon, all or any part of the Collateral may, in the discretion of
the Agent, be held by the Agent as collateral for, and/or then or at any time
thereafter applied (after payment of any amounts payable to the Agent pursuant
to Section 8 hereof) in whole or in part by the Agent against, all or any part
of the Obligations in such order as the Agent shall elect, consistent with the
provisions of the Financing Agreement. Any surplus of such cash or Cash Proceeds
held by the Agent and remaining after termination of all Commitments and the
indefeasible payment in full of all of the Obligations, shall be paid over 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 Agent and the
Lenders are legally entitled, the Grantors shall be jointly and severally liable
for the deficiency, together with interest thereon at the highest rate specified
in any applicable Loan Document 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, costs, expenses and other client charges of
any attorneys employed by the Agent to collect such deficiency.

          (d) Each Grantor hereby acknowledges that if the Agent complies with
any applicable state or federal law requirements in connection with a
disposition of the Collateral, such compliance will not adversely affect the
commercial reasonableness of any sale or other disposition of the Collateral.

          (e) The Agent shall not be required to marshal any present or future
collateral security (including, but not limited to, this Agreement and the
Collateral) for, or other assurances of payment of, the Obligations or any of
them or to resort to such collateral security or other


                                      -19-

<PAGE>

assurances of payment in any particular order, and all of the Agent's rights
hereunder and in respect of such collateral security and other assurances of
payment shall be cumulative and in addition to all other rights, however
existing or arising. To the extent that any Grantor lawfully may, such Grantor
hereby agrees that it will not invoke any law relating to the marshalling of
collateral which might cause delay in or impede the enforcement of the Agent's
rights under this Agreement or under any other instrument creating or evidencing
any of the Obligations or under which any of the Obligations is outstanding or
by which any of the Obligations is secured or payment thereof is otherwise
assured, and, to the extent that it lawfully may, each Grantor hereby
irrevocably waives the benefits of all such laws.

          SECTION 8. Indemnity and Expenses.

          (a) Each Grantor jointly and severally agrees to defend, protect,
indemnify and hold each Indemnitee harmless from and against any and all
damages, losses, liabilities, obligations, penalties, fees, costs and expenses
(including, without limitation, reasonable legal fees, costs and expenses of
counsel) to the extent that they arise out of or otherwise result from this
Agreement (including, without limitation, enforcement of this Agreement);
provided, however, that the Grantors shall not have any obligation under this
Section 8(a) to any Indemnitee caused by such Person's gross negligence or
willful misconduct, as determined by a final judgment of a court of competent
jurisdiction.

          (b) Each Grantor jointly and severally agrees to pay to the Agent upon
demand the amount of any and all costs and expenses, including the reasonable
fees, costs, expenses and disbursements of counsel for the Agent and of any
experts and agents (including, without limitation, any collateral trustee which
may act as agent of the Agent), which the Agent may incur in connection with (i)
the preparation, negotiation, execution, delivery, recordation, administration,
amendment, waiver or other modification or termination 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 Agent hereunder, or (iv) the failure by any 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 (by certified mail,
postage prepaid and return receipt requested), telecopied or delivered by hand,
Federal Express or other reputable overnight courier, if to a Grantor, to it in
care of the Administrative Borrower at its address specified in the Financing
Agreement and if to the Agent, to it at its address specified in the Financing
Agreement; or as to any 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 9. All such notices and other
communications shall be effective (a) if sent by certified mail, postage prepaid
and return receipt requested, when received or 3 days after deposited in the
mails, whichever occurs first, (b) if telecopied, when transmitted and
confirmation received, or (c) if delivered by hand, Federal Express or other
reputable overnight courier, upon delivery.

          SECTION 10. Security Interest Absolute. All rights of the Agent and
the Lenders, all Liens and all obligations of each of the Grantors hereunder
shall be absolute and unconditional irrespective of (a) any lack of validity or
enforceability of the Financing


                                      -20-

<PAGE>

Agreement or any other Loan Document, (b) any change in the time, manner or
place of payment of, or in any other term in respect of, all or any of the
Obligations, or any other amendment or waiver of or consent to any departure
from the Financing Agreement or any other Loan Document, (c) any exchange or
release of (except to the extent of such release), or non-perfection of any Lien
on any Collateral, or any release or amendment or waiver of or consent to
departure from any guaranty, for all or any of the Obligations, or (d) any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, any of the Grantors in respect of the Obligations other than
payment in full of all Obligations. All authorizations and agencies contained
herein with respect to any of the Collateral are irrevocable and powers coupled
with an interest.

          SECTION 11. Miscellaneous.

          (a) No amendment of any provision of this Agreement (including any
Schedule attached hereto) shall be effective unless it is in writing and signed
by each Grantor and the Agent, and no waiver of any provision of this Agreement,
and no consent to any departure by any Grantor therefrom, shall be effective
unless it is in writing and signed by the Agent, 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 Agent or the Lenders 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 Agent and the Lenders 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
Agent and the Lenders under any Loan Document against any party thereto are not
conditional or contingent on any attempt by such Person to exercise any of its
rights under any other Loan Document against such party or against any other
Person, including but not limited to, any Grantor.

          (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
Collateral and shall (i) remain in full force and effect until the later of (A)
the indefeasible payment in full of all of the Obligations and (B) after the
termination of all Commitments and (ii) be binding on each Grantor and all other
Persons who become bound as debtor to this Agreement in accordance with Section
9-203(d) of the Code and shall inure, together with all rights and remedies of
the Agent and the Lenders hereunder, to the benefit of the Agent and the Lenders
and their respective permitted successors, transferees and assigns. Without
limiting the generality of clause (ii) of the immediately preceding sentence,
the Agent and the Lenders may assign or otherwise transfer their rights and
obligations under this Agreement and any other Loan Document in accordance with
the provisions of the Financing Agreement, to any other Person and such other
Person shall thereupon become vested with all of the benefits in respect thereof


                                      -21-

<PAGE>

granted to the Agent and the Lenders herein or otherwise. Upon any such
permitted assignment or transfer, all references in this Agreement to any such
Agent or any such Lender shall mean the assignee of such Agent or such Lender.
None of the rights or obligations of any Grantor hereunder may be assigned or
otherwise transferred without the prior written consent of the Agent, and any
such assignment or transfer shall be null and void.

          (e) Upon the satisfaction in full of the Obligations and the
termination of all Commitments, (i) this Agreement and the security interests
and licenses created hereby shall terminate and all rights to the Collateral
shall revert to the Grantors and (ii) the Agent will, upon the Grantors' request
and at the Grantors' expense, without any representation, warranty or recourse
whatsoever, (A) return to the Grantors 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 Grantors such documents as the Grantors shall
reasonably request to evidence such termination.

          (f) THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT AS REQUIRED BY
MANDATORY PROVISIONS OF LAW AND 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 COLLATERAL ARE GOVERNED BY THE LAW OF A JURISDICTION OTHER THAN THE
STATE OF NEW YORK.

          (g) ANY LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY DOCUMENT RELATED THERETO MAY BE BROUGHT IN THE COURTS OF THE
STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR THE UNITED STATES OF AMERICA FOR
THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS THEREOF, AND, BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH GRANTOR HEREBY ACCEPTS FOR ITSELF
AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION
OF THE AFORESAID COURTS. EACH GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY LAW, 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, SUIT 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) EACH OF THE GRANTORS (AND BY ITS ACCEPTANCE OF THE BENEFITS OF
THIS AGREEMENT, THE AGENT) 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


                                      -22-

<PAGE>

DEALING, VERBAL OR WRITTEN STATEMENT OR OTHER ACTION OF THE PARTIES HERETO.

          (i) Each Grantor irrevocably consents to the service of process of any
of the aforesaid courts in any such action, suit or proceeding by the mailing of
copies thereof by registered or certified mail (or any substantially similar
form of mail), postage prepaid, to such Grantor at its address provided herein,
such service to become effective 10 days after such mailing.

          (j) Nothing contained herein shall affect the right of the Agent to
serve process in any other manner permitted by law or commence legal proceedings
or otherwise proceed against any Grantor or any property of any Grantor in any
other jurisdiction.

          (k) Each Grantor irrevocably and unconditionally waives any right it
may have to claim or recover in any legal action, suit or proceeding referred to
in this Section any special, exemplary, punitive or consequential damages.

          (l) Section headings herein are included for convenience of reference
only and shall not constitute a part of this Agreement for any other purpose.

          (m) 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 constitute one in the
same Agreement. Delivery of an executed counterpart of this Agreement by
facsimile shall be equally effective as delivery of an original executed
counterpart.

          (n) All of the obligations of the Grantors hereunder are joint and
several. The Agent may, in its sole and absolute discretion, enforce the
provisions hereof against any of the Grantors and shall not be required to
proceed against all Grantors jointly or seek payment from the Grantors ratably.
In addition, the Agent may, in its sole and absolute discretion, select the
Collateral of any one or more of the Grantors for sale or application to the
Obligations, without regard to the ownership of such Collateral, and shall not
be required to make such selection ratably from the Collateral owned by all of
the Grantors. The release or discharge of any Grantor by the Agent shall not
release or discharge any other Grantor from the obligations of such Person
hereunder.

                [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]


                                      -23-

<PAGE>

          IN WITNESS WHEREOF, each Grantor has caused this Agreement to be
executed and delivered by its officer thereunto duly authorized, as of the date
first above written.

                                        GRANTORS:

                                        LAKES ENTERTAINMENT, INC.


                                        By: /S/ Timothy J. Cope
                                            ------------------------------------
                                        Name: Timothy J. Cope
                                        Title: President and Chief Financial
                                               Officer


                                        BORDERS LAND COMPANY, LLC
                                        GREAT LAKES GAMING OF MICHIGAN, LLC
                                        LAKES CLOVERDALE, LLC
                                        LAKES GAMING AND RESORTS, LLC
                                        LAKES GAME DEVELOPMENT, LLC
                                        LAKES GAMING-MISSISSIPPI, LLC
                                        LAKES IOWA CONSULTING, LLC
                                        LAKES IOWA MANAGEMENT, LLC
                                        LAKES JAMUL, INC.
                                        LAKES JAMUL DEVELOPMENT, LLC
                                        LAKES KAR SHINGLE SPRINGS, L.L.C.
                                        LAKES KEAN ARGOVITZ RESORTS-CALIFORNIA,
                                           L.L.C.
                                        LAKES KICKAPOO CONSULTING, LLC
                                        LAKES KICKAPOO MANAGEMENT, LLC
                                        LAKES NIPMUC, LLC
                                        LAKES PAWNEE CONSULTING, LLC
                                        LAKES PAWNEE MANAGEMENT, LLC
                                        LAKES POKER TOUR, LLC
                                        LAKES SHINGLE SPRINGS, INC.


                                        By: /S/ Timothy J. Cope
                                            ------------------------------------
                                        Name: Timothy J. Cope
                                        Title: Chief Financial Officer of each
                                               of the above listed entities.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.6
<SEQUENCE>8
<FILENAME>c02665exv10w6.txt
<DESCRIPTION>PLEDGE AGREEMENT
<TEXT>
<PAGE>
                                                                    EXHIBIT 10.6

                                                                  EXECUTION COPY

          PLEDGE AND SECURITY AGREEMENT, dated as of February 15, 2006 (as the
same may be amended, supplemented or otherwise modified from time to time, this
"Agreement"), made by each of the Pledgors referred to below, in favor of PLKS
Funding, LLC, a Delaware limited liability company, in its capacity as the Agent
for the Lenders (as such terms are defined below) party to the Financing
Agreement referred to below (in such capacity, together with its successors and
permitted assigns, the "Agent").

                                   WITNESSETH:

          WHEREAS, Lakes Entertainment, Inc., a Minnesota corporation (the
"Parent"), the subsidiaries of the Parent listed as a "Borrower" on the
signature pages thereto (together with the Parent, each a "Borrower" and
collectively, the "Borrowers"), each other subsidiary of the Parent that becomes
a "Guarantor" in accordance with the terms thereof (collectively, the
"Guarantors" and, together with the Borrowers, each a "Pledgor" and collectively
the "Pledgors"), the lenders from time to time party thereto (each a "Lender"
and collectively, the "Lenders"), and the Agent are parties to a Financing
Agreement, dated as of February 15, 2006 (such agreement, as amended, restated,
supplemented or otherwise modified from time to time, including any replacement
agreement therefor, being hereinafter referred to as the "Financing Agreement");

          WHEREAS, pursuant to the Financing Agreement, the Lenders have agreed
to make a certain Loans (each, a "Loan" and collectively, the "Loans") to the
Borrowers in an aggregate principal amount at any one time outstanding not to
exceed the Total Commitment (as defined in the Financing Agreement);

          WHEREAS, it is a condition precedent to the Lenders making any Loan to
the Borrowers pursuant to the Financing Agreement that each Pledgor shall have
executed and delivered to the Agent a pledge and security agreement providing
for the pledge to the Agent, for the benefit of the Agent and the Lenders, and
the grant to the Agent, for the benefit of the Agent and the Lenders, of a
security interest in and Lien on the outstanding shares of Capital Stock (as
defined in the Financing Agreement) and indebtedness from time to time owned by
such Pledgor of each Person now or hereafter existing and in which such Pledgor
has any interest at any time;

          WHEREAS, the Pledgors are mutually dependent on each other in the
conduct of their respective businesses as an integrated operation, with the
credit needed from time to time by each Pledgor often being provided through
financing obtained by the other Pledgors and the ability to obtain such
financing being dependent on the successful operations of all of the Pledgors as
a whole; and

          WHEREAS, each Pledgor has determined that the execution, delivery and
performance of this Agreement directly benefit, and are in the best interest of,
such Pledgor;

<PAGE>

          NOW, THEREFORE, in consideration of the premises and the agreements
herein and in order to induce the Lenders to make and maintain the Loans to the
Borrowers pursuant to the Financing Agreement, the Pledgors hereby jointly and
severally agree with the Agent, for the benefit of the Agent and the Lenders, as
follows:

          SECTION 1. Definitions.

               (a) Reference is hereby made to the Financing Agreement for a
statement of the terms thereof. All terms used in this Agreement which are
defined in the Financing Agreement or in Article 8 or Article 9 of the Uniform
Commercial Code (the "Code") as in effect from time to time in the State of New
York and which are not otherwise defined herein shall have the same meanings
herein as set forth therein; provided, that terms used herein which are defined
in the Code as in effect in the State of New York on the date hereof shall
continue to have the same meaning notwithstanding any replacement or amendment
of such statute except as the Agent may otherwise determine.

               (b) As used in this Agreement, the following term shall have the
meaning indicated below:

               "Excluded Debt" means, subject to the last sentence of Section 4,
(i) any indebtedness in respect of Shingle Springs, Jamul, Iowa or Pawnee (but
not including indebtedness in respect of Pokagon), and (ii) any other
indebtedness of an Indian Tribe payable to a Loan Party, however evidenced,
identified by the Parent as such upon the written good faith representation of
the Parent to the Agent (upon Parent's consultation with a reputable law firm
with expertise in gaming matters) that the grant of security interest therein
would reasonably be expected to subject a secured party to review by or approval
of an Indian Gaming Authority.

               "Indian Gaming Authority" means the National Indian Gaming
Commission and such state and tribal gaming authorities as authorized by the
applicable tribal-state gaming compact.

          SECTION 2. Pledge and Grant of Security Interest. As collateral
security for all of the Obligations (as defined in Section 3 hereof), each
Pledgor hereby pledges and assigns to the Agent, and grants to the Agent, for
the benefit of the Agent and the Lenders, a continuing security interest in, and
Lien on such Pledgor's right, title and interest in and to the following
(collectively, the "Pledged Collateral"):

               (a) the indebtedness described in Schedule I hereto and all
indebtedness from time to time required to be pledged to the Agent pursuant to
the terms of the Financing Agreement, in any event to exclude the Excluded Debt
(the "Pledged Debt"), the promissory notes and other instruments evidencing the
Pledged Debt, and all interest, cash, instruments, investment property 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 Debt;

               (b) the shares of Capital Stock described in Schedule II hereto
(the "Pledged Shares"), whether or not evidenced or represented by any stock
certificate, certificated security or other instrument, issued by the Persons
described in such Schedule II (the "Existing Issuers"), the certificates
representing the Pledged Shares, all options and other rights,


                                      -2-

<PAGE>

contractual or otherwise, in respect thereof and all dividends, distributions,
cash, instruments, investment property and other property (including, but not
limited to, any stock dividend and any distribution in connection with a stock
split) from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Shares; but such Pledged
Shares in any event to exclude the shares of any Excluded Subsidiaries.

               (c) the shares of Capital Stock at any time and from time to time
acquired by such Pledgor of any and all Persons now or hereafter existing (such
Persons, together with the Existing Issuers, being hereinafter referred to
collectively as the "Pledged Issuers" and individually as a "Pledged Issuer")
other than the shares of Capital Stock of any Excluded Subsidiary which shall
not be subject to any security interest under this Agreement or any other Loan
Document, the certificates representing such Capital Stock, all options and
other rights, contractual or otherwise, in respect thereof and all dividends,
distributions, cash, instruments, investment property and other property
(including, but not limited to, any stock dividend and any distribution in
connection with a stock split) from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the
foregoing;

               (d) except for Excluded Debt and Capital Stock of the Excluded
Subsidiaries all investment property, financial assets, securities, Capital
Stock, other equity interests, stock options and commodity contracts of such
Pledgor, all notes, debentures, bonds, promissory notes or other evidences of
indebtedness of such Pledgor, and all other assets now or hereafter received or
receivable with respect to the foregoing;

               (e) except for Excluded Debt and Capital Stock of the Excluded
Subsidiaries all security entitlements of such Pledgor in any and all of the
foregoing; and

               (f) all proceeds (including proceeds of proceeds) of any and all
of the foregoing;

in each case, whether now owned or hereafter acquired by such Pledgor and
howsoever its interest therein may arise or appear (whether by ownership,
security interest, Lien, claim or otherwise).

Notwithstanding the foregoing, if any Pledged Issuer, is organized or formed
under the laws of a jurisdiction other than the District of Columbia or any
State or territory of the United States of America, such Pledgor shall pledge
not more than 65% of the Capital Stock of such Pledged Issuer.

          SECTION 3. Security for Obligations. The security interest created
hereby in the Pledged Collateral constitutes continuing collateral security for
all of the following obligations, whether now existing or hereafter incurred
(the "Obligations"):

               (a) the prompt payment by each Pledgor, as and when due and
payable (whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise), of all amounts from time to time owing by it in respect of
the Financing Agreement and the other Loan Documents, including, without
limitation, (i) all Obligations (as defined in the Financing Agreement)
(including, without limitation, all interest, fees and expenses that accrue
after the commencement of any Insolvency Proceeding of any Loan Party whether or
not the payment of


                                      -3-

<PAGE>

such interest, fees or expenses are unenforceable or are not allowable, in whole
or in part, due to the existence of such Insolvency Proceeding), (ii) in the
case of a Guarantor, all amounts from time to time owing by such Pledgor in
respect of its guaranty made pursuant to a Guaranty to which it is a party,
including all obligations guaranteed by such Pledgor and (iii) all commissions,
charges, indemnifications and all other amounts due or to become due under any
Loan Document; and

               (b) the due performance and observance by each Pledgor of all of
its other obligations from time to time existing in respect of the Loan
Documents.

          SECTION 4. Delivery of the Pledged Collateral.

               (a) (i) All promissory notes currently evidencing the Pledged
Debt and all certificates currently representing the Pledged Shares shall be
delivered to the Agent on or prior to the execution and delivery of this
Agreement. All other promissory notes, certificates and instruments constituting
Pledged Collateral from time to time required to be pledged to the Agent
pursuant to the terms of this Agreement or the Financing Agreement (the
"Additional Collateral") shall be delivered to the Agent promptly upon, but in
any event within five (5) days of, receipt thereof by or on behalf of any of the
Pledgors. All such promissory notes, certificates and instruments shall be held
by or on behalf of the Agent 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 or undated stock powers executed in blank,
all in form and substance reasonably satisfactory to the Agent. If any Pledged
Collateral consists of uncertificated securities, unless the immediately
following sentence is applicable thereto, such Pledgor shall cause the Agent (or
its designated custodian or nominee) to become the registered holder thereof, or
cause each issuer of such securities to agree that it will comply with
instructions originated by the Agent with respect to such securities without
further consent by such Pledgor. If any Pledged Collateral consists of security
entitlements, such Pledgor shall transfer such security entitlements to the
Agent (or its custodian, nominee or other designee), or cause the applicable
securities intermediary to agree that it will comply with entitlement orders by
the Agent without further consent by such Pledgor. If no Event of Default has
occurred and is continuing, any Pledged Debt held by the Agent in respect of a
Project or new project developed in accordance with the Terms of the Loan
Documents shall be returned to the applicable Loan Party within two (2) Business
Days from the date such Loan Party notifies the Agent that an amendment to such
Pledge Debt is to be made it being understood that such Loan Party shall,
promptly, but in any event, within two (2) Business Days of receipt thereof,
provide the amended Pledged Debt to the Agent. It is understood that if any
Excluded Debt shall no longer be properly classified as Excluded Debt (because
the grant of a security interest therein would no longer subject a secured party
to licensing requirements or other review, approval of consent requirements
under tribal compacts or by any other Indian gaming authority) than such
Excluded Debt shall be automatically reclassified as Pledged Debt and delivered
in accordance with the terms hereof.

                    (ii) Within five (5) days of the receipt by a Pledgor of any
Additional Collateral, a Pledge Amendment, duly executed by such Pledgor, in
substantially the form of Annex I hereto (a "Pledge Amendment"), shall be
delivered to the Agent, in respect of the Additional Collateral which must be
pledged pursuant to this Agreement and the Financing


                                      -4-

<PAGE>

Agreement. The Pledge Amendment shall from and after delivery thereof constitute
part of Schedules I and II hereto. Each Pledgor hereby authorizes the Agent to
attach each Pledge Amendment to this Agreement and agrees that all promissory
notes, certificates or instruments listed on any Pledge Amendment delivered to
the Agent shall for all purposes hereunder constitute Pledged Collateral and
such Pledgor shall be deemed upon delivery thereof to have made the
representations and warranties set forth in Section 5 hereof with respect to
such Additional Collateral.

               (b) If any Pledgor shall receive, by virtue of such Pledgor's
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 any such
Pledgor pursuant to Section 7 hereof) or in securities or other property or (iv)
dividends, distributions, cash, instruments, investment property and other
property in connection with a partial or total liquidation or dissolution or in
connection with a reduction of capital, capital surplus or paid-in surplus, such
Pledgor shall receive such stock certificate, promissory note, instrument,
option, right, payment or distribution in trust for the benefit of the Agent,
shall segregate it from such Pledgor's other property and shall deliver it
forthwith to the Agent, in the exact form received, with any necessary
indorsement and/or appropriate stock powers duly executed in blank, to be held
by the Agent as Pledged Collateral and as further collateral security for the
Obligations.

          SECTION 5. Representations and Warranties. Each Pledgor jointly and
severally represents and warrants (but to the extent any representation or
warranty in this Section 5 is substantively the same as a representation or
warranty contained in Article V of the Financing Agreement and such
representation or warranty is qualified by a materiality or other qualifier in
the Financing Agreement, such representation or warranty herein shall be subject
to the same materiality or other qualifier as in Article V of the Financing
Agreement) as follows:

               (a) Each Pledgor (i) is a corporation, limited liability company
or limited partnership duly organized, validly existing and in good standing
under the laws of the state, province or other applicable jurisdiction of its
organization, (ii) has all requisite power and authority to conduct its business
as now conducted and as presently contemplated and to execute, deliver and
perform this Agreement and each other Loan Document to be executed and delivered
by it pursuant hereto and to consummate the transactions contemplated hereby and
thereby, and (iii) is duly qualified to do business and is in good standing
(except in the case of Louisiana where a dispute regarding taxes is currently
ongoing and as to which the aggregate tax liability shall not exceed an amount
indicated in Section 5.01(k) of the Financing Agreement) 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.

               (b) The execution, delivery and performance by each Pledgor of
this Agreement and each other Loan Document to which such Pledgor is or will be
party (i) have been duly authorized by all necessary corporate, limited
liability company or limited partnership,


                                      -5-

<PAGE>

as the case may be, action, (ii) do not and will not contravene its charter or
by-laws, its limited liability company or operating agreement or its certificate
of partnership or partnership agreement, as applicable, or any applicable law or
any Material Contract, (iii) do not and will not result in or require the
creation of any Lien (other than pursuant to any Loan Document) upon or with
respect to any of its properties other than pursuant to this Agreement and (iv)
do not and will not result in any default, noncompliance, suspension,
revocation, impairment, forfeiture or nonrenewal of any permit, license,
authorization or approval applicable to its operations or any of its properties.

               (c) The Existing Issuers set forth in Schedule II hereto are the
Pledgors' only Subsidiaries existing on the date hereof. The Pledged Shares have
been duly authorized and validly issued and are fully paid and nonassessable and
the holders thereof are not entitled to any preemptive, first refusal or other
similar rights. Except as noted in Schedule II hereto and the last sentence of
Section 2, the Pledged Shares constitute 100% of the issued shares of Capital
Stock of the Pledged Issuers as of the date hereof. All other shares of stock
constituting Pledged Collateral will be duly authorized and validly issued,
fully paid and nonassessable.

               (d) The promissory notes currently evidencing the Pledged Debt
have been, and all other promissory notes from time to time evidencing Pledged
Debt, when executed and delivered, will have been, duly authorized, executed and
delivered by the respective makers thereof, and all such promissory notes are or
will be, as the case may be, legal, valid and binding obligations of such
makers, enforceable against such makers in accordance with their respective
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws.

               (e) Each Pledgor is and will be at all times the legal and
beneficial owner of its Pledged Collateral free and clear of all Liens, except
for the Lien created by this Agreement.

               (f) The exercise by the Agent of any of its rights and remedies
hereunder will not contravene any law or any Material Contract and will not
result in or require the creation of any Lien upon or with respect to any of the
properties of such Pledgor other than pursuant to this Agreement or the other
Loan Documents.

               (g) No authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority is required to be obtained
or made by any Pledgor for (i) the due execution, delivery and performance by
any Pledgor of this Agreement, (ii) the grant by any Pledgor, or the perfection,
of the Lien created hereby in the Pledged Collateral or (iii) the exercise by
the Agent 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.

               (h) This Agreement creates a valid Lien in favor of the Agent,
for the benefit of the Agent and the Lenders, in the Pledged Collateral as
security for the Obligations. The Agent's having possession of the promissory
notes evidencing the Pledged Debt, the certificates representing the Pledged
Shares and all other certificates, instruments and cash


                                      -6-

<PAGE>

constituting Pledged Collateral from time to time results in the perfection of
such Lien. Such Lien is, or in the case of Pledged Collateral in which any of
the Pledgors obtains rights after the date hereof, will be, a perfected, first
priority Lien. All action necessary or desirable to perfect and protect such
Lien has been duly taken, except for the Agent's having possession of
certificates, instruments and cash constituting Pledged Collateral after the
date hereof.

               (i) This Agreement is, and each other Loan Document to which any
Pledgor is or will be a party, when executed and delivered, will be, a legal
valid and binding obligation of such Pledgor, enforceable against such Pledgor
in accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws.

          SECTION 6. Covenants as to the Pledged Collateral. So long as any of
the Obligations shall remain outstanding or prior to the termination of the
Total Commitment, each Pledgor will, unless the Agent shall otherwise consent in
writing:

               (a) keep adequate records concerning the Pledged Collateral and
permit the Agent or any agents, designees or representatives thereof at any time
or from time to time to examine and make copies of and abstracts from such
records;

               (b) at the Pledgors' joint and several expense, promptly deliver
to the Agent a copy of each notice or other communication received by it in
respect of the Pledged Collateral;

               (c) at the Pledgors' joint and several expense, defend the
Agent's right, title and security interest in and to the Pledged Collateral
against the claims of any Person;

               (d) at the Pledgors' joint and several 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 Agent may reasonably request in order to (i) perfect and protect, or
maintain the perfection of, the security interest and Lien created hereby, (ii)
enable the Agent 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 Agent 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
expressly permitted by Section 6.02 of the Financing Agreement whereupon Agent
will release its security interest under the terms of the Financing Agreement;

               (f) not create or suffer to exist any Lien upon or with respect
to any Pledged Collateral, except for the Lien created hereby or any Permitted
Lien.

               (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 to or as permitted by the Loan Documents.


                                      -7-

<PAGE>

               (h) not permit the issuance of (i) any additional shares of any
class of Capital Stock of any Pledged Issuer, (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 validity or enforceability of the Agent's security interest in and
Lien on any Pledged Collateral.

          SECTION 7. Voting Rights, Dividends, Etc. in Respect of the Pledged
Collateral.

               (a) So long as no Event of Default shall have occurred and be
continuing:

                    (i) each Pledgor may exercise any and all voting and other
consensual rights pertaining to any Pledged Shares for any purpose not
inconsistent with the terms of this Agreement, the Financing Agreement or the
other Loan Documents; provided, however, that (A) none of the Pledgors will
exercise or refrain from exercising any such right, as the case may be, if the
Agent gives a Pledgor notice that, in the Agent's judgment, such action (or
inaction) is reasonably likely to have a Material Adverse Effect and (B) each
Pledgor will give the Agent at least five (5) Business Days' notice of the
manner in which it intends to exercise, or the reasons for refraining from
exercising, any such right which is reasonably likely to have a Material Adverse
Effect;

                    (ii) each of the Pledgors may receive and retain any and all
dividends, interest or other distributions paid in respect of the Pledged
Collateral to the extent permitted by the Financing Agreement; 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, together with any
dividend, interest or other distribution or payment which at the time of such
payment was not permitted by the Financing Agreement, shall be, and shall
forthwith be delivered to the Agent, to hold as, Pledged Collateral and shall,
if received by any of the Pledgors, be received in trust for the benefit of the
Agent, shall be segregated from the other property or funds of the Pledgors, and
shall be forthwith delivered to the Agent in the exact form received with any
necessary indorsement and/or appropriate stock powers duly executed in blank, to
be held by the Agent as Pledged Collateral and as further collateral security
for the Obligations under the terms of the Loan Documents; and

                    (iii) the Agent will execute and deliver (or cause to be
executed and delivered) to a Pledgor all such proxies and other instruments as
such Pledgor may


                                      -8-

<PAGE>

reasonably request for the purpose of enabling such Pledgor to exercise the
voting and other rights which it is entitled to exercise pursuant to Section
7(a)(i) hereof and to receive the dividends, interest and/or other distributions
which it is authorized to receive and retain pursuant to Section 7(a)(ii)
hereof.

               (b) Upon the occurrence and during the continuance of an Event of
Default:

                    (i) all rights of each Pledgor to exercise the voting and
other consensual rights which it would otherwise be entitled to exercise
pursuant to Section 7(a)(i) hereof, and to receive the dividends, distributions,
interest and other payments that it would otherwise be authorized to receive and
retain pursuant to Section 7(a)(ii) hereof, shall cease, and all such rights
shall thereupon become vested in the Agent, 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) the Agent is authorized to notify each debtor with
respect to the Pledged Debt to make payment directly to the Agent (or its
designee) and may collect any and all moneys due or to become due to any Pledgor
in respect of the Pledged Debt, and each of the Pledgors hereby authorizes each
such debtor to make such payment directly to the Agent (or its designee) without
any duty of inquiry;

                    (iii) without limiting the generality of the foregoing, the
Agent 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 any Pledged Issuer, or upon the exercise by any Pledged
Issuer 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

                    (iv) all dividends, distributions, interest and other
payments that are received by any of the Pledgors contrary to the provisions of
Section 7(b)(i) hereof shall be received in trust for the benefit of the Agent,
shall be segregated from other funds of the Pledgors, and shall be forthwith
paid over to the Agent as Pledged Collateral in the exact form received with any
necessary indorsement and/or appropriate stock powers duly executed in blank, to
be held by the Agent as Pledged Collateral and as further collateral security
for the Obligations.

          SECTION 8. Additional Provisions Concerning the Pledged Collateral.

               (a) To the maximum extent permitted by applicable law, and for
the purpose of taking any action that the Agent may deem necessary or advisable
to accomplish the purposes of this Agreement, each Pledgor (i) authorizes the
Agent to execute any such agreements, instruments or other documents in such
Pledgor's name and to file such agreements, instruments or other documents in
such Pledgor's name and to file such agreements, instruments,


                                      -9-

<PAGE>

or other documents in any appropriate filing office, (ii) authorizes the Agent
to file any financing statements required hereunder or under any other Loan
Document, and any continuation statements or amendment with respect thereto, in
any appropriate filing office without the signature of such Pledgor and (iii)
ratifies the filing of any financing statement, and any continuation statement
or amendment with respect thereto, filed without the signature of such Pledgor
prior to the date hereof. A photocopy or other reproduction of this Agreement or
any financing statement covering the Pledged Collateral or any part thereof
shall be sufficient as a financing statement where permitted by law.

               (b) Each Pledgor hereby irrevocably appoints the Agent as such
Pledgor's attorney-in-fact and proxy (exercisable only during the continuance of
an Event of Default), with full authority in the place and stead of such Pledgor
and in the name of such Pledgor or otherwise, from time to time in the Agent's
discretion, to take any action and to execute any instrument that the Agent may
deem necessary or advisable to accomplish the purposes of this Agreement
(subject to the rights of such Pledgor under Section 7(a) hereof), including,
without limitation, to receive, indorse and collect all instruments made payable
to such Pledgor representing any dividend, interest payment or other
distribution in respect of any Pledged Collateral and to give full discharge for
the same. This power is coupled with an interest and is irrevocable until the
date on which all of the Obligations have been indefeasibly paid in full in cash
after the termination of the Loan Documents.

               (c) If any Pledgor fails to perform any agreement or obligation
contained herein, the Agent itself may perform, or cause performance of, such
agreement or obligation, and the expenses of the Agent incurred in connection
therewith shall be jointly and severally payable by the Pledgors pursuant to
Section 10 hereof and shall be secured by the Pledged Collateral.

               (d) Other than the exercise of reasonable care to assure the safe
custody of the Pledged Collateral while held hereunder, the Agent 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 any of the Pledgors. The Agent 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 Agent accords its own property, it being
understood that the Agent 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 Agent
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.

               (e) The powers conferred on the Agent hereunder are solely to
protect its interest in the Pledged Collateral and shall not impose any duty
upon the Agent to exercise any such powers. Except for the safe custody of any
Pledged Collateral in its possession and the accounting for monies actually
received by it hereunder, the Agent shall have no duty as to any Pledged
Collateral or as to the taking of any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Pledged Collateral.


                                      -10-

<PAGE>

               (f) The Agent may at any time in its discretion (i) without
notice to any Pledgor, transfer or register in the name of the Agent or any of
its nominees any or all of the Pledged Collateral, subject only to the revocable
rights of such Pledgor under Section 7(a) hereof, and (ii) exchange certificates
or instruments constituting Pledged Collateral for certificates or instruments
of smaller or larger denominations.

          SECTION 9. Remedies Upon Default. If any Event of Default shall have
occurred and be continuing:

               (a) The Agent may exercise in respect of the Pledged Collateral,
in addition to any other rights and remedies provided for herein or otherwise
available to it, all of the rights and remedies of a secured party upon 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 the Agent may deem commercially reasonable.
Each Pledgor agrees that, to the extent notice of sale shall be required by law,
at least five (5) days' notice to such Pledgor of the time and place of any
public sale of Pledged Collateral owned by such Pledgor or the time after which
any private sale is to be made shall constitute reasonable notification. The
Agent shall not be obligated to make any sale of Pledged Collateral regardless
of whether or not notice of sale has been given. The Agent 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) [Intentionally omitted]

               (c) Each Pledgor recognizes that the Agent 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 Agent 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. Each 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 Agent shall have no obligation to delay the 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. Each 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 to not
less than fifteen bona fide offerees shall be deemed to involve a "public
disposition" for the purposes of Section 9-610(c) 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 Agent may, in such event, bid for the
purchase of such securities.


                                      -11-

<PAGE>

               (d) Any cash held by the Agent as Pledged Collateral and all cash
proceeds received by the Agent in respect of any sale of, collection from,
disposition or other realization upon, all or any part of the Pledged Collateral
may, in the discretion of the Agent, be held by the Agent as collateral for,
and/or then or at any time thereafter applied (after payment of any amounts
payable to the Agent pursuant to Section 10 hereof) in whole or in part by the
Agent against, all or any part of the Obligations in such order as the Agent
shall elect consistent with the provisions of the Financing Agreement. Any
surplus of such cash or cash proceeds held by the Agent and remaining after the
date on which all of the Obligations have been indefeasibly paid in full in cash
after the termination of the Loan Documents shall be paid over to the Pledgors
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,
disposition or realization are insufficient to pay all amounts to which the
Agent and the Lenders are legally entitled, the Pledgors shall be jointly and
severally liable for the deficiency, together with interest thereon at the
highest rate specified in any applicable Loan Document 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, costs and
expenses and other client charges of any attorneys employed by the Agent to
collect such deficiency.

          SECTION 10. Indemnity and Expenses.

               (a) Each Pledgor jointly and severally agrees to defend, protect,
indemnify and hold harmless each Indemnitee from and against any and all claims,
damages, losses, liabilities, obligations, penalties, fees, reasonable costs and
expenses (including, without limitation, reasonable legal fees, costs, expenses
and disbursements) incurred by such Indemnitee to the extent that they arise out
of or otherwise result from this Agreement (including, without limitation,
enforcement of this Agreement), except, claims, losses or liabilities resulting
solely and directly from such Indemnitee's gross negligence or willful
misconduct as determined by a final judgment of a court of competent
jurisdiction.

               (b) Each Pledgor jointly and severally agrees to pay to the Agent
upon demand the amount of any and all costs and expenses, including the
reasonable fees, costs, expenses and disbursements of the Agent's counsel and of
any experts and agents (including, without limitation, any collateral trustee
which may act as agent of the Agent) which the Agent may incur in connection
with (i) the preparation, negotiation, execution, delivery, recordation,
administration, amendment, waiver or other modification or termination of this
Agreement, (ii) the custody, preservation, use or operation of, or the sale of,
collection from, or other realization upon, any Pledged Collateral, (iii) the
exercise or enforcement of any of the rights of the Agent hereunder, or (iv) the
failure by any 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, telecopied or
delivered, if to any Pledgor, to it in care of the Parent at its address
specified in the Financing Agreement; if to the Agent, to it at its address
specified in the Financing Agreement; or as to any 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


                                      -12-

<PAGE>

effective (a) if mailed (by certified mail, postage prepaid and return receipt
requested), when received or three (3) Business Days after deposited in the
mails, whichever occurs first, (b) if telecopied, when transmitted and
confirmation received, provided same is on a Business Day and, if not, on the
next Business Day or (c) if delivered, upon delivery, provided same is on a
Business Day and, if not, on the next Business Day.

          SECTION 12. Security Interest Absolute. All rights of the Agent and
the Lenders, all Liens and all obligations of each of the Pledgors hereunder
shall be absolute and unconditional irrespective of: (a) any lack of validity or
enforceability of the Financing Agreement or any other Loan Document, (b) any
change in the time, manner or place of payment of, or in any other term in
respect of, all or any of the Obligations, or any other amendment or waiver of
or consent to any departure from the Financing Agreement or any other Loan
Document, (c) any exchange or release of, or non-perfection of any Lien on any
Collateral, or any release or amendment or waiver of, or consent to or departure
from any guaranty, for all or any of the Obligations, or (d) any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, any of the Pledgors in respect of the Obligations. All
authorizations and agencies contained herein with respect to any of the Pledged
Collateral are irrevocable and powers coupled with an interest.

          SECTION 13. Miscellaneous.

               (a) No amendment of any provision of this Agreement (including
any Schedule attached hereto) shall be effective unless it is in writing and
signed by each Pledgor and the Agent, and no waiver of any provision of this
Agreement, and no consent to any departure by any of the Pledgors therefrom,
shall be effective unless it is in writing and signed by the Agent, 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 Agent or the Lenders 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 Agent and the
Lenders 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 Agent and the Lenders under any Loan Document against any
party thereto are not conditional or contingent on any attempt by the Agent or
the Lenders to exercise any of their rights under any other 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
and Lien on the Pledged Collateral and shall (i) remain in full force and effect
until the date on which all of the Obligations have been indefeasibly paid in
full in cash after the termination of the Loan Documents and (ii) be binding on
each Pledgor and its respective successors and assigns, and


                                      -13-

<PAGE>

shall inure, together with all rights and remedies of the Agent and the Lenders
hereunder, to the benefit of the Agent and the Lenders and their respective
successors, transferees and assigns. Without limiting the generality of clause
(ii) of the immediately preceding sentence, the Agent and the Lenders may assign
or otherwise transfer their respective rights and obligations under this
Agreement and any other Loan Document to any other Person pursuant to the terms
of the Financing Agreement, and such other Person shall thereupon become vested
with all of the benefits in respect thereof granted to the Agent and the Lenders
herein or otherwise. Upon any such assignment or transfer, all references in
this Agreement to any Agent or any Lender shall mean the assignee of the Agent
or such Lender. None of the rights or obligations of any of the Pledgors
hereunder may be assigned or otherwise transferred without the prior written
consent of the Agent, and any such assignment or transfer shall be null and
void.

               (e) Upon the date on which all of the Obligations have been
indefeasibly paid in full in cash after the termination of the Loan Documents,
(i) this Agreement and the security interest and Lien created hereby shall
terminate and all rights to the Pledged Collateral shall revert to the Pledgors,
and (ii) the Agent will, upon the Pledgors' request and at the Pledgors'
expense, without any representation, warranty or recourse whatsoever, (A) return
to the Pledgors 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 Pledgors such documents as the Pledgors shall reasonably
request to evidence such termination.

               (f) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT AS REQUIRED BY
MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT THE VALIDITY AND
PERFECTION OR THE PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF
THE SECURITY INTEREST AND LIEN 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.

               (g) Section headings herein are included for convenience of
reference only and shall not constitute a part of this Agreement for any other
purpose.

               (h) This Agreement may be executed in any number of counterparts
and by the different parties hereto on separate counterparts, each of which
shall be deemed an original, but all such counterparts shall constitute one and
the same agreement. Delivery of an executed counterpart of this Agreement by
facsimile or electronic mail shall be equally effective as delivery of an
original executed counterpart.

               (i) All of the obligations of the Pledgors hereunder are joint
and several. The Agent may, in its sole and absolute discretion, enforce the
provisions hereof against any of the Pledgors and shall not be required to
proceed against all Pledgors jointly or seek payment from the Pledgors ratably.
In addition, the Agent may, in its sole and absolute discretion, select the
Pledged Collateral of any one or more of the Pledgors for sale or application to
the Obligations, without regard to the ownership of such Pledged Collateral, and
shall not be required to make such selection ratably from the Pledged Collateral
owned by all of the Pledgors. The


                                      -14-

<PAGE>

release or discharge of any Pledgor by the Agent shall not release or discharge
any other Pledgor from the obligations of such Person hereunder.


                                      -15-

<PAGE>

          IN WITNESS WHEREOF, each Pledgor has caused this Agreement to be
executed and delivered by its officer thereunto duly authorized, as of the date
first above written.

                                 PLEDGORS:

                                 LAKES ENTERTAINMENT, INC.


                                 By: /s/ Timothy J. Cope
                                     -------------------------------------------
                                 Name: Timothy J. Cope
                                 Title: President and Chief Financial Officer


                                 BORDERS LAND COMPANY, LLC
                                 GREAT LAKES GAMING OF MICHIGAN, LLC
                                 LAKES CLOVERDALE, LLC
                                 LAKES GAMING AND RESORTS, LLC
                                 LAKES GAME DEVELOPMENT, LLC
                                 LAKES GAMING-MISSISSIPPI, LLC
                                 LAKES IOWA CONSULTING, LLC
                                 LAKES IOWA MANAGEMENT, LLC
                                 LAKES JAMUL, INC.
                                 LAKES JAMUL DEVELOPMENT, LLC
                                 LAKES KAR SHINGLE SPRINGS, L.L.C.
                                 LAKES KEAN ARGOVITZ RESORTS-CALIFORNIA, L.L.C.
                                 LAKES KICKAPOO CONSULTING, LLC
                                 LAKES KICKAPOO MANAGEMENT, LLC
                                 LAKES NIPMUC, LLC
                                 LAKES PAWNEE CONSULTING, LLC
                                 LAKES PAWNEE MANAGEMENT, LLC
                                 LAKES POKER TOUR, LLC
                                 LAKES SHINGLE SPRINGS, INC.


                                 By: /s/ Timothy J. Cope
                                     -------------------------------------------
                                 Name: Timothy J. Cope
                                 Title: Chief Financial Officer of each of the
                                        above listed entitie
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>9
<FILENAME>c02665exv10w7.txt
<DESCRIPTION>MORTGAGE, ASSIGNMENT OF LEASES AND RENTS
<TEXT>
<PAGE>
                                                                    Exhibit 10.7

          MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT
                               AND FIXTURE FILING

                                     made by
                            LAKES ENTERTAINMENT, INC.
                                  (MORTGAGOR)

                                   IN FAVOR OF
                     PLKS FUNDING, LLC, AS COLLATERAL AGENT
                                  (MORTGAGEE)

                               PROPERTY LOCATION:
                          130 CHESHIRE LANE, MINNETONKA
                           HENNEPIN COUNTY, MINNESOTA

                          DATED AS OF FEBRUARY 15, 2006

           THIS MORTGAGE WAS PREPARED BY AND WHEN RECORDED, RETURN TO:
                                        Schulte Roth & Zabel LLP
                                        19 Third Avenue
                                        New York, New York 10022
                                        Attention: Caryn J. Ettinger, Esq.
                                        Ref. No.: 089253.0012

Notwithstanding anything to the contrary herein, enforcement of this mortgage is
limited to a debt amount of $8,000,000.00 under chapter 287 of Minnesota
Statutes.

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>                                                                         <C>
ARTICLE I. DEFINITIONS...................................................     2
   Section 1.01 Terms Defined Above......................................     2
   Section 1.02 Definitions..............................................     2
   Section 1.03 Terminology; Other Defined Terms.........................     5

ARTICLE II. GRANT OF LIEN AND SECURITY INTEREST..........................     5
   Section 2.01 Grant of Lien............................................     5
   Section 2.02 Grant of Security Interest...............................     6
   Section 2.03 No Obligation of Mortgagee...............................     6
   Section 2.04 Fixture Filing...........................................     6
   Section 2.05 Future Advances..........................................     7

ARTICLE III. ASSIGNMENT OF LEASES AND RENTS..............................     7
   Section 3.01 Assignment...............................................     7
   Section 3.02 Revocable License........................................     7
   Section 3.03 Enforcement of Leases....................................     8
   Section 3.04 Direction to Tenants.....................................     8
   Section 3.05 Appointment of Attorney-in-Fact..........................     9
   Section 3.06 No Liability of Mortgagee................................     9
   Section 3.07 Mortgagor's Indemnities..................................    10
   Section 3.08 No Modification of Mortgagor's Obligations...............    10

ARTICLE IV. REPRESENTATIONS AND WARRANTIES...............................    10
   Section 4.01 Title to Mortgaged Property and Lien of this Mortgage....    11
   Section 4.02 Taxes and Other Payments.................................    11
   Section 4.03 Power to Create Lien and Security........................    11
   Section 4.04 Loan and Loan Documents..................................    11
   Section 4.05 Compliance with Laws.....................................    11
   Section 4.06 No Condemnation..........................................    12
   Section 4.07 Flood Zone...............................................    12

ARTICLE V. AFFIRMATIVE COVENANTS.........................................    12
   Section 5.01 Lien Status..............................................    12
   Section 5.02 Payment of Impositions...................................    12
   Section 5.03 Repair...................................................    13
   Section 5.04 Insurance and Application of Insurance Proceeds..........    13
   Section 5.05 Condemnation and Application of Condemnation Proceeds....    16
   Section 5.06 Maintenance of Rights-of-Way, Easements, Licenses and
                Other Rights.............................................    17
   Section 5.07 Payment and Performance of Obligations...................    18
   Section 5.08 Compliance with Permitted Liens and Other Obligations....    18
   Section 5.09 Additional Affirmative Covenants.........................    18

ARTICLE VI. NEGATIVE COVENANTS...........................................    18
   Section 6.01 Use Violations...........................................    18
   Section 6.02 Waste....................................................    18
   Section 6.03 Alterations..............................................    19
   Section 6.04 No Further Encumbrances..................................    19
</TABLE>


                                       -i-

<PAGE>

<TABLE>
<S>                                                                         <C>
   Section 6.05 Transfer Restrictions....................................    19
   Section 6.06 Additional Negative Covenants............................    19

ARTICLE VII. EVENTS OF DEFAULT AND REMEDIES..............................    19
   Section 7.01 Event of Default.........................................    19
   Section 7.02 Foreclosure and Sale.....................................    20
   Section 7.03 Mortgagee's Agents.......................................    21
   Section 7.04 Judicial Foreclosure.....................................    21
   Section 7.05 Receiver.................................................    21
   Section 7.06 Foreclosure for Installments.............................    21
   Section 7.07 Separate Sales...........................................    22
   Section 7.08 Possession of Mortgaged Property.........................    22
   Section 7.09 Occupancy After Acceleration.............................    22
   Section 7.10 Remedies Cumulative, Concurrent and Nonexclusive.........    23
   Section 7.11 No Release of Obligations................................    23
   Section 7.12 Release of and Resort to Collateral......................    23
   Section 7.13 Waiver of Redemption, Notice and Marshalling of Assets...    23
   Section 7.14 Discontinuance of Proceedings............................    24
   Section 7.15 Application of Proceeds..................................    24
   Section 7.16 Uniform Commercial Code Remedies.........................    25
   Section 7.17 Indemnity................................................    25

ARTICLE VIII. MISCELLANEOUS..............................................    25
   Section 8.01 Instrument Construed as Mortgage, Etc....................    25
   Section 8.02 Performance at Mortgagor's Expense.......................    26
   Section 8.03 Survival of Obligations..................................    26
   Section 8.04 Further Assurances.......................................    26
   Section 8.05 Notices..................................................    26
   Section 8.06 No Waiver................................................    26
   Section 8.07 Mortgagee's Right to Perform; Mortgagee's Expenditures...    26
   Section 8.08 Successors and Assigns...................................    27
   Section 8.09 Severability.............................................    27
   Section 8.10 Entire Agreement and Modification........................    27
   Section 8.11 Applicable Law...........................................    28
   Section 8.12 Satisfaction of Prior Encumbrance........................    28
   Section 8.13 No Partnership...........................................    28
   Section 8.14 Headings.................................................    28
   Section 8.15 Release of Mortgage......................................    28
   Section 8.16 Limitation of Obligations with Respect to Mortgaged
                Property.................................................    29
   Section 8.17 Inconsistency with Financing Agreement...................    29
   Section 8.18 Limitation on Interest Payable...........................    29
   Section 8.19 Covenants To Run With the Land...........................    30
   Section 8.20 Last Dollar..............................................    30
   Section 8.21 Defense of Claims........................................    30
   Section 8.22 Exculpation Provisions...................................    30
   Section 8.23 No Merger of Estates.....................................    31
   Section 8.24 Counterparts.............................................    31
   Section 8.25 Maturity Date............................................    31
</TABLE>


                                      -ii-

<PAGE>

<TABLE>
<S>                                                                         <C>
ARTICLE IX. STATE SPECIFIC PROVISIONS....................................    31
   Section 9.01 Application of Rents and Proceeds........................    31
   Section 9.02 WAIVER OF CONSTITUTIONAL RIGHTS..........................    32
   Section 9.03 Wells and Sewer Systems..................................    33
   Section 9.04 Future Advances..........................................    33
</TABLE>


                                     -iii-

<PAGE>

MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING

          THIS MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND
FIXTURE FILING (hereinafter, together with any and all amendments, supplements,
modifications or restatements of any kind, referred to as this "Mortgage"), is
made as of FEBRUARY 15, 2006, by LAKES ENTERTAINMENT, INC., a Minnesota
corporation, having its principal place of business at 130 Cheshire Lane, Suite
101, Minnetonka, Minnesota 55305, Attention: Damon E. Schramm, Esq.
("Mortgagor"), in favor of PLKS FUNDING, LLC, a Delaware limited liability
company, having its principal place of business at c/o Prentice Capital
Management, LP, 623 Fifth Avenue, 32nd Floor, New York, New York 10022,
Attention: Michael Weiss, as Collateral Agent (in such capacity, together with
its successors and assigns, "Mortgagee"), for itself and for each of the
financial institutions and their respective successors and assigns which from
time to time shall be a "Lender" under the Financing Agreement (as hereinafter
defined).

                                    RECITALS:

          WHEREAS, Mortgagor is the owner and holder of fee simple title in and
to the Land (as hereinafter defined) described on Exhibit A attached hereto and
made a part hereof;

          WHEREAS, on the date hereof, Mortgagor and the subsidiaries of
Mortgagor listed as a "Borrower" on the signature pages to the Financing
Agreement (defined below) (collectively, "Subsidiaries" and Mortgagor and
Subsidiaries being hereinafter each referred to as a "Borrower" and collectively
as the "Borrowers"), and the Guarantors (as defined in the Financing Agreement),
entered into that certain financing agreement, dated of even date herewith (as
the same may be amended, modified or otherwise supplemented and in effect from
time to time, the "Financing Agreement"), with the Lenders and Mortgagee,
pursuant to which the Lenders agree to extend to the Borrowers certain term loan
facilities in the aggregate original principal amount of up to Fifty Million and
00/100 Dollars ($50,000,000.00) (collectively, the "Loan"):

          WHEREAS, Mortgagor will derive direct economic benefit from the Loan;

          WHEREAS, as a condition to Mortgagee executing the Financing
Agreement, Mortgagee is requiring that Mortgagor grant to Mortgagee a security
interest in and a first mortgage lien upon the Mortgaged Property (as
hereinafter defined), to secure (a) the payment of all of the Obligations (as
defined in the Financing Agreement), and (b) the performance of all terms ,
covenants, conditions, provisions, agreements and liabilities contained in this
Mortgage, the Financing Agreement, the Guaranty, and the other Loan Documents
(as defined in the Financing Agreement).

          NOW, THEREFORE, in order consideration for the Loan and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Mortgagor hereby covenants and agrees as follows:


                                       1

<PAGE>

                                    ARTICLE I

                                  DEFINITIONS

          SECTION 1.01 Terms Defined Above. As used in this Mortgage, the terms
defined in the introductory paragraph to this Mortgage and in the Recitals set
forth above shall have the meanings respectively assigned to such terms in such
paragraph and Recitals.

          SECTION 1.02 Definitions. As used herein, the following terms shall
have the following meanings:

          "Applicable UCC" means the Uniform Commercial Code as presently in
effect in the State or Commonwealth where the Mortgaged Property is located.

          "Buildings" means any and all buildings, structures, garages, utility
sheds, workrooms, air conditioning towers, open parking areas and other
improvements, and any and all additions, alterations, betterments or
appurtenances thereto, now or at any time hereafter situated, placed or
constructed upon the Land or any part thereof.

          "Default" has the meaning assigned to such term in the Financing
Agreement.

          "Event of Default" has the meaning assigned to such term in Section
7.01 hereof.

          "Fixtures" means all materials, supplies, equipment, apparatus and
other items of Personalty now or hereafter acquired by Mortgagor and
incorporated into the Mortgaged Property so as to constitute fixtures under the
Applicable UCC or otherwise under the laws of the state or commonwealth in which
such items are located.

          "Governmental Authority" has the meaning assigned to such term in the
Financing Agreement.

          "Governmental Requirements" means any and all present and future
judicial decisions, statutes, rulings, rules, regulations, permits, certificates
or ordinances of any Governmental Authority in any way applicable to Mortgagor
or the Mortgaged Property, including the ownership, use, occupancy, possession,
operation, maintenance, alteration, repair or reconstruction thereof.

          "Guarantors" has the meaning assigned to such term in the Financing
Agreement. "Guarantor" means any of the Guarantors.

          "Impositions" means any and all real estate and personal property
taxes; water, gas, sewer, electricity and other utility rates and charges;
charges for any easement, license or agreement maintained for the benefit of the
Mortgaged Property; and any and all other taxes, charges and assessments,
whether general or special, ordinary or extraordinary, foreseen or unforeseen,
of any kind and nature whatsoever which at any time prior to or after the
execution hereof may be assessed, levied or imposed upon the Mortgaged Property
or the ownership, use, occupancy, benefit or enjoyment thereof, together with
any interest, costs or penalties that may become payable in connection
therewith.


                                       2

<PAGE>

          "Indemnified Parties" means, with respect to any Person entitled to
the benefit of an indemnity, such Person and its officers, directors,
shareholders, partners, members, managers, employees, agents, representatives,
attorneys, accountants and experts. The term "Indemnified Party" means any one
of such Persons.

          "Indemnitees" has the meaning assigned to such term in the Financing
Agreement.

          "Land" means the real property or interest therein described in
Exhibit A attached hereto, and all rights, titles and interests appurtenant
thereto.

          "Leases" means any and all leases, master leases, subleases, licenses,
concessions or other agreements (whether written or oral, and whether now or
hereafter in effect) which grant to third Persons a possessory interest in and
to, or the right to use, all or any part of the Mortgaged Property, together
with all security and other deposits made in connection therewith and any
guarantee of the obligations of the landlord or the tenant thereunder.

          "License" has the meaning assigned to such term in Section 3.02(a)
hereof.

          "Lien" has the meaning assigned to such term in the Financing
Agreement.

          "Loan Documents" has the meaning assigned to such term in the
Financing Agreement.

          "Losses" means all obligations, damages, claims, causes of action,
costs, fines, fees, charges, penalties, deficiencies, losses, diminutions in
value, expenses (including court costs, fees and expenses of attorneys,
accountants, consultants and other experts) and other liabilities, and, with
respect to any indemnity, includes all attorneys' fees and expenses in
connection with the enforcement and collection of such indemnity. The term
"Loss" means any such Losses.

          "Mortgaged Property" means all of Mortgagor's right, title, interest
and estate, whether now owned or hereafter acquired, in and to the Land, the
Buildings, the Fixtures and the Personalty, together with:

          (i)  all rights, privileges, tenements, hereditaments, rights-of-way,
               easements, air rights, development rights or credits, zoning
               rights, appendages and appurtenances in anywise appertaining
               thereto, and all right, title and interest of Mortgagor in and to
               any streets, ways, alleys, strips or gores of land adjoining the
               Land or any part thereof, and all right, title and interest of
               Mortgagor, if any, in and to all rights, royalties and profits
               with respect to all minerals, coal, oil, gas and other substances
               of any kind or character on or underlying the Land, together with
               all right, title and interest of Mortgagor in and to all water
               and water rights (whether riparian, appropriative or otherwise
               and whether or not appurtenant);

          (ii) all rights of Mortgagor (but not its obligations) under any
               contracts and agreements, including, without limitation,
               construction contracts and


                                       3

<PAGE>

               architectural agreements, relating to the Land, the Buildings,
               the Fixtures or the Personalty;

          (iii) all of Mortgagor's right, title and interest in and to all
               permits, licenses, franchises, certificates, authorizations,
               consents, approvals and other rights and privileges (each, a
               "Permit") obtained in connection with the Land, the Buildings,
               the Fixtures or the Personalty or the use or operation thereof;

          (iv) all of Mortgagor's right, title and interest in and to all plans
               and specifications, designs, schematics, drawings and other
               information, materials and matters heretofore or hereafter
               prepared relating to the Land, the Buildings, the Fixtures or the
               Personalty;

          (v)  all of Mortgagor's right, title and interest in and to all
               proceeds arising from or by virtue of the sale, lease or other
               disposition of the Land, the Buildings, the Fixtures or the
               Personalty or any part thereof or any interest therein or from
               the operation thereof;

          (vi) all of Mortgagor's right, title and interest in and to all Leases
               now or hereafter in effect and all Rents, royalties, bonuses,
               issues, profits, revenues or other benefits arising from or
               attributable to the Land, the Buildings, the Fixtures or the
               Personalty;

          (vii) all of Mortgagor's right, title and interest in and to all
               betterments, additions, alterations, appurtenances,
               substitutions, replacements and revisions to the Land, the
               Buildings, the Fixtures or the Personalty and all reversions and
               remainders relating thereto;

          (viii) all of Mortgagor's right, title and interest in and to any and
               all other security and collateral of any nature whatsoever,
               whether now or hereafter given, for the repayment, performance
               and discharge of the Obligations (as hereinafter defined);

          (ix) all of Mortgagor's right, title and interest in and to all
               claims, awards, payments, remuneration, settlements or
               compensation now or hereafter made by any Governmental Authority
               pertaining to, and all other proceeds of, any taking, conversion,
               or like act, whether voluntary or involuntary, of any of the
               Land, the Buildings, the Fixtures, the Personalty or any of the
               property and rights described in the foregoing clauses (i)
               through (viii), including those arising from or attributable to
               any vacation of, or change of grade in, any streets affecting the
               Land or the Buildings, and all insurance and tort claims, refunds
               of real estate taxes and assessments, rent claims and other
               obligations dischargeable in cash or cash equivalents; and

          (x)  all other property and rights of Mortgagor of every kind and
               character relating to and/or used or to be used in connection
               with the foregoing, and all proceeds and products of any of the
               foregoing.


                                       4

<PAGE>

As used in this Mortgage, the term "Mortgaged Property" shall be expressly
defined as meaning all or, where the context permits or requires, any portion of
the above, and all or, where the context permits or requires, any interest
therein.

          "Obligations" has the meaning assigned to such term in the Financing
Agreement.

          "Permitted Liens" has the meaning assigned to such term in the
Financing Agreement to the extent that such definition applies to the Mortgaged
Property.

          "Person" has the meaning assigned to such term in the Financing
Agreement.

          "Personalty" means all of Mortgagor's right, title and interest in and
to all furniture, furnishings, equipment, machinery, goods, general intangibles,
money, insurance proceeds, contract rights, option rights, inventory, together
with all refundable, returnable or reimbursable fees, deposits or other funds or
evidences of credit or indebtedness deposited by or on behalf of Mortgagor with
any Governmental Authority, boards, corporations, providers of utility services,
public or private including all refundable, returnable or reimbursable tap fees,
utility deposits, commitment fees and development costs, and all other personal
property (other than Fixtures) of any kind or character), and including all such
property that is now or hereafter located or to be located upon, within or about
the Land and the Buildings, or which are or may be used in or related to the
planning, development, financing or operation of the Mortgaged Property,
together with all accessories, replacements and substitutions thereto or
therefor and the proceeds thereof.

          "Post-Default Rate" has the meaning assigned to such term in the
Financing Agreement.

          "Principal Balance" has the meaning assigned to such term in Section
7.02 hereof.

          "Rents" means all of the rents, revenues, income, proceeds, issues,
profits, security and other types of deposits (after Mortgagor acquires title
thereto), and other benefits paid or payable by parties (other than Mortgagor)
for using, leasing, licensing, possessing, operating from, residing in,
benefiting from or otherwise enjoying all or any part of the Land, the
Buildings, the Fixtures and/or the Personalty.

          SECTION 1.03 Terminology; Other Defined Terms. Any capitalized term
used in this Mortgage and not otherwise defined herein shall have the meaning
assigned to such term in the Financing Agreement. The rules of construction set
forth in Section 1.02 of the Financing Agreement shall apply hereto as if
incorporated at length herein.

                                   ARTICLE II

                       GRANT OF LIEN AND SECURITY INTEREST

          SECTION 2.01 Grant of Lien. To secure the full and timely payment,
performance and discharge of all of the Obligations, Mortgagor hereby
irrevocably GRANTS, BARGAINS, SELLS, ASSIGNS, TRANSFERS, MORTGAGES, CONVEYS AND
CONFIRMS unto Mortgagee, WITH POWER OF SALE and right of entry and possession,
for the use and benefit


                                       5

<PAGE>

of Mortgagee, as collateral agent for the Lenders pursuant to the Financing
Agreement, all right, title, interest and estate in, to and under the Mortgaged
Property, subject, however, to the Permitted Liens; TO HAVE AND TO HOLD the
Mortgaged Property unto Mortgagee, subject to the terms and conditions of this
Mortgage, with POWER OF SALE, forever, and Mortgagor does hereby bind itself,
its successors and assigns to WARRANT AND FOREVER DEFEND the title to the
Mortgaged Property unto Mortgagee against every Person whomsoever lawfully
claiming or to claim the same or any part thereof; provided, however, that if
Mortgagor shall pay (or cause to be paid) and perform and discharge (or cause to
be performed and discharged) all of the Obligations on or before the date on
which the same are to be paid, performed and discharged, then the Liens, estates
and rights granted by this Mortgage shall cease and terminate.

          SECTION 2.02 Grant of Security Interest. This Mortgage shall be
construed as a mortgage on the Land and the Buildings and it shall also
constitute and serve as a "security agreement" within the meaning of, and shall
constitute a first and prior security interest under, the Applicable UCC with
respect to the Personalty and the Fixtures. To this end, Mortgagor by these
presents does GRANT, BARGAIN, CONVEY, ASSIGN, SELL, TRANSFER AND SET OVER unto
Mortgagee, as collateral agent for the Lenders pursuant to the Financing
Agreement, a security interest in all of Mortgagor's right, title and interest
in, to and under the Personalty and the Fixtures, to secure the full and timely
payment, performance and discharge of the Obligations. Mortgagor hereby consents
to Mortgagee filing and recording financing statements (and continuations
thereof) with the appropriate filing and recording offices in order to perfect
(and maintain the perfection of) the security interests granted herein.

          SECTION 2.03 No Obligation of Mortgagee. The assignment and security
interest herein granted to Mortgagee shall not be deemed or construed to
constitute Mortgagee as a mortgagee-in-possession of the Mortgaged Property,
obligate Mortgagee to lease the Mortgaged Property or attempt to do the same, or
to take any action, incur any expense or perform or discharge any obligation,
duty or liability whatsoever.

          SECTION 2.04 Fixture Filing. Without in any manner limiting the
generality of any of the other provisions of this Mortgage: (a) some portions of
the goods described or to which reference is made herein are or are to become
fixtures on the Land described or to which reference is made herein or on
Exhibit A attached to this Mortgage; (b) this Mortgage is to be filed of record
in the real estate records as a financing statement and shall constitute a
"fixture filing" for purposes of the Applicable UCC; and (c) Mortgagor is the
record owner of the real estate or interests in the real estate constituting the
Mortgaged Property hereunder. Information concerning the security interest
herein granted may be obtained at the addresses set forth on the first page
hereof. The addresses of the Secured Party (Mortgagee) and of the Debtor
(Mortgagor) are set forth on the first page hereof. In that regard, the
following information is provided:

Name of Debtor:           Lakes Entertainment, Inc.
Type of Organization:     Corporation
State:                    Minnesota


                                        6

<PAGE>

FEIN:                     41-1913991
Organizational ID Number: 10E-882
Name of Secured Party:    PLKS Funding, LLC
Address of Secured Party: c/o Prentice Capital Management, LP, 623 Fifth Avenue,
                          32nd Floor, New York, New York 10022,
                          Attention: Michael Weiss

          SECTION 2.05 Future Advances. It is the intention of Mortgagor and
Mortgagee that this Mortgage (as renewed and extended from time to time) shall
secure future advances and readavances, and the lien and security interest
created by this Mortgage shall attach upon execution and have priority from the
time of recording as to all advances, whether obligatory or discretionary, until
this Mortgage is released of record.

                                   ARTICLE III

                         ASSIGNMENT OF LEASES AND RENTS

          SECTION 3.01 Assignment. For Ten Dollars ($10.00) and other good and
valuable consideration, including the indebtedness evidenced by the Financing
Agreement, the receipt and sufficiency of which are hereby acknowledged and
confessed, Mortgagor has presently, absolutely and irrevocably GRANTED,
BARGAINED, SOLD, ASSIGNED, TRANSFERRED, CONVEYED and CONFIRMED, and by these
presents does presently, absolutely and irrevocably GRANT, BARGAIN, SELL,
ASSIGN, TRANSFER, CONVEY and CONFIRM, unto Mortgagee, as collateral agent for
the Lenders pursuant to the Financing Agreement, as security for the payment,
performance and discharge of the Obligations, all of the Leases and Rents (if
any), subject only to the Permitted Liens applicable thereto and the License (as
hereinafter defined); TO HAVE AND TO HOLD the Leases and the Rents unto
Mortgagee, forever, and Mortgagor does hereby bind itself, its successors and
assigns to warrant and forever defend the title to the Leases and the Rents unto
Mortgagee against every Person whomsoever lawfully claiming or to claim the same
or any part thereof; provided, however, that if Mortgagor shall pay (or cause to
be paid) and perform and discharge (or cause to be performed and discharged) all
of the Obligations on or before the date on which the same are to be paid,
performed and discharged, then this assignment shall terminate, and all rights,
titles and interests conveyed pursuant to this assignment shall become vested in
Mortgagor.

          SECTION 3.02 Revocable License.

          (A) Mortgagee hereby grants to Mortgagor a revocable license (the
"License"), nonexclusive with the rights of Mortgagee reserved in Sections
3.02(b), 3.04 and 3.05 hereof, to exercise and enjoy all incidences of the
status of a lessor under the Leases and the Rents, including, without
limitation, the right to collect, demand, sue for, attach, levy, recover and
receive the Rents and to give proper receipts, releases and acquittances
therefor. Mortgagor hereby agrees to receive all Rents and hold the same as a
trust fund to be applied, and to apply the Rents so collected, except to the
extent otherwise provided in the Financing Agreement, first to the payment,
performance and discharge of the Obligations and then to the payment of the


                                        7

<PAGE>

Impositions. Thereafter, Mortgagor may use the balance of the Rents collected in
any manner not inconsistent with the Loan Documents.

          (B) If an Event of Default shall occur and be continuing, the License
shall immediately and automatically terminate without the necessity of any
action by Mortgagee or any other Person, and Mortgagee shall have the right in
such event to exercise the rights and remedies provided under this Mortgage or
otherwise available to Mortgagee under applicable law. Upon demand by Mortgagee
at any time that an Event of Default shall have occurred, Mortgagor shall
promptly pay to Mortgagee all security deposits under the Leases and all Rents
allocable to any period commencing from and after the occurrence of such Event
of Default. Any Rents received hereunder by Mortgagee shall be applied and
disbursed to the payment, performance and discharge of the Obligations, subject
to the terms of the Financing Agreement; provided, however, that, subject to any
applicable requirement of law, any security deposits actually received by
Mortgagee shall be held, applied and disbursed as provided in the applicable
Leases.

          SECTION 3.03 Enforcement of Leases. Mortgagor shall (a) submit any and
all proposed Leases which individually grant the use of more than 3,000 square
feet (including any subleases which individually grant the use of more than
3,000 square feet) provided to Mortgagor for approval to Mortgagee for approval
prior to the execution thereof or consent thereto, as applicable; (b) duly and
punctually perform and comply with any and all representations, warranties,
covenants and agreements expressed as binding upon the lessor under any Lease;
(c) maintain each Lease in full force and effect during the term thereof; (d)
provide Mortgagee with prompt notice of each notice of default sent to a tenant
under a Lease, provide Mortgagee with prompt notice of each notice of default
received from (or relating to) a tenant under a Lease, and otherwise promptly
reasonably indicate that a material default or termination of a Lease may occur
(other than by reason of the expiration of the term of such Lease); (e) appear
in and defend any action or proceeding in any manner connected with any of the
Leases; (f) deliver to Mortgagee true and complete copies of all Leases; and (g)
deliver to Mortgagee all such further information, and execute and deliver to
Mortgagee such further assurances and assignments, with respect to the Leases as
Mortgagee may from time to time reasonably request. Without Mortgagee's prior
written consent, Mortgagor shall not (i) do or knowingly permit to be done
anything to materially impair the value of any of the Leases; (ii) except for
security or similar deposits, collect any of the Rent more than one (1) month in
advance of the time when the same becomes due under the terms of any Lease;
(iii) discount any future accruing Rents; (iv) amend or modify any of the Leases
so as to reduce the length of the Lease terms or the Rents due thereunder, or
accept the surrender of or terminate any of the Leases; or (v) assign or grant a
security interest in or to the License or any of the Leases or Rents.

          SECTION 3.04 Direction to Tenants. Upon and at any time following the
occurrence and during the continuance of an Event of Default, Mortgagor hereby
authorizes and directs, and shall, at the direction of Mortgagee, further
authorize and direct, in writing, the tenant under each Lease to pay directly
to, or as directed by, Mortgagee all Rents accruing or due under its Lease,
without proof to the tenant of the occurrence and continuance of such Event of
Default. Mortgagor hereby authorizes the tenant under each Lease to rely upon
and comply with any notice or demand from Mortgagee for payment of Rents to
Mortgagee, and Mortgagor shall


                                        8

<PAGE>

have no claim against any tenant for Rents paid by such tenant to Mortgagee
pursuant to such notice or demand. All Rents actually collected by Mortgagee
pursuant to this Section 3.04 shall be applied in accordance with the Financing
Agreement.

          SECTION 3.05 Appointment of Attorney-in-Fact.

          (A) Mortgagor hereby constitutes and appoints Mortgagee the true and
lawful attorney-in-fact, coupled with an interest, of Mortgagor and Mortgagor
hereby confers upon Mortgagee the right, in the name, place and stead of
Mortgagor, to, upon the occurrence and during the continuance of an Event of
Default, demand, sue for, attach, levy, recover and receive any of the Rents and
any premium or penalty payable upon the exercise by any third Person under any
Lease of a privilege of cancellation originally provided in such Lease and to
give proper receipts, releases and acquittances therefor and, after deducting
expenses of collection, to apply the net proceeds as provided in the Financing
Agreement. Mortgagor hereby authorizes and directs any such third Person to
deliver such payment to Mortgagee in accordance with this Article III, and
Mortgagor hereby ratifies and confirms all that its said attorney-in-fact, the
Mortgagee, shall do or cause to be done in accordance with this Mortgage and by
virtue of the powers granted hereby. The foregoing appointment is irrevocable
and continuing, and such rights, powers and privileges shall be exclusive in
Mortgagee, and its successors and assigns, so long as any part of the
Obligations remains unpaid or unperformed and undischarged;

          (B) Mortgagor hereby constitutes and appoints Mortgagee the true and
lawful attorney-in-fact, coupled with an interest, of Mortgagor and Mortgagor
hereby confers upon Mortgagee the right, in the name, place and stead of
Mortgagor, to subject and subordinate at any time and from time to time any
Lease or any part thereof to the lien, assignment and security interest of this
Mortgage and to the terms hereof, or to any other mortgage, deed of trust,
assignment or security agreement, or to any ground lease or surface lease, with
respect to all or a portion of the Mortgaged Property, or to request or require
such subordination, where such reservation, option or authority was reserved to
Mortgagor under any such Lease, or in any case where Mortgagor otherwise would
have the right, power or privilege so to do. The foregoing appointment is
irrevocable and continuing, and such rights, powers and privileges shall be
exclusive in Mortgagee, and its successors and assigns, so long as any part of
the Obligations remains unpaid or unperformed and undischarged. Mortgagor hereby
represents and warrants that it has not at any time prior to the date hereof
exercised (or appointed any Person as attorney-in-fact to exercise) any of the
rights described in this Section 3.05, and Mortgagor hereby covenants not to
exercise (or appoint any other Person as attorney-in-fact to exercise) any such
right, nor (except at Mortgagee's written request) to subordinate any such Lease
to the lien of this Mortgage or to any other mortgage, deed of trust, assignment
or security agreement or to any ground lease or surface lease.

