Exhibit  10.5

 

THIRD AMENDMENT TO THE AMENDED

AND RESTATED GROUND LEASE AGREEMENT

 

This Third Amendment to the Amended and Restated Ground Lease Agreement (the
“Third Amendment”) is made effective as of the 14th day of September, 2004, (the
“Effective Date”) by and between Primm South Real Estate Company, a Nevada
corporation (“Landlord”) and The Primadonna Company, a Nevada limited-liability
company, successor in interest by merger to The Primadonna Corporation, a Nevada
corporation (“Tenant”).

 

R E C I T A L S:

 

A.            Landlord and Tenant entered into an Amended and Restated Ground
Lease Agreement effective as of July 1, 1993, and as thereafter amended by the
First Amendment to the Amended and Restated Ground Lease Agreement and Consent
and Waiver dated August 25, 1997, and the Second Amendment to the Amended and
Restated Ground Lease Agreement dated July 1, 2002 (hereinafter referred to
collectively as the “Lease”). All capitalized terms not otherwise defined in
this Third Amendment shall have the meanings set forth in the Lease.

 

B.            Landlord and Tenant are parties to that certain Settlement
Agreement dated September 14, 2004, between Landlord, Primm 120 Limited
Partnership, a Nevada limited partnership and Tenant (“Settlement Agreement”)
pursuant to which Tenant conveyed to Landlord all of Tenant’s right, title, and
interest to certain water rights (defined in Subsection 13.2(a) below as the
“Water Rights”), which include all of the water rights currently utilized by
Tenant for its Nevada operations.

 

C.            Pursuant to the Settlement Agreement, Landlord has agreed to lease
to Tenant all of Landlord’s right, title, and interest, in a portion of the
Water Rights.

 

D.            The Parties desire to amend the Lease as it pertains to certain
rights in Tenant’s water and wastewater facilities during and upon termination
of the Lease, and to provide that Tenant will furnish certain water and services
for the disposal of sewage to Landlord as an accommodation subject to the
limitations herein.

 

A G R E E M E N T:

 

NOW THEREFORE, based upon the foregoing Recitals, the mutual promises contained
herein, and other valuable consideration, the sufficiency and receipt of which
is acknowledged by the Parties, Landlord and Tenant agree as follows:

 

1.             Addition of New Section 0.  The Lease is hereby amended by adding
a new Section 0 which shall precede Section 1 of the Lease as follows:

 

Section 0.  Additional Defined Terms.  As used in this Lease, references to
“Recitals,” “Sections” “Subsections” and “Exhibits” are references to
corresponding portions of this Lease.  Listed below are definitions for certain
terms that are used in this Lease with particular meanings.  Unless otherwise
noted, a defined term shall include, where appropriate to the context, the noun
(singular and plural), verb and adjective forms of the term.

 

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Accommodatee(s).  As defined in Subsection 13.25.

 

Account.  As defined in Subsection 13.7(b).

 

Administrative Requirements.  As defined in Subsection 13.4(h).

 

Adjustment Date.  As defined in Section 13.10(a)(iv).

 

Affiliate.  An Affiliate of any Person means any other Person which is directly
or indirectly controlled by or is under common control with that Person and
which owns or leases or otherwise legally possesses or which will own or lease
or otherwise legally possesses any of the Benefited Property. The terms
“controlled by” or “is under common control with” shall mean the possession,
direct or indirect, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities, management agreements, acting as a general partner, manager or
fiduciary, by contract or otherwise.  For purposes of this Lease, the Parties
acknowledge and agree that Landlord, Primm 650 Limited Partnership, Primm 120
Limited Partnership, Ernie Corporation and Dry Lake, Inc. are Affiliates of each
other.  Likewise, for purposes of this Lease, the Parties acknowledge and agree
that Tenant, PRMA, LLC and PRMA Land Development Company are Affiliates of each
other.