          SECTION 3.06 No Liability of Mortgagee. Neither the acceptance hereof
nor the exercise of the rights and remedies hereunder nor any other action on
the part of Mortgagee or any Person exercising the rights of Mortgagee or any
Lender hereunder shall be construed to: (a) be an assumption by Mortgagee or any
such Person or to otherwise make Mortgagee or such Person liable or responsible
for the performance of any of the obligations of Mortgagor under or with respect
to the Leases or for any Rent, security deposit or other amount delivered to
Mortgagor, provided that Mortgagee or any such Person exercising the rights of
Mortgagee shall


                                       9

<PAGE>

be accountable for any Rents, security deposits or other amounts actually
received by Mortgagee or such Person, as the case may be; or (b) obligate
Mortgagee or any such Person to take any action under or with respect to the
Leases or with respect to the Mortgaged Property, to incur any expense or
perform or discharge any duty or obligation under or with respect to the Leases
or with respect to the Mortgaged Property, to appear in or defend any action or
proceeding relating to the Leases or the Mortgaged Property, to constitute
Mortgagee as a mortgagee-in-possession (unless Mortgagee actually enters and
takes possession of the Mortgaged Property), or to be liable in any way for any
injury or damage to Persons or property sustained by any Person in or about the
Mortgaged Property, other than to the extent caused by the gross negligence or
willful misconduct of Mortgagee or any Person exercising the rights of Mortgagee
hereunder.

          SECTION 3.07 Mortgagor's Indemnities. Mortgagor hereby agrees to
protect, indemnify and hold harmless Mortgagee and each of the other Indemnitees
and each Indemnified Party related to Mortgagee or such other Indemnitees from
and against any and all Losses which Mortgagee or any such other Indemnitees or
Indemnified Party may incur under or by reason of this Article III, or for any
action taken by Mortgagee or any such other Lender or Indemnified Party
hereunder, or by reason or in defense of any and all claims and demands
whatsoever which may be asserted against Mortgagee or any such other Indemnitees
or Indemnified Party arising out of the Leases, including, without limitation,
any claim by any third Person for credit on account of Rents paid to and
received by Mortgagor, but not delivered to Mortgagee or its agents,
representatives or employees, for any period under any Lease more than one (1)
month in advance of the due date thereof. The foregoing indemnity shall include,
in any case, such Loss as may result from the ordinary negligence of Mortgagee
or such other Indemnitees or Indemnified Party, but not any such Loss that is
caused by the gross negligence or willful misconduct of Mortgagee or any such
other Indemnitees or Indemnified Party. In the event that Mortgagee or any of
the other Lenders or any Indemnified Party incurs any Losses covered by the
indemnity set forth in this Section 3.07, the amount thereof, including
reasonable attorneys' fees, with interest thereon at the Post-Default Rate,
shall be payable by Mortgagor to Mortgagee within ten (10) days after demand
therefor, and shall be secured hereby and by all other security for the payment
and performance of the Obligations, including, without limitation, the lien and
security interest of this Mortgage. The liabilities of Mortgagor as set forth in
this Section 3.07 shall survive the termination of this Mortgage and the
repayment of the Obligations.

          SECTION 3.08 No Modification of Mortgagor's Obligations. Nothing
herein contained shall modify or otherwise alter the obligation of Mortgagor to
make prompt payment of all Obligations as and when the same become due,
regardless of whether the Rents described in this Article III are sufficient to
pay the Obligations, and the security provided to Mortgagee pursuant to this
Article III shall be cumulative of all other security of any and every character
now or hereafter existing to secure payment of the Obligations.

                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

          Mortgagor hereby unconditionally represents and warrants to Mortgagee
(but to the extent any representation or warranty in this Section IV is
substantively the same as a representation or warranty contained in Article V of
the Financing Agreement and such


                                       10

<PAGE>

representation or warranty is qualified by a materiality or other qualifier in
the Financing Agreement, such representation or warranty herein shall be subject
to the same materiality or other qualifier as in Article V of the Financing
Agreement) as follows:

          SECTION 4.01 Title to Mortgaged Property and Lien of this Mortgage.
Mortgagor has good, marketable and indefeasible fee simple title to the Land and
the Buildings, and has good, marketable and indefeasible title to the Fixtures,
the Personalty and the other Mortgaged Property. The Mortgaged Property is free
and clear of any and all Liens, charges, encumbrances, security interests and
adverse claims whatsoever, except for all Liens, charges, encumbrances, security
interests and adverse claims specifically identified as exceptions in the policy
of title insurance accepted by Mortgagee in connection herewith or otherwise
permitted by the Financing Agreement.

          SECTION 4.02 Taxes and Other Payments. Mortgagor has filed all
federal, state, commonwealth, county, municipal and city income and other
material tax returns required to have been filed by it and has paid all taxes
and other Impositions which have become due pursuant to such returns or pursuant
to any assessments or charges received by it, and Mortgagor does not know of any
basis for any additional assessment or charge in respect of any such taxes or
other Impositions. Mortgagor has paid in full all sums owing or claimed for
labor, material, supplies, personal property (whether or not forming a Fixture
hereunder) and services of every kind and character used, furnished or installed
in or on the Mortgaged Property that are now due and owing and no claim for same
exists or will be permitted to be created, except such claims as may arise in
the ordinary course of business and that are not yet past due.

          SECTION 4.03 Power to Create Lien and Security. Mortgagor has full
power and lawful authority to grant, bargain, sell, assign, transfer, mortgage
and convey a Lien and security interest in all of the Mortgaged Property in the
manner and form herein provided and without obtaining the authorization,
approval, consent or waiver of any grantor, lessor, sublessor, Governmental
Authority or other Person whomsoever.

          SECTION 4.04 Loan and Loan Documents. Mortgagor has received a copy of
and is fully familiar with the terms and provisions of the Financing Agreement
and the other Loan Documents. All representations and warranties made by
Mortgagor in the Financing Agreement and the other Loan Documents are
incorporated herein by reference and are hereby made by Mortgagor as to itself
and the Mortgaged Property as though such representations and warranties were
set forth at length herein as the representations and warranties of Mortgagor.

          SECTION 4.05 Compliance with Laws. All of the improvements on the Land
(i) comply with all material requirements of all applicable laws and ordinances
with respect to zoning, subdivision, construction, building and land use,
including, without limitation, requirements with respect to parking, access and
certificates of occupancy (and similar certificates) and (ii) comply with, and
shall remain in compliance with, applicable health, fire and building codes. All
of the Buildings lie wholly within the boundaries and building restriction lines
of the Land. No improvements on adjoining properties encroach upon the Land, and
no easements or other encumbrances upon the Land encroach upon or under any of
the Buildings or any portion of the Mortgaged Property. All of the Buildings and
the use of the Mortgaged Property materially comply with, and shall remain in
material compliance with, all


                                       11

<PAGE>

applicable statutes, rules, regulations and private covenants now or hereafter
relating to the ownership, construction, use or operation of the Mortgaged
Property, including all applicable statutes, rules and regulations pertaining to
requirements for equal opportunity, anti-discrimination, fair housing,
environmental protection, zoning and land use. All certifications, permits,
licenses and approvals, including, without limitation, certificates of
completion and occupancy permits required for the legal use, occupancy and
operation of the Mortgaged Property have been obtained and are in full force and
effect. Mortgagor has not received any notice of, or other communication with
respect to, an alleged violation with respect to any of the foregoing.

          SECTION 4.06 No Condemnation. No part of any property subject to this
Mortgage has been taken in condemnation or other like proceeding nor is any
proceeding pending, threatened or known to be contemplated for the partial or
total condemnation or taking of the Mortgaged Property.

          SECTION 4.07 Flood Zone. The Mortgaged Property is not located in an
area identified by the Federal Emergency Management Agency ("FEMA") as having
special flood hazards or if the Land or any part thereof is identified by the
Federal Emergency Management Agency as an area having special flood hazards
(including, without limitation, those areas designated as Zone A or Zone V),
then Mortgagor has obtained the insurance required under Section 5.04(a)(v) of
this Mortgage.

                                    ARTICLE V

                              AFFIRMATIVE COVENANTS

          Mortgagor hereby unconditionally covenants and agrees with Mortgagee
as follows:

          SECTION 5.01 Lien Status. Except as otherwise expressly provided in
the Financing Agreement, Mortgagor shall not place, or permit to be placed, or
otherwise mortgage, hypothecate or encumber the Mortgaged Property, or any
portion thereof or interest therein, with any other Lien or security interest of
any nature whatsoever (statutory, constitutional or contractual), other than
Permitted Liens, regardless of whether such Lien or security interest is
inferior to the Lien and security interest created by this Mortgage, and, if any
such Lien or security interest is asserted against the Mortgaged Property,
Mortgagor shall promptly, at its own cost and expense, (a) pay the underlying
claim in full (except for so long as such claim is being contested by Mortgagor
in good faith and as and to the extent permitted in accordance with the terms of
the Financing Agreement) or take such other action as may be necessary to cause
the same to be released of record and otherwise, and (b) within ten (10) days
after the date on which Mortgagor receives notice of such Lien or security
interest, give Mortgagee notice of such Lien or security interest. Such notice
shall specify who is asserting such Lien or security interest and shall detail
the origin and nature of the underlying claim giving rise to such asserted Lien
or security interest.

          SECTION 5.02 Payment of Impositions. Mortgagor shall duly pay and
discharge, or cause to be paid and discharged, all Impositions not later than
the due date thereof, or the day


                                       12

<PAGE>

on which any fine, penalty, interest or cost may be added thereto or imposed, or
the day on which any Lien may be filed for the nonpayment thereof (if such day
is used to determine the due date of the respective item); provided, however,
that Mortgagor may, if permitted by applicable law and if such installment
payment would not create or permit the filing of a Lien against the Mortgaged
Property, pay the Impositions in installments. Notwithstanding the foregoing,
Mortgagor may in good faith, by appropriate proceedings and upon notice to
Mortgagee, contest the validity, applicability or amount of any asserted tax or
assessment, subject to any more restrictive provisions applicable to any such
contest contained in the Financing Agreement and (without limiting the
foregoing) so long as (a) such contest is diligently pursued, (b) Mortgagee
determines, in its opinion reasonably exercised, that such contest suspends the
obligation to pay the tax and that nonpayment of such tax or assessment will not
result in the sale, loss, forfeiture or diminution of the Mortgaged Property or
any part thereof or any interest of Mortgagee therein, and (c) unless expressly
provided to the contrary in the Financing Agreement, prior to the earlier of the
commencement of such contest or the delinquency date of the asserted tax or
assessment, Mortgagor deposits with Mortgagee an amount determined by Mortgagee
to be adequate to cover the payment of such tax or assessment and a reasonable
additional sum to cover possible interest, costs and penalties; provided,
however, that Mortgagor shall promptly cause to be paid any amount adjudged by a
court of competent jurisdiction to be due, with all interest, costs and
penalties thereon, promptly after such judgment becomes final (and, subject to
Mortgagee's rights and remedies during an Event of Default, Mortgagee shall make
any sum deposited pursuant to clause (c) above available for such payment); and
provided, further, that in any event each such contest shall be concluded, the
taxes, assessments, interest, costs and penalties shall be paid prior to the
date any writ or order is issued under which the Mortgaged Property may be sold,
lost or forfeited.

          SECTION 5.03 Repair. Mortgagor shall keep the Mortgaged Property in
good order and condition (reasonable wear and tear excepted) and shall make all
repairs, replacements and improvements thereof and thereto, interior and
exterior, structural and non-structural, ordinary and extraordinary, which are
necessary to keep the same in such order and condition. Mortgagor shall also use
reasonable efforts to prevent any act or occurrence which might impair the value
or usefulness of the Mortgaged Property for its intended usage.

          SECTION 5.04 Insurance and Application of Insurance Proceeds.

          (A) During the term of this Mortgage, Mortgagor, at its sole cost and
expense, shall maintain or cause to be maintained all insurance on the Mortgaged
Property that is required to be maintained under the Financing Agreement. In
addition, Mortgagor, at its sole cost and expense, shall maintain or cause to be
maintained such other insurance as may, from time to time, be required by
Mortgagee in order to protect its interests in the Mortgaged Property.

          (B) All such insurance policies with respect to the Mortgaged Property
shall contain a standard, non-contributory mortgagee clause naming Mortgagee,
and its successors and assigns, as an additional insured under all liability
insurance policies, as the first mortgagee and loss payee on all property
insurance policies, and as the sole loss payee on all rental loss or business
interruption insurance policies. Mortgagor shall not take out separate insurance
with respect to the Mortgaged Property concurrent in form or contributing in the
event of loss with that required to be maintained hereunder or under the
Financing Agreement unless Mortgagee is


                                       13

<PAGE>

named as an additional insured thereon under a standard mortgagee clause
acceptable to Mortgagee and each such policy is otherwise in form and substance
acceptable to Mortgagee.

          (C) In the event of the foreclosure of this Mortgage, or in the event
of any transfer of title to the Mortgaged Property, or any part thereof, by
foreclosure sale or by power of sale or deed in lieu of foreclosure, the
purchaser of the Mortgaged Property, or such part thereof, shall succeed to all
of Mortgagor's rights with respect to the Mortgaged Property, including any
rights to unexpired, unearned or returnable insurance premiums, subject to
limitations on the assignment of blanket policies, but limited to such rights as
relate to the Mortgaged Property or such part thereof. If Mortgagee acquires
title to the Mortgaged Property, or any part thereof, in any manner, Mortgagee
shall thereupon (as between Mortgagor and Mortgagee) become the sole and
absolute owner of the insurance policies with respect to the Mortgaged Property,
and all insurance proceeds payable thereunder with respect to the Mortgaged
Property, with the sole right to collect and retain all unearned or returnable
premiums thereon with respect to the Mortgaged Property, or such part thereof,
if any.

          (D) If any damage to, destruction or loss of or other casualty with
respect to any of the Mortgaged Property shall occur, Mortgagor shall file and
prosecute its claim or claims for any insurance proceeds in good faith and with
due diligence and cause the same to be collected and paid over to Mortgagee, and
Mortgagor hereby irrevocably authorizes and empowers Mortgagee, in the name of
Mortgagor or otherwise, to collect and receipt for any such insurance proceeds
and to adjust any insurance claims and to file and prosecute such claim or
claims, and although it is hereby expressly agreed that the same shall not be
necessary in any event, Mortgagor shall, upon demand of Mortgagee, make, execute
and deliver any and all assignments and other instruments sufficient for the
purpose of assigning any such insurance proceeds to Mortgagee, free and clear of
any Liens whatsoever. Mortgagor hereby irrevocably appoints Mortgagee as
Mortgagor's attorney-in-fact for each such purpose (which appointment is coupled
with an interest) and authorizes any Person to act upon the foregoing
appointment.

          (E) Following any damage to, destruction or loss of or other casualty
with respect to any of the Mortgaged Property, Mortgagee shall apply the entire
amount of any insurance proceeds in accordance with the provisions of the
Financing Agreement or, if there is no provision contained in the Financing
Agreement governing how the same are to be applied, then Mortgagee shall apply
the entire amount thereof to the payment of the Obligations, whether or not then
due and payable, in such manner and order as Mortgagee may elect. Unless
expressly provided to the contrary in the Financing Agreement, Mortgagor hereby
covenants and agrees to promptly commence and to diligently prosecute the
restoration of the Mortgaged Property upon the occurrence of any casualty loss
affecting the Mortgaged Property, without regard to the availability or adequacy
of insurance proceeds, but in all events in a manner approved by Mortgagee.
Notwithstanding any damage to, destruction or loss of or other casualty with
respect to any of the Mortgaged Property, Mortgagor shall continue to pay the
Obligations at the time and in the manner provided for in the Financing
Agreement and the other Loan Documents until the Obligations have been paid in
full. Notwithstanding anything to the contrary in this Section 5.04 but subject
to the final sentence of this Section 5.04(e), if any damage to, destruction or
loss of or other casualty with respect to the Mortgaged Property results in
damage or loss of $50,000.00 or less, provided that no Default exists under the
Loan Documents, Mortgagor shall be allowed to settle such claims with no
involvement by


                                       14

<PAGE>

Mortgagee, retain any proceeds, and apply them to restoration of the Mortgaged
Property. Furthermore, subject to the final sentence of this Section 5.04(e), in
the event of any damage to or destruction of the Mortgaged Property or any part
thereof to an extent that the cost of restoration is greater than $50,000 but
less than twenty-five percent (25%) of the fair market value of the Mortgaged
Property, Mortgagee shall make the net insurance proceeds payable by reason of
such damage or destruction available for restoration and repair of the Mortgaged
Property to its original condition ("restoration"), provided that the following
conditions are satisfied to the reasonable satisfaction of Mortgagee within one
hundred twenty (120) days after such damage or destruction:

               (i) Mortgagor shall submit to Mortgagee schematic plans and
     specifications for the restoration, which plans and specifications shall be
     consistent with the condition of the Mortgaged Property immediately prior
     to such damage or destruction, subject to modifications approved by
     Mortgagee;

               (ii) Mortgagor shall enter into a fixed or guaranteed maximum
     cost contract for the restoration with a contractor reasonably acceptable
     to Mortgagee;

               (iii) Mortgagor shall obtain all necessary governmental permits
     and approvals for the restoration;

               (iv) Mortgagor shall deposit with Mortgagee such sums of money as
     are necessary, when added to the net insurance proceeds and earnings
     thereon, to pay the full cost of the restoration;

               (v) The contract for performance of the restoration shall provide
     that the restoration shall be substantially complete within one (1) year
     after the date of the damage or destruction; and

               (vi) Mortgagor shall agree to comply with such additional
     construction disbursement conditions and procedures as are customary for
     such projects.

The net insurance proceeds and any sums deposited by Mortgagor pursuant to (iv)
above shall be held by Mortgagee in a separate interest-bearing account
established at Mortgagor's expense in the name of Mortgagee but for the benefit
of Mortgagor, and all earnings on such deposits shall be added to such account.
Mortgagor shall pay to Mortgagee a fee for Mortgagee's internal staff expense of
monitoring such disbursements equal to one percent (1%) of the amount deposited
in such account, and Mortgagor shall pay all out-of-pocket fees and expenses
paid by Mortgagee to title insurance companies and consulting engineers and
architects, for endorsements to title policies, review of plans, inspections and
disbursing services in connection with such application of net insurance
proceeds to the restoration. After completion of the restoration, any balance
remaining in such account up to the amount of any sums deposited by Mortgagor
pursuant to (iv) above plus $50,000 shall be paid to Mortgagor, and any balance
remaining in such account in excess of such amounts shall be paid to Mortgagee
for application to the Obligations in such order as Mortgagee shall determine.
If the Mortgaged Property is sold, through foreclosure or otherwise, prior to
the receipt by Mortgagee of such insurance proceeds, Mortgagee shall have the
right, whether or not a deficiency judgment on any Loan Document shall have been
sought,


                                       15

<PAGE>

recovered or denied, to receive such insurance proceeds, or a portion thereof
sufficient to pay the then unpaid Obligations, whichever is less.

          SECTION 5.05 Condemnation and Application of Condemnation Proceeds.

          (A) Promptly upon its obtaining knowledge of the institution or the
threatened institution of any proceeding for the condemnation or other taking of
the Mortgaged Property, or any portion thereof or interest therein, Mortgagor
shall notify Mortgagee of such proceeding. Mortgagor shall then, if requested by
Mortgagee, file or defend its claim thereunder and prosecute same with due
diligence to its final disposition and shall, subject to the terms of the
Financing Agreement, cause any awards or settlements to be paid over to
Mortgagee for disposition pursuant to the terms of this Mortgage. Mortgagee
shall be entitled to participate in any such proceeding, at Mortgagor's sole
cost and expense, and Mortgagor shall deliver or cause to be delivered to
Mortgagee such instruments as may be requested by Mortgagee from time to time to
permit such participation.

          (B) If the Mortgaged Property or any part thereof is taken or
diminished in value, or if a consent settlement is entered by or under threat of
such proceeding, the award or settlement payable to Mortgagor by virtue of its
interest in the Mortgaged Property shall be, and by these presents is, assigned,
transferred and set over unto Mortgagee to be held by Mortgagee, subject to the
Lien and security interest of this Mortgage, and disbursed in accordance with
the provisions of the Financing Agreement or, if there is no provision contained
in the Financing Agreement governing how the same is to be disbursed, then
Mortgagee shall apply the entire amount thereof to the payment of the
Obligations, whether or not then due and payable, in such manner and order as
Mortgagee may elect. In all events, unless otherwise expressly provided to the
contrary in the Financing Agreement, Mortgagor hereby covenants and agrees to
commence and diligently to prosecute the restoration of the Mortgaged Property
upon the occurrence of any condemnation or other taking affecting the Mortgaged
Property, without regard to the availability or adequacy of any award or
settlement. Notwithstanding any condemnation or other taking of any of the
Mortgaged Property, Mortgagor shall continue to pay the Obligations at the time
and in the manner provided for in the Financing Agreement and the other Loan
Documents until any condemnation award or settlement shall have been actually
received and applied by Mortgagee to the discharge of the Obligations.
Notwithstanding anything to the contrary in this Section 5.05 but subject to the
final sentence of this Section 5.05(b), if the Mortgaged Property or any part
thereof is taken or diminished in value, or if a consent settlement is entered
by or under threat of such proceeding, and the award or settlement payable to
Mortgagor by virtue of its interest in the Mortgaged Property is $50,000.00 or
less, provided that no Default exists under the Loan Documents, Mortgagor shall
be entitled to retain that part of any such award or settlement that is
designated for restoration of the Mortgaged Property and shall apply it
accordingly, and the balance shall be paid to Mortgagee for application to the
Obligations in such order as Mortgagee shall determine. Furthermore, subject to
the final sentence of this Section 5.05(b), in the event the Mortgaged Property
or any part thereof is taken or diminished in value, or if a consent settlement
is entered by or under threat of such proceeding, and the award or settlement
payable to Mortgagor by virtue of its interest in the Mortgaged Property is
greater than $50,000 but less than twenty-five percent (25%) of the fair market
value of the Mortgaged Property, Mortgagee shall make that portion of any such
award or settlement that is designated for restoration of the Mortgaged Property
available for restoration and repair of the Mortgaged


                                       16

<PAGE>

Property to a complete architectural unit ("restoration"), provided that the
following conditions are satisfied to the reasonable satisfaction of Mortgagee
within one hundred twenty (120) days after such taking:

               (i) Mortgagor shall submit to Mortgagee schematic plans and
     specifications for the restoration, which plans and specifications shall be
     consistent with the condition of the Mortgaged Property immediately prior
     to such taking, subject to modifications approved by Mortgagee;

               (ii) Mortgagor shall enter into a fixed or guaranteed maximum
     cost contract for the restoration with a contractor reasonably acceptable
     to Mortgagee;

               (iii) Mortgagor shall obtain all necessary governmental permits
     and approvals for the restoration;

               (iv) Mortgagor shall deposit with Mortgagee such sums of money as
     are necessary, when added to the award proceeds and earnings thereon, to
     pay the full, cost of the restoration;

               (v) The contract for performance of the restoration shall provide
     that the restoration shall be substantially complete within one (1) year
     after the date of the taking; and

               (vi) Mortgagor shall agree to comply with such additional
     construction disbursement conditions and procedures as are customary for
     such projects.

The award or settlement amount and any sums deposited by Mortgagor pursuant to
(iv) above shall be held by Mortgagee in a separate interest-bearing account
established at Mortgagor's expense in the name of Mortgagee but for the benefit
of Mortgagor, and all earnings on such deposits shall be added to such account.
Mortgagor shall pay to Mortgagee a fee for Mortgagee's internal staff expense of
monitoring such disbursements equal to one percent (1%) of the amount deposited
in such account, and Mortgagor shall pay all out-of-pocket fees and expenses
paid by Mortgagee to title insurance companies and consulting engineers and
architects, for endorsements to title policies, review of plans, inspections and
disbursing services in connection with such application of award proceeds to the
restoration. After completion of the restoration, any balance remaining in such
account up to the amount of any sums deposited by Mortgagor pursuant to (iv)
above plus $50,000 shall be paid to Mortgagor, and any balance remaining in such
account in excess of such amounts shall be paid to Mortgagee for application to
the Obligations in such order as Mortgagee shall determine. If the Mortgaged
Property is sold, through foreclosure or otherwise, prior to the receipt by
Mortgagee of such condemnation award or settlement, Mortgagee shall have the
right, whether or not a deficiency judgment on any Loan Document shall have been
sought, recovered or denied, to receive such condemnation award or settlement,
or a portion thereof sufficient to pay the Obligations, whichever is less.

          SECTION 5.06 Maintenance of Rights-of-Way, Easements, Licenses and
Other Rights. Mortgagor shall maintain, preserve and renew all rights-of-way,
easements, tenements, hereditaments, development rights and credits, zoning
rights, grants, privileges, appurtenances,


                                       17

<PAGE>

licenses, franchises and other rights reasonably necessary for the use or
operation of the Mortgaged Property from time to time, or otherwise relevant to
the value thereof, and Mortgagor shall not, without the prior written consent of
Mortgagee, initiate, join in or consent to any private restrictive covenant or
other public or private restriction as to the present or future use or operation
of the Mortgaged Property. Mortgagor shall, however, comply with all restrictive
covenants which may at any time affect the Mortgaged Property, all applicable
zoning ordinances and all other public or private restrictions relating to the
use of the Mortgaged Property.

          SECTION 5.07 Payment and Performance of Obligations. Mortgagor shall
duly and punctually pay and perform all of the Obligations.

          SECTION 5.08 Compliance with Permitted Liens and Other Obligations.
Mortgagor shall comply in all material respects with any and all obligations,
restrictions and requirements that may be set forth in each and every document
constituting a Permitted Lien. In addition, Mortgagor shall comply in all
material respects with each and every obligation legally imposed upon it and/or
relating to the Mortgaged Property pursuant to applicable law (including,
without limitation, all matters described in Section 4.05 hereof), contract or
other agreement. It is hereby acknowledged that Mortgagee's consent to a
Permitted Lien as of the date hereof shall in no way be deemed to constitute
approval of any future Lien which may be imposed upon any portion of the
Mortgaged Property, or any other enforcement action affecting Mortgagor or the
Mortgaged Property, as a result of Mortgagor's failure to perform or comply with
its obligations under any document constituting a Permitted Lien as of the date
hereof.

          SECTION 5.09 Additional Affirmative Covenants. All affirmative
covenants made by the Borrowers or Guarantors or any of them in the Financing
Agreement are incorporated herein by reference and are hereby also made by
Mortgagor as to itself and the Mortgaged Property as though such covenants were
set forth at length herein as the covenants of Mortgagor.

                                   ARTICLE VI

                               NEGATIVE COVENANTS

          Mortgagor hereby covenants and agrees with Mortgagee that, until all
of the Obligations shall have been paid or performed in full and discharged:

          SECTION 6.01 Use Violations. Mortgagor shall not use, maintain,
operate or occupy, or allow the use, maintenance, operation or occupancy of, the
Mortgaged Property in any manner which (a) violates in any material respect any
Governmental Requirement, (b) may be dangerous unless safeguarded as required by
applicable law, (c) constitutes a public or private nuisance, or (d) makes void,
voidable or cancelable, or increases, substantially in excess of commercially
reasonably rates, the premium of, any insurance then in force with respect
thereto.

          SECTION 6.02 Waste. Mortgagor shall not commit or permit any waste
with respect to the Mortgaged Property.


                                       18

<PAGE>

          SECTION 6.03 Alterations. Mortgagor shall notify Mortgagee, in writing
and in advance, with respect to all proposed alterations, improvements or
additions to the Mortgaged Property (collectively, "Alterations") which are of a
material nature, and, unless and to the extent otherwise expressly provided in
the Financing Agreement, Mortgagor shall not effect any material Alterations to
the Mortgaged Property without the prior written consent of Mortgagee.
Notwithstanding the foregoing, Mortgagor shall have the right to perform
Alterations to the Mortgaged Property without obtaining the prior written
consent of the Mortgagee pursuant to (i) its normal course of tenant improvement
activities pursuant to any Leases; and (ii) non-structural Alterations the costs
of which in the aggregate do not exceed $100,000.00 in any given year.

          SECTION 6.04 No Further Encumbrances. Mortgagor shall not, without the
prior written consent of Mortgagee, create, place or permit to be created or
placed, or through any act or failure to act, acquiesce in the placing of, or
allow to remain, any mortgage, pledge, Lien (statutory, constitutional or
contractual), security interest, encumbrance or charge on, or conditional sale
or other title retention agreement with respect to, the Mortgaged Property, or
any portion thereof or interest therein, other than the Permitted Liens,
regardless of whether the same are subordinate to the Lien(s) and security
interest(s) created by this Mortgage. Notwithstanding the foregoing, Mortgagor
shall be permitted to place or create purchase money liens on equipment acquired
or held by Mortgagor in the ordinary course of its business to secure the
purchase price of such equipment or indebtedness incurred solely for the purpose
of financing the acquisition of such equipment or liens existing on such
equipment at the time of its acquisition; provided that no such lien shall
extend to or cover any other Mortgaged Property, the principal amount of the
indebtedness secured by any such lien shall not exceed the lesser of 100% of the
fair market value or the cost of the property so held or acquired, and the
aggregate principal amount of indebtedness secured by any or all such liens
shall not exceed at any one time outstanding $160,000.00.

          SECTION 6.05 Transfer Restrictions. Mortgagor shall not sell, lease,
assign, transfer or otherwise dispose of or abandon all or any part of the
Mortgaged Property (or any interest therein), except as expressly permitted by,
and in accordance with the terms of, the Financing Agreement or as permitted
pursuant to Section 3.03 herein.

          SECTION 6.06 Additional Negative Covenants. All negative covenants
made by the Borrowers or Guarantors or any of them in the Financing Agreement
and the other Loan Documents are incorporated herein by reference and are hereby
also made by Mortgagor as to itself and the Mortgaged Property as though such
negative covenants were set forth at length herein as the negative covenants of
Mortgagor.

                                   ARTICLE VII

                         EVENTS OF DEFAULT AND REMEDIES

          SECTION 7.01 Event of Default. The "Events of Default" set forth in
Section 8.01 of the Financing Agreement are hereby incorporated herein as if
fully set forth herein, and, without limiting the generality of the foregoing,
the occurrence of an "Event of Default" under the Financing Agreement or any
other Loan Document shall constitute an "Event of Default" hereunder.


                                       19

<PAGE>

          SECTION 7.02 Acceleration. Upon the occurrence and during the
continuance of any Event of Default, in addition to any other rights, powers or
remedies conferred herein or by operation of law, Mortgagee, in its sole
judgment and discretion, may declare the then unpaid principal balance of the
Loan (the "Principal Balance"), the accrued interest thereon and any other
accrued but unpaid portion of the Obligations to be, and they shall thereupon
forthwith become, immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived by
Mortgagor.

          SECTION 7.03 Foreclosure and Sale. If an Event of Default shall occur
and be continuing, Mortgagee shall have the right and option to take possession
of the Mortgaged Property and/or proceed with foreclosure and to sell, to the
extent and in the manner permitted by applicable law, all or any portion of the
Mortgaged Property at one or more sales, as an entirety or in parcels, at such
place or places, in such manner and upon such notice as may be required by
applicable law, or, in the absence of any such requirement, as Mortgagee may
deem appropriate, and to make conveyance to the purchaser or purchasers. Where
the Mortgaged Property is situated in more than one county, notice as above
provided shall be posted and filed in all such counties (if such notices are
required by applicable law), and all such Mortgaged Property may be sold in any
such county and any such notice shall designate the county where such Mortgaged
Property is to be sold. Nothing contained in this Section 7.03 shall be
construed so as to limit in any way Mortgagee's rights to sell the Mortgaged
Property, or any portion thereof, by private sale if, and to the extent that,
such private sale is permitted under the laws of the applicable jurisdiction or
by public or private sale after entry of a judgment by any court of competent
jurisdiction so ordering. Mortgagor hereby irrevocably appoints Mortgagee to be
the attorney-in-fact of Mortgagor (coupled with an interest) and in the name and
on behalf of Mortgagor to execute and deliver any deeds, transfers, conveyances,
assignments, assurances and notices which Mortgagor ought to execute and
deliver, and to do and perform any other acts or things which Mortgagor ought to
do and perform under the covenants herein contained and, generally, to use the
name of Mortgagor in the exercise of any of the powers hereby conferred on
Mortgagee. At any such sale: (a) whether made under the power herein contained
or any other legal enactment, or by virtue of any judicial proceedings or any
other legal right, remedy or recourse, it shall not be necessary for Mortgagee
to have physically present, or to have constructive possession of, the Mortgaged
Property (Mortgagor hereby covenanting and agreeing to deliver to Mortgagee any
portion of the Mortgaged Property not actually or constructively possessed by
Mortgagee immediately upon demand by Mortgagee) and the title to and right of
possession of any such property shall pass to the purchaser thereof as
completely as if the same had been actually present and delivered to purchaser
at such sale; (b) each instrument of conveyance executed by Mortgagee shall
contain a general warranty of title, binding upon Mortgagor and its successors
and assigns; (c) each and every recital contained in any instrument of
conveyance made by Mortgagee shall conclusively establish the truth and accuracy
of the matters recited therein, including, without limitation, nonpayment and/or
nonperformance of the Obligations and advertisement and conduct of such sale in
the manner provided herein and otherwise required by applicable law; (d) any and
all prerequisites to the validity thereof shall be conclusively presumed to have
been performed; (e) the receipt of Mortgagee, or of such other Person or officer
making the sale, shall be a sufficient discharge to the purchaser for its
purchase money and neither such purchaser nor its assigns or personal
representatives shall thereafter be obligated to see to the application of such
purchase money, or be in any way answerable for any loss, misapplication or
non-application thereof; (f) to the fullest extent permitted by applicable


                                       20

<PAGE>

law, Mortgagor shall be completely and irrevocably divested of all of its right,
title, interest, estate, claim and demand whatsoever, either at law or in equity
(including any statutory or common law right of redemption, which is hereby
waived to the fullest extent permitted by applicable law), in and to the
property sold in any such event, and such sale shall be a perpetual bar, both at
law and in equity, against Mortgagor and any and all other Persons claiming by,
through or under Mortgagor; and (g) to the extent and under such circumstances
as are permitted by applicable law, Mortgagee may be a purchaser at any such
sale, and shall have the right, after paying or accounting for all costs of said
sale or sales, to credit the amount of the then unpaid Obligations to the amount
of its bid (in the order of priority set forth in Section 7.16 hereof) in lieu
of cash payment. Each remedy provided in this instrument is distinct from and
cumulative with all other rights and remedies provided hereunder or afforded by
applicable law or equity, and may be exercised concurrently, independently or
successively, in any order whatsoever.

          SECTION 7.04 Mortgagee's Agents. Mortgagee may appoint or delegate any
one or more Persons as agent to perform any act or acts necessary or incident to
any sale held by Mortgagee, including the posting of notices and the conduct of
sale, but in the name and on behalf of Mortgagee.

          SECTION 7.05 Judicial Foreclosure. If any Event of Default shall occur
and be continuing, Mortgagee shall have the right and power to proceed by a suit
or suits in equity or at law, whether for the specific performance of any
covenant or agreement herein contained or in aid of the execution of any power
herein granted, or for any foreclosure hereunder or for the sale of the
Mortgaged Property under the judgment or decree of any court or courts of
competent jurisdiction, or for the enforcement of any other appropriate legal or
equitable remedy.

          SECTION 7.06 Receiver. If any Event of Default shall occur and be
continuing, Mortgagee may apply for and obtain as a matter of right and without
notice to Mortgagor, which notice is hereby expressly waived by Mortgagor, the
appointment of a receiver to collect the Rents of the Mortgaged Property and to
preserve the security hereof, either before or after any foreclosure sale or the
sale of the Mortgaged Property under the order of a court or courts of competent
jurisdiction or under executory or other legal process, without regard to the
value of the Mortgaged Property as security for the amount then due to
Mortgagee, or the solvency of any entity or entities, person or persons
primarily or secondarily liable for the payment of such amounts; the Rents of
the Mortgaged Property, in any such event, having heretofore been assigned to
Mortgagee pursuant to Section 3.01 as additional security for the payment of the
Obligations secured hereby. Any money advanced by Mortgagee in connection with
any such receivership shall be a demand obligation (which obligation Mortgagor
hereby expressly promises to pay) owing by Mortgagor to Mortgagee and shall be
subject to the provisions of Section 8.07(1b) hereof.

          SECTION 7.07 Foreclosure for Installments. To the extent allowed by
applicable law, Mortgagee shall also have the option to proceed with foreclosure
in satisfaction of any installments of the Obligations which have not been paid
when due, either through the courts or otherwise, by non-judicial power of sale
in satisfaction of the matured but unpaid portion of the Obligations as if under
a full foreclosure, conducting the sale as herein provided and without declaring
the entire principal balance and accrued interest due. Such sale may be made
subject to the unmatured portion of the Obligations, and any such sale shall not
in any manner affect the


                                       21

<PAGE>

unmatured portion of the Obligations, but as to such unmatured portion of the
Obligations this Mortgage shall remain in full force and effect just as though
no sale had been made hereunder. It is further agreed that several sales may be
made hereunder without exhausting the right of sale for any unmatured part of
the Obligations, it being the intent and purpose hereof to provide for a
foreclosure and sale of the security for any matured portion of the Obligations
without exhausting the power to foreclose and sell the Mortgaged Property for
any subsequently maturing portion of the Obligations.

          SECTION 7.08 Separate Sales. To the extent allowed by applicable law,
the Mortgaged Property may be sold in one or more parcels and in such manner and
order as Mortgagee, in its sole discretion, may elect, it being expressly
understood and agreed that the right of sale arising out of any Event of Default
shall not be exhausted by any one or more sales.

          SECTION 7.09 Possession of Mortgaged Property. Mortgagor agrees to the
full extent that it lawfully may, that, in case one or more of the Events of
Default shall have occurred and be continuing, then, and in every such case,
Mortgagee shall have the right and power to enter into and upon and take
possession of all or any part of the Mortgaged Property in the possession of
Mortgagor, its successors or assigns, or its or their agents or servants, and
may exclude Mortgagor, its successors or assigns, and all Persons claiming by,
through or under Mortgagor, and its or their agents or servants wholly or partly
therefrom; and, holding the same, Mortgagee may use, administer, manage, operate
and control the Mortgaged Property and conduct the business thereof to the same
extent as Mortgagor, its successors or assigns, might at the time do and may
exercise all rights and powers of Mortgagor, in the name, place and stead of
Mortgagor, or otherwise as Mortgagee shall deem best. All costs, expenses and
liabilities of every character incurred by Mortgagee in administering, managing,
operating and controlling the Mortgaged Property shall constitute a demand
obligation (which obligation Mortgagor hereby expressly promises to pay) owing
by Mortgagor to Mortgagee and shall be subject to the provisions of Section
8.07(b) hereof. Mortgagor hereby irrevocably constitutes and appoints Mortgagee
as Mortgagor's attorney-in-fact (coupled with an interest) to perform such acts
and execute such documents as Mortgagee, in its sole discretion, shall deem
appropriate, including endorsement of Mortgagor's name on any instruments.
Regardless of any provision of this Mortgage, the Financing Agreement or any
other Loan Document, Mortgagee shall not be considered to have accepted any
property other than cash or immediately available funds in satisfaction of any
obligation of Mortgagor to Mortgagee, unless Mortgagee shall have given express
written notice of Mortgagee's election to the contrary.

          SECTION 7.10 Occupancy After Acceleration. In the event that there is
an acceleration of the Loan and Mortgagor or Mortgagor's representatives,
successors or assigns or any other Person claiming any interest in the Mortgaged
Property by, through or under Mortgagor, continues to occupy or use the
Mortgaged Property or any part thereof, each and all shall immediately become
the tenant of Mortgagee (or its successor, if applicable), which tenancy shall
be a tenancy from day-to-day, terminable at the will of either the landlord or
tenant, at a rent to be determined by Mortgagee (which may be in excess of fair
market value); provided, however, that until Mortgagee sets forth the amount of
such rent, such rent shall be a fair market rental per day based upon the value
of the Mortgaged Property as a whole; and such rental shall be due daily to the
Mortgagee (or its successor, if applicable). To the extent permitted by
applicable law, Mortgagee (or its successor, if applicable), notwithstanding any
language herein


                                       22

<PAGE>

to the contrary, shall have the sole option to demand immediate possession or to
permit the occupants to remain as tenants at will. In the event that the tenant
fails to surrender possession of said property upon demand, Mortgagee (and its
successor, if applicable) shall be entitled to institute and maintain a summary
action for possession of the Mortgaged Property (such as an action for forcible
entry and detainer) in any court having appropriate jurisdiction.

          SECTION 7.11 Remedies Cumulative, Concurrent and Nonexclusive. Every
right, power and remedy herein given to Mortgagee shall be cumulative and in
addition to every other right, power and remedy herein specifically given or now
or hereafter existing in equity, at law or by statute (including specifically
those granted by the Applicable UCC). Each such right, power and remedy, whether
specifically herein given or otherwise existing, may be exercised from time to
time and so often and in such order as may be deemed expedient by Mortgagee, and
the exercise, or the beginning of the exercise, of any such right, power or
remedy shall not be deemed a waiver of the right to exercise, at the same time
or thereafter, any other right, power or remedy. Mortgagee shall be entitled to
collect all costs and expenses incurred in pursuing such remedies. No delay or
omission by Mortgagee in the exercise of any such right, power or remedy shall
impair any such right, power or remedy or operate as a waiver thereof or of any
other right, power or remedy then or thereafter existing.

          SECTION 7.12 No Release of Obligations. Neither Mortgagor nor any
Borrower, Guarantor or other Person now or hereafter obligated for the payment
or performance of all or any part of the Obligations shall be relieved of any
such obligation by reason of (a) the failure of Mortgagee to comply with any
request of Mortgagor or any Borrower, Guarantor or other Person so obligated to
foreclose the Lien of this Mortgage or to enforce any provision hereunder or
under the Loan Agreement; (b) the release, regardless of consideration, of the
Mortgaged Property or any portion thereof or interest therein or the addition of
any other property to the Mortgaged Property; (c) any agreement or stipulation
between any subsequent owner of the Mortgaged Property and Mortgagee extending,
renewing, rearranging or in any other way modifying the terms of this Mortgage
without first having obtained the consent of, given notice to or paid any
consideration to Mortgagor or any Borrower, Guarantor or other Person, and in
any such event Mortgagor and all Borrowers, Guarantors and such other Persons
shall continue to be liable to make payment according to the terms of any such
extension or modification agreement unless expressly released and discharged in
writing by Mortgagee; or (d) any other act or occurrence save and except the
complete payment and performance of all of the Obligations.

          SECTION 7.13 Release of and Resort to Collateral. Mortgagee may
release, regardless of consideration, any part of the Mortgaged Property
without, as to the remainder, in any way impairing, affecting, subordinating or
releasing the Lien or security interest created in or evidenced by this Mortgage
or its stature as a first and prior Lien and security interest in and to the
Mortgaged Property, and without in any way releasing or diminishing the
liability of any Person liable for the payment or performance of the
Obligations. Mortgagee may resort to any other security for the Obligations held
by Mortgagee in such manner and order as Mortgagee may elect.

          SECTION 7.14 Waiver of Redemption, Notice and Marshalling of Assets.
To the fullest extent permitted by applicable law, Mortgagor hereby irrevocably
and unconditionally waives and releases (a) all benefits that might accrue to
Mortgagor by virtue of any present or


                                       23

<PAGE>

future moratorium law or other law exempting the Mortgaged Property from
attachment, levy or sale on execution or providing for any appraisement,
valuation, stay of execution, exemption from civil process, redemption or
extension of time for payment; (b) except for notices expressly provided for
herein or in the Financing Agreement, all notices of any Event of Default or of
Mortgagee's intention to accelerate maturity of the Obligations or of
Mortgagee's election to exercise or actual exercise of any right, remedy or
recourse provided for hereunder or under the Financing Agreement; and (c) any
right to a marshalling of assets or a sale in inverse order of alienation; and
(d) any and all conflicts with any provisions of any of the Loan Documents. If
any law referred to in this Mortgage and now in force, of which Mortgagor or its
successor or successors might take advantage despite the provisions hereof,
shall hereafter be repealed or cease to be in force, such law shall thereafter
be deemed not to constitute any part of the contract herein contained or to
preclude the operation or application of the provisions hereof.

          SECTION 7.15 Discontinuance of Proceedings. In case Mortgagee shall
have proceeded to invoke any right, remedy or recourse permitted hereunder or
under the Financing Agreement and shall thereafter elect to discontinue or
abandon same for any reason, Mortgagee shall have the unqualified right so to do
and, in such an event, Mortgagor and Mortgagee shall be restored to their former
positions with respect to the Obligations, this Mortgage, the Financing
Agreement, the Mortgaged Property and otherwise, and the rights, remedies,
recourses and powers of Mortgagee shall continue as if same had never been
invoked.

          SECTION 7.16 Application of Proceeds. After the occurrence and during
the continuance of an Event of Default, the proceeds of any sale of and any
other amounts generated by the holding, leasing, operating or other use of the
Mortgaged Property shall be applied by Mortgagee (or the receiver, if one is
appointed), to the extent that funds are so available therefrom, in accordance
with the provisions of the Financing Agreement or, if not so provided, then in
the following order of priority, except to the extent otherwise required by
applicable law:

          (A) first, to the payment of the reasonable and necessary costs and
expenses of taking possession of the Mortgaged Property and of holding, using,
leasing, repairing, improving the same, including reasonable (i) receivers'
fees, (ii) court costs, (iii) attorneys' and accountants' fees, (iv) costs of
advertisement and title search fees, and (v) the payment of any and all
Impositions, Liens, security interests or other rights, titles or interests
equal or superior to the Lien and security interest of this Mortgage (except
those to which the Mortgaged Property has been sold subject to and without in
any way implying Mortgagee's prior consent to the creation thereof);

          (B) second, to the payment of all amounts other than the Principal
Balance and accrued but unpaid interest which may be due to Mortgagee hereunder
or under the other Loan Documents, together with interest thereon as provided
herein;

          (C) third, to the payment of the Obligations in such order and manner
as Mortgagee determines in its sole discretion; and

          (D) fourth, to Mortgagor or as otherwise required by any Governmental
Requirement.


                                       24

<PAGE>

Mortgagor shall be liable for any deficiency remaining.

          SECTION 7.17 Uniform Commercial Code Remedies. Mortgagee shall have
all of the rights, remedies and recourses with respect to the Personalty and the
Fixtures afforded to it by the Applicable UCC, including, without limitation,
the right to take possession of the Personalty and the Fixtures or any part
thereof, and to take such other measures as Mortgagee may deem necessary for the
care, protection and preservation of the Personalty and the Fixtures, in
addition to, and not in limitation of, the other rights, remedies and recourses
afforded by this Mortgage and the other Loan Documents.

          SECTION 7.18 Indemnity. In connection with any action taken by
Mortgagee pursuant to this Mortgage, neither Mortgagee nor any Indemnified
Person shall be liable for any Loss sustained by Mortgagor, including those
resulting from (a) any assertion that Mortgagee or any Indemnified Person
received funds from the operations of the Mortgaged Property claimed by third
Persons, or (b) any act or omission of Mortgagee or such Indemnified Person in
administering, managing, operating or controlling the Mortgaged Property,
including in either case such Loss as may result from the ordinary negligence of
Mortgagee or such Indemnified Person or which may result from strict liability,
whether under applicable law or otherwise, unless such Loss is caused by the
gross negligence or willful misconduct of Mortgagee or such Indemnified Person,
nor shall Mortgagee or such Indemnified Person be obligated to perform or
discharge any obligation, duty or liability of Mortgagor. Mortgagor shall and
does hereby agree to indemnify Mortgagee and each Indemnified Person for, and to
hold Mortgagee and each such Indemnified Person harmless from, any and all
Losses which may or might be incurred by Mortgagee or any Indemnified Person by
reason of this Mortgage or the exercise of rights or remedies hereunder,
including such Losses as may result from the ordinary negligence of Mortgagee or
any Indemnified Person or which may result from strict liability, whether under
applicable law or otherwise, unless such Loss is caused by the gross negligence
or willful misconduct of Mortgagee or such Indemnified Person. WITHOUT
LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO MORTGAGEE AND EACH
INDEMNIFIED PERSON WITH RESPECT TO LOSSES WHICH IN WHOLE OR IN PART ARE CAUSED
BY OR ARISE OUT OF ANY NEGLIGENT ACT OR OMISSION OF MORTGAGEE, SUCH INDEMNIFIED
PERSON OR ANY OTHER PERSON. Should Mortgagee or any Indemnified Person make any
expenditure on account of any such Losses, the amount thereof, including costs,
expenses and reasonable attorneys' fees, shall be a demand obligation (which
obligation Mortgagor hereby expressly promises to pay) owing by Mortgagor to
Mortgagee and shall be subject to the provisions of Section 8.07fb) hereof.
Mortgagor hereby assents to, ratifies and confirms any and all actions of
Mortgagee with respect to the Mortgaged Property taken under this Mortgage. This
Section 7.18 shall survive the termination of this Mortgage and the payment and
performance of the Obligations.

                                  ARTICLE VIII

                                 MISCELLANEOUS

          SECTION 8.01 Instrument Construed as Mortgage, Etc. This Mortgage may
be construed as a mortgage, deed of trust, chattel mortgage, conveyance,
assignment, security agreement, pledge, financing statement, hypothecation or
contract, or any one or more of them,


                                       25

<PAGE>

in order to fully effectuate the liens and security interests created hereby and
the purposes and agreements set forth herein.

          SECTION 8.02 Performance at Mortgagor's Expense, The cost and expense
of performing or complying with any and all of the Obligations shall be borne
solely by Mortgagor, and no portion of such cost and expense shall be, in any
way or to any extent, credited against any installment on or portion of the
Obligations.

          SECTION 8.03 Survival of Obligations. Each and all of the Obligations
shall survive the execution and delivery of this Mortgage and shall continue in
full force and effect until all of the Obligations shall have been fully
satisfied.

          SECTION 8.04 Further Assurances. Mortgagor, upon the request of
Mortgagee, shall execute, acknowledge, deliver and record and/or file such
further instruments, including financing statements, and do such further acts as
may be reasonably necessary, desirable or proper to carry out more effectively
the purpose of this Mortgage and to subject to the Liens and security interests
hereof any property intended by the terms hereof to be covered hereby, including
any renewals, additions, substitutions, replacements, betterments or
appurtenances to the then Mortgaged Property.

          SECTION 8.05 Notices. All notices or other communications required or
permitted to be given pursuant to this Mortgage shall be in writing and shall be
considered properly given if given in the manner and to the addresses prescribed
by Section 11.01 of the Financing Agreement to the parties and at the addresses
set forth in the first paragraph of this Mortgage, and to each of the parties to
the Financing Agreement at the addresses set forth in Section 11.01 thereof. Any
party shall have the right to change its address for notice hereunder to any
other location within the continental United States by the giving often (10)
days' notice to the other party in the manner set forth above.

          SECTION 8.06 No Waiver. Any failure by Mortgagee to insist, or any
election by Mortgagee not to insist, upon strict performance by Mortgagor of any
of the terms, provisions or conditions of this Mortgage shall not be deemed to
be a waiver of the same or of any other terms, provision or condition hereof,
and Mortgagee shall have the right, at any time or times thereafter, to insist
upon strict performance by Mortgagor of any and all of such terms, provisions
and conditions. Mortgagee may, in Mortgagee's sole and absolute discretion, (i)
in the case of a Default, determine whether such Default has been cured, and
(ii) in the case of an Event of Default, accept or reject any proposed cure of
an Event of Default. In no event shall any provision of this Mortgage or any
other Loan Document which provides that Mortgagee shall have certain rights
and/or remedies only during the continuance of an Event of Default be construed
so as to require Mortgagee to accept a cure of any such Event of Default. Unless
and until Mortgagee accepts any proposed cure of an Event of Default, such Event
of Default shall be deemed to be continuing for purposes of this Mortgage and
the other Loan Documents.

          SECTION 8.07 Mortgagee's Right to Perform; Mortgagee's Expenditures.

          (a) Mortgagor agrees that if Mortgagor fails to perform any act or
take any action which Mortgagor is required to perform or take hereunder or
under the Financing


                                       26

<PAGE>

Agreement or to pay any money which Mortgagor is required to pay hereunder or
under the Financing Agreement, Mortgagee may, but shall not be obligated to,
perform or cause to be performed such act or take such action or pay such money
to the extent and only to the extent permitted under the Financing Agreement.

          (b) All costs and expenses incurred by Mortgagee (or any Indemnified
Party), including, without limitation, attorneys fees and expenses, all monies
paid by (or on behalf of) Mortgagee and the monetary value of all services
performed by (or on behalf of Mortgagee) in connection with a Default or Event
of Default hereunder or under any other Loan Document, including, without
limitation, the (i) the enforcement of any term or provision of this Mortgage or
any other Loan Document, (ii) the performance by Mortgagee of any obligation of
Mortgagor under this Mortgage or any other Loan Document if Mortgagee elects to
so perform, in its sole and absolute discretion, and (iii) any action Mortgagee
elects to take, in its sole and absolute discretion, to protect its interest in
or the value of the Mortgaged Property, shall be a demand obligation owing by
Mortgagor to Mortgagee, as the case may be, and to the extent any payment is
made to a third Person, Mortgagee, upon making such payment, shall be subrogated
to all of the rights of the Person receiving such payment. All such costs and
expenses, monies and the monetary value of such services performed shall (x)
bear interest at the Post-Default Rate from the date of such incurrence, payment
or performance, as applicable, until paid, and (y) (together with such interest)
constitute a portion of the Obligations and shall be secured by this Mortgage
and all of the other Loan Documents. If Mortgagee shall elect to pay any
Imposition or other sums due with reference to the Mortgaged Property, Mortgagee
may do so in reliance on any bill, statement or assessment procured from the
appropriate Governmental Authority or other issuer thereof.

          SECTION 8.08 Successors and Assigns. All of the terms hereof shall
apply to, be binding upon and inure to the benefit of the parties hereto, their
successors, assigns, heirs and legal representatives, and all other Persons
claiming by, through or under them; provided, however, that nothing herein shall
be deemed to imply any right on behalf of Mortgagor to assign its interest in
any of the Mortgaged Property except as may be expressly set forth in the
Financing Agreement.

          SECTION 8.09 Severabilitv. This Mortgage is intended to be performed
in accordance with, and only to the extent permitted by, all applicable laws and
regulations of applicable Governmental Authorities and the provisions hereof are
intended to be limited to the extent necessary that they will not render this
Mortgage invalid, unenforceable or not entitled to be recorded, registered or
filed under the provisions of any applicable law. If any provision hereof or the
application thereof to any Person or circumstance shall, for any reason and to
any extent, be invalid or unenforceable, neither the remainder of this Mortgage
nor the application of such provision to other Persons or circumstances shall be
affected thereby, but rather shall be enforced to the greatest extent permitted
by applicable law.

          SECTION 8.10 Entire Agreement and Modification. This Mortgage may not
be amended, revised, waived, discharged, released or terminated orally, but only
by a written instrument or instruments executed by the party against which
enforcement of the amendment, revision, waiver, discharge, release or
termination is asserted. Any alleged amendment, revision,


                                       27

<PAGE>

waiver, discharge, release or termination which is not so documented shall not
be effective as to any party.

          SECTION 8.11 Applicable Law. THIS MORTGAGE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE IN WHICH THE
MORTGAGED PROPERTY IS LOCATED; PROVIDED, HOWEVER, THAT THE FINANCING AGREEMENT
IS AND EACH GUARANTY IS BY ITS TERMS, GOVERNED BY THE INTERNAL LAWS OF THE STATE
OF NEW YORK AS PROVIDED THEREIN, AND, IN THE EVENT THAT IT BECOMES NECESSARY, IN
CONNECTION WITH THE ENFORCEMENT OF THIS MORTGAGE OR OTHERWISE, TO CONSTRUE OR
ENFORCE THE OBLIGATIONS (WHICH OBLIGATIONS ARE SECURED BY THIS MORTGAGE), THE
FINANCING AGREEMENT AND EACH GUARANTY SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK

          SECTION 8.12 Satisfaction of Prior Encumbrance, To the extent that
proceeds advanced pursuant to the Financing Agreement are used to pay
indebtedness secured by any outstanding Lien, security interest, charge or prior
encumbrance against the Mortgaged Property, such proceeds shall be deemed to
have been advanced by Mortgagee at Mortgagor's request, and Mortgagee shall be
subrogated to any and all rights, security interests and Liens owned by any
owner or holder of such outstanding Liens, security interests, charges or
encumbrances, irrespective of whether said Liens, security interests, charges or
encumbrances are released, and it is expressly understood that, in consideration
of the payment of such other indebtedness by Mortgagee, Mortgagor hereby waives
and releases all demands and causes of action for offsets and payments to, upon
and in connection with the said indebtedness.

          SECTION 8.13 No Partnership. Nothing contained in this Mortgage is
intended to, or shall be construed to, create to any extent and in any manner
whatsoever any partnership, joint venture, or association between Mortgagor and
Mortgagee, or in any way make Mortgagee a co-principal with Mortgagor with
reference to the Mortgaged Property, and any inferences to the contrary are
hereby expressly negated.

          SECTION 8.14 Headings. The Article, Section and Subsection headings
hereof are inserted for convenience of reference only and shall in no way alter,
modify or define, or be used in construing, the text of such Articles, Sections
or Subsections.

          SECTION 8.15 Release of Mortgage. If all of the Obligations shall be
paid, performed and discharged and the Financing Agreement is and each Guaranty
is terminated, Mortgagee shall forthwith cause satisfaction and discharge of
this Mortgage to be entered upon the record, at the sole cost and expense of
Mortgagor, and shall execute and deliver (or cause to be executed and delivered)
such instruments of satisfaction and discharge as may be appropriate, such
instruments to be duly acknowledged and in form for recording, at the sole cost
and expense of Mortgagor.


                                       28

<PAGE>

          SECTION 8.16 Limitation of Obligations with Respect to Mortgaged
Property.

          (A) Neither Mortgagee nor any Lender shall have any duty to protect or
preserve, or any liability with respect to the protection or preservation of,
any Mortgaged Property or to preserve rights pertaining thereto other than the
duty to use reasonable care in the custody and preservation of any Mortgaged
Property in its actual possession. Mortgagee shall be deemed to have exercised
reasonable care in the custody and preservation of any Mortgaged Property in its
possession if such Mortgaged Property is accorded treatment substantially equal
to that which Mortgagee accords its own like property. Mortgagee shall be
relieved of all responsibility for any Mortgaged Property in its possession upon
surrendering it, or tendering surrender of it, to Mortgagor or to such other
Person entitled thereto by applicable law.

          (B) Nothing contained in this Mortgage shall be construed as requiring
or obligating Mortgagee or any Lender, and neither Mortgagee nor any Lender
shall be required or obligated, to (i) make any demand or inquiry as to the
nature or sufficiency of any payment received by it, or present or file any
claim or notice or take any action with respect to any Mortgaged Property or the
monies due or to become due in connection therewith, (ii) ascertain or take
action with respect to calls, conversions, exchanges, maturities, tenders,
offers or other matters relating to any Mortgaged Property, whether or not
Mortgagee or any of the other Lenders has or is deemed to have knowledge or
notice thereof, (iii) take any necessary steps to preserve rights against any
prior parties with respect to any Mortgaged Property, or (iv) notify Mortgagor
or any other Person of any decline in the value of any Mortgaged Property.

          SECTION 8.17 Inconsistency with Financing Agreement. To the fullest
extent possible, the terms and provisions of the Financing Agreement shall be
read together with the terms and provisions of this Mortgage such that the terms
and provisions of this Mortgage shall supplement, rather than conflict with, the
terms and provisions of the Financing Agreement; provided, however, that,
notwithstanding the foregoing, in the event any of the terms or provisions of
this Mortgage conflict with any of the terms or provisions of the Financing
Agreement, such that it is impractical for such terms or provisions to coexist,
the terms or provisions of the Financing Agreement shall govern and control for
all purposes; and, provided further, that the inclusion in this Mortgage of
terms and provisions, supplemental rights or remedies in favor of a secured
party but which are not addressed in the Financing Agreement shall not be deemed
to be a conflict with the Financing Agreement and all such additional terms,
provisions, supplemental rights or remedies contained herein shall be given full
force and effect.

          SECTION 8.18 Limitation on Interest Payable. It is the intention of
the parties to conform strictly to the usury laws, whether state or federal,
that are applicable to the transaction of which this Mortgage is a part. All
agreements between Mortgagor and Mortgagee, or any Lender, whether now existing
or hereafter arising and whether oral or written, are hereby expressly limited
so that in no contingency or event whatsoever shall the amount paid or agreed to
be paid by Mortgagor for the use, forbearance or detention of the money to be
loaned under the Financing Agreement or any other Loan Document, or for the
payment or performance of any covenant or obligation contained herein or in the
Financing Agreement or any other Loan Document, exceed the maximum amount
permissible under applicable federal or state usury laws. If, under any
circumstances, fulfillment of any such provision, at the time performance of
such provision shall be due, shall involve exceeding the limit of validity
prescribed by applicable


                                       29

<PAGE>

law, then the obligation to be fulfilled shall be reduced to the limit of such
validity. If, under any circumstances, Mortgagor shall have paid an amount of
money which is deemed to be interest and such interest would exceed the highest
lawful rate, such amount that would be excessive interest under applicable usury
laws shall be applied to the reduction of the principal amount owing in respect
of the Obligations and not to the payment of interest, or if such excessive
interest exceeds the unpaid balance of principal and any other amounts due
hereunder, the excess shall be refunded to Mortgagor. All sums paid or agreed to
be paid for the use, forbearance or detention of the principal under any
extension of credit by Mortgagee (or any Lender) shall, to the extent permitted
by applicable law, and to the extent necessary to preclude exceeding the limit
of validity prescribed by applicable law, be amortized, prorated, allocated and
spread from the date of this Mortgage until payment in full of the Obligations
so that the actual rate of interest on account of such principal amounts is
uniform throughout the term hereof.

          SECTION 8.19 Covenants To Run With the Land. All of the grants,
representations, warranties, undertakings, covenants, terms, provisions and
conditions in this Mortgage shall run with the Land and shall apply to and bind
the successors and assigns of Mortgagor. If there shall be more than one
mortgagor, the covenants, representations and warranties made herein shall be
deemed to be joint and several.

          SECTION 8.20 Last Dollar. So long as the balance of the Obligations
exceeds the portion of the Obligations secured by this Mortgage, no payment on
account of the Obligations shall be deemed to be applied against or to reduce
the portion of the Obligations secured by this Mortgage, but shall, instead, be
deemed to be applied against only such portions of the Obligations that are not
secured by this Mortgage.

          SECTION 8.21 Defense of Claims. Mortgagor shall promptly notify
Mortgagee in writing of the commencement of any legal proceedings affecting
Mortgagor's title to the Mortgaged Property or Mortgagee's Lien on or security
interest in the Mortgaged Property, or any part thereof, and shall take all such
action, employing attorneys agreeable to Mortgagee, as may be necessary to
preserve Mortgagor's and Mortgagee's rights affected thereby. If Mortgagor fails
or refuses to adequately or vigorously, in the sole judgment of Mortgagee,
defend Mortgagor's or Mortgagee's rights to the Mortgaged Property, Mortgagee
may take such action on behalf of and in the name of Mortgagor and at
Mortgagor's expense. Moreover, Mortgagee may take (or cause its agents to take)
such independent action in connection therewith as they may in their discretion
deem proper, including, without limitation, the right to employ independent
counsel and to intervene in any suit affecting the Mortgaged Property. All
costs, expenses and attorneys' fees incurred by Mortgagee (or its agents)
pursuant to this Section 8.21 or in connection with the defense by Mortgagee of
any claims, demands or litigation relating to Mortgagor, the Mortgaged Property
or the transactions contemplated in this Mortgage shall be paid by Mortgagor on
demand, plus interest thereon from the date of the advance by Mortgagee until
reimbursement of Mortgagee at the Post-Default Rate.

          SECTION 8.22 Exculpation Provisions. EACH OF THE PARTIES HERETO
SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS MORTGAGE; AND AGREES THAT IT
IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS MORTGAGE; THAT IT HAS
IN FACT READ THIS MORTGAGE AND IS FULLY INFORMED AND HAS FULL NOTICE AND
KNOWLEDGE OF THE


                                       30

<PAGE>

TERMS, CONDITIONS AND EFFECTS OF THIS MORTGAGE; THAT IT HAS BEEN REPRESENTED BY
INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING
ITS EXECUTION OF THIS MORTGAGE AND HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN
ENTERING INTO THIS MORTGAGE; AND THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF
THIS MORTGAGE RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME
ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY
FOR SUCH LIABILITY. EACH PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT
CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS
MORTGAGE ON THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE OF SUCH
PROVISION OR THAT THE PROVISION IS NOT "CONSPICUOUS."

          SECTION 8.23 No Merger of Estates. So long as any part of the
Obligations remain unpaid, unperformed or undischarged, the fee, easement and
leasehold estates to the Mortgaged Property shall not merge but rather shall
remain separate and distinct, notwithstanding the union of such estates either
in Mortgagor, Mortgagee, any lessee, any third-party purchaser or otherwise.

          SECTION 8.24 Counterparts. This Mortgage may be executed in any number
of counterparts, each of which shall be deemed to be an original, and all of
which, taken together, shall be deemed to constitute one single instrument,
except that, to facilitate recordation, portions of Exhibit A hereto which
describe properties situated in counties other than the county in which this
Mortgage is to be recorded may be omitted.

          SECTION 8.25 Maturity Date. The latest Obligation secured by this
Mortgage matures on February 15,2009.

                                   ARTICLE IX

                            STATE SPECIFIC PROVISIONS

          SECTION 9.01 Application of Rents and Proceeds. Notwithstanding any
provision of this Mortgage (including, without limitation, Section 3.02(b),
Section 3.04, Section 7.06 and Section 7.16 hereof) to the contrary, all Rents
received from the Mortgaged Property shall be applied as follows:

               (1) to payment of all reasonable fees of the receiver approved by
     the court;

               (2) to payment of all tenant security deposits then owing to
     tenants under any of the Leases pursuant to the provisions of Minn. Stat.
     504B.178, if applicable;

               (3) to payment of all prior or current real estate taxes and
     special assessments with respect to the Mortgaged Property, or the escrow
     payments then due;

               (4) to payment of all premiums then due for the insurance
     required by the provisions of this Mortgage, or to the escrow payments then
     due;


                                       31

<PAGE>

               (5) to payment of all expenses to perform the covenants of any
     lessor or licensee pursuant to Minn. Stat. 504B.161, subd. 1, if
     applicable;

               (6) to payment of expenses incurred for normal maintenance and
     operation of the Mortgaged Property;

               (7) prior to commencement of any foreclosure, to Mortgagee for
     payment of the indebtedness secured by this Mortgage in such order as
     Mortgagee may elect, but no such payment made after acceleration of the
     indebtedness shall affect such acceleration;

               (8) after commencement of any foreclosure, to Mortgagee for
     payment of the amount required to be paid to effect a reinstatement prior
     to the foreclosure sale, but no such payment made after acceleration of the
     indebtedness shall affect such acceleration; and

               (9) after a foreclosure sale, at the option of Mortgagee, in its
     sole discretion, to payment of any deficiency or to the amount required to
     be paid to effect a redemption, with any excess to be paid to Mortgagor;
     provided, however, that if this Mortgage is not reinstated nor the
     Mortgaged Property redeemed, the entire amount received pursuant hereto,
     after deducting the amounts, if any, applied by Mortgagee to any
     deficiency, shall be the property of the purchaser of the Mortgaged
     Property at the foreclosure sale.

The rights and powers of the Mortgagee under this Mortgage and the application
of Rents under this Section shall continue until expiration of the redemption
period from any foreclosure sale, whether or not any deficiency remains after a
foreclosure sale. A receiver appointed pursuant to this Mortgage shall apply all
Rents in accordance with this section from the date of appointment of such
receiver through the entire redemption period following the foreclosure sale.

          SECTION 9.02 WAIVER OF CONSTITUTIONAL RIGHTS. MORTGAGOR UNDERSTANDS
AND AGREES THAT IF AN "EVENT OF DEFAULT" (AS DEFINED IN THE FINANCING AGREEMENT)
SHALL OCCUR, MORTGAGEE HAS THE RIGHT, INTER ALIA, TO FORECLOSE THIS MORTGAGE BY
ADVERTISEMENT PURSUANT TO MINNESOTA STATUTES, CHAPTER 580, AS HEREAFTER AMENDED,
OR PURSUANT TO ANY SIMILAR OR REPLACEMENT STATUTE HEREAFTER ENACTED; THAT IF
MORTGAGEE ELECTS TO FORECLOSE BY ADVERTISEMENT, IT MAY CAUSE THE MORTGAGED
PROPERTY, OR ANY PART THEREOF, TO BE SOLD AT PUBLIC AUCTION; THAT NOTICE OF SUCH
SALE MUST BE PUBLISHED AND GIVEN PERSONALLY TO THE PERSONS IN POSSESSION OF THE
MORTGAGED PROPERTY AS PROVIDED BY STATUTE; THAT MORTGAGOR WILL HAVE SUCH PERIOD
AS IS PROVIDED BY MINNESOTA STATUTES, SECTIONS 580.23 OR 582.032, AS APPLICABLE,
OR ANY AMENDMENT THERETO, OR ANY SIMILAR OR REPLACEMENT STATUTE HEREAFTER
ENACTED, TO REDEEM THE MORTGAGED PROPERTY SO SOLD BY PAYING THE SALE PRICE, ANY
TAXES, ASSESSMENTS AND INSURANCE PREMIUMS PAID BY THE PURCHASER AT SUCH SALE,
AND OTHER SUMS PERMITTED BY LAW, TOGETHER WITH INTEREST THEREON FROM THE DATE OF
SALE OR PAYMENT AT THE HIGHEST RATE PERMITTED BY LAW.

MORTGAGOR FURTHER UNDERSTANDS THAT IN THE EVENT OF SUCH DEFAULT, MORTGAGEE MAY
TAKE POSSESSION OF THE MORTGAGED PROPERTY WHICH IS


                                       32

<PAGE>

SUBJECT TO THE SECURITY INTEREST HEREINBEFORE GRANTED AND DISPOSE OF THE SAME BY
SALE OR OTHERWISE IN ONE OR MORE PARCELS, PROVIDED THAT AT LEAST (10) DAYS'
PRIOR NOTICE OF SUCH DISPOSITION MUST BE GIVEN TO MORTGAGOR, ALL AS PROVIDED FOR
BY THE MINNESOTA UNIFORM COMMERCIAL CODE, AS HEREAFTER AMENDED, OR BY ANY
SIMILAR OR REPLACEMENT STATUTE HEREAFTER ENACTED.

MORTGAGOR FURTHER UNDERSTANDS THAT UNDER THE CONSTITUTION OF THE UNITED STATES
IT MAY HAVE THE RIGHT TO NOTICE AND HEARING BEFORE THE MORTGAGED PROPERTY MAY BE
SOLD AND THAT THE PROCEDURE FOR FORECLOSURE BY ADVERTISEMENT DESCRIBED ABOVE
DOES NOT INSURE THAT NOTICE WILL BE GIVEN TO MORTGAGOR, AND NEITHER SAID
PROCEDURE FOR FORECLOSURE BY ADVERTISEMENT NOR THE MINNESOTA UNIFORM COMMERCIAL
CODE REQUIRES ANY HEARING OR OTHER JUDICIAL PROCEEDING.

MORTGAGOR HEREBY RELINQUISHES, WAIVES AND GIVES UP ANY CONSTITUTIONAL RIGHTS TO
NOTICE AND HEARING BEFORE SALE OF THE MORTGAGED PROPERTY AND EXPRESSLY CONSENTS
AND AGREES THAT THE MORTGAGED PROPERTY MAY BE FORECLOSED BY ADVERTISEMENT AND
THAT THE PORTION THEREOF WHICH IS SUBJECT TO THE SECURITY INTEREST HEREINBEFORE
GRANTED MAY BE DISPOSED OF PURSUANT TO THE UNIFORM COMMERCIAL CODE, ALL AS
DESCRIBED ABOVE.

MORTGAGOR ACKNOWLEDGES THAT IT IS REPRESENTED BY LEGAL COUNSEL; THAT BEFORE
SIGNING THIS DOCUMENT THIS SECTION AND ITS CONSTITUTIONAL RIGHTS WERE FULLY
EXPLAINED BY SUCH COUNSEL AND THAT IT UNDERSTANDS THE NATURE AND EXTENT OF THE
RIGHTS WAIVED HEREBY AND THE EFFECT OF SUCH WAIVER.

          SECTION 9.03 Wells and Sewer Systems. Mortgagor does not know of any
wells (as defined by Minnesota Statutes Section 1031.005, Subd. 21, as amended)
on the Land, nor of any individual sewage systems (within the meaning of
Minnesota Statutes Section 115.55, Subd. l(g)) on or serving the Land.

          SECTION 9.04 Future Advances. The maximum principal amount of
indebtedness secured by this Mortgage at any one time, excluding advances made
by Mortgagee in protection of the Mortgaged Property or the lien of this
Mortgage, shall be $8,000,000.00. To the extent that this Mortgage secures
future advances, the amount of such advances is not currently known. The
acceptance of this Mortgage by Mortgagee, however, constitutes an acknowledgment
that Mortgagee is aware of the provisions of Minnesota Statutes Section 287.05,
Subd. 5, and intends to comply with the requirements contained therein. The
representations contained in this Section are made solely for the benefit of the
county recording authorities in determining the mortgage registry tax payable as
a prerequisite to the recording of this Mortgage. Mortgagor acknowledges that
such representations do not constitute or imply an agreement by Mortgagee to
make any future advances to Mortgagor.

                  [Remainder of Page Intentionally Left Blank.]


                                       33

<PAGE>

     IN WITNESS WHEREOF, Mortgagor has executed this Mortgage as of the date
first above written.

                                        MORTGAGOR:

                                        LAKES ENTERTAINMENT, INC.
                                        a Delaware limited liability company


                                        By: /s/ Timothy J. Cope
                                            ------------------------------------
                                        Name: Timothy J. Cope
                                        Title: Chief Financial Officer

<PAGE>

                                 ACKNOWLEDGEMENT

STATE OF NEW YORK    )
                     ) ss:
COUNTY OF NEW YORK   )

     The foregoing instrument was acknowledged before me this 15th day of
February, 2006, by Timothy J. Cope, as Chief Financial Officer of Lakes
Entertainment. Inc.. a Minnesota corporation, on behalf of the corporation.


                                        /s/ THOMAS W. CAPLIS
                                        ----------------------------------------
                                        Notary Public
                                        My Commission Expires: _________________

                                                         (SEAL)

<PAGE>

                                    EXHIBIT A

                                LEGAL DESCRIPTION

Lot 1, Block 1, Carlson Center East, Hennepin County, Minnesota.

Together with the benefits and easements created in Declaration of Easements and
Covenants dated December 18, 1996, filed December 20, 1996, as Document No.
2771390 and as amended by that certain First Amendment to the Declaration of
Easements and Covenants dated March 25, 1998, filed April 14, 1998 as Document
No. 3009312.

Together with the rights and easements created under the terms of that certain
Water Main Easement dated March 26, 1999, filed April 5, 1999, as Document No.
3141558.