 

Assessed Water Facilities.  As defined in Subsection 13.10(a)(i).

 

Benefited Property.  Landlord’s Property and Tenant’s Fee Lands to which the
Water Rights are or become appurtenant.

 

Cost Period.  As defined in Subsection 13.10(a)(iv).

 

Currently Unallocated Water.  As defined in Subsection 13.4(f).

 

Depreciated Replacement Cost.  As defined in Subsection 13.10(a)(i).

 

Development Increment.  An existing development or improvement on Benefited
Property, or a development or improvement on Benefited Property for which all
necessary governmental approvals have been obtained and construction has been
commenced.

 

Dry Lake Water Agreement As defined in Subsection 1.2.

 

Effective Date.  The date first set forth above on which this Third Amendment
becomes fully executed.

 

Effluent As defined in Subsection 1.2

 

EHF tenant.  As defined in Subsection 5.1(b)

 

Employee Housing Facility.  As defined in Subsection 5.1(b),

 

Existing Uses.  As defined in Subsection 13.4(e).

 

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Existing Water Agreements.  As defined in Subsection 1.2.

 

Expiration Notice.  As defined in Subsection 13.25(b).

 

Facilities.  As defined in Subsection 13.3(a).

 

Fresh Water.  As defined in Subsection 1.2.

 

Housing Agreement.  As defined in Subsection 5.1(b).

 

Index Adjustment.  As defined in Subsection 13.10(a)(iii).

 

Initial Delivery.  As defined in Subsection 13.7(c).

 

Landlord.  Primm South Real Estate Company, a Nevada corporation.

 

Landlord Accommodation Agreement. As defined in Subsection 13.25.

 

Landlord Event(s) of Default As defined in Subsection 17.3.

 

Landlord’s Property.  Shall mean the real property described in Exhibit “L”
together with any other real property owned, leased, or otherwise legally
possessed by Landlord or an Affiliate of Landlord at any time prior to the
expiration or termination of the Lease that is located within one (1) mile of
the property described in Exhibits “L” or “M”.

 

Landlord’s Reserved Water Rights. Forty-two and one-half (42.5) acre-feet in
annual consumptive use as may be augmented as described in Subsection 1.2 by
certain Reliant Water and Subsection 13.4(i) by the expansion of available water
rights.

 

Landlord’s Rights on Termination. The rights of Landlord described in
Subsection 13.3(a).

 

Landlord’s Share of New Wastewater Facilities Costs.  As defined in
Subsection 13.8(c).

 

Landlord’s Share of New Water Facilities Costs.  As defined in
Subsection 13.8(b).

 

Lease.  As defined in Recital A, above.

 

Legal Requirements.  Those requirements set forth in the Water Rights permits,
Nevada Wastewater Treatment Permit Number NEV9001, the Reliant Energy Secondary
Use Permit No. 68917 SO1, and laws, regulations, and ordinances otherwise
governing the extraction, treatment, and delivery of water and the treatment and
discharge of wastewater.

 

Mall Lease.  That certain Ground Lease dated as of February 26, 1997, by and
between Primm 650 Limited Partnership and Fashion Outlet of Las Vegas
Associates.

 

Mall Water Agreement As defined in Subsection 1.2.

 

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McDonald’s Water Agreement.  As defined in Subsection 1.2.

 

Monthly Statement.  As defined in Subsection 13.10(c).

 

New Wastewater Facilities.  As defined in Subsection 13.8(a).

 

New Water Facilities.  As defined in Subsection 13.8(a).

 

Parties.  Landlord and Tenant, collectively.

 

Party.  Landlord or Tenant.

 

Permitted Transfer.  As defined in Subsection 16B.1.

 

Person.  Person means a person or persons or entity or entities or any
combination of persons and entities including when such person, persons, entity
or entities are acting in the capacity of an executor, trustee, guardian or
other fiduciary capacity.