Torrens Property
Certificate of Title No. 1077389


                                      A-1
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.8
<SEQUENCE>10
<FILENAME>c02665exv10w8.txt
<DESCRIPTION>DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS
<TEXT>
<PAGE>
                                                                    Exhibit 10.8

RECORDED REQUEST OF
FIDELITY NATIONAL TITLE
SAN DIEGO OFFICE

THIS DEED OF TRUST WAS PREPARED BY
AND WHEN RECORDED, RETURN TO:

Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
Attention: Caryn J. Ettinger, Esq.
Reference No.: 089253 0012
258453.2

                 DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS,
                      SECURITY AGREEMENT AND FIXTURE FILING

                                     made by

                 LAKES KEAN ARGOVITZ RESORTS-CALIFORNIA, L.L.C.
                                    (TRUSTOR)

                                       to

                    FIDELITY NATIONAL TITLE INSURANCE COMPANY
                                    (TRUSTEE)

                               for the benefit of

                                PLKS FUNDING, LLC
                                 (BENEFICIARY)

                               PROPERTY LOCATION:

                                14020 Melody Road
         Portion of Section 10, T.17, S.R.1E (Highway 94/Campo Road) |
                                Jamul, California

                          DATED AS OF FEBRUARY 15, 2006

    THIS ALSO CONSTITUTES FINANCING STATEMENTS FILED AS A FIXTURE FILING AND
 FINANCING STATEMENT PURSUANT TO SECTIONS 9501(a)(1) AND 9502(b) AND (c) OF THE
     CALIFORNIA UNIFORM COMMERCIAL CODE AND IS RECORDED AS A FIXTURE FILING

     PURSUANT TO SECTION 2924b(d) OF THE CALIFORNIA CIVIL CODE, TRUSTOR AND
   BENEFICIARY REQUEST THAT A COPY OF ANY NOTICE OF DEFAULT AND A COPY OF ANY
   NOTICE OF SALE BE MAILED TO TRUSTOR AND BENEFICIARY, RESPECTIVELY, AT THE
                    ADDRESS FOR SUCH PARTY SET FORTH HEREIN.

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>                                                                         <C>
ARTICLE I DEFINITIONS....................................................     2
   SECTION 1.01   Terms Defined Above....................................     2
   SECTION 1.02   Definitions............................................     2
   SECTION 1.03   Terminology............................................     6
   SECTION 1.04   Other Defined Terms....................................     6

ARTICLE II GRANT OF LIEN AND SECURITY INTEREST...........................     6
   SECTION 2.01   Grant of Lien..........................................     6
   SECTION 2.02   Grant of Security Interest.............................     6
   SECTION 2.03   No Obligation of Beneficiary...........................     7
   SECTION 2.04   Fixture Filing.........................................     7
   SECTION 2.05   Future Advances........................................     7
   SECTION 2.06   Intentionally Omitted..................................     7

ARTICLE III ASSIGNMENT OF LEASES AND RENTS...............................     7
   SECTION 3.01   Assignment.............................................     8
   SECTION 3.02   Revocable License......................................     8
   SECTION 3.03   Enforcement of Leases..................................     8
   SECTION 3.04   Direction to Tenants...................................     9
   SECTION 3.05   Appointment of Attorney-in-Fact........................     9
   SECTION 3.06   No Liability of Beneficiary............................    10
   SECTION 3.07   Trustor's Indemnities..................................    10
   SECTION 3.08   No Modification of Trustor's Obligations...............    11
   SECTION 3.09   Rights in Bankruptcy...................................    11
   SECTION 3.10   Right to Enforce Under California
                     Civil Code Section 2938.............................    11

ARTICLE IV REPRESENTATIONS AND WARRANTIES................................    13
   SECTION 4.01   Title to Trust Property and Lien of this
                     Deed of Trust.......................................    14
   SECTION 4.02   Taxes and Other Payments...............................    14
   SECTION 4.03   Power to Create Lien and Security......................    14
   SECTION 4.04   Loan and Financing Agreements..........................    14
   SECTION 4.05   Compliance with Laws...................................    14
   SECTION 4.06   No Condemnation........................................    15
   SECTION 4.07   Flood Zone.............................................    15
   SECTION 4.08   Additional Environmental Representation................    15

ARTICLE V AFFIRMATIVE COVENANTS..........................................    15
   SECTION 5.01   Lien Status............................................    15
   SECTION 5.02   Payment of Impositions.................................    16
   SECTION 5.03   Repair.................................................    16
   SECTION 5.04   Insurance and Application of Insurance Proceeds........    16
   SECTION 5.05   Condemnation and Application of Condemnation Proceeds..    19
</TABLE>


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<TABLE>
<S>                                                                         <C>
   SECTION 5.06   Maintenance of Rights of Way, Easements, Licenses and
                     Other Rights........................................    19
   SECTION 5.07   Payment and Performance of Obligations.................    20
   SECTION 5.08   Compliance with Permitted Liens and Other Obligations..    20
   SECTION 5.09   Additional Affirmative Covenants.......................    20

ARTICLE VI NEGATIVE COVENANTS............................................    20
   SECTION 6.01   Use Violations.........................................    20
   SECTION 6.02   Waste..................................................    20
   SECTION 6.03   Alterations............................................    20
   SECTION 6.04   No Further Encumbrances................................    21
   SECTION 6.05   Transfer Restrictions..................................    21
   SECTION 6.06   Loan and Financing Agreements; Additional
                     Negative Covenants..................................    21

ARTICLE VII EVENTS OF DEFAULT AND REMEDIES...............................    21
   SECTION 7.01   Event of Default.......................................    21
   SECTION 7.02   Acceleration...........................................    21
   SECTION 7.03   Foreclosure and Sale...................................    22
   SECTION 7.04   Trustee's Successors, Substitutes and Agents...........    23
   SECTION 7.05   Receivership...........................................    23
   SECTION 7.06   Judicial Foreclosure...................................    23
   SECTION 7.07   Separate Sales.........................................    24
   SECTION 7.08   Possession of Trust Property...........................    24
   SECTION 7.09   Occupancy After Foreclosure............................    24
   SECTION 7.10   Remedies Cumulative, Concurrent and Nonexclusive.......    25
   SECTION 7.11   No Release of Obligations..............................    25
   SECTION 7.12   Release of and Resort to Collateral....................    25
   SECTION 7.13   Waiver of Redemption, Notice and
                     Marshalling of Assets...............................    25
   SECTION 7.14   Discontinuance of Proceedings..........................    26
   SECTION 7.15   Application of Proceeds................................    26
   SECTION 7.16   Uniform Commercial Code Remedies.......................    27
   SECTION 7.17   Indemnity..............................................    27
   SECTION 7.18   Waiver of Lien.........................................    28
   SECTION 7.19   Action for Environmental Claims........................    28

ARTICLE VIII TRUSTEE.....................................................    29
   SECTION 8.01   Duties, Rights, and Powers of Trustee..................    29
   SECTION 8.02   Successor Trustee......................................    29
   SECTION 8.03   Retention of Moneys....................................    30
   SECTION 8.04   Reconveyance...........................................    30

ARTICLE DC MISCELLANEOUS.................................................    30
   SECTION 9.01   Instrument Construed as Deed of Trust, Etc.............    30
   SECTION 9.02   Performance at Trustor's Expense.......................    30
   SECTION 9.03   Survival of Obligations................................    30
   SECTION 9.04   Further Assurances.....................................    30
   SECTION 9.05   Notices................................................    31
</TABLE>


                                       ii

<PAGE>

<TABLE>
<S>                                                                         <C>
   SECTION 9.06   No Waiver..............................................    31
   SECTION 9.07   Beneficiary's Right to Perform;
                     Beneficiary's Expenditures..........................    31
   SECTION 9.08   Successors and Assigns.................................    32
   SECTION 9.09   Severability...........................................    32
   SECTION 9.10   Subrogation of Trustee.................................    32
   SECTION 9.11   Entire Agreement and Modification......................    32
   SECTION 9.12   Applicable Law.........................................    33
   SECTION 9.13   Satisfaction of Prior Encumbrance......................    33
   SECTION 9.14   No Partnership.........................................    34
   SECTION 9.15   Headings...............................................    34
   SECTION 9.16   Release of Deed of Trust...............................    34
   SECTION 9.17   Limitation of Obligations with Respect
                     to Trust Property...................................    34
   SECTION 9.18   Inconsistency with Financing Agreement.................    35
   SECTION 9.19   Limitation on Interest Payable.........................    35
   SECTION 9.20   Covenants To Run With the Land.........................    35
   SECTION 9.21   Amount Secured; Last Dollar............................    35
   SECTION 9.22   Defense of Claims......................................    36
   SECTION 9.23   Exculpation Provisions.................................    36
   SECTION 9.24   No Merger of Estates...................................    36
   SECTION 9.25   Suretyship Waivers.....................................    36
   SECTION 9.26   Beneficiary Statement..................................    42
   SECTION 9.27   Request for Notice.....................................    42
   SECTION 9.28   Release and Reconveyance...............................    42
</TABLE>

EXHIBIT A - LEGAL DESCRIPTION


                                      iii

<PAGE>

                 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 (hereinafter, together with any and all amendments,
supplements, modifications or restatements of any kind, referred to as this
"Deed of Trust"), is made as of FEBRUARY 15, 2006. by LAKES KEAN ARGOVITZ
RESORTS-CALIFORNIA, L.L.C., a Delaware limited liability company, having its
principal place of business at c/o Lakes Entertainment, Inc., 130 Cheshire Lane,
Suite 101, Minnetonka, Minnesota 55309, Attention: Damon E. Schramm, Esq.
("Trustor"), to Fidelity National Title Insurance Company, a California
corporation (including any successor trustee at the time acting as such
hereunder, "Trustee"), for the benefit of PLKS FUNDING, LLC, a Delaware limited
liability company, having its principal place of business at c/o Prentice
Capital Management, LP, 623 Fifth Avenue, 32nd Floor, New York, New York 10022,
Attention: Michael Weiss (in such capacity, together with its successors and
assigns, "Beneficiary"), for itself and as agent for each of the financial
institutions and their respective successors and assigns which from time to time
shall be a "Lender" under the Financing Agreement (as hereinafter defined).

                                    RECITALS:

          WHEREAS, Trustor, a subsidiary of Parent, as hereinafter defined, is
the owner and holder of fee simple title in and to the Land (as hereinafter
defined) described on Exhibit A attached hereto and made a part hereof;

          WHEREAS, on the date hereof, Trustor, Lakes Entertainment, Inc.
("Parent") and each of the Subsidiaries of Parent listed as a "Borrower" on the
signature pages of the Financing Agreement (each, along with Trustor and Parent
are hereinafter each referred to as a "Borrower" and collectively as, the
"Borrowers"), and the Guarantors (as defined in the Financing Agreement),
entered into that certain Financing Agreement with the Lenders and Beneficiary
(as the same may be amended, modified or otherwise supplemented and in effect
from time to time, the "Financing Agreement"), pursuant to which the Lenders
agreed to extend to the Borrowers certain revolving loan facilities in the
aggregate original principal amount of up to FIFTY MILLION and 00/100 Dollars
($50,000,000.00) (the "Loan");

          WHEREAS, Trustor will derive direct economic benefit from the Loan;

          WHEREAS, as a condition to Beneficiary executing the Financing
Agreement, Beneficiary is requiring that Trustor grant to Beneficiary, on behalf
of the Lenders, a security interest in and a first deed of trust lien upon the
Trust Property (as hereinafter defined), to secure (a) the payment of all of the
obligations of Trustor under the Financing Agreement, this Deed of Trust, and
the other Loan Documents (as hereinafter defined) (except for "Unsecured
Environmental Costs", as defined in Section 7.19 below), and (b) the performance
of all terms, covenants, conditions, provisions, agreements and liabilities
contained in the Financing Agreement, this Deed of Trust, and the other Loan
Documents.


                                       1

<PAGE>

          NOW, THEREFORE, in order to comply with the terms and conditions of
the Financing Agreement and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Trustor hereby agrees
with Beneficiary as follows:

                                    ARTICLE I
                                   DEFINITIONS

          SECTION 1.01 Terms Defined Above. As used in this Deed of Trust, the
terms defined in the introductory paragraph to this Deed of Trust and in the
Recitals set forth above shall have the meanings respectively assigned to them
above.

          SECTION 1.02 Definitions. As used herein, the following terms shall
have the following meanings:

          "Agent" has the meaning assigned to such term in the Financing
Agreement.

          "Applicable UCC" means the Uniform Commercial Code as presently in
effect in the State or Commonwealth where the Trust Property is located.

          "Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C.
Section 101, et. seq.), as amended, and any successor statute.

          "Buildings" means any and all buildings, structures, garages, utility
sheds, workrooms, air conditioning towers, open parking areas and other
improvements, and any and all additions, alterations, betterments or
appurtenances thereto, now or at any time hereafter situated, placed or
constructed upon the Land or any part thereof.

          "Default" has the meaning assigned to such term in the Financing
Agreement.

          "Event of Default" has the meaning assigned to such term in Section
7.01 hereof.

          "Fixtures" means all materials, supplies, equipment, apparatus and
other items now or hereafter acquired by Trustor and incorporated into the Trust
Property so as to constitute fixtures under the laws of the state in which such
items are located.

          "Governmental Authority" has the meaning assigned to such term in the
Financing Agreement.

          "Governmental Requirements" means any and all present and future
judicial decisions, statutes, rulings, rules, regulations, permits, certificates
or ordinances of any Governmental Authority in any way applicable to Trustor or
the Trust Property, including the ownership, use, occupancy, possession,
operation, maintenance, alteration, repair or reconstruction thereof.

          "Impositions" means any and all real estate and personal property
taxes; water, gas, sewer, electricity and other utility rates and charges;
charges for any easement, license or agreement maintained for the benefit of the
Trust Property; any and all other taxes, charges and


                                       2

<PAGE>

assessments, whether general or special, ordinary or extraordinary, foreseen or
unforeseen, of any kind and nature whatsoever which at any time prior to or
after the execution hereof may be assessed, levied or imposed upon the Trust
Property or the ownership, use, occupancy, benefit or enjoyment thereof,
together with any interest, costs or penalties that may become payable in
connection therewith.

          "Indemnified Parties" means, with respect to any Person entitled to
the benefit of an indemnity, such Person's officers, directors, shareholders,
partners, members, managers, employees, agents, representatives, attorneys,
accountants and experts. The term "Indemnified Party" means any one of such
Persons.

          "Indemnitees" has the meaning assigned to such term in the Financing
Agreement.

          "Land" means the real property or interest therein described in
Exhibit A attached hereto, and all rights, titles and interests appurtenant
thereto.

          "Leases" means any and all leases, master leases, subleases, licenses,
concessions or other agreements (whether written or oral, and whether now or
hereafter in effect) which grant to third Persons a possessory interest in and
to, or the right to use, all or any part of the Land, the Buildings, the
Fixtures and/or the Personalty, together with all security and other deposits
made in connection therewith and any guarantee of the obligations of the
landlord or the tenant thereunder.

          "License" has the meaning assigned to such term in Section 3.02(a)
hereof.

          "Lien" has the meaning assigned to such term in the Financing
Agreement.

          "Loan Documents" means, collectively, the Financing Agreement, this
Deed of Trust, and all other instruments, agreements and other documents
executed and delivered pursuant hereto or thereto or otherwise included in the
definition of the term "Loan Documents" in the Financing Agreement.

          "Losses" means all obligations, damages, claims, causes of action,
costs, fines, fees, charges, penalties, deficiencies, losses, diminutions in
value, expenses (including court costs, fees and expenses of attorneys,
accountants, consultants and other experts) and other liabilities, and, with
respect to any indemnity, includes all attorneys' fees, costs and expenses in
connection with the enforcement and collection of such indemnity. The term
"Loss" means any one of such Losses.

          "Trust Property" means all of Trustor's right, title, interest and
estate, whether now owned or hereafter acquired, in and to the Land, the
Buildings, the Fixtures and the Personalty, together with:

          (i)  all rights, privileges, tenements, hereditaments, rights-of-way,
               easements, air rights, development rights or credits, zoning
               rights, appendages and appurtenances in anywise appertaining
               thereto, and all right, title and interest of Trustor in and to
               any streets, ways, alleys, strips or gores of


                                       3

<PAGE>

               land adjoining the Land or any part thereof, and all right, title
               and interest of Trustor, if any, in and to all rights, royalties
               and profits with respect to all minerals, coal, oil, gas and
               other substances of any kind or character on or underlying the
               Land, together with all right, title and interest of Trustor in
               and to all water and water rights (whether riparian,
               appropriative or otherwise and whether or not appurtenant);

          (ii) all rights of Trustor (but not its obligations) under any
               contracts and agreements, including, without limitation,
               construction contracts and architectural agreements, relating to
               the Land, the Buildings, the Fixtures or the Personalty;

          (iii) all of Trustor's right, title and interest in and to all
               permits, licenses, franchises, certificates, authorizations,
               consents, approvals and other rights and privileges (each, a
               "Permit") obtained in connection with the Land, the Buildings,
               the Fixtures or the Personalty or the use or operation thereof;

          (iv) all of Trustor's right, title and interest in and to all plans
               and specifications, designs, schematics, drawings and other
               information, materials and matters heretofore or hereafter
               prepared relating to the Land, the Buildings, the Fixtures or the
               Personalty;

          (v)  all of Trustor's right, title and interest in and to all proceeds
               arising from or by virtue of the sale, lease or other disposition
               of the Land, the Buildings, the Fixtures or the Personalty or any
               part thereof or any interest therein or from the operation
               thereof;

          (vi) all of Trustor's right, title and interest in and to all Leases
               now or hereafter in effect and all Rents, royalties, bonuses,
               issues, profits, revenues or other benefits arising from or
               attributable to the Land, the Buildings, the Fixtures or the
               Personalty;

          (vii) all of Trustor's right, title and interest in and to all
               betterments, additions, alterations, appurtenances,
               substitutions, replacements and revisions to the Land, the
               Buildings, the Fixtures or the Personalty and all reversions and
               remainders relating thereto;

          (viii) all of Trustor's right, title and interest in and to any
               awards, remuneration, settlements or compensation now or
               hereafter made by any Governmental Authority pertaining to the
               Land, the Buildings, the Fixtures or the Personalty, including
               those arising from or attributable to any vacation of, or change
               of grade in, any streets affecting the Land or the Buildings;

          (ix) all of Trustor's right, title and interest in and to any and all
               other security and collateral of any nature whatsoever, whether
               now or hereafter given, for the repayment, performance and
               discharge of the Obligations (as hereinafter defined);


                                        4

<PAGE>

          (x)  all of Trustor's right, title and interest in and to all awards,
               payments and proceeds of conversion, whether voluntary or
               involuntary, of any of the Land, the Buildings, the Fixtures, the
               Personalty or any of the property and rights described in the
               foregoing clauses (i) through (ix), including without limitation,
               all insurance, condemnation and tort claims, refunds of real
               estate taxes and assessments, rent claims and other obligations
               dischargeable in cash or cash equivalents; and

          (xi) all other property and rights of Trustor of every kind and
               character relating to and/or used or to be used in connection
               with the foregoing, and all proceeds and products of any of the
               foregoing.

          EXCLUDING, HOWEVER, all motor vehicles and forklifts now or hereafter
located on the Land and only to the extent contemplated by the Financing
Agreement.

As used in this Deed of Trust, the term "Trust Property" shall be expressly
defined as meaning all or, where the context permits or requires, any portion of
the above, and all or, where the context permits or requires, any interest
therein.

          "Obligations" has the meaning assigned to such term in the Financing
Agreement but shall specifically not include "Unsecured Environmental Costs" as
defined in Section 7.19 below.

          "Permitted Liens" has the meaning assigned to such term in the
Financing Agreement.

          "Person" has the meaning assigned to such term in the Financing
Agreement.

          "Personalty" means all of Trustor's right, title and interest in and
to all furniture, furnishings, equipment, machinery, goods, general intangibles,
money, insurance proceeds, contract rights, option rights, inventory, together
with all refundable, returnable or reimbursable fees, deposits or other funds or
evidences of credit or indebtedness deposited by or on behalf of Trustor with
any Governmental Authority, boards, corporations, providers of utility services,
public or private, including all refundable, returnable or reimbursable tap
fees, utility deposits, commitment fees and development costs, and all other
personal property (other than Fixtures) of any kind or character), and including
such property that is now or hereafter located or to be located upon, within or
about the Land and the Buildings, or which are or may be used in or related to
the planning, development, financing or operation of the Trust Property,
together with all accessories, replacements and substitutions thereto or
therefor and the proceeds thereof.

          "Post-Default Rate" has the meaning assigned to such term in the
Financing Agreement.

          "Principal Balance" has the meaning assigned to such term in Section
7.02 hereof.

          "Rents" means all of the rents, revenues, income, proceeds, issues,
profits, security and other types of deposits (after Trustor acquires title
thereto), and other benefits paid or payable by parties (other than Trustor) for
using, leasing, licensing, possessing, operating


                                        5

<PAGE>

from, residing in, benefiting from or otherwise enjoying all or any part of the
Land, the Buildings, the Fixtures and/or the Personalty.

          SECTION 1.03 Terminology. Except as otherwise provided herein:

          (A) references to Articles and Sections shall mean the corresponding
Article or Section of this Deed of Trust;

          (B) words used herein in the singular, where the context so permits,
shall be deemed to include the plural and vice versa, and the definitions of
words used in the singular herein shall apply to such words when used in the
plural where the context so permits and vice versa;

          (C) the words "herein," "hereof," "hereunder," and other words of
similar import when used in this Deed of Trust refer to this Deed of Trust as a
whole, and not to any particular Article or Section; and

          (D) the words "includes" or "including" mean includes or including,
without limitation.

          SECTION 1.04 Other Defined Terms. Any capitalized term used in this
Deed of Trust and not otherwise defined herein shall have the meaning assigned
to such term in the Financing Agreement.

                                   ARTICLE II

                       GRANT OF LIEN AND SECURITY INTEREST

          SECTION 2.01 Grant of Lien. To secure the full and timely payment,
performance and discharge of all of the Obligations, Trustor hereby irrevocably
GRANTS, BARGAINS, SELLS, ASSIGNS, TRANSFERS and CONVEYS unto Trustee and
Trustee's successors, assigns and substitutes in trust hereunder, WITH POWER OF
SALE and right of entry and possession, for the use and benefit of Beneficiary,
as collateral agent for the Lenders pursuant to the Financing Agreement, the
real and personal property, right, title, interest and estate in, to and under
the Trust Property, subject, however, to the Permitted Liens; TO HAVE AND TO
HOLD the Trust Property unto Trustee and Trustee's successors, assigns and
substitutes in trust hereunder, subject to the terms and conditions of this Deed
of Trust, with POWER OF SALE, forever, and Trustor does hereby bind itself, its
successors and assigns to WARRANT AND FOREVER DEFEND the title to the Trust
Property unto Beneficiary against every Person whomsoever lawfully claiming or
to claim the same or any part, subject, however, to the Permitted Liens;
provided, however, that if Trustor shall pay (or cause to be paid) and perform
and discharge (or cause to be performed and discharged) all of the Obligations
on or before the date on which the same are to be paid, performed and
discharged, then the Liens estates and rights granted by this Deed of Trust
shall cease and terminate.

          SECTION 2.02 Grant of Security Interest. This Deed of Trust shall also
constitute and serve as a "security agreement" within the meaning of, and shall
constitute a first and prior security interest under, the Applicable UCC with
respect to the Personalty and the Fixtures. To


                                        6

<PAGE>

this end, Trustor by these presents does GRANT, BARGAIN, CONVEY, ASSIGN, SELL,
TRANSFER and SET OVER unto Beneficiary, as collateral agent for the Lenders
pursuant to the Financing Agreement, a security interest in all of Trustor's
right, title and interest in, to and under the Personalty and the Fixtures, to
secure the full and timely payment, performance and discharge of the
Obligations. Trustor hereby consents to Beneficiary filing and recording
financing statements (and continuations thereof) with the appropriate filing and
recording offices in order to perfect (and maintain the perfection of) the
security interests granted herein.

          SECTION 2.03 No Obligation of Beneficiary. The assignment and security
interest herein granted to Beneficiary shall not be deemed or construed to
constitute Beneficiary as a mortgagee-in-possession of the Trust Property,
obligate Beneficiary to lease the Trust Property or attempt to do the same, or
to take any action, incur any expense or perform or discharge any obligation,
duty or liability whatsoever.

          SECTION 2.04 Fixture Filing. Without in any manner limiting the
generality of any of the other provisions of this Deed of Trust: (a) some
portions of the goods described or to which reference is made herein are or are
to become fixtures on the Land described or to which reference is made herein or
on Exhibit A attached to this Deed of Trust; (b) this Deed of Trust is to be
filed of record in the real estate records as a financing statement and shall
constitute a "fixture filing" for purposes of the Applicable UCC; and (c)
Trustor is the record owner of the real estate or interests in the real estate
constituting the Trust Property hereunder. Information concerning the security
interest herein granted may be obtained at the addresses set forth on the first
page hereof. The addresses of the Secured Party (Beneficiary) and of the Debtor
(Trustor) are set forth on the first page hereof. In that regard, the following
information is provided:

          Name of Debtor:           Lakes Kean Argovitz Resorts - California,
                                    LLC

          Type of Organization:     limited liability company

          State:                    Delaware

          FEIN:                     41-1941310

          Organizational ID Number: 199930610016

          SECTION 2.05 Future Advances. It is the intention of Trustor and
Beneficiary that this Deed of Trust shall secure future advances and
readavances, and the lien and security interest created by this Deed of Trust
shall attach upon execution and have priority from the time of recording as to
all advances, whether obligatory or discretionary, until this Deed of Trust is
released of record.

          SECTION 2.06 Intentionally Omitted

                                   ARTICLE III

                         ASSIGNMENT OF LEASES AND RENTS


                                        7

<PAGE>

          SECTION 3.01 Assignment. For Ten Dollars ($10.00) and other good and
valuable consideration, including the indebtedness evidenced by the Financing
Agreement, the receipt and sufficiency of which are hereby acknowledged and
confessed, Trustor has presently, absolutely and irrevocably GRANTED, ASSIGNED,
TRANSFERRED and CONVEYED, and by these presents does presently, absolutely and
irrevocably GRANT, ASSIGN, TRANSFER and CONVEY, unto Beneficiary, as collateral
agent for the Lenders pursuant to the Financing Agreement, as security for the
payment, performance and discharge of the Obligations, all of the Leases and
Rents (if any), subject only to the Permitted Liens applicable thereto and the
License (as hereinafter defined); provided, however, that if Trustor shall pay
(or cause to be paid) and perform and discharge (or cause to be performed and
discharged) all of the Obligations on or before the date on which the same are
to be paid, performed and discharged, then this assignment shall terminate, and
all rights, titles and interests conveyed pursuant to this assignment shall
become vested in Trustor.

          SECTION 3.02 Revocable License.

          (A) Beneficiary hereby grants to Trustor a revocable license (the
"License"), nonexclusive with the rights of Beneficiary reserved in Sections
3.02(b), 3.04, and 3.05 hereof, to exercise and enjoy all incidences of the
status of a lessor under the Leases and the Rents, including, without
limitation, the right to collect, demand, sue for, attach, levy, recover and
receive the Rents and to give proper receipts, releases and acquittances
therefor. Trustor hereby agrees to receive all Rents and hold the same as a
trust fund to be applied, and to apply the Rents so collected, except to the
extent otherwise provided in the Financing Agreement, first to the payment,
performance and discharge of the Obligations and then to the payment of the
Impositions. Thereafter, Trustor may use the balance of the Rents collected in
any manner not inconsistent with the Loan Documents.

          (B) If an Event of Default shall occur and be continuing, the License
shall immediately and automatically terminate without the necessity of any
action by Beneficiary or any other Person, and Beneficiary shall have the right
in such event to exercise the rights and remedies provided under this Deed of
Trust or otherwise available to Beneficiary under applicable law. Upon demand by
Beneficiary at any time that an Event of Default shall have occurred, Trustor
shall promptly pay to Beneficiary all security deposits under the Leases and all
Rents allocable to any period commencing from and after the occurrence of such
Event of Default. Any Rents received hereunder by Beneficiary shall be applied
and disbursed to the payment, performance and discharge of the Obligations,
subject to the terms of the Financing Agreement; provided, however, that,
subject to any applicable requirement of law, any security deposits actually
received by Beneficiary shall be held, applied and disbursed as provided in the
applicable Leases.

          SECTION 3.03 Enforcement of Leases. Trustor shall (a) submit any and
all proposed Leases (including subleases provided to Trustor for approval) to
Beneficiary for approval prior to the execution thereof or consent thereto, as
applicable; (b) duly and punctually perform and comply with any and all
representations, warranties, covenants and agreements expressed as binding upon
the lessor under any Lease; (c) maintain each Lease in full force and effect
during the term thereof; (d) provide Beneficiary with prompt notice of each
notice of default sent to a tenant under a Lease, provide Beneficiary with
prompt notice of each notice of


                                        8

<PAGE>

default received from (or relating to) a tenant under a Lease, and otherwise
promptly reasonably indicate that a material default or termination of a Lease
may occur (other than by reason of the expiration of the term of such Lease);
(e) appear in and defend any action or proceeding in any manner connected with
any of the Leases; (f) deliver to Beneficiary true and complete copies of all
Leases; and (g) deliver to Beneficiary all such further information, and execute
and deliver to Beneficiary such further assurances and assignments, with respect
to the Leases as Beneficiary may from time to time reasonably request. Without
Beneficiary's prior written consent, Trustor shall not (i) do or knowingly
permit to be done anything to materially impair the value of any of the Leases;
(ii) except for security or similar deposits, collect any of the Rent more than
one (1) month in advance of the time when the same becomes due under the terms
of any Lease; (iii) discount any future accruing Rents; (iv) amend, modify,
accept the surrender of or terminate any of the Leases; or (v) assign or grant a
security interest in or to any of the Leases or Rents.

          SECTION 3.04 Direction to Tenants. Upon the occurrence and during the
continuance of an Event of Default, Trustor hereby authorizes and directs, and
shall, at the direction of Beneficiary, further authorize and direct, in
writing, the tenant under each Lease to pay directly to, or as directed by,
Beneficiary all Rents accruing or due under its Lease without proof to the
tenant of the occurrence and continuance of such Event of Default. Trustor
hereby authorizes the tenant under each Lease to rely upon and comply with any
notice or demand from Beneficiary for payment of Rents to Beneficiary, and
Trustor shall have no claim against any tenant for Rents paid by such tenant to
Beneficiary pursuant to such notice or demand. All Rents actually collected by
Beneficiary pursuant to this Section 3.04 shall be applied in accordance with
the Financing Agreement.

          SECTION 3.05 Appointment of Attorney-in-Fact.

          (A) Trustor hereby constitutes and appoints Beneficiary the true and
lawful attorney-in-fact, coupled with an interest, of Trustor and Trustor hereby
confers upon Beneficiary the right, in the name, place and stead of Trustor, to,
upon the occurrence and during the continuance of an Event of Default, demand,
sue for, attach, levy, recover and receive any of the Rents and any premium or
penalty payable upon the exercise by any third Person under any Lease of a
privilege of cancellation originally provided in such Lease and to give proper
receipts, releases and acquittances therefor and, after deducting expenses of
collection, to apply the net proceeds as provided in the Financing Agreement.
Trustor hereby authorizes and directs any such third Person to deliver such
payment to Beneficiary in accordance with this Article III, and Trustor hereby
ratifies and confirms all that its said attorney-in-fact, the Beneficiary, shall
do or cause to be done in accordance with this Deed of Trust and by virtue of
the powers granted hereby. The foregoing appointment is irrevocable and
continuing, and such rights, powers and privileges shall be exclusive in
Beneficiary, and its successors and assigns, so long as any part of the
Obligations remains unpaid or unperformed and undischarged.

          (B) Trustor hereby constitutes and appoints Beneficiary the true and
lawful attorney-in-fact, coupled with an interest, of Trustor and Trustor hereby
confers upon Beneficiary the right, in the name, place and stead of Trustor, to
subject and subordinate at any time and from time to time any Lease or any part
thereof to the lien, assignment and security interest of this Deed of Trust and
to the terms hereof, or to any other mortgage, deed of trust, assignment or
security agreement, or to any ground lease or surface lease, with respect to all
or a


                                        9

<PAGE>

portion of the Trust Property, or to request or require such subordination,
where such reservation, option or authority was reserved to Trustor under any
such Lease, or in any case where Trustor otherwise would have the right, power
or privilege so to do. The foregoing appointment is irrevocable and continuing,
and such rights, powers and privileges shall be exclusive in Beneficiary, and
its successors and assigns, so long as any part of the Obligations remains
unpaid or unperformed and undischarged. Trustor hereby represents and warrants
that it has not at any time prior to the date hereof exercised (or appointed any
Person as attorney-in-fact to exercise) any of the rights described in this
Section 3.05(b), and Trustor hereby covenants not to exercise (or appoint any
other Person as attorney-in-fact to exercise) any such right, nor (except at
Beneficiary's written request) to subordinate any such Lease to the lien of this
Deed of Trust or to any other mortgage, deed of trust, assignment or security
agreement or to any ground lease or surface lease.

          SECTION 3.06 No Liability of Beneficiary. Neither the acceptance
hereof nor the exercise of the rights and remedies hereunder nor any other
action on the part of Beneficiary or any Person exercising the rights of
Beneficiary or any Lender hereunder shall be construed to: (a) be an assumption
by Beneficiary or any such Person or to otherwise make Beneficiary or such
Person liable or responsible for the performance of any of the obligations of
Trustor under or with respect to the Leases or for any Rent, security deposit or
other amount delivered to Trustor, provided that Beneficiary or any such Person
exercising the rights of Beneficiary shall be accountable for any Rents,
security deposits or other amounts actually received by Beneficiary or such
Person, as the case may be; or (b) obligate Beneficiary or any such Person to
take any action under or with respect to the Leases or with respect to the Trust
Property, to incur any expense or perform or discharge any duty or obligation
under or with respect to the Leases or with respect to the Trust Property, to
appear in or defend any action or proceeding relating to the Leases or the Trust
Property, to constitute Beneficiary as a mortgagee-in-possession (unless
Beneficiary actually enters and takes possession of the Trust Property), or to
be liable in any way for any injury or damage to Persons or property sustained
by any Person in or about the Trust Property, other than to the extent caused by
the willful misconduct or gross negligence of Beneficiary or any Person
exercising the rights of Beneficiary hereunder.

          SECTION 3.07 Trustor's Indemnities. Trustor hereby agrees to protect,
indemnify and hold harmless Beneficiary and each of the other Indemnitees and
each Indemnified Party related to Beneficiary or such other Indemnitees from and
against any and all Losses which Beneficiary or any such other Indemnitees or
Indemnified Party may incur under or by reason of this Article III, or for any
action taken by Beneficiary or any such other Lender or Indemnified Party
hereunder, or by reason or in defense of any and all claims and demands
whatsoever which may be asserted against Beneficiary or any such other
Indemnitees or Indemnified Party arising out of the Leases, including, without
limitation, any claim by any third Person for credit on account of Rents paid to
and received by Trustor, but not delivered to Beneficiary or its agents,
representatives or employees, for any period under any Lease more than one (1)
month in advance of the due date thereof. The foregoing indemnity shall include,
in any case, such Loss as may result from the ordinary negligence of Beneficiary
or such other Indemnitees or Indemnified Party, but not any such Loss that is
caused by the gross negligence or willful misconduct of Beneficiary or any such
other Indemnitees or Indemnified Party. In the event that Beneficiary or any of
the other Lenders or any Indemnified Party incurs any Losses covered by the
indemnity set forth in this Section 3.07, the amount thereof, including
reasonable attorneys'


                                       10

<PAGE>

fees, with interest thereon at the Post-Default Rate, shall be payable by
Trustor to Beneficiary within ten (10) days after demand therefor, and shall be
secured hereby and by all other security for the payment and performance of the
Obligations, including, without limitation, the lien and security interest of
this Deed of Trust. The liabilities of Trustor as set forth in this Section 3.07
shall survive the termination of this Deed of Trust and the repayment of the
Obligations.

          SECTION 3.08 No Modification of Trustor's Obligations. Nothing herein
contained shall modify or otherwise alter the obligation of Trustor to make
prompt payment of all Obligations as and when the same become due, regardless of
whether the Rents described in this Article III are sufficient to pay the
Obligations, and the security provided to Beneficiary pursuant to this Article
III shall be cumulative of all other security of any and every character now or
hereafter existing to secure payment of the Obligations.

          SECTION 3.09 Rights in Bankruptcy. Upon execution of this Deed of
Trust, Beneficiary, and not Trustor, shall be the creditor of any Tenant in
respect of assignments for the benefit of creditors and bankruptcy,
reorganization, insolvency, dissolution or receivership proceedings affecting
any such Tenant; provided, however, that Trustor shall be the party obligated to
make timely filings of claims in such proceedings or to otherwise pursue
creditor's rights therein. Notwithstanding the foregoing, Beneficiary shall have
the right, but not the obligation, to file such claims instead of Trustor and if
Beneficiary does file a claim, Trustor agrees that Beneficiary (a) is entitled
to all distributions on such claim to the exclusion of Trustor and (b) has the
exclusive right to vote such claim and otherwise to participate in the
administration of the estate in connection with such claim. Beneficiary shall
have the option to apply any monies received by it as such creditor to any of
the obligations of Trustor under the Loan Documents (as defined in the Mortgage)
in the order set forth in the Loan Documents. If a petition is filed under the
Bankruptcy Code by or against Trustor, and Trustor, as landlord under any Lease,
decides to reject such Lease pursuant to Section 365(a) of the Bankruptcy Code,
then Trustor shall give Beneficiary at least ten (10) days' prior written notice
of the date when Trustor shall apply to the bankruptcy court for authority to
reject the Lease. Beneficiary may, but shall not be obligated to, send Trustor
within such ten-day period a written notice stating that (a) Beneficiary demands
that Trustor assume and assign the Lease to Beneficiary pursuant to Section 365
of the Bankruptcy Code, and (b) Beneficiary covenants to cure or provide
adequate assurance of future performance under the Lease. If Beneficiary sends
such notice, Trustor shall not reject the Lease provided Beneficiary complies
with clause (b) of the preceding sentence.

          SECTION 3.10 Right to Enforce Under California Civil Code Section
2938. Without limiting any other rights or remedies of Beneficiary set forth in
this Assignment or under any of the other Loan Documents to which Trustor is a
party, or available at law or in equity, at any time upon or following the
occurrence of any Event of Default, Beneficiary shall have the right to enforce
all of the rights and remedies of an Beneficiary under Section 2938 of the
California Civil Code ("Section 2938"). In the event that Beneficiary shall
elect to enforce this Assignment in accordance with Section 2938, the following
procedures shall apply, as applicable:

               (i) Beneficiary may send a demand notice in the form prescribed
     by Section 2938 to, in the case of enforcement under Section 2938(c)(3),
     one or more of the tenants of the Trust Property, with a copy to Trustor
     and any other Beneficiary under a


                                       11

<PAGE>

     recorded assignment of leases, rents, issues and profits with respect to
     the Trust Property, or, in the case of enforcement under Section
     2938(c)(4), to Trustor with a copy to any such other Beneficiarys in
     accordance with the procedures set forth therein. Without limiting
     Beneficiary's rights to any amounts received by Trustor after an Event of
     Default, Trustor shall immediately turn over to Beneficiary any Rents
     received by Trustor from any tenant of the Trust Property from and after
     Beneficiary's enforcement of this assignment under either of such Sections
     2938(c)(3) or (4), it being understood that Trustor shall be deemed to hold
     such amounts as trustee for Beneficiary until such amounts have been paid
     to Beneficiary. In addition, Trustor shall also cause any collection agent
     for Trustor or any other person who has collected for Trustor's benefit
     relating to the period from and after Beneficiary's enforcement of this
     assignment under either of such Sections 2938(c)(3) or (4), to turn such
     Rents over to Beneficiary.

               (ii) Notwithstanding anything to the contrary contained in this
     Deed of Trust or any other Loan Document, if Beneficiary shall proceed to
     enforce this assignment by means other than the appointment of a receiver
     and consequently receives Rents as a result thereof, and Beneficiary
     receives written demand from Trustor (or any other party entitled under law
     to make demand on Beneficiary) to pay the reasonable costs of protecting
     and preserving the Trust Property, Beneficiary may elect either to pay
     (either directly to the party to whom owed, or by joint check payable to
     Trustor and such party) or authorize Trustor to pay, such costs (such
     payments being referred to herein as "Protective Payments"), conditioned
     upon Trustor furnishing to Beneficiary all information (such as invoices,
     bills, contracts, or purchase orders) necessary in order for Beneficiary to
     identify the party to whom payment is owed or the work, service or item for
     which payment is requested and to establish that such Protective Payments
     are required to be paid or authorized under this Section. If Trustor is
     authorized to pay any Protective Payments under this Section, Beneficiary
     reserves the right to deposit the amounts necessary to pay such Protective
     Payments into a non-interest bearing checking account, in which Trustor
     shall have granted to Beneficiary a perfected, first priority security
     interest, from which Trustor shall be obligated to draw the funds necessary
     to pay such Protective Payments. In the event that Beneficiary agrees or is
     required under any circumstances to pay or authorize the payment of any
     Protective Payments consisting of costs of improvement of the Trust
     Property or any portion thereof (or any other costs the non-payment of
     which would entitle the payee to enforce mechanic's or materialman's liens
     or similar rights), Beneficiary shall be authorized, before paying or
     authorizing the payment of any such payments, to require compliance with
     standard construction loan disbursement conditions with respect to such
     costs, including, without limitation, the receipt of unconditional
     mechanics' lien waivers with respect to the work for which such costs are
     to be paid.

               (iii) In no event shall Beneficiary be obligated to pay or
     authorize the payment of Protective Payments in excess of any Rents
     actually received by Beneficiary as a result of the enforcement of Section
     (i) of this Section.

               (iv) Nothing contained in this Section shall limit the rights of
     Beneficiary under any other provision of Deed of Trust.


                                       12

<PAGE>

               (v) Nothing contained in this Section shall limit either (x)
     Beneficiary's right to cease at any time any further enforcement of this
     Assignment under Section 2938 by sending written notice of the cancellation
     thereof to each party to whom a demand notice was sent, or (y)
     Beneficiary's right to seek the appointment of a receiver, either of which
     if enforced by Beneficiary, shall terminate Beneficiary's obligations under
     Section (i) of this Section,

               (vi) In no event shall any enforcement of Beneficiary's rights
     under this Section, including, without limitation, the payment or
     authorization of payment of any Protective Payments, make Beneficiary a
     "mortgagee-in-possession" or limit, waive, or otherwise derogate any of
     Beneficiary's other rights and remedies available to it under the Loan
     Documents to which Trustor is a party or at law. In no event shall any
     exercise of lights by the Beneficiary under this Section, including,
     without limitation, the payment or authorization of payment of any
     Protective Payments, be construed to require the Beneficiary to operate or
     manage the Trust Property or be construed as an assumption by Beneficiary
     of any obligation to operate or manage the Trust Property, and all
     liabilities and obligations in relation to the operation and management of
     the Trust Property shall remain exclusively that of the Trustor.

          (B) Any Rents received by Beneficiary as a result of any such
enforcement measures shall be applied as provided in this Deed of Trust.

          (C) Without in any way limiting Trustor's other indemnification
obligations set forth in this Assignment and in any of the Loan Documents to
which Trustor is a party, Trustor shall indemnify, defend, protect, and hold
harmless Beneficiary, and its successors and assigns, from and against any and
all losses, costs, expenses (including, without limitation, reasonable
attorneys' fees, costs and expenses), damages, liabilities, or claims asserted
against or suffered by Beneficiary (i) arising from any Protective Payments
made, or authorized to be made, by Beneficiary in good faith, and (ii) arising
from any work performed or goods or services furnished in connection with the
ownership or operation of the Trust Property at any time during which
Beneficiary shall be enforcing its rights under this Section.

          (D) Without limiting the restrictions on assignment set forth in this
Assignment and any of the other Loan Documents to which Trustor is a party, each
Beneficiary of any interest in the Rents shall acquire its interest in the Rents
subject to the rights of the Beneficiary set forth in this Assignment, and shall
acquire no greater rights with respect to the payment of Protective Payments
than the rights of Trustor as set forth in this Section.

                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

Trustor hereby unconditionally represents and warrants to Beneficiary (but to
the extent any representation or warranty in this Section IV is substantively
the same as a representation or warranty contained in Article V of the Financing
Agreement and such representation or warranty is qualified by a materiality or
other qualifier in the Financing Agreement, such representation or


                                       13

<PAGE>

warranty herein shall be subject to the same materiality or other qualifier as
in Article V of the Financing Agreement) as follows:

          SECTION 4.01 Title to Trust Property and Lien of this Deed of Trust.
Trustor has good, marketable and indefeasible fee simple title to the Land and
the Buildings, and has good, marketable and indefeasible title to the Fixtures,
the Personalty and the other Trust Property. The Trust Property is free and
clear of any and all Liens, charges, encumbrances, security interests and
adverse claims whatsoever, except for all Liens, charges, encumbrances, security
interests and adverse claims specifically identified as exceptions in the policy
of title insurance accepted by Beneficiary in connection herewith, or otherwise
permitted under the Financing Agreement.

          SECTION 4.02 Taxes and Other Payments. Trustor has filed all federal,
state, commonwealth, county, municipal and city income and other material tax
returns required to have been filed by it and has paid all taxes and other
Impositions which have become due pursuant to such returns or pursuant to any
assessments or charges received by it, and Trustor does not know of any basis
for any additional assessment or charge in respect of any such taxes or other
Impositions. Trustor has paid in full all sums owing or claimed for labor,
material, supplies, personal property (whether or not forming a Fixture
hereunder) and services of every kind and character used, furnished or installed
in or on the Trust Property that are now due and owing and no claim for same
exists or will be permitted to be created, except such claims as may arise in
the ordinary course of business and that are not yet past due.

          SECTION 4.03 Power to Create Lien and Security. Trustor has full power
and lawful authority to grant, bargain, sell, assign, transfer, mortgage and
convey a Lien and security interest in all of the Trust Property in the manner
and form herein provided and without obtaining the authorization, approval,
consent or waiver of any grantor, lessor, sublessor, Governmental Authority or
other Person whomsoever.

          SECTION 4.04 Loan and Financing Agreements. Trustor has received a
copy of and is fully familiar with the terms and provisions of the Financing
Agreement and the other Loan Documents. All representations and warranties made
by Trustor in the Financing Agreement and the other Loan Documents are
incorporated herein by reference and are hereby made by Trustor as to itself and
the Trust Property as though such representations and warranties were set forth
at length herein as the representations and warranties of Trustor.

          SECTION 4.05 Compliance with Laws. All of the improvements on the Land
(i) comply with all material requirements of all applicable laws and ordinances
with respect to zoning, subdivision, construction, building and land use,
including, without limitation, requirements with respect to parking, access and
certificates of occupancy (and similar certificates), and (ii) comply with, and
shall remain in compliance with, applicable health, fire and building codes. All
of the Buildings lie wholly within the boundaries and building restriction lines
of the Land. No improvements on adjoining properties encroach upon the Land, and
no easements or other encumbrances upon the Land encroach upon or under any of
the Buildings or any portion of the Trust Property. All of the Buildings and the
use of the Trust


                                       14

<PAGE>

Property materially comply with, and shall remain in material compliance with,
all applicable statutes, rules, regulations and private covenants now or
hereafter relating to the ownership, construction, use or operation of the Trust
Property, including all applicable statutes, rules and regulations pertaining to
requirements for equal opportunity, anti-discrimination, fair housing,
environmental protection, zoning and land use. All certifications, permits,
licenses and approvals, including, without limitation, certificates of
completion and occupancy permits required for the legal use, occupancy and
operation of the Trust Property have been obtained and are in full force and
effect. Trustor has not received any notice of, or other communication with
respect to, an alleged violation with respect to any of the foregoing.

          SECTION 4.06 No Condemnation. No part of any property subject to this
Deed of Trust has been taken in condemnation or other like proceeding nor is any
proceeding pending, threatened or known to be contemplated for the partial or
total condemnation or taking of the Trust Property.

          SECTION 4.07 Flood Zone. The Trust Property is not located in an area
identified by the Federal Emergency Management Agency ("FEMA") as having special
flood hazards or if the Land or any part thereof is identified by the Federal
Emergency Management Agency as an area having special flood hazards (including,
without limitation, those areas designated as Zone A or Zone V), then Trustor
has obtained the insurance required under Section 5.04(a)(v) of this Deed of
Trust.

          SECTION 4.08 Additional Environmental Representation. The Trust
Property has not been designated as a "hazardous waste property" and to Tenant's
knowledge, the Trust Property has not been designated as a "border zone
property" pursuant to Section 25220, et. seq. of the California Health and
Safety Code.

                                    ARTICLE V

                              AFFIRMATIVE COVENANTS

          Trustor hereby unconditionally covenants and agrees with Beneficiary
as follows:

          SECTION 5.01 Lien Status. Except as otherwise expressly provided in
the Financing Agreement, Trustor shall not place, or permit to be placed, or
otherwise mortgage, hypothecate or encumber the Trust Property, or any portion
thereof or interest therein, with any other Lien or security interest of any
nature whatsoever (statutory, constitutional or contractual), other than
Permitted Liens, regardless of whether such Lien or security interest is
inferior to the Lien and security interest created by this Deed of Trust, and,
if any such Lien or security interest is asserted against the Trust Property,
Trustor shall promptly, at its own cost and expense, (a) pay the underlying
claim in full (except for so long as such claim is being contested by Trustor in
good faith and in accordance with the terms of the Financing Agreement) or take
such other action as may be necessary to cause the same to be released of record
and otherwise, and (b) within ten (10) days after the date on which Mortgag
receives notice of such Lien or security interest. Such notice shall specify who
is asserting such Lien or security interest and shall detail the origin and
nature of the underlying claim giving rise to such asserted Lien or security
interest.


                                       15

<PAGE>

          SECTION 5.02 Payment of Impositions. Trustor shall duly pay and
discharge, or cause to be paid and discharged, all Impositions not later than
the due date thereof, or the day on which any fine, penalty, interest or cost
may be added thereto or imposed, or the day on which any Lien may be filed for
the nonpayment thereof (if such day is used to determine the due date of the
respective item); provided, however, that Trustor may, if permitted by
applicable law and if such installment payment would not create or permit the
filing of a Lien against the Trust Property, pay the Impositions in
installments. Notwithstanding the foregoing, Trustor may in good faith, by
appropriate proceedings and upon notice to Beneficiary, contest the validity,
applicability or amount of any asserted tax or assessment, subject to any more
restrictive provisions applicable to any such contest contained in the Financing
Agreement and (without limiting the foregoing) so long as (a) such contest is
diligently pursued, (b) Beneficiary determines, in its opinion reasonably
exercised, that such contest suspends the obligation to pay the tax and that
nonpayment of such tax or assessment will not result in the sale, loss,
forfeiture or diminution of the Trust Property or any part thereof or any
interest of Beneficiary therein, and (c) unless expressly provided to the
contrary in the Financing Agreement, prior to the earlier of the commencement of
such contest or the delinquency date of the asserted tax or assessment, Trustor
deposits with Beneficiary an amount determined by Beneficiary to be adequate to
cover the payment of such tax or assessment and a reasonable additional sum to
cover possible interest, costs and penalties; provided, however, that Trustor
shall promptly cause to be paid any amount adjudged by a court of competent
jurisdiction to be due, with all interest, costs and penalties thereon, promptly
after such judgment becomes final (and, subject to Beneficiary's rights and
remedies during an Event of Default, Beneficiary shall make any sum deposited
pursuant to clause (c) above available for such payment); and provided, further,
that in any event each such contest shall be concluded, the taxes, assessments,
interest, costs and penalties shall be paid prior to the date any writ or order
is issued under which the Trust Property may be sold, lost or forfeited.

          SECTION 5.03 Repair. Trustor shall keep the Trust Property in good
order and condition (reasonable wear and tear excepted) and shall make all
repairs, replacements and improvements thereof and thereto, interior and
exterior, structural and non-structural, ordinary and extraordinary, which are
necessary to keep the same in such order and condition. Trustor shall also use
reasonable efforts to prevent any act or occurrence which might impair the value
or usefulness of the Trust Property for its intended usage.

          SECTION 5.04 Insurance and Application of Insurance Proceeds.

          (A) During the term of this Deed of Trust, Trustor, at its sole cost
and expense, shall maintain, or cause to be maintained the following policies of
insurance, with respect to the Trust Property:

               (i) If applicable or appropriate Casualty (property) insurance
     against loss or damage by fire, lightning and such other perils as are
     included in a standard "special form" policy (formerly known as an
     "all-risk" endorsement policy), and against loss or damage by all other
     risks and hazards covered by a standard extended coverage insurance policy
     including, without limitation, riot and civil commotion, terrorist actions,
     vandalism, malicious mischief, burglary and theft, in an amount equal to
     the greater of (A) the then full replacement cost of the improvements,
     without deduction for physical


                                       16

<PAGE>

     depreciation and (B) such amount that the insurer would not deem Trustor a
     co-insurer under said policies. The policies of insurance required under
     this Section 5.04 shall contain a "Replacement Cost" endorsement with a
     waiver of depreciation and an "Agreed Amount" or "No Coinsurance"
     endorsement and shall otherwise comply with the Financing Agreement.

               (ii) Commercial General Liability insurance to the extent
     required under the Financing Agreement, including a broad form
     comprehensive general liability endorsement and coverages for broad form
     property damage, contractual damages and personal injuries (including death
     resulting therefrom) and containing minimum limits per occurrence of
     $1,000,000.00 and $2,000,000.00 in the aggregate for any policy year with
     no deductible.

               (iii) Rental loss and/or business interruption insurance in an
     amount equal to the estimated gross revenues from the operations of the
     Trust Property for a period of twelve (12) months, if applicable or
     appropriate.

               (iv) Insurance against loss or damage from (A) leakage of
     sprinkler systems and (B) explosion of steam boilers, air conditioning
     equipment, high pressure piping, machinery and equipment, pressure vessels
     or similar apparatus now or hereafter installed on the improvements
     (without exclusion for explosions), if applicable or appropriate.

               (v) Flood insurance if all or any portion of the Trust Property
     is located in an area now or hereafter designated by the Federal Emergency
     Management Agency as an area having special flood hazards (including,
     without limitation, those areas designated as Zone A or Zone V), and in
     which flood insurance has been made available under the U.S. National Flood
     Insurance Program, in an amount equal to the full replacement cost of the
     Buildings, Fixtures and Personalty now or hereafter located on the Trust
     Property or such other amount as may be agreed to by Beneficiary in
     writing, if applicable or appropriate.

               (vi) If the Trust Property is or ever becomes non-conforming with
     respect to zoning, ordinance or law coverage to compensate for loss of
     value or property resulting from operation of law and the cost of
     demolition and the increased cost of construction in such amounts as may be
     requested by Beneficiary.

               (vii) Any other insurance with respect to the Trust Property that
     may be required under the Financing Agreement.

               (viii) Such other insurance as may from time to time be
     reasonably required by Beneficiary in order to protect its interests.

          All such insurance policies with respect to the Trust Property shall
contain a standard, non-contributory mortgagee clause naming Beneficiary, and
its successors and assigns, as an additional insured under all liability
insurance policies, as the first mortgagee and loss payee on all property
insurance policies, and as the sole loss payee on all rental loss or business
interruption insurance policies. Trustor shall not take out separate insurance
with respect to the


                                       17

<PAGE>

Trust Property concurrent in form or contributing in the event of loss with that
required to be maintained hereunder or under the Financing Agreement unless
Beneficiary is named as an additional insured thereon under a standard mortgagee
clause acceptable to Beneficiary and each such policy is otherwise in form and
substance acceptable to Beneficiary.

          (B) In the event of the foreclosure of this Deed of Trust, or in the
event of any transfer of title to the Trust Property, or any part thereof, by
foreclosure sale or by power of sale or deed in lieu of foreclosure, the
purchaser of the Trust Property, or such part thereof, shall succeed to all of
Trustor's rights with respect to the Trust Property, including any rights to
unexpired, unearned or returnable insurance premiums, subject to limitations on
the assignment of blanket policies, but limited to such rights as relate to the
Trust Property or such part thereof. If Beneficiary acquires title to the Trust
Property, or any part thereof, in any manner, Beneficiary shall thereupon (as
between Trustor and Beneficiary) become the sole and absolute owner of the
insurance policies with respect to the Trust Property, and all insurance
proceeds payable thereunder with respect to the Trust Property, with the sole
right to collect and retain all unearned or returnable premiums thereon with
respect to the Trust Property, or such part thereof, if any.

          (C) If any damage to, destruction or loss of or other casualty with
respect to any of the Trust Property shall occur, Trustor shall file and
prosecute its claim or claims for any insurance proceeds in good faith and with
due diligence and cause the same to be collected and paid over to Beneficiary,
and Trustor hereby irrevocably authorizes and empowers Beneficiary, in the name
of Trustor or otherwise, to collect and receipt for any such insurance proceeds
and to adjust any insurance claims and to file and prosecute such claim or
claims, and although it is hereby expressly agreed that the same shall not be
necessary in any event, Trustor shall, upon demand of Beneficiary, make, execute
and deliver any and all assignments and other instruments sufficient for the
purpose of assigning any such insurance proceeds to Beneficiary, free and clear
of any Liens whatsoever. Trustor hereby irrevocably appoints Beneficiary as
Trustor's attorney-in-fact for each such purpose (which appointment is coupled
with an interest) and authorizes any Person to act upon the foregoing
appointment.

          (D) Following any damage to, destruction or loss of or other casualty
with respect to any of the Trust Property, Beneficiary shall apply the entire
amount of any insurance proceeds in accordance with the provisions of the
Financing Agreement or, if there is no provision contained in the Financing
Agreement governing how the same are to be applied, then Beneficiary shall apply
the entire amount thereof to the payment of the Obligations, whether or not then
due and payable, in such manner and order as Beneficiary may elect. In all
events, unless expressly provided to the contrary in the Financing Agreement,
Trustor hereby covenants and agrees to promptly commence and to diligently
prosecute the restoration of the Trust Property upon the occurrence of any
casualty loss affecting the Trust Property, without regard to the availability
or adequacy of insurance proceeds, but in all events in a manner approved by
Beneficiary. Notwithstanding any damage to, destruction or loss of or other
casualty with respect to any of the Trust Property, Trustor shall continue to
pay the Obligations at the time and in the manner provided for in the Financing
Agreement and the other Loan Documents until the Obligations have been paid in
full. If the Trust Property is sold, through foreclosure or otherwise, prior to
the receipt by Beneficiary of such insurance proceeds, Beneficiary shall have
the right, whether or not a deficiency judgment on any Loan Document shall have
been sought,


                                       18

<PAGE>

recovered or denied, to receive such insurance proceeds, or a portion thereof
sufficient to pay the then unpaid Obligations, whichever is less.

          SECTION 5.05 Condemnation and Application of Condemnation Proceeds.

          (A) Promptly upon its obtaining knowledge of the institution or the
threatened institution of any proceeding for the condemnation or other taking of
the Trust Property, or any portion thereof or interest therein, Trustor shall
notify Beneficiary of such proceeding. Trustor shall then, if requested by
Beneficiary, file or defend its claim thereunder and prosecute same with due
diligence to its final disposition and shall, subject to the terms of the
Financing Agreement, cause any awards or settlements to be paid over to
Beneficiary for disposition pursuant to the terms of this Deed of Trust.
Beneficiary shall be entitled to participate in any such proceeding, at
Trustor's sole cost and expense, and Trustor shall deliver or cause to be
delivered to Beneficiary such instruments as may be requested by Beneficiary
from time to time to permit such participation.

          (B) If the Trust Property or any part thereof is taken or diminished
in value, or if a consent settlement is entered by or under threat of such
proceeding, the award or settlement payable to Trustor by virtue of its interest
in the Trust Property shall be, and by these presents is, assigned, transferred
and set over unto Beneficiary to be held by Beneficiary, subject to the Lien and
security interest of this Deed of Trust, and disbursed in accordance with the
provisions of the Financing Agreement or, if there is no provision contained in
the Financing Agreement governing how the same is to be disbursed, then
Beneficiary shall apply the entire amount thereof to the payment of the
Obligations, whether or not then due and payable, in such manner and order as
Beneficiary may elect. In all events, unless otherwise expressly provided to the
contrary in the Financing Agreement, Trustor hereby covenants and agrees to
commence and diligently to prosecute the restoration of the Trust Property upon
the occurrence of any condemnation or other taking affecting the Trust Property,
without regard to the availability or adequacy of any award or settlement.
Notwithstanding any condemnation or other taking of any of the Trust Property,
Trustor shall continue to pay the Obligations at the time and in the manner
provided for in the Financing Agreement and the other Loan Documents, and the
Obligations shall not be reduced until, and then only to the extent that, any
condemnation award or settlement shall have been actually received and applied
by Beneficiary to the discharge of the Obligations. If the Trust Property is
sold, through foreclosure or otherwise, prior to the receipt by Beneficiary of
such condemnation award or settlement, Beneficiary shall have the right, whether
or not a deficiency judgment on any Loan Document shall have been sought,
recovered or denied, to receive such condemnation award or settlement, or a
portion thereof sufficient to pay the Obligations, whichever is less.

          (C) Any implied covenant in this Deed of Trust restricting the right
of Beneficiary to apply the proceeds of condemnation as described above is
waived by Trustor. Trustor hereby waives the provisions of any law prohibiting
Beneficiary from making elections regarding the application of condemnation
proceeds, including, without limitation, the provisions of California Code of
Civil Procedure Sections 1265.210 et seq.

          SECTION 5.06 Maintenance of Rights of Way, Easements, Licenses and
Other Rights. Trustor shall maintain, preserve and renew all rights of way,
easements, tenements,


                                       19

<PAGE>

hereditaments, development rights and credits, zoning rights, grants,
privileges, appurtenances, licenses, franchises and other rights reasonably
necessary for the use or operation of the Trust Property from time to time, or
otherwise relevant to the value thereof, and Trustor shall not, without the
prior written consent of Beneficiary, initiate, join in or consent to any
private restrictive covenant or other public or private restriction as to the
present or future use or operation of the Trust Property. Trustor shall,
however, comply with all restrictive covenants which may at any time affect the
Trust Property, all applicable zoning ordinances and all other public or private
restrictions relating to the use of the Trust Property.

          SECTION 5.07 Payment and Performance of Obligations. Trustor shall
duly and punctually pay and perform all of the Obligations.

          SECTION 5.08 Compliance with Permitted Liens and Other Obligations.
Trustor shall comply in all material respects with any and all obligations,
restrictions and requirements that may be set forth in each and every document
constituting a Permitted Lien. In addition, Trustor shall comply in all material
respects each and every obligation legally imposed upon it and/or relating to
the Trust Property pursuant to applicable law (including, without limitation,
all matters described in Section 4.05 hereof), contract or other agreement. It
is hereby acknowledged that Beneficiary's consent to a Permitted Lien as of the
date hereof shall in no way be deemed to constitute approval of any future Lien
which may be imposed upon any portion of the Trust Property, or any other
enforcement action affecting Trustor or the Trust Property, as a result of
Trustor's failure to perform or comply with its obligations under any document
constituting a Permitted Lien as of the date hereof.

          SECTION 5.09 Additional Affirmative Covenants. All affirmative
covenants made by the Borrowers or Guarantors or any of them in the Financing
Agreement are incorporated herein by reference and are hereby also made by
Trustor as to itself and the Trust Property as though such covenants were set
forth at length herein as the covenants of Trustor.

                                   ARTICLE VI

                               NEGATIVE COVENANTS

          Trustor hereby covenants and agrees with Beneficiary that, until all
of the Obligations shall have been paid or performed in full and discharged:

          SECTION 6.01 Use Violations. Trustor shall not use, maintain, operate
or occupy, or allow the use, maintenance, operation or occupancy of, the Trust
Property in any manner which (a) violates in any material respect any
Governmental Requirement, (b) may be dangerous unless safeguarded as required by
applicable law, (c) constitutes a public or private nuisance, or (d) makes void,
voidable or cancelable, or increases, substantially in excess of commercially
reasonably rates, the premium of, any insurance then in force with respect
thereto.

          SECTION 6.02 Waste. Trustor shall not commit or permit any material
waste with respect to the Trust Property.

          SECTION 6.03 Alterations. Trustor shall notify Beneficiary, in writing
and in advance, with respect to all proposed alterations, improvements or
additions to the Trust


                                       20

<PAGE>

Property which are of a material nature, and, unless and to the extent otherwise
expressly provided in the Financing Agreement, Trustor shall not effect any
material alteration, improvement or addition to the Trust Property without the
prior written consent of Beneficiary.

          SECTION 6.04 No Further Encumbrances. Trustor shall not, without the
prior written consent of Beneficiary, create, place or permit to be created or
placed, or through any act or failure to act, acquiesce in the placing of, or
allow to remain, any mortgage, pledge, Lien (statutory, constitutional or
contractual), security interest, encumbrance or charge on, or conditional sale
or other title retention agreement with respect to, the Trust Property, or any
portion thereof or interest therein, other than the Permitted Liens, regardless
of whether the same are subordinate to the Lien(s) and security interest(s)
created by this Deed of Trust.

          SECTION 6.05 Transfer Restrictions. Trustor shall not sell, lease,
assign, transfer or otherwise dispose of or abandon all or any part of the Trust
Property (or any interest therein), except as expressly permitted by, and in
accordance with the terms of, the Financing Agreement.

          SECTION 6.06 Loan and Financing Agreements; Additional Negative
Covenants. Trustor has received a copy of and is fully familiar with the terms
and provisions of the Financing Agreement and the other Loan Documents. All
negative covenants made by the Borrowers or Guarantors or any of them in the
Financing Agreement and the other Loan Documents are incorporated herein by
reference and are hereby also made by Trustor as to itself and the Trust
Property as though such negative covenants were set forth at length herein as
the negative covenants of Trustor.

                                   ARTICLE VII

                         EVENTS OF DEFAULT AND REMEDIES

          SECTION 7.01 Event of Default. The "Events of Default" set forth in
Section 8.01 of the Financing Agreement are hereby incorporated herein as if
fully set forth herein, and, without limiting the generality of the foregoing,
the occurrence of an "Event of Default" under the Financing Agreement or any
other Loan Document shall constitute an "Event of Default" hereunder. All
notices and cure periods described herein or in the Financing Agreement or any
other Loan Document shall not be applicable to any "Potential Event of Default"
(as hereinafter defined) if such Potential Event of Default has occurred as of
the date on which Beneficiary commences a nonjudicial foreclosure proceeding
with respect to another Potential Event of Default or Event of Default. Such
event shall constitute an independent Event of Default hereunder. For purposes
hereof, "Potential Event of Default" shall mean any event, but for the passage
of time or giving of notice, would be an Event of Default.

          SECTION 7.02 Acceleration. Upon the occurrence and during the
continuance of any Event of Default, in addition to any other rights, powers or
remedies conferred herein or by operation of law, Beneficiary, in its sole
judgment and discretion, may declare the then unpaid principal balance of the
Loan (the "Principal Balance"), the accrued interest thereon and any other
accrued but unpaid portion of the Obligations to be, and they shall thereupon
forthwith become, immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived by
Trustor.


                                       21

<PAGE>

          SECTION 7.03 Foreclosure and Sale. If an Event of Default shall occur
and be continuing, Beneficiary shall have the right and option to with
foreclosure by power of sale in accordance with California Civil Code Section
2924 or other applicable law by notice to Trustee and shall, if required,
deposit with Trustee the Note, the original or a certified copy of this Deed of
Trust, and such other documents, receipts and evidences of expenditures made and
secured hereby as Trustee may require.

          Upon receipt of such notice from Beneficiary, Trustee shall cause to
be recorded and delivered to Trustor such notice of default as may then be
required by law and by this Deed of Trust. Trustee shall, without demand on
Trustor, after lapse of such time as may then be required by law and after
recordation of such notice of default and after notice of sale has been given as
required by law, sell the Trust Property or any portion thereof at the time and
place of sale fixed by it in said notice of sale, either as a whole or in
separate lots or parcels or items as Trustee shall deem expedient, and in such
order as it may determine, at public auction to the highest bidder for cash in
lawful money of the United State (or other cash equivalent as is acceptable to
Trustee and Beneficiary) payable at the time of sale. Trustee shall deliver to
the purchaser or purchasers at such sale its good and sufficient deed or deeds
conveying the property so sold, but without any covenant or warranty, express or
implied. The recitals in such deed of any matters or facts shall be conclusive
proof of the truthfulness thereof. Any person, including, without limitation,
Trustor, Trustee or Beneficiary, may purchase at such sale, and Trustor hereby
covenants to warrant and defend the title of such purchaser or purchasers.

          Trustee may postpone the sale of all or any portion of the Property
from time to time in accordance with the laws of the State of California.

          To the fullest extent allowed by law, Borrower hereby expressly waives
any right which it may have to direct the order in which any of the Property
shall be sold in the event of any sale or sales pursuant to this Deed of Trust.

          Upon any foreclosure sale, Beneficiary may bid for and purchase the
Trust Property and shall be entitled to apply all or any part of the unpaid
Obligations as a credit to the purchase price.

          Beneficiary may from time to time rescind any notice of default or
notice of sale before any Trustee's sale as provided above in accordance with
the laws of the State of California. 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 declarations or notices
of default to satisfy the obligations of this Deed of Trust, or otherwise affect
any provision, covenant or condition of the Financing Agreement or any Loan
Document or any of the rights, obligations or remedies of Trustee or Beneficiary
hereunder or thereunder.

          Each remedy provided in this instrument is distinct from and
cumulative with all other rights and remedies provided hereunder or afforded by
applicable law or equity, and may be exercised concurrently, independently or
successively, in any order whatsoever.


                                       22

<PAGE>

          SECTION 7.04 Trustee's Successors, Substitutes and Agents. Trustee or
any successor to or substitute for Trustee may appoint or delegate any one or
more persons as agent to perform any act or acts necessary or incident to any
sale held by Trustee, including the posting of notices and the conduct of sale,
but in the name and on behalf of Beneficiary. If Trustee or any successor to or
substitute for Trustee shall have given notice of sale hereunder, any successor
or substitute trustee thereafter appointed may complete the sale and the
conveyance of the Trust Property pursuant thereto as if such notice had been
given by the successor to or substitute for Trustee conducting the sale.

          SECTION 7.05 Receivership. If any of the Obligations shall become due
and payable and shall not be promptly paid, Beneficiary shall have the right and
power to proceed by a suit or suits in equity or at law, whether for the
specific performance of Beneficiary which Trustee may apply for and obtain as a
matter of right and without notice to Trustor, which notice is hereby expressly
waived by Trustor, the appointment of a receiver to collect the Rents of the
Trust Property and to preserve the security hereof in accordance with California
Code of Civil Procedure Section 564 (including, without limitation, in order to
enforce Beneficiary's rights under California Civil Code Section 2929.5), either
before or after any foreclosure sale or the sale of the Trust Property under the
order of a court or courts of competent jurisdiction or under executory or other
legal process, without regard to the value of the Trust Property as security for
the amount then due to Beneficiary, or the solvency of any entity or entities,
person or persons primarily or secondarily liable for the payment of such
amounts; the Rents of the Trust Property, in any such event, having heretofore
been assigned to Beneficiary pursuant to Section 3.01 hereof as additional
security for the payment of the Obligations secured hereby.

          Without limiting the foregoing, the receiver shall have the right to
apply Rents to cleanup, remediation or other response action concerning the
release or threatened release of Hazardous Materials, whether or not such
actions are pursuant to an order of any federal, state or local governmental
agency. Trustor hereby confirms the right of Beneficiary (or a receiver
appointed by Beneficiary) to enter upon and inspect all or any portion of the
Trust Property for the purpose of determining the existence, location, nature
and magnitude of any past or present release or threatened release of any
hazardous substance into, onto, beneath, or from the Trust Property in
accordance with the California Civil Code Section 2929.5. All reasonable costs
and expenses incurred by Beneficiary pursuant to this provision or pursuant to
California Civil Code Section 2929.5, including, without limitation, costs of
consultants and contractors, costs of repair of any physical injury to the Trust
Property normal and customary to the tests and studies, court costs and
attorneys' fees, costs and expenses, whether incurred in litigation or not and
whether before or after judgment, shall be payable by Trustor and, to the extent
advanced or incurred by Beneficiary, shall be reimbursed to Beneficiary by
Trustor upon demand. This provision is separate and several, and shall survive
merger into any judgment.

          SECTION 7.06 Judicial Foreclosure. If an Event of Default shall occur
and be continuing, Trustee or Beneficiary shall have the right and power to
proceed by a suit or suits in equity or at law, whether for the specific
performance of any covenant or agreement herein contained or in aid of the
execution of any power herein granted, or for any foreclosure hereunder or for
the sale of the Trust Property under the judgment or decree of any court or
courts of competent jurisdiction, or for the appointment of a receiver pending
any foreclosure hereunder or the sale of the Trust Property under the order of a
court or courts of competent


                                       23

<PAGE>

jurisdiction or under executory or other legal process, or for the enforcement
of any other appropriate legal or equitable remedy. Any money advanced by
Trustee and/or Beneficiary in connection with any such receivership shall be a
demand obligation (which obligation Trustor hereby expressly promises to pay)
owing by Trustor to Trustee and/or Beneficiary and shall bear interest from the
date of such advance by Trustee and/or Beneficiary until paid at the
Post-Default Rate.

          SECTION 7.07 Separate Sales. To the extent allowed by applicable law,
the Trust Property may be sold in one or more parcels and in such manner and
order as Beneficiary, in its sole discretion, may elect, it being expressly
understood and agreed that the right of sale arising out of any Event of Default
shall not be exhausted by any one or more sales.

          SECTION 7.08 Possession of Trust Property. Trustor agrees to the full
extent that it lawfully may, that, in case one or more of the Events of Default
shall have occurred and be continuing, then, and in every such case, Trustee or
Beneficiary shall have the right and power to enter into and upon and take
possession of all or any part of the Trust Property in the possession of
Trustor, its successors or assigns, or its or their agents or servants, and may
exclude Trustor, its successors or assigns, and all Persons claiming by, through
or under Trustor, and its or their agents or servants wholly or partly
therefrom; and, holding the same, Trustee or Beneficiary may use, administer,
manage, operate and control the Trust Property and conduct the business thereof
to the same extent as Trustor, its successors or assigns, might at the time do
and may exercise all rights and powers of Trustor, in the name, place and stead
of Trustor, or otherwise as Trustee or Beneficiary shall deem best. All costs,
expenses and liabilities of every character incurred by Trustee and/or
Beneficiary in administering, managing, operating and controlling the Trust
Property shall constitute a demand obligation (which obligation Trustor hereby
expressly promises to pay) owing by Trustor to Trustee and/or Beneficiary and
shall bear interest from the date of expenditure until paid at the Post-Default
Rate, all of which shall constitute a portion of the Obligations and shall be
secured by this Deed of Trust and all of the other Loan Documents. Trustor
hereby irrevocably constitutes and appoints Beneficiary as Trustor's
attorney-in-fact (coupled with an interest) to perform such acts and execute
such documents as Beneficiary, in its sole discretion, shall deem appropriate,
including endorsement of Trustor's name on any instruments. Regardless of any
provision of this Deed of Trust, the Financing Agreement or any other Loan
Document, Beneficiary shall not be considered to have accepted any property
other than cash or immediately available funds in satisfaction of any obligation
of Trustor to Beneficiary, unless Beneficiary shall have given express written
notice of Beneficiary's election to the contrary.

          SECTION 7.09 Occupancy After Foreclosure. In the event that there is a
foreclosure sale hereunder and at the time of such sale Trustor or Trustor's
representatives, successors or assigns or any other person claiming any interest
in the Trust Property by, through or under Trustor, are occupying or using the
Trust Property or any part thereof, each and all shall immediately become the
tenant of the purchaser at such sale, which tenancy shall be a tenancy from day
to day, terminable at the will of either the landlord or tenant, at a reasonable
rental per day based upon the value of the property occupied, such rental to be
due daily to the purchaser. To the extent permitted by applicable law, the
purchaser at such sale shall, notwithstanding any language herein to the
contrary, have the sole option to demand immediate possession following the sale
or to permit the occupants to remain as tenants at will. In the event that the
tenant fails


                                       24

<PAGE>

to surrender possession of said property upon demand, the purchaser shall be
entitled to institute and maintain a summary action for possession of the Trust
Property (such as an action for forcible entry and detainer) in any court having
appropriate jurisdiction.

          SECTION 7.10 Remedies Cumulative, Concurrent and Nonexclusive. Every
right, power and remedy herein given to Trustee or Beneficiary shall be
cumulative and in addition to every other right, power and remedy herein
specifically given or now or hereafter existing in equity, at law or by statute
(including specifically those granted by the Applicable UCC). Each such right,
power and remedy, whether specifically herein given or otherwise existing, may
be exercised from time to time and so often and in such order as may be deemed
expedient by Trustee or Beneficiary, and the exercise, or the beginning of the
exercise, of any such right, power or remedy shall not be deemed a waiver of the
right to exercise, at the same time or thereafter, any other right, power or
remedy. Beneficiary shall be entitled to collect all costs and expenses incurred
in pursuing such remedies. No delay or omission by Trustee or Beneficiary in the
exercise of any such right, power or remedy shall impair any such right, power
or remedy or operate as a waiver thereof or of any other right, power or remedy
then or thereafter existing.

          SECTION 7.11 No Release of Obligations. Neither Trustor, any other
Borrower, nor any other Person now or hereafter obligated for the payment or
performance of all or any part of the Obligations shall be relieved of any such
obligation by reason of (a) the failure of Trustee or Beneficiary to comply with
any request of Trustor, any other Borrower or any other Person so obligated to
foreclose the Lien of this Deed of Trust to enforce any provision hereunder or
under the Financing Agreement; (b) the release, regardless of consideration, of
the Trust Property or any portion thereof or interest therein or the addition of
any other property to the Trust Property; (c) any agreement or stipulation
between any subsequent owner of the Trust Property and Beneficiary extending,
renewing, rearranging or in any other way modifying the terms of this Deed of
Trust without first having obtained the consent of, given notice to or paid any
consideration to Trustor, any other Borrower or any other Person, and in any
such event Trustor, all other Borrowers and all such other Persons shall
continue to be liable to make payment according to the terms of any such
extension or modification agreement unless expressly released and discharged in
writing by Beneficiary; or (d) any other act or occurrence save and except the
complete payment and performance of all of the Obligations.

          SECTION 7.12 Release of and Resort to Collateral. Beneficiary may
release, regardless of consideration, any part of the Trust Property without, as
to the remainder, in any way impairing, affecting, subordinating or releasing
the Lien or security interest created in or evidenced by this Deed of Trust or
its stature as a first and prior Lien and security interest in and to the Trust
Property, and without in any way releasing or diminishing the liability of any
Person liable for the payment or performance of the Obligations. Beneficiary may
resort to any other security for the Obligations held by Trustee or Beneficiary
in such manner and order as Beneficiary may elect.

          SECTION 7.13 Waiver of Redemption, Notice and Marshalling of Assets.
To the fullest extent permitted by applicable law, Trustor hereby irrevocably
and unconditionally waives and releases (a) all benefits that might accrue to
Trustor by virtue of any present or future moratorium law or other law exempting
the Trust Property from attachment, levy or sale on execution or providing for
any appraisement, valuation, stay of execution, exemption from civil


                                       25

<PAGE>

process, redemption or extension of time for payment; (b) except for notices
expressly provided for herein or in the Financing Agreement, all notices of any
Event of Default or of Beneficiary's intention to accelerate maturity of the
Obligations or of Trustee's or Beneficiary's election to exercise or actual
exercise of any right, remedy or recourse provided for hereunder or under the
Financing Agreement; and (c) any right to a marshalling of assets, a sale in
inverse order of alienation or to direct the application of proceeds, including
any rights under California Civil Code Sections 2899 and 3433, and all rights of
Trustor under California Civil Code Section 2822; (d) all rights and remedies
which Borrower may have or be able to assert by reason of the Laws of the State
of California pertaining to the rights and remedies of sureties and (e) any and
all conflicts with any provisions of any of the Loan Documents. If any law
referred to in this Deed of Trust and now in force, of which Trustor or its
successor or successors might take advantage despite the provisions hereof,
shall hereafter be repealed or cease to be in force, such law shall thereafter
be deemed not to constitute any part of the contract herein contained or to
preclude the operation or application of the provisions hereof. Beneficiary
shall have the right to determine the order in which any or all of the Trust
Property shall be subjected to the remedies provided herein. Beneficiary shall
have the right to determine the order in which any or all portions of the
Obligations are satisfied from the proceeds realized upon the exercise of the
remedies provided herein. Nothing contained herein shall be deemed to be a
waiver of Trustor's rights under Section 2924c of the California Civil Code.

          SECTION 7.14 Discontinuance of Proceedings. In case Beneficiary shall
have proceeded to invoke any right, remedy or recourse permitted hereunder or
under the Financing Agreement and shall thereafter elect to discontinue or
abandon same for any reason, Beneficiary shall have the unqualified right so to
do and, in such an event, Trustor and Beneficiary shall be restored to their
former positions with respect to the Obligations, this Deed of Trust, the
Financing Agreement, the Trust Property and otherwise, and the rights, remedies,
recourses and powers of Beneficiary shall continue as if same had never been
invoked.

          SECTION 7.15 Application of Proceeds. After the occurrence and during
the continuance of an Event of Default, the proceeds of any sale of and any
other amounts generated by the holding, leasing, operating or other use of the
Trust Property shall be applied by Beneficiary (or the receiver, if one is
appointed), to the extent that funds are so available therefrom, in accordance
with the provisions of the Financing Agreement or if not so provided, then in
the following order of priority, except to the extent otherwise required by
applicable law:

          (A) first, to the payment of the reasonable and necessary costs and
expenses of taking possession of the Trust Property and of holding, using,
leasing, repairing, improving the same, including reasonable (i) receivers'
fees, (ii) court costs, (iii) attorneys' and accountants' fees, (iv) costs of
advertisement and title search fees, and (v) the payment of any and all
Impositions, Liens, security interests or other rights, titles or interests
equal or superior to the Lien and security interest of this Deed of Trust
(except those to which the Trust Property has been sold subject to and without
in any way implying Beneficiary's prior consent to the creation thereof);

          (B) second, to the payment of all amounts other than the Principal
Balance and accrued but unpaid interest which may be due to Beneficiary
hereunder or under the other Loan Documents, together with interest thereon as
provided herein;


                                       26

<PAGE>

          (C) third, to the payment of the Obligations in such order and manner
as Beneficiary determines in its sole discretion; and

          (D) fourth, to Trustor or as otherwise required by any Governmental
Requirement.

Trustor shall be liable for any deficiency remaining.

          SECTION 7.16 Uniform Commercial Code Remedies. Beneficiary shall have
all of the rights, remedies and recourses with respect to the Personalty and the
Fixtures afforded to it by the Applicable UCC, including, without limitation,
(i) the right to conduct a unified sale of such Personalty and Fixtures in
connection with a judicial or power of sale foreclosure of any portion of the
Trust Property that constitutes real property, (ii) any the right to take
possession of the Personalty and the Fixtures or any part thereof, and (iii) to
take such other measures as Beneficiary may deem necessary for the care,
protection and preservation of the Personalty and the Fixtures, in addition to,
and not in limitation of, the other rights, remedies and recourses afforded by
this Deed of Trust and the other Loan Documents.

          SECTION 7.17 Indemnity. In connection with any action taken by
Trustee, Beneficiary and/or any Indemnitee pursuant to this Deed of Trust,
Trustee, Beneficiary, and/or any such Indemnitee and their respective
Indemnified Parties shall not be liable for any Loss sustained by Trustor
resulting from (a) an assertion that Beneficiary, or any such Indemnitee or an
Indemnified Party has received funds from the operations of the Trust Property
claimed by third Persons, or (b) any act or omission of Trustee, Beneficiary, or
any such Indemnitee or any such Indemnified Party in administering, managing,
operating or controlling the Trust Property, including in either case such Loss
as may result from the ordinary negligence of Trustee and/or Beneficiary or any
other Lender or an Indemnified Party, or which may result from strict liability,
whether under applicable law or otherwise, unless such Loss is caused by the
gross negligence, willful misconduct or bad faith of Trustee, Beneficiary and/or
such other Lender or such Indemnified Party, nor shall Trustee, Beneficiary
and/or any other Lender or an Indemnified Party be obligated to perform or
discharge any obligation, duty or liability of Trustor. Trustor shall and does
hereby agree to indemnify Trustee and/or Beneficiary and each of the other
Lenders and their respective Indemnified Parties for, and to hold Trustee,
Beneficiary and each such other Lender and each Indemnified Party harmless from,
any and all Losses which may or might be incurred by Trustee and/or Beneficiary
or any of such other Lenders or such Indemnified Parties by reason of this Deed
of Trust or the exercise of rights or remedies hereunder, including such Losses
as may result from the ordinary negligence of Trustee, Beneficiary or any other
Lender or an Indemnified Party, or which may result from strict liability,
whether under applicable law or otherwise, unless such Loss is caused by the
gross negligence, willful misconduct or bad faith of Trustee, Beneficiary or
such other Lender or such Indemnified Party. Should Trustee, Beneficiary and/or
any other Lender or an Indemnified Party make any expenditure on account of any
such Losses, the amount thereof, including costs, expenses and reasonable
attorneys' fees, shall be a demand obligation (which obligation Trustor hereby
expressly promises to pay) owing by Trustor to Trustee and/or Beneficiary and
shall bear interest from the date expended until paid at the Post-Default Rate,
shall be a part of the Obligations and shall be secured by this Deed of Trust
and the other Loan Documents. Trustor hereby assents to, ratifies and confirms
any and all actions of Trustee and/or Beneficiary with


                                       27

<PAGE>

respect to the Trust Property taken under this Deed of Trust. The liabilities of
Trustor, as set forth in this Section 7.18, shall survive the termination of
this Deed of Trust and the payment and performance of the Obligations.

          SECTION 7.18 Waiver of Lien. In accordance with California Code of
Civil Procedure Section 726.5, Beneficiary may waive its lien against the Trust
Property constituting real property or any portion thereof, together with
fixtures or personal property constituting real property thereon, to the extent
such Trust Property constituting real property is found to be environmentally
impaired, and may exercise any and all rights and remedies of an unsecured
creditor against Trustor and all of Trustor's assets and Trust Property
constituting real property for the recovery of any deficiency, including without
limitation seeking an attachment order under California Code of Civil Procedure
Section 483.010. No such waiver shall be final or binding on Beneficiary unless
and until a final money judgment is obtained against Trustor. As between
Beneficiary and Trustor, for purposes of California Code of Civil Procedure
Section 726.5, Trustor shall have the burden of proving that the release or
threatened release was not knowingly or negligently caused or contributed to, or
knowingly or willfully permitted or acquiesced to by Trustor or any related
party (or any affiliate or agent of Trustor or any related party) and that
Trustor made written disclosure of the release to Beneficiary or that
Beneficiary otherwise obtained actual knowledge thereof prior to the making of
the loan evidenced by the Financing Agreement. Notwithstanding anything to the
contrary contained in this Deed of Trust, the Financing Agreement or the other
Loan Documents, Trustor shall be fully and personally liable for all judgments
and awards entered against Trustor pursuant to California Code of Civil
Procedure 726.5 and such liability shall be an exception to any non-recourse or
exculpatory provision in this Deed of Trust or the other Loan Documents, if any,
and shall not be limited to the original principal amount of the obligations
secured by this Deed of Trust. Trustor's obligations hereunder shall survive the
foreclosure, deed in lieu of foreclosure, release, reconveyance or any other
transfer of the Trust Property constituting real property or this Deed of Trust.
For the purpose of any action brought under this Section, Trustor hereby waives
the defense of laches and any applicable statute of limitations. For purposes of
California Code of Civil Procedure 726.5, the acts, knowledge and notice of each
"726.5 Party" shall be attributed to and be deemed to have been performed by the
party or parties then obligated on and liable for payment of the Obligations. As
used herein, "726.5 Party" shall mean Trustor, any successor owner to Trustor of
all or any portion of the Trust Property constituting real property, any related
party of Trustor or any such successor and any affiliate or agent of Trustor,
any such successor or any such related party.

          SECTION 7.19 Action for Environmental Claims. In accordance with, and
subject to limitations of, California Code of Civil Procedure Section 736,
Beneficiary may seek a judgment that the Trustor has breached its covenants,
representations and/or warranties with respect to the environmental matters
contained in the Financing Agreement (the "Environmental Provisions"), and may
commence and maintain an action or actions in any court of competent
jurisdiction for enforcement of the Environmental Provisions and/or recovery of
any and all costs, damages, expenses, fees, penalties, fines, judgments,
indemnification payments to third parties, and other out-of-pocket costs or
expenses (including, without limitation, court costs, consultants' fees and
attorneys' fees, whether incurred in litigation or not and whether before or
after judgment), incurred or advanced by Beneficiary pursuant to the
Environmental Provisions (collectively, the "Environmental Costs"), excluding,
however, any Environmental Costs not


                                       28

<PAGE>

permitted to be recovered pursuant to Section 736 of the California Code of
Civil Procedure. Environmental Costs that are not permitted to be recovered
pursuant to Section 736 may be referred to hereinafter as the "Unsecured
Environmental Costs," and Environmental Costs other than the Unsecured
Environmental Costs may be referred to hereinafter as the "Secured Environmental
Costs." Any Unsecured Environmental Costs shall not be secured by this Deed of
Trust; however, nothing herein shall prevent Beneficiary from recovering any
Unsecured Environmental Costs pursuant to the Indemnity Agreement of even date
herewith among Trustor, Beneficiary and certain other parties, to the extent
they are recoverable in accordance with said Indemnity Agreement. All Secured
Environmental Costs incurred by Beneficiary shall bear interest at the default
rate provided under the Note. All Secured Environmental Costs together with
interest thereon at the rate then in effect under the Financing Agreement shall
be secured by this Deed of Trust and shall enjoy the same priority as the
Obligations. Trustor acknowledges and agrees that notwithstanding any term or
provision contained in this Deed of Trust, the Financing Agreement or in the
other Loan Documents, Environmental Costs shall be exceptions to any nonrecourse
or exculpatory provision, if any, and Trustor shall be fully and personally
liable for Environmental Costs. Such liability shall not be limited to the
original principal amount of the obligations secured by this Deed of Trust.
Trustor's obligations hereunder shall survive foreclosure, deed in lieu of
foreclosure, release, reconveyance or any other transfer of the Trust Property
constituting real property or this Deed of Trust. For the purposes of any action
brought under this subparagraph Trustor hereby waives the defense of laches and
any applicable statute of limitations.

                                  ARTICLE VIII

                                     TRUSTEE

          SECTION 8.01 Duties, Rights, and Powers of Trustee. It shall be no
part of the duty of Trustee to see to any recording, filing or registration of
this Deed of Trust or any other instrument in addition or supplemental thereto,
or to give any notice thereof, or to see to the payment of or be under any duty
in respect of any tax or assessment or other governmental charge which may be
levied or assessed on the Trust Property, or any part thereof, or against
Trustee, or to see to the performance or observance by Trustee of any of the
covenants and agreements contained herein. Trustee shall not be responsible for
the execution, acknowledgment or validity of this Deed of Trust or of any
instrument in addition or supplemental hereto or for the sufficiency of the
security purported to be created hereby, and makes no representation in respect
thereof or in respect of the rights of Beneficiary. Trustee shall have the right
to confer with counsel upon any matters arising hereunder and shall be fully
protected in relying as to legal matters on the advice of counsel. Trustee shall
not incur any personal liability hereunder except for Trustee's own gross
negligence or willful misconduct, and Trustee shall have the right to rely on
any instrument, document or signature authorizing or supporting any action taken
or proposed to be taken by Trustee hereunder, believed by Trustee in good faith
to be genuine.

          SECTION 8.02 Successor Trustee. From time to time, by a writing signed
and acknowledged by Beneficiary and filed for record in the office of the
recorder of the County in which the Land is situated, Beneficiary may appoint
another trustee to act in the place and stead of Trustee or any successor. Such
writing shall refer to this Deed of Trust and set forth the date,


                                       29

<PAGE>

book and page of its recordation. The recordation of such instrument of
substitution shall discharge Trustee herein named and shall appoint the new
trustee as the trustee hereunder with the same effect as if originally named
Trustee herein. A writing recorded pursuant to the provisions of this Section
8.02 shall be conclusive proof of the proper substitution of such new trustee.

          SECTION 8.03 Retention of Moneys. All moneys received by Trustee
shall, until used or applied as herein provided, be held in trust for the
purposes for which they were received, but need not be segregated in any manner
from any other moneys (except to the extent required by law), and Trustee shall
be under no liability for interest on any moneys received by Trustee hereunder.

          SECTION 8.04 Reconveyance. Upon written request of Beneficiary stating
all of the Obligations have been paid, performed and discharged, and the
Financing Agreement is terminated, and payment of its fees, Trustee shall
reconvey, without warranty, the Trust Property. The recitals in such
reconveyance of any matters or facts shall be conclusive proof of the
truthfulness thereof. The grantee in such reconveyance may be described as "the
person or persons legally entitled hereto" or such other description as required
by law in the State of California.

                                   ARTICLE IX

                                  MISCELLANEOUS

          SECTION 9.01 Instrument Construed as Deed of Trust, Etc. This Deed of
Trust may be construed as a deed of trust, chattel mortgage, conveyance,
assignment, security agreement, pledge, financing statement, hypothecation or
contract, or any one or more of them, in order to fully effectuate the liens and
security interests created hereby and the purposes and agreements set forth
herein.

          SECTION 9.02 Performance at Trustor's Expense. The cost and expense of
performing or complying with any and all of the Obligations shall be borne
solely by Trustor, and no portion of such cost and expense shall be, in any way
or to any extent, credited against any installment on or portion of the
Obligations.

          SECTION 9.03 Survival of Obligations. Each and all of the Obligations
shall survive the execution and delivery of this Deed of Trust and shall
continue in full force and effect until all of the Obligations shall have been
fully satisfied.

          SECTION 9.04 Further Assurances. Trustor, upon the request of
Beneficiary, shall execute, acknowledge, deliver and record and/or file such
further instruments, including financing statements, and do such further acts as
may be reasonably necessary, desirable or proper to carry out more effectively
the purpose of this Deed of Trust and to subject to the Liens and security
interests hereof any property intended by the terms hereof to be covered hereby,
including any renewals, additions, substitutions, replacements, betterments or
appurtenances to the then Trust Property.


                                       30

<PAGE>

          SECTION 9.05 Notices. All notices or other communications required or
permitted to be given pursuant to this Deed of Trust shall be in writing and
shall be considered properly given if given in the manner and to the addresses
prescribed by Section 13.01 of the Financing Agreement to the parties and at the
addresses set forth in the first paragraph hereof, and to the parties and at the
addresses set forth in Section 13.01 of the Financing Agreement; provided,
however, that (a) service of notice as required by the laws of any State or
Commonwealth in which portions of the Trust Property may be situated shall for
all purposes be deemed appropriate and sufficient with the giving of such notice
thereunder, and (b) any party shall have the right to change its address for
notice hereunder to any other location within the continental United States by
the giving often (10) days' notice to the other party in the manner set forth
above.

          SECTION 9.06 No Waiver. Any failure by Beneficiary to insist, or any
election by Beneficiary not to insist, upon strict performance by Trustor of any
of the terms, provisions or conditions of this Deed of Trust shall not be deemed
to be a waiver of the same or of any other terms, provision or condition hereof,
and Beneficiary shall have the right, at any time or times thereafter, to insist
upon strict performance by Trustor of any and all of such terms, provisions and
conditions. Beneficiary may, in Beneficiary's sole and absolute discretion, (i)
in the case of a Default, determine whether such Default has been cured, and
(ii) in the case of an Event of Default, accept or reject any proposed cure of
an Event of Default. In no event shall any provision of this Deed of Trust or
any other Loan Document which provides that Beneficiary shall have certain
rights and/or remedies only during the continuance of an Event of Default be
construed so as to require Beneficiary to accept a cure of any such Event of
Default. Unless and until Beneficiary accepts any proposed cure of an Event of
Default, such Event of Default shall be deemed to be continuing for purposes of
this Deed of Trust and the other Loan Documents.

          SECTION 9.07 Beneficiary's Right to Perform; Beneficiary's
Expenditures.

          (A) Trustor agrees that if Trustor fails to perform any act or take
any action which Trustor is required to perform or take hereunder or under the
Financing Agreement or to pay any money which Trustor is required to pay
hereunder or under the Financing Agreement, Beneficiary may, but shall not be
obligated to, perform or cause to be performed such act or take such action or
pay such money, to the extent and only to the extent permitted under the
Financinf Agreement.

          (B) All costs and expenses incurred by Beneficiary (or any Indemnified
Party), including, without limitation, attorneys fees, costs and expenses, all
monies paid by (or on behalf of) Beneficiary and the monetary value of all
services performed by (or on behalf of Beneficiary) in connection with a Default
or Event of Default hereunder or under any other Loan Document, including,
without limitation, the (i) the enforcement of any term or provision of this
Deed of Trust or any other Loan Document, (ii) the performance by Beneficiary of
any obligation of Trustor under this Deed of Trust or any other Loan Document if
Beneficiary elects to so perform, in its sole and absolute discretion, and (iii)
any action Beneficiary elects to take, in its sole and absolute discretion, to
protect its interest in or the value of the Trust Property, shall be a demand
obligation owing by Trustor to Beneficiary, as the case may be, and to the
extent any payment is made to a third Person, Beneficiary, upon making such
payment, shall be surrogated to all of the rights of the Person receiving such
payment. All such costs and


                                       31

<PAGE>

expenses, monies and the monetary value of such services performed shall (x)
bear interest at the Post-Default Rate from the date of such incurrence, payment
or performance, as applicable, until paid, and (y) constitute (together with
such interest) a portion of the Obligations and shall be secured by this Deed of
Trust and all of the other Loan Documents. If Beneficiary shall elect to pay any
Imposition or other sums due with reference to the Trust Property, Beneficiary
may do so in reliance on any bill, statement or assessment procured from the
appropriate Governmental Authority or other issuer thereof. Attorneys' fees,
costs and expenses as used herein shall include, without limitation, such fees,
costs and expenses incurred in litigation or not, whether before or after
judgment and and consultants, court costs, expert witness fees, document
reproduction expenses, costs of exhibit preparation, courier charges, postage
and communication expenses. This provision is separate and several, and shall
survive merger into any judgment.

          Trustor shall and does hereby agree that, if all or a portion of the
Obligations has prior to the maturity date fixed in the Financing Agreement,
become due or been declared due by reason of an Event of Default the entire
amount then due under the terms of this Deed of Trust and the Financing
Agreement shall include all attorneys' fees and costs and expenses which are
actually incurred as stated above, notwithstanding the provisions of Section
2924c(d) and Section 2924d of the California Civil Code.

          SECTION 9.08 Successors and Assigns. All of the terms hereof shall
apply to, be binding upon and inure to the benefit of the parties hereto, their
successors, assigns, heirs and legal representatives, and all other Persons
claiming by, through or under them; provided, however, that nothing herein shall
be deemed to imply any right on behalf of Trustor to assign its interest in any
of the Trust Property except as may be expressly set forth in the Financing
Agreement.

          SECTION 9.09 Severability. This Deed of Trust is intended to be
performed in accordance with, and only to the extent permitted by, all
applicable laws and regulations of applicable Governmental Authorities and the
provisions hereof are intended to be limited to the extent necessary that they
will not render this Deed of Trust invalid, unenforceable or not entitled to be
recorded, registered or filed under the provisions of any applicable law. If any
provision hereof or the application thereof to any Person or circumstance shall,
for any reason and to any extent, be invalid or unenforceable, neither the
remainder of this Deed of Trust nor the application of such provision to other
Persons or circumstances shall be affected thereby, but rather shall be enforced
to the greatest extent permitted by applicable law.

          SECTION 9.10 Subrogation of Trustee. This Deed of Trust is made with
full substitution and subrogation of Trustee and successors in this trust to
Trustee and Trustee and such successors assigns in and to all covenants and
warranties by others heretofore given or made in respect of the Trust Property
or any part thereof.

          SECTION 9.11 Entire Agreement and Modification. This Deed of Trust may
not be amended, revised, waived, discharged, released or terminated orally, but
only by a written instrument or instruments executed by the party against which
enforcement of the amendment, revision, waiver, discharge, release or
termination is asserted. Any alleged amendment, revision, waiver, discharge,
release or termination which is not so documented shall not be effective as to
any party.


                                       32

<PAGE>

          SECTION 9.12 Applicable Law. THIS DEED OF TRUST, THE FINANCING
AGREEMENT AND THE LOAN DOCUMENTS HAVE BEEN DELIVERED IN THE STATE OF NEW YORK.
TRUSTOR AND BENEFICIARY FURTHER AGREE AND STIPULATE THAT THIS DEED OF TRUST, THE
FINANCING AGREEMENT AND THE LOAN DOCUMENTS HAVE BEEN DELIVERED IN THE STATE OF
NEW YORK WERE NEGOTIATED, EXECUTED AND DELIVERED IN THE STATE OF NEW YORK, AND
THAT THE STATE OF NEW YORK HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO
THE UNDERLYING TRANSACTION. IT IS THEREFORE THE INTENT OF TRUSTOR AND
BENEFICIARY THAT THIS DEED OF TRUST SHALL BE CONSTRUED AND INTERPRETED WITH, AND
GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT
TO NEW YORK CHOICE OF LAW PRINCIPLES); PROVIDED, HOWEVER, THAT THE LAWS OF THE
STATE OF CALIFORNIA SHALL APPLY TO THE CREATION, PERFECTION AND PROCEDURES
GOVERNING ENFORCEMENT OF ANY LIENS, SECURITY INTERESTS AND ENCUMBRANCES GRANTED
OR CREATED BY THIS DEED OF TRUST IN THE REAL OR PERSONAL PROPERTY LOCATED IN (OR
IN THE CASE OF INTANGIBLE PERSONAL PROPERTY, HAVING A SITUS IN) THE STATE OF
CALIFORNIA, AND THE MANAGEMENT, OPERATION, DISPOSITION AND REALIZATION OF THE
SECURITY PROVIDED THEREBY. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE
LAWS OF THE STATE OF NEW YORK SHALL APPLY TO (i) ALL MATTERS RELATING TO THE
CHARGING AND COLLECTION OF INTEREST UNDER THIS DEED OF TRUST AND WITH RESPECT TO
THE OBLIGATIONS, (ii) THE ENFORCEMENT OF ALL RIGHTS UNDER THE FINANCING
AGREEMENT, AND THE LOAN DOCUMENTS OTHER THAN THIS DEED OF TRUST AND (iii) THE
RIGHT TO SUE TRUSTOR OR ANY OTHER PERSON OBLIGATED UNDER THE LOAN AGREEMENT AND
THE LOAN DOCUMENTS TO COLLECT ANY OUTSTANDING OBLIGATIONS OR TO OBTAIN A
JUDGMENT FOR ANY DEFICIENCY FOLLOWING FORECLOSURE UNDER ANY ONE ACTION AND
ANTIDEFICIENCY RULES. TRUSTOR HEREBY AGREES THAT BENEFICIARY MAY ENFORCE ITS
RIGHTS UNDER THIS DEED OF TRUST AND ANY OF THE OTHER LOAN DOCUMENTS, INCLUDING
THE RIGHT TO SUE TRUSTOR OR ANY PERSON OBLIGATED UNDER THE LOAN DOCUMENTS TO
COLLECT ANY OUTSTANDING OBLIGATIONS OR TO OBTAIN A JUDGMENT FOR ANY DEFICIENCY
FOLLOWING FORECLOSURE, IN ACCORDANCE WITH NEW YORK LAW, AND TRUSTOR HEREBY
ACKNOWLEDGES THAT THE CALIFORNIA CODE OF CIVIL PROCEDURE SECTIONS 580A, 580D AND
726 DO NOT APPLY TO THIS DEED OF TRUST, THE FINANCING AGREEMENT AND THE LOAN
DOCUMENTS AND, TO THE EXTENT THEY APPLY WAIVES TO THE MAXIMUM EXTENT PERMITTED
BY LAW ANY RIGHTS WHICH IT MAY HAVE UNDER THE SUCH SECTIONS.

          SECTION 9.13 Satisfaction of Prior Encumbrance. To the extent that
proceeds advanced pursuant to the Financing Agreement are used to pay
indebtedness secured by any outstanding Lien, security interest, charge or prior
encumbrance against the Trust Property, such proceeds shall be deemed to have
been advanced by Beneficiary at Trustor's request, and Beneficiary shall be
subrogated to any and all rights, security interests and Liens owned by any


                                       33

<PAGE>

owner or holder of such outstanding Liens, security interests, charges or
encumbrances, irrespective of whether said Liens, security interests, charges or
encumbrances are released, and it is expressly understood that, in consideration
of the payment of such other indebtedness by Beneficiary, Trustor hereby waives
and releases all demands and causes of action for offsets and payments to, upon
and in connection with the said indebtedness.

          SECTION 9.14 No Partnership. Nothing contained in this Deed of Trust
is intended to, or shall be construed to, create to any extent and in any manner
whatsoever any partnership, joint venture, or association between Trustor and
Beneficiary, or in any way make Beneficiary a co-principal with Trustor with
reference to the Trust Property, and any inferences to the contrary are hereby
expressly negated.

          SECTION 9.15 Headings. The Article, Section and Subsection headings
hereof are inserted for convenience of reference only and shall in no way alter,
modify or define, or be used in construing, the text of such Articles, Sections
or Subsections.

          SECTION 9.16 Release of Deed of Trust. If all of the Obligations shall
be paid, performed and discharged and the Financing Agreement is terminated,
Beneficiary shall forthwith cause satisfaction and discharge of this Deed of
Trust to be entered upon the record, at the sole cost and expense of Trustor,
and shall execute and deliver (or cause to be executed and delivered) such
instruments of satisfaction and discharge as may be appropriate, such
instruments to be duly acknowledged and in form for recording, at the sole cost
and expense of Trustor.

          SECTION 9.17 Limitation of Obligations with Respect to Trust Property.

          (A) Neither Trustee nor Beneficiary or any Lender shall have any duty
to protect or preserve, or any liability with respect to the protection or
preservation of, any Trust Property or to preserve rights pertaining thereto
other than the duty to use reasonable care in the custody and preservation of
any Trust Property in its actual possession. Beneficiary shall be deemed to have
exercised reasonable care in the custody and preservation of any Trust Property
in its possession if such Trust Property is accorded treatment substantially
equal to that which Beneficiary accords its own like property. Beneficiary shall
be relieved of all responsibility for any Trust Property in its possession upon
surrendering it, or tendering surrender of it, to Trustor or to such other
Person entitled thereto by applicable law.

          (B) Nothing contained in this Deed of Trust shall be construed as
requiring or obligating Trustee, Beneficiary or any Lender, and neither Trustee
nor Beneficiary or any Lender shall be required or obligated, to (i) make any
demand or inquiry as to the nature or sufficiency of any payment received by it,
or present or file any claim or notice or take any action with respect to any
Trust Property or the monies due or to become due thereunder in connection
therewith, (ii) ascertain or take action with respect to calls, conversions,
exchanges, maturities, tenders, offers or other matters relating to any Trust
Property, whether or not Beneficiary or any of the other Lenders has or is
deemed to have knowledge or notice thereof, (iii) take any necessary steps to
preserve rights against any prior parties with respect to any Trust Property, or
(iv) notify Trustor or any other Person of any decline in the value of any Trust
Property.


                                       34

<PAGE>

          SECTION 9.18 Inconsistency with Financing Agreement. To the fullest
extent possible, the terms and provisions of the Financing Agreement shall be
read together with the terms and provisions of this Deed of Trust such that the
terms and provisions of this Deed of Trust shall supplement, rather than
conflict with, the terms and provisions of the Financing Agreement; provided,
however, that, notwithstanding the foregoing, in the event any of the terms or
provisions of this Deed of Trust conflict with any of the terms or provisions of
the Financing Agreement, such that it is impractical for such terms or
provisions to coexist, the terms or provisions of the Financing Agreement shall
govern and control for all purposes; and, provided further, that the inclusion
in this Deed of Trust of terms and provisions, supplemental rights or remedies
in favor of a secured party but which are not addressed in the Financing
Agreement shall not be deemed to be a conflict with the Financing Agreement and
all such additional terms, provisions, supplemental rights or remedies contained
herein shall be given full force and effect.

          SECTION 9.19 Limitation on Interest Payable. It is the intention of
the parties to conform strictly to the usury laws, whether state or federal,
that are applicable to the transaction of which this Deed of Trust is a part.
All agreements between Trustor and Beneficiary, or any Lender, whether now
existing or hereafter arising and whether oral or written, are hereby expressly
limited so that in no contingency or event whatsoever shall the amount paid or
agreed to be paid by Trustor for the use, forbearance or detention of the money
to be loaned under the Financing Agreement or any other Loan Document, or for
the payment or performance of any covenant or obligation contained herein or in
the Financing Agreement or any other Loan Document, exceed the maximum amount
permissible under applicable federal or state usury laws. If, under any
circumstances, fulfillment of any such provision, at the time performance of
such provision shall be due, shall involve exceeding the limit of validity
prescribed by applicable law, then the obligation to be fulfilled shall be
reduced to the limit of such validity. If, under any circumstances, Trustor
shall have paid an amount of money which is deemed to be interest and such
interest would exceed the highest lawful rate, such amount that would be
excessive interest under applicable usury laws shall be applied to the reduction
of the principal amount owing in respect of the Obligations and not to the
payment of interest, or if such excessive interest exceeds the unpaid balance of
principal and any other amounts due hereunder, the excess shall be refunded to
Trustor. All sums paid or agreed to be paid for the use, forbearance or
detention of the principal under any extension of credit by Beneficiary (or
Lender) shall, to the extent permitted by applicable law, and to the extent
necessary to preclude exceeding the limit of validity prescribed by applicable
law, be amortized, prorated, allocated and spread from the date of this Deed of
Trust until payment in full of the Obligations so that the actual rate of
interest on account of such principal amounts is uniform throughout the term
hereof.

          SECTION 9.20 Covenants To Run With the Land. All of the grants,
representations, warranties, undertakings, covenants, terms, provisions and
conditions in this Deed of Trust shall run with the Land and shall apply to and
bind the successors and assigns of Trustor. If there shall be more than one
trustor, the covenants, representations and warranties made herein shall be
deemed to be joint and several.

          SECTION 9.21 Amount Secured; Last Dollar. So long as the balance of
the Obligations exceeds the portion of the Obligations secured by this Deed of
Trust, no payment on account of the Obligations shall be deemed to be applied
against or to reduce the portion of the


                                       35

<PAGE>

Obligations secured by this Deed of Trust, but shall, instead, be deemed to be
applied against only such portions of the Obligations that are not secured by
this Deed of Trust.

          SECTION 9.22 Defense of Claims. Trustor shall promptly notify
Beneficiary in writing of the commencement of any legal proceedings affecting
Trustor's title to the Trust Property or Beneficiary's Lien on or security
interest in the Trust Property, or any part thereof, and shall take all such
action, employing attorneys agreeable to Beneficiary, as may be necessary to
preserve Trustor's and Beneficiary's rights affected thereby. If Trustor fails
or refuses to adequately or vigorously, in the sole judgment of Beneficiary,
defend Trustor's or Beneficiary's rights to the Trust Property, Beneficiary may
take such action on behalf of and in the name of Trustor and at Trustor's
expense. Moreover, Beneficiary may take (or cause its agents to take) such
independent action in connection therewith as they may in their discretion deem
proper, including, without limitation, the right to employ independent counsel
and to intervene in any suit affecting the Trust Property. All costs, expenses
and attorneys' fees incurred by Beneficiary (or its agents) pursuant to this
Section 9.22 or in connection with the defense by Beneficiary of any claims,
demands or litigation relating to Trustor, the Trust Property or the
transactions contemplated in this Deed of Trust shall be paid by Trustor on
demand, plus interest thereon from the date of the advance by Beneficiary until
reimbursement of Beneficiary at the Post-Default Rate.

          SECTION 9.23 Exculpation Provisions. EACH OF THE PARTIES HERETO
SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS DEED OF TRUST; AND AGREES
THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS DEED OF TRUST;
THAT IT HAS IN FACT READ THIS DEED OF TRUST AND IS FULLY INFORMED AND HAS FULL
NOTICE AND KNOWLEDGE OF THE TERMS, CONDITIONS AND EFFECTS OF THIS DEED OF TRUST;
THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE
THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS DEED OF TRUST AND
HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS DEED OF TRUST; AND
THAT IT RECOGNIZES THAT CERTAIN TERMS OF THIS DEED OF TRUST RESULT IN ONE PARTY
ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING
THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO
AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF
ANY EXCULPATORY PROVISION OF THIS DEED OF TRUST ON THE BASIS THAT THE PARTY HAD
NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT
"CONSPICUOUS."

          SECTION 9.24 No Merger of Estates. So long as any part of the
Obligations remain unpaid, unperformed or undischarged, the fee, easement and
leasehold estates to the Trust Property shall not merge but rather shall remain
separate and distinct, notwithstanding the union of such estates either in
Trustor, Beneficiary, any lessee, any third-party purchaser or otherwise.

          SECTION 9.25 Suretyship Waivers. As used in this Section 9.25, the
term "Obligor" shall mean each any Obligor, other than the Trustor, obligated
for any of the Obligations secured by this Deed of Trust.


                                       36

<PAGE>

          (A) Representations and Warranties. Trustor represents and warrants to
Beneficiary that: (A) this Deed of Trust is executed, in part, at the request of
the Obligors; (B) this Deed of Trust complies with all agreements between each
Obligor regarding Trustor's execution hereof; (C) Beneficiary has made no
representation to any Trustor as to the creditworthiness of any Obligor; and (D)
Trustor has established adequate means of obtaining from each Obligor on a
continuing basis financial and other information pertaining to such Obligor's
financial condition. Trustor agrees to keep adequately informed from such means
of any facts, events or circumstances which might in any way affect such
Trustor's risks hereunder. Trustor further agrees that Beneficiary shall have no
obligation to disclose to Trustor any information or material about any Obligor
which is acquired by Beneficiary in any manner. The liability of Trustor
hereunder shall be reinstated and revived, and the rights of Beneficiary shall
continue if and to the extent that for any reason any amount at any time paid on
account of any Obligation is rescinded or must otherwise be restored by
Beneficiary, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise, all as though such amount had not been paid. The
determination as to whether any amount so paid must be rescinded or restored
shall be made by Beneficiary in its sole discretion; provided however, that if
Beneficiary chooses to contest any such matter at the request of Trustor,
Trustor agrees to indemnify and hold Beneficiary harmless from and against all
costs and expenses, including reasonable attorneys' fees, expended or incurred
by Beneficiary in connection therewith, including without limitation, any
litigation with respect thereto.

          (B) General Suretyship Waivers.

               (i) Trustor waives any right to require Beneficiary to: (i)
     proceed against any Obligor or any other person; (ii) marshal assets or
     proceed against or exhaust any security held from any Obligor or any other
     person; (iii) take any action or pursue any other remedy in Beneficiary's
     power; or (iv) make any presentment or demand for performance, or give any
     notice of nonperformance, protest, notice of protest or notice of dishonor
     hereunder or in connection with any obligations or evidences of
     indebtedness held by Beneficiary as security for or which constitute in
     whole or in part the Obligations, or in connection with the creation of new
     or additional obligations.

               (ii) Trustor waives any defense to its obligations hereunder
     based upon or arising by reason of: (i) any disability or other defense of
     any Obligor or any other person; (ii) the cessation or limitation from any
     cause whatsoever, other than payment in full, of any Obligation; (iii) any
     lack of authority of any officer, director, partner, agent or any other
     person acting or purporting to act on behalf of any Obligor which is a
     corporation, partnership or other type of entity, or any defect in the
     formation of any such Obligor; (iv) the application by any Obligor of the
     proceeds of any Obligation for purposes other than the purposes represented
     by any Obligor to, or intended or understood by, Beneficiary or any
     Trustor; (v) any act or omission by Beneficiary which directly or
     indirectly results in or aids the discharge of any Obligor of any portion
     of the Obligations by operation of law or otherwise, or which in any way
     impairs or suspends any rights or remedies of Beneficiary against any
     Obligor; (vi) any impairment of the value of any interest in any security
     for the Obligations or any portion thereof, including without limitation,
     the failure to obtain or maintain perfection or recordation of any interest
     in any such security, the release of any such security without
     substitution, and/or


                                       37

<PAGE>

     the failure to preserve the value of, or to comply with applicable law in
     disposing of, any such security; or (vii) any modification of the
     Obligations, in any form whatsoever, including without limitation the
     renewal, extension, acceleration or other change in time for payment of, or
     other change in the terms of, the Obligations or any portion thereof,
     including increase or decrease of the rate of interest thereon. Until all
     Obligations shall have been paid in full, no Trustor shall have any right
     of subrogation, and Trastor waives any right to enforce any remedy which
     Beneficiary now has or may hereafter have against any Obligor or any other
     person, and waives any benefit of, or any right to participate in, any
     security now or hereafter held by Beneficiary. Trustor further waives all
     rights and defenses it may have arising out of: (1) any election of
     remedies by Beneficiary, even though that election of remedies, such as a
     non-judicial foreclosure with respect to any security for any portion of
     the Obligations, destroys Trustor's rights of subrogation or Trustor's
     rights to proceed against any Obligor for reimbursement; or (2) any loss of
     rights Trustor may suffer by reason of any rights, powers or remedies of
     any Obligor in connection with any anti-deficiency laws or any other laws
     limiting, qualifying or discharging any Obligor's obligations, whether by
     operation of Sections 726, 580a and 580d of the Code of Civil Procedure as
     from time to time amended (to the extent California law applies or may be
     determined to apply), or otherwise, including any rights Trustor may have
     to a Section 580a fair market value hearing to determine the size of a
     deficiency following any trustee's foreclosure sale or other disposition of
     any security for any portion of the Obligations (to the extent California
     law applies or may be determined to apply).

               (iii) If any of said waivers is determined to be contrary to any
     applicable law or public policy, such waiver shall be effective to the
     extent permitted by applicable law or public policy.

          (C) Additional Suretyship Waivers.

               (i) Trustor hereby expressly waives and agrees not to assert or
     take advantage of any defense based upon:

                    (1) The incapacity, lack of authority, death or disability
          of any Obligor or any other person or entity;

                    (2) The failure of Beneficiary to commence an action against
          any Obligor or to proceed against or exhaust any security held by
          Beneficiary at any time, or to pursue any other remedy whatsoever at
          anytime;

                    (3) Any duty on the part of Beneficiary to disclose to
          Trustor any facts Beneficiary may now or hereafter know regarding any
          Obligor, regardless of whether Beneficiary has reason to believe (i)
          that any such facts materially increase the risk beyond that which
          Trustor intends to assume, or (ii) that such facts are unknown to
          Trustor, Trustor acknowledging that he, she or it is fully responsible
          for being and keeping informed of the financial condition and affairs
          of any Obligor;


                                       38

<PAGE>

                    (4) Lack of notice of default, demand of performance or
          notice of acceleration to any Obligor or any other party with respect
          to the Loans or any Obligor's obligations guarantied by Trustor;

                    (5) The consideration for the Loan Documents;

                    (6) The revocation or repudiation hereof by Trustor or the
          revocation or repudiation of any of the Loan Documents by any Obligor
          or any other person;

                    (7) The unenforceability in whole or in part of the Loan
          Documents against any Obligor;

                    (8) Any acts or omissions of Beneficiary which vary,
          increase or decrease the risk on Trustor;

                    (9) Any rights or defenses based upon an offset by Trustor
          against any obligation now or hereafter owed to Trustor by any
          Obligor;

                    (10) Any statute of limitations affecting the liability of
          Trustor hereunder, the liability of any Obligor or any other guarantor
          under the Loan Documents or the enforcement hereof, to the extent
          permitted by law;

                    (11) The application by any Obligor of the proceeds of the
          Loans or other financial accommodations under the Financing Agreement
          for purposes other than the purposes represented by any Obligor to
          Beneficiary and Trustor or intended or understood by Beneficiary or
          Trustor;

                    (12) An election of remedies by Beneficiary, including any
          election to proceed against any collateral by judicial or nonjudicial
          foreclosure, whether real property or personal property that is
          security for the any Obligor's obligations under the Loan Documents,
          or by deed in lieu thereof, and whether or not every aspect of any
          foreclosure sale is commercially reasonable, and whether or not any
          such election of remedies destroys or otherwise impairs the
          subrogation rights of Trustor or the rights of Trustor to proceed
          against any Obligor or any other guarantor by way of subrogation or
          for reimbursement or contribution, or all such rights;

                    (13) Any statute or rule of law which provides that the
          obligation of a surety must be neither larger in amount nor in any
          other aspects more burdensome than that of the principal obligor;

                    (14) Beneficiary's election, in any proceeding instituted
          under Title 11 of the United States Code (the "Bankruptcy Code"), of
          the application of Bankruptcy Code Section 1111(b)(2) or any
          successor statute;

                    (15) Any borrowing or any grant of a security interest under
          Bankruptcy Code Section 364; and


                                       39

<PAGE>

                    (16) Any other suretyship defense that may be available to
          Trustor. Without limiting the generality of the foregoing (to the
          extent California law applies or may be determined to apply), Trustor
          also waives (y) any defense based upon Beneficiary's election to waive
          its lien as to all or any security for the Loans or for the guarantor
          of any other person pursuant to California Code of Civil Procedure
          ("CCP ") Section 726.5, under any similar law in any other state that
          may be applicable because any Obligor's obligations are secured by a
          lien on real property in such state, or otherwise, and (z) any and all
          benefits which might otherwise be available to Trustor under
          California Civil Code ("Civil Code") Sections 2809, 2810, 2815, 2819,
          2839, 2845 through 2850, 2899 and 3433.

               (ii) Trustor understands and acknowledges that if Beneficiary
     forecloses judicially or nonjudicially against any real property that is
     security for any Obligor's obligations under the Loan Documents (other than
     this Deed of Trust), that foreclosure could impair or destroy any ability
     that Trustor may have to seek reimbursement, contribution or
     indemnification from any such Obligor based on any right Trustor may have
     of subrogation, reimbursement, contribution or indemnification for any
     amounts paid by Trustor under the Loan Documents or realized by Beneficiary
     by way of foreclosure of this Deed of Trust. Trustor further understands
     and acknowledges that in the absence of this provision, the potential
     impairment or destruction of Trustor's rights, if any, may (to the extent
     California law applies or may be determined to apply) entitle Trustor to
     assert a defense to its obligations under this Deed of Trust and the Loan
     Documents based on CCP Section 58Od as interpreted in Union Bank vs.
     Gradsky. By executing this Deed of Trust, Trustor freely, irrevocably and
     unconditionally:

                    (1) waives and relinquishes that defense, and agrees that
          Trustor will be fully liable for its obligations under the Loan
          Documents and the Trust Property will continue to be security for the
          Obligations, even though Beneficiary may foreclose judicially or
          nonjudicially against any real property that is security for the any
          Obligor's obligations under the Loan Documents;

                    (2) agrees that Trustor will not assert that defense in any
          action or proceeding that Beneficiary may commence to enforce the
          obligations of Trustor under this Deed of Trust and the Loan
          Documents;

                    (3) acknowledges and agrees that the rights and defenses
          waived by Trustor under the Loan Documents include any right or
          defense that Trustor may have or be entitled to assert based upon or
          arising out of any one or more of the following: (i) CCP Sections 580a
          (which if Trustor had not given this waiver, would otherwise limit
          Trustor's liability (and the extent of the Obligations to which the
          Trust Property would be exposed) after any nonjudicial foreclosure
          sale to the difference between the amount of the Obligations and the
          fair market value of the property or interests sold at such
          nonjudicial foreclosure sale against any real property that is
          security for the an Obligor's obligations under the Loan Documents
          rather than the actual proceeds of such sale), 580b and 58Od (which if
          Trustor had not given this waiver, would otherwise limit Beneficiary's
          right to recover a deficiency judgment (or to foreclose this Deed of
          Trust and otherwise


                                       40

<PAGE>

          pursue the Trust Property) with respect to purchase money obligations
          and after any nonjudicial foreclosure sale against any real property
          that is security for the an Obligor's obligations under the Loan
          Documents, respectively), or 726 (which, if Trustor had not given this
          waiver, among other things, would otherwise require Beneficiary to
          exhaust all of its security against an Obligor or Obligors before
          Beneficiary would be entitled to exercise its remedies under this Deed
          of Trust or pursue a personal judgment for a deficiency against the
          any Obligor); or (ii) Civil Code Section 2848; and

                    (4) acknowledges and agrees that Beneficiary is relying on
          this waiver in making the Loan or other financial accommodations under
          the Financing Agreement, and that this waiver is a material part of
          the consideration that Beneficiary is receiving for making the Loans
          or other financial accommodations under the Financing Agreement.
          WITHOUT LIMITING THE FOREGOING, TRUSTOR WAIVES ALL RIGHTS AND DEFENSES
          THAT TRUSTOR HAS BECAUSE ANY OBLIGOR'S OBLIGATIONS UNDER THE LOAN
          DOCUMENTS ARE SECURED BY REAL PROPERTY. THIS MEANS, AMONG OTHER
          THINGS:

                         a. BENEFICIARY MAY COLLECT FROM TRUSTOR OR EXERCISE ITS
                    REMEDIES UNDER THIS DEED OF TRUST WITHOUT FIRST FORECLOSING
                    ON ANY REAL OR PERSONAL PROPERTY COLLATERAL PLEDGED BY ANY
                    OBLIGOR; AND

                         b. IF BENEFICIARY FORECLOSES ON ANY REAL PROPERTY
                    COLLATERAL PLEDGED BY ANY OBLIGOR:

                              (i) THE AMOUNT OF THE OBLIGATIONS MAY BE REDUCED
                         ONLY BY THE PRICE FOR WHICH THAT COLLATERAL IS SOLD AT
                         THE FORECLOSURE SALE, EVEN IF THE COLLATERAL IS WORTH
                         MORE THAN THE SALE PRICE; AND

                              (ii) BENEFICIARY MAY COLLECT FROM TRUSTOR AND
                         EXERCISE ITS REMEDIES UNDER THIS DEED OF TRUST EVEN IF
                         BENEFICIARY, BY FORECLOSING ON THE REAL PROPERTY
                         COLLATERAL, HAS DESTROYED ANY RIGHT TRUSTOR MAY HAVE TO
                         COLLECT FROM ANY OBLIGOR.

          THIS IS AN UNCONDITIONAL AND IRREVOCABLE WAIVER OF ANY RIGHTS AND
          DEFENSES TRUSTOR HAS BECAUSE ANY OBLIGOR'S OBLIGATIONS UNDER THE LOAN
          DOCUMENTS ARE SECURED BY REAL PROPERTY. THESE RIGHTS AND DEFENSES
          INCLUDE, BUT ARE


                                       41

<PAGE>

          NOT LIMITED TO, ANY RIGHTS OR DEFENSES BASED UPON CCP SECTIONS 580a,
          580b, 58Od OR 726.

          SECTION 9.26 Beneficiary Statement. Beneficiary may collect a fee not
to exceed the maximum allowed by applicable law for furnishing the statement of
obligation as provided in Section 2943 of the Civil Code of California.

          SECTION 9.27 Request for Notice. Pursuant to Section 2924b(d) of the
California Civil Code, Trustor and Beneficiary request that a copy of any notice
of default and a copy of any notice of sale be mailed to Trustor and
Beneficiary, respectively, at the address for such party set forth herein

          SECTION 9.28 Release and Reconveyance. Lender will release and
reconvey its interest under this Deed of Trust to the Trust Property as required
by Section 7.04 of the Financing Agreement.

             [NO FURTHER TEXT ON THIS PAGE; SIGNATURE PAGE FOLLOWS]


                                       42


<PAGE>

     IN WITNESS WHEREOF, Trustor has executed this Deed of Trust as of the date
first above written.

                                        TRUSTOR:

                                        LAKES KAR SHINGLE SPRINGS, L.L.C., a
                                        Delaware limited liability company


                                        By: /s/ Timothy J. Cope
                                            ------------------------------------
                                            Timothy J. Cope, Chief Financial
                                            Officer

<PAGE>

                                 ACKNOWLEDGEMENT

STATE OF NEW YORK    )
                     )   ss:
COUNTY OF NEW YORK   )

On February 15, 2006 before me personally appeared Timothy J. Cope, personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity(ies),
and that by his signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.


                                        /s/ Thomas W. Caplis
                                        ----------------------------------------
                                        Notary Public

                                        (SEAL)

<PAGE>

                                    EXHIBIT A

                                LEGAL DESCRIPTION

Parcel 1:

That portion of Lot 5 of the Southwest Quarter of the Northwest Quarter of
Section 10, Township 17 South, Range 1 East, San Bernardino Meridian, in the
County of San Diego, State of California, according to the Official Plat
thereof, described as follows:

Beginning at the Southeasterly corner of said Lot 5; thence along the Southerly
line of said Lot 5 South 84 degrees 47'00" West 601.86 feet to the Southeasterly
corner of that Parcel of Land conveyed to Orsen B. Thayer by Deed recorded July
19, 1888, in Book 125, Page 390 of Deeds; thence along the Easterly line of said
Thayer Land; North 0 degrees 07'00" West 706.81 feet to the Westerly
prolongation of the Southerly line of that Parcel of Land conveyed to Amy B.
Nobard by Deed recorded July 24, 1930 as Document No. 35224 in Book 1795, Page
217 of Deeds; thence along said prolongation and along the said Southerly line
North 86 degrees 23'40" East 614.36 feet to the Easterly line of said Lot 5;
thence along said Easterly Lot Line South l degrees 01'25" West 690.83 feet to
the Point of Beginning.

Parcel 2:

All that portion of Lot 6 in Section 10, Township 17 South, Range 1 East, San
Bernardino Meridian, in the County of San Diego, State of California, according
to Official Plat thereof, lying West of the center line of the relocation of the
County Highway known as Route 16, Division 2, according to Map thereof on file
in the Office of the County Surveyor of San Diego County and lying South of the
South line of the Parcel of Land conveyed to William E. Lowe, by Deed dated
September 25, 1930 and recorded in Book 1820, Page 143 of Deeds, records of said
San Diego County.

Parcel 3:

The Easterly 8.00 feet of Lots 31 and 32 of County of San Diego Tract No. 3673,
in the County of San Diego, State of California, according to Map thereof No.
10781, filed in the Office of the County Recorder of San Diego County, November
30, 1983.

Also the Easterly 8.00 feet of the Southerly 0.40 feet of Lot 30 of County of
San Diego Tract No. 3673, in the County of San Diego, State of California,
according to Map thereof No. 10781, filed in the Office of the County Recorder
of San Diego County, November 30, 1983.

Parcel 4:

Lots 12 and 13 and that portion of Lot 11 lying Westerly of County Road Survey
No. 150, in Section 10, Township 17 South, Range 1 East, San Bernardino Base and
Meridian, in the County of San Diego, State of California, according to Official
Plat thereof.

Said land is also shown on Record of Survey Map No. 695, filed in the Office of
the County Recorder of San Diego County.


                                   Exhibit A-1

<PAGE>

Excepting therefrom that portion described as follows:

Commencing at Corner No. 16 of Rancho Jamul, according to the Record of Survey
Map No. 695, filed in the Office of the County Recorder of San Diego County;
thence South 88 degrees 23'30" East along the Northerly line of said Rancho
Jamul, a distance of 1242.57 feet to the True Point of Beginning; thence
continuing South 88 degrees 23'30" East along said Northerly line, a distance of
671.25 feet to the Southwesterly line of Highway Route 16, Division 2, also
known as Campo Road and State Highway 94; thence Northwesterly along said
Southwesterly line the following courses:

North 47 degrees 30'30" West, 291.98 feet; North 46 degrees 30'30" West, 264.02
feet; North 61 degrees 03'30" West, 123.75 feet; North 47 degrees 57'30" West,
189.19 feet; thence leaving said Southwesterly line South 01 degrees 36'30"
West, 546.89 feet to the True Point of Beginning.

Assessor's Parcel No: 597-042-13, 597-060-05


                                        2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.9
<SEQUENCE>11
<FILENAME>c02665exv10w9.txt
<DESCRIPTION>DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS
<TEXT>
<PAGE>
                                                                    Exhibit 10.9

THIS DEED OF TRUST WAS PREPARED BY
AND WHEN RECORDED, RETURN TO:

Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
Attention: Caryn J. Ettinger, Esq.
Reference No.: 089253 0012

                 DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS,
                      SECURITY AGREEMENT AND FIXTURE FILING

                                     made by

                        LAKES KAR SHINGLE SPRINGS, L.L.C.
                                    (TRUSTOR)

                                       to

                    FIDELITY NATIONAL TITLE INSURANCE COMPANY
                                    (TRUSTEE)

                               for the benefit of

                                PLKS FUNDING, LLC
                                  (BENEFICIARY)

                               PROPERTY LOCATION:

42 and 34 acres on Shingle Springs Road, 6.51 and 5.012 acres on Pinnacle Court,
                          3051 Pinnacle Court and 4970
                                  Artesia Road
                           Shingle Springs, California

                          DATED AS OF February 15, 2006

    THIS ALSO CONSTITUTES FINANCING STATEMENTS FILED AS A FIXTURE FILING AND
 FINANCING STATEMENT PURSUANT TO SECTIONS 9501(a)(1) AND 9502(b) AND (c) OF THE
     CALIFORNIA UNIFORM COMMERCIAL CODE AND IS RECORDED AS A FIXTURE FILING

     PURSUANT TO SECTION 2924b(d) OF THE CALIFORNIA CIVIL CODE, TRUSTOR AND
   BENEFICIARY REQUEST THAT A COPY OF ANY NOTICE OF DEFAULT AND A COPY OF ANY
    NOTICE OF SALE BE MAILED TO TRUSTOR AND BENEFICIARY, RESPECTIVELY, AT THE
                    ADDRESS FOR SUCH PARTY SET FORTH HEREIN.

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>                                                                         <C>
ARTICLE I DEFINITIONS....................................................     2
   SECTION 1.01   Terms Defined Above....................................     2
   SECTION 1.02   Definitions............................................     2
   SECTION 1.03   Terminology............................................     6
   SECTION 1.04   Other Defined Terms....................................     6

ARTICLE II GRANT OF LIEN AND SECURITY INTEREST...........................     6
   SECTION 2.01   Grant of Lien..........................................     6
   SECTION 2.02   Grant of Security Interest.............................     6
   SECTION 2.03   No Obligation of Beneficiary...........................     7
   SECTION 2.04   Fixture Filing.........................................     7
   SECTION 2.05   Future Advances........................................     7
   SECTION 2.06   Intentionally Omitted..................................     7

ARTICLE III ASSIGNMENT OF LEASES AND RENTS...............................     7
   SECTION 3.01   Assignment.............................................     8
   SECTION 3.02   Revocable License......................................     8
   SECTION 3.03   Enforcement of Leases..................................     8
   SECTION 3.04   Direction to Tenants...................................     9
   SECTION 3.05   Appointment of Attorney-in-Fact........................     9
   SECTION 3.06   No Liability of Beneficiary............................    10
   SECTION 3.07   Trustor's Indemnities..................................    10
   SECTION 3.08   No Modification of Trustor's Obligations...............    11
   SECTION 3.09   Rights in Bankruptcy...................................    11
   SECTION 3.10   Right to Enforce Under California Civil Code
                     Section 2938........................................    11

ARTICLE IV REPRESENTATIONS AND WARRANTIES................................    13
   SECTION 4.01   Title to Trust Property and Lien of this Deed of
                     Trust...............................................    14
   SECTION 4.02   Taxes and Other Payments...............................    14
   SECTION 4.03   Power to Create Lien and Security......................    14
   SECTION 4.04   Loan and Financing Agreements..........................    14
   SECTION 4.05   Compliance with Laws...................................    14
   SECTION 4.06   No Condemnation........................................    15
   SECTION 4.07   Flood Zone.............................................    15
   SECTION 4.08   Additional Environmental Representation................    15

ARTICLE V AFFIRMATIVE COVENANTS..........................................    15
   SECTION 5.01   Lien Status............................................    15
   SECTION 5.02   Payment of Impositions.................................    16
   SECTION 5.03   Repair.................................................    16
   SECTION 5.04   Insurance and Application of Insurance Proceeds........    16
   SECTION 5.05   Condemnation and Application of Condemnation Proceeds..    19
</TABLE>


                                        i

<PAGE>

<TABLE>
<S>                                                                         <C>
   SECTION 5.06   Maintenance of Rights of Way, Easements, Licenses and
                     Other Rights........................................    19
   SECTION 5.07   Payment and Performance of Obligations.................    20
   SECTION 5.08   Compliance with Permitted Liens and Other Obligations..    20
   Section 5.09   Additional Affirmative Covenants.......................    20

ARTICLE VI NEGATIVE COVENANTS............................................    20
   SECTION 6.01   Use Violations.........................................    20
   SECTION 6.02   Waste..................................................    20
   SECTION 6.03   Alterations............................................    20
   SECTION 6.04   No Further Encumbrances................................    21
   SECTION 6.05   Transfer Restrictions..................................    21
   SECTION 6.06   Loan and Financing Agreements; Additional Negative
                     Covenants...........................................    21

ARTICLE VII EVENTS OF DEFAULT AND REMEDIES...............................    21
   SECTION 7.01   Event of Default.......................................    21
   SECTION 7.02   Acceleration...........................................    21
   SECTION 7.03   Foreclosure and Sale...................................    22
   SECTION 7.04   Trustee's Successors, Substitutes and Agents...........    23
   SECTION 7.05   Receivership...........................................    23
   SECTION 7.06   Judicial Foreclosure...................................    23
   SECTION 7.07   Separate Sales.........................................    24
   SECTION 7.08   Possession of Trust Property...........................    24
   SECTION 7.09   Occupancy After Foreclosure............................    24
   SECTION 7.10   Remedies Cumulative, Concurrent and Nonexclusive.......    25
   SECTION 7.11   No Release of Obligations..............................    25
   SECTION 7.12   Release of and Resort to Collateral....................    25
   SECTION 7.13   Waiver of Redemption, Notice and Marshalling of
                     Assets..............................................    25
   SECTION 7.14   Discontinuance of Proceedings..........................    26
   SECTION 7.15   Application of Proceeds................................    26
   SECTION 7.16   Uniform Commercial Code Remedies.......................    27
   SECTION 7.17   Indemnity..............................................    27
   SECTION 7.18   Waiver of Lien.........................................    28
   SECTION 7.19   Action for Environmental Claims........................    28

ARTICLE VIII TRUSTEE.....................................................    29
   SECTION 8.01   Duties, Rights, and Powers of Trustee..................    29
   SECTION 8.02   Successor Trustee......................................    29
   SECTION 8.03   Retention of Moneys....................................    30
   SECTION 8.04   Reconveyance...........................................    30

ARTICLE IX MISCELLANEOUS.................................................    30
   SECTION 9.01   Instrument Construed as Deed of Trust, Etc.............    30
   SECTION 9.02   Performance at Trustor's Expense.......................    30
   SECTION 9.03   Survival of Obligations................................    30
   SECTION 9.04   Further Assurances.....................................    30
   SECTION 9.05   Notices................................................    31
</TABLE>


                                       ii

<PAGE>

<TABLE>
<S>                                                                         <C>
   SECTION 9.06   No Waiver..............................................    31
   SECTION 9.07   Beneficiary's Right to Perform; Beneficiary's
                     Expenditures........................................    31
   SECTION 9.08   Successors and Assigns.................................    32
   SECTION 9.09   Severability...........................................    32
   Section 9.10   Subrogation of Trustee.................................    32
   SECTION 9.11   Entire Agreement and Modification......................    32
   SECTION 9.12   Applicable Law.........................................    33
   SECTION 9.13   Satisfaction of Prior Encumbrance......................    33
   SECTION 9.14   No Partnership.........................................    34
   SECTION 9.15   Headings...............................................    34
   SECTION 9.16   Release of Deed of Trust...............................    34
   SECTION 9.17   Limitation of Obligations with Respect to Trust
                     Property............................................    34
   SECTION 9.18   Inconsistency with Financing Agreement.................    35
   SECTION 9.19   Limitation on Interest Payable.........................    35
   SECTION 9.20   Covenants To Run With the Land.........................    35
   SECTION 9.21   Amount Secured; Last Dollar............................    35
   SECTION 9.22   Defense of Claims......................................    36
   SECTION 9.23   Exculpation Provisions.................................    36
   SECTION 9.24   No Merger of Estates...................................    36
   SECTION 9.25   Suretyship Waivers.....................................    36
   SECTION 9.26   Beneficiary Statement..................................    42
   SECTION 9.27   Request for Notice.....................................    42
   SECTION 9.28   Release and Reconveyance...............................    42
</TABLE>

EXHIBIT A - LEGAL DESCRIPTION


                                       iii

<PAGE>

                 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 (hereinafter, together with any and all amendments,
supplements, modifications, or restatements of any kind, referred to as this
"Deed of Trust"), is made as of February 15, 2006, by LAKES KAR SHINGLE SPRINGS,
L.L.C., a Delaware limited liability company having its principal place of
business at c/o Lakes Entertainment, Inc., 130 Cheshire Lane, Suite 101,
Minnetonka, Minnesota 55309, Attention: Damon E. Schramm, Esq. ("Trustor"), to
Fidelity National Title Insurance Company, a California corporation (including
any successor trustee at the time acting as such hereunder, "Trustee"), for the
benefit of PLKS FUNDING, LLC, a Delaware limited liability company, having its
principal place of business at c/o Prentice Capital Management, LP, 623 Fifth
Avenue, 32nd Floor, New York, New York 10022, Attention: Michael Weiss (in such
capacity, together with its successors and assigns, "Beneficiary"), for itself
and as agent for each of the financial institutions and their respective
successors and assigns which from time to time shall be a "Lender" under the
Financing Agreement (as hereinafter defined).

                                    RECITALS:

          WHEREAS, Trustor, a subsidiary of Parent, as hereinafter defined, is
the owner and holder of fee simple title in and to the Land (as hereinafter
defined) described on Exhibit A attached hereto and made a part hereof;

          WHEREAS, on the date hereof, Trustor, Lakes Entertainment, Inc.
("Parent") and each of the Subsidiaries of Parent listed as a "Borrower" on the
signature pages of the Financing Agreement (each, along with Trustor and Parent
are hereinafter each referred to as a "Borrower" and collectively as, the
"Borrowers"), and the Guarantors (as defined in the Financing Agreement),
entered into that certain Financing Agreement with the Lenders and Beneficiary
(as the same may be amended, modified or otherwise supplemented and in effect
from time to time, the "Financing Agreement"), pursuant to which the Lenders
agreed to extend to the Borrowers certain revolving loan facilities in the
aggregate original principal amount of up to FIFTY MILLION and 00/100 Dollars
($50,000,000.00) (the "Loan");

          WHEREAS, Trustor will derive direct economic benefit from the Loan;

          WHEREAS, as a condition to Beneficiary executing the Financing
Agreement, Beneficiary is requiring that Trustor grant to Beneficiary, on behalf
of the Lenders, a security interest in and a first deed of trust lien upon the
Trust Property (as hereinafter defined), to secure (a) the payment of all of the
obligations of Trustor under the Financing Agreement, this Deed of Trust, and
the other Loan Documents (as hereinafter defined) (except for "Unsecured
Environmental Costs", as defined in Section 7.19 below), and (b) the performance
of all terms, covenants, conditions, provisions, agreements and liabilities
contained in the Financing Agreement, this Deed of Trust, and the other Loan
Documents.


                                       1

<PAGE>

          NOW, THEREFORE, in order to comply with the terms and conditions of
the Financing Agreement and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Trustor hereby agrees
with Beneficiary as follows:

                                    ARTICLE I

                                   DEFINITIONS

          SECTION 1.01 Terms Defined Above. As used in this Deed of Trust, the
terms defined in the introductory paragraph to this Deed of Trust and in the
Recitals set forth above shall have the meanings respectively assigned to them
above.

          SECTION 1.02 Definitions. As used herein, the following terms shall
have the following meanings:

          "Agent" has the meaning assigned to such term in the Financing
Agreement.

          "Applicable UCC" means the Uniform Commercial Code as presently in
effect in the State or Commonwealth where the Trust Property is located.

          "Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C.
Section 101, et. seg.), as amended, and any successor statute.

          "Buildings" means any and all buildings, structures, garages, utility
sheds, workrooms, air conditioning towers, open parking areas and other
improvements, and any and all additions, alterations, betterments or
appurtenances thereto, now or at any time hereafter situated, placed or
constructed upon the Land or any part thereof.

          "Default" has the meaning assigned to such term in the Financing
Agreement.

          "Event of Default" has the meaning assigned to such term in Section
7.01 hereof.

          "Fixtures" means all materials, supplies, equipment, apparatus and
other items now or hereafter acquired by Trustor and incorporated into the Trust
Property so as to constitute fixtures under the laws of the state in which such
items are located.

          "Governmental Authority" has the meaning assigned to such term in the
Financing Agreement.

          "Governmental Requirements" means any and all present and future
judicial decisions, statutes, rulings, rules, regulations, permits, certificates
or ordinances of any Governmental Authority in any way applicable to Trustor or
the Trust Property, including the ownership, use, occupancy, possession,
operation, maintenance, alteration, repair or reconstruction thereof.

          "Impositions" means any and all real estate and personal property
taxes; water, gas, sewer, electricity and other utility rates and charges;
charges for any easement, license or agreement maintained for the benefit of the
Trust Property; any and all other taxes, charges and


                                       2

<PAGE>

assessments, whether general or special, ordinary or extraordinary, foreseen or
unforeseen, of any kind and nature whatsoever which at any time prior to or
after the execution hereof may be assessed, levied or imposed upon the Trust
Property or the ownership, use, occupancy, benefit or enjoyment thereof,
together with any interest, costs or penalties that may become payable in
connection therewith.

          "Indemnified Parties" means, with respect to any Person entitled to
the benefit of an indemnity, such Person's officers, directors, shareholders,
partners, members, managers, employees, agents, representatives, attorneys,
accountants and experts. The term "Indemnified Party" means any one of such
Persons.

          "Indemnitees" has the meaning assigned to such term in the Financing
Agreement.

          "Land" means the real property or interest therein described in
Exhibit A attached hereto, and all rights, titles and interests appurtenant
thereto.

          "Leases" means any and all leases, master leases, subleases, licenses,
concessions or other agreements (whether written or oral, and whether now or
hereafter in effect) which grant to third Persons a possessory interest in and
to, or the right to use, all or any part of the Land, the Buildings, the
Fixtures and/or the Personalty, together with all security and other deposits
made in connection therewith and any guarantee of the obligations of the
landlord or the tenant thereunder.

          "License" has the meaning assigned to such term in Section 3.02(a)
hereof.

          "Lien" has the meaning assigned to such term in the Financing
Agreement.

          "Loan Documents" means, collectively, the Financing Agreement, this
Deed of Trust, and all other instruments, agreements and other documents
executed and delivered pursuant hereto or thereto or otherwise included in the
definition of the term "Loan Documents" in the Financing Agreement.

          "Losses" means all obligations, damages, claims, causes of action,
costs, fines, fees, charges, penalties, deficiencies, losses, diminutions in
value, expenses (including court costs, fees and expenses of attorneys,
accountants, consultants and other experts) and other liabilities, and, with
respect to any indemnity, includes all attorneys' fees, costs and expenses in
connection with the enforcement and collection of such indemnity. The term
"Loss" means any one of such Losses.

          "Trust Property" means all of Trustor's right, title, interest and
estate, whether now owned or hereafter acquired, in and to the Land, the
Buildings, the Fixtures and the Personalty, together with:

          (i)  all rights, privileges, tenements, hereditaments, rights-of-way,
               easements, air rights, development rights or credits, zoning
               rights, appendages and appurtenances in anywise appertaining
               thereto, and all right, title and interest of Trustor in and to
               any streets, ways, alleys, strips or gores of


                                       3

<PAGE>

               land adjoining the Land or any part thereof, and all right, title
               and interest of Trustor, if any, in and to all rights, royalties
               and profits with respect to all minerals, coal, oil, gas and
               other substances of any kind or character on or underlying the
               Land, together with all right, title and interest of Trustor in
               and to all water and water rights (whether riparian,
               appropriative or otherwise and whether or not appurtenant);

          (ii) all rights of Trustor (but not its obligations) under any
               contracts and agreements, including, without limitation,
               construction contracts and architectural agreements, relating to
               the Land, the Buildings, the Fixtures or the Personalty;

          (iii) all of Trustor's right, title and interest in and to all
               permits, licenses, franchises, certificates, authorizations,
               consents, approvals and other rights and privileges (each, a
               "Permit") obtained in connection with the Land, the Buildings,
               the Fixtures or the Personalty or the use or operation thereof;

          (iv) all of Trustor's right, title and interest in and to all plans
               and specifications, designs, schematics, drawings and other
               information, materials and matters heretofore or hereafter
               prepared relating to the Land, the Buildings, the Fixtures or the
               Personalty;

          (v)  all of Trustor's right, title and interest in and to all proceeds
               arising from or by virtue of the sale, lease or other disposition
               of the Land, the Buildings, the Fixtures or the Personalty or any
               part thereof or any interest therein or from the operation
               thereof;

          (vi) all of Trustor's right, title and interest in and to all Leases
               now or hereafter in effect and all Rents, royalties, bonuses,
               issues, profits, revenues or other benefits arising from or
               attributable to the Land, the Buildings, the Fixtures or the
               Personalty;

          (vii) all of Trustor's right, title and interest in and to all
               betterments, additions, alterations, appurtenances,
               substitutions, replacements and revisions to the Land, the
               Buildings, the Fixtures or the Personalty and all reversions and
               remainders relating thereto;

          (viii) all of Trustor's right, title and interest in and to any
               awards, remuneration, settlements or compensation now or
               hereafter made by any Governmental Authority pertaining to the
               Land, the Buildings, the Fixtures or the Personalty, including
               those arising from or attributable to any vacation of, or change
               of grade in, any streets affecting the Land or the Buildings;

          (ix) all of Trustor's right, title and interest in and to any and all
               other security and collateral of any nature whatsoever, whether
               now or hereafter given, for the repayment, performance and
               discharge of the Obligations (as hereinafter defined);


                                       4

<PAGE>

          (x)  all of Trustor's right, title and interest in and to all awards,
               payments and proceeds of conversion, whether voluntary or
               involuntary, of any of the Land, the Buildings, the Fixtures, the
               Personalty or any of the property and rights described in the
               foregoing clauses (i) through (ix), including without limitation,
               all insurance, condemnation and tort claims, refunds of real
               estate taxes and assessments, rent claims and other obligations
               dischargeable in cash or cash equivalents; and

          (xi) all other property and rights of Trustor of every kind and
               character relating to and/or used or to be used in connection
               with the foregoing, and all proceeds and products of any of the
               foregoing.

          EXCLUDING, HOWEVER, all motor vehicles and forklifts now or hereafter
located on the Land and only to the extent contemplated by the Financing
Agreement.

As used in this Deed of Trust, the term "Trust Property" shall be expressly
defined as meaning all or, where the context permits or requires, any portion of
the above, and all or, where the context permits or requires, any interest
therein.

          "Obligations" has the meaning assigned to such term in the Financing
Agreement but shall specifically not include "Unsecured Environmental Costs" as
defined in Section 7.19 below.

          "Permitted Liens" has the meaning assigned to such term in the
Financing Agreement.

          "Person" has the meaning assigned to such term in the Financing
Agreement.