 

Points of Delivery.  The actual or proposed point or points for delivery of
water to the Benefited Property.

 

Points of Discharge.  As defined in Subsection 13.15(b).

 

Pollutant.  Means dredged soil, solid waste, incinerator residue, sewage,
garbage, sewage sludge, munitions, chemical wastes, biological materials,
radioactive materials, heat, wrecked or discarded equipment, rock, sand, cellar
dirt and industrial, municipal and agricultural waste discharged into water,
excepting any such material that is authorized to be released into water or into
a place where the material may come into contact with water by a valid permit.

 

Primm Entities (or Primm Entity). As defined in Subsection 5.1(c).

 

Priority.  As defined in Subsection 13.4(f).

 

Public Water Supply.  Water services available to the public generally through
any water purveyor that:  (i) is regulated by the Public Utilities Commission of
Nevada; (ii) is a political subdivision of the State of Nevada; or (iii) the
Nevada Legislature creates specifically for the purpose of making water
available to the public.

 

Quality of the Source Water.  The Quality of the Source Water means the natural
water chemistry and all other properties of the water extracted by Tenant
pursuant to this Lease, excepting only Pollutants introduced to the water by
Tenant.

 

Related Party Transfer.  As defined in Subsection 21.1.

 

Reliant Water.  As described in Subsection 1.2.

 

Reliant Water Agreement.  As defined in Subsection 1.2.

 

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Remaining Property.  Landlord’s Property excluding the Property that is subject
to the Lease.

 

RO Facility.  As defined in Subsection 13.8(a).

 

Section 13 Default As defined in Subsection 13.25(b).

 

Section 13 Default Agent.  As defined in Subsection 13.25(b).

 

Settlement Agreement.  As defined in Recital B.

 

Shortfall.  As defined in Subsection 13.4(f).

 

Special Landlord Default.  As defined in Subsection 13.24(a).

 

Tenant.  The Primadonna Company, a Nevada limited-liability company, successor
in interest by merger to The Primadonna Corporation, a Nevada corporation.

 

Tenant Accommodation Agreement As defined in Subsection 13.3(a).

 

Tenant’s Leasehold Water Rights. As described in Subsection 1.2.

 

Tenant’s Fee Land.  The real property described in Exhibit “M” together with any
other real property owned, leased, or otherwise legally possessed by Tenant or
an Affiliate of Tenant at any time prior to the expiration or termination of the
Lease that is located within one (1) mile of Landlord’s Property or the real
property described in Exhibit “M”.

 

Third Amendment.  This third amendment to the Lease.

 

Third Party Users.  Lessees or assignees of Tenant other than Tenant or an
Affiliate of Tenant who have rights in or to the Benefited Property.

 

Uncured Default As defined in Subsection 13.25(b).

 

Wastewater Facilities.  As defined in Subsection 13.2(c).

 

Wastewater Facilities Operational Costs.  As described in Subsection 13.16(a).

 

Wastewater Facilities Operational Costs Rate.  As described in
Subsection 13.16(b)(i).

 

Wastewater Treatment Capacity Right. As defined in Subsection 13.15(c).

 

Wastewater Meter.  As defined in Subsection 13.15(c)

 

Water Facilities.  As defined in Subsection 13.2(b).

 

Water Facilities Assessment.  The assessment to be paid by Landlord in
accordance with Subsection 13.10(a)(i).

 

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Water Facilities Capacity Right. As defined in Subsection 13.9.

 

Water Facilities Operational Costs. As defined in Subsection 13.10(b).

 

Water Facilities Operational Costs Rate.  As defined in Subsection 13.10(c).

 

Water Meter.  As defined in Subsection 13.9.

 

Water Rights.  As defined in Subsection 13.2(a).

 

Water and Wastewater Rights and Facilities.  As defined in Subsection 13.3(a).

 

Water Permit Applications.  As defined in Subsection 13.2(a).