          "Personalty" means all of Trustor's right, title and interest in and
to all furniture, furnishings, equipment, machinery, goods, general intangibles,
money, insurance proceeds, contract rights, option rights, inventory, together
with all refundable, returnable or reimbursable fees, deposits or other funds or
evidences of credit or indebtedness deposited by or on behalf of Trustor with
any Governmental Authority, boards, corporations, providers of utility services,
public or private, including all refundable, returnable or reimbursable tap
fees, utility deposits, commitment fees and development costs, and all other
personal property (other than Fixtures) of any kind or character), and including
such property that is now or hereafter located or to be located upon, within or
about the Land and the Buildings, or which are or may be used in or related to
the planning, development, financing or operation of the Trust Property,
together with all accessories, replacements and substitutions thereto or
therefor and the proceeds thereof.

          "Post-Default Rate" has the meaning assigned to such term in the
Financing Agreement.

          "Principal Balance" has the meaning assigned to such term in Section
7.02 hereof.

          "Rents" means all of the rents, revenues, income, proceeds, issues,
profits, security and other types of deposits (after Trustor acquires title
thereto), and other benefits paid or payable by parties (other than Trustor) for
using, leasing, licensing, possessing, operating


                                       5

<PAGE>

from, residing in, benefiting from or otherwise enjoying all or any part of the
Land, the Buildings, the Fixtures and/or the Personalty.

          SECTION 1.03 Terminology. Except as otherwise provided herein:

          (A) references to Articles and Sections shall mean the corresponding
Article or Section of this Deed of Trust;

          (B) words used herein in the singular, where the context so permits,
shall be deemed to include the plural and vice versa, and the definitions of
words used in the singular herein shall apply to such words when used in the
plural where the context so permits and vice versa;

          (C) the words "herein," "hereof," "hereunder," and other words of
similar import when used in this Deed of Trust refer to this Deed of Trust as a
whole, and not to any particular Article or Section; and

          (D) the words "includes" or "including" mean includes or including,
without limitation.

          SECTION 1.04 Other Defined Terms. Any capitalized term used in this
Deed of Trust and not otherwise defined herein shall have the meaning assigned
to such term in the Financing Agreement.

                                   ARTICLE II

                      GRANT OF LIEN AND SECURITY INTEREST

          SECTION 2.01 Grant of Lien. To secure the full and timely payment,
performance and discharge of all of the Obligations, Trustor hereby irrevocably
GRANTS, BARGAINS, SELLS, ASSIGNS, TRANSFERS and CONVEYS unto Trustee and
Trustee's successors, assigns and substitutes in trust hereunder, WITH POWER OF
SALE and right of entry and possession, for the use and benefit of Beneficiary,
as collateral agent for the Lenders pursuant to the Financing Agreement, the
real and personal property, right, title, interest and estate in, to and under
the Trust Property, subject, however, to the Permitted Liens; TO HAVE AND TO
HOLD the Trust Property unto Trustee and Trustee's successors, assigns and
substitutes in trust hereunder, subject to the terms and conditions of this Deed
of Trust, with POWER OF SALE, forever, and Trustor does hereby bind itself, its
successors and assigns to WARRANT AND FOREVER DEFEND the title to the Trust
Property unto Beneficiary against every Person whomsoever lawfully claiming or
to claim the same or any part, subject, however, to the Permitted Liens;
provided, however, that if Trustor shall pay (or cause to be paid) and perform
and discharge (or cause to be performed and discharged) all of the Obligations
on or before the date on which the same are to be paid, performed and
discharged, then the Liens estates and rights granted by this Deed of Trust
shall cease and terminate.

          SECTION 2.02 Grant of Security Interest. This Deed of Trust shall also
constitute and serve as a "security agreement" within the meaning of, and shall
constitute a first and prior security interest under, the Applicable UCC with
respect to the Personalty and the Fixtures. To


                                       6

<PAGE>

this end, Trustor by these presents does GRANT, BARGAIN, CONVEY, ASSIGN, SELL,
TRANSFER and SET OVER unto Beneficiary, as collateral agent for the Lenders
pursuant to the Financing Agreement, a security interest in all of Trustor's
right, title and interest in, to and under the Personalty and the Fixtures, to
secure the full and timely payment, performance and discharge of the
Obligations. Trustor hereby consents to Beneficiary filing and recording
financing statements (and continuations thereof) with the appropriate filing and
recording offices in order to perfect (and maintain the perfection of) the
security interests granted herein.

          SECTION 2.03 No Obligation of Beneficiary. The assignment and security
interest herein granted to Beneficiary shall not be deemed or construed to
constitute Beneficiary as a mortgagee-in-possession of the Trust Property,
obligate Beneficiary to lease the Trust Property or attempt to do the same, or
to take any action, incur any expense or perform or discharge any obligation,
duty or liability whatsoever.

          SECTION 2.04 Fixture Filing. Without in any manner limiting the
generality of any of the other provisions of this Deed of Trust: (a) some
portions of the goods described or to which reference is made herein are or are
to become fixtures on the Land described or to which reference is made herein or
on Exhibit A attached to this Deed of Trust; (b) this Deed of Trust is to be
filed of record in the real estate records as a financing statement and shall
constitute a "fixture filing" for purposes of the Applicable UCC; and (c)
Trustor is the record owner of the real estate or interests in the real estate
constituting the Trust Property hereunder. Information concerning the security
interest herein granted may be obtained at the addresses set forth on the first
page hereof. The addresses of the Secured Party (Beneficiary) and of the Debtor
(Trustor) are set forth on the first page hereof. In that regard, the following
information is provided:

          Name of Debtor: LAKES KAR SHINGLE SPRINGS, L.L.C.

          Type of Organization: limited liability company

          State: Delaware

          FEIN: 41-1946958

          Organizational ID Number: 199930610015

          SECTION 2.05 Future Advances. It is the intention of Trustor and
Beneficiary that this Deed of Trust shall secure future advances and
readavances, and the lien and security interest created by this Deed of Trust
shall attach upon execution and have priority from the time of recording as to
all advances, whether obligatory or discretionary, until this Deed of Trust is
released of record.

          SECTION 2.06 Intentionally Omitted

                                   ARTICLE III

                         ASSIGNMENT OF LEASES AND RENTS


                                       7

<PAGE>

          SECTION 3.01 Assignment. For Ten Dollars ($10.00) and other good and
valuable consideration, including the indebtedness evidenced by the Financing
Agreement, the receipt and sufficiency of which are hereby acknowledged and
confessed, Trustor has presently, absolutely and irrevocably GRANTED, ASSIGNED,
TRANSFERRED and CONVEYED, and by these presents does presently, absolutely and
irrevocably GRANT, ASSIGN, TRANSFER and CONVEY, unto Beneficiary, as collateral
agent for the Lenders pursuant to the Financing Agreement, as security for the
payment, performance and discharge of the Obligations, all of the Leases and
Rents (if any), subject only to the Permitted Liens applicable thereto and the
License (as hereinafter defined); provided, however, that if Trustor shall pay
(or cause to be paid) and perform and discharge (or cause to be performed and
discharged) all of the Obligations on or before the date on which the same are
to be paid, performed and discharged, then this assignment shall terminate, and
all rights, titles and interests conveyed pursuant to this assignment shall
become vested in Trustor.

          SECTION 3.02 Revocable License.

          (A) Beneficiary hereby grants to Trustor a revocable license (the
"License"), nonexclusive with the rights of Beneficiary reserved in Sections
3.02(b), 3.04, and 3.05 hereof, to exercise and enjoy all incidences of the
status of a lessor under the Leases and the Rents, including, without
limitation, the right to collect, demand, sue for, attach, levy, recover and
receive the Rents and to give proper receipts, releases and acquittances
therefor. Trustor hereby agrees to receive all Rents and hold the same as a
trust fund to be applied, and to apply the Rents so collected, except to the
extent otherwise provided in the Financing Agreement, first to the payment,
performance and discharge of the Obligations and then to the payment of the
Impositions. Thereafter, Trustor may use the balance of the Rents collected in
any manner not inconsistent with the Loan Documents.

          (B) If an Event of Default shall occur and be continuing, the License
shall immediately and automatically terminate without the necessity of any
action by Beneficiary or any other Person, and Beneficiary shall have the right
in such event to exercise the rights and remedies provided under this Deed of
Trust or otherwise available to Beneficiary under applicable law. Upon demand by
Beneficiary at any time that an Event of Default shall have occurred, Trustor
shall promptly pay to Beneficiary all security deposits under the Leases and all
Rents allocable to any period commencing from and after the occurrence of such
Event of Default. Any Rents received hereunder by Beneficiary shall be applied
and disbursed to the payment, performance and discharge of the Obligations,
subject to the terms of the Financing Agreement; provided, however, that,
subject to any applicable requirement of law, any security deposits actually
received by Beneficiary shall be held, applied and disbursed as provided in the
applicable Leases.

          SECTION 3.03 Enforcement of Leases. Trustor shall (a) submit any and
all proposed Leases (including subleases provided to Trustor for approval) to
Beneficiary for approval prior to the execution thereof or consent thereto, as
applicable; (b) duly and punctually perform and comply with any and all
representations, warranties, covenants and agreements expressed as binding upon
the lessor under any Lease; (c) maintain each Lease in full force and effect
during the term thereof; (d) provide Beneficiary with prompt notice of each
notice of default sent to a tenant under a Lease, provide Beneficiary with
prompt notice of each notice of


                                       8

<PAGE>

default received from (or relating to) a tenant under a Lease, and otherwise
promptly reasonably indicate that a material default or termination of a Lease
may occur (other than by reason of the expiration of the term of such Lease);
(e) appear in and defend any action or proceeding in any manner connected with
any of the Leases; (f) deliver to Beneficiary true and complete copies of all
Leases; and (g) deliver to Beneficiary all such further information, and execute
and deliver to Beneficiary such further assurances and assignments, with respect
to the Leases as Beneficiary may from time to time reasonably request. Without
Beneficiary's prior written consent, Trustor shall not (i) do or knowingly
permit to be done anything to materially impair the value of any of the Leases;
(ii) except for security or similar deposits, collect any of the Rent more than
one (1) month in advance of the time when the same becomes due under the terms
of any Lease; (iii) discount any future accruing Rents; (iv) amend, modify,
accept the surrender of or terminate any of the Leases; or (v) assign or grant a
security interest in or to any of the Leases or Rents.

          SECTION 3.04 Direction to Tenants. Upon the occurrence and during the
continuance of an Event of Default, Trustor hereby authorizes and directs, and
shall, at the direction of Beneficiary, further authorize and direct, in
writing, the tenant under each Lease to pay directly to, or as directed by,
Beneficiary all Rents accruing or due under its Lease without proof to the
tenant of the occurrence and continuance of such Event of Default. Trustor
hereby authorizes the tenant under each Lease to rely upon and comply with any
notice or demand from Beneficiary for payment of Rents to Beneficiary, and
Trustor shall have no claim against any tenant for Rents paid by such tenant to
Beneficiary pursuant to such notice or demand. All Rents actually collected by
Beneficiary pursuant to this Section 3.04 shall be applied in accordance with
the Financing Agreement.

          SECTION 3.05 Appointment of Attorney-in-Fact.

          (A) Trustor hereby constitutes and appoints Beneficiary the true and
lawful attorney-in-fact, coupled with an interest, of Trustor and Trustor hereby
confers upon Beneficiary the right, in the name, place and stead of Trustor, to,
upon the occurrence and during the continuance of an Event of Default, demand,
sue for, attach, levy, recover and receive any of the Rents and any premium or
penalty payable upon the exercise by any third Person under any Lease of a
privilege of cancellation originally provided in such Lease and to give proper
receipts, releases and acquittances therefor and, after deducting expenses of
collection, to apply the net proceeds as provided in the Financing Agreement.
Trustor hereby authorizes and directs any such third Person to deliver such
payment to Beneficiary in accordance with this Article III, and Trustor hereby
ratifies and confirms all that its said attorney-in-fact, the Beneficiary, shall
do or cause to be done in accordance with this Deed of Trust and by virtue of
the powers granted hereby. The foregoing appointment is irrevocable and
continuing, and such rights, powers and privileges shall be exclusive in
Beneficiary, and its successors and assigns, so long as any part of the
Obligations remains unpaid or unperformed and undischarged.

          (B) Trustor hereby constitutes and appoints Beneficiary the true and
lawful attorney-in-fact, coupled with an interest, of Trustor and Trustor hereby
confers upon Beneficiary the right, in the name, place and stead of Trustor, to
subject and subordinate at any time and from time to time any Lease or any part
thereof to the lien, assignment and security interest of this Deed of Trust and
to the terms hereof, or to any other mortgage, deed of trust, assignment or
security agreement, or to any ground lease or surface lease, with respect to all
or a


                                       9

<PAGE>

portion of the Trust Property, or to request or require such subordination,
where such reservation, option or authority was reserved to Trustor under any
such Lease, or in any case where Trustor otherwise would have the right, power
or privilege so to do. The foregoing appointment is irrevocable and continuing,
and such rights, powers and privileges shall be exclusive in Beneficiary, and
its successors and assigns, so long as any part of the Obligations remains
unpaid or unperformed and undischarged. Trustor hereby represents and warrants
that it has not at any time prior to the date hereof exercised (or appointed any
Person as attorney-in-fact to exercise) any of the rights described in this
Section 3.05(b), and Trustor hereby covenants not to exercise (or appoint any
other Person as attorney-in-fact to exercise) any such right, nor (except at
Beneficiary's written request) to subordinate any such Lease to the lien of this
Deed of Trust or to any other mortgage, deed of trust, assignment or security
agreement or to any ground lease or surface lease.

          SECTION 3.06 No Liability of Beneficiary. Neither the acceptance
hereof nor the exercise of the rights and remedies hereunder nor any other
action on the part of Beneficiary or any Person exercising the rights of
Beneficiary or any Lender hereunder shall be construed to: (a) be an assumption
by Beneficiary or any such Person or to otherwise make Beneficiary or such
Person liable or responsible for the performance of any of the obligations of
Trustor under or with respect to the Leases or for any Rent, security deposit or
other amount delivered to Trustor, provided that Beneficiary or any such Person
exercising the rights of Beneficiary shall be accountable for any Rents,
security deposits or other amounts actually received by Beneficiary or such
Person, as the case may be; or (b) obligate Beneficiary or any such Person to
take any action under or with respect to the Leases or with respect to the Trust
Property, to incur any expense or perform or discharge any duty or obligation
under or with respect to the Leases or with respect to the Trust Property, to
appear in or defend any action or proceeding relating to the Leases or the Trust
Property, to constitute Beneficiary as a mortgagee-in-possession (unless
Beneficiary actually enters and takes possession of the Trust Property), or to
be liable in any way for any injury or damage to Persons or property sustained
by any Person in or about the Trust Property, other than to the extent caused by
the willful misconduct or gross negligence of Beneficiary or any Person
exercising the rights of Beneficiary hereunder.

          SECTION 3.07 Trustor's Indemnities. Trustor hereby agrees to protect,
indemnify and hold harmless Beneficiary and each of the other Indemnitees and
each Indemnified Party related to Beneficiary or such other Indemnitees from and
against any and all Losses which Beneficiary or any such other Indemnitees or
Indemnified Party may incur under or by reason of this Article III, or for any
action taken by Beneficiary or any such other Lender or Indemnified Party
hereunder, or by reason or in defense of any and all claims and demands
whatsoever which may be asserted against Beneficiary or any such other
Indemnitees or Indemnified Party arising out of the Leases, including, without
limitation, any claim by any third Person for credit on account of Rents paid to
and received by Trustor, but not delivered to Beneficiary or its agents,
representatives or employees, for any period under any Lease more than one (1)
month in advance of the due date thereof. The foregoing indemnity shall include,
in any case, such Loss as may result from the ordinary negligence of Beneficiary
or such other Indemnitees or Indemnified Party, but not any such Loss that is
caused by the gross negligence or willful misconduct of Beneficiary or any such
other Indemnitees or Indemnified Party. In the event that Beneficiary or any of
the other Lenders or any Indemnified Party incurs any Losses covered by the
indemnity set forth in this Section 3.07, the amount thereof, including
reasonable attorneys'


                                       10

<PAGE>

fees, with interest thereon at the Post-Default Rate, shall be payable by
Trustor to Beneficiary within ten (10) days after demand therefor, and shall be
secured hereby and by all other security for the payment and performance of the
Obligations, including, without limitation, the lien and security interest of
this Deed of Trust. The liabilities of Trustor as set forth in this Section 3.07
shall survive the termination of this Deed of Trust and the repayment of the
Obligations.

          SECTION 3.08 No Modification of Trustor's Obligations. Nothing herein
contained shall modify or otherwise alter the obligation of Trustor to make
prompt payment of all Obligations as and when the same become due, regardless of
whether the Rents described in this Article III are sufficient to pay the
Obligations, and the security provided to Beneficiary pursuant to this Article
III shall be cumulative of all other security of any and every character now or
hereafter existing to secure payment of the Obligations.

          SECTION 3.09 Rights in Bankruptcy. Upon execution of this Deed of
Trust, Beneficiary, and not Trustor, shall be the creditor of any Tenant in
respect of assignments for the benefit of creditors and bankruptcy,
reorganization, insolvency, dissolution or receivership proceedings affecting
any such Tenant; provided, however, that Trustor shall be the party obligated to
make timely filings of claims in such proceedings or to otherwise pursue
creditor's rights therein. Notwithstanding the foregoing, Beneficiary shall have
the right, but not the obligation, to file such claims instead of Trustor and if
Beneficiary does file a claim, Trustor agrees that Beneficiary (a) is entitled
to all distributions on such claim to the exclusion of Trustor and (b) has the
exclusive right to vote such claim and otherwise to participate in the
administration of the estate in connection with such claim. Beneficiary shall
have the option to apply any monies received by it as such creditor to any of
the obligations of Trustor under the Loan Documents (as defined in the Mortgage)
in the order set forth in the Loan Documents. If a petition is filed under the
Bankruptcy Code by or against Trustor, and Trustor, as landlord under any Lease,
decides to reject such Lease pursuant to Section 365(a) of the Bankruptcy Code,
then Trustor shall give Beneficiary at least ten (10) days' prior written notice
of the date when Trustor shall apply to the bankruptcy court for authority to
reject the Lease. Beneficiary may, but shall not be obligated to, send Trustor
within such ten-day period a written notice stating that (a) Beneficiary demands
that Trustor assume and assign the Lease to Beneficiary pursuant to Section 365
of the Bankruptcy Code, and (b) Beneficiary covenants to cure or provide
adequate assurance of future performance under the Lease. If Beneficiary sends
such notice, Trustor shall not reject the Lease provided Beneficiary complies
with clause (b) of the preceding sentence.

          SECTION 3.10 Right to Enforce Under California Civil Code Section
2938. Without limiting any other rights or remedies of Beneficiary set forth in
this Assignment or under any of the other Loan Documents to which Trustor is a
party, or available at law or in equity, at any time upon or following the
occurrence of any Event of Default, Beneficiary shall have the right to enforce
all of the rights and remedies of an Beneficiary under Section 2938 of the
California Civil Code ("Section 2938"). In the event that Beneficiary shall
elect to enforce this Assignment in accordance with Section 2938, the following
procedures shall apply, as applicable:

               (i) Beneficiary may send a demand notice in the form prescribed
     by Section 2938 to, in the case of enforcement under Section 2938(c)(3),
     one or more of the tenants of the Trust Property, with a copy to Trustor
     and any other Beneficiary under a


                                       11

<PAGE>

     recorded assignment of leases, rents, issues and profits with respect to
     the Trust Property, or, in the case of enforcement under Section
     2938(c)(4), to Trustor with a copy to any such other Beneficiarys in
     accordance with the procedures set forth therein. Without limiting
     Beneficiary's rights to any amounts received by Trustor after an Event of
     Default, Trustor shall immediately turn over to Beneficiary any Rents
     received by Trustor from any tenant of the Trust Property from and after
     Beneficiary's enforcement of this assignment under either of such Sections
     2938(c)(3) or (4), it being understood that Trustor shall be deemed to hold
     such amounts as trustee for Beneficiary until such amounts have been paid
     to Beneficiary. In addition, Trustor shall also cause any collection agent
     for Trustor or any other person who has collected for Trustor's benefit
     relating to the period from and after Beneficiary's enforcement of this
     assignment under either of such Sections 2938(c)(3) or (4), to turn such
     Rents over to Beneficiary.

               (ii) Notwithstanding anything to the contrary contained in this
     Deed of Trust or any other Loan Document, if Beneficiary shall proceed to
     enforce this assignment by means other than the appointment of a receiver
     and consequently receives Rents as a result thereof, and Beneficiary
     receives written demand from Trustor (or any other party entitled under law
     to make demand on Beneficiary) to pay the reasonable costs of protecting
     and preserving the Trust Property, Beneficiary may elect either to pay
     (either directly to the party to whom owed, or by joint check payable to
     Trustor and such party) or authorize Trustor to pay, such costs (such
     payments being referred to herein as "Protective Payments"), conditioned
     upon Trustor furnishing to Beneficiary all information (such as invoices,
     bills, contracts, or purchase orders) necessary in order for Beneficiary to
     identify the party to whom payment is owed or the work, service or item for
     which payment is requested and to establish that such Protective Payments
     are required to be paid or authorized under this Section. If Trustor is
     authorized to pay any Protective Payments under this Section, Beneficiary
     reserves the right to deposit the amounts necessary to pay such Protective
     Payments into a non-interest bearing checking account, in which Trustor
     shall have granted to Beneficiary a perfected, first priority security
     interest, from which Trustor shall be obligated to draw the funds necessary
     to pay such Protective Payments. In the event that Beneficiary agrees or is
     required under any circumstances to pay or authorize the payment of any
     Protective Payments consisting of costs of improvement of the Trust
     Property or any portion thereof (or any other costs the non-payment of
     which would entitle the payee to enforce mechanic's or materialman's liens
     or similar rights), Beneficiary shall be authorized, before paying or
     authorizing the payment of any such payments, to require compliance with
     standard construction loan disbursement conditions with respect to such
     costs, including, without limitation, the receipt of unconditional
     mechanics' lien waivers with respect to the work for which such costs are
     to be paid.

               (iii) In no event shall Beneficiary be obligated to pay or
     authorize the payment of Protective Payments in excess of any Rents
     actually received by Beneficiary as a result of the enforcement of Section
     (i) of this Section.

               (iv) Nothing contained in this Section shall limit the rights of
     Beneficiary under any other provision of Deed of Trust.


                                       12

<PAGE>

               (v) Nothing contained in this Section shall limit either (x)
     Beneficiary's right to cease at any time any further enforcement of this
     Assignment under Section 2938 by sending written notice of the cancellation
     thereof to each party to whom a demand notice was sent, or (y)
     Beneficiary's right to seek the appointment of a receiver, either of which
     if enforced by Beneficiary, shall terminate Beneficiary's obligations under
     Section (i) of this Section.

               (vi) In no event shall any enforcement of Beneficiary's rights
     under this Section, including, without limitation, the payment or
     authorization of payment of any Protective Payments, make Beneficiary a
     "mortgagee-in-possession" or limit, waive, or otherwise derogate any of
     Beneficiary's other rights and remedies available to it under the Loan
     Documents to which Trustor is a party or at law. In no event shall any
     exercise of lights by the Beneficiary under this Section, including,
     without limitation, the payment or authorization of payment of any
     Protective Payments, be construed to require the Beneficiary to operate or
     manage the Trust Property or be construed as an assumption by Beneficiary
     of any obligation to operate or manage the Trust Property, and all
     liabilities and obligations in relation to the operation and management of
     the Trust Property shall remain exclusively that of the Trustor.

          (B) Any Rents received by Beneficiary as a result of any such
enforcement measures shall be applied as provided in this Deed of Trust.

          (C) Without in any way limiting Trustor's other indemnification
obligations set forth in this Assignment and in any of the Loan Documents to
which Trustor is a party, Trustor shall indemnify, defend, protect, and hold
harmless Beneficiary, and its successors and assigns, from and against any and
all losses, costs, expenses (including, without limitation, reasonable
attorneys' fees, costs and expenses), damages, liabilities, or claims asserted
against or suffered by Beneficiary (i) arising from any Protective Payments
made, or authorized to be made, by Beneficiary in good faith, and (ii) arising
from any work performed or goods or services furnished in connection with the
ownership or operation of the Trust Property at any time during which
Beneficiary shall be enforcing its rights under this Section.

          (D) Without limiting the restrictions on assignment set forth in this
Assignment and any of the other Loan Documents to which Trustor is a party, each
Beneficiary of any interest in the Rents shall acquire its interest in the Rents
subject to the rights of the Beneficiary set forth in this Assignment, and shall
acquire no greater rights with respect to the payment of Protective Payments
than the rights of Trustor as set forth in this Section.

                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

Trustor hereby unconditionally represents and warrants to Beneficiary (but to
the extent any representation or warranty in this Section IV is substantively
the same as a representation or warranty contained in Article V of the Financing
Agreement and such representation or warranty is qualified by a materiality or
other qualifier in the Financing Agreement, such representation or


                                       13

<PAGE>

warranty herein shall be subject to the same materiality or other qualifier as
in Article V of the Financing Agreement) as follows:

          SECTION 4.01 Title to Trust Property and Lien of this Deed of Trust.
Trustor has good, marketable and indefeasible fee simple title to the Land and
the Buildings, and has good, marketable and indefeasible title to the Fixtures,
the Personalty and the other Trust Property. The Trust Property is free and
clear of any and all Liens, charges, encumbrances, security interests and
adverse claims whatsoever, except for all Liens, charges, encumbrances, security
interests and adverse claims specifically identified as exceptions in the policy
of title insurance accepted by Beneficiary in connection herewith, or otherwise
permitted under the Financing Agreement.

          SECTION 4.02 Taxes and Other Payments. Trustor has filed all federal,
state, commonwealth, county, municipal and city income and other material tax
returns required to have been filed by it and has paid all taxes and other
Impositions which have become due pursuant to such returns or pursuant to any
assessments or charges received by it, and Trustor does not know of any basis
for any additional assessment or charge in respect of any such taxes or other
Impositions. Trustor has paid in full all sums owing or claimed for labor,
material, supplies, personal property (whether or not forming a Fixture
hereunder) and services of every kind and character used, furnished or installed
in or on the Trust Property that are now due and owing and no claim for same
exists or will be permitted to be created, except such claims as may arise in
the ordinary course of business and that are not yet past due.

          SECTION 4.03 Power to Create Lien and Security. Trustor has full power
and lawful authority to grant, bargain, sell, assign, transfer, mortgage and
convey a Lien and security interest in all of the Trust Property in the manner
and form herein provided and without obtaining the authorization, approval,
consent or waiver of any grantor, lessor, sublessor, Governmental Authority or
other Person whomsoever.

          SECTION 4.04 Loan and Financing Agreements. Trustor has received a
copy of and is fully familiar with the terms and provisions of the Financing
Agreement and the other Loan Documents. All representations and warranties made
by Trustor in the Financing Agreement and the other Loan Documents are
incorporated herein by reference and are hereby made by Trustor as to itself and
the Trust Property as though such representations and warranties were set forth
at length herein as the representations and warranties of Trustor.

          SECTION 4.05 Compliance with Laws. All of the improvements on the Land
(i) comply with all material requirements of all applicable laws and ordinances
with respect to zoning, subdivision, construction, building and land use,
including, without limitation, requirements with respect to parking, access and
certificates of occupancy (and similar certificates), and (ii) comply with, and
shall remain in compliance with, applicable health, fire and building codes. All
of the Buildings lie wholly within the boundaries and building restriction lines
of the Land. No improvements on adjoining properties encroach upon the Land, and
no easements or other encumbrances upon the Land encroach upon or under any of
the Buildings or any portion of the Trust Property. All of the Buildings and the
use of the Trust Property materially comply with, and shall remain in material
compliance with, all applicable statutes, rales, regulations and private
covenants now or hereafter relating to the ownership,


                                       14

<PAGE>

construction, use or operation of the Trust Property, including all applicable
statutes, rules and regulations pertaining to requirements for equal
opportunity, anti-discrimination, fair housing, environmental protection, zoning
and land use. All certifications, permits, licenses and approvals, including,
without limitation, certificates of completion and occupancy permits required
for the legal use, occupancy and operation of the Trust Property have been
obtained and are in full force and effect. Trustor has not received any notice
of, or other communication with respect to, an alleged violation with respect to
any of the foregoing.

          SECTION 4.06 No Condemnation. No part of any property subject to this
Deed of Trust has been taken in condemnation or other like proceeding nor is any
proceeding pending, threatened or known to be contemplated for the partial or
total condemnation or taking of the Trust Property.

          SECTION 4.07 Flood Zone. The Trust Property is not located in an area
identified by the Federal Emergency Management Agency ("FEMA") as having special
flood hazards or if the Land or any part thereof is identified by the Federal
Emergency Management Agency as an area having special flood hazards (including,
without limitation, those areas designated as Zone A or Zone V), then Trustor
has obtained the insurance required under Section 5.04(a)(v) of this Deed of
Trust.

          SECTION 4.08 Additional Environmental Representation. The Trust
Property has not been designated as a "hazardous waste property" and to Tenant's
knowledge, the Trust Property has not been designated as a "border zone
property" pursuant to Section 25220, et. seq. of the California Health and
Safety Code.

                                    ARTICLE V

                              AFFIRMATIVE COVENANTS

          Trustor hereby unconditionally covenants and agrees with Beneficiary
as follows:

          SECTION 5.01 Lien Status. Except as otherwise expressly provided in
the Financing Agreement, Trustor shall not place, or permit to be placed, or
otherwise mortgage, hypothecate or encumber the Trust Property, or any portion
thereof or interest therein, with any other Lien or security interest of any
nature whatsoever (statutory, constitutional or contractual), other than
Permitted Liens, regardless of whether such Lien or security interest is
inferior to the Lien and security interest created by this Deed of Trust, and,
if any such Lien or security interest is asserted against the Trust Property,
Trustor shall promptly, at its own cost and expense, (a) pay the underlying
claim in full (except for so long as such claim is being contested by Trustor in
good faith and in accordance with the terms of the Financing Agreement) or take
such other action as may be necessary to cause the same to be released of record
and otherwise, and (b) within ten (10) days after the date on which Mortgagor
receives notice of such Lien or security interest. Such notice shall specify who
is asserting such Lien or security interest and shall detail the origin and
nature of the underlying claim giving rise to such asserted Lien or security
interest.


                                       15

<PAGE>

          SECTION 5.02 Payment of Impositions. Trustor shall duly pay and
discharge, or cause to be paid and discharged, all Impositions not later than
the due date thereof, or the day on which any fine, penalty, interest or cost
may be added thereto or imposed, or the day on which any Lien may be filed for
the nonpayment thereof (if such day is used to determine the due date of the
respective item); provided, however, that Trustor may, if permitted by
applicable law and if such installment payment would not create or permit the
filing of a Lien against the Trust Property, pay the Impositions in
installments. Notwithstanding the foregoing, Trustor may in good faith, by
appropriate proceedings and upon notice to Beneficiary, contest the validity,
applicability or amount of any asserted tax or assessment, subject to any more
restrictive provisions applicable to any such contest contained in the Financing
Agreement and (without limiting the foregoing) so long as (a) such contest is
diligently pursued, (b) Beneficiary determines, in its opinion reasonably
exercised, that such contest suspends the obligation to pay the tax and that
nonpayment of such tax or assessment will not result in the sale, loss,
forfeiture or diminution of the Trust Property or any part thereof or any
interest of Beneficiary therein, and (c) unless expressly provided to the
contrary in the Financing Agreement, prior to the earlier of the commencement of
such contest or the delinquency date of the asserted tax or assessment, Trustor
deposits with Beneficiary an amount determined by Beneficiary to be adequate to
cover the payment of such tax or assessment and a reasonable additional sum to
cover possible interest, costs and penalties; provided, however, that Trustor
shall promptly cause to be paid any amount adjudged by a court of competent
jurisdiction to be due, with all interest, costs and penalties thereon, promptly
after such judgment becomes final (and, subject to Beneficiary's rights and
remedies during an Event of Default, Beneficiary shall make any sum deposited
pursuant to clause (c) above available for such payment); and provided, further,
that in any event each such contest shall be concluded, the taxes, assessments,
interest, costs and penalties shall be paid prior to the date any writ or order
is issued under which the Trust Property may be sold, lost or forfeited.

          SECTION 5.03 Repair. Trustor shall keep the Trust Property in good
order and condition (reasonable wear and tear excepted) and shall make all
repairs, replacements and improvements thereof and thereto, interior and
exterior, structural and non-structural, ordinary and extraordinary, which are
necessary to keep the same in such order and condition. Trustor shall also use
reasonable efforts to prevent any act or occurrence which might impair the value
or usefulness of the Trust Property for its intended usage.

          SECTION 5.04 Insurance and Application of Insurance Proceeds.

          (A) During the term of this Deed of Trust, Trustor, at its sole cost
and expense, shall maintain, or cause to be maintained the following policies of
insurance, with respect to the Trust Property:

               (i) If applicable or appropriate, Casualty (property) insurance
     against loss or damage by fire, lightning and such other perils as are
     included in a standard "special form" policy (formerly known as an
     "all-risk" endorsement policy), and against loss or damage by all other
     risks and hazards covered by a standard extended coverage insurance policy
     including, without limitation, riot and civil commotion, terrorist actions,
     vandalism, malicious mischief, burglary and theft, in an amount equal to
     the greater of (A) the then full replacement cost of the improvements,
     without deduction for physical


                                       16

<PAGE>

     depreciation and (B) such amount that the insurer would not deem Trustor a
     co-insurer under said policies. The policies of insurance required under
     this Section 5.04 shall contain a "Replacement Cost" endorsement with a
     waiver of depreciation and an "Agreed Amount" or "No Coinsurance"
     endorsement and shall otherwise comply with the Financing Agreement.

               (ii) Commercial General Liability insurance to the extent
     required under the Financing Agreement, including a broad form
     comprehensive general liability endorsement and coverages for broad form
     property damage, contractual damages and personal injuries (including death
     resulting therefrom) and containing minimum limits per occurrence of
     $1,000,000.00 and $2,000,000.00 in the aggregate for any policy year with
     no deductible.

               (iii) Rental loss and/or business interruption insurance in an
     amount equal to the estimated gross revenues from the operations of the
     Trust Property for a period of twelve (12) months, if applicable or
     appropriate.

               (iv) Insurance against loss or damage from (A) leakage of
     sprinkler systems and (B) explosion of steam boilers, air conditioning
     equipment, high pressure piping, machinery and equipment, pressure vessels
     or similar apparatus now or hereafter installed on the improvements
     (without exclusion for explosions), if applicable or appropriate.

               (v) Flood insurance if all or any portion of the Trust Property
     is located in an area now or hereafter designated by the Federal Emergency
     Management Agency as an area having special flood hazards (including,
     without limitation, those areas designated as Zone A or Zone V), and in
     which flood insurance has been made available under the U.S. National Flood
     Insurance Program, in an amount equal to the full replacement cost of the
     Buildings, Fixtures and Personalty now or hereafter located on the Trust
     Property or such other amount as may be agreed to by Beneficiary in
     writing, if applicable or appropriate.

               (vi) If the Trust Property is or ever becomes non-conforming with
     respect to zoning, ordinance or law coverage to compensate for loss of
     value or property resulting from operation of law and the cost of
     demolition and the increased cost of construction in such amounts as may be
     requested by Beneficiary.

               (vii) Any other insurance with respect to the Trust Property that
     may be required under the Financing Agreement.

               (viii) Such other insurance as may from time to time be
     reasonably required by Beneficiary in order to protect its interests.

          All such insurance policies with respect to the Trust Property shall
contain a standard, non-contributory mortgagee clause naming Beneficiary, and
its successors and assigns, as an additional insured under all liability
insurance policies, as the first mortgagee and loss payee on all property
insurance policies, and as the sole loss payee on all rental loss or business
interruption insurance policies. Trustor shall not take out separate insurance
with respect to the


                                       17

<PAGE>

Trust Property concurrent in form or contributing in the event of loss with that
required to be maintained hereunder or under the Financing Agreement unless
Beneficiary is named as an additional insured thereon under a standard mortgagee
clause acceptable to Beneficiary and each such policy is otherwise in form and
substance acceptable to Beneficiary.

          (B) In the event of the foreclosure of this Deed of Trust, or in the
event of any transfer of title to the Trust Property, or any part thereof, by
foreclosure sale or by power of sale or deed in lieu of foreclosure, the
purchaser of the Trust Property, or such part thereof, shall succeed to all of
Trustor's rights with respect to the Trust Property, including any rights to
unexpired, unearned or returnable insurance premiums, subject to limitations on
the assignment of blanket policies, but limited to such rights as relate to the
Trust Property or such part thereof. If Beneficiary acquires title to the Trust
Property, or any part thereof, in any manner, Beneficiary shall thereupon (as
between Trustor and Beneficiary) become the sole and absolute owner of the
insurance policies with respect to the Trust Property, and all insurance
proceeds payable thereunder with respect to the Trust Property, with the sole
right to collect and retain all unearned or returnable premiums thereon with
respect to the Trust Property, or such part thereof, if any.

          (C) If any damage to, destruction or loss of or other casualty with
respect to any of the Trust Property shall occur, Trustor shall file and
prosecute its claim or claims for any insurance proceeds in good faith and with
due diligence and cause the same to be collected and paid over to Beneficiary,
and Trustor hereby irrevocably authorizes and empowers Beneficiary, in the name
of Trustor or otherwise, to collect and receipt for any such insurance proceeds
and to adjust any insurance claims and to file and prosecute such claim or
claims, and although it is hereby expressly agreed that the same shall not be
necessary in any event, Trustor shall, upon demand of Beneficiary, make, execute
and deliver any and all assignments and other instruments sufficient for the
purpose of assigning any such insurance proceeds to Beneficiary, free and clear
of any Liens whatsoever. Trustor hereby irrevocably appoints Beneficiary as
Trustor's attorney- in-fact for each such purpose (which appointment is coupled
with an interest) and authorizes any Person to act upon the foregoing
appointment.

          (D) Following any damage to, destruction or loss of or other casualty
with respect to any of the Trust Property, Beneficiary shall apply the entire
amount of any insurance proceeds in accordance with the provisions of the
Financing Agreement or, if there is no provision contained in the Financing
Agreement governing how the same are to be applied, then Beneficiary shall apply
the entire amount thereof to the payment of the Obligations, whether or not then
due and payable, in such manner and order as Beneficiary may elect. In all
events, unless expressly provided to the contrary in the Financing Agreement,
Trustor hereby covenants and agrees to promptly commence and to diligently
prosecute the restoration of the Trust Property upon the occurrence of any
casualty loss affecting the Trust Property, without regard to the availability
or adequacy of insurance proceeds, but in all events in a manner approved by
Beneficiary. Notwithstanding any damage to, destruction or loss of or other
casualty with respect to any of the Trust Property, Trustor shall continue to
pay the Obligations at the time and in the manner provided for in the Financing
Agreement and the other Loan Documents until the Obligations have been paid in
full. If the Trust Property is sold, through foreclosure or otherwise, prior to
the receipt by Beneficiary of such insurance proceeds, Beneficiary shall have
the right, whether or not a deficiency judgment on any Loan Document shall have
been sought,


                                       18

<PAGE>

recovered or denied, to receive such insurance proceeds, or a portion thereof
sufficient to pay the then unpaid Obligations, whichever is less.

          SECTION 5.05 Condemnation and Application of Condemnation Proceeds.

          (A) Promptly upon its obtaining knowledge of the institution or the
threatened institution of any proceeding for the condemnation or other taking of
the Trust Property, or any portion thereof or interest therein, Trustor shall
notify Beneficiary of such proceeding. Trustor shall then, if requested by
Beneficiary, file or defend its claim thereunder and prosecute same with due
diligence to its final disposition and shall, subject to the terms of the
Financing Agreement, cause any awards or settlements to be paid over to
Beneficiary for disposition pursuant to the terms of this Deed of Trust.
Beneficiary shall be entitled to participate in any such proceeding, at
Trustor's sole cost and expense, and Trustor shall deliver or cause to be
delivered to Beneficiary such instruments as may be requested by Beneficiary
from time to time to permit such participation.

          (B) If the Trust Property or any part thereof is taken or diminished
in value, or if a consent settlement is entered by or under threat of such
proceeding, the award or settlement payable to Trustor by virtue of its interest
in the Trust Property shall be, and by these presents is, assigned, transferred
and set over unto Beneficiary to be held by Beneficiary, subject to the Lien and
security interest of this Deed of Trust, and disbursed in accordance with the
provisions of the Financing Agreement or, if there is no provision contained in
the Financing Agreement governing how the same is to be disbursed, then
Beneficiary shall apply the entire amount thereof to the payment of the
Obligations, whether or not then due and payable, in such manner and order as
Beneficiary may elect. In all events, unless otherwise expressly provided to the
contrary in the Financing Agreement, Trustor hereby covenants and agrees to
commence and diligently to prosecute the restoration of the Trust Property upon
the occurrence of any condemnation or other taking affecting the Trust Property,
without regard to the availability or adequacy of any award or settlement.
Notwithstanding any condemnation or other taking of any of the Trust Property,
Trustor shall continue to pay the Obligations at the time and in the manner
provided for in the Financing Agreement and the other Loan Documents, and the
Obligations shall not be reduced until, and then only to the extent that, any
condemnation award or settlement shall have been actually received and applied
by Beneficiary to the discharge of the Obligations. If the Trust Property is
sold, through foreclosure or otherwise, prior to the receipt by Beneficiary of
such condemnation award or settlement, Beneficiary shall have the right, whether
or not a deficiency judgment on any Loan Document shall have been sought,
recovered or denied, to receive such condemnation award or settlement, or a
portion thereof sufficient to pay the Obligations, whichever is less.

          (C) Any implied covenant in this Deed of Trust restricting the right
of Beneficiary to apply the proceeds of condemnation as described above is
waived by Trustor. Trustor hereby waives the provisions of any law prohibiting
Beneficiary from making elections regarding the application of condemnation
proceeds, including, without limitation, the provisions of California Code of
Civil Procedure Sections 1265.210 et seq.

          SECTION 5.06 Maintenance of Rights of Way, Easements, Licenses and
Other Rights. Trustor shall maintain, preserve and renew all rights of way,
easements, tenements,


                                       19

<PAGE>

hereditaments, development rights and credits, zoning rights, grants,
privileges, appurtenances, licenses, franchises and other rights reasonably
necessary for the use or operation of the Trust Property from time to time, or
otherwise relevant to the value thereof, and Trustor shall not, without the
prior written consent of Beneficiary, initiate, join in or consent to any
private restrictive covenant or other public or private restriction as to the
present or future use or operation of the Trust Property. Trustor shall,
however, comply with all restrictive covenants which may at any time affect the
Trust Property, all applicable zoning ordinances and all other public or private
restrictions relating to the use of the Trust Property.

          SECTION 5.07 Payment and Performance of Obligations. Trustor shall
duly and punctually pay and perform all of the Obligations.

          SECTION 5.08 Compliance with Permitted Liens and Other Obligations.
Trustor shall comply in all material respects with any and all obligations,
restrictions and requirements that may be set forth in each and every document
constituting a Permitted Lien. In addition, Trustor shall comply in all material
respects each and every obligation legally imposed upon it and/or relating to
the Trust Property pursuant to applicable law (including, without limitation,
all matters described in Section 4.05 hereof), contract or other agreement. It
is hereby acknowledged that Beneficiary's consent to a Permitted Lien as of the
date hereof shall in no way be deemed to constitute approval of any future Lien
which may be imposed upon any portion of the Trust Property, or any other
enforcement action affecting Trustor or the Trust Property, as a result of
Trustor's failure to perform or comply with its obligations under any document
constituting a Permitted Lien as of the date hereof.

          SECTION 5.09 Additional Affirmative Covenants. All affirmative
covenants made by the Borrowers or Guarantors or any of them in the Financing
Agreement are incorporated herein by reference and are hereby also made by
Trustor as to itself and the Trust Property as though such covenants were set
forth at length herein as the covenants of Trustor.

                                   ARTICLE VI

                               NEGATIVE COVENANTS

          Trustor hereby covenants and agrees with Beneficiary that, until all
of the Obligations shall have been paid or performed in full and discharged:

          SECTION 6.01 Use Violations. Trustor shall not use, maintain, operate
or occupy, or allow the use, maintenance, operation or occupancy of, the Trust
Property in any manner which (a) violates in any material respect any
Governmental Requirement, (b) may be dangerous unless safeguarded as required by
applicable law, (c) constitutes a public or private nuisance, or (d) makes void,
voidable or cancelable, or increases, substantially in excess of commercially
reasonably rates, the premium of, any insurance then in force with respect
thereto.

          SECTION 6.02 Waste. Trustor shall not commit or permit any material
waste with respect to the Trust Property.

          SECTION 6.03 Alterations. Trustor shall notify Beneficiary, in writing
and in advance, with respect to all proposed alterations, improvements or
additions to the Trust


                                       20

<PAGE>

Property which are of a material nature, and, unless and to the extent otherwise
expressly provided in the Financing Agreement, Trustor shall not effect any
material alteration, improvement or addition to the Trust Property without the
prior written consent of Beneficiary.

          SECTION 6.04 No Further Encumbrances. Trustor shall not, without the
prior written consent of Beneficiary, create, place or permit to be created or
placed, or through any act or failure to act, acquiesce in the placing of, or
allow to remain, any mortgage, pledge, Lien (statutory, constitutional or
contractual), security interest, encumbrance or charge on, or conditional sale
or other title retention agreement with respect to, the Trust Property, or any
portion thereof or interest therein, other than the Permitted Liens, regardless
of whether the same are subordinate to the Lien(s) and security interest(s)
created by this Deed of Trust.

          SECTION 6.05 Transfer Restrictions. Trustor shall not sell, lease,
assign, transfer or otherwise dispose of or abandon all or any part of the Trust
Property (or any interest therein), except as expressly permitted by, and in
accordance with the terms of, the Financing Agreement.

          SECTION 6.06 Loan and Financing Agreements; Additional Negative
Covenants. Trustor has received a copy of and is fully familiar with the terms
and provisions of the Financing Agreement and the other Loan Documents. All
negative covenants made by the Borrowers or Guarantors or any of them in the
Financing Agreement and the other Loan Documents are incorporated herein by
reference and are hereby also made by Trustor as to itself and the Trust
Property as though such negative covenants were set forth at length herein as
the negative covenants of Trustor.

                                   ARTICLE VII

                         EVENTS OF DEFAULT AND REMEDIES

          SECTION 7.01 Event of Default. The "Events of Default" set forth in
Section 8.01 of the Financing Agreement are hereby incorporated herein as if
fully set forth herein, and, without limiting the generality of the foregoing,
the occurrence of an "Event of Default" under the Financing Agreement or any
other Loan Document shall constitute an "Event of Default" hereunder. All
notices and cure periods described herein or in the Financing Agreement or any
other Loan Document shall not be applicable to any "Potential Event of Default"
(as hereinafter defined) if such Potential Event of Default has occurred as of
the date on which Beneficiary commences a nonjudicial foreclosure proceeding
with respect to another Potential Event of Default or Event of Default. Such
event shall constitute an independent Event of Default hereunder. For purposes
hereof, "Potential Event of Default" shall mean any event, but for the passage
of time or giving of notice, would be an Event of Default.

          SECTION 7.02 Acceleration. Upon the occurrence and during the
continuance of any Event of Default, in addition to any other rights, powers or
remedies conferred herein or by operation of law, Beneficiary, in its sole
judgment and discretion, may declare the then unpaid principal balance of the
Loan (the "Principal Balance"), the accrued interest thereon and any other
accrued but unpaid portion of the Obligations to be, and they shall thereupon
forthwith become, immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived by
Trustor.


                                       21

<PAGE>

          SECTION 7.03 Foreclosure and Sale. If an Event of Default shall occur
and be continuing, Beneficiary shall have the right and option to with
foreclosure by power of sale in accordance with California Civil Code Section
2924 or other applicable law by notice to Trustee and shall, if required,
deposit with Trustee the Note, the original or a certified copy of this Deed of
Trust, and such other documents, receipts and evidences of expenditures made and
secured hereby as Trustee may require.

          Upon receipt of such notice from Beneficiary, Trustee shall cause to
be recorded and delivered to Trustor such notice of default as may then be
required by law and by this Deed of Trust. Trustee shall, without demand on
Trustor, after lapse of such time as may then be required by law and after
recordation of such notice of default and after notice of sale has been given as
required by law, sell the Trust Property or any portion thereof at the time and
place of sale fixed by it in said notice of sale, either as a whole or in
separate lots or parcels or items as Trustee shall deem expedient, and in such
order as it may determine, at public auction to the highest bidder for cash in
lawful money of the United State (or other cash equivalent as is acceptable to
Trustee and Beneficiary) payable at the time of sale. Trustee shall deliver to
the purchaser or purchasers at such sale its good and sufficient deed or deeds
conveying the property so sold, but without any covenant or warranty, express or
implied. The recitals in such deed of any matters or facts shall be conclusive
proof of the truthfulness thereof. Any person, including, without limitation,
Trustor, Trustee or Beneficiary, may purchase at such sale, and Trustor hereby
covenants to warrant and defend the title of such purchaser or purchasers.

          Trustee may postpone the sale of all or any portion of the Property
from time to time in accordance with the laws of the State of California.

          To the fullest extent allowed by law, Borrower hereby expressly waives
any right which it may have to direct the order in which any of the Property
shall be sold in the event of any sale or sales pursuant to this Deed of Trust.

          Upon any foreclosure sale, Beneficiary may bid for and purchase the
Trust Property and shall be entitled to apply all or any part of the unpaid
Obligations as a credit to the purchase price.

          Beneficiary may from time to time rescind any notice of default or
notice of sale before any Trustee's sale as provided above in accordance with
the laws of the State of California. 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 declarations or notices
of default to satisfy the obligations of this Deed of Trust, or otherwise affect
any provision, covenant or condition of the Financing Agreement or any Loan
Document or any of the rights, obligations or remedies of Trustee or Beneficiary
hereunder or thereunder.

          Each remedy provided in this instrument is distinct from and
cumulative with all other rights and remedies provided hereunder or afforded by
applicable law or equity, and may be exercised concurrently, independently or
successively, in any order whatsoever.


                                       22

<PAGE>

          SECTION 7.04 Trustee's Successors, Substitutes and Agents. Trustee or
any successor to or substitute for Trustee may appoint or delegate any one or
more persons as agent to perform any act or acts necessary or incident to any
sale held by Trustee, including the posting of notices and the conduct of sale,
but in the name and on behalf of Beneficiary. If Trustee or any successor to or
substitute for Trustee shall have given notice of sale hereunder, any successor
or substitute trustee thereafter appointed may complete the sale and the
conveyance of the Trust Property pursuant thereto as if such notice had been
given by the successor to or substitute for Trustee conducting the sale.

          SECTION 7.05 Receivership. If any of the Obligations shall become due
and payable and shall not be promptly paid, Beneficiary shall have the right and
power to proceed by a suit or suits in equity or at law, whether for the
specific performance of Beneficiary which Trustee may apply for and obtain as a
matter of right and without notice to Trustor, which notice is hereby expressly
waived by Trustor, the appointment of a receiver to collect the Rents of the
Trust Property and to preserve the security hereof in accordance with California
Code of Civil Procedure Section 564 (including, without limitation, in order to
enforce Beneficiary's rights under California Civil Code Section 2929.5), either
before or after any foreclosure sale or the sale of the Trust Property under the
order of a court or courts of competent jurisdiction or under executory or other
legal process, without regard to the value of the Trust Property as security for
the amount then due to Beneficiary, or the solvency of any entity or entities,
person or persons primarily or secondarily liable for the payment of such
amounts; the Rents of the Trust Property, in any such event, having heretofore
been assigned to Beneficiary pursuant to Section 3.01 hereof as additional
security for the payment of the Obligations secured hereby.

          Without limiting the foregoing, the receiver shall have the right to
apply Rents to cleanup, remediation or other response action concerning the
release or threatened release of Hazardous Materials, whether or not such
actions are pursuant to an order of any federal, state or local governmental
agency. Trustor hereby confirms the right of Beneficiary (or a receiver
appointed by Beneficiary) to enter upon and inspect all or any portion of the
Trust Property for the purpose of determining the existence, location, nature
and magnitude of any past or present release or threatened release of any
hazardous substance into, onto, beneath, or from the Trust Property in
accordance with the California Civil Code Section 2929.5. All reasonable costs
and expenses incurred by Beneficiary pursuant to this provision or pursuant to
California Civil Code Section 2929.5, including, without limitation, costs of
consultants and contractors, costs of repair of any physical injury to the Trust
Property normal and customary to the tests and studies, court costs and
attorneys' fees, costs and expenses, whether incurred in litigation or not and
whether before or after judgment, shall be payable by Trustor and, to the extent
advanced or incurred by Beneficiary, shall be reimbursed to Beneficiary by
Trustor upon demand. This provision is separate and several, and shall survive
merger into any judgment.

          SECTION 7.06 Judicial Foreclosure. If an Event of Default shall occur
and be continuing, Trustee or Beneficiary shall have the right and power to
proceed by a suit or suits in equity or at law, whether for the specific
performance of any covenant or agreement herein contained or in aid of the
execution of any power herein granted, or for any foreclosure hereunder or for
the sale of the Trust Property under the judgment or decree of any court or
courts of competent jurisdiction, or for the appointment of a receiver pending
any foreclosure hereunder or the sale of the Trust Property under the order of a
court or courts of competent


                                       23

<PAGE>

jurisdiction or under executory or other legal process, or for the enforcement
of any other appropriate legal or equitable remedy. Any money advanced by
Trustee and/or Beneficiary in connection with any such receivership shall be a
demand obligation (which obligation Trustor hereby expressly promises to pay)
owing by Trustor to Trustee and/or Beneficiary and shall bear interest from the
date of such advance by Trustee and/or Beneficiary until paid at the
Post-Default Rate.

          SECTION 7.07 Separate Sales. To the extent allowed by applicable law,
the Trust Property may be sold in one or more parcels and in such manner and
order as Beneficiary, in its sole discretion, may elect, it being expressly
understood and agreed that the right of sale arising out of any Event of Default
shall not be exhausted by any one or more sales.

          SECTION 7.08 Possession of Trust Property. Trustor agrees to the full
extent that it lawfully may, that, in case one or more of the Events of Default
shall have occurred and be continuing, then, and in every such case, Trustee or
Beneficiary shall have the right and power to enter into and upon and take
possession of all or any part of the Trust Property in the possession of
Trustor, its successors or assigns, or its or their agents or servants, and may
exclude Trustor, its successors or assigns, and all Persons claiming by, through
or under Trustor, and its or their agents or servants wholly or partly
therefrom; and, holding the same, Trustee or Beneficiary may use, administer,
manage, operate and control the Trust Property and conduct the business thereof
to the same extent as Trustor, its successors or assigns, might at the time do
and may exercise all rights and powers of Trustor, in the name, place and stead
of Trustor, or otherwise as Trustee or Beneficiary shall deem best. All costs,
expenses and liabilities of every character incurred by Trustee and/or
Beneficiary in administering, managing, operating and controlling the Trust
Property shall constitute a demand obligation (which obligation Trustor hereby
expressly promises to pay) owing by Trustor to Trustee and/or Beneficiary and
shall bear interest from the date of expenditure until paid at the Post-Default
Rate, all of which shall constitute a portion of the Obligations and shall be
secured by this Deed of Trust and all of the other Loan Documents. Trustor
hereby irrevocably constitutes and appoints Beneficiary as Trustor's
attorney-in-fact (coupled with an interest) to perform such acts and execute
such documents as Beneficiary, in its sole discretion, shall deem appropriate,
including endorsement of Trustor's name on any instruments. Regardless of any
provision of this Deed of Trust, the Financing Agreement or any other Loan
Document, Beneficiary shall not be considered to have accepted any property
other than cash or immediately available funds in satisfaction of any obligation
of Trustor to Beneficiary, unless Beneficiary shall have given express written
notice of Beneficiary's election to the contrary.

          SECTION 7.09 Occupancy After Foreclosure. In the event that there is a
foreclosure sale hereunder and at the time of such sale Trustor or Trustor's
representatives, successors or assigns or any other person claiming any interest
in the Trust Property by, through or under Trustor, are occupying or using the
Trust Property or any part thereof, each and all shall immediately become the
tenant of the purchaser at such sale, which tenancy shall be a tenancy from day
to day, terminable at the will of either the landlord or tenant, at a reasonable
rental per day based upon the value of the property occupied, such rental to be
due daily to the purchaser. To the extent permitted by applicable law, the
purchaser at such sale shall, notwithstanding any language herein to the
contrary, have the sole option to demand immediate possession following the sale
or to permit the occupants to remain as tenants at will. In the event that the
tenant fails


                                       24

<PAGE>

to surrender possession of said property upon demand, the purchaser shall be
entitled to institute and maintain a summary action for possession of the Trust
Property (such as an action for forcible entry and detainer) in any court having
appropriate jurisdiction.

          SECTION 7.10 Remedies Cumulative, Concurrent and Nonexclusive. Every
right, power and remedy herein given to Trustee or Beneficiary shall be
cumulative and in addition to every other right, power and remedy herein
specifically given or now or hereafter existing in equity, at law or by statute
(including specifically those granted by the Applicable UCC). Each such right,
power and remedy, whether specifically herein given or otherwise existing, may
be exercised from time to time and so often and in such order as may be deemed
expedient by Trustee or Beneficiary, and the exercise, or the beginning of the
exercise, of any such right, power or remedy shall not be deemed a waiver of the
right to exercise, at the same time or thereafter, any other right, power or
remedy. Beneficiary shall be entitled to collect all costs and expenses incurred
in pursuing such remedies. No delay or omission by Trustee or Beneficiary in the
exercise of any such right, power or remedy shall impair any such right, power
or remedy or operate as a waiver thereof or of any other right, power or remedy
then or thereafter existing.

          SECTION 7.11 No Release of Obligations. Neither Trustor, any other
Borrower, nor any other Person now or hereafter obligated for the payment or
performance of all or any part of the Obligations shall be relieved of any such
obligation by reason of (a) the failure of Trustee or Beneficiary to comply with
any request of Trustor, any other Borrower or any other Person so obligated to
foreclose the Lien of this Deed of Trust to enforce any provision hereunder or
under the Financing Agreement; (b) the release, regardless of consideration, of
the Trust Property or any portion thereof or interest therein or the addition of
any other property to the Trust Property; (c) any agreement or stipulation
between any subsequent owner of the Trust Property and Beneficiary extending,
renewing, rearranging or in any other way modifying the terms of this Deed of
Trust without first having obtained the consent of, given notice to or paid any
consideration to Trustor, any other Borrower or any other Person, and in any
such event Trustor, all other Borrowers and all such other Persons shall
continue to be liable to make payment according to the terms of any such
extension or modification agreement unless expressly released and discharged in
writing by Beneficiary; or (d) any other act or occurrence save and except the
complete payment and performance of all of the Obligations.

          SECTION 7.12 Release of and Resort to Collateral. Beneficiary may
release, regardless of consideration, any part of the Trust Property without, as
to the remainder, in any way impairing, affecting, subordinating or releasing
the Lien or security interest created in or evidenced by this Deed of Trust or
its stature as a first and prior Lien and security interest in and to the Trust
Property, and without in any way releasing or diminishing the liability of any
Person liable for the payment or performance of the Obligations. Beneficiary may
resort to any other security for the Obligations held by Trustee or Beneficiary
in such manner and order as Beneficiary may elect.

          SECTION 7.13 Waiver of Redemption, Notice and Marshalling of Assets.
To the fullest extent permitted by applicable law, Trustor hereby irrevocably
and unconditionally waives and releases (a) all benefits that might accrue to
Trustor by virtue of any present or future moratorium law or other law exempting
the Trust Property from attachment, levy or sale on execution or providing for
any appraisement, valuation, stay of execution, exemption from civil


                                       25

<PAGE>

process, redemption or extension of time for payment; (b) except for notices
expressly provided for herein or in the Financing Agreement, all notices of any
Event of Default or of Beneficiary's intention to accelerate maturity of the
Obligations or of Trustee's or Beneficiary's election to exercise or actual
exercise of any right, remedy or recourse provided for hereunder or under the
Financing Agreement; and (c) any right to a marshalling of assets, a sale in
inverse order of alienation or to direct the application of proceeds, including
any rights under California Civil Code Sections 2899 and 3433, and all rights of
Trustor under California Civil Code Section 2822; (d) all rights and remedies
which Borrower may have or be able to assert by reason of the Laws of the State
of California pertaining to the rights and remedies of sureties and (e) any and
all conflicts with any provisions of any of the Loan Documents. If any law
referred to in this Deed of Trust and now in force, of which Trustor or its
successor or successors might take advantage despite the provisions hereof,
shall hereafter be repealed or cease to be in force, such law shall thereafter
be deemed not to constitute any part of the contract herein contained or to
preclude the operation or application of the provisions hereof. Beneficiary
shall have the right to determine the order in which any or all of the Trust
Property shall be subjected to the remedies provided herein. Beneficiary shall
have the right to determine the order in which any or all portions of the
Obligations are satisfied from the proceeds realized upon the exercise of the
remedies provided herein. Nothing contained herein shall be deemed to be a
waiver of Trustor's rights under Section 2924c of the California Civil Code.

          SECTION 7.14 Discontinuance of Proceedings. In case Beneficiary shall
have proceeded to invoke any right, remedy or recourse permitted hereunder or
under the Financing Agreement and shall thereafter elect to discontinue or
abandon same for any reason, Beneficiary shall have the unqualified right so to
do and, in such an event, Trustor and Beneficiary shall be restored to their
former positions with respect to the Obligations, this Deed of Trust, the
Financing Agreement, the Trust Property and otherwise, and the rights, remedies,
recourses and powers of Beneficiary shall continue as if same had never been
invoked.

          SECTION 7.15 Application of Proceeds. After the occurrence and during
the continuance of an Event of Default, the proceeds of any sale of and any
other amounts generated by the holding, leasing, operating or other use of the
Trust Property shall be applied by Beneficiary (or the receiver, if one is
appointed), to the extent that funds are so available therefrom, in accordance
with the provisions of the Financing Agreement or if not so provided, then in
the following order of priority, except to the extent otherwise required by
applicable law:

          (A) first, to the payment of the reasonable and necessary costs and
expenses of taking possession of the Trust Property and of holding, using,
leasing, repairing, improving the same, including reasonable (i) receivers'
fees, (ii) court costs, (iii) attorneys' and accountants' fees, (iv) costs of
advertisement and title search fees, and (v) the payment of any and all
Impositions, Liens, security interests or other rights, titles or interests
equal or superior to the Lien and security interest of this Deed of Trust
(except those to which the Trust Property has been sold subject to and without
in any way implying Beneficiary's prior consent to the creation thereof);

          (B) second, to the payment of all amounts other than the Principal
Balance and accrued but unpaid interest which may be due to Beneficiary
hereunder or under the other Loan Documents, together with interest thereon as
provided herein;


                                       26

<PAGE>

          (C) third, to the payment of the Obligations in such order and manner
as Beneficiary determines in its sole discretion; and

          (D) fourth, to Trustor or as otherwise required by any Governmental
Requirement.

Trustor shall be liable for any deficiency remaining.

          SECTION 7.16 Uniform Commercial Code Remedies. Beneficiary shall have
all of the rights, remedies and recourses with respect to the Personalty and the
Fixtures afforded to it by the Applicable UCC, including, without limitation,
(i) the right to conduct a unified sale of such Personalty and Fixtures in
connection with a judicial or power of sale foreclosure of any portion of the
Trust Property that constitutes real property, (ii) any the right to take
possession of the Personalty and the Fixtures or any part thereof, and (iii) to
take such other measures as Beneficiary may deem necessary for the care,
protection and preservation of the Personalty and the Fixtures, in addition to,
and not in limitation of, the other rights, remedies and recourses afforded by
this Deed of Trust and the other Loan Documents.

          SECTION 7.17 Indemnity. In connection with any action taken by
Trustee, Beneficiary and/or any Indemnitee pursuant to this Deed of Trust,
Trustee, Beneficiary, and/or any such Indemnitee and their respective
Indemnified Parties shall not be liable for any Loss sustained by Trustor
resulting from (a) an assertion that Beneficiary, or any such Indemnitee or an
Indemnified Party has received funds from the operations of the Trust Property
claimed by third Persons, or (b) any act or omission of Trustee, Beneficiary, or
any such Indemnitee or any such Indemnified Party in administering, managing,
operating or controlling the Trust Property, including in either case such Loss
as may result from the ordinary negligence of Trustee and/or Beneficiary or any
other Lender or an Indemnified Party, or which may result from strict liability,
whether under applicable law or otherwise, unless such Loss is caused by the
gross negligence, willful misconduct or bad faith of Trustee, Beneficiary and/or
such other Lender or such Indemnified Party, nor shall Trustee, Beneficiary
and/or any other Lender or an Indemnified Party be obligated to perform or
discharge any obligation, duty or liability of Trustor. Trustor shall and does
hereby agree to indemnify Trustee and/or Beneficiary and each of the other
Lenders and their respective Indemnified Parties for, and to hold Trustee,
Beneficiary and each such other Lender and each Indemnified Party harmless from,
any and all Losses which may or might be incurred by Trustee and/or Beneficiary
or any of such other Lenders or such Indemnified Parties by reason of this Deed
of Trust or the exercise of rights or remedies hereunder, including such Losses
as may result from the ordinary negligence of Trustee, Beneficiary or any other
Lender or an Indemnified Party, or which may result from strict liability,
whether under applicable law or otherwise, unless such Loss is caused by the
gross negligence, willful misconduct or bad faith of Trustee, Beneficiary or
such other Lender or such Indemnified Party. Should Trustee, Beneficiary and/or
any other Lender or an Indemnified Party make any expenditure on account of any
such Losses, the amount thereof, including costs, expenses and reasonable
attorneys' fees, shall be a demand obligation (which obligation Trustor hereby
expressly promises to pay) owing by Trustor to Trustee and/or Beneficiary and
shall bear interest from the date expended until paid at the Post-Default Rate,
shall be a part of the Obligations and shall be secured by this Deed of Trust
and the other Loan Documents. Trustor hereby assents to, ratifies and confirms
any and all actions of Trustee and/or Beneficiary with


                                       27

<PAGE>

respect to the Trust Property taken under this Deed of Trust. The liabilities of
Trustor, as set forth in this Section 7.18, shall survive the termination of
this Deed of Trust and the payment and performance of the Obligations.

          SECTION 7.18 Waiver of Lien. In accordance with California Code of
Civil Procedure Section 726.5, Beneficiary may waive its lien against the Trust
Property constituting real property or any portion thereof, together with
fixtures or personal property constituting real property thereon, to the extent
such Trust Property constituting real property is found to be environmentally
impaired, and may exercise any and all rights and remedies of an unsecured
creditor against Trustor and all of Trustor's assets and Trust Property
constituting real property for the recovery of any deficiency, including without
limitation seeking an attachment order under California Code of Civil Procedure
Section 483.010. No such waiver shall be final or binding on Beneficiary unless
and until a final money judgment is obtained against Trustor. As between
Beneficiary and Trustor, for purposes of California Code of Civil Procedure
Section 726.5, Trustor shall have the burden of proving that the release or
threatened release was not knowingly or negligently caused or contributed to, or
knowingly or willfully permitted or acquiesced to by Trustor or any related
party (or any affiliate or agent of Trustor or any related party) and that
Trustor made written disclosure of the release to Beneficiary or that
Beneficiary otherwise obtained actual knowledge thereof prior to the making of
the loan evidenced by the Financing Agreement. Notwithstanding anything to the
contrary contained in this Deed of Trust, the Financing Agreement or the other
Loan Documents, Trustor shall be fully and personally liable for all judgments
and awards entered against Trustor pursuant to California Code of Civil
Procedure 726.5 and such liability shall be an exception to any non-recourse or
exculpatory provision in this Deed of Trust or the other Loan Documents, if any,
and shall not be limited to the original principal amount of the obligations
secured by this Deed of Trust. Trustor's obligations hereunder shall survive the
foreclosure, deed in lieu of foreclosure, release, reconveyance or any other
transfer of the Trust Property constituting real property or this Deed of Trust.
For the purpose of any action brought under this Section, Trustor hereby waives
the defense of laches and any applicable statute of limitations. For purposes of
California Code of Civil Procedure 726.5, the acts, knowledge and notice of each
"726.5 Party" shall be attributed to and be deemed to have been performed by the
party or parties then obligated on and liable for payment of the Obligations. As
used herein, "726.5 Party" shall mean Trustor, any successor owner to Trustor of
all or any portion of the Trust Property constituting real property, any related
party of Trustor or any such successor and any affiliate or agent of Trustor,
any such successor or any such related party.

          SECTION 7.19 Action for Environmental Claims. In accordance with, and
subject to limitations of, California Code of Civil Procedure Section 736,
Beneficiary may seek a judgment that the Trustor has breached its covenants,
representations and/or warranties with respect to the environmental matters
contained in the Financing Agreement (the "Environmental Provisions"), and may
commence and maintain an action or actions in any court of competent
jurisdiction for enforcement of the Environmental Provisions and/or recovery of
any and all costs, damages, expenses, fees, penalties, fines, judgments,
indemnification payments to third parties, and other out-of-pocket costs or
expenses (including, without limitation, court costs, consultants' fees and
attorneys' fees, whether incurred in litigation or not and whether before or
after judgment), incurred or advanced by Beneficiary pursuant to the
Environmental Provisions (collectively, the "Environmental Costs"), excluding,
however, any Environmental Costs not


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permitted to be recovered pursuant to Section 736 of the California Code of
Civil Procedure. Environmental Costs that are not permitted to be recovered
pursuant to Section 736 may be referred to hereinafter as the "Unsecured
Environmental Costs," and Environmental Costs other than the Unsecured
Environmental Costs may be referred to hereinafter as the "Secured Environmental
Costs." Any Unsecured Environmental Costs shall not be secured by this Deed of
Trust; however, nothing herein shall prevent Beneficiary from recovering any
Unsecured Environmental Costs pursuant to the Indemnity Agreement of even date
herewith among Trustor, Beneficiary and certain other parties, to the extent
they are recoverable in accordance with said Indemnity Agreement. All Secured
Environmental Costs incurred by Beneficiary shall bear interest at the default
rate provided under the Note. All Secured Environmental Costs together with
interest thereon at the rate then in effect under the Financing Agreement shall
be secured by this Deed of Trust and shall enjoy the same priority as the
Obligations. Trustor acknowledges and agrees that notwithstanding any term or
provision contained in this Deed of Trust, the Financing Agreement or in the
other Loan Documents, Environmental Costs shall be exceptions to any nonrecourse
or exculpatory provision, if any, and Trustor shall be fully and personally
liable for Environmental Costs. Such liability shall not be limited to the
original principal amount of the obligations secured by this Deed of Trust.
Trustor's obligations hereunder shall survive foreclosure, deed in lieu of
foreclosure, release, reconveyance or any other transfer of the Trust Property
constituting real property or this Deed of Trust. For the purposes of any action
brought under this subparagraph Trustor hereby waives the defense of laches and
any applicable statute of limitations.

                                  ARTICLE VIII

                                    TRUSTEE

          SECTION 8.01 Duties, Rights, and Powers of Trustee. It shall be no
part of the duty of Trustee to see to any recording, filing or registration of
this Deed of Trust or any other instrument in addition or supplemental thereto,
or to give any notice thereof, or to see to the payment of or be under any duty
in respect of any tax or assessment or other governmental charge which may be
levied or assessed on the Trust Property, or any part thereof, or against
Trustee, or to see to the performance or observance by Trustee of any of the
covenants and agreements contained herein. Trustee shall not be responsible for
the execution, acknowledgment or validity of this Deed of Trust or of any
instrument in addition or supplemental hereto or for the sufficiency of the
security purported to be created hereby, and makes no representation in respect
thereof or in respect of the rights of Beneficiary. Trustee shall have the right
to confer with counsel upon any matters arising hereunder and shall be fully
protected in relying as to legal matters on the advice of counsel. Trustee shall
not incur any personal liability hereunder except for Trustee's own gross
negligence or willful misconduct, and Trustee shall have the right to rely on
any instrument, document or signature authorizing or supporting any action taken
or proposed to be taken by Trustee hereunder, believed by Trustee in good faith
to be genuine.

          SECTION 8.02 Successor Trustee. From time to time, by a writing signed
and acknowledged by Beneficiary and filed for record in the office of the
recorder of the County in which the Land is situated, Beneficiary may appoint
another trustee to act in the place and stead of Trustee or any successor. Such
writing shall refer to this Deed of Trust and set forth the date,


                                       29

<PAGE>

book and page of its recordation. The recordation of such instrument of
substitution shall discharge Trustee herein named and shall appoint the new
trustee as the trustee hereunder with the same effect as if originally named
Trustee herein. A writing recorded pursuant to the provisions of this Section
8.02 shall be conclusive proof of the proper substitution of such new trustee.

          SECTION 8.03 Retention of Moneys. All moneys received by Trustee
shall, until used or applied as herein provided, be held in trust for the
purposes for which they were received, but need not be segregated in any manner
from any other moneys (except to the extent required by law), and Trustee shall
be under no liability for interest on any moneys received by Trustee hereunder.

          SECTION 8.04 Reconveyance. Upon written request of Beneficiary stating
all of the Obligations have been paid, performed and discharged, and the
Financing Agreement is terminated, and payment of its fees, Trustee shall
reconvey, without warranty, the Trust Property. The recitals in such
reconveyance of any matters or facts shall be conclusive proof of the
truthfulness thereof. The grantee in such reconveyance may be described as "the
person or persons legally entitled hereto" or such other description as required
by law in the State of California.

                                   ARTICLE IX

                                 MISCELLANEOUS

          SECTION 9.01 Instrument Construed as Deed of Trust, Etc. This Deed of
Trust may be construed as a deed of trust, chattel mortgage, conveyance,
assignment, security agreement, pledge, financing statement, hypothecation or
contract, or any one or more of them, in order to fully effectuate the liens and
security interests created hereby and the purposes and agreements set forth
herein.

          SECTION 9.02 Performance at Trustor's Expense. The cost and expense of
performing or complying with any and all of the Obligations shall be borne
solely by Trustor, and no portion of such cost and expense shall be, in any way
or to any extent, credited against any installment on or portion of the
Obligations.

          SECTION 9.03 Survival of Obligations. Each and all of the Obligations
shall survive the execution and delivery of this Deed of Trust and shall
continue in full force and effect until all of the Obligations shall have been
fully satisfied.

          SECTION 9.04 Further Assurances. Trustor, upon the request of
Beneficiary, shall execute, acknowledge, deliver and record and/or file such
further instruments, including financing statements, and do such further acts as
may be reasonably necessary, desirable or proper to carry out more effectively
the purpose of this Deed of Trust and to subject to the Liens and security
interests hereof any property intended by the terms hereof to be covered hereby,
including any renewals, additions, substitutions, replacements, betterments or
appurtenances to the then Trust Property.


                                       30

<PAGE>

          SECTION 9.05 Notices. All notices or other communications required or
permitted to be given pursuant to this Deed of Trust shall be in writing and
shall be considered properly given if given in the manner and to the addresses
prescribed by Section 13.01 of the Financing Agreement to the parties and at the
addresses set forth in the first paragraph hereof, and to the parties and at the
addresses set forth in Section 13.01 of the Financing Agreement; provided,
however, that (a) service of notice as required by the laws of any State or
Commonwealth in which portions of the Trust Property may be situated shall for
all purposes be deemed appropriate and sufficient with the giving of such notice
thereunder, and (b) any party shall have the right to change its address for
notice hereunder to any other location within the continental United States by
the giving of ten (10) days' notice to the other party in the manner set forth
above.