 

2.             Amendment to Subsection 1.2. Subsection 1.2 of the Lease is
hereby amended to include within the definition of Property, all of Landlord’s
right, title and interest in and to the Water Rights (751 acre-feet of annual
consumptive use), together with all rights appurtenant thereto, including all
rights, on an exclusive basis, that would be enjoyed or exercised by the owner
thereof, save and except for forty-two and one-half (42.5) acre-feet annually in
consumptive use (“Landlord’s Reserved Water Rights”) that Landlord reserves unto
itself and shall have the right to use in connection with development on any
Benefited Property owned or leased or otherwise legally possessed by Landlord or
an Affiliate of Landlord, for a total of seven hundred eight and one-half
(708.5) acre-feet of annual consumptive use (hereinafter “Tenant’s Leasehold
Water Rights”).

 

This Third Amendment shall not alter Tenant’s rights, obligations, or authority,
as an accommodation, to deliver certain of the Water Rights from Tenant’s
Leasehold Water Rights and provide services for the disposal of sewage to the
following:  (i) Tenant’s subtenant (currently McDonald’s Corporation) operating
a restaurant on certain property set forth in a Ground Lease Agreement dated
October 21, 1991, by and between Primm South Real Estate Company and The
Primadonna Corporation (the “McDonald’s Water Agreement”); (ii) Dry Lake, Inc.,
or its successor, as operator of a convenience store on certain California real
property as provided in a Water Facilities Agreement dated December 24, 1993, by
and between The Primadonna Corporation, Primm South Real Estate Company, and Dry
Lake, Inc. (the “Dry Lake Water Agreement”); (iii) the Fashion Outlet of Las
Vegas under that certain Lease of Water Rights and Wastewater Capacity dated
July                1997, by and between The Primadonna Corporation, Primm South
Real Estate Company, Primm 650 Limited Partnership, and Fashion Outlet of Las
Vegas Associates (the “Mall Water Agreement”); and (iv) Reliant Energy Bighorn,
LLC under that certain Agreement Regarding Water dated August 31, 2001, by and
between The Primadonna Company, LLC and Reliant Energy Bighorn, LLC (the
“Reliant Water Agreement”).  The McDonald’s Water Agreement, Dry Lake Water
Agreement, Mall Water Agreement, and Reliant Water Agreement collectively are
referred to herein as the “Existing Water Agreements.”

 

Upon termination of the Reliant Water Agreement, the water Reliant is entitled
to use under the Reliant Water Agreement (“Reliant Water”) shall become part of
Landlord’s Reserved Water Rights under this Lease as conditioned in
subparagraphs (a), (b), and (c), below:

 

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(a)           If the Reliant Water Agreement terminates as a result of a
termination of Primm 120 Limited Partnership’s ground lease with Reliant and
Landlord leases all or a portion of the same property together with the right
through an Accommodation Agreement as defined in Subsection 13.25, below, to use
all or a portion of the Reliant Water to another Person who will operate a power
generation facility thereon, then the consideration to be paid for the use of
such water shall be paid 60% to Tenant and 40% to Landlord through December 31,
2033.  Landlord shall not use, lease, or otherwise dispose of any portion of
Landlord’s Reserved Water Rights (other than Reliant Water as provided herein)
for use by a power generation facility on land formerly leased by Reliant until
and unless the Reliant Water is fully used for such purpose.  After December 31,
2033, Landlord shall be entitled to receive 100% of any proceeds from the new
power generator attributable to the Reliant Water.  The portion of the rent paid
by the new power generation facility tenant allocated to the new generator’s
water use for the purposes of calculating Tenant’s and Landlord’s share of
proceeds shall be calculated by subtracting from the total income generated for
both land and water under the new power generator lease the amount that Reliant
would have otherwise paid for the land alone under Primm 120 Limited
Partnership’s current lease with Reliant as of the date of such new power
generator lease; provided, however, that in no event shall the amount allocated
to water use be less than the amount the generator would pay to the Las Vegas
Valley Water District under its commercial water service rates applicable at the
time of such allocation.

 

(b)           Landlord may use all or any portion of the Reliant Water either as
effluent discharged from Tenant’s Wastewater Facilities (“Effluent”) or as fresh
water delivered from Tenant’s Water Facilities (“Fresh Water”).  If Landlord
desires to use the Reliant Water other than as Effluent, the amount of Reliant
Water available as Fresh Water for consumption by Landlord and which shall
become part of Landlord’s Reserved Water Rights shall be one hundred and
seventy-three (173) acre-feet in annual consumptive use.  To the extent Landlord
desires to use Reliant Water in some combination of Effluent and Fresh Water,
then the amount of Reliant Water becoming part of Landlord’s Reserved Water
Rights shall be determined ratably as follows:  Y = 173 - 0.6865(X), where Y is
the amount of Fresh Water used consumptively by Landlord, X is a number between
0 and 252 representing the number of acre-feet annually that Landlord desires
that Tenant deliver as Effluent for Landlord uses, and X + Y is the number of
acre-feet annually of Reliant Water that become part of Landlord’s Reserved
Water Rights.  Landlord shall have the right to alter from time to time the
amount of Reliant Water Landlord receives as Fresh Water versus Effluent,
provided and to the extent there is, at the time of any such alteration,
sufficient Effluent to accommodate any then-existing Tenant uses, the amount of
water Landlord must return to the RIBs pursuant to subsection 5.1(a), below, and
any increase in Effluent use proposed by Landlord.

 

(c)           Prior to the expiration of the Reliant Water Agreement, if, and to
the extent, Reliant desires to reduce the number of acre-feet of Effluent to
which Reliant is entitled under the Reliant Water Agreement, Landlord may agree
to such reduction and Tenant shall so agree to such reduction, provided Tenant
continues to receive the same amount of compensation to which Tenant otherwise
would be entitled under the Reliant Water Agreement, the Settlement Agreement
and this Subsection 1.2 in the absence of such reduction.  Landlord would be
entitled to enjoy the benefits of the reduced Reliant consumption, and the
amount of consumptive use made available to Landlord and becoming part of
Landlord’s Reserved Water

 

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Rights as a result of such reduction will be calculated as set forth in
paragraph (b) immediately above.

 

(d)           Tenant shall not extend the term of the Reliant Water Agreement
beyond December 31, 2033.  Landlord, however, may enter into an Accommodation
Agreement with Reliant to make some or all of Landlord’s Reserved Water Rights
available to Reliant after December 31, 2033; provided, however, that Tenant
shall have no contractual obligation to Reliant other than those specific
obligations required of Tenant with respect to Accommodation Agreements set
forth in Subsection 13.25, below.

 

3.             Amendment to Subsection 4.4.  The first sentence of the third
paragraph of Subsection 4.4 of the Lease concludes with the phrase “and proposed
uses of the Property.”  There shall be a new sentence inserted between the first
and second sentences of the third paragraph of Section 4.4 as follows:  “The
appraisers shall not separately value the Water Rights.”

 

4.             Amendment to Subsection 5.1.  Subsection 5.1 of the Lease is
hereby deleted in its entirety and a new Subsection 5.1 is hereby added and
shall read as follows:

 

4.1           Use.

 