          SECTION 9.06 No Waiver. Any failure by Beneficiary to insist, or any
election by Beneficiary not to insist, upon strict performance by Trustor of any
of the terms, provisions or conditions of this Deed of Trust shall not be deemed
to be a waiver of the same or of any other terms, provision or condition hereof,
and Beneficiary shall have the right, at any time or times thereafter, to insist
upon strict performance by Trustor of any and all of such terms, provisions and
conditions. Beneficiary may, in Beneficiary's sole and absolute discretion, (i)
in the case of a Default, determine whether such Default has been cured, and
(ii) in the case of an Event of Default, accept or reject any proposed cure of
an Event of Default. In no event shall any provision of this Deed of Trust or
any other Loan Document which provides that Beneficiary shall have certain
rights and/or remedies only during the continuance of an Event of Default be
construed so as to require Beneficiary to accept a cure of any such Event of
Default. Unless and until Beneficiary accepts any proposed cure of an Event of
Default, such Event of Default shall be deemed to be continuing for purposes of
this Deed of Trust and the other Loan Documents.

          SECTION 9.07 Beneficiary's Right to Perform; Beneficiary's
Expenditures.

          (A) Trustor agrees that if Trustor fails to perform any act or take
any action which Trustor is required to perform or take hereunder or under the
Financing Agreement or to pay any money which Trustor is required to pay
hereunder or under the Financing Agreement, Beneficiary may, but shall not be
obligated to, perform or cause to be performed such act or take such action or
pay such money to the extent and only to the extent permitted under the
Financing Agreement.

          (B) All costs and expenses incurred by Beneficiary (or any Indemnified
Party), including, without limitation, attorneys fees, costs and expenses, all
monies paid by (or on behalf of) Beneficiary and the monetary value of all
services performed by (or on behalf of Beneficiary) in connection with a Default
or Event of Default hereunder or under any other Loan Document, including,
without limitation, the (i) the enforcement of any term or provision of this
Deed of Trust or any other Loan Document, (ii) the performance by Beneficiary of
any obligation of Trustor under this Deed of Trust or any other Loan Document if
Beneficiary elects to so perform, in its sole and absolute discretion, and (iii)
any action Beneficiary elects to take, in its sole and absolute discretion, to
protect its interest in or the value of the Trust Property, shall be a demand
obligation owing by Trustor to Beneficiary, as the case may be, and to the
extent any payment is made to a third Person, Beneficiary, upon making such
payment, shall be surrogated to all of the rights of the Person receiving such
payment. All such costs and


                                       31

<PAGE>

expenses, monies and the monetary value of such services performed shall (x)
bear interest at the Post-Default Rate from the date of such incurrence, payment
or performance, as applicable, until paid, and (y) constitute (together with
such interest) a portion of the Obligations and shall be secured by this Deed of
Trust and all of the other Loan Documents. If Beneficiary shall elect to pay any
Imposition or other sums due with reference to the Trust Property, Beneficiary
may do so in reliance on any bill, statement or assessment procured from the
appropriate Governmental Authority or other issuer thereof. Attorneys' fees,
costs and expenses as used herein shall include, without limitation, such fees,
costs and expenses incurred in litigation or not, whether before or after
judgment and and consultants, court costs, expert witness fees, document
reproduction expenses, costs of exhibit preparation, courier charges, postage
and communication expenses. This provision is separate and several, and shall
survive merger into any judgment.

          Trustor shall and does hereby agree that, if all or a portion of the
Obligations has prior to the maturity date fixed in the Financing Agreement,
become due or been declared due by reason of an Event of Default the entire
amount then due under the terms of this Deed of Trust and the Financing
Agreement shall include all attorneys' fees and costs and expenses which are
actually incurred as stated above, notwithstanding the provisions of Section
2924c(d) and Section 2924d of the California Civil Code.

          SECTION 9.08 Successors and Assigns. All of the terms hereof shall
apply to, be binding upon and inure to the benefit of the parties hereto, their
successors, assigns, heirs and legal representatives, and all other Persons
claiming by, through or under them; provided, however, that nothing herein shall
be deemed to imply any right on behalf of Trustor to assign its interest in any
of the Trust Property except as may be expressly set forth in the Financing
Agreement.

          SECTION 9.09 Severability. This Deed of Trust is intended to be
performed in accordance with, and only to the extent permitted by, all
applicable laws and regulations of applicable Governmental Authorities and the
provisions hereof are intended to be limited to the extent necessary that they
will not render this Deed of Trust invalid, unenforceable or not entitled to be
recorded, registered or filed under the provisions of any applicable law. If any
provision hereof or the application thereof to any Person or circumstance shall,
for any reason and to any extent, be invalid or unenforceable, neither the
remainder of this Deed of Trust nor the application of such provision to other
Persons or circumstances shall be affected thereby, but rather shall be enforced
to the greatest extent permitted by applicable law.

          SECTION 9.10 Subrogation of Trustee. This Deed of Trust is made with
full substitution and subrogation of Trustee and successors in this trust to
Trustee and Trustee and such successors assigns in and to all covenants and
warranties by others heretofore given or made in respect of the Trust Property
or any part thereof.

          SECTION 9.11 Entire Agreement and Modification. This Deed of Trust may
not be amended, revised, waived, discharged, released or terminated orally, but
only by a written instrument or instruments executed by the party against which
enforcement of the amendment, revision, waiver, discharge, release or
termination is asserted. Any alleged amendment, revision, waiver, discharge,
release or termination which is not so documented shall not be effective as to
any party.


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<PAGE>

          SECTION 9.12 Applicable Law. THIS DEED OF TRUST, THE FINANCING
AGREEMENT AND THE LOAN DOCUMENTS HAVE BEEN DELIVERED IN THE STATE OF NEW YORK.
TRUSTOR AND BENEFICIARY FURTHER AGREE AND STIPULATE THAT THIS DEED OF TRUST, THE
FINANCING AGREEMENT AND THE LOAN DOCUMENTS HAVE BEEN DELIVERED IN THE STATE OF
NEW YORK WERE NEGOTIATED, EXECUTED AND DELIVERED IN THE STATE OF NEW YORK, AND
THAT THE STATE OF NEW YORK HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO
THE UNDERLYING TRANSACTION. IT IS THEREFORE THE INTENT OF TRUSTOR AND
BENEFICIARY THAT THIS DEED OF TRUST SHALL BE CONSTRUED AND INTERPRETED WITH, AND
GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT
TO NEW YORK CHOICE OF LAW PRINCIPLES); PROVIDED, HOWEVER, THAT THE LAWS OF THE
STATE OF CALIFORNIA SHALL APPLY TO THE CREATION, PERFECTION AND PROCEDURES
GOVERNING ENFORCEMENT OF ANY LIENS, SECURITY INTERESTS AND ENCUMBRANCES GRANTED
OR CREATED BY THIS DEED OF TRUST IN THE REAL OR PERSONAL PROPERTY LOCATED IN (OR
IN THE CASE OF INTANGIBLE PERSONAL PROPERTY, HAVING A SITUS IN) THE STATE OF
CALIFORNIA, AND THE MANAGEMENT, OPERATION, DISPOSITION AND REALIZATION OF THE
SECURITY PROVIDED THEREBY. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE
LAWS OF THE STATE OF NEW YORK SHALL APPLY TO (I) ALL MATTERS RELATING TO THE
CHARGING AND COLLECTION OF INTEREST UNDER THIS DEED OF TRUST AND WITH RESPECT TO
THE OBLIGATIONS, (II) THE ENFORCEMENT OF ALL RIGHTS UNDER THE FINANCING
AGREEMENT, AND THE LOAN DOCUMENTS OTHER THAN THIS DEED OF TRUST AND (III) THE
RIGHT TO SUE TRUSTOR OR ANY OTHER PERSON OBLIGATED UNDER THE LOAN AGREEMENT AND
THE LOAN DOCUMENTS TO COLLECT ANY OUTSTANDING OBLIGATIONS OR TO OBTAIN A
JUDGMENT FOR ANY DEFICIENCY FOLLOWING FORECLOSURE UNDER ANY ONE ACTION AND
ANTIDEFICIENCY RULES. TRUSTOR HEREBY AGREES THAT BENEFICIARY MAY ENFORCE ITS
RIGHTS UNDER THIS DEED OF TRUST AND ANY OF THE OTHER LOAN DOCUMENTS, INCLUDING
THE RIGHT TO SUE TRUSTOR OR ANY PERSON OBLIGATED UNDER THE LOAN DOCUMENTS TO
COLLECT ANY OUTSTANDING OBLIGATIONS OR TO OBTAIN A JUDGMENT FOR ANY DEFICIENCY
FOLLOWING FORECLOSURE, IN ACCORDANCE WITH NEW YORK LAW, AND TRUSTOR HEREBY
ACKNOWLEDGES THAT THE CALIFORNIA CODE OF CIVIL PROCEDURE SECTIONS 580A, 580D AND
726 DO NOT APPLY TO THIS DEED OF TRUST, THE FINANCING AGREEMENT AND THE LOAN
DOCUMENTS AND, TO THE EXTENT THEY APPLY WAIVES TO THE MAXIMUM EXTENT PERMITTED
BY LAW ANY RIGHTS WHICH IT MAY HAVE UNDER THE SUCH SECTIONS.

          SECTION 9.13 Satisfaction of Prior Encumbrance. To the extent that
proceeds advanced pursuant to the Financing Agreement are used to pay
indebtedness secured by any outstanding Lien, security interest, charge or prior
encumbrance against the Trust Property, such proceeds shall be deemed to have
been advanced by Beneficiary at Trustor's request, and Beneficiary shall be
subrogated to any and all rights, security interests and Liens owned by any


                                       33

<PAGE>

owner or holder of such outstanding Liens, security interests, charges or
encumbrances, irrespective of whether said Liens, security interests, charges or
encumbrances are released, and it is expressly understood that, in consideration
of the payment of such other indebtedness by Beneficiary, Trustor hereby waives
and releases all demands and causes of action for offsets and payments to, upon
and in connection with the said indebtedness.

          SECTION 9.14 No Partnership. Nothing contained in this Deed of Trust
is intended to, or shall be construed to, create to any extent and in any manner
whatsoever any partnership, joint venture, or association between Trustor and
Beneficiary, or in any way make Beneficiary a co-principal with Trustor with
reference to the Trust Property, and any inferences to the contrary are hereby
expressly negated.

          SECTION 9.15 Headings. The Article, Section and Subsection headings
hereof are inserted for convenience of reference only and shall in no way alter,
modify or define, or be used in construing, the text of such Articles, Sections
or Subsections.

          SECTION 9.16 Release of Deed of Trust. If all of the Obligations shall
be paid, performed and discharged, and the Financing Agreement is terminated,
Beneficiary shall forthwith cause satisfaction and discharge of this Deed of
Trust to be entered upon the record, at the sole cost and expense of Trustor,
and shall execute and deliver (or cause to be executed and delivered) such
instruments of satisfaction and discharge as may be appropriate, such
instruments to be duly acknowledged and in form for recording, at the sole cost
and expense of Trustor.

          SECTION 9.17 Limitation of Obligations with Respect to Trust Property.

          (A) Neither Trustee nor Beneficiary or any Lender shall have any duty
to protect or preserve, or any liability with respect to the protection or
preservation of, any Trust Property or to preserve rights pertaining thereto
other than the duty to use reasonable care in the custody and preservation of
any Trust Property in its actual possession. Beneficiary shall be deemed to have
exercised reasonable care in the custody and preservation of any Trust Property
in its possession if such Trust Property is accorded treatment substantially
equal to that which Beneficiary accords its own like property. Beneficiary shall
be relieved of all responsibility for any Trust Property in its possession upon
surrendering it, or tendering surrender of it, to Trustor or to such other
Person entitled thereto by applicable law.

          (B) Nothing contained in this Deed of Trust shall be construed as
requiring or obligating Trustee, Beneficiary or any Lender, and neither Trustee
nor Beneficiary or any Lender shall be required or obligated, to (i) make any
demand or inquiry as to the nature or sufficiency of any payment received by it,
or present or file any claim or notice or take any action with respect to any
Trust Property or the monies due or to become due thereunder in connection
therewith, (ii) ascertain or take action with respect to calls, conversions,
exchanges, maturities, tenders, offers or other matters relating to any Trust
Property, whether or not Beneficiary or any of the other Lenders has or is
deemed to have knowledge or notice thereof, (iii) take any necessary steps to
preserve rights against any prior parties with respect to any Trust Property, or
(iv) notify Trustor or any other Person of any decline in the value of any Trust
Property.


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<PAGE>

          SECTION 9.18 Inconsistency with Financing Agreement. To the fullest
extent possible, the terms and provisions of the Financing Agreement shall be
read together with the terms and provisions of this Deed of Trust such that the
terms and provisions of this Deed of Trust shall supplement, rather than
conflict with, the terms and provisions of the Financing Agreement; provided,
however, that, notwithstanding the foregoing, in the event any of the terms or
provisions of this Deed of Trust conflict with any of the terms or provisions of
the Financing Agreement, such that it is impractical for such terms or
provisions to coexist, the terms or provisions of the Financing Agreement shall
govern and control for all purposes; and, provided further, that the inclusion
in this Deed of Trust of terms and provisions, supplemental rights or remedies
in favor of a secured party but which are not addressed in the Financing
Agreement shall not be deemed to be a conflict with the Financing Agreement and
all such additional terms, provisions, supplemental rights or remedies contained
herein shall be given full force and effect.

          SECTION 9.19 Limitation on Interest Payable. It is the intention of
the parties to conform strictly to the usury laws, whether state or federal,
that are applicable to the transaction of which this Deed of Trust is a part.
All agreements between Trustor and Beneficiary, or any Lender, whether now
existing or hereafter arising and whether oral or written, are hereby expressly
limited so that in no contingency or event whatsoever shall the amount paid or
agreed to be paid by Trustor for the use, forbearance or detention of the money
to be loaned under the Financing Agreement or any other Loan Document, or for
the payment or performance of any covenant or obligation contained herein or in
the Financing Agreement or any other Loan Document, exceed the maximum amount
permissible under applicable federal or state usury laws. If, under any
circumstances, fulfillment of any such provision, at the time performance of
such provision shall be due, shall involve exceeding the limit of validity
prescribed by applicable law, then the obligation to be fulfilled shall be
reduced to the limit of such validity. If, under any circumstances, Trustor
shall have paid an amount of money which is deemed to be interest and such
interest would exceed the highest lawful rate, such amount that would be
excessive interest under applicable usury laws shall be applied to the reduction
of the principal amount owing in respect of the Obligations and not to the
payment of interest, or if such excessive interest exceeds the unpaid balance of
principal and any other amounts due hereunder, the excess shall be refunded to
Trustor. All sums paid or agreed to be paid for the use, forbearance or
detention of the principal under any extension of credit by Beneficiary (or
Lender) shall, to the extent permitted by applicable law, and to the extent
necessary to preclude exceeding the limit of validity prescribed by applicable
law, be amortized, prorated, allocated and spread from the date of this Deed of
Trust until payment in full of the Obligations so that the actual rate of
interest on account of such principal amounts is uniform throughout the term
hereof.

          SECTION 9.20 Covenants To Run With the Land. All of the grants,
representations, warranties, undertakings, covenants, terms, provisions and
conditions in this Deed of Trust shall run with the Land and shall apply to and
bind the successors and assigns of Trustor. If there shall be more than one
trustor, the covenants, representations and warranties made herein shall be
deemed to be joint and several.

          SECTION 9.21 Amount Secured; Last Dollar. So long as the balance of
the Obligations exceeds the portion of the Obligations secured by this Deed of
Trust, no payment on account of the Obligations shall be deemed to be applied
against or to reduce the portion of the


                                       35

<PAGE>

Obligations secured by this Deed of Trust, but shall, instead, be deemed to be
applied against only such portions of the Obligations that are not secured by
this Deed of Trust.

          SECTION 9.22 Defense of Claims. Trustor shall promptly notify
Beneficiary in writing of the commencement of any legal proceedings affecting
Trustor's title to the Trust Property or Beneficiary's Lien on or security
interest in the Trust Property, or any part thereof, and shall take all such
action, employing attorneys agreeable to Beneficiary, as may be necessary to
preserve Trustor's and Beneficiary's rights affected thereby. If Trustor fails
or refuses to adequately or vigorously, in the sole judgment of Beneficiary,
defend Trustor's or Beneficiary's rights to the Trust Property, Beneficiary may
take such action on behalf of and in the name of Trustor and at Trustor's
expense. Moreover, Beneficiary may take (or cause its agents to take) such
independent action in connection therewith as they may in their discretion deem
proper, including, without limitation, the right to employ independent counsel
and to intervene in any suit affecting the Trust Property. All costs, expenses
and attorneys' fees incurred by Beneficiary (or its agents) pursuant to this
Section 9.22 or in connection with the defense by Beneficiary of any claims,
demands or litigation relating to Trustor, the Trust Property or the
transactions contemplated in this Deed of Trust shall be paid by Trustor on
demand, plus interest thereon from the date of the advance by Beneficiary until
reimbursement of Beneficiary at the Post-Default Rate.

          SECTION 9.23 Exculpation Provisions. EACH OF THE PARTIES HERETO
SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS DEED OF TRUST; AND AGREES
THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS DEED OF TRUST;
THAT IT HAS IN FACT READ THIS DEED OF TRUST AND IS FULLY INFORMED AND HAS FULL
NOTICE AND KNOWLEDGE OF THE TERMS, CONDITIONS AND EFFECTS OF THIS DEED OF TRUST;
THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE
THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS DEED OF TRUST AND
HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS DEED OF TRUST; AND
THAT IT RECOGNIZES THAT CERTAIN TERMS OF THIS DEED OF TRUST RESULT IN ONE PARTY
ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING
THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO
AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF
ANY EXCULPATORY PROVISION OF THIS DEED OF TRUST ON THE BASIS THAT THE PARTY HAD
NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT
"CONSPICUOUS."

          SECTION 9.24 No Merger of Estates. So long as any part of the
Obligations remain unpaid, unperformed or undischarged, the fee, easement and
leasehold estates to the Trust Property shall not merge but rather shall remain
separate and distinct, notwithstanding the union of such estates either in
Trustor, Beneficiary, any lessee, any third-party purchaser or otherwise.

          SECTION 9.25 Suretyship Waivers. As used in this Section 9.25, the
term "Obligor" shall mean each any Obligor, other than the Trustor, obligated
for any of the Obligations secured by this Deed of Trust.


                                       36

<PAGE>

          (A) Representations and Warranties. Trustor represents and warrants to
Beneficiary that: (A) this Deed of Trust is executed, in part, at the request of
the Obligors; (B) this Deed of Trust complies with all agreements between each
Obligor regarding Trustor's execution hereof; (C) Beneficiary has made no
representation to any Trustor as to the creditworthiness of any Obligor; and (D)
Trustor has established adequate means of obtaining from each Obligor on a
continuing basis financial and other information pertaining to such Obligor's
financial condition. Trustor agrees to keep adequately informed from such means
of any facts, events or circumstances which might in any way affect such
Trustor's risks hereunder. Trustor further agrees that Beneficiary shall have no
obligation to disclose to Trustor any information or material about any Obligor
which is acquired by Beneficiary in any manner. The liability of Trustor
hereunder shall be reinstated and revived, and the rights of Beneficiary shall
continue if and to the extent that for any reason any amount at any time paid on
account of any Obligation is rescinded or must otherwise be restored by
Beneficiary, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise, all as though such amount had not been paid. The
determination as to whether any amount so paid must be rescinded or restored
shall be made by Beneficiary in its sole discretion; provided however, that if
Beneficiary chooses to contest any such matter at the request of Trustor,
Trustor agrees to indemnify and hold Beneficiary harmless from and against all
costs and expenses, including reasonable attorneys' fees, expended or incurred
by Beneficiary in connection therewith, including without limitation, any
litigation with respect thereto.

          (B) General Suretyship Waivers.

               (i) Trustor waives any right to require Beneficiary to: (i)
     proceed against any Obligor or any other person; (ii) marshal assets or
     proceed against or exhaust any security held from any Obligor or any other
     person; (iii) take any action or pursue any other remedy in Beneficiary's
     power; or (iv) make any presentment or demand for performance, or give any
     notice of nonperformance, protest, notice of protest or notice of dishonor
     hereunder or in connection with any obligations or evidences of
     indebtedness held by Beneficiary as security for or which constitute in
     whole or in part the Obligations, or in connection with the creation of new
     or additional obligations.

               (ii) Trustor waives any defense to its obligations hereunder
     based upon or arising by reason of: (i) any disability or other defense of
     any Obligor or any other person; (ii) the cessation or limitation from any
     cause whatsoever, other than payment in full, of any Obligation; (iii) any
     lack of authority of any officer, director, partner, agent or any other
     person acting or purporting to act on behalf of any Obligor which is a
     corporation, partnership or other type of entity, or any defect in the
     formation of any such Obligor; (iv) the application by any Obligor of the
     proceeds of any Obligation for purposes other than the purposes represented
     by any Obligor to, or intended or understood by, Beneficiary or any
     Trustor; (v) any act or omission by Beneficiary which directly or
     indirectly results in or aids the discharge of any Obligor of any portion
     of the Obligations by operation of law or otherwise, or which in any way
     impairs or suspends any rights or remedies of Beneficiary against any
     Obligor; (vi) any impairment of the value of any interest in any security
     for the Obligations or any portion thereof, including without limitation,
     the failure to obtain or maintain perfection or recordation of any interest
     in any such security, the release of any such security without
     substitution, and/or


                                       37

<PAGE>

     the failure to preserve the value of, or to comply with applicable law in
     disposing of, any such security; or (vii) any modification of the
     Obligations, in any form whatsoever, including without limitation the
     renewal, extension, acceleration or other change in time for payment of, or
     other change in the terms of, the Obligations or any portion thereof,
     including increase or decrease of the rate of interest thereon. Until all
     Obligations shall have been paid in full, no Trustor shall have any right
     of subrogation, and Trustor waives any right to enforce any remedy which
     Beneficiary now has or may hereafter have against any Obligor or any other
     person, and waives any benefit of, or any right to participate in, any
     security now or hereafter held by Beneficiary. Trustor further waives all
     rights and defenses it may have arising out of: (1) any election of
     remedies by Beneficiary, even though that election of remedies, such as a
     non-judicial foreclosure with respect to any security for any portion of
     the Obligations, destroys Trustor's rights of subrogation or Trustor's
     rights to proceed against any Obligor for reimbursement; or (2) any loss of
     rights Trustor may suffer by reason of any rights, powers or remedies of
     any Obligor in connection with any anti-deficiency laws or any other laws
     limiting, qualifying or discharging any Obligor's obligations, whether by
     operation of Sections 726, 580a and 580d of the Code of Civil Procedure as
     from time to time amended (to the extent California law applies or may be
     determined to apply), or otherwise, including any rights Trustor may have
     to a Section 580a fair market value hearing to determine the size of a
     deficiency following any trustee's foreclosure sale or other disposition of
     any security for any portion of the Obligations (to the extent California
     law applies or may be determined to apply).

               (iii) If any of said waivers is determined to be contrary to any
     applicable law or public policy, such waiver shall be effective to the
     extent permitted by applicable law or public policy.

          (C) Additional Suretyship Waivers.

               (i) Trustor hereby expressly waives and agrees not to assert or
     take advantage of any defense based upon:

                    (1) The incapacity, lack of authority, death or disability
          of any Obligor or any other person or entity;

                    (2) The failure of Beneficiary to commence an action against
          any Obligor or to proceed against or exhaust any security held by
          Beneficiary at any time, or to pursue any other remedy whatsoever at
          anytime;

                    (3) Any duty on the part of Beneficiary to disclose to
          Trustor any facts Beneficiary may now or hereafter know regarding any
          Obligor, regardless of whether Beneficiary has reason to believe (i)
          that any such facts materially increase the risk beyond that which
          Trustor intends to assume, or (ii) that such facts are unknown to
          Trustor, Trustor acknowledging that he, she or it is fully responsible
          for being and keeping informed of the financial condition and affairs
          of any Obligor;


                                       38

<PAGE>

                    (4) Lack of notice of default, demand of performance or
          notice of acceleration to any Obligor or any other party with respect
          to the Loans or any Obligor's obligations guarantied by Trustor;

                    (5) The consideration for the Loan Documents;

                    (6) The revocation or repudiation hereof by Trustor or the
          revocation or repudiation of any of the Loan Documents by any Obligor
          or any other person;

                    (7) The unenforceability in whole or in part of the Loan
          Documents against any Obligor;

                    (8) Any acts or omissions of Beneficiary which vary,
          increase or decrease the risk on Trustor;

                    (9) Any rights or defenses based upon an offset by Trustor
          against any obligation now or hereafter owed to Trustor by any
          Obligor;

                    (10) Any statute of limitations affecting the liability of
          Trustor hereunder, the liability of any Obligor or any other guarantor
          under the Loan Documents or the enforcement hereof, to the extent
          permitted by law;

                    (11) The application by any Obligor of the proceeds of the
          Loans or other financial accommodations under the Financing Agreement
          for purposes other than the purposes represented by any Obligor to
          Beneficiary and Trustor or intended or understood by Beneficiary or
          Trustor;

                    (12) An election of remedies by Beneficiary, including any
          election to proceed against any collateral by judicial or nonjudicial
          foreclosure, whether real property or personal property that is
          security for the any Obligor's obligations under the Loan Documents,
          or by deed in lieu thereof, and whether or not every aspect of any
          foreclosure sale is commercially reasonable, and whether or not any
          such election of remedies destroys or otherwise impairs the
          subrogation rights of Trustor or the rights of Trustor to proceed
          against any Obligor or any other guarantor by way of subrogation or
          for reimbursement or contribution, or all such rights;

                    (13) Any statute or rule of law which provides that the
          obligation of a surety must be neither larger in amount nor in any
          other aspects more burdensome than that of the principal obligor;

                    (14) Beneficiary's election, in any proceeding instituted
          under Title 11 of the United States Code (the "Bankruptcy Code"), of
          the application of Bankruptcy Code Section 1111(b)(2) or any
          successor statute;

                    (15) Any borrowing or any grant of a security interest under
          Bankruptcy Code Section 364; and


                                       39

<PAGE>

                    (16) Any other suretyship defense that may be available to
          Trustor. Without limiting the generality of the foregoing (to the
          extent California law applies or may be determined to apply), Trustor
          also waives (y) any defense based upon Beneficiary's election to waive
          its lien as to all or any security for the Loans or for the guarantor
          of any other person pursuant to California Code of Civil Procedure
          ("CCP ") Section 726.5, under any similar law in any other state that
          may be applicable because any Obligor's obligations are secured by a
          lien on real property in such state, or otherwise, and (z) any and all
          benefits which might otherwise be available to Trustor under
          California Civil Code ("Civil Code") Sections 2809, 2810, 2815, 2819,
          2839, 2845 through 2850, 2899 and 3433.

               (ii) Trustor understands and acknowledges that if Beneficiary
     forecloses judicially or nonjudicially against any real property that is
     security for any Obligor's obligations under the Loan Documents (other than
     this Deed of Trust), that foreclosure could impair or destroy any ability
     that Trustor may have to seek reimbursement, contribution or
     indemnification from any such Obligor based on any right Trustor may have
     of subrogation, reimbursement, contribution or indemnification for any
     amounts paid by Trustor under the Loan Documents or realized by Beneficiary
     by way of foreclosure of this Deed of Trust. Trustor further understands
     and acknowledges that in the absence of this provision, the potential
     impairment or destruction of Trustor's rights, if any, may (to the extent
     California law applies or may be determined to apply) entitle Trustor to
     assert a defense to its obligations under this Deed of Trust and the Loan
     Documents based on CCP Section 580d as interpreted in Union Bank vs.
     Gradsky. By executing this Deed of Trust, Trustor freely, irrevocably and
     unconditionally:

                    (1) waives and relinquishes that defense, and agrees that
          Trustor will be fully liable for its obligations under the Loan
          Documents and the Trust Property will continue to be security for the
          Obligations, even though Beneficiary may foreclose judicially or
          nonjudicially against any real property that is security for the any
          Obligor's obligations under the Loan Documents;

                    (2) agrees that Trustor will not assert that defense in any
          action or proceeding that Beneficiary may commence to enforce the
          obligations of Trustor under this Deed of Trust and the Loan
          Documents;

                    (3) acknowledges and agrees that the rights and defenses
          waived by Trustor under the Loan Documents include any right or
          defense that Trustor may have or be entitled to assert based upon or
          arising out of any one or more of the following: (i) CCP Sections 580a
          (which if Trustor had not given this waiver, would otherwise limit
          Trustor's liability (and the extent of the Obligations to which the
          Trust Property would be exposed) after any nonjudicial foreclosure
          sale to the difference between the amount of the Obligations and the
          fair market value of the property or interests sold at such
          nonjudicial foreclosure sale against any real property that is
          security for the an Obligor's obligations under the Loan Documents
          rather than the actual proceeds of such sale), 580b and 580d (which if
          Trustor had not given this waiver, would otherwise limit Beneficiary's
          right to recover a deficiency judgment (or to foreclose this Deed of
          Trust and otherwise


                                       40

<PAGE>

          pursue the Trust Property) with respect to purchase money obligations
          and after any nonjudicial foreclosure sale against any real property
          that is security for the an Obligor's obligations under the Loan
          Documents, respectively), or 726 (which, if Trustor had not given this
          waiver, among other things, would otherwise require Beneficiary to
          exhaust all of its security against an Obligor or Obligors before
          Beneficiary would be entitled to exercise its remedies under this Deed
          of Trust or pursue a personal judgment for a deficiency against the
          any Obligor); or (ii) Civil Code Section 2848; and

                    (4) acknowledges and agrees that Beneficiary is relying on
          this waiver in making the Loan or other financial accommodations under
          the Financing Agreement, and that this waiver is a material part of
          the consideration that Beneficiary is receiving for making the Loans
          or other financial accommodations under the Financing Agreement.
          WITHOUT LIMITING THE FOREGOING, TRUSTOR WAIVES ALL RIGHTS AND DEFENSES
          THAT TRUSTOR HAS BECAUSE ANY OBLIGOR'S OBLIGATIONS UNDER THE LOAN
          DOCUMENTS ARE SECURED BY REAL PROPERTY. THIS MEANS, AMONG OTHER
          THINGS:

                         a. BENEFICIARY MAY COLLECT FROM TRUSTOR OR EXERCISE ITS
                    REMEDIES UNDER THIS DEED OF TRUST WITHOUT FIRST FORECLOSING
                    ON ANY REAL OR PERSONAL PROPERTY COLLATERAL PLEDGED BY ANY
                    OBLIGOR; AND

                         b. IF BENEFICIARY FORECLOSES ON ANY REAL PROPERTY
                    COLLATERAL PLEDGED BY ANY OBLIGOR:

                              (i) THE AMOUNT OF THE OBLIGATIONS MAY BE REDUCED
                         ONLY BY THE PRICE FOR WHICH THAT COLLATERAL IS SOLD AT
                         THE FORECLOSURE SALE, EVEN IF THE COLLATERAL IS WORTH
                         MORE THAN THE SALE PRICE; AND

                              (ii) BENEFICIARY MAY COLLECT FROM TRUSTOR AND
                         EXERCISE ITS REMEDIES UNDER THIS DEED OF TRUST EVEN IF
                         BENEFICIARY, BY FORECLOSING ON THE REAL PROPERTY
                         COLLATERAL, HAS DESTROYED ANY RIGHT TRUSTOR MAY HAVE TO
                         COLLECT FROM ANY OBLIGOR.

          THIS IS AN UNCONDITIONAL AND IRREVOCABLE WAIVER OF ANY RIGHTS AND
          DEFENSES TRUSTOR HAS BECAUSE ANY OBLIGOR'S OBLIGATIONS UNDER THE LOAN
          DOCUMENTS ARE SECURED BY REAL PROPERTY. THESE RIGHTS AND DEFENSES
          INCLUDE, BUT ARE


                                       41

<PAGE>

          NOT LIMITED TO, ANY RIGHTS OR DEFENSES BASED UPON CCP SECTIONS 580a,
          580b, 580d OR 726.

          SECTION 9.26 Beneficiary Statement. Beneficiary may collect a fee not
to exceed the maximum allowed by applicable law for furnishing the statement of
obligation as provided in Section 2943 of the Civil Code of California.

          SECTION 9.27 Request for Notice. Pursuant to Section 2924b(d) of the
California Civil Code, Trustor and Beneficiary request that a copy of any notice
of default and a copy of any notice of sale be mailed to Trustor and
Beneficiary, respectively, at the address for such party set forth herein

          SECTION 9.28 Release and Reconveyance. Lender will release and
reconvey its interest under this Deed of Trust to the Trust Property as required
by Section 7.04 of the Financing Agreement.

             [NO FURTHER TEXT ON THIS PAGE; SIGNATURE PAGE FOLLOWS]


                                       42

<PAGE>

     IN WITNESS WHEREOF, Trustor has executed this Deed of Trust as of the date
first above written.

                                        TRUSTOR:

                                        LAKES KAR SHINGLE SPRINGS, L.L.C., a
                                        Delaware limited liability company


                                        By: /s/ Timothy J. Cope
                                            ------------------------------------
                                            Timothy J. Cope,
                                            Chief Financial Officer
<PAGE>

                                 ACKNOWLEDGEMENT

STATE OF NEW YORK    )
                     ) ss:
COUNTY OF NEW YORK   )

On February 15, 2006 before me personally appeared Timothy J. Cope, personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity(ies),
and that by his signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.


                                        /s/ THOMAS W. CAPLIS
                                        ----------------------------------------
                                        Notary Public

                                        THOMAS W. CAPLIS
                                        Notary Public, State of New York
                                        No. 01CA6024777
                                        Qualified in New York County
                                        Commission Expires May 17, 2007
<PAGE>

                                    EXHIBIT A

                                LEGAL DESCRIPTION

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE UNINCORPORATED AREA, COUNTY
OF EL DORADO, STATE OF CALIFORNIA AND IS DESCRIBED AS FOLLOWS:

PARCEL ONE:

PARCEL 1, AS SHOWN ON THAT CERTAIN PARCEL MAP ENTITLED "PARCEL MAP, A POR. S.W.
1/4 SEC 29, T.10N., R.10E., M.D.B.&M., BEING PARCEL D, P.M. 12-125", FILED IN
THE OFFICE OF THE COUNTY RECORDER OF EL DORADO COUNTY ON MARCH 23, 1978, IN BOOK
19 OF PARCEL MAPS, AT PAGE 72.

APN: 319-110-13-100

PARCEL TWO:

PARCEL 3, AS SHOWN ON THAT CERTAIN PARCEL MAP FILED IN THE OFFICE OF THE COUNTY
RECORDER OF EL DORADO, STATE OF CALIFORNIA, ON FEBRUARY 8, 1977, IN BOOK 14, OF
PARCEL MAPS, AT PAGE 22.

APN: 319-110-09-100

PARCEL THREE:

PARCEL 2, AS SHOWN UPON THE MAP ENTITLED "PARCEL MAP, A POR. S.W. 1/4 SEC. 29
T.10N. R.10E., M.D.M. BEING PARCEL D. P.M. 12-125" FILED IN THE OFFICE OF THE
COUNTY RECORDER, COUNTY OF EL DORADO, STATE OF CALIFORNIA, ON MARCH 23, 1978 IN
BOOK 19 OF PARCEL MAPS AT PAGE 72.

APN: 319-110-14-100

PARCEL FOUR:

PARCEL 9, AS SAID PARCEL IS SHOWN ON THAT CERTAIN PARCEL MAP ENTITLED "PORTION
OF SECTIONS 29, 30, 31 & 32, T.10 N., R.10E., M.D.B.&M., AND PORTION OF SECTION
6, T.9N., R.10E, M.D.M.", FILED AUGUST 31, 1972 IN THE OFFICE OF THE COUNTY
RECORDER OF SAID COUNTY IN BOOK 1 OF PARCEL MAPS, AT PAGE 163.

APN: 319-210-18-100, 319-230-49-100, 319-230-48-100

PARCEL FIVE:

PARCEL 1, AS SHOWN ON THE PARCEL MAP FILED APRIL 4, 1978 IN BOOK 19 OF PARCEL
MAPS, AT PAGE 81, EL DORADO COUNTY RECORDS.


                                  Exhibit A-1

<PAGE>

APN: 319-110-17-100

PARCEL 6:

PARCEL 13, AS SAID PARCEL IS SHOWN ON THAT CERTAIN PARCEL MAP ENTITLED "PORTION
OF SECTIONS 29, 30, 31, AND 32, T.10N., R.10E., AND PORTION OF SECTION 6 T.9N.,
R.10E, M.D.M.", FILED AUGUST 31, 1972 IN THE OFFICE OF THE COUNTY RECORDER OF
SAID COUNTY IN BOOK 1 OF PARCEL MAPS AT PAGE 163.

APN: 319-220-18-100


                                       2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.10
<SEQUENCE>12
<FILENAME>c02665exv10w10.txt
<DESCRIPTION>DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS
<TEXT>
<PAGE>
                                                                   Exhibit 10.10

THIS DEED OF TRUST WAS PREPARED BY
AND WHEN RECORDED, RETURN TO:

Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
Attention: Caryn J. Ettinger, Esq.
Reference No.: 089253 0012

                 DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS,
                      SECURITY AGREEMENT AND FIXTURE FILING

                                     made by

                           LAKES SHINGLE SPRINGS, INC.
                                    (TRUSTOR)

                                       to

                    FIDELITY NATIONAL TITLE INSURANCE COMPANY
                                    (TRUSTEE)

                               for the benefit of

                                PLKS FUNDING, LLC
                                  (BENEFICIARY)

                               PROPERTY LOCATION:

                           5000 and 5020 Artesia Road
                           Shingle Springs, California

                         DATED AS OF FEBRUARY 15,2006

    THIS ALSO CONSTITUTES FINANCING STATEMENTS FILED AS A FIXTURE FILING AND
 FINANCING STATEMENT PURSUANT TO SECTIONS 9501(a)(1) AND 9502(b) AND (c) OF
   THE CALIFORNIA UNIFORM COMMERCIAL CODE AND IS RECORDED AS A FIXTURE FILING

     PURSUANT TO SECTION 2924B(d) OF THE CALIFORNIA CIVIL CODE, TRUSTOR AND
   BENEFICIARY REQUEST THAT A COPY OF ANY NOTICE OF DEFAULT AND A COPY OF ANY
    NOTICE OF SALE BE MAILED TO TRUSTOR AND BENEFICIARY, RESPECTIVELY, AT THE
                    ADDRESS FOR SUCH PARTY SET FORTH HEREIN.

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>                                                                         <C>
ARTICLE I DEFINITIONS....................................................     2
   SECTION 1.01   Terms Defined Above....................................     2
   SECTION 1.02   Definitions............................................     2
   SECTION 1.03   Terminology............................................     6
   SECTION 1.04   Other Defined Terms....................................     6

ARTICLE II GRANT OF LIEN AND SECURITY INTEREST...........................     6
   SECTION 2.01   Grant of Lien..........................................     6
   SECTION 2.02   Grant of Security Interest.............................     6
   SECTION 2.03   No Obligation of Beneficiary...........................     7
   SECTION 2.04   Fixture Filing.........................................     7
   SECTION 2.05   Future Advances........................................     7
   SECTION 2.06   Intentionally Omitted..................................     7

ARTICLE III ASSIGNMENT OF LEASES AND RENTS...............................     7
   SECTION 3.01   Assignment.............................................     8
   SECTION 3.02   Revocable License......................................     8
   SECTION 3.03   Enforcement of Leases..................................     8
   SECTION 3.04   Direction to Tenants...................................     9
   SECTION 3.05   Appointment of Attorney-in-Fact........................     9
   SECTION 3.06   No Liability of Beneficiary............................    10
   SECTION 3.07   Trustor's Indemnities..................................    10
   SECTION 3.08   No Modification of Trustor's Obligations...............    11
   SECTION 3.09   Rights in Bankruptcy...................................    11
   SECTION 3.10   Right to Enforce Under California Civil Code
                     Section 2938........................................    11

ARTICLE IV REPRESENTATIONS AND WARRANTIES................................    13
   SECTION 4.01   Title to Trust Property and Lien of this Deed of
                     Trust...............................................    14
   SECTION 4.02   Taxes and Other Payments...............................    14
   SECTION 4.03   Power to Create Lien and Security......................    14
   SECTION 4.04   Loan and Financing Agreements..........................    14
   SECTION 4.05   Compliance with Laws...................................    14
   SECTION 4.06   No Condemnation........................................    15
   SECTION 4.07   Flood Zone.............................................    15
   SECTION 4.08   Additional Environmental Representation................    15

ARTICLE V AFFIRMATIVE COVENANTS..........................................    15
   SECTION 5.01   Lien Status............................................    15
   Section 5.02   Payment of Impositions.................................    16
   SECTION 5.03   Repair.................................................    16
   Section 5.04   Insurance and Application of Insurance Proceeds........    16
   SECTION 5.05   Condemnation and Application of Condemnation Proceeds..    19
</TABLE>


                                        i

<PAGE>

<TABLE>
<S>                                                                          <C>
   SECTION 5.06   Maintenance of Rights of Way, Easements, Licenses
                     and Other Rights....................................    19
   SECTION 5.07   Payment and Performance of Obligations.................    20
   SECTION 5.08   Compliance with Permitted Liens and Other Obligations..    20
   SECTION 5.09   Additional Affirmative Covenants.......................    20

ARTICLE VI NEGATIVE COVENANTS............................................    20
   SECTION 6.01   Use Violations.........................................    20
   SECTION 6.02   Waste..................................................    20
   SECTION 6.03   Alterations............................................    20
   SECTION 6.04   No Further Encumbrances................................    21
   SECTION 6.05   Transfer Restrictions..................................    21
   SECTION 6.06   Loan and Financing Agreements; Additional Negative
                     Covenants...........................................    21

ARTICLE VII EVENTS OF DEFAULT AND REMEDIES...............................    21
   SECTION 7.01   Event of Default.......................................    21
   SECTION 7.02   Acceleration...........................................    21
   SECTION 7.03   Foreclosure and Sale...................................    22
   SECTION 7.04   Trustee's Successors, Substitutes and Agents...........    23
   SECTION 7.05   Receivership...........................................    23
   SECTION 7.06   Judicial Foreclosure...................................    23
   SECTION 7.07   Separate Sales.........................................    24
   SECTION 7.08   Possession of Trust Property...........................    24
   SECTION 7.09   Occupancy After Foreclosure............................    24
   SECTION 7.10   Remedies Cumulative, Concurrent and Nonexclusive.......    25
   SECTION 7.11   No Release of Obligations..............................    25
   SECTION 7.12   Release of and Resort to Collateral....................    25
   SECTION 7.13   Waiver of Redemption, Notice and Marshalling of
                     Assets..............................................    25
   SECTION 7.14   Discontinuance of Proceedings..........................    26
   SECTION 7.15   Application of Proceeds................................    26
   SECTION 7.16   Uniform Commercial Code Remedies.......................    27
   SECTION 7.17   Indemnity..............................................    27
   SECTION 7.18   Waiver of Lien.........................................    28
   SECTION 7.19   Action for Environmental Claims........................    28

ARTICLE VIII TRUSTEE.....................................................    29
   SECTION 8.01   Duties, Rights, and Powers of Trustee..................    29
   SECTION 8.02   Successor Trustee......................................    29
   SECTION 8.03   Retention of Moneys....................................    30
   SECTION 8.04   Reconveyance...........................................    30

ARTICLE IX MISCELLANEOUS.................................................    30
   SECTION 9.01   Instrument Construed as Deed of Trust, Etc.............    30
   SECTION 9.02   Performance at Trustor's Expense.......................    30
   SECTION 9.03   Survival of Obligations................................    30
   SECTION 9.04   Further Assurances.....................................    30
   SECTION 9.05   Notices................................................    31
</TABLE>


                                       ii

<PAGE>

<TABLE>
<S>                                                                          <C>
   SECTION 9.06   No Waiver..............................................    31
   Section 9.07   Beneficiary's Right to Perform; Beneficiary's
                     Expenditures........................................    31
   SECTION 9.08   Successors and Assigns.................................    32
   SECTION 9.09   Severability...........................................    32
   Section 9.10   Subrogation of Trustee.................................    32
   SECTION 9.11   Entire Agreement and Modification......................    32
   SECTION 9.12   Applicable Law.........................................    33
   SECTION 9.13   Satisfaction of Prior Encumbrance......................    33
   SECTION 9.14   No Partnership.........................................    34
   SECTION 9.15   Headings...............................................    34
   SECTION 9.16   Release of Deed of Trust...............................    34
   SECTION 9.17   Limitation of Obligations with Respect to Trust
                     Property............................................    34
   SECTION 9.18   Inconsistency with Financing Agreement.................    35
   SECTION 9.19   Limitation on Interest Payable.........................    35
   SECTION 9.20   Covenants To Run With the Land.........................    35
   SECTION 9.21   Amount Secured; Last Dollar............................    35
   SECTION 9.22   Defense of Claims......................................    36
   SECTION 9.23   Exculpation Provisions.................................    36
   SECTION 9.24   No Merger of Estates...................................    36
   Section 9.25   Suretyship Waivers.....................................    36
   SECTION 9.26   Beneficiary Statement..................................    42
   SECTION 9.27   Request for Notice.....................................    42
   SECTION 9.28   Release and Reconveyance...............................    42
</TABLE>

EXHIBIT A - LEGAL DESCRIPTION


                                       iii

<PAGE>

                 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 (hereinafter, together with any and all amendments,
supplements, modifications or restatements of any kind, referred to as this
"Deed of Trust"), is made as of February 15, 2006, by LAKES SHINGLE SPRINGS,
INC., a Minnesota corporation having its principal place of business at c/o
Lakes Entertainment, Inc., 130 Cheshire Lane, Suite 101, Minnetonka, Minnesota
55309, Attention: Damon E. Schramm, Esq. ("Trustor"), to Fidelity National Title
Insurance Company, a California corporation (including any successor trustee at
the time acting as such hereunder, "Trustee"), for the benefit of PLKS FUNDING,
LLC, a Delaware limited liability company, having its principal place of
business at c/o Prentice Capital Management, LP, 623 Fifth Avenue, 32nd Floor,
New York, New York 10022, Attention: Michael Weiss (in such capacity, together
with its successors and assigns, "Beneficiary"), for itself and as agent for
each of the financial institutions and their respective successors and assigns
which from time to time shall be a "Lender" under the Financing Agreement (as
hereinafter defined).

                                    RECITALS:

          WHEREAS, Trustor, a subsidiary of Parent, as hereinafter defined, is
the owner and holder of fee simple title in and to the Land (as hereinafter
defined) described on Exhibit A attached hereto and made a part hereof;

          WHEREAS, on the date hereof, Trustor, Lakes Entertainment, Inc.
("Parent") and each of the Subsidiaries of Parent listed as a "Borrower" on the
signature pages of the Financing Agreement (each, along with Trustor and Parent
are hereinafter each referred to as a "Borrower" and collectively as, the
"Borrowers"), and the Guarantors (as defined in the Financing Agreement),
entered into that certain Financing Agreement with the Lenders and Beneficiary
(as the same may be amended, modified or otherwise supplemented and in effect
from time to time, the "Financing Agreement"), pursuant to which the Lenders
agreed to extend to the Borrowers certain revolving loan facilities in the
aggregate original principal amount of up to FIFTY MILLION and 00/100 Dollars
($50,000,000.00) (the "Loan");

          WHEREAS, Trustor will derive direct economic benefit from the Loan;

          WHEREAS, as a condition to Beneficiary executing the Financing
Agreement, Beneficiary is requiring that Trustor grant to Beneficiary, on behalf
of the Lenders, a security interest in and a first deed of trust lien upon the
Trust Property (as hereinafter defined), to secure (a) the payment of all of the
obligations of Trustor under the Financing Agreement, this Deed of Trust, and
the other Loan Documents (as hereinafter defined) (except for "Unsecured
Environmental Costs", as defined in Section 7.19 below), and (b) the performance
of all terms, covenants, conditions, provisions, agreements and liabilities
contained in the Financing Agreement, this Deed of Trust, and the other Loan
Documents.


                                       1

<PAGE>

          NOW, THEREFORE, in order to comply with the terms and conditions of
the Financing Agreement and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Trustor hereby agrees
with Beneficiary as follows:

                                    ARTICLE I

                                   DEFINITIONS

          SECTION 1.01 Terms Defined Above. As used in this Deed of Trust, the
terms defined in the introductory paragraph to this Deed of Trust and in the
Recitals set forth above shall have the meanings respectively assigned to them
above.

          SECTION 1.02 Definitions. As used herein, the following terms shall
have the following meanings:

          "Agent" has the meaning assigned to such term in the Financing
Agreement.

          "Applicable UCC" means the Uniform Commercial Code as presently in
effect in the State or Commonwealth where the Trust Property is located.

          "Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C.
Section 101, et. seq.), as amended, and any successor statute.

          "Buildings" means any and all buildings, structures, garages, utility
sheds, workrooms, air conditioning towers, open parking areas and other
improvements, and any and all additions, alterations, betterments or
appurtenances thereto, now or at any time hereafter situated, placed or
constructed upon the Land or any part thereof.

          "Default" has the meaning assigned to such term in the Financing
Agreement.

          "Event of Default" has the meaning assigned to such term in Section
7.01 hereof.

          "Fixtures" means all materials, supplies, equipment, apparatus and
other items now or hereafter acquired by Trustor and incorporated into the Trust
Property so as to constitute fixtures under the laws of the state in which such
items are located.

          "Governmental Authority" has the meaning assigned to such term in the
Financing Agreement.

          "Governmental Requirements" means any and all present and future
judicial decisions, statutes, rulings, rules, regulations, permits, certificates
or ordinances of any Governmental Authority in any way applicable to Trustor or
the Trust Property, including the ownership, use, occupancy, possession,
operation, maintenance, alteration, repair or reconstruction thereof.

          "Impositions" means any and all real estate and personal property
taxes; water, gas, sewer, electricity and other utility rates and charges;
charges for any easement, license or agreement maintained for the benefit of the
Trust Property; any and all other taxes, charges and


                                       2

<PAGE>

assessments, whether general or special, ordinary or extraordinary, foreseen or
unforeseen, of any kind and nature whatsoever which at any time prior to or
after the execution hereof may be assessed, levied or imposed upon the Trust
Property or the ownership, use, occupancy, benefit or enjoyment thereof,
together with any interest, costs or penalties that may become payable in
connection therewith.

          "Indemnified Parties" means, with respect to any Person entitled to
the benefit of an indemnity, such Person's officers, directors, shareholders,
partners, members, managers, employees, agents, representatives, attorneys,
accountants and experts. The term "Indemnified Party" means any one of such
Persons.

          "Indemnitees" has the meaning assigned to such term in the Financing
Agreement.

          "Land" means the real property or interest therein described in
Exhibit A attached hereto, and all rights, titles and interests appurtenant
thereto.

          "Leases" means any and all leases, master leases, subleases, licenses,
concessions or other agreements (whether written or oral, and whether now or
hereafter in effect) which grant to third Persons a possessory interest in and
to, or the right to use, all or any part of the Land, the Buildings, the
Fixtures and/or the Personalty, together with all security and other deposits
made in connection therewith and any guarantee of the obligations of the
landlord or the tenant thereunder.

          "License" has the meaning assigned to such term in Section 3.02(a)
hereof.

          "Lien" has the meaning assigned to such term in the Financing
Agreement.

          "Loan Documents" means, collectively, the Financing Agreement, this
Deed of Trust, and all other instruments, agreements and other documents
executed and delivered pursuant hereto or thereto or otherwise included in the
definition of the term "Loan Documents" in the Financing Agreement.

          "Losses" means all obligations, damages, claims, causes of action,
costs, fines, fees, charges, penalties, deficiencies, losses, diminutions in
value, expenses (including court costs, fees and expenses of attorneys,
accountants, consultants and other experts) and other liabilities, and, with
respect to any indemnity, includes all attorneys' fees, costs and expenses in
connection with the enforcement and collection of such indemnity. The term
"Loss" means any one of such Losses.

          "Trust Property" means all of Trustor's right, title, interest and
estate, whether now owned or hereafter acquired, in and to the Land, the
Buildings, the Fixtures and the Personalty, together with:

          (i)  all rights, privileges, tenements, hereditaments, rights-of-way,
               easements, air rights, development rights or credits, zoning
               rights, appendages and appurtenances in anywise appertaining
               thereto, and all right, title and interest of Trustor in and to
               any streets, ways, alleys, strips or gores of


                                       3

<PAGE>

               land adjoining the Land or any part thereof, and all right, title
               and interest of Trustor, if any, in and to all rights, royalties
               and profits with respect to all minerals, coal, oil, gas and
               other substances of any kind or character on or underlying the
               Land, together with all right, title and interest of Trustor in
               and to all water and water rights (whether riparian,
               appropriative or otherwise and whether or not appurtenant);

          (ii) all rights of Trustor (but not its obligations) under any
               contracts and agreements, including, without limitation,
               construction contracts and architectural agreements, relating to
               the Land, the Buildings, the Fixtures or the Personalty;

          (iii) all of Trustor's right, title and interest in and to all
               permits, licenses, franchises, certificates, authorizations,
               consents, approvals and other rights and privileges (each, a
               "Permit") obtained in connection with the Land, the Buildings,
               the Fixtures or the Personalty or the use or operation thereof;

          (iv) all of Trustor's right, title and interest in and to all plans
               and specifications, designs, schematics, drawings and other
               information, materials and matters heretofore or hereafter
               prepared relating to the Land, the Buildings, the Fixtures or the
               Personalty;

          (v)  all of Trustor's right, title and interest in and to all proceeds
               arising from or by virtue of the sale, lease or other disposition
               of the Land, the Buildings, the Fixtures or the Personalty or any
               part thereof or any interest therein or from the operation
               thereof;

          (vi) all of Trustor's right, title and interest in and to all Leases
               now or hereafter in effect and all Rents, royalties, bonuses,
               issues, profits, revenues or other benefits arising from or
               attributable to the Land, the Buildings, the Fixtures or the
               Personalty;

          (vii) all of Trustor's right, title and interest in and to all
               betterments, additions, alterations, appurtenances,
               substitutions, replacements and revisions to the Land, the
               Buildings, the Fixtures or the Personalty and all reversions and
               remainders relating thereto;

          (viii) all of Trustor's right, title and interest in and to any
               awards, remuneration, settlements or compensation now or
               hereafter made by any Governmental Authority pertaining to the
               Land, the Buildings, the Fixtures or the Personalty, including
               those arising from or attributable to any vacation of, or change
               of grade in, any streets affecting the Land or the Buildings;

          (ix) all of Trustor's right, title and interest in and to any and all
               other security and collateral of any nature whatsoever, whether
               now or hereafter given, for the repayment, performance and
               discharge of the Obligations (as hereinafter defined);


                                       4

<PAGE>

          (x)  all of Trustor's right, title and interest in and to all awards,
               payments and proceeds of conversion, whether voluntary or
               involuntary, of any of the Land, the Buildings, the Fixtures, the
               Personalty or any of the property and rights described in the
               foregoing clauses (i) through (ix), including without limitation,
               all insurance, condemnation and tort claims, refunds of real
               estate taxes and assessments, rent claims and other obligations
               dischargeable in cash or cash equivalents; and

          (xi) all other property and rights of Trustor of every kind and
               character relating to and/or used or to be used in connection
               with the foregoing, and all proceeds and products of any of the
               foregoing.

          EXCLUDING, HOWEVER, all motor vehicles and forklifts now or hereafter
located on the Land and only to the extent contemplated by the Financing
Agreement.

As used in this Deed of Trust, the term "Trust Property" shall be expressly
defined as meaning all or, where the context permits or requires, any portion of
the above, and all or, where the context permits or requires, any interest
therein.

          "Obligations" has the meaning assigned to such term in the Financing
Agreement but shall specifically not include "Unsecured Environmental Costs" as
defined in Section 7.19 below.

          "Permitted Liens" has the meaning assigned to such term in the
Financing Agreement.

          "Person" has the meaning assigned to such term in the Financing
Agreement.

          "Personalty" means all of Trustor's right, title and interest in and
to all furniture, furnishings, equipment, machinery, goods, general intangibles,
money, insurance proceeds, contract rights, option rights, inventory, together
with all refundable, returnable or reimbursable fees, deposits or other funds or
evidences of credit or indebtedness deposited by or on behalf of Trustor with
any Governmental Authority, boards, corporations, providers of utility services,
public or private, including all refundable, returnable or reimbursable tap
fees, utility deposits, commitment fees and development costs, and all other
personal property (other than Fixtures) of any kind or character), and including
such property that is now or hereafter located or to be located upon, within or
about the Land and the Buildings, or which are or may be used in or related to
the planning, development, financing or operation of the Trust Property,
together with all accessories, replacements and substitutions thereto or
therefor and the proceeds thereof.

          "Post-Default Rate" has the meaning assigned to such term in the
Financing Agreement.

          "Principal Balance" has the meaning assigned to such term in Section
7.02 hereof.

          "Rents" means all of the rents, revenues, income, proceeds, issues,
profits, security and other types of deposits (after Trustor acquires title
thereto), and other benefits paid or payable by parties (other than Trustor) for
using, leasing, licensing, possessing, operating


                                       5

<PAGE>

from, residing in, benefiting from or otherwise enjoying all or any part of the
Land, the Buildings, the Fixtures and/or the Personalty.

          SECTION 1.03 Terminology. Except as otherwise provided herein:

          (A) references to Articles and Sections shall mean the corresponding
Article or Section of this Deed of Trust;

          (B) words used herein in the singular, where the context so permits,
shall be deemed to include the plural and vice versa, and the definitions of
words used in the singular herein shall apply to such words when used in the
plural where the context so permits and vice versa;

          (C) the words "herein," "hereof," "hereunder," and other words of
similar import when used in this Deed of Trust refer to this Deed of Trust as a
whole, and not to any particular Article or Section; and

          (D) the words "includes" or "including" mean includes or including,
without limitation.

          SECTION 1.04 Other Defined Terms. Any capitalized term used in this
Deed of Trust and not otherwise defined herein shall have the meaning assigned
to such term in the Financing Agreement.

                                   ARTICLE II

                      GRANT OF LIEN AND SECURITY INTEREST

          SECTION 2.01 Grant of Lien. To secure the full and timely payment,
performance and discharge of all of the Obligations, Trustor hereby irrevocably
GRANTS, BARGAINS, SELLS, ASSIGNS, TRANSFERS and CONVEYS unto Trustee and
Trustee's successors, assigns and substitutes in trust hereunder, WITH POWER OF
SALE and right of entry and possession, for the use and benefit of Beneficiary,
as collateral agent for the Lenders pursuant to the Financing Agreement, the
real and personal property, right, title, interest and estate in, to and under
the Trust Property, subject, however, to the Permitted Liens; TO HAVE AND TO
HOLD the Trust Property unto Trustee and Trustee's successors, assigns and
substitutes in trust hereunder, subject to the terms and conditions of this Deed
of Trust, with POWER OF SALE, forever, and Trustor does hereby bind itself, its
successors and assigns to WARRANT AND FOREVER DEFEND the title to the Trust
Property unto Beneficiary against every Person whomsoever lawfully claiming or
to claim the same or any part, subject, however, to the Permitted Liens;
provided, however, that if Trustor shall pay (or cause to be paid) and perform
and discharge (or cause to be performed and discharged) all of the Obligations
on or before the date on which the same are to be paid, performed and
discharged, then the Liens estates and rights granted by this Deed of Trust
shall cease and terminate.

          SECTION 2.02 Grant of Security Interest. This Deed of Trust shall also
constitute and serve as a "security agreement" within the meaning of, and shall
constitute a first and prior security interest under, the Applicable UCC with
respect to the Personalty and the Fixtures. To


                                       6

<PAGE>

this end, Trustor by these presents does GRANT, BARGAIN, CONVEY, ASSIGN, SELL,
TRANSFER and SET OVER unto Beneficiary, as collateral agent for the Lenders
pursuant to the Financing Agreement, a security interest in all of Trustor's
right, title and interest in, to and under the Personalty and the Fixtures, to
secure the full and timely payment, performance and discharge of the
Obligations. Trustor hereby consents to Beneficiary filing and recording
financing statements (and continuations thereof) with the appropriate filing and
recording offices in order to perfect (and maintain the perfection of) the
security interests granted herein.

          SECTION 2.03 No Obligation of Beneficiary. The assignment and security
interest herein granted to Beneficiary shall not be deemed or construed to
constitute Beneficiary as a mortgagee-in-possession of the Trust Property,
obligate Beneficiary to lease the Trust Property or attempt to do the same, or
to take any action, incur any expense or perform or discharge any obligation,
duty or liability whatsoever.

          SECTION 2.04 Fixture Filing. Without in any manner limiting the
generality of any of the other provisions of this Deed of Trust: (a) some
portions of the goods described or to which reference is made herein are or are
to become fixtures on the Land described or to which reference is made herein or
on Exhibit A attached to this Deed of Trust; (b) this Deed of Trust is to be
filed of record in the real estate records as a financing statement and shall
constitute a "fixture filing" for purposes of the Applicable UCC; and (c)
Trustor is the record owner of the real estate or interests in the real estate
constituting the Trust Property hereunder. Information concerning the security
interest herein granted may be obtained at the addresses set forth on the first
page hereof. The addresses of the Secured Party (Beneficiary) and of the Debtor
(Trustor) are set forth on the first page hereof, in that regard, the following
information is provided:

          Name of Debtor: LAKES KAR - SHINGLE SPRINGS, LLC

          Type of Organization: Corporation

          State: Minnesota

          FEIN: 41-1977762

          Organizational ID Number: 10V-698

          SECTION 2.05 Future Advances. It is the intention of Trustor and
Beneficiary that this Deed of Trust shall secure future advances and
readavances, and the lien and security interest created by this Deed of Trust
shall attach upon execution and have priority from the time of recording as to
all advances, whether obligatory or discretionary, until this Deed of Trust is
released of record.

          SECTION 2.06 Intentionally Omitted

                                   ARTICLE III

                         ASSIGNMENT OF LEASES AND RENTS


                                       7

<PAGE>

          SECTION 3.01 Assignment. For Ten Dollars ($10.00) and other good and
valuable consideration, including the indebtedness evidenced by the Financing
Agreement, the receipt and sufficiency of which are hereby acknowledged and
confessed, Trustor has presently, absolutely and irrevocably GRANTED, ASSIGNED,
TRANSFERRED and CONVEYED, and by these presents does presently, absolutely and
irrevocably GRANT, ASSIGN, TRANSFER and CONVEY, unto Beneficiary, as collateral
agent for the Lenders pursuant to the Financing Agreement, as security for the
payment, performance and discharge of the Obligations, all of the Leases and
Rents (if any), subject only to the Permitted Liens applicable thereto and the
License (as hereinafter defined); provided, however, that if Trustor shall pay
(or cause to be paid) and perform and discharge (or cause to be performed and
discharged) all of the Obligations on or before the date on which the same are
to be paid, performed and discharged, then this assignment shall terminate, and
all rights, titles and interests conveyed pursuant to this assignment shall
become vested in Trustor.

          SECTION 3.02 Revocable License.

          (A) Beneficiary hereby grants to Trustor a revocable license (the
"License"), nonexclusive with the rights of Beneficiary reserved in Sections
3.02(b), 3.04, and 3.05 hereof, to exercise and enjoy all incidences of the
status of a lessor under the Leases and the Rents, including, without
limitation, the right to collect, demand, sue for, attach, levy, recover and
receive the Rents and to give proper receipts, releases and acquittances
therefor. Trustor hereby agrees to receive all Rents and hold the same as a
trust fund to be applied, and to apply the Rents so collected, except to the
extent otherwise provided in the Financing Agreement, first to the payment,
performance and discharge of the Obligations and then to the payment of the
Impositions. Thereafter, Trustor may use the balance of the Rents collected in
any manner not inconsistent with the Loan Documents.

          (B) If an Event of Default shall occur and be continuing, the License
shall immediately and automatically terminate without the necessity of any
action by Beneficiary or any other Person, and Beneficiary shall have the right
in such event to exercise the rights and remedies provided under this Deed of
Trust or otherwise available to Beneficiary under applicable law. Upon demand by
Beneficiary at any time that an Event of Default shall have occurred, Trustor
shall promptly pay to Beneficiary all security deposits under the Leases and all
Rents allocable to any period commencing from and after the occurrence of such
Event of Default. Any Rents received hereunder by Beneficiary shall be applied
and disbursed to the payment, performance and discharge of the Obligations,
subject to the terms of the Financing Agreement; provided, however, that,
subject to any applicable requirement of law, any security deposits actually
received by Beneficiary shall be held, applied and disbursed as provided in the
applicable Leases.

          SECTION 3.03 Enforcement of Leases. Trustor shall (a) submit any and
all proposed Leases (including subleases provided to Trustor for approval) to
Beneficiary for approval prior to the execution thereof or consent thereto, as
applicable; (b) duly and punctually perform and comply with any and all
representations, warranties, covenants and agreements expressed as binding upon
the lessor under any Lease; (c) maintain each Lease in full force and effect
during the term thereof; (d) provide Beneficiary with prompt notice of each
notice of default sent to a tenant under a Lease, provide Beneficiary with
prompt notice of each notice of


                                       8

<PAGE>

default received from (or relating to) a tenant under a Lease, and otherwise
promptly reasonably indicate that a material default or termination of a Lease
may occur (other than by reason of the expiration of the term of such Lease);
(e) appear in and defend any action or proceeding in any manner connected with
any of the Leases; (f) deliver to Beneficiary true and complete copies of all
Leases; and (g) deliver to Beneficiary all such further information, and execute
and deliver to Beneficiary such further assurances and assignments, with respect
to the Leases as Beneficiary may from time to time reasonably request. Without
Beneficiary's prior written consent, Trustor shall not (i) do or knowingly
permit to be done anything to materially impair the value of any of the Leases;
(ii) except for security or similar deposits, collect any of the Rent more than
one (1) month in advance of the time when the same becomes due under the terms
of any Lease; (iii) discount any future accruing Rents; (iv) amend, modify,
accept the surrender of or terminate any of the Leases; or (v) assign or grant a
security interest in or to any of the Leases or Rents.

          SECTION 3.04 Direction to Tenants. Upon the occurrence and during the
continuance of an Event of Default, Trustor hereby authorizes and directs, and
shall, at the direction of Beneficiary, further authorize and direct, in
writing, the tenant under each Lease to pay directly to, or as directed by,
Beneficiary all Rents accruing or due under its Lease without proof to the
tenant of the occurrence and continuance of such Event of Default. Trustor
hereby authorizes the tenant under each Lease to rely upon and comply with any
notice or demand from Beneficiary for payment of Rents to Beneficiary, and
Trustor shall have no claim against any tenant for Rents paid by such tenant to
Beneficiary pursuant to such notice or demand. All Rents actually collected by
Beneficiary pursuant to this Section 3.04 shall be applied in accordance with
the Financing Agreement.

          SECTION 3.05 Appointment of Attorney-in-Fact.

          (A) Trustor hereby constitutes and appoints Beneficiary the true and
lawful attorney-in-fact, coupled with an interest, of Trustor and Trustor hereby
confers upon Beneficiary the right, in the name, place and stead of Trustor, to,
upon the occurrence and during the continuance of an Event of Default, demand,
sue for, attach, levy, recover and receive any of the Rents and any premium or
penalty payable upon the exercise by any third Person under any Lease of a
privilege of cancellation originally provided in such Lease and to give proper
receipts, releases and acquittances therefor and, after deducting expenses of
collection, to apply the net proceeds as provided in the Financing Agreement.
Trustor hereby authorizes and directs any such third Person to deliver such
payment to Beneficiary in accordance with this Article III, and Trustor hereby
ratifies and confirms all that its said attorney-in-fact, the Beneficiary, shall
do or cause to be done in accordance with this Deed of Trust and by virtue of
the powers granted hereby. The foregoing appointment is irrevocable and
continuing, and such rights, powers and privileges shall be exclusive in
Beneficiary, and its successors and assigns, so long as any part of the
Obligations remains unpaid or unperformed and undischarged.

          (B) Trustor hereby constitutes and appoints Beneficiary the true and
lawful attorney-in-fact, coupled with an interest, of Trustor and Trustor hereby
confers upon Beneficiary the right, in the name, place and stead of Trustor, to
subject and subordinate at any time and from time to time any Lease or any part
thereof to the lien, assignment and security interest of this Deed of Trust and
to the terms hereof, or to any other mortgage, deed of trust, assignment or
security agreement, or to any ground lease or surface lease, with respect to all
or a


                                       9

<PAGE>

portion of the Trust Property, or to request or require such subordination,
where such reservation, option or authority was reserved to Trustor under any
such Lease, or in any case where Trustor otherwise would have the right, power
or privilege so to do. The foregoing appointment is irrevocable and continuing,
and such rights, powers and privileges shall be exclusive in Beneficiary, and
its successors and assigns, so long as any part of the Obligations remains
unpaid or unperformed and undischarged. Trustor hereby represents and warrants
that it has not at any time prior to the date hereof exercised (or appointed any
Person as attorney-in-fact to exercise) any of the rights described in this
Section 3.05(b), and Trustor hereby covenants not to exercise (or appoint any
other Person as attorney-in-fact to exercise) any such right, nor (except at
Beneficiary's written request) to subordinate any such Lease to the lien of this
Deed of Trust or to any other mortgage, deed of trust, assignment or security
agreement or to any ground lease or surface lease.

          SECTION 3.06 No Liability of Beneficiary. Neither the acceptance
hereof nor the exercise of the rights and remedies hereunder nor any other
action on the part of Beneficiary or any Person exercising the rights of
Beneficiary or any Lender hereunder shall be construed to: (a) be an assumption
by Beneficiary or any such Person or to otherwise make Beneficiary or such
Person liable or responsible for the performance of any of the obligations of
Trustor under or with respect to the Leases or for any Rent, security deposit or
other amount delivered to Trustor, provided that Beneficiary or any such Person
exercising the rights of Beneficiary shall be accountable for any Rents,
security deposits or other amounts actually received by Beneficiary or such
Person, as the case may be; or (b) obligate Beneficiary or any such Person to
take any action under or with respect to the Leases or with respect to the Trust
Property, to incur any expense or perform or discharge any duty or obligation
under or with respect to the Leases or with respect to the Trust Property, to
appear in or defend any action or proceeding relating to the Leases or the Trust
Property, to constitute Beneficiary as a mortgagee-in-possession (unless
Beneficiary actually enters and takes possession of the Trust Property), or to
be liable in any way for any injury or damage to Persons or property sustained
by any Person in or about the Trust Property, other than to the extent caused by
the willful misconduct or gross negligence of Beneficiary or any Person
exercising the rights of Beneficiary hereunder.

          SECTION 3.07 Trustor's Indemnities. Trustor hereby agrees to protect,
indemnify and hold harmless Beneficiary and each of the other Indemnitees and
each Indemnified Party related to Beneficiary or such other Indemnitees from and
against any and all Losses which Beneficiary or any such other Indemnitees or
Indemnified Party may incur under or by reason of this Article III, or for any
action taken by Beneficiary or any such other Lender or Indemnified Party
hereunder, or by reason or in defense of any and all claims and demands
whatsoever which may be asserted against Beneficiary or any such other
Indemnitees or Indemnified Party arising out of the Leases, including, without
limitation, any claim by any third Person for credit on account of Rents paid to
and received by Trustor, but not delivered to Beneficiary or its agents,
representatives or employees, for any period under any Lease more than one (1)
month in advance of the due date thereof. The foregoing indemnity shall include,
in any case, such Loss as may result from the ordinary negligence of Beneficiary
or such other Indemnitees or Indemnified Party, but not any such Loss that is
caused by the gross negligence or willful misconduct of Beneficiary or any such
other Indemnitees or Indemnified Party. In the event that Beneficiary or any of
the other Lenders or any Indemnified Party incurs any Losses covered by the
indemnity set forth in this Section 3.07, the amount thereof, including
reasonable attorneys'


                                       10

<PAGE>

fees, with interest thereon at the Post-Default Rate, shall be payable by
Trustor to Beneficiary within ten (10) days after demand therefor, and shall be
secured hereby and by all other security for the payment and performance of the
Obligations, including, without limitation, the lien and security interest of
this Deed of Trust. The liabilities of Trustor as set forth in this Section 3.07
shall survive the termination of this Deed of Trust and the repayment of the
Obligations.

          SECTION 3.08 No Modification of Trustor's Obligations. Nothing herein
contained shall modify or otherwise alter the obligation of Trustor to make
prompt payment of all Obligations as and when the same become due, regardless of
whether the Rents described in this Article III are sufficient to pay the
Obligations, and the security provided to Beneficiary pursuant to this Article
III shall be cumulative of all other security of any and every character now or
hereafter existing to secure payment of the Obligations.

          SECTION 3.09 Rights in Bankruptcy. Upon execution of this Deed of
Trust, Beneficiary, and not Trustor, shall be the creditor of any Tenant in
respect of assignments for the benefit of creditors and bankruptcy,
reorganization, insolvency, dissolution or receivership proceedings affecting
any such Tenant; provided, however, that Trustor shall be the party obligated to
make timely filings of claims in such proceedings or to otherwise pursue
creditor's rights therein. Notwithstanding the foregoing, Beneficiary shall have
the right, but not the obligation, to file such claims instead of Trustor and if
Beneficiary does file a claim, Trustor agrees that Beneficiary (a) is entitled
to all distributions on such claim to the exclusion of Trustor and (b) has the
exclusive right to vote such claim and otherwise to participate in the
administration of the estate in connection with such claim. Beneficiary shall
have the option to apply any monies received by it as such creditor to any of
the obligations of Trustor under the Loan Documents (as defined in the Mortgage)
in the order set forth in the Loan Documents. If a petition is filed under the
Bankruptcy Code by or against Trustor, and Trustor, as landlord under any Lease,
decides to reject such Lease pursuant to Section 365(a) of the Bankruptcy Code,
then Trustor shall give Beneficiary at least ten (10) days' prior written notice
of the date when Trustor shall apply to the bankruptcy court for authority to
reject the Lease. Beneficiary may, but shall not be obligated to, send Trustor
within such ten-day period a written notice stating that (a) Beneficiary demands
that Trustor assume and assign the Lease to Beneficiary pursuant to Section 365
of the Bankruptcy Code, and (b) Beneficiary covenants to cure or provide
adequate assurance of future performance under the Lease. If Beneficiary sends
such notice, Trustor shall not reject the Lease provided Beneficiary complies
with clause (b) of the preceding sentence.

          SECTION 3.10 Right to Enforce Under California Civil Code Section
2938. Without limiting any other rights or remedies of Beneficiary set forth in
this Assignment or under any of the other Loan Documents to which Trustor is a
party, or available at law or in equity, at any time upon or following the
occurrence of any Event of Default, Beneficiary shall have the right to enforce
all of the rights and remedies of an Beneficiary under Section 2938 of the
California Civil Code ("Section 2938"). In the event that Beneficiary shall
elect to enforce this Assignment in accordance with Section 2938, the following
procedures shall apply, as applicable:

               (i) Beneficiary may send a demand notice in the form prescribed
     by Section 2938 to, in the case of enforcement under Section 2938(c)(3),
     one or more of the tenants of the Trust Property, with a copy to Trustor
     and any other Beneficiary under a


                                       11

<PAGE>

     recorded assignment of leases, rents, issues and profits with respect to
     the Trust Property, or, in the case of enforcement under Section
     2938(c)(4), to Trustor with a copy to any such other Beneficiarys in
     accordance with the procedures set forth therein. Without limiting
     Beneficiary's rights to any amounts received by Trustor after an Event of
     Default, Trustor shall immediately turn over to Beneficiary any Rents
     received by Trustor from any tenant of the Trust Property from and after
     Beneficiary's enforcement of this assignment under either of such Sections
     2938(c)(3) or (4), it being understood that Trustor shall be deemed to hold
     such amounts as trustee for Beneficiary until such amounts have been paid
     to Beneficiary. In addition, Trustor shall also cause any collection agent
     for Trustor or any other person who has collected for Trustor's benefit
     relating to the period from and after Beneficiary's enforcement of this
     assignment under either of such Sections 2938(c)(3) or (4), to turn such
     Rents over to Beneficiary.