(a)                           Tenant shall be entitled to use, improve and
operate the Property as a resort hotel and casino complex, or complexes, and may
in connection with such complex or complexes use, improve and operate the
Property for related amenities including, but not limited to, a truck stop on
the Whiskey Pete’s Parcel, a gasoline station or stations on the Property, a
recreational vehicle park, retail businesses, amusement park, restaurants and an
employee housing facility to be located on the R.V. Park Parcel.  While Tenant
is not required to make or continue any particular use of the Property, Tenant
shall at all times be deemed in actual possession of the Property, pay all rent
and other charges required of Tenant pursuant to this Lease, and, subject to
certain acknowledgments and Landlord covenants within Section 13.4(h): 
(i) secure and protect the Property; (ii) maintain and repair in a good and
working condition all improvements to the Property, including, without
limitation, all water and sewer, rights, permits, applications and facilities at
a level equal to or greater than that required in connection with Landlord’s
Reversionary Water and Sewer Rights, all landscaping, together with all
equipment, machinery, systems and utilities comprising a part of, or used in
connection with, such improvements and the Property and otherwise satisfy fully
all of Tenant’s obligations pursuant to this Lease; and (iii) shall return
annually to the rapid infiltration basins (“RIBs”) presently used by Tenant (or
any replacement RIBs) at least the lesser of (1) Tenant’s entire Effluent
discharged from the Wastewater Facilities or (2) 100 acre-feet of Effluent
annually discharged from the Wastewater Facilities.

 

(b)                           As provided in subparagraph (a) immediately above,
Tenant shall be permitted to construct and operate an employee housing facility
on the R.V. Park Parcel (“Employee Housing Facility.”)  Tenant shall enter into
a written rental agreement (“Housing Agreement”) with each person residing,
occupying or using the Employee Housing Facility (“EHF tenant”).

 

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(c)                           Tenant agrees that it shall not directly or
indirectly, or through its Affiliates, tenants or other related or subservient
persons and entities, object to or oppose or cause any other person or entity to
object to or oppose Landlord’s or an Affiliate of Landlord’s or any of their
respective tenant’s existing or proposed future use or uses of any property
within a ten mile radius of the Property which is owned or leased (or is under
an option to buy or lease) or legally possessed by Landlord or any Affiliate of
Landlord (collectively, “Primm Entities” and singly, “Primm Entity”) on any
basis arising directly or indirectly from the residential use of the R.V. Park
Parcel.  Tenant agrees that each Housing Agreement with each EHF tenant shall
contain a provision that the EHF tenant agrees that he or she shall not,
directly or indirectly, object to or oppose or cause any other person or entity
to object to or oppose any Primm Entity’s existing or proposed future use or
uses of any property within a ten mile radius of the Property which is owned or
leased (or is under an option to buy or lease) by any of the Primm Entities,
provided that Tenant may discontinue the inclusion of such a provision and may
void such a provision contained in any existing Housing Agreements if Tenant
makes a good faith determination that such a provision may be deemed unlawful.
With the exception of the foregoing, Tenant reserves all rights to object to any
of the Primm Entities proposed future land uses on any other basis.

 

(d)                           Tenant hereby covenants, represents and warrants
that it shall construct the Employee Housing Facility in compliance with all
applicable Federal, State and local laws, ordinances and codes.  Furthermore,
Tenant shall not permit the Employee Housing Facility to fall into a state of
disrepair and Tenant shall maintain the Employee Housing Facility in compliance
with all applicable Federal, State and local laws, ordinances and codes and in a
manner consistent with other well maintained economical apartment complexes
located in the Las Vegas, Nevada area.

 

(e)                           Landlord and Tenant agree that for purposes of
this Lease, if Tenant actually does use the R.V. Park Parcel for the Employee
Housing Facility, such use of the R.V. Park Parcel will be considered
hotel/casino use and will not be separately valued as a recreational vehicle
park under Subsection 4.4 of the Lease and upon opening of all or any portion of
the Employee Housing Facility for residential use the Parties shall adjust the
Base Rent as provided in Subsection 4.4 of the Lease.