               (ii) Notwithstanding anything to the contrary contained in this
     Deed of Trust or any other Loan Document, if Beneficiary shall proceed to
     enforce this assignment by means other than the appointment of a receiver
     and consequently receives Rents as a result thereof, and Beneficiary
     receives written demand from Trustor (or any other party entitled under law
     to make demand on Beneficiary) to pay the reasonable costs of protecting
     and preserving the Trust Property, Beneficiary may elect either to pay
     (either directly to the party to whom owed, or by joint check payable to
     Trustor and such party) or authorize Trustor to pay, such costs (such
     payments being referred to herein as "Protective Payments"), conditioned
     upon Trustor furnishing to Beneficiary all information (such as invoices,
     bills, contracts, or purchase orders) necessary in order for Beneficiary to
     identify the party to whom payment is owed or the work, service or item for
     which payment is requested and to establish that such Protective Payments
     are required to be paid or authorized under this Section. If Trustor is
     authorized to pay any Protective Payments under this Section, Beneficiary
     reserves the right to deposit the amounts necessary to pay such Protective
     Payments into a non-interest bearing checking account, in which Trustor
     shall have granted to Beneficiary a perfected, first priority security
     interest, from which Trustor shall be obligated to draw the funds necessary
     to pay such Protective Payments. In the event that Beneficiary agrees or is
     required under any circumstances to pay or authorize the payment of any
     Protective Payments consisting of costs of improvement of the Trust
     Property or any portion thereof (or any other costs the non-payment of
     which would entitle the payee to enforce mechanic's or materialman's liens
     or similar rights), Beneficiary shall be authorized, before paying or
     authorizing the payment of any such payments, to require compliance with
     standard construction loan disbursement conditions with respect to such
     costs, including, without limitation, the receipt of unconditional
     mechanics' lien waivers with respect to the work for which such costs are
     to be paid.

               (iii) In no event shall Beneficiary be obligated to pay or
     authorize the payment of Protective Payments in excess of any Rents
     actually received by Beneficiary as a result of the enforcement of Section
     (i) of this Section.

               (iv) Nothing contained in this Section shall limit the rights of
     Beneficiary under any other provision of Deed of Trust.


                                       12

<PAGE>

               (v) Nothing contained in this Section shall limit either (x)
     Beneficiary's right to cease at any time any further enforcement of this
     Assignment under Section 2938 by sending written notice of the cancellation
     thereof to each party to whom a demand notice was sent, or (y)
     Beneficiary's right to seek the appointment of a receiver, either of which
     if enforced by Beneficiary, shall terminate Beneficiary's obligations under
     Section (i) of this Section.

               (vi) In no event shall any enforcement of Beneficiary's rights
     under this Section, including, without limitation, the payment or
     authorization of payment of any Protective Payments, make Beneficiary a
     "mortgagee-in-possession" or limit, waive, or otherwise derogate any of
     Beneficiary's other rights and remedies available to it under the Loan
     Documents to which Trustor is a party or at law. In no event shall any
     exercise of lights by the Beneficiary under this Section, including,
     without limitation, the payment or authorization of payment of any
     Protective Payments, be construed to require the Beneficiary to operate or
     manage the Trust Property or be construed as an assumption by Beneficiary
     of any obligation to operate or manage the Trust Property, and all
     liabilities and obligations in relation to the operation and management of
     the Trust Property shall remain exclusively that of the Trustor.

          (B) Any Rents received by Beneficiary as a result of any such
enforcement measures shall be applied as provided in this Deed of Trust.

          (C) Without in any way limiting Trustor's other indemnification
obligations set forth in this Assignment and in any of the Loan Documents to
which Trustor is a party, Trustor shall indemnify, defend, protect, and hold
harmless Beneficiary, and its successors and assigns, from and against any and
all losses, costs, expenses (including, without limitation, reasonable
attorneys' fees, costs and expenses), damages, liabilities, or claims asserted
against or suffered by Beneficiary (i) arising from any Protective Payments
made, or authorized to be made, by Beneficiary in good faith, and (ii) arising
from any work performed or goods or services furnished in connection with the
ownership or operation of the Trust Property at any time during which
Beneficiary shall be enforcing its rights under this Section.

          (D) Without limiting the restrictions on assignment set forth in this
Assignment and any of the other Loan Documents to which Trustor is a party, each
Beneficiary of any interest in the Rents shall acquire its interest in the Rents
subject to the rights of the Beneficiary set forth in this Assignment, and shall
acquire no greater rights with respect to the payment of Protective Payments
than the rights of Trustor as set forth in this Section.

                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

Trustor hereby unconditionally represents and warrants to Beneficiary (but to
the extent any representation or warranty in this Section IV is substantively
the same as a representation or warranty contained in Article V of the Financing
Agreement and such representation or warranty is qualified by a materiality or
other qualifier in the Financing Agreement, such representation or


                                       13

<PAGE>

warranty herein shall be subject to the same materiality or other qualifier as
in Article V of the Financing Agreement) as follows:

          SECTION 4.01 Title to Trust Property and Lien of this Deed of Trust.
Trustor has good, marketable and indefeasible fee simple title to the Land and
the Buildings, and has good, marketable and indefeasible title to the Fixtures,
the Personalty and the other Trust Property. The Trust Property is free and
clear of any and all Liens, charges, encumbrances, security interests and
adverse claims whatsoever, except for all Liens, charges, encumbrances, security
interests and adverse claims specifically identified as exceptions in the policy
of title insurance accepted by Beneficiary in connection herewith, or otherwise
permitted under the Financing Agreement.

          SECTION 4.02 Taxes and Other Payments. Trustor has filed all federal,
state, commonwealth, county, municipal and city income and other material tax
returns required to have been filed by it and has paid all taxes and other
Impositions which have become due pursuant to such returns or pursuant to any
assessments or charges received by it, and Trustor does not know of any basis
for any additional assessment or charge in respect of any such taxes or other
Impositions. Trustor has paid in full all sums owing or claimed for labor,
material, supplies, personal property (whether or not forming a Fixture
hereunder) and services of every kind and character used, furnished or installed
in or on the Trust Property that are now due and owing and no claim for same
exists or will be permitted to be created, except such claims as may arise in
the ordinary course of business and that are not yet past due.

          SECTION 4.03 Power to Create Lien and Security. Trustor has full power
and lawful authority to grant, bargain, sell, assign, transfer, mortgage and
convey a Lien and security interest in all of the Trust Property in the manner
and form herein provided and without obtaining the authorization, approval,
consent or waiver of any grantor, lessor, sublessor, Governmental Authority or
other Person whomsoever.

          SECTION 4.04 Loan and Financing Agreements. Trustor has received a
copy of and is fully familiar with the terms and provisions of the Financing
Agreement and the other Loan Documents. All representations and warranties made
by Trustor in the Financing Agreement and the other Loan Documents are
incorporated herein by reference and are hereby made by Trustor as to itself and
the Trust Property as though such representations and warranties were set forth
at length herein as the representations and warranties of Trustor.

          SECTION 4.05 Compliance with Laws. All of the improvements on the Land
(i) comply with all material requirements of all applicable laws and ordinances
with respect to zoning, subdivision, construction, building and land use,
including, without limitation, requirements with respect to parking, access and
certificates of occupancy (and similar certificates), and (ii) comply with, and
shall remain in compliance with, applicable health, fire and building codes. All
of the Buildings lie wholly within the boundaries and building restriction lines
of the Land. No improvements on adjoining properties encroach upon the Land, and
no easements or other encumbrances upon the Land encroach upon or under any of
the Buildings or any portion of the Trust Property. All of the Buildings and the
use of the Trust


                                       14

<PAGE>

Property materially comply with, and shall remain in material compliance with,
all applicable statutes, rules, regulations and private covenants now or
hereafter relating to the ownership, construction, use or operation of the Trust
Property, including all applicable statutes, rules and regulations pertaining to
requirements for equal opportunity, anti-discrimination, fair housing,
environmental protection, zoning and land use. All certifications, permits,
licenses and approvals, including, without limitation, certificates of
completion and occupancy permits required for the legal use, occupancy and
operation of the Trust Property have been obtained and are in full force and
effect. Trustor has not received any notice of, or other communication with
respect to, an alleged violation with respect to any of the foregoing.

          SECTION 4.06 No Condemnation. No part of any property subject to this
Deed of Trust has been taken in condemnation or other like proceeding nor is any
proceeding pending, threatened or known to be contemplated for the partial or
total condemnation or taking of the Trust Property.

          SECTION 4.07 Flood Zone. The Trust Property is not located in an area
identified by the Federal Emergency Management Agency ("FEMA") as having special
flood hazards or if the Land or any part thereof is identified by the Federal
Emergency Management Agency as an area having special flood hazards (including,
without limitation, those areas designated as Zone A or Zone V), then Trustor
has obtained the insurance required under Section 5.04(a)(v) of this Deed of
Trust.

          SECTION 4.08 Additional Environmental Representation. The Trust
Property has not been designated as a "hazardous waste property" and to Tenant's
knowledge, the Trust Property has not been designated as a "border zone
property" pursuant to Section 25220, et. seq. of the California Health and
Safety Code.

                                    ARTICLE V

                              AFFIRMATIVE COVENANTS

          Trustor hereby unconditionally covenants and agrees with Beneficiary
as follows:

          SECTION 5.01 Lien Status. Except as otherwise expressly provided in
the Financing Agreement, Trustor shall not place, or permit to be placed, or
otherwise mortgage, hypothecate or encumber the Trust Property, or any portion
thereof or interest therein, with any other Lien or security interest of any
nature whatsoever (statutory, constitutional or contractual), other than
Permitted Liens, regardless of whether such Lien or security interest is
inferior to the Lien and security interest created by this Deed of Trust, and,
if any such Lien or security interest is asserted against the Trust Property,
Trustor shall promptly, at its own cost and expense, (a) pay the underlying
claim in full (except for so long as such claim is being contested by Trustor in
good faith and in accordance with the terms of the Financing Agreement) or take
such other action as may be necessary to cause the same to be released of record
and otherwise, and (b) within ten (10) days after the date on which Mortgagor
receives notice of such Lien or security interest. Such notice shall specify who
is asserting such Lien or security interest and shall detail the origin and
nature of the underlying claim giving rise to such asserted Lien or security
interest.


                                       15

<PAGE>

          SECTION 5.02 Payment of Impositions. Trustor shall duly pay and
discharge, or cause to be paid and discharged, all Impositions not later than
the due date thereof, or the day on which any fine, penalty, interest or cost
may be added thereto or imposed, or the day on which any Lien may be filed for
the nonpayment thereof (if such day is used to determine the due date of the
respective item); provided, however, that Trustor may, if permitted by
applicable law and if such installment payment would not create or permit the
filing of a Lien against the Trust Property, pay the Impositions in
installments. Notwithstanding the foregoing, Trustor may in good faith, by
appropriate proceedings and upon notice to Beneficiary, contest the validity,
applicability or amount of any asserted tax or assessment, subject to any more
restrictive provisions applicable to any such contest contained in the Financing
Agreement and (without limiting the foregoing) so long as (a) such contest is
diligently pursued, (b) Beneficiary determines, in its opinion reasonably
exercised, that such contest suspends the obligation to pay the tax and that
nonpayment of such tax or assessment will not result in the sale, loss,
forfeiture or diminution of the Trust Property or any part thereof or any
interest of Beneficiary therein, and (c) unless expressly provided to the
contrary in the Financing Agreement, prior to the earlier of the commencement of
such contest or the delinquency date of the asserted tax or assessment, Trustor
deposits with Beneficiary an amount determined by Beneficiary to be adequate to
cover the payment of such tax or assessment and a reasonable additional sum to
cover possible interest, costs and penalties; provided, however, that Trustor
shall promptly cause to be paid any amount adjudged by a court of competent
jurisdiction to be due, with all interest, costs and penalties thereon, promptly
after such judgment becomes final (and, subject to Beneficiary's rights and
remedies during an Event of Default, Beneficiary shall make any sum deposited
pursuant to clause (c) above available for such payment); and provided, further,
that in any event each such contest shall be concluded, the taxes, assessments,
interest, costs and penalties shall be paid prior to the date any writ or order
is issued under which the Trust Property may be sold, lost or forfeited.

          SECTION 5.03 Repair. Trustor shall keep the Trust Property in good
order and condition (reasonable wear and tear excepted) and shall make all
repairs, replacements and improvements thereof and thereto, interior and
exterior, structural and non-structural, ordinary and extraordinary, which are
necessary to keep the same in such order and condition. Trustor shall also use
reasonable efforts to prevent any act or occurrence which might impair the value
or usefulness of the Trust Property for its intended usage.

          SECTION 5.04 Insurance and Application of Insurance Proceeds.

          (A) During the term of this Deed of Trust, Trustor, at its sole cost
and expense, shall maintain, or cause to be maintained the following policies of
insurance, with respect to the Trust Property:

               (i) If applicable or appropriate, Casualty (property) insurance
     against loss or damage by fire, lightning and such other perils as are
     included in a standard "special form" policy (formerly known as an
     "all-risk" endorsement policy), and against loss or damage by all other
     risks and hazards covered by a standard extended coverage insurance policy
     including, without limitation, riot and civil commotion, terrorist actions,
     vandalism, malicious mischief, burglary and theft, in an amount equal to
     the greater of (A) the then full replacement cost of the improvements,
     without deduction for physical


                                       16

<PAGE>

     depreciation and (B) such amount that the insurer would not deem Trustor a
     co-insurer under said policies. The policies of insurance required under
     this Section 5.04 shall contain a "Replacement Cost" endorsement with a
     waiver of depreciation and an "Agreed Amount" or "No Coinsurance"
     endorsement and shall otherwise comply with the Financing Agreement.

               (ii) Commercial General Liability insurance to the extent
     required under the Financing Agreement, including a broad form
     comprehensive general liability endorsement and coverages for broad form
     property damage, contractual damages and personal injuries (including death
     resulting therefrom) and containing minimum limits per occurrence of
     $1,000,000.00 and $2,000,000.00 in the aggregate for any policy year with
     no deductible.

               (iii) Rental loss and/or business interruption insurance in an
     amount equal to the estimated gross revenues from the operations of the
     Trust Property for a period of twelve (12) months, if applicable or
     appropriate.

               (iv) Insurance against loss or damage from (A) leakage of
     sprinkler systems and (B) explosion of steam boilers, air conditioning
     equipment, high pressure piping, machinery and equipment, pressure vessels
     or similar apparatus now or hereafter installed on the improvements
     (without exclusion for explosions), if applicable or appropriate.

               (v) Flood insurance if all or any portion of the Trust Property
     is located in an area now or hereafter designated by the Federal Emergency
     Management Agency as an area having special flood hazards (including,
     without limitation, those areas designated as Zone A or Zone V), and in
     which flood insurance has been made available under the U.S. National Flood
     Insurance Program, in an amount equal to the full replacement cost of the
     Buildings, Fixtures and Personalty now or hereafter located on the Trust
     Property or such other amount as may be agreed to by Beneficiary in
     writing, if applicable or appropriate.

               (vi) If the Trust Property is or ever becomes non-conforming with
     respect to zoning, ordinance or law coverage to compensate for loss of
     value or property resulting from operation of law and the cost of
     demolition and the increased cost of construction in such amounts as may be
     requested by Beneficiary.

               (vii) Any other insurance with respect to the Trust Property that
     may be required under the Financing Agreement.

               (viii) Such other insurance as may from time to time be
     reasonably required by Beneficiary in order to protect its interests.

          All such insurance policies with respect to the Trust Property shall
contain a standard, non-contributory mortgagee clause naming Beneficiary, and
its successors and assigns, as an additional insured under all liability
insurance policies, as the first mortgagee and loss payee on all property
insurance policies, and as the sole loss payee on all rental loss or business
interruption insurance policies. Trustor shall not take out separate insurance
with respect to the


                                       17

<PAGE>

Trust Property concurrent in form or contributing in the event of loss with that
required to be maintained hereunder or under the Financing Agreement unless
Beneficiary is named as an additional insured thereon under a standard mortgagee
clause acceptable to Beneficiary and each such policy is otherwise in form and
substance acceptable to Beneficiary.

          (B) In the event of the foreclosure of this Deed of Trust, or in the
event of any transfer of title to the Trust Property, or any part thereof, by
foreclosure sale or by power of sale or deed in lieu of foreclosure, the
purchaser of the Trust Property, or such part thereof, shall succeed to all of
Trustor's rights with respect to the Trust Property, including any rights to
unexpired, unearned or returnable insurance premiums, subject to limitations on
the assignment of blanket policies, but limited to such rights as relate to the
Trust Property or such part thereof. If Beneficiary acquires title to the Trust
Property, or any part thereof, in any manner, Beneficiary shall thereupon (as
between Trustor and Beneficiary) become the sole and absolute owner of the
insurance policies with respect to the Trust Property, and all insurance
proceeds payable thereunder with respect to the Trust Property, with the sole
right to collect and retain all unearned or returnable premiums thereon with
respect to the Trust Property, or such part thereof, if any.

          (C) If any damage to, destruction or loss of or other casualty with
respect to any of the Trust Property shall occur, Trustor shall file and
prosecute its claim or claims for any insurance proceeds in good faith and with
due diligence and cause the same to be collected and paid over to Beneficiary,
and Trustor hereby irrevocably authorizes and empowers Beneficiary, in the name
of Trustor or otherwise, to collect and receipt for any such insurance proceeds
and to adjust any insurance claims and to file and prosecute such claim or
claims, and although it is hereby expressly agreed that the same shall not be
necessary in any event, Trustor shall, upon demand of Beneficiary, make, execute
and deliver any and all assignments and other instruments sufficient for the
purpose of assigning any such insurance proceeds to Beneficiary, free and clear
of any Liens whatsoever. Trustor hereby irrevocably appoints Beneficiary as
Trustor's attorney- in-fact for each such purpose (which appointment is coupled
with an interest) and authorizes any Person to act upon the foregoing
appointment.

          (D) Following any damage to, destruction or loss of or other casualty
with respect to any of the Trust Property, Beneficiary shall apply the entire
amount of any insurance proceeds in accordance with the provisions of the
Financing Agreement or, if there is no provision contained in the Financing
Agreement governing how the same are to be applied, then Beneficiary shall apply
the entire amount thereof to the payment of the Obligations, whether or not then
due and payable, in such manner and order as Beneficiary may elect. In all
events, unless expressly provided to the contrary in the Financing Agreement,
Trustor hereby covenants and agrees to promptly commence and to diligently
prosecute the restoration of the Trust Property upon the occurrence of any
casualty loss affecting the Trust Property, without regard to the availability
or adequacy of insurance proceeds, but in all events in a manner approved by
Beneficiary. Notwithstanding any damage to, destruction or loss of or other
casualty with respect to any of the Trust Property, Trustor shall continue to
pay the Obligations at the time and in the manner provided for in the Financing
Agreement and the other Loan Documents until the Obligations have been paid in
full. If the Trust Property is sold, through foreclosure or otherwise, prior to
the receipt by Beneficiary of such insurance proceeds, Beneficiary shall have
the right, whether or not a deficiency judgment on any Loan Document shall have
been sought,


                                       18

<PAGE>

recovered or denied, to receive such insurance proceeds, or a portion thereof
sufficient to pay the then unpaid Obligations, whichever is less.

          SECTION 5.05 Condemnation and Application of Condemnation Proceeds.

          (A) Promptly upon its obtaining knowledge of the institution or the
threatened institution of any proceeding for the condemnation or other taking of
the Trust Property, or any portion thereof or interest therein, Trustor shall
notify Beneficiary of such proceeding. Trustor shall then, if requested by
Beneficiary, file or defend its claim thereunder and prosecute same with due
diligence to its final disposition and shall, subject to the terms of the
Financing Agreement, cause any awards or settlements to be paid over to
Beneficiary for disposition pursuant to the terms of this Deed of Trust.
Beneficiary shall be entitled to participate in any such proceeding, at
Trustor's sole cost and expense, and Trustor shall deliver or cause to be
delivered to Beneficiary such instruments as may be requested by Beneficiary
from time to time to permit such participation.

          (B) If the Trust Property or any part thereof is taken or diminished
in value, or if a consent settlement is entered by or under threat of such
proceeding, the award or settlement payable to Trustor by virtue of its interest
in the Trust Property shall be, and by these presents is, assigned, transferred
and set over unto Beneficiary to be held by Beneficiary, subject to the Lien and
security interest of this Deed of Trust, and disbursed in accordance with the
provisions of the Financing Agreement or, if there is no provision contained in
the Financing Agreement governing how the same is to be disbursed, then
Beneficiary shall apply the entire amount thereof to the payment of the
Obligations, whether or not then due and payable, in such manner and order as
Beneficiary may elect. In all events, unless otherwise expressly provided to the
contrary in the Financing Agreement, Trustor hereby covenants and agrees to
commence and diligently to prosecute the restoration of the Trust Property upon
the occurrence of any condemnation or other taking affecting the Trust Property,
without regard to the availability or adequacy of any award or settlement.
Notwithstanding any condemnation or other taking of any of the Trust Property,
Trustor shall continue to pay the Obligations at the time and in the manner
provided for in the Financing Agreement and the other Loan Documents, and the
Obligations shall not be reduced until, and then only to the extent that, any
condemnation award or settlement shall have been actually received and applied
by Beneficiary to the discharge of the Obligations. If the Trust Property is
sold, through foreclosure or otherwise, prior to the receipt by Beneficiary of
such condemnation award or settlement, Beneficiary shall have the right, whether
or not a deficiency judgment on any Loan Document shall have been sought,
recovered or denied, to receive such condemnation award or settlement, or a
portion thereof sufficient to pay the Obligations, whichever is less.

          (C) Any implied covenant in this Deed of Trust restricting the right
of Beneficiary to apply the proceeds of condemnation as described above is
waived by Trustor. Trustor hereby waives the provisions of any law prohibiting
Beneficiary from making elections regarding the application of condemnation
proceeds, including, without limitation, the provisions of California Code of
Civil Procedure Sections 1265.210 et seq.

          SECTION 5.06 Maintenance of Rights of Way, Easements, Licenses and
Other Rights. Trustor shall maintain, preserve and renew all rights of way,
easements, tenements,


                                       19

<PAGE>

hereditaments, development rights and credits, zoning rights, grants,
privileges, appurtenances, licenses, franchises and other rights reasonably
necessary for the use or operation of the Trust Property from time to time, or
otherwise relevant to the value thereof, and Trustor shall not, without the
prior written consent of Beneficiary, initiate, join in or consent to any
private restrictive covenant or other public or private restriction as to the
present or future use or operation of the Trust Property. Trustor shall,
however, comply with all restrictive covenants which may at any time affect the
Trust Property, all applicable zoning ordinances and all other public or private
restrictions relating to the use of the Trust Property.

          SECTION 5.07 Payment and Performance of Obligations. Trustor shall
duly and punctually pay and perform all of the Obligations.

          SECTION 5.08 Compliance with Permitted Liens and Other Obligations.
Trustor shall comply in all material respects with any and all obligations,
restrictions and requirements that may be set forth in each and every document
constituting a Permitted Lien. In addition, Trustor shall comply in all material
respects each and every obligation legally imposed upon it and/or relating to
the Trust Property pursuant to applicable law (including, without limitation,
all matters described in Section 4.05 hereof), contract or other agreement. It
is hereby acknowledged that Beneficiary's consent to a Permitted Lien as of the
date hereof shall in no way be deemed to constitute approval of any future Lien
which may be imposed upon any portion of the Trust Property, or any other
enforcement action affecting Trustor or the Trust Property, as a result of
Trustor's failure to perform or comply with its obligations under any document
constituting a Permitted Lien as of the date hereof.

          SECTION 5.09 Additional Affirmative Covenants. All affirmative
covenants made by the Borrowers or Guarantors or any of them in the Financing
Agreement are incorporated herein by reference and are hereby also made by
Trustor as to itself and the Trust Property as though such covenants were set
forth at length herein as the covenants of Trustor.

                                   ARTICLE VI

                               NEGATIVE COVENANTS

          Trustor hereby covenants and agrees with Beneficiary that, until all
of the Obligations shall have been paid or performed in full and discharged:

          SECTION 6.01 Use Violations. Trustor shall not use, maintain, operate
or occupy, or allow the use, maintenance, operation or occupancy of, the Trust
Property in any manner which (a) violates in any material respect any
Governmental Requirement, (b) may be dangerous unless safeguarded as required by
applicable law, (c) constitutes a public or private nuisance, or (d) makes void,
voidable or cancelable, or increases, substantially in excess of commercially
reasonably rates, the premium of, any insurance then in force with respect
thereto.

          SECTION 6.02 Waste. Trustor shall not commit or permit any material
waste with respect to the Trust Property.

          SECTION 6.03 Alterations. Trustor shall notify Beneficiary, in writing
and in advance, with respect to all proposed alterations, improvements or
additions to the Trust


                                       20

<PAGE>

Property which are of a material nature, and, unless and to the extent otherwise
expressly provided in the Financing Agreement, Trustor shall not effect any
material alteration, improvement or addition to the Trust Property without the
prior written consent of Beneficiary.

          SECTION 6.04 No Further Encumbrances. Trustor shall not, without the
prior written consent of Beneficiary, create, place or permit to be created or
placed, or through any act or failure to act, acquiesce in the placing of, or
allow to remain, any mortgage, pledge, Lien (statutory, constitutional or
contractual), security interest, encumbrance or charge on, or conditional sale
or other title retention agreement with respect to, the Trust Property, or any
portion thereof or interest therein, other than the Permitted Liens, regardless
of whether the same are subordinate to the Lien(s) and security interest(s)
created by this Deed of Trust.

          SECTION 6.05 Transfer Restrictions. Trustor shall not sell, lease,
assign, transfer or otherwise dispose of or abandon all or any part of the Trust
Property (or any interest therein), except as expressly permitted by, and in
accordance with the terms of, the Financing Agreement.

          SECTION 6.06 Loan and Financing Agreements; Additional Negative
Covenants. Trustor has received a copy of and is fully familiar with the terms
and provisions of the Financing Agreement and the other Loan Documents. All
negative covenants made by the Borrowers or Guarantors or any of them in the
Financing Agreement and the other Loan Documents are incorporated herein by
reference and are hereby also made by Trustor as to itself and the Trust
Property as though such negative covenants were set forth at length herein as
the negative covenants of Trustor.

                                   ARTICLE VII

                         EVENTS OF DEFAULT AND REMEDIES

          SECTION 7.01 Event of Default. The "Events of Default" set forth in
Section 8.01 of the Financing Agreement are hereby incorporated herein as if
fully set forth herein, and, without limiting the generality of the foregoing,
the occurrence of an "Event of Default" under the Financing Agreement or any
other Loan Document shall constitute an "Event of Default" hereunder. All
notices and cure periods described herein or in the Financing Agreement or any
other Loan Document shall not be applicable to any "Potential Event of Default"
(as hereinafter defined) if such Potential Event of Default has occurred as of
the date on which Beneficiary commences a nonjudicial foreclosure proceeding
with respect to another Potential Event of Default or Event of Default. Such
event shall constitute an independent Event of Default hereunder. For purposes
hereof, "Potential Event of Default" shall mean any event, but for the passage
of time or giving of notice, would be an Event of Default.

          SECTION 7.02 Acceleration. Upon the occurrence and during the
continuance of any Event of Default, in addition to any other rights, powers or
remedies conferred herein or by operation of law, Beneficiary, in its sole
judgment and discretion, may declare the then unpaid principal balance of the
Loan (the "Principal Balance"), the accrued interest thereon and any other
accrued but unpaid portion of the Obligations to be, and they shall thereupon
forthwith become, immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived by
Trustor.


                                       21

<PAGE>

          SECTION 7.03 Foreclosure and Sale. If an Event of Default shall occur
and be continuing, Beneficiary shall have the right and option to with
foreclosure by power of sale in accordance with California Civil Code Section
2924 or other applicable law by notice to Trustee and shall, if required,
deposit with Trustee the Note, the original or a certified copy of this Deed of
Trust, and such other documents, receipts and evidences of expenditures made and
secured hereby as Trustee may require.

          Upon receipt of such notice from Beneficiary, Trustee shall cause to
be recorded and delivered to Trustor such notice of default as may then be
required by law and by this Deed of Trust. Trustee shall, without demand on
Trustor, after lapse of such time as may then be required by law and after
recordation of such notice of default and after notice of sale has been given as
required by law, sell the Trust Property or any portion thereof at the time and
place of sale fixed by it in said notice of sale, either as a whole or in
separate lots or parcels or items as Trustee shall deem expedient, and in such
order as it may determine, at public auction to the highest bidder for cash in
lawful money of the United State (or other cash equivalent as is acceptable to
Trustee and Beneficiary) payable at the time of sale. Trustee shall deliver to
the purchaser or purchasers at such sale its good and sufficient deed or deeds
conveying the property so sold, but without any covenant or warranty, express or
implied. The recitals in such deed of any matters or facts shall be conclusive
proof of the truthfulness thereof. Any person, including, without limitation,
Trustor, Trustee or Beneficiary, may purchase at such sale, and Trustor hereby
covenants to warrant and defend the title of such purchaser or purchasers.

          Trustee may postpone the sale of all or any portion of the Property
from time to time in accordance with the laws of the State of California.

          To the fullest extent allowed by law, Borrower hereby expressly waives
any right which it may have to direct the order in which any of the Property
shall be sold in the event of any sale or sales pursuant to this Deed of Trust.

          Upon any foreclosure sale, Beneficiary may bid for and purchase the
Trust Property and shall be entitled to apply all or any part of the unpaid
Obligations as a credit to the purchase price.

          Beneficiary may from time to time rescind any notice of default or
notice of sale before any Trustee's sale as provided above in accordance with
the laws of the State of California. 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 declarations or notices
of default to satisfy the obligations of this Deed of Trust, or otherwise affect
any provision, covenant or condition of the Financing Agreement or any Loan
Document or any of the rights, obligations or remedies of Trustee or Beneficiary
hereunder or thereunder.

          Each remedy provided in this instrument is distinct from and
cumulative with all other rights and remedies provided hereunder or afforded by
applicable law or equity, and may be exercised concurrently, independently or
successively, in any order whatsoever.


                                       22

<PAGE>

          SECTION 7.04 Trustee's Successors, Substitutes and Agents. Trustee or
any successor to or substitute for Trustee may appoint or delegate any one or
more persons as agent to perform any act or acts necessary or incident to any
sale held by Trustee, including the posting of notices and the conduct of sale,
but in the name and on behalf of Beneficiary. If Trustee or any successor to or
substitute for Trustee shall have given notice of sale hereunder, any successor
or substitute trustee thereafter appointed may complete the sale and the
conveyance of the Trust Property pursuant thereto as if such notice had been
given by the successor to or substitute for Trustee conducting the sale.

          SECTION 7.05 Receivership. If any of the Obligations shall become due
and payable and shall not be promptly paid, Beneficiary shall have the right and
power to proceed by a suit or suits in equity or at law, whether for the
specific performance of Beneficiary which Trustee may apply for and obtain as a
matter of right and without notice to Trustor, which notice is hereby expressly
waived by Trustor, the appointment of a receiver to collect the Rents of the
Trust Property and to preserve the security hereof in accordance with California
Code of Civil Procedure Section 564 (including, without limitation, in order to
enforce Beneficiary's rights under California Civil Code Section 2929.5), either
before or after any foreclosure sale or the sale of the Trust Property under the
order of a court or courts of competent jurisdiction or under executory or other
legal process, without regard to the value of the Trust Property as security for
the amount then due to Beneficiary, or the solvency of any entity or entities,
person or persons primarily or secondarily liable for the payment of such
amounts; the Rents of the Trust Property, in any such event, having heretofore
been assigned to Beneficiary pursuant to Section 3.01 hereof as additional
security for the payment of the Obligations secured hereby.

          Without limiting the foregoing, the receiver shall have the right to
apply Rents to cleanup, remediation or other response action concerning the
release or threatened release of Hazardous Materials, whether or not such
actions are pursuant to an order of any federal, state or local governmental
agency. Trustor hereby confirms the right of Beneficiary (or a receiver
appointed by Beneficiary) to enter upon and inspect all or any portion of the
Trust Property for the purpose of determining the existence, location, nature
and magnitude of any past or present release or threatened release of any
hazardous substance into, onto, beneath, or from the Trust Property in
accordance with the California Civil Code Section 2929.5. All reasonable costs
and expenses incurred by Beneficiary pursuant to this provision or pursuant to
California Civil Code Section 2929.5, including, without limitation, costs of
consultants and contractors, costs of repair of any physical injury to the Trust
Property normal and customary to the tests and studies, court costs and
attorneys' fees, costs and expenses, whether incurred in litigation or not and
whether before or after judgment, shall be payable by Trustor and, to the extent
advanced or incurred by Beneficiary, shall be reimbursed to Beneficiary by
Trustor upon demand. This provision is separate and several, and shall survive
merger into any judgment.

          SECTION 7.06 Judicial Foreclosure. If an Event of Default shall occur
and be continuing, Trustee or Beneficiary shall have the right and power to
proceed by a suit or suits in equity or at law, whether for the specific
performance of any covenant or agreement herein contained or in aid of the
execution of any power herein granted, or for any foreclosure hereunder or for
the sale of the Trust Property under the judgment or decree of any court or
courts of competent jurisdiction, or for the appointment of a receiver pending
any foreclosure hereunder or the sale of the Trust Property under the order of a
court or courts of competent


                                       23

<PAGE>

jurisdiction or under executory or other legal process, or for the enforcement
of any other appropriate legal or equitable remedy. Any money advanced by
Trustee and/or Beneficiary in connection with any such receivership shall be a
demand obligation (which obligation Trustor hereby expressly promises to pay)
owing by Trustor to Trustee and/or Beneficiary and shall bear interest from the
date of such advance by Trustee and/or Beneficiary until paid at the
Post-Default Rate.

          SECTION 7.07 Separate Sales. To the extent allowed by applicable law,
the Trust Property may be sold in one or more parcels and in such manner and
order as Beneficiary, in its sole discretion, may elect, it being expressly
understood and agreed that the right of sale arising out of any Event of Default
shall not be exhausted by any one or more sales.

          SECTION 7.08 Possession of Trust Property. Trustor agrees to the full
extent that it lawfully may, that, in case one or more of the Events of Default
shall have occurred and be continuing, then, and in every such case, Trustee or
Beneficiary shall have the right and power to enter into and upon and take
possession of all or any part of the Trust Property in the possession of
Trustor, its successors or assigns, or its or their agents or servants, and may
exclude Trustor, its successors or assigns, and all Persons claiming by, through
or under Trustor, and its or their agents or servants wholly or partly
therefrom; and, holding the same, Trustee or Beneficiary may use, administer,
manage, operate and control the Trust Property and conduct the business thereof
to the same extent as Trustor, its successors or assigns, might at the time do
and may exercise all rights and powers of Trustor, in the name, place and stead
of Trustor, or otherwise as Trustee or Beneficiary shall deem best. All costs,
expenses and liabilities of every character incurred by Trustee and/or
Beneficiary in administering, managing, operating and controlling the Trust
Property shall constitute a demand obligation (which obligation Trustor hereby
expressly promises to pay) owing by Trustor to Trustee and/or Beneficiary and
shall bear interest from the date of expenditure until paid at the Post-Default
Rate, all of which shall constitute a portion of the Obligations and shall be
secured by this Deed of Trust and all of the other Loan Documents. Trustor
hereby irrevocably constitutes and appoints Beneficiary as Trustor's
attorney-in-fact (coupled with an interest) to perform such acts and execute
such documents as Beneficiary, in its sole discretion, shall deem appropriate,
including endorsement of Trustor's name on any instruments. Regardless of any
provision of this Deed of Trust, the Financing Agreement or any other Loan
Document, Beneficiary shall not be considered to have accepted any property
other than cash or immediately available funds in satisfaction of any obligation
of Trustor to Beneficiary, unless Beneficiary shall have given express written
notice of Beneficiary's election to the contrary.

          SECTION 7.09 Occupancy After Foreclosure. In the event that there is a
foreclosure sale hereunder and at the time of such sale Trustor or Trustor's
representatives, successors or assigns or any other person claiming any interest
in the Trust Property by, through or under Trustor, are occupying or using the
Trust Property or any part thereof, each and all shall immediately become the
tenant of the purchaser at such sale, which tenancy shall be a tenancy from day
to day, terminable at the will of either the landlord or tenant, at a reasonable
rental per day based upon the value of the property occupied, such rental to be
due daily to the purchaser. To the extent permitted by applicable law, the
purchaser at such sale shall, notwithstanding any language herein to the
contrary, have the sole option to demand immediate possession following the sale
or to permit the occupants to remain as tenants at will. In the event that the
tenant fails


                                       24

<PAGE>

to surrender possession of said property upon demand, the purchaser shall be
entitled to institute and maintain a summary action for possession of the Trust
Property (such as an action for forcible entry and detainer) in any court having
appropriate jurisdiction.

          SECTION 7.10 Remedies Cumulative, Concurrent and Nonexclusive. Every
right, power and remedy herein given to Trustee or Beneficiary shall be
cumulative and in addition to every other right, power and remedy herein
specifically given or now or hereafter existing in equity, at law or by statute
(including specifically those granted by the Applicable UCC). Each such right,
power and remedy, whether specifically herein given or otherwise existing, may
be exercised from time to time and so often and in such order as may be deemed
expedient by Trustee or Beneficiary, and the exercise, or the beginning of the
exercise, of any such right, power or remedy shall not be deemed a waiver of the
right to exercise, at the same time or thereafter, any other right, power or
remedy. Beneficiary shall be entitled to collect all costs and expenses incurred
in pursuing such remedies. No delay or omission by Trustee or Beneficiary in the
exercise of any such right, power or remedy shall impair any such right, power
or remedy or operate as a waiver thereof or of any other right, power or remedy
then or thereafter existing.

          SECTION 7.11 No Release of Obligations. Neither Trustor, any other
Borrower, nor any other Person now or hereafter obligated for the payment or
performance of all or any part of the Obligations shall be relieved of any such
obligation by reason of (a) the failure of Trustee or Beneficiary to comply with
any request of Trustor, any other Borrower or any other Person so obligated to
foreclose the Lien of this Deed of Trust to enforce any provision hereunder or
under the Financing Agreement; (b) the release, regardless of consideration, of
the Trust Property or any portion thereof or interest therein or the addition of
any other property to the Trust Property; (c) any agreement or stipulation
between any subsequent owner of the Trust Property and Beneficiary extending,
renewing, rearranging or in any other way modifying the terms of this Deed of
Trust without first having obtained the consent of, given notice to or paid any
consideration to Trustor, any other Borrower or any other Person, and in any
such event Trustor, all other Borrowers and all such other Persons shall
continue to be liable to make payment according to the terms of any such
extension or modification agreement unless expressly released and discharged in
writing by Beneficiary; or (d) any other act or occurrence save and except the
complete payment and performance of all of the Obligations.

          SECTION 7.12 Release of and Resort to Collateral. Beneficiary may
release, regardless of consideration, any part of the Trust Property without, as
to the remainder, in any way impairing, affecting, subordinating or releasing
the Lien or security interest created in or evidenced by this Deed of Trust or
its stature as a first and prior Lien and security interest in and to the Trust
Property, and without in any way releasing or diminishing the liability of any
Person liable for the payment or performance of the Obligations. Beneficiary may
resort to any other security for the Obligations held by Trustee or Beneficiary
in such manner and order as Beneficiary may elect.

          SECTION 7.13 Waiver of Redemption, Notice and Marshalling of Assets.
To the fullest extent permitted by applicable law, Trustor hereby irrevocably
and unconditionally waives and releases (a) all benefits that might accrue to
Trustor by virtue of any present or future moratorium law or other law exempting
the Trust Property from attachment, levy or sale on execution or providing for
any appraisement, valuation, stay of execution, exemption from civil


                                       25

<PAGE>

process, redemption or extension of time for payment; (b) except for notices
expressly provided for herein or in the Financing Agreement, all notices of any
Event of Default or of Beneficiary's intention to accelerate maturity of the
Obligations or of Trustee's or Beneficiary's election to exercise or actual
exercise of any right, remedy or recourse provided for hereunder or under the
Financing Agreement; and (c) any right to a marshalling of assets, a sale in
inverse order of alienation or to direct the application of proceeds, including
any rights under California Civil Code Sections 2899 and 3433, and all rights of
Trustor under California Civil Code Section 2822; (d) all rights and remedies
which Borrower may have or be able to assert by reason of the Laws of the State
of California pertaining to the rights and remedies of sureties and (e) any and
all conflicts with any provisions of any of the Loan Documents. If any law
referred to in this Deed of Trust and now in force, of which Trustor or its
successor or successors might take advantage despite the provisions hereof,
shall hereafter be repealed or cease to be in force, such law shall thereafter
be deemed not to constitute any part of the contract herein contained or to
preclude the operation or application of the provisions hereof. Beneficiary
shall have the right to determine the order in which any or all of the Trust
Property shall be subjected to the remedies provided herein. Beneficiary shall
have the right to determine the order in which any or all portions of the
Obligations are satisfied from the proceeds realized upon the exercise of the
remedies provided herein. Nothing contained herein shall be deemed to be a
waiver of Trustor's rights under Section 2924c of the California Civil Code.

          SECTION 7.14 Discontinuance of Proceedings. In case Beneficiary shall
have proceeded to invoke any right, remedy or recourse permitted hereunder or
under the Financing Agreement and shall thereafter elect to discontinue or
abandon same for any reason, Beneficiary shall have the unqualified right so to
do and, in such an event, Trustor and Beneficiary shall be restored to their
former positions with respect to the Obligations, this Deed of Trust, the
Financing Agreement, the Trust Property and otherwise, and the rights, remedies,
recourses and powers of Beneficiary shall continue as if same had never been
invoked.

          SECTION 7.15 Application of Proceeds. After the occurrence and during
the continuance of an Event of Default, the proceeds of any sale of and any
other amounts generated by the holding, leasing, operating or other use of the
Trust Property shall be applied by Beneficiary (or the receiver, if one is
appointed), to the extent that funds are so available therefrom, in accordance
with the provisions of the Financing Agreement or if not so provided, then in
the following order of priority, except to the extent otherwise required by
applicable law:

          (A) first, to the payment of the reasonable and necessary costs and
expenses of taking possession of the Trust Property and of holding, using,
leasing, repairing, improving the same, including reasonable (i) receivers'
fees, (ii) court costs, (iii) attorneys' and accountants' fees, (iv) costs of
advertisement and title search fees, and (v) the payment of any and all
Impositions, Liens, security interests or other rights, titles or interests
equal or superior to the Lien and security interest of this Deed of Trust
(except those to which the Trust Property has been sold subject to and without
in any way implying Beneficiary's prior consent to the creation thereof);

          (B) second, to the payment of all amounts other than the Principal
Balance and accrued but unpaid interest which may be due to Beneficiary
hereunder or under the other Loan Documents, together with interest thereon as
provided herein;


                                       26

<PAGE>

          (C) third, to the payment of the Obligations in such order and manner
as Beneficiary determines in its sole discretion; and

          (D) fourth, to Trustor or as otherwise required by any Governmental
Requirement.

Trustor shall be liable for any deficiency remaining.

          SECTION 7.16 Uniform Commercial Code Remedies. Beneficiary shall have
all of the rights, remedies and recourses with respect to the Personalty and the
Fixtures afforded to it by the Applicable UCC, including, without limitation,
(i) the right to conduct a unified sale of such Personalty and Fixtures in
connection with a judicial or power of sale foreclosure of any portion of the
Trust Property that constitutes real property, (ii) any the right to take
possession of the Personalty and the Fixtures or any part thereof, and (iii) to
take such other measures as Beneficiary may deem necessary for the care,
protection and preservation of the Personalty and the Fixtures, in addition to,
and not in limitation of, the other rights, remedies and recourses afforded by
this Deed of Trust and the other Loan Documents.

          SECTION 7.17 Indemnity. In connection with any action taken by
Trustee, Beneficiary and/or any Indemnitee pursuant to this Deed of Trust,
Trustee, Beneficiary, and/or any such Indemnitee and their respective
Indemnified Parties shall not be liable for any Loss sustained by Trustor
resulting from (a) an assertion that Beneficiary, or any such Indemnitee or an
Indemnified Party has received funds from the operations of the Trust Property
claimed by third Persons, or (b) any act or omission of Trustee, Beneficiary, or
any such Indemnitee or any such Indemnified Party in administering, managing,
operating or controlling the Trust Property, including in either case such Loss
as may result from the ordinary negligence of Trustee and/or Beneficiary or any
other Lender or an Indemnified Party, or which may result from strict liability,
whether under applicable law or otherwise, unless such Loss is caused by the
gross negligence, willful misconduct or bad faith of Trustee, Beneficiary and/or
such other Lender or such Indemnified Party, nor shall Trustee, Beneficiary
and/or any other Lender or an Indemnified Party be obligated to perform or
discharge any obligation, duty or liability of Trustor. Trustor shall and does
hereby agree to indemnify Trustee and/or Beneficiary and each of the other
Lenders and their respective Indemnified Parties for, and to hold Trustee,
Beneficiary and each such other Lender and each Indemnified Party harmless from,
any and all Losses which may or might be incurred by Trustee and/or Beneficiary
or any of such other Lenders or such Indemnified Parties by reason of this Deed
of Trust or the exercise of rights or remedies hereunder, including such Losses
as may result from the ordinary negligence of Trustee, Beneficiary or any other
Lender or an Indemnified Party, or which may result from strict liability,
whether under applicable law or otherwise, unless such Loss is caused by the
gross negligence, willful misconduct or bad faith of Trustee, Beneficiary or
such other Lender or such Indemnified Party. Should Trustee, Beneficiary and/or
any other Lender or an Indemnified Party make any expenditure on account of any
such Losses, the amount thereof, including costs, expenses and reasonable
attorneys' fees, shall be a demand obligation (which obligation Trustor hereby
expressly promises to pay) owing by Trustor to Trustee and/or Beneficiary and
shall bear interest from the date expended until paid at the Post-Default Rate,
shall be a part of the Obligations and shall be secured by this Deed of Trust
and the other Loan Documents. Trustor hereby assents to, ratifies and confirms
any and all actions of Trustee and/or Beneficiary with


                                       27

<PAGE>

respect to the Trust Property taken under this Deed of Trust. The liabilities of
Trustor, as set forth in this Section 7.18, shall survive the termination of
this Deed of Trust and the payment and performance of the Obligations.

          SECTION 7.18 Waiver of Lien. In accordance with California Code of
Civil Procedure Section 726.5, Beneficiary may waive its lien against the Trust
Property constituting real property or any portion thereof, together with
fixtures or personal property constituting real property thereon, to the extent
such Trust Property constituting real property is found to be environmentally
impaired, and may exercise any and all rights and remedies of an unsecured
creditor against Trustor and all of Trustor's assets and Trust Property
constituting real property for the recovery of any deficiency, including without
limitation seeking an attachment order under California Code of Civil Procedure
Section 483.010. No such waiver shall be final or binding on Beneficiary unless
and until a final money judgment is obtained against Trustor. As between
Beneficiary and Trustor, for purposes of California Code of Civil Procedure
Section 726.5, Trustor shall have the burden of proving that the release or
threatened release was not knowingly or negligently caused or contributed to, or
knowingly or willfully permitted or acquiesced to by Trustor or any related
party (or any affiliate or agent of Trustor or any related party) and that
Trustor made written disclosure of the release to Beneficiary or that
Beneficiary otherwise obtained actual knowledge thereof prior to the making of
the loan evidenced by the Financing Agreement. Notwithstanding anything to the
contrary contained in this Deed of Trust, the Financing Agreement or the other
Loan Documents, Trustor shall be fully and personally liable for all judgments
and awards entered against Trustor pursuant to California Code of Civil
Procedure 726.5 and such liability shall be an exception to any non-recourse or
exculpatory provision in this Deed of Trust or the other Loan Documents, if any,
and shall not be limited to the original principal amount of the obligations
secured by this Deed of Trust. Trustor's obligations hereunder shall survive the
foreclosure, deed in lieu of foreclosure, release, reconveyance or any other
transfer of the Trust Property constituting real property or this Deed of Trust.
For the purpose of any action brought under this Section, Trustor hereby waives
the defense of laches and any applicable statute of limitations. For purposes of
California Code of Civil Procedure 726.5, the acts, knowledge and notice of each
"726.5 Party" shall be attributed to and be deemed to have been performed by the
party or parties then obligated on and liable for payment of the Obligations. As
used herein, "726.5 Party" shall mean Trustor, any successor owner to Trustor of
all or any portion of the Trust Property constituting real property, any related
party of Trustor or any such successor and any affiliate or agent of Trustor,
any such successor or any such related party.

          SECTION 7.19 Action for Environmental Claims. In accordance with, and
subject to limitations of, California Code of Civil Procedure Section 736,
Beneficiary may seek a judgment that the Trustor has breached its covenants,
representations and/or warranties with respect to the environmental matters
contained in the Financing Agreement (the "Environmental Provisions"), and may
commence and maintain an action or actions in any court of competent
jurisdiction for enforcement of the Environmental Provisions and/or recovery of
any and all costs, damages, expenses, fees, penalties, fines, judgments,
indemnification payments to third parties, and other out-of-pocket costs or
expenses (including, without limitation, court costs, consultants' fees and
attorneys' fees, whether incurred in litigation or not and whether before or
after judgment), incurred or advanced by Beneficiary pursuant to the
Environmental Provisions (collectively, the "Environmental Costs"), excluding,
however, any Environmental Costs not


                                       28

<PAGE>

permitted to be recovered pursuant to Section 736 of the California Code of
Civil Procedure. Environmental Costs that are not permitted to be recovered
pursuant to Section 736 may be referred to hereinafter as the "Unsecured
Environmental Costs," and Environmental Costs other than the Unsecured
Environmental Costs may be referred to hereinafter as the "Secured Environmental
Costs." Any Unsecured Environmental Costs shall not be secured by this Deed of
Trust; however, nothing herein shall prevent Beneficiary from recovering any
Unsecured Environmental Costs pursuant to the Indemnity Agreement of even date
herewith among Trustor, Beneficiary and certain other parties, to the extent
they are recoverable in accordance with said Indemnity Agreement. All Secured
Environmental Costs incurred by Beneficiary shall bear interest at the default
rate provided under the Note. All Secured Environmental Costs together with
interest thereon at the rate then in effect under the Financing Agreement shall
be secured by this Deed of Trust and shall enjoy the same priority as the
Obligations. Trustor acknowledges and agrees that notwithstanding any term or
provision contained in this Deed of Trust, the Financing Agreement or in the
other Loan Documents, Environmental Costs shall be exceptions to any nonrecourse
or exculpatory provision, if any, and Trustor shall be fully and personally
liable for Environmental Costs. Such liability shall not be limited to the
original principal amount of the obligations secured by this Deed of Trust.
Trustor's obligations hereunder shall survive foreclosure, deed in lieu of
foreclosure, release, reconveyance or any other transfer of the Trust Property
constituting real property or this Deed of Trust. For the purposes of any action
brought under this subparagraph Trustor hereby waives the defense of laches and
any applicable statute of limitations.

                                  ARTICLE VIII

                                    TRUSTEE

          SECTION 8.01 Duties, Rights, and Powers of Trustee. It shall be no
part of the duty of Trustee to see to any recording, filing or registration of
this Deed of Trust or any other instrument in addition or supplemental thereto,
or to give any notice thereof, or to see to the payment of or be under any duty
in respect of any tax or assessment or other governmental charge which may be
levied or assessed on the Trust Property, or any part thereof, or against
Trustee, or to see to the performance or observance by Trustee of any of the
covenants and agreements contained herein. Trustee shall not be responsible for
the execution, acknowledgment or validity of this Deed of Trust or of any
instrument in addition or supplemental hereto or for the sufficiency of the
security purported to be created hereby, and makes no representation in respect
thereof or in respect of the rights of Beneficiary. Trustee shall have the right
to confer with counsel upon any matters arising hereunder and shall be fully
protected in relying as to legal matters on the advice of counsel. Trustee shall
not incur any personal liability hereunder except for Trustee's own gross
negligence or willful misconduct, and Trustee shall have the right to rely on
any instrument, document or signature authorizing or supporting any action taken
or proposed to be taken by Trustee hereunder, believed by Trustee in good faith
to be genuine.

          SECTION 8.02 Successor Trustee. From time to time, by a writing signed
and acknowledged by Beneficiary and filed for record in the office of the
recorder of the County in which the Land is situated, Beneficiary may appoint
another trustee to act in the place and stead of Trustee or any successor. Such
writing shall refer to this Deed of Trust and set forth the date,


                                       29

<PAGE>

book and page of its recordation. The recordation of such instrument of
substitution shall discharge Trustee herein named and shall appoint the new
trustee as the trustee hereunder with the same effect as if originally named
Trustee herein. A writing recorded pursuant to the provisions of this Section
8.02 shall be conclusive proof of the proper substitution of such new trustee.

          SECTION 8.03 Retention of Moneys. All moneys received by Trustee
shall, until used or applied as herein provided, be held in trust for the
purposes for which they were received, but need not be segregated in any manner
from any other moneys (except to the extent required by law), and Trustee shall
be under no liability for interest on any moneys received by Trustee hereunder.

          SECTION 8.04 Reconveyance. Upon written request of Beneficiary stating
all of the Obligations have been paid, performed and discharged, and the
Financing Agreement is terminated, and payment of its fees, Trustee shall
reconvey, without warranty, the Trust Property. The recitals in such
reconveyance of any matters or facts shall be conclusive proof of the
truthfulness thereof. The grantee in such reconveyance may be described as "the
person or persons legally entitled hereto" or such other description as required
by law in the State of California.

                                   ARTICLE IX

                                 MISCELLANEOUS

          SECTION 9.01 Instrument Construed as Deed of Trust, Etc. This Deed of
Trust may be construed as a deed of trust, chattel mortgage, conveyance,
assignment, security agreement, pledge, financing statement, hypothecation or
contract, or any one or more of them, in order to fully effectuate the liens and
security interests created hereby and the purposes and agreements set forth
herein.

          SECTION 9.02 Performance at Trustor's Expense. The cost and expense of
performing or complying with any and all of the Obligations shall be borne
solely by Trustor, and no portion of such cost and expense shall be, in any way
or to any extent, credited against any installment on or portion of the
Obligations.

          SECTION 9.03 Survival of Obligations. Each and all of the Obligations
shall survive the execution and delivery of this Deed of Trust and shall
continue in full force and effect until all of the Obligations shall have been
fully satisfied.

          SECTION 9.04 Further Assurances. Trustor, upon the request of
Beneficiary, shall execute, acknowledge, deliver and record and/or file such
further instruments, including financing statements, and do such further acts as
may be reasonably necessary, desirable or proper to carry out more effectively
the purpose of this Deed of Trust and to subject to the Liens and security
interests hereof any property intended by the terms hereof to be covered hereby,
including any renewals, additions, substitutions, replacements, betterments or
appurtenances to the then Trust Property.


                                       30

<PAGE>

          SECTION 9.05 Notices. All notices or other communications required or
permitted to be given pursuant to this Deed of Trust shall be in writing and
shall be considered properly given if given in the manner and to the addresses
prescribed by Section 13.01 of the Financing Agreement to the parties and at the
addresses set forth in the first paragraph hereof, and to the parties and at the
addresses set forth in Section 13.01 of the Financing Agreement; provided,
however, that (a) service of notice as required by the laws of any State or
Commonwealth in which portions of the Trust Property may be situated shall for
all purposes be deemed appropriate and sufficient with the giving of such notice
thereunder, and (b) any party shall have the right to change its address for
notice hereunder to any other location within the continental United States by
the giving of ten (10) days' notice to the other party in the manner set forth
above.

          SECTION 9.06 No Waiver. Any failure by Beneficiary to insist, or any
election by Beneficiary not to insist, upon strict performance by Trustor of any
of the terms, provisions or conditions of this Deed of Trust shall not be deemed
to be a waiver of the same or of any other terms, provision or condition hereof,
and Beneficiary shall have the right, at any time or times thereafter, to insist
upon strict performance by Trustor of any and all of such terms, provisions and
conditions. Beneficiary may, in Beneficiary's sole and absolute discretion, (i)
in the case of a Default, determine whether such Default has been cured, and
(ii) in the case of an Event of Default, accept or reject any proposed cure of
an Event of Default. In no event shall any provision of this Deed of Trust or
any other Loan Document which provides that Beneficiary shall have certain
rights and/or remedies only during the continuance of an Event of Default be
construed so as to require Beneficiary to accept a cure of any such Event of
Default. Unless and until Beneficiary accepts any proposed cure of an Event of
Default, such Event of Default shall be deemed to be continuing for purposes of
this Deed of Trust and the other Loan Documents.

          SECTION 9.07 Beneficiary's Right to Perform; Beneficiary's
Expenditures.

          (A) Trustor agrees that if Trustor fails to perform any act or take
any action which Trustor is required to perform or take hereunder or under the
Financing Agreement or to pay any money which Trustor is required to pay
hereunder or under the Financing Agreement, Beneficiary may, but shall not be
obligated to, perform or cause to be performed such act or take such action or
pay such money, to the extent and only to the extent permitted under the
Financing Agreement.

          (B) All costs and expenses incurred by Beneficiary (or any Indemnified
Party), including, without limitation, attorneys fees, costs and expenses, all
monies paid by (or on behalf of) Beneficiary and the monetary value of all
services performed by (or on behalf of Beneficiary) in connection with a Default
or Event of Default hereunder or under any other Loan Document, including,
without limitation, the (i) the enforcement of any term or provision of this
Deed of Trust or any other Loan Document, (ii) the performance by Beneficiary of
any obligation of Trustor under this Deed of Trust or any other Loan Document if
Beneficiary elects to so perform, in its sole and absolute discretion, and (iii)
any action Beneficiary elects to take, in its sole and absolute discretion, to
protect its interest in or the value of the Trust Property, shall be a demand
obligation owing by Trustor to Beneficiary, as the case may be, and to the
extent any payment is made to a third Person, Beneficiary, upon making such
payment, shall be subrogated to all of the rights of the Person receiving such
payment. All such costs and


                                       31

<PAGE>

expenses, monies and the monetary value of such services performed shall (x)
bear interest at the Post-Default Rate from the date of such incurrence, payment
or performance, as applicable, until paid, and (y) constitute (together with
such interest) a portion of the Obligations and shall be secured by this Deed of
Trust and all of the other Loan Documents. If Beneficiary shall elect to pay any
Imposition or other sums due with reference to the Trust Property, Beneficiary
may do so in reliance on any bill, statement or assessment procured from the
appropriate Governmental Authority or other issuer thereof. Attorneys' fees,
costs and expenses as used herein shall include, without limitation, such fees,
costs and expenses incurred in litigation or not, whether before or after
judgment and and consultants, court costs, expert witness fees, document
reproduction expenses, costs of exhibit preparation, courier charges, postage
and communication expenses. This provision is separate and several, and shall
survive merger into any judgment.

          Trustor shall and does hereby agree that, if all or a portion of the
Obligations has prior to the maturity date fixed in the Financing Agreement,
become due or been declared due by reason of an Event of Default the entire
amount then due under the terms of this Deed of Trust and the Financing
Agreement shall include all attorneys' fees and costs and expenses which are
actually incurred as stated above, notwithstanding the provisions of Section
2924c(d) and Section 2924d of the California Civil Code.

          SECTION 9.08 Successors and Assigns. All of the terms hereof shall
apply to, be binding upon and inure to the benefit of the parties hereto, their
successors, assigns, heirs and legal representatives, and all other Persons
claiming by, through or under them; provided, however, that nothing herein shall
be deemed to imply any right on behalf of Trustor to assign its interest in any
of the Trust Property except as may be expressly set forth in the Financing
Agreement.

          SECTION 9.09 Severability. This Deed of Trust is intended to be
performed in accordance with, and only to the extent permitted by, all
applicable laws and regulations of applicable Governmental Authorities and the
provisions hereof are intended to be limited to the extent necessary that they
will not render this Deed of Trust invalid, unenforceable or not entitled to be
recorded, registered or filed under the provisions of any applicable law. If any
provision hereof or the application thereof to any Person or circumstance shall,
for any reason and to any extent, be invalid or unenforceable, neither the
remainder of this Deed of Trust nor the application of such provision to other
Persons or circumstances shall be affected thereby, but rather shall be enforced
to the greatest extent permitted by applicable law.

          SECTION 9.10 Subrogation of Trustee. This Deed of Trust is made with
full substitution and subrogation of Trustee and successors in this trust to
Trustee and Trustee and such successors assigns in and to all covenants and
warranties by others heretofore given or made in respect of the Trust Property
or any part thereof.

          SECTION 9.11 Entire Agreement and Modification. This Deed of Trust may
not be amended, revised, waived, discharged, released or terminated orally, but
only by a written instrument or instruments executed by the party against which
enforcement of the amendment, revision, waiver, discharge, release or
termination is asserted. Any alleged amendment, revision, waiver, discharge,
release or termination which is not so documented shall not be effective as to
any party.


                                       32

<PAGE>

          SECTION 9.12 Applicable Law. THlS DEED OF TRUST, THE FINANCING
AGREEMENT AND THE LOAN DOCUMENTS HAVE BEEN DELIVERED IN THE STATE OF NEW YORK.
TRUSTOR AND BENEFICIARY FURTHER AGREE AND STIPULATE THAT THIS DEED OF TRUST, THE
FINANCING AGREEMENT AND THE LOAN DOCUMENTS HAVE BEEN DELIVERED IN THE STATE OF
NEW YORK WERE NEGOTIATED, EXECUTED AND DELIVERED IN THE STATE OF NEW YORK, AND
THAT THE STATE OF NEW YORK HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO
THE UNDERLYING TRANSACTION. IT IS THEREFORE THE INTENT OF TRUSTOR AND
BENEFICIARY THAT THIS DEED OF TRUST SHALL BE CONSTRUED AND INTERPRETED WITH, AND
GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT
TO NEW YORK CHOICE OF LAW PRINCIPLES); PROVIDED, HOWEVER, THAT THE LAWS OF THE
STATE OF CALIFORNIA SHALL APPLY TO THE CREATION, PERFECTION AND PROCEDURES
GOVERNING ENFORCEMENT OF ANY LIENS, SECURITY INTERESTS AND ENCUMBRANCES GRANTED
OR CREATED BY THIS DEED OF TRUST IN THE REAL OR PERSONAL PROPERTY LOCATED IN (OR
IN THE CASE OF INTANGIBLE PERSONAL PROPERTY, HAVING A SITUS IN) THE STATE OF
CALIFORNIA, AND THE MANAGEMENT, OPERATION, DISPOSITION AND REALIZATION OF THE
SECURITY PROVIDED THEREBY. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE
LAWS OF THE STATE OF NEW YORK SHALL APPLY TO (I) ALL MATTERS RELATING TO THE
CHARGING AND COLLECTION OF INTEREST UNDER THIS DEED OF TRUST AND WITH RESPECT TO
THE OBLIGATIONS, (II) THE ENFORCEMENT OF ALL RIGHTS UNDER THE FINANCING
AGREEMENT, AND THE LOAN DOCUMENTS OTHER THAN THIS DEED OF TRUST AND (III) THE
RIGHT TO SUE TRUSTOR OR ANY OTHER PERSON OBLIGATED UNDER THE LOAN AGREEMENT AND
THE LOAN DOCUMENTS TO COLLECT ANY OUTSTANDING OBLIGATIONS OR TO OBTAIN A
JUDGMENT FOR ANY DEFICIENCY FOLLOWING FORECLOSURE UNDER ANY ONE ACTION AND
ANTIDEFICIENCY RULES. TRUSTOR HEREBY AGREES THAT BENEFICIARY MAY ENFORCE ITS
RIGHTS UNDER THIS DEED OF TRUST AND ANY OF THE OTHER LOAN DOCUMENTS, INCLUDING
THE RIGHT TO SUE TRUSTOR OR ANY PERSON OBLIGATED UNDER THE LOAN DOCUMENTS TO
COLLECT ANY OUTSTANDING OBLIGATIONS OR TO OBTAIN A JUDGMENT FOR ANY DEFICIENCY
FOLLOWING FORECLOSURE, IN ACCORDANCE WITH NEW YORK LAW, AND TRUSTOR HEREBY
ACKNOWLEDGES THAT THE CALIFORNIA CODE OF CIVIL PROCEDURE SECTIONS 580A, 580D AND
726 DO NOT APPLY TO THIS DEED OF TRUST, THE FINANCING AGREEMENT AND THE LOAN
DOCUMENTS AND, TO THE EXTENT THEY APPLY WAIVES TO THE MAXIMUM EXTENT PERMITTED
BY LAW ANY RIGHTS WHICH IT MAY HAVE UNDER THE SUCH SECTIONS.

          SECTION 9.13 Satisfaction of Prior Encumbrance. To the extent that
proceeds advanced pursuant to the Financing Agreement are used to pay
indebtedness secured by any outstanding Lien, security interest, charge or prior
encumbrance against the Trust Property, such proceeds shall be deemed to have
been advanced by Beneficiary at Trustor's request, and Beneficiary shall be
subrogated to any and all rights, security interests and Liens owned by any


                                       33

<PAGE>

owner or holder of such outstanding Liens, security interests, charges or
encumbrances, irrespective of whether said Liens, security interests, charges or
encumbrances are released, and it is expressly understood that, in consideration
of the payment of such other indebtedness by Beneficiary, Trustor hereby waives
and releases all demands and causes of action for offsets and payments to, upon
and in connection with the said indebtedness.

          SECTION 9.14 No Partnership. Nothing contained in this Deed of Trust
is intended to, or shall be construed to, create to any extent and in any manner
whatsoever any partnership, joint venture, or association between Trustor and
Beneficiary, or in any way make Beneficiary a co-principal with Trustor with
reference to the Trust Property, and any inferences to the contrary are hereby
expressly negated.

          SECTION 9.15 Headings. The Article, Section and Subsection headings
hereof are inserted for convenience of reference only and shall in no way alter,
modify or define, or be used in construing, the text of such Articles, Sections
or Subsections.

          SECTION 9.16 Release of Deed of Trust. If all of the Obligations shall
be paid, performed and discharged and the Financing Agreement is terminated,
Beneficiary shall forthwith cause satisfaction and discharge of this Deed of
Trust to be entered upon the record, at the sole cost and expense of Trustor,
and shall execute and deliver (or cause to be executed and delivered) such
instruments of satisfaction and discharge as may be appropriate, such
instruments to be duly acknowledged and in form for recording, at the sole cost
and expense of Trustor.

          SECTION 9.17 Limitation of Obligations with Respect to Trust Property.

          (A) Neither Trustee nor Beneficiary or any Lender shall have any duty
to protect or preserve, or any liability with respect to the protection or
preservation of, any Trust Property or to preserve rights pertaining thereto
other than the duty to use reasonable care in the custody and preservation of
any Trust Property in its actual possession. Beneficiary shall be deemed to have
exercised reasonable care in the custody and preservation of any Trust Property
in its possession if such Trust Property is accorded treatment substantially
equal to that which Beneficiary accords its own like property. Beneficiary shall
be relieved of all responsibility for any Trust Property in its possession upon
surrendering it, or tendering surrender of it, to Trustor or to such other
Person entitled thereto by applicable law.

          (B) Nothing contained in this Deed of Trust shall be construed as
requiring or obligating Trustee, Beneficiary or any Lender, and neither Trustee
nor Beneficiary or any Lender shall be required or obligated, to (i) make any
demand or inquiry as to the nature or sufficiency of any payment received by it,
or present or file any claim or notice or take any action with respect to any
Trust Property or the monies due or to become due thereunder in connection
therewith, (ii) ascertain or take action with respect to calls, conversions,
exchanges, maturities, tenders, offers or other matters relating to any Trust
Property, whether or not Beneficiary or any of the other Lenders has or is
deemed to have knowledge or notice thereof, (iii) take any necessary steps to
preserve rights against any prior parties with respect to any Trust Property, or
(iv) notify Trustor or any other Person of any decline in the value of any Trust
Property.


                                       34

<PAGE>

          SECTION 9.18 Inconsistency with Financing Agreement. To the fullest
extent possible, the terms and provisions of the Financing Agreement shall be
read together with the terms and provisions of this Deed of Trust such that the
terms and provisions of this Deed of Trust shall supplement, rather than
conflict with, the terms and provisions of the Financing Agreement; provided,
however, that, notwithstanding the foregoing, in the event any of the terms or
provisions of this Deed of Trust conflict with any of the terms or provisions of
the Financing Agreement, such that it is impractical for such terms or
provisions to coexist, the terms or provisions of the Financing Agreement shall
govern and control for all purposes; and, provided further, that the inclusion
in this Deed of Trust of terms and provisions, supplemental rights or remedies
in favor of a secured party but which are not addressed in the Financing
Agreement shall not be deemed to be a conflict with the Financing Agreement and
all such additional terms, provisions, supplemental rights or remedies contained
herein shall be given full force and effect.

          SECTION 9.19 Limitation on Interest Payable. It is the intention of
the parties to conform strictly to the usury laws, whether state or federal,
that are applicable to the transaction of which this Deed of Trust is a part.
All agreements between Trustor and Beneficiary, or any Lender, whether now
existing or hereafter arising and whether oral or written, are hereby expressly
limited so that in no contingency or event whatsoever shall the amount paid or
agreed to be paid by Trustor for the use, forbearance or detention of the money
to be loaned under the Financing Agreement or any other Loan Document, or for
the payment or performance of any covenant or obligation contained herein or in
the Financing Agreement or any other Loan Document, exceed the maximum amount
permissible under applicable federal or state usury laws. If, under any
circumstances, fulfillment of any such provision, at the time performance of
such provision shall be due, shall involve exceeding the limit of validity
prescribed by applicable law, then the obligation to be fulfilled shall be
reduced to the limit of such validity. If, under any circumstances, Trustor
shall have paid an amount of money which is deemed to be interest and such
interest would exceed the highest lawful rate, such amount that would be
excessive interest under applicable usury laws shall be applied to the reduction
of the principal amount owing in respect of the Obligations and not to the
payment of interest, or if such excessive interest exceeds the unpaid balance of
principal and any other amounts due hereunder, the excess shall be refunded to
Trustor. All sums paid or agreed to be paid for the use, forbearance or
detention of the principal under any extension of credit by Beneficiary (or
Lender) shall, to the extent permitted by applicable law, and to the extent
necessary to preclude exceeding the limit of validity prescribed by applicable
law, be amortized, prorated, allocated and spread from the date of this Deed of
Trust until payment in full of the Obligations so that the actual rate of
interest on account of such principal amounts is uniform throughout the term
hereof.

          SECTION 9.20 Covenants To Run With the Land. All of the grants,
representations, warranties, undertakings, covenants, terms, provisions and
conditions in this Deed of Trust shall run with the Land and shall apply to and
bind the successors and assigns of Trustor. If there shall be more than one
trustor, the covenants, representations and warranties made herein shall be
deemed to be joint and several.

          SECTION 9.21 Amount Secured; Last Dollar. So long as the balance of
the Obligations exceeds the portion of the Obligations secured by this Deed of
Trust, no payment on account of the Obligations shall be deemed to be applied
against or to reduce the portion of the


                                       35

<PAGE>

Obligations secured by this Deed of Trust, but shall, instead, be deemed to be
applied against only such portions of the Obligations that are not secured by
this Deed of Trust.

          SECTION 9.22 Defense of Claims. Trustor shall promptly notify
Beneficiary in writing of the commencement of any legal proceedings affecting
Trustor's title to the Trust Property or Beneficiary's Lien on or security
interest in the Trust Property, or any part thereof, and shall take all such
action, employing attorneys agreeable to Beneficiary, as may be necessary to
preserve Trustor's and Beneficiary's rights affected thereby. If Trustor fails
or refuses to adequately or vigorously, in the sole judgment of Beneficiary,
defend Trustor's or Beneficiary's rights to the Trust Property, Beneficiary may
take such action on behalf of and in the name of Trustor and at Trustor's
expense. Moreover, Beneficiary may take (or cause its agents to take) such
independent action in connection therewith as they may in their discretion deem
proper, including, without limitation, the right to employ independent counsel
and to intervene in any suit affecting the Trust Property. All costs, expenses
and attorneys' fees incurred by Beneficiary (or its agents) pursuant to this
Section 9.22 or in connection with the defense by Beneficiary of any claims,
demands or litigation relating to Trustor, the Trust Property or the
transactions contemplated in this Deed of Trust shall be paid by Trustor on
demand, plus interest thereon from the date of the advance by Beneficiary until
reimbursement of Beneficiary at the Post-Default Rate.

          SECTION 9.23 Exculpation Provisions. EACH OF THE PARTIES HERETO
SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS DEED OF TRUST; AND AGREES
THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS DEED OF TRUST;
THAT IT HAS IN FACT READ THIS DEED OF TRUST AND IS FULLY INFORMED AND HAS FULL
NOTICE AND KNOWLEDGE OF THE TERMS, CONDITIONS AND EFFECTS OF THIS DEED OF TRUST;
THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE
THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS DEED OF TRUST AND
HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS DEED OF TRUST; AND
THAT IT RECOGNIZES THAT CERTAIN TERMS OF THIS DEED OF TRUST RESULT IN ONE PARTY
ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING
THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO
AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF
ANY EXCULPATORY PROVISION OF THIS DEED OF TRUST ON THE BASIS THAT THE PARTY HAD
NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT
"CONSPICUOUS."

          SECTION 9.24 No Merger of Estates. So long as any part of the
Obligations remain unpaid, unperformed or undischarged, the fee, easement and
leasehold estates to the Trust Property shall not merge but rather shall remain
separate and distinct, notwithstanding the union of such estates either in
Trustor, Beneficiary, any lessee, any third-party purchaser or otherwise.

          SECTION 9.25 Suretyship Waivers. As used in this Section 9.25, the
term "Obligor" shall mean each any Obligor, other than the Trustor, obligated
for any of the Obligations secured by this Deed of Trust.


                                       36

<PAGE>

          (A) Representations and Warranties. Trustor represents and warrants to
Beneficiary that: (A) this Deed of Trust is executed, in part, at the request of
the Obligors; (B) this Deed of Trust complies with all agreements between each
Obligor regarding Trustor's execution hereof; (C) Beneficiary has made no
representation to any Trustor as to the creditworthiness of any Obligor; and (D)
Trustor has established adequate means of obtaining from each Obligor on a
continuing basis financial and other information pertaining to such Obligor's
financial condition. Trustor agrees to keep adequately informed from such means
of any facts, events or circumstances which might in any way affect such
Trustor's risks hereunder. Trustor further agrees that Beneficiary shall have no
obligation to disclose to Trustor any information or material about any Obligor
which is acquired by Beneficiary in any manner. The liability of Trustor
hereunder shall be reinstated and revived, and the rights of Beneficiary shall
continue if and to the extent that for any reason any amount at any time paid on
account of any Obligation is rescinded or must otherwise be restored by
Beneficiary, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise, all as though such amount had not been paid. The
determination as to whether any amount so paid must be rescinded or restored
shall be made by Beneficiary in its sole discretion; provided however, that if
Beneficiary chooses to contest any such matter at the request of Trustor,
Trustor agrees to indemnify and hold Beneficiary harmless from and against all
costs and expenses, including reasonable attorneys' fees, expended or incurred
by Beneficiary in connection therewith, including without limitation, any
litigation with respect thereto.

          (B) General Suretyship Waivers.

               (i) Trustor waives any right to require Beneficiary to: (i)
     proceed against any Obligor or any other person; (ii) marshal assets or
     proceed against or exhaust any security held from any Obligor or any other
     person; (iii) take any action or pursue any other remedy in Beneficiary's
     power; or (iv) make any presentment or demand for performance, or give any
     notice of nonperformance, protest, notice of protest or notice of dishonor
     hereunder or in connection with any obligations or evidences of
     indebtedness held by Beneficiary as security for or which constitute in
     whole or in part the Obligations, or in connection with the creation of new
     or additional obligations.

               (ii) Trustor waives any defense to its obligations hereunder
     based upon or arising by reason of: (i) any disability or other defense of
     any Obligor or any other person; (ii) the cessation or limitation from any
     cause whatsoever, other than payment in full, of any Obligation; (iii) any
     lack of authority of any officer, director, partner, agent or any other
     person acting or purporting to act on behalf of any Obligor which is a
     corporation, partnership or other type of entity, or any defect in the
     formation of any such Obligor; (iv) the application by any Obligor of the
     proceeds of any Obligation for purposes other than the purposes represented
     by any Obligor to, or intended or understood by, Beneficiary or any
     Trustor; (v) any act or omission by Beneficiary which directly or
     indirectly results in or aids the discharge of any Obligor of any portion
     of the Obligations by operation of law or otherwise, or which in any way
     impairs or suspends any rights or remedies of Beneficiary against any
     Obligor; (vi) any impairment of the value of any interest in any security
     for the Obligations or any portion thereof, including without limitation,
     the failure to obtain or maintain perfection or recordation of any interest
     in any such security, the release of any such security without
     substitution, and/or


                                       37

<PAGE>

     the failure to preserve the value of, or to comply with applicable law in
     disposing of, any such security; or (vii) any modification of the
     Obligations, in any form whatsoever, including without limitation the
     renewal, extension, acceleration or other change in time for payment of, or
     other change in the terms of, the Obligations or any portion thereof,
     including increase or decrease of the rate of interest thereon. Until all
     Obligations shall have been paid in full, no Trustor shall have any right
     of subrogation, and Trustor waives any right to enforce any remedy which
     Beneficiary now has or may hereafter have against any Obligor or any other
     person, and waives any benefit of, or any right to participate in, any
     security now or hereafter held by Beneficiary. Trustor further waives all
     rights and defenses it may have arising out of: (1) any election of
     remedies by Beneficiary, even though that election of remedies, such as a
     non-judicial foreclosure with respect to any security for any portion of
     the Obligations, destroys Trustor's rights of subrogation or Trustor's
     rights to proceed against any Obligor for reimbursement; or (2) any loss of
     rights Trustor may suffer by reason of any rights, powers or remedies of
     any Obligor in connection with any anti-deficiency laws or any other laws
     limiting, qualifying or discharging any Obligor's obligations, whether by
     operation of Sections 726, 580a and 58Od of the Code of Civil Procedure as
     from time to time amended (to the extent California law applies or may be
     determined to apply), or otherwise, including any rights Trustor may have
     to a Section 580a fair market value hearing to determine the size of a
     deficiency following any trustee's foreclosure sale or other disposition of
     any security for any portion of the Obligations (to the extent California
     law applies or may be determined to apply).

               (iii) If any of said waivers is determined to be contrary to any
     applicable law or public policy, such waiver shall be effective to the
     extent permitted by applicable law or public policy.

          (C) Additional Suretyship Waivers.

               (i) Trustor hereby expressly waives and agrees not to assert or
     take advantage of any defense based upon:

                    (1) The incapacity, lack of authority, death or disability
          of any Obligor or any other person or entity;

                    (2) The failure of Beneficiary to commence an action against
          any Obligor or to proceed against or exhaust any security held by
          Beneficiary at any time, or to pursue any other remedy whatsoever at
          anytime;

                    (3) Any duty on the part of Beneficiary to disclose to
          Trustor any facts Beneficiary may now or hereafter know regarding any
          Obligor, regardless of whether Beneficiary has reason to believe (i)
          that any such facts materially increase the risk beyond that which
          Trustor intends to assume, or (ii) that such facts are unknown to
          Trustor, Trustor acknowledging that he, she or it is fully responsible
          for being and keeping informed of the financial condition and affairs
          of any Obligor;


                                       38

<PAGE>

                    (4) Lack of notice of default, demand of performance or
          notice of acceleration to any Obligor or any other party with respect
          to the Loans or any Obligor's obligations guarantied by Trustor;

                    (5) The consideration for the Loan Documents;

                    (6) The revocation or repudiation hereof by Trustor or the
          revocation or repudiation of any of the Loan Documents by any Obligor
          or any other person;

                    (7) The unenforceability in whole or in part of the Loan
          Documents against any Obligor;

                    (8) Any acts or omissions of Beneficiary which vary,
          increase or decrease the risk on Trustor;

                    (9) Any rights or defenses based upon an offset by Trustor
          against any obligation now or hereafter owed to Trustor by any
          Obligor;

                    (10) Any statute of limitations affecting the liability of
          Trustor hereunder, the liability of any Obligor or any other guarantor
          under the Loan Documents or the enforcement hereof, to the extent
          permitted by law;

                    (11) The application by any Obligor of the proceeds of the
          Loans or other financial accommodations under the Financing Agreement
          for purposes other than the purposes represented by any Obligor to
          Beneficiary and Trustor or intended or understood by Beneficiary or
          Trustor;

                    (12) An election of remedies by Beneficiary, including any
          election to proceed against any collateral by judicial or nonjudicial
          foreclosure, whether real property or personal property that is
          security for the any Obligor's obligations under the Loan Documents,
          or by deed in lieu thereof, and whether or not every aspect of any
          foreclosure sale is commercially reasonable, and whether or not any
          such election of remedies destroys or otherwise impairs the
          subrogation rights of Trustor or the rights of Trustor to proceed
          against any Obligor or any other guarantor by way of subrogation or
          for reimbursement or contribution, or all such rights;

                    (13) Any statute or rule of law which provides that the
          obligation of a surety must be neither larger in amount nor in any
          other aspects more burdensome than that of the principal obligor;

                    (14) Beneficiary's election, in any proceeding instituted
          under Title 11 of the United States Code (the "Bankruptcy Code"), of
          the application of Bankruptcy Code Section 111l(b)(2) or any
          successor statute;

                    (15) Any borrowing or any grant of a security interest under
          Bankruptcy Code Section 364; and


                                       39

<PAGE>

                    (16) Any other suretyship defense that may be available to
          Trustor. Without limiting the generality of the foregoing (to the
          extent California law applies or may be determined to apply), Trustor
          also waives (y) any defense based upon Beneficiary's election to waive
          its lien as to all or any security for the Loans or for the guarantor
          of any other person pursuant to California Code of Civil Procedure
          ("CCP ") Section 726.5, under any similar law in any other state that
          may be applicable because any Obligor's obligations are secured by a
          lien on real property in such state, or otherwise, and (z) any and all
          benefits which might otherwise be available to Trustor under
          California Civil Code ("Civil Code") Sections 2809, 2810, 2815, 2819,
          2839, 2845 through 2850, 2899 and 3433.

               (ii) Trustor understands and acknowledges that if Beneficiary
     forecloses judicially or nonjudicially against any real property that is
     security for any Obligor's obligations under the Loan Documents (other than
     this Deed of Trust), that foreclosure could impair or destroy any ability
     that Trustor may have to seek reimbursement, contribution or
     indemnification from any such Obligor based on any right Trustor may have
     of subrogation, reimbursement, contribution or indemnification for any
     amounts paid by Trustor under the Loan Documents or realized by Beneficiary
     by way of foreclosure of this Deed of Trust. Trustor further understands
     and acknowledges that in the absence of this provision, the potential
     impairment or destruction of Trustor's rights, if any, may (to the extent
     California law applies or may be determined to apply) entitle Trustor to
     assert a defense to its obligations under this Deed of Trust and the Loan
     Documents based on CCP Section 580d as interpreted in Union Bank vs.
     Gradsky. By executing this Deed of Trust, Trustor freely, irrevocably and
     unconditionally:

                    (1) waives and relinquishes that defense, and agrees that
          Trustor will be fully liable for its obligations under the Loan
          Documents and the Trust Property will continue to be security for the
          Obligations, even though Beneficiary may foreclose judicially or
          nonjudicially against any real property that is security for the any
          Obligor's obligations under the Loan Documents;

                    (2) agrees that Trustor will not assert that defense in any
          action or proceeding that Beneficiary may commence to enforce the
          obligations of Trustor under this Deed of Trust and the Loan
          Documents;

                    (3) acknowledges and agrees that the rights and defenses
          waived by Trustor under the Loan Documents include any right or
          defense that Trustor may have or be entitled to assert based upon or
          arising out of any one or more of the following: (i) CCP Sections 580a
          (which if Trustor had not given this waiver, would otherwise limit
          Trustor's liability (and the extent of the Obligations to which the
          Trust Property would be exposed) after any nonjudicial foreclosure
          sale to the difference between the amount of the Obligations and the
          fair market value of the property or interests sold at such
          nonjudicial foreclosure sale against any real property that is
          security for the an Obligor's obligations under the Loan Documents
          rather than the actual proceeds of such sale), 580b and 580d (which if
          Trustor had not given this waiver, would otherwise limit Beneficiary's
          right to recover a deficiency judgment (or to foreclose this Deed of
          Trust and otherwise


                                       40

<PAGE>

          pursue the Trust Property) with respect to purchase money obligations
          and after any nonjudicial foreclosure sale against any real property
          that is security for the an Obligor's obligations under the Loan
          Documents, respectively), or 726 (which, if Trustor had not given this
          waiver, among other things, would otherwise require Beneficiary to
          exhaust all of its security against an Obligor or Obligors before
          Beneficiary would be entitled to exercise its remedies under this Deed
          of Trust or pursue a personal judgment for a deficiency against the
          any Obligor); or (ii) Civil Code Section 2848; and

                    (4) acknowledges and agrees that Beneficiary is relying on
          this waiver in making the Loan or other financial accommodations under
          the Financing Agreement, and that this waiver is a material part of
          the consideration that Beneficiary is receiving for making the Loans
          or other financial accommodations under the Financing Agreement.
          WITHOUT LIMITING THE FOREGOING, TRUSTOR WAIVES ALL RIGHTS AND DEFENSES
          THAT TRUSTOR HAS BECAUSE ANY OBLIGOR'S OBLIGATIONS UNDER THE LOAN
          DOCUMENTS ARE SECURED BY REAL PROPERTY. THIS MEANS, AMONG OTHER
          THINGS:

                         a. BENEFICIARY MAY COLLECT FROM TRUSTOR OR EXERCISE ITS
               REMEDIES UNDER THIS DEED OF TRUST WITHOUT FIRST FORECLOSING ON
               ANY REAL OR PERSONAL PROPERTY COLLATERAL PLEDGED BY ANY OBLIGOR;
               AND

                         b. IF BENEFICIARY FORECLOSES ON ANY REAL PROPERTY
               COLLATERAL PLEDGED BY ANY OBLIGOR:

                              (i) THE AMOUNT OF THE OBLIGATIONS MAY BE REDUCED
                         ONLY BY THE PRICE FOR WHICH THAT COLLATERAL IS SOLD AT
                         THE FORECLOSURE SALE, EVEN IF THE COLLATERAL IS WORTH
                         MORE THAN THE SALE PRICE; AND

                              (ii) BENEFICIARY MAY COLLECT FROM TRUSTOR AND
                         EXERCISE ITS REMEDIES UNDER THIS DEED OF TRUST EVEN IF
                         BENEFICIARY, BY FORECLOSING ON THE REAL PROPERTY
                         COLLATERAL, HAS DESTROYED ANY RIGHT TRUSTOR MAY HAVE TO
                         COLLECT FROM ANY OBLIGOR.

          THIS IS AN UNCONDITIONAL AND IRREVOCABLE WAIVER OF ANY RIGHTS AND
          DEFENSES TRUSTOR HAS BECAUSE ANY OBLIGOR'S OBLIGATIONS UNDER THE LOAN
          DOCUMENTS ARE SECURED BY REAL PROPERTY. THESE RIGHTS AND DEFENSES
          INCLUDE, BUT ARE


                                       41

<PAGE>

          NOT LIMITED TO, ANY RIGHTS OR DEFENSES BASED UPON CCP SECTIONS 580a,
          580b, 580d OR 726.

          SECTION 9.26 Beneficiary Statement. Beneficiary may collect a fee not
to exceed the maximum allowed by applicable law for furnishing the statement of
obligation as provided in Section 2943 of the Civil Code of California.

          SECTION 9.27 Request for Notice. Pursuant to Section 2924b(d) of the
California Civil Code, Trustor and Beneficiary request that a copy of any notice
of default and a copy of any notice of sale be mailed to Trustor and
Beneficiary, respectively, at the address for such party set forth herein

          SECTION 9.28 Release and Reconveyance. Lender will release and
reconvey its interest under this Deed of Trust to the Trust Property as required
by Section 7.04 of the Financing Agreement.

             [NO FURTHER TEXT ON THIS PAGE; SIGNATURE PAGE FOLLOWS]


                                       42

<PAGE>

     IN WITNESS WHEREOF, Trustor has executed this Deed of Trust as of the date
first above written.

                                        TRUSTOR:

                                        LAKES SHINGLE SPRINGS, INC., a
                                        Minnesota corporation


                                        By: /s/ Timothy J. Cope
                                            ------------------------------------
                                            Timothy J. Cope,
                                            Chief Financial Officer

<PAGE>

                                 ACKNOWLEDGEMENT

STATE OF  NEW YORK   )
                     )   ss:
COUNTY OF NEW YORK   )

On February 15, 2006 before me personally appeared Timothy J. Cope, personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity(ies),
and that by his signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.


                                        /s/ Thomas W. Caplis
                                        ----------------------------------------
                                        Notary Public

                                        (SEAL)

<PAGE>

                                    EXHIBIT A

                                LEGAL DESCRIPTION

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE UNINCORPORATED AREA, COUNTY
OF EL DORADO, STATE OF CALIFORNIA AND IS DESCRIBED AS FOLLOWS:

PARCEL A:

PARCEL 2, AS SHOWN ON THE PARCEL MAP FILED APRIL 4, 1978 IN BOOK 19 OF PARCEL
MAPS, AT PAGE 81, EL DORADO COUNTY RECORDS.

APN: 319-110-180-100

PARCEL B:

PARCEL 3, AS SHOWN ON THE PARCEL MAP FILED APRIL 4, 1978 IN BOOK 19 OF PARCEL
MAPS, AT PAGE 81, EL DORADO COUNTY RECORDS.

ANT 319-110-190-100


                                   Exhibit A-l
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.11
<SEQUENCE>13
<FILENAME>c02665exv10w11.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT - LYLE BERMAN
<TEXT>
<PAGE>
                                                                   Exhibit 10.11

                              EMPLOYMENT AGREEMENT

     This Agreement (the "Agreement") is made and entered into effective as of
this 15th day of February, 2006 by and between Lyle Berman, an individual
resident of the State of Nevada (the "Executive") and Lakes Entertainment, Inc.,
a Minnesota corporation, including its subsidiaries and affiliates (the
"Company").

                                    RECITALS

     WHEREAS, Executive currently is employed at will by the Company; and

     WHEREAS, the Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company to continue to employ Executive
as a member of the senior management team of the Company; and

     WHEREAS, the Board and the Executive wish to enter into this Agreement to
document the terms of the Executive's employment with the Company and provide
Executive with new and valuable consideration for his services in the form of
improved job security in the event Company terminates Executive's employment
without "Cause" (as defined below); and

     WHEREAS, the Board wishes to encourage the Executive to continue his
employment with the Company and the Board believes that this objective can be
best served by providing for a compensation arrangement for the Executive upon
the Executive's termination of employment under certain circumstances in the
event of a Change Of Control (as hereinafter defined).

     NOW, THEREFORE, in consideration of: a) the mutual promises and covenants
and the respective undertakings of the Company and Executive set forth below;
and b) the payment to the Executive by the Company of One Thousand Dollars
($1000), the adequacy and sufficiency of which is hereby acknowledged, the
Company and Executive agree as follows:

                                    AGREEMENT

     1. Employment. The Company hereby employs Executive, and Executive accepts
such employment and agrees to perform services for the Company, for the period
and upon the other terms and conditions set forth in this Agreement.

     2. Term. The term of this Agreement and Executive's employment hereunder
will be a period of 36 months commencing on the above-referenced date and
expiring 36 months therefrom (the "Term"). The Term will be automatically
extended for successive additional one-year periods ("Additional Employment
Terms") unless, at least 60 days prior to the end of the Term or an Additional
Employment Term, the Company or the Executive has notified the other in writing
that the Agreement will terminate at the end of the then current term. A notice
of non-extension by the Company prior to the end of the Term or during any
Additional Employment Term will be treated consistent with subsection 8a of this
Agreement. A notice of non-extension by the Executive during the Term or any
Additional Employment Term will be treated as a termination by the Executive
with employment separation benefits as described in subsection 8d of this
Agreement.

<PAGE>

     3. Base Salary. Company shall pay Executive an annual base salary in the
amount of Five Hundred Thousand and No/100 Dollars ($500,000) ("Base Salary"),
or such other amount as may from time-to-time be determined by Company in its
sole discretion. Such salary shall be paid in equal installments in the manner
and at the times as other employees of Company are paid.

     4. Incentive Compensation. Executive shall participate in Company's
incentive compensation program from time-to-time established and approved by the
Company's Board of Directors, such participation to be on the same terms and
conditions as from time-to-time apply to senior executives of the Company.

     5. Benefits. Company shall provide to Executive such benefits as are
provided by Company to other senior executives of the Company. Executive shall
pay for the portion of the cost of such benefits as is from time-to-time
established by the Company as the portion of such cost to be paid by senior
executives of the Company.

     6. Costs and Expenses. Company and Executive acknowledge that Executive
will incur travel and other expenses while traveling on business for Company and
performing Executive's duties under this Agreement, and that it will be
inefficient for both Company and Executive to provide for Company to reimburse
Executive for such expenses as are not paid directly by Company.

     Accordingly, Company shall pay to Executive during each calendar month (or
portion thereof) a monthly travel and expense fee in the amount of Six Hundred
Dollars ($600), which travel and expense fee shall be full and complete payment
to Executive for all such expenses. Company and Executive acknowledge that the
actual amount of such expenses incurred by Executive during any given calendar
month may be more or less than the amount of such travel and expense fee.

     7. Duties. The duties to be performed by Executive shall be designated from
time-to-time by the Board and will include responsibility for operating
Company's business.

     8. Termination.

          a. At the Expiration of the Term.

          If the Executive's employment with the Company terminates at the end
of the Term or any Additional Employment Term, the Company will have no further
obligation to the Executive under this Agreement, except for accrued and unpaid
Base Salary and benefits that the Executive has accrued pursuant to any
applicable benefit plans, practices, policies and programs provided by the
Company, earned but unused vacation for that calendar year, and unreimbursed
business-related expenses, in accordance with Company policy.

          b. Automatic Termination Due to Death or Disability.

               (1) If the Executive suffers any "Disability" (as defined below),
this Agreement and Executive's employment hereunder will automatically terminate
on the date the Board determines that Executive suffers from a Disability.
"Disability" means the inability of


                                       2

<PAGE>

the Executive to perform the essential functions of his position, with or
without reasonable accommodation, because of physical or mental illness or
incapacity, for a period of time ending when the Company must replace Executive
to avoid an undue hardship on the Company's business and operations. Upon
termination for Disability, the Company will pay to Executive an amount equal to
six months of his then Base Salary and provide during that period of time the
benefits as described in section 8c(3) below.

               (2) This Agreement will automatically terminate on the date of
Executive's death.

          c. Termination Without Cause or Constructive Termination.

          The provisions of this section 8c shall apply following any
termination of Executive which is either (i) without "Cause" (as defined below);
or (ii) a "Constructive Termination" (as defined below) notwithstanding any
provision otherwise in any stock option agreement between the Company and the
Executive which provides for the grant to Executive of the right to purchase
shares of stock of the Company. In the event that Executive's employment is
terminated, at any time, and such termination is either (i) without Cause; or
(ii) a Constructive Termination:

               (1) Severance Payment.

               Executive shall be entitled to receive his Base Salary (including
any accrued vacation) through his termination date and shall also be entitled to
receive severance benefits equal to his accrued and unpaid Base Salary, plus the
equivalent of bonus or incentive compensation (based upon the average bonus
percentage rate for the two (2) fiscal years of the Company preceding such
termination) for twelve (12) months, or for the period of time remaining in the
Term, whichever is longer (the "Severance Period"), payable in a lump sum
payment; and

               (2) Benefits.

               During the Severance Period, Executive and his dependents shall
continue to be entitled to all medical and dental insurance benefits of the type
that they received immediately prior to the date of such termination (or, in the
event their participation in a plan pursuant to which any such benefits are
provided is barred by the terms of such plan, benefits which are not less
favorable to them than the benefits under such plan), except to the extent
essentially equivalent and no less favorable benefits are provided to them by a
subsequent Company; provided, that Executive and his dependents shall continue
to bear the same portion of the cost of such benefits, if any, as they bore
immediately prior to the date of such termination. Upon conclusion of the
Severance Period, Executive may elect to continue his coverage at his expense as
permitted by the federal COBRA law and applicable Minnesota state law.

               (3) Termination of the Severance Period.

          The Severance Period and the Company's obligations in subsections (2)
and (3) above during the Severance Period will end immediately upon Executive
obtaining employment


                                       3

<PAGE>

with any other person or entity in any capacity, whether as an employee or
independent contractor, or starting his own business.

               (4) Waiver of Claims.

          The Company's obligations to provide severance benefits in sections
8c(2) and 8c(3) above, and section 8(b)(1), are conditioned on Executive signing
a general release of legal claims and covenant not to sue in form and content
satisfactory to the Company.

               (5) Compliance with Code Section 409A.

          Company and Executive hereby agree to cooperate in good faith in
preparing and executing any written amendments to this Agreement (such as
restrictions on the timing of severance pay or deferred compensation payments)
that are reasonably necessary to timely comply with Code Section 409A, to the
extent that any compensation, severance pay or other benefits payable to
Executive under this Agreement are deemed to constitute a nonqualified deferred
compensation plan under Code Section 409A. All parties acknowledge that such any
amendment must be completed by the end of 2005, pursuant to guidance yet to be
issued by the Internal Revenue Service, unless the Internal Revenue Service
extends the time for such amendments to a later date.

          d. Termination by the Executive.

          The Executive may terminate this Agreement and his employment
hereunder at any time during the Term (or during any Additional Employment
Term), by providing the Company written notice of his intent to terminate at
least sixty (60) days prior to the effective date of his termination. During
this sixty-day period, the Executive must execute his duties and
responsibilities in accordance with the terms of this Agreement. If Executive
resigns, other than in a Constructive Termination, he will not be entitled to
any severance pay, or other compensation or benefits, except accrued and unpaid
Base Salary and benefits that the Executive accrued prior to the effective date
of his termination pursuant to any applicable benefit plan, earned but unused
vacation for that calendar year, and payment for unreimbursed business-related
expenses in accordance with Company policy.

          e. Termination by the Company for Cause.

          The Company will have the right to immediately terminate this
Agreement and Executive's employment hereunder for "Cause" (as defined below).
In the event of such termination for Cause, the Executive will only be entitled
to payment for accrued and unpaid Base Salary and benefits that the Executive
accrued prior to the effective date of his termination pursuant to any
applicable benefit plan, earned but unused vacation for that calendar year, and
payment for unreimbursed business-related expenses in accordance with Company
policy.

          f. Stock Options.

          If, and only if, Executive's employment is terminated under this
Section 8, all outstanding options to purchase shares of stock in the Company
shall immediately vest and


                                        4

<PAGE>

become immediately exercisable and Executive or Executive's legal representative
shall have until the date which is two (2) years after the date on which
Executive ceases to be employed by the Company to exercise Executive's right to
purchase shares of stock of the Company under any such option agreements
(whether entered into before or after the date of this Agreement).

     9. Termination Following a Change Of Control.

          a. Severance Payment. In the event that Executive's employment is
terminated within two (2) years following a Change Of Control (as hereinafter
defined) and such termination is either (i) Without Cause; or (ii) is a
Constructive Termination, Executive shall receive, in addition to all
compensation due and payable to or accrued for the benefit of Executive as of
the date of termination, a lump sum payment, within five (5) days of the
determination of the Accounting Firm (as hereinafter defined) required under
paragraph (c) of this section, equal to two (2) times Executive's Annual
Compensation (as hereinafter defined) (the "Severance Payment"); and all
outstanding options to purchase shares of stock in the Company shall immediately
vest and become immediately exercisable and, Executive or Executive's legal
representative shall have until the date which is two (2) years after the date
on which Executive ceases to be employed by the Company to exercise Executive's
right to purchase shares of stock of the Company under any such option
agreements (whether entered into before or after the date of this Agreement).
Company shall also use its best efforts to convert any then existing life
insurance and accidental death and disability insurance policies to individual
policies in the name of the Executive. The provisions of this section 9a shall
apply following any Change Of Control (as defined below) notwithstanding any
provision otherwise in any stock option agreement between the Company and the
Executive which provides for the grant to Executive of the right to purchase
shares of stock of the Company.

          b. Excise Tax.

               (1) Anything in this Agreement to the contrary notwithstanding,
in the event that it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise would constitute an "excess parachute payment" within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended (the "IRC"),
Executive shall be paid an additional amount (the "Gross-Up Payment") such that
the net amount retained by the Executive after deduction of any excise tax
imposed under Section 4999 of the IRC, and any federal, state and local income
and employment tax and excise tax imposed upon the Gross-Up Payment shall be
equal to the Severance Payment. For purposes of determining the amount of the
Gross-Up Payment, the Executive shall be deemed to pay federal income tax and
employment taxes at the highest marginal rate of federal income and employment
taxation in the calendar year in which the Gross-Up Payment is to be made and
state and local income taxes at the highest marginal rate of taxation in the
state and locality of the Executive's residence on the effective date of the
Executive's termination or resignation, net of the maximum reduction in federal
income taxes that may be obtained from the deduction of such state and local
taxes.

               (2) All calculations to be made under this Section 9 shall be
made by the Company's independent public accountant immediately prior to the
Change of Control (the "Accounting Firm"), which firm shall provide its
conclusions and any supporting calculations


                                       5

<PAGE>

both to the Company and the Executive within 10 days of the effective date of
the Executive's resignation or termination, as the case may be. Any such
determination by the Accounting Firm shall be binding upon the Company and the
Executive. Within five days after the Accounting Firm's determination, the
Company shall pay (or cause to be paid) or distribute (or cause to be
distributed) to or for the benefit of the Executive such amounts as are then due
to the Executive under this Agreement.

               (3) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than twenty (20) business days after the
Executive knows of such claim and Executive shall apprise the Company of the
nature of such claim and the date on which such claim is requested to be paid.
The Executive shall not pay such claim prior to the expiration of the thirty day
period following the date on which he gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with respect to such
claim is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:

                    (a) give the Company any information reasonably requested by
the Company relating to such claim;

                    (b) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company;

                    (c) cooperate with the Company in good faith in order to
effectively contest such claim; and

                    (d) permit the Company to participate in any proceedings
relating to such claim;

provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax, including interest and
penalties, with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9, the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearing and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
resolution before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided further, however, that if the Company directs the Executive
to pay such claim and sue for a refund the Company shall advance the amount of
such payment to the Executive, on an interest-free basis and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any Excise Tax or


                                       6

<PAGE>

income tax, including interest or penalties with respect thereto, imposed with
respect to such advance or with respect to any imputed income with respect to
such advance; and provided further that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the Executive
with respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.

               (4) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to this Section, the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject to
the Company's complying with the requirements of subsection (a), (b) and (c) of
this Section) promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the Company pursuant
to this Section, a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of refund
prior to the expiration of thirty days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.

               (5) All of the fees and expenses of the Accounting Firm in
performing the determinations referred to in subsections (1) and (2) above shall
be borne solely by the Company.

               (6) Following a Change of Control and for a period of not less
than three years after the effective date of the resignation or termination of
the Executive, the Executive shall be entitled to indemnification and, to the
extent available on commercially reasonable terms, insurance coverage therefor,
with respect to the various liabilities as to which the Executive has been
customarily indemnified prior to the Change of Control. In the event of any
discrepancies between the provisions of this paragraph and the terms of any
Company insurance policy covering executive or any indemnification contract by
and between the Company and Executive, such insurance policy or indemnification
contract shall control.

     10. Certain Definitions.

          a. Annual Compensation. For the purposes of this Agreement, Annual
Compensation shall mean Executive's annual base salary plus annual bonus or
incentive compensation (computed at par levels), an amount equal to the annual
cost to Executive of obtaining annual health care coverage comparable to that
currently provided by Company, an amount equal to any normal matching
contributions made by Company on Executive's behalf in Company's 401(k) plan,
annual automobile allowance, if any, and an amount equal to the annual cost to
Executive of obtaining life insurance and insurance coverage for accidental
death and disability insurance comparable to that provided by Company.


                                       7

<PAGE>

          b. Change of Control.

               (1) For the purposes of this Agreement, a "Change of Control"
shall mean:

                    (a) The acquisition by any person, entity or "group", within
the meaning of Section 13(d) (3) or 14(d) (2) of the Securities Exchange Act of
1934 (the "Exchange Act") (excluding, for this purpose, (A) the Company, (B) any
employee benefit plan of the Company or its subsidiaries which acquires
beneficial ownership of voting securities of the Company or (C) Lyle Berman or
the four irrevocable trusts for the benefit of Mr. Berman's children) of
beneficial ownership, (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 25% or more of either the then outstanding shares of common
stock or the combined voting power of the Company's then outstanding voting
securities entitled to vote generally in the election of directors; or

                    (b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director subsequent
to the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the Directors of the
Company, as such terms are used in Rule 14 a-11 of Regulation 14A promulgated
under the Exchange Act) shall be, for purposes of this Agreement, considered as
though such person were a member of the Incumbent Board; or

                    (c) Approval by the shareholders of the Company of (A) a
reorganization, merger or consolidation, in each case, with respect to which
persons who were the shareholders of the Company immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own more
than 50% of the combined voting power of the reorganized, merged or consolidated
company's then outstanding voting securities entitled to vote generally in the
election of directors of the reorganized, merged or consolidated company, or (B)
a liquidation or dissolution of the Company or (C) the sale of all or
substantially all of the assets of the Company.

          c. Cause.

               (1) For the purposes of this Agreement, "Cause" shall mean
termination of the Executive by the Company for any of the following reasons:

                    (a) the commission of a felony;

                    (b) the theft or embezzlement of property of Company or the
commission of any act involving moral turpitude;

                    (c) the failure of Executive to substantially perform his
material duties and responsibilities under this Agreement for any reason other
than the Executive's death or Disability, which failure if, in the opinion of
the Company such failure is


                                       8

<PAGE>

curable, is not cured within thirty (30) days after written notice of such
failure from the Board specifying such failure;

                    (d) the Executive's material violation of a significant
Company policy; which violation the Executive fails to cure within 30 days after
written notice of such violation from the Company specifying such failure; or
which violation the Company, in its opinion, deems noncurable; or

                    (e) the revocation of any gaming license issued by any
governmental entity to Executive as a result of any act or omission by the
Executive.

          d. Constructive Termination.

               (1) For the purposes of this Agreement, "Constructive
Termination" shall mean:

                    (a) a material, adverse change of Executive's
responsibilities, authority, position, titles, duties or reporting requirements
(including directorships);

                    (b) an material adverse change in Executive's annual
compensation or benefits;

                    (c) a requirement to relocate in excess of fifty (50) miles
from Executive's then current place of employment without Executive's consent;
or

                    (d) the breach by the Company of any material provision of
this Agreement or failure to fulfill any other contractual duties owed to the
Executive.

For the purposes of this definition, Executive's responsibilities, authority,
position, titles, duties and reporting requirements are to be determined as of
the date of this Agreement. For purposes of this section, all determinations of
Constructive Termination shall be made in good faith by mutual determination of
Executive and Company. If Executive and Company cannot mutually agree on whether
a Constructive Termination occurred, the sole issue of whether a Constructive
Termination occurred shall be submitted to arbitration as set forth in section
16 below.

               (2) Notwithstanding the provisions of subsection (a) above, no
termination by the Executive will constitute a Constructive Termination unless
the Executive shall have provided written notice to the Company of his intention
to so terminate this Agreement, which notice sets forth in reasonable detail the
conduct that the Executive believes to be the basis for the Constructive
Termination, and the Company will thereafter have failed to correct such conduct
(or commence action to correct such conduct and diligently pursue such
correction to completion) within 30 days following the Company's receipt of such
notice.

     11. Confidentiality.

     Except to the extent required by law, Executive shall keep confidential and
shall not, without the Company's prior, express written consent, disclose to any
third party, other than as reasonably necessary or appropriate in connection
with Executive's performance of his duties


                                       9

<PAGE>

under this Agreement or any employment agreement, if any, the Company's
"Confidential Information." "Confidential Information" means any information
that Executive learns or develops during the course of employment that derives
independent economic value from being not generally known or readily
ascertainable by other persons who could obtain economic value from its
disclosure or use, or any information that Company reasonably believes to be
Confidential Information. It includes, but is not limited to, trade secrets,
customer lists, financial information, business plans and may relate to such
matters as research and development, operations, site selection/analysis
processes, management systems and techniques, costs modeling or sales and
marketing.

     The provisions of this section 11 shall remain in effect after the
expiration or termination of this Agreement and Executive's employment
hereunder.

     12. Agreement Not to Compete.

     In consideration of the improved job security and other benefits of this
Agreement, Executive hereby agrees as follows.

          a. During the Term and the Restricted Period (as defined below), the
Executive shall not, whether individually, as a director, manager, member,
stockholder, partner, owner, employee, consultant or agent of any business, or
in any other capacity, other than on behalf of the Company or a subsidiary or
affiliate, organize, establish, own, operate, manage, control, engage in,
participate in, invest in, permit his name to be used by, act as a consultant or
advisor to, render services for (alone or in association with any person, firm,
corporation or business organization), or otherwise assist any person or entity
that engages in or owns, invests in, operates, manages or controls any venture
or enterprise which develops, operates or manages or proposes to develop,
operate or manage casinos or casino resort developments (the "Business") in the
geographic locations where the Company and/or its subsidiaries and/or affiliates
engages or proposes to engage in such Business. Notwithstanding the foregoing,
nothing in this Agreement shall prevent the Executive from owning for passive
investment purposes not intended to circumvent this Agreement, less than five
percent (5%) of the publicly traded common equity securities of any company
engaged in the Business (so long as the Executive has no power to manage,
operate, advise, consult with or control the competing enterprise and no power,
alone or in conjunction with other affiliated parties, to select a director,
manager, general partner, or similar governing official of the competing
enterprise other than in connection with the normal and customary voting powers
afforded the Executive in connection with any permissible equity ownership). For
purposes of this Agreement, the Restricted Period shall mean the period until
the loan evidenced by that Financing Agreement dated as of January 2006 by and
among Lakes Entertainment, Inc. certain other entities as PKLS Funding LLC is
paid in full. The provisions of this section 12. a. shall remain in effect
during the entire Restricted Period, without regard to any expiration or
termination of this Agreement or of Executive's employment hereunder.

          b. On or before the date that is two years after the date on which
Executive's employment by the Company is terminated for any reason, Executive
agrees that he will not, without the prior written consent of the Company's
Board, directly or indirectly engage in any of the following actions:


                                       10

<PAGE>

               (1) Solicit, on Executive's own behalf or for any entity that is
in competition with the Company, any person or entity, including for example
Indian tribes, that is doing business with the Company or is an active prospect
to do business with the Company for the purpose of diverting Company's business
or active business opportunities in competition with Company; or

               (2) Solicit for employment, endeavor to entice away from the
Company or otherwise interfere with the Company's relationship with any person
who is employed by or otherwise engaged to perform services for the Company,
whether for Executive's own account or for the account of any other individual,
partnership, firm or corporation or other business entity.

          c. If the scope of Executive's agreement under this section 12 is
determined by any court of competent jurisdiction to be too broad to permit the
enforcement of all of the provisions of this section 12 to their fullest extent,
then the provisions of this section 12 shall be construed (and each of the
parties hereto hereby confirm its intent is that such provisions be so
construed) to be enforceable to the fullest extent permitted by applicable law.
To the maximum extent permitted by applicable law, Executive hereby consents to
the judicial modification of the provisions of this section 12 in any proceeding
brought to enforce such provisions in such a manner that renders such provisions
enforceable to the maximum extent permitted by applicable law.

          d. The provisions of this Section 12.b. and 12.c.. shall remain in
full force and effect after the expiration or termination of this Agreement or
of Executive's employment hereunder.

     13. Acknowledgments; Irreparable Harm.

     Executive agrees that the restrictions on competition, solicitation and
disclosure in this Agreement are fair, reasonable and necessary for the
protection of the interests of the Company. Executive further agrees that a
breach of any of the covenants set forth in sections 11 and 12 of this Agreement
will result in irreparable injury and damage to the Company for which the
Company would have no adequate remedy at law, and Executive further agrees that
in the event of a breach, the Company will be entitled to an immediate
restraining order and injunction to prevent such violation or continued
violation, without having to prove damages, in addition to any other remedies to
which the Company may be entitled to at law or in equity.

     14. Notification to Subsequent Companies.

     Executive grants the Company the right to notify any future Company or
prospective Company of Executive concerning the existence of and terms of this
Agreement and grants the Company the right to provide a copy of this Agreement
to any such subsequent Company or prospective Company.

     15. Full Settlement.

     The Company's obligations to make the payments provided for in this
Agreement and otherwise to perform it obligations hereunder shall not be
affected by any set-off, counterclaim,


                                       11

<PAGE>

recoupment, defense or other claim, right or action which the Company may have
against Executive or others. Executive will not be obligated to seek other
employment, and except as provided in section 8c(4) above, take any other action
by way of mitigation of the amounts payable to Executive under any of the
provisions of this Agreement.

     16. Resolution of Disputes.

     Any controversy, claim or dispute arising out of or relating to this
Agreement or the breach of this Agreement, other than such a matter arising from
a violation or threatened violation of sections 11 and 12, shall be settled by
arbitration in accordance with the National Rules for the Resolution of
Employment Disputes of the American Arbitration Association, and a judgment upon
the award rendered by the arbitrator(s) may be entered in any court having
jurisdiction. The award rendered in any arbitration proceeding under this
section will be final and binding. Any demand for arbitration must be made and
filed within 60 days of the date the requesting party knew or reasonably should
have known of the event giving rise to the controversy or claim. Any claim or
controversy not submitted to arbitration in accordance with this section will be
considered waived, and therefore, no arbitration panel or court will have the
power to rule or make any award on such claims or controversy. Any such
arbitration will be conducted in the Minneapolis, Minnesota metropolitan area.
Both Company and Executive recognize that each would give up any right to a jury
trial, but believe the benefits of arbitration significantly out-weigh any
disadvantage. Both further believe arbitration is likely to be both less
expensive and less time-consuming than litigation of any dispute there might be.

     17. Withholding.

     The Company may withhold from any amounts payable under this Agreement the
minimum Federal, state and local taxes as shall be required to be withheld
pursuant to any applicable law, statute or regulation.

     18. Successors and Assigns.

     This Agreement is binding upon, and shall inure to the benefit of the
Company and the Executive, and all successors and assigns of the Company. This
Agreement shall be binding upon and inure to the benefit of the Executive and
his heirs and personal representatives. The Company will require any successor
(whether direct or indirect, by purchase, merger or consolidation or otherwise)
to all or substantially all of the business and/or assets of the Company to
assume expressly and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such agreement,
prior to the effectiveness of any such succession shall be a material breach of
this Agreement and shall entitle the Executive to any severance benefits payable
pursuant to sections 8 and 9 hereof.

     19. Miscellaneous.

          a. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Minnesota, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.


                                       12

<PAGE>

This Agreement may not be amended or modified except by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.

          b. All notices and other communications under this Agreement shall be
in writing and shall be given by hand to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:

          IF TO THE EXECUTIVE:

          Lyle Berman
          Lakes Entertainment, Inc.
          130 Cheshire Lane
          Minnetonka, MN 55305-1062

          IF TO THE COMPANY:

          Lakes Entertainment, Inc.
          Attn: Damon Schramm, General Counsel
          130 Cheshire Lane
          Minnetonka, MN 55305

or to such other address as either party furnishes to the other in writing in
accordance with this paragraph (b) of section 19. Notices and communications
shall be effective when actually received by the addressee.

          c. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement. If any provision of this Agreement shall be held invalid or
unenforceable in part, the remaining portion of such provision, together with
all other provisions of this Agreement, shall remain valid and enforceable and
continue in full force and effect to the fullest extent consistent with the law.

          d. Notwithstanding any other provision of this Agreement, the Company
may withhold from amounts payable under this Agreement all federal, state, local
and foreign taxes that are required to be withheld by applicable laws or
regulations.

          e. The Executive's or the Company's failure to insist upon strict
compliance with any provision of, or to assert any right under, this Agreement
shall not be deemed to be a waiver of such provision or right or of any other
provision of or right under this Agreement.

          f. This Agreement may be executed in several counterparts, each of
which shall be deemed an original, and said counterparts shall constitute but
one and the same instrument.

     20. Entire Agreement.

     This Agreement constitutes the entire agreement between the parties,
supersedes all prior agreements and understandings between the parties with
respect to the subject matter hereof and


                                       13

<PAGE>

may not be modified or terminated orally. No modification, termination or
attempted waiver of this Agreement shall be valid unless in writing and signed
by the party against whom the same is sought to be enforced.

          IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and pursuant to the due authorization of its Board, the Company has caused
this Agreement to be executed in its name and on its behalf, all as of the day
and year first written above.

LAKES ENTERTAINMENT, INC.:              EXECUTIVE:


By: /S/ Timothy J. Cope                 By: /S/ Lyle Berman
    ---------------------------------       ------------------------------------
     Timothy J. Cope                        Lyle Berman
Its: President and Chief Financial      Its: CEO
     Officer


                                       14
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.12
<SEQUENCE>14
<FILENAME>c02665exv10w12.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT - TIMOTHY J. COPE
<TEXT>
<PAGE>
                                                                   Exhibit 10.12

                              EMPLOYMENT AGREEMENT

     This Agreement (the "Agreement") is made and entered into as of this 15th
day of February, 2006 by and between Timothy J. Cope, an individual resident of
the State of Minnesota (the "Executive") and Lakes Entertainment, Inc., a
Minnesota corporation, including its subsidiaries and affiliates (collectively,
"Employer" or the "Company").

                                    RECITALS

     WHEREAS, Executive currently is employed at will by the Company.

     WHEREAS, the Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company to continue to employ Executive
as a member of the senior management team of the Company; and

     WHEREAS, the Board and the Executive wish to enter into this Agreement to
document the terms of the Executive's employment with the Company and provide
Executive with new and valuable consideration for his services in the form of
improved job security in the event Company terminates Executive's employment
without "Cause" (as defined below); and

     WHEREAS, the Board wishes to encourage the Executive to continue his
employment with the Company and the Board believes that this objective can be
best served by providing for a compensation arrangement for the Executive upon
the Executive's termination of employment under certain circumstances in the
event of a Change Of Control (as hereinafter defined).

     NOW, THEREFORE, in consideration of the mutual promises and covenants and
the respective undertakings of the Company and Executive set forth below the
Company and Executive agree as follows:

                                    AGREEMENT

     1. Employment. The Company hereby employs Executive, and Executive accepts
such employment and agrees to perform services for the Company, for the period
and upon the other terms and conditions set forth in this Agreement.

     2. Term. The term of this Agreement and Executive's employment hereunder
will be a period of 36 months commencing on the above-referenced date and
expiring 36 months therefrom (the "Term"). The Term will be automatically
extended for successive additional one-year periods ("Additional Employment
Terms") unless, at least 60 days prior to the end of the Term or an Additional
Employment Term, the Company or the Executive has notified the other in writing
that the Agreement will terminate at the end of the then current term. A notice
of non-extension by the Company prior to the end of the Term or during any
Additional Employment Term will be treated consistent with subsection 8a of this
Agreement. A notice of non-extension by the Executive during the Term or any
Additional Employment Term will be treated as a termination by the Executive
with employment separation benefits as described in subsection 8d of this
Agreement.

<PAGE>

     3. Base Salary. Employer shall pay Executive an annual base salary in the
amount of Three Hundred Fifty Thousand and No/100 Dollars ($350,000) ("Base
Salary"), or such higher amount as may from time-to-time be determined by
Employer in its sole discretion. Such salary shall be paid in equal installments
in the manner and at the times as other employees of Employer are paid.

     4. Incentive Compensation. Executive shall participate in Employer's
incentive compensation program from time-to-time established and approved by the
Employer's Board of Directors, such participation to be on the same terms and
conditions as from time-to-time apply to senior and executive vice presidents of
Employer.

     5. Benefits. Employer shall provide to Executive such benefits as are
provided by Employer to other senior and executive vice presidents of Employer.
Executive shall pay for the portion of the cost of such benefits as is from
time-to-time established by Employer as the portion of such cost to be paid by
senior and executive vice presidents of Employer.

     6. Costs and Expenses. Employer and Executive acknowledge that Executive
will incur travel and other expenses while traveling on business for Employer
and performing Executive's duties under this Agreement, and that it will be
inefficient for both Employer and Executive to provide for Employer to reimburse
Executive for such expenses as are not paid directly by Employer.

     Accordingly, Employer shall pay to Executive during each calendar month (or
portion thereof) a monthly travel and expense fee in the amount of Six Hundred
Dollars ($600), which travel and expense fee shall be full and complete payment
to Executive for all such expenses. Employer and Executive acknowledge that the
actual amount of such expenses incurred by Executive during any given calendar
month may be more or less than the amount of such travel and expense fee.

     7. Duties. The duties to be performed by Executive shall be designated from
time-to-time by the Board and will include responsibility for operating
Employer's business.

     8. Termination.

          a. At the Expiration of the Term.

          If the Executive's employment with the Company terminates at the end
of the Term or any Additional Employment Term, the Company will have no further
obligation to the Executive under this Agreement, except for accrued and unpaid
Base Salary and benefits that the Executive has accrued pursuant to any
applicable benefit plans, practices, policies and programs provided by the
Company, earned but unused vacation for that calendar year, and unreimbursed
business-related expenses, in accordance with Company policy.

          b. Automatic Termination Due to Death or Disability.

               (1) If the Executive suffers any "Disability" (as defined below),
this Agreement and Executive's employment hereunder will automatically
terminate. "Disability" means the inability of the Executive to perform the
essential functions of his position, with or


                                       2

<PAGE>

without reasonable accommodation, because of physical or mental illness or
incapacity, for a period of time ending when the Company must replace Executive
to avoid an undue hardship on the Company's business and operations. Upon
termination for Disability, the Company will pay to Executive an amount equal to
six months of his then Base Salary and provide during that period of time the
benefits as described in section 8c(3) below.

               (2) This Agreement will automatically terminate on the date of
Executive's death.

          c. Termination Without Cause or Constructive Termination.

          The provisions of this section 8c shall apply following any
termination of Executive which is either (i) without "Cause" (as defined below);
or (ii) a "Constructive Termination" (as defined below) notwithstanding any
provision otherwise in any stock option agreement between the Company and the
Executive which provides for the grant to Executive of the right to purchase
shares of stock of the Company. In the event that Executive's employment is
terminated, at any time, and such termination is either (i) without Cause; or
(ii) a Constructive Termination:

               (1) Severance Payment.

               Executive shall be entitled to receive his Base Salary (including
any accrued vacation) through his termination date and shall also be entitled to
receive severance benefits equal to his accrued and unpaid Base Salary, plus the
equivalent of bonus or incentive compensation (based upon the average bonus
percentage rate for the two (2) fiscal years of the Company preceding such
termination) for twelve (12) months, or for the period of time remaining in the
Term, whichever is longer (the "Severance Period"), payable in a lump sum
payment; and

               (2) Benefits.

               During the Severance Period, Executive and his dependents shall
continue to be entitled to all medical and dental insurance benefits of the type
that they received immediately prior to the date of such termination (or, in the
event their participation in a plan pursuant to which any such benefits are
provided is barred by the terms of such plan, benefits which are not less
favorable to them than the benefits under such plan), except to the extent
essentially equivalent and no less favorable benefits are provided to them by a
subsequent employer; provided, that Executive and his dependents shall continue
to bear the same portion of the cost of such benefits, if any, as they bore
immediately prior to the date of such termination. Upon conclusion of the
Severance Period, Executive may elect to continue his coverage at his expense as
permitted by the federal COBRA law and applicable Minnesota state law.

               (3) Termination of the Severance Period.

          The Severance Period and the Company's obligations in subsections (2)
and (3) above during the Severance Period will end immediately upon Executive
obtaining employment with any other person or entity in any capacity, whether as
an employee or independent contractor.


                                       3

<PAGE>

               (4) Waiver of Claims.

          The Company's obligations to provide severance benefits in sections
8c(1) and 8c(2) above, and section 8(b)(1), are conditioned on Executive signing
a general release of legal claims and covenant not to sue in form and content
satisfactory to the Company.

               (5) Compliance with Code Section 409A.

          Company and Executive hereby agree to cooperate in good faith in
preparing and executing any written amendments to this Agreement (such as
restrictions on the timing of severance pay or deferred compensation payments)
that are reasonably necessary to timely comply with Code Section 409A, to the
extent that any compensation, severance pay or other benefits payable to
Executive under this Agreement are deemed to constitute a nonqualified deferred
compensation plan under Code Section 409A. All parties acknowledge that such any
amendment must be completed by the end of 2005, pursuant to guidance yet to be
issued by the Internal Revenue Service, unless the Internal Revenue Service
extends the time for such amendments to a later date.

          d. Termination by the Executive.

          The Executive may terminate this Agreement and his employment
hereunder at any time during the Term (or during any Additional Employment
Term), by providing the Company written notice of his intent to terminate at
least sixty (60) days prior to the effective date of his termination. During
this sixty-day period, the Executive must execute his duties and
responsibilities in accordance with the terms of this Agreement. If Executive
resigns, other than in a Constructive Termination, he will not be entitled to
any severance pay, or other compensation or benefits, except accrued and unpaid
Base Salary and benefits that the Executive accrued prior to the effective date
of his termination pursuant to any applicable benefit plan, earned but unused
vacation for that calendar year, and payment for unreimbursed business-related
expenses in accordance with Company policy.

          e. Termination by the Company for Cause.

          The Company will have the right to immediately terminate this
Agreement and Executive's employment hereunder for "Cause" (as defined below).
In the event of such termination for Cause, the Executive will only be entitled
to payment for accrued and unpaid Base Salary and benefits that the Executive
accrued prior to the effective date of his termination pursuant to any
applicable benefit plan, earned but unused vacation for that calendar year, and
payment for unreimbursed business-related expenses in accordance with Company
policy.

          f. Stock Options.

          If, and only if, Executive's employment is terminated under this
Section 8, all outstanding options to purchase shares of stock in the Company
shall immediately vest and become immediately exercisable and Executive or
Executive's legal representative shall have until the date which is two (2)
years after the date on which Executive ceases to be employed by


                                       4

<PAGE>

the Company to exercise Executive's right to purchase shares of stock of the
Company under any such option agreements (whether entered into before or after
the date of this Agreement).

     9. Termination Following a Change Of Control.

          a. Severance Payment. In the event that Executive's employment is
terminated within two (2) years following a Change Of Control (as hereinafter
defined) and such termination is either (i) Without Cause; or (ii) is a
Constructive Termination, Executive shall receive, in addition to all
compensation due and payable to or accrued for the benefit of Executive as of
the date of termination, a lump sum payment, within five (5) days of the
determination of the Accounting Firm (as hereinafter defined) required under
paragraph (c) of this section, equal to two (2) times Executive's Annual
Compensation (as hereinafter defined) (the "Severance Payment"); and all
outstanding options to purchase shares of stock in the Company shall immediately
vest and become immediately exercisable and, Executive or Executive's legal
representative shall have until the date which is two (2) years after the date
on which Executive ceases to be employed by the Company to exercise Executive's
right to purchase shares of stock of the Company under any such option
agreements (whether entered into before or after the date of this Agreement).
Employer shall also use its best efforts to convert any then existing life
insurance and accidental death and disability insurance policies to individual
policies in the name of the Executive. The provisions of this section 9a shall
apply following any Change Of Control (as defined below) notwithstanding any
provision otherwise in any stock option agreement between the Company and the
Executive which provides for the grant to Executive of the right to purchase
shares of stock of the Company.

          b. Excise Tax.

               i. Anything in this Agreement to the contrary notwithstanding, in
the event that it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise would constitute an "excess parachute payment" within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended (the "IRC"),
Executive shall be paid an additional amount (the "Gross-Up Payment") such that
the net amount retained by the Executive after deduction of any excise tax
imposed under Section 4999 of the IRC, and any federal, state and local income
and employment tax and excise tax imposed upon the Gross-Up Payment shall be
equal to the Severance Payment. For purposes of determining the amount of the
Gross-Up Payment, the Executive shall be deemed to pay federal income tax and
employment taxes at the highest marginal rate of federal income and employment
taxation in the calendar year in which the Gross-Up Payment is to be made and
state and local income taxes at the highest marginal rate of taxation in the
state and locality of the Executive's residence on the effective date of the
Executive's termination or resignation, net of the maximum reduction in federal
income taxes that may be obtained from the deduction of such state and local
taxes.

               ii. All calculations to be made under this Section 9 shall be
made by the Company's independent public accountant immediately prior to the
Change of Control (the "Accounting Firm"), which firm shall provide its
conclusions and any supporting calculations both to the Company and the
Executive within 10 days of the effective date of the Executive's resignation or
termination, as the case may be. Any such determination by the Accounting Firm


                                       5

<PAGE>

shall be binding upon the Company and the Executive. Within five days after the
Accounting Firm's determination, the Company shall pay (or cause to be paid) or
distribute (or cause to be distributed) to or for the benefit of the Executive
such amounts as are then due to the Executive under this Agreement.

               iii. The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than twenty (20) business days after the
Executive knows of such claim and Executive shall apprise the Company of the
nature of such claim and the date on which such claim is requested to be paid.
The Executive shall not pay such claim prior to the expiration of the thirty day
period following the date on which he gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with respect to such
claim is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:

                    (1) give the Company any information reasonably requested by
the Company relating to such claim;

                    (2) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company;

                    (3) cooperate with the Company in good faith in order to
effectively contest such claim; and

                    (4) permit the Company to participate in any proceedings
relating to such claim;

provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax, including interest and
penalties, with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9, the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearing and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
resolution before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided further, however, that if the Company directs the Executive
to pay such claim and sue for a refund the Company shall advance the amount of
such payment to the Executive, on an interest-free basis and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income tax, including interest or penalties with respect thereto, imposed with
respect to such advance or with respect to any imputed income with respect to
such advance; and provided


                                       6

<PAGE>

further that any extension of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.

               iv. If, after the receipt by the Executive of an amount advanced
by the Company pursuant to this Section, the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject to
the Company's complying with the requirements of subsection(i), (ii) and (iii)
of this Section) promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the Company pursuant
to this Section, a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of refund
prior to the expiration of thirty days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.

               v. All of the fees and expenses of the Accounting Firm in
performing the determinations referred to in subsections (i) and (ii) above
shall be borne solely by the Company.

               vi. Following a Change of Control and for a period of not less
than three years after the effective date of the resignation or termination of
the Executive, the Executive shall be entitled to indemnification and, to the
extent available on commercially reasonable terms, insurance coverage therefor,
with respect to the various liabilities as to which the Executive has been
customarily indemnified prior to the Change of Control. In the event of any
discrepancies between the provisions of this paragraph and the terms of any
Company insurance policy covering executive or any indemnification contract by
and between the Company and Executive, such insurance policy or indemnification
contract shall control.

     10. Certain Definitions.

          a. Annual Compensation. For the purposes of this Agreement, Annual
Compensation shall mean Executive's annual base salary plus annual bonus or
incentive compensation (computed at par levels), an amount equal to the annual
cost to Executive of obtaining annual health care coverage comparable to that
currently provided by Employer (grossed-up to compensate Executive for the
taxable nature of such payment), an amount equal to any normal matching
contributions made by Employer on Executive's behalf in Employer's 401(k) plan
(grossed-up to compensate Executive for the taxable nature of such payment),
annual automobile allowance, if any, and an amount equal to the annual cost to
Executive of obtaining life insurance and insurance coverage for accidental
death and disability insurance comparable to that provided by Employer (all as
grossed-up to compensate Executive for the taxable nature of such payments).

          b. Change of Control.


                                       7

<PAGE>

               i. For the purposes of this Agreement, a "Change of Control"
shall mean:

                    (1) The acquisition by any person, entity or "group", within
the meaning of Section 13(d) (3) or 14(d) (2) of the Securities Exchange Act of
1934 (the "Exchange Act") (excluding, for this purpose, (A) the Company, (B) any
employee benefit plan of the Company or its subsidiaries which acquires
beneficial ownership of voting securities of the Company or (C) Lyle Berman or
the four irrevocable trusts for the benefit of Mr. Berman's children) of
beneficial ownership, (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 25% or more of either the then outstanding shares of common
stock or the combined voting power of the Company's then outstanding voting
securities entitled to vote generally in the election of directors; or

                    (2) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director subsequent
to the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the Directors of the
Company, as such terms are used in Rule 14 a-11 of Regulation 14A promulgated
under the Exchange Act) shall be, for purposes of this Agreement, considered as
though such person were a member of the Incumbent Board; or

                    (3) Approval by the shareholders of the Company of (A) a
reorganization, merger or consolidation, in each case, with respect to which
persons who were the shareholders of the Company immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own more
than 50% of the combined voting power of the reorganized, merged or consolidated
company's then outstanding voting securities entitled to vote generally in the
election of directors of the reorganized, merged or consolidated company, or (B)
a liquidation or dissolution of the Company or (C) the sale of all or
substantially all of the assets of the Company.

          c. Cause.

               i. For the purposes of this Agreement, "Cause" shall mean
termination of the Executive by the Company for any of the following reasons:

                    (1) the commission of a felony;

                    (2) the theft or embezzlement of property of Employer or the
commission of any similar act involving moral turpitude;

                    (3) the failure of Executive to substantially perform his
material duties and responsibilities under this Agreement for any reason other
than the Executive's death or Disability, which failure if, in the opinion of
the Company such failure is curable, is not cured within thirty (30) days after
written notice of such failure from the Board specifying such failure;


                                       8

<PAGE>

                    (4) the Executive's material violation of a significant
Company policy; which violation the Executive fails to cure within 30 days after
written notice of such violation from the Company specifying such failure; or
which violation the Company, in its opinion, deems noncurable; or

                    (5) the revocation of any gaming license issued by any
governmental entity to Executive as a result of any act or omission by the
Executive.

          d. Constructive Termination.

               i. For the purposes of this Agreement, "Constructive Termination"
shall mean::

                    (1) a material, adverse change of Executive's
responsibilities, authority, status, position, offices, titles, duties or
reporting requirements (including directorships);

                    (2) an adverse change in Executive's annual compensation or
benefits;

                    (3) a requirement to relocate in excess of fifty (50) miles
from Executive's then current place of employment without Executive's consent;
or

                    (4) the breach by the Company of any material provision of
this Agreement or failure to fulfill any other contractual duties owed to the
Executive.

For the purposes of this definition, Executive's responsibilities, authority,
status, position, offices, titles, duties and reporting requirements are to be
determined as of the date of this Agreement. For purposes of this section, all
determinations of Constructive Termination shall be made in good faith by
Executive and shall be conclusive.

               ii. Notwithstanding the provisions of subsection (i) above, no
termination by the Executive will constitute a Constructive Termination unless
the Executive shall have provided written notice to the Company of his intention
to so terminate this Agreement, which notice sets forth in reasonable detail the
conduct that the Executive believes to be the basis for the Constructive
Termination, and the Company will thereafter have failed to correct such conduct
(or commence action to correct such conduct and diligently pursue such
correction to completion) within 30 days following the Company's receipt of such
notice.

     11. Confidentiality.

     Except to the extent required by law, Executive shall keep confidential and
shall not, without the Company's prior, express written consent, disclose to any
third party, other than as reasonably necessary or appropriate in connection
with Executive's performance of his duties under this Agreement or any
employment agreement, if any, the Company's "Confidential Information."
"Confidential Information" means any information that Executive learns or
develops during the course of employment that derives independent economic value
from being not generally known or readily ascertainable by other persons who
could obtain economic value


                                       9

<PAGE>

from its disclosure or use, or any information that Company reasonably believes
to be Confidential Information. It includes, but is not limited to, trade
secrets, customer lists, financial information, business plans and may relate to
such matters as research and development, operations, site selection/analysis
processes, management systems and techniques, costs modeling or sales and
marketing.

     The provisions of this section 11 shall remain in effect after the
expiration or termination of this Agreement and Executive's employment
hereunder.

     12. Agreement Not to Compete.

          a. In consideration of the improved job security and other benefits of
this Agreement, Executive hereby agrees not to, without the prior written
consent of the Company's Board, directly or indirectly engage in any of the
following actions on or before the date that is two years after the date on
which Executive's employment by the Company is terminated for any reason:

               i. Solicit, on Executive's own behalf or for any entity that is
in competition with the Company, any person or entity, including for example
Indian tribes, that is doing business with the Company or is an active prospect
to do business with the Company for the purpose of diverting Company's business
or active business opportunities in competition with Company; or

               ii. Solicit for employment, endeavor to entice away from the
Company or otherwise interfere with the Company's relationship with any person
who is employed by or otherwise engaged to perform services for the Company,
whether for Executive's own account or for the account of any other individual,
partnership, firm or corporation or other business entity.

     If the scope of Executive's agreement under this section 12 is determined
by any court of competent jurisdiction to be too broad to permit the enforcement
of all of the provisions of this section 12 to their fullest extent, then the
provisions of this section 12 shall be construed (and each of the parties hereto
hereby confirm its intent is that such provisions be so construed) to be
enforceable to the fullest extent permitted by applicable law. To the maximum
extent permitted by applicable law, Executive hereby consents to the judicial
modification of the provisions of this section 12 in any proceeding brought to
enforce such provisions in such a manner that renders such provisions
enforceable to the maximum extent permitted by applicable law.

          b. The provisions of this section 12 shall remain in full force and
effect after the expiration or termination of this Agreement and Executive's
employment hereunder.

     13. Acknowledgments; Irreparable Harm.

     Executive agrees that the restrictions on competition, solicitation and
disclosure in this Agreement are fair, reasonable and necessary for the
protection of the interests of the Company. Executive further agrees that a
breach of any of the covenants set forth in sections 11 and 12 of this Agreement
will result in irreparable injury and damage to the Company for which the
Company would have no adequate remedy at law, and Executive further agrees that
in the event


                                       10

<PAGE>

of a breach, the Company will be entitled to an immediate restraining order and
injunction to prevent such violation or continued violation, without having to
prove damages, in addition to any other remedies to which the Company may be
entitled to at law or in equity.

     14. Notification to Subsequent Employers.

     Executive grants the Company the right to notify any future employer or
prospective employer of Executive concerning the existence of and terms of this
Agreement and grants the Company the right to provide a copy of this Agreement
to any such subsequent employer or prospective employer.

     15. Full Settlement.

     The Company's obligations to make the payments provided for in this
Agreement and otherwise to perform it obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against Executive or others. Executive will
not be obligated to seek other employment, and except as provided in section
8c(4) above, take any other action by way of mitigation of the amounts payable
to Executive under any of the provisions of this Agreement. Employer agrees to
pay promptly as incurred, to the full extent permitted by law, all legal fees
and expenses which Executive may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Company, Executive or others of the
validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (including as a result of any
contest by the Executive regarding the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the rate
published from time to time in The Wall Street Journal as the prime rate of
interest, plus two percent (2%).

     16. Resolution of Disputes.

Any controversy, claim or dispute arising out of or relating to this Agreement
or the breach of this Agreement, other than such a matter arising from a
violation or threatened violation of sections 11 and 12, shall be settled by
arbitration in accordance with the National Rules for the Resolution of
Employment Disputes of the American Arbitration Association, and a judgment upon
the award rendered by the arbitrator(s) may be entered in any court having
jurisdiction. The award rendered in any arbitration proceeding under this
section will be final and binding. Any demand for arbitration must be made and
filed within 60 days of the date the requesting party knew or reasonably should
have known of the event giving rise to the controversy or claim. Any claim or
controversy not submitted to arbitration in accordance with this section will be
considered waived, and therefore, no arbitration panel or court will have the
power to rule or make any award on such claims or controversy. Any such
arbitration will be conducted in the Minneapolis, MN metropolitan area. Both
Company and Executive recognize that each would give up any right to a jury
trial, but believe the benefits of arbitration significantly out-weigh any
disadvantage. Both further believe arbitration is likely to be both less
expensive and less time-consuming than litigation of any dispute there might be.

     If there shall be any dispute between the Company and the Executive (i) in
the event of any termination of Executive's employment by the Company, whether
such termination was with


                                       11

<PAGE>

or without Cause, or (ii) in the event of a Constructive Termination of
employment by the Company, then, unless and until there is a final,
nonappealable judgment by a court of competent jurisdiction, the Company shall
pay, and provide all benefits to Executive and/or Executive's family or other
beneficiaries, as the case may be, that the Company would be required to pay or
provide pursuant to section 8 or section 9 hereof, as the case may be, as though
such termination were by the Company without Cause or was a Constructive
Termination by the Company; provided, however, that the Company shall not be
required to pay any disputed amounts pursuant to this section except upon
receipt of an undertaking by or on behalf of Executive to repay all such amounts
to which Executive is ultimately adjudged by such court not to be entitled.

     17. Withholding.

     The Company may withhold from any amounts payable under this Agreement the
minimum Federal, state and local taxes as shall be required to be withheld
pursuant to any applicable law, statute or regulation.

     18. Successors and Assigns.

     This Agreement is binding upon, and shall inure to the benefit of the
Company and the Executive, and all successors and assigns of the Company. This
Agreement shall be binding upon and inure to the benefit of the Executive and
his heirs and personal representatives. The Company will require any successor
(whether direct or indirect, by purchase, merger or consolidation or otherwise)
to all or substantially all of the business and/or assets of the Company to
assume expressly and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such agreement,
prior to the effectiveness of any such succession shall be a material breach of
this Agreement and shall entitle the Executive to any severance benefits payable
pursuant to sections 8 and 9 hereof.

     19. Miscellaneous.

          a. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Minnesota, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified except by a written agreement executed by the parties hereto or their
respective successors and legal representatives.

          b. All notices and other communications under this Agreement shall be
in writing and shall be given by hand to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:

          IF TO THE EXECUTIVE:

          Timothy J. Cope
          Lakes Entertainment, Inc.
          130 Cheshire Lane
          Minnetonka, MN 55305-1062


                                       12

<PAGE>

          IF TO THE COMPANY:

          Lakes Entertainment, Inc.
          Attn: Damon Schramm, General Counsel
          130 Cheshire Lane
          Minnetonka, MN 55305

or to such other address as either party furnishes to the other in writing in
accordance with this paragraph (b) of section 19. Notices and communications
shall be effective when actually received by the addressee.

          c. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement. If any provision of this Agreement shall be held invalid or
unenforceable in part, the remaining portion of such provision, together with
all other provisions of this Agreement, shall remain valid and enforceable and
continue in full force and effect to the fullest extent consistent with the law.

          d. Notwithstanding any other provision of this Agreement, the Company
may withhold from amounts payable under this Agreement all federal, state, local
and foreign taxes that are required to be withheld by applicable laws or
regulations.

          e. The Executive's or the Company's failure to insist upon strict
compliance with any provision of, or to assert any right under, this Agreement
shall not be deemed to be a waiver of such provision or right or of any other
provision of or right under this Agreement.

          f. This Agreement may be executed in several counterparts, each of
which shall be deemed an original, and said counterparts shall constitute but
one and the same instrument.

     20. Entire Agreement.

     This Agreement constitutes the entire agreement between the parties,
supersedes all prior agreements and understandings between the parties with
respect to the subject matter hereof, including but not limited to that certain
employment agreement dated February 21, 2002 and may not be modified or
terminated orally. No modification, termination or attempted waiver of this
Agreement shall be valid unless in writing and signed by the party against whom
the same is sought to be enforced.

          IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and pursuant to the due authorization of its Board, the Company has caused
this Agreement to be executed in its name and on its behalf, all as of the day
and year first written above.

LAKES ENTERTAINMENT, INC.:              EXECUTIVE:


By: /S/ Lyle Berman                     By: /S/ Timothy J. Cope
    ---------------------------------       ------------------------------------
    Lyle Berman                             Timothy J. Cope
Its: Chairman and CEO                   Its: President and Chief Financial
                                             Officer


                                       13
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>15
<FILENAME>c02665exv99w1.htm
<DESCRIPTION>PRESS RELEASE
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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;99.1</B>
</DIV>
<P>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
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<TR valign="bottom">
    <TD align="left" valign="top"><IMG src="c02665lakes.gif" alt="(LAKES ENTERTAINMENT, INC.)">
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>NEWS RELEASE<BR>
Lakes Entertainment, Inc.<BR>
130 Cheshire Lane<BR>
Minnetonka, MN 55305<BR>
952-449-9092<BR>
952-449-9353 (fax)<BR>
www.lakesentertainment.com<BR>
(LACO)</B></TD>
</TR>
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</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><DIV style="border-bottom: 3px solid #000000; font-size: 1px">&nbsp;</DIV>
<B>FOR FURTHER INFORMATION CONTACT:</B><BR>
Timothy J. Cope 952-449-7030<BR>
<B><DIV style="border-bottom: 1px solid #000000; font-size: 1px">&nbsp;</DIV>
FOR IMMEDIATE RELEASE:</B><BR>
Thursday, February&nbsp;16, 2006

</DIV>

<DIV align="center" style="font-size: 12pt; margin-top: 18pt"><B>LAKES ENTERTAINMENT, INC. ANNOUNCES<BR>
CLOSING ON $50 MILLION FINANCING FACILITY</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>MINNEAPOLIS, February&nbsp;16, 2006 &#151; Lakes Entertainment, Inc. (LACO) </B>Lakes Entertainment, Inc.
(LACO)&nbsp;announced today that on Wednesday, February&nbsp;15, 2006 it closed on a $50&nbsp;million financing
facility with an affiliate of Prentice Capital Management, LP. An initial draw of $25&nbsp;million was
made under the facility, another $10&nbsp;million is immediately available under the facility and the
remaining $15&nbsp;million can be drawn in $5&nbsp;million increments subject to the satisfaction of certain
conditions. Any funds drawn on the facility bear interest at the rate of 12% per annum, subject to
adjustment based on the value of the collateral, and are due and payable on the third anniversary
of the closing date. Lakes may prepay the facility in whole or in part without penalty at any time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Tim Cope, President and CFO of Lakes stated, &#147;Completing this loan facility allows us to continue
to move forward with our various casino development projects. We look forward to a good working
relationship with the Prentice Group and we are excited about completing this transaction.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Approximately $10.2&nbsp;million of the initial draw was used to repay in full Lakes&#146; December&nbsp;15, 2005
loan from the Lyle Berman Family Partnership (&#147;Partnership&#148;). As a result of repaying the
Partnership loan prior to February&nbsp;28, 2006, the 2&nbsp;million common stock purchase warrants
previously issued to the Partnership were terminated.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The financing facility is secured by substantially all of the material assets of Lakes and certain
of its subsidiaries (other than WPT Enterprises, Inc.), including all of Lakes&#146; shares of WPT
Enterprises, Inc. (WPTE). Lakes is permitted to sell up to 3&nbsp;million of the approximate 12.5
million WPTE shares it owns without application to reduction of the amounts owing under the
financing facility, subject to certain conditions.
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As consideration for the financing, Lakes issued to an affiliate of Prentice Capital warrants to
purchase 1.25&nbsp;million shares of common stock that can be immediately exercised at $7.50 per share.
The warrants are subject to customary anti-dilution protections. An additional 1.25&nbsp;million
warrants to purchase common stock are exercisable at $7.50 per share as additional draws under the
facility are made. Up to an additional 1.96&nbsp;million warrants to purchase common stock can be
exercised at $7.50 per share upon the occurrence of certain events relating to loan collateral.
All warrants expire in February, 2013. The lender has demand registration rights with respect to
the Lakes common stock underlying the warrants and, upon certain events, the WPTE shares pledged by
Lakes to the lender. Lakes has agreed to pay substantially all of the costs incurred in the
preparation and filing of these registration statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Lyle Berman, Chairman and CEO of Lakes commented, &#147;Obtaining this loan along with the recent
announcement of the Pokagon land for gaming taken into trust provides a good start for our company
as we begin 2006.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As previously announced, Lakes will continue to explore additional financing alternatives to fund
its future operational and development needs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>About Lakes Entertainment</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Lakes Entertainment, Inc. currently has development and management agreements with five separate
Tribes for new casino operations in Michigan, California, and Oklahoma, a total of eight separate
casino sites. In addition, Lakes has announced plans to develop a company owned casino resort
project in Vicksburg, Mississippi. The Company also owns approximately 62% of WPT Enterprises,
Inc. (Nasdaq &#147;WPTE&#148;), a separate publicly held media and entertainment company principally engaged
in the development, production and marketing of gaming themed televised programming including the
World Poker Tour television series, the licensing and sale of branded products and the sale of
corporate sponsorships.
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<P>
<DIV style="width: 100%; border: 1px solid black; padding: 11px;">



<DIV align="left" style="font-size: 9pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Private Securities Litigation Reform Act of 1995 provides a &#147;safe harbor&#148; for
forward-looking statements. Certain information included in this press release (as well as
information included in oral statements or other written statements made or to be made by Lakes
Entertainment, Inc.) contains statements that are forward-looking, such as statements relating to
plans for future expansion and other business development activities as well as other capital
spending, financing sources and the effects of regulation (including gaming and tax regulation) and
competition. Such forward-looking information involves important risks and uncertainties that could
significantly affect anticipated results in the future and, accordingly, such results may differ
from those expressed in any forward-looking statements made by or on behalf of the Company. These
risks and uncertainties include, but are not limited to, the relisting of Lakes&#146; common stock on
The Nasdaq Stock Market; need for current financing to meet Lakes&#146; operational and development
needs; those relating to the inability to complete or possible delays in completion of Lakes&#146;
casino projects, including various regulatory approvals and numerous other conditions which must be
satisfied before completion of these projects; possible termination or adverse modification of
management contracts; Lakes operates in a highly competitive industry; possible changes in
regulations; reliance on continued positive relationships with Indian tribes and repayment of
amounts owed to Lakes by Indian tribes; possible need for future financing to meet Lakes&#146; expansion
goals; risks of entry into new businesses; reliance on Lakes&#146; management; and the fact that the
WPTE shares held by Lakes are currently not liquid assets, and there is no assurance that Lakes
will be able to realize value from these holdings equal to the current or future market value of
WPTE common stock. There are also risks and uncertainties relating to WPTE that may have a material
effect on the Company&#146;s consolidated results of operations or the market value of the WPTE shares
held by the Company, including WPTE&#146;s significant dependence on the Travel Channel as a source of
revenue; the potential that WPTE&#146;s television programming will fail to maintain a sufficient
audience; difficulty of predicting the growth of WPTE&#146;s online casino business, which is a
relatively new industry with an increasing number of market entrants; the risk that WPTE may not be
able to protect its entertainment concepts, current and future brands and other intellectual
property rights; the risk that competitors with greater financial resources or marketplace presence
might develop television programming that would directly compete with WPTE&#146;s television
programming; risks associated with future expansion into new or complementary businesses; the
termination or impairment of WPTE&#146;s relationships with key licensing and strategic partners; and
WPTE&#146;s dependence on its senior management team. For more information, review the Company&#146;s filings
with the Securities and Exchange Commission.
</DIV>
</DIV>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>


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end
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