 

5.             Amendment to Section 13. Section 13 of the Lease entitled
“Utilities” is hereby deleted in its entirety and a new Section 13 is hereby
added and shall read as follows:

 

5.1           General.

 

(a)           Subject to Landlord’s obligations herein, Tenant shall be
responsible for and shall pay promptly, as the same becomes due and payable, all
charges for water, sewer, gas, electricity, telephone, refuse pickup, janitorial
service and all other utilities, materials and services furnished directly to or
used by Tenant in, on or about the Property during the term of this Lease,
together with any taxes thereon.  Except as otherwise provided herein, and
except if and to the extent Landlord provides any utility or other service to
the Property under this or another Agreement, Landlord shall not be liable in
damages or otherwise for any failure or interruption of any utility service or
other service furnished to the Property, except that

 

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resulting from the gross negligence or willful misconduct of Landlord or its
agents, employees or invitees.  No such failure or interruption of utility or
other services shall entitle Tenant to terminate this Lease or withhold rent or
other sums due hereunder.

 

5.2           Water Rights and Facilities.

 

(a)           Water Rights.  Landlord’s rights to extract and use water for a
reasonable beneficial purpose pursuant to permits and/or applications to
appropriate water rights granted under the laws of the State of Nevada and
applicable laws of the State of California, are specifically described in
Exhibit “N” attached hereto (collectively “Water Rights”).

 

(b)           Tenant’s Water Facilities.  Tenant (i) has developed and improved
a water extraction, treatment and delivery system having components in both
California and Nevada, and has obtained right of way permit No. CA-21617 from
the United States Bureau of Land Management for Tenant’s wells and water
pipeline in California in order to utilize the Water Rights; and
(ii) anticipates that it will continue to make improvements, modifications and
additions to these facilities, (collectively, the “Water Facilities”).

 

(c)           Tenant’s Wastewater Facilities.  Tenant also owns and has
developed and unproved a wastewater treatment facility and anticipates that it
will continue to make improvements, modifications and additions to such system
(“Wastewater Facilities”).

 

5.3           Landlord’s Rights on Termination.

 

(a)           Upon the termination of this Lease, for whatever reason, Tenant
shall convey to Landlord all of Tenant’s right, title, and interest, in and to
the Water Facilities and the Wastewater Facilities, together with any easements
in, on, and under Tenant’s Fee Lands required to operate the Facilities in a
manner substantially similar to that occurring at the time of such termination
(collectively the “Facilities”) together with the Water Rights; provided,
however, that Landlord (i) shall assume all then-existing and current (as
opposed to past due) obligations of Tenant undertaken pursuant to good
commercial practices that directly relate to the operation and maintenance of
the Facilities; (ii) shall assume all contractual rights and obligations of
Tenant under the Existing Water Agreements, except for any liability of Tenant
relating to the release of Pollutants, personal injury, property damage, or
breach of contract arising from Tenant’s acts or omissions occurring prior to
the termination of this Lease; and (iii) as to uses on Tenant’s Fee Lands by
Tenant, an Affiliate of Tenant, or their respective tenants on, or successors in
title to, Tenant’s Fee Lands, Landlord shall promptly enter into an agreement
with Tenant wherein Landlord agrees to deliver the maximum quantity of water and
the right to utilize the corresponding Facilities, both as reasonably required,
to service the Development Increments on Tenant’s Fee Lands as of the date of
the termination of this Lease (a “Tenant Accommodation Agreement”) provided,
however, that the maximum amount of consumptive use Landlord shall be required
to deliver under the Tenant Accommodation Agreement shall be one hundred
(100) acre-feet annually of consumptive use, and further provided that this
provision 13.3(a)(iii) shall not compel Landlord to provide water and Facilities
use under a Tenant Accommodation Agreement to Development Increments on Tenant
Fee Lands that are less than ten years old at the time of said termination.  The
Tenant Accommodation Agreement shall have all the provisions of this Section 13
as if Landlord were

 

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Tenant and Tenant were Landlord, and further that all users of water under such
Tenant Accommodation Agreement shall be entitled to the same notice and
opportunity to cure rights as set forth in Section 13.25 below for
Accommodatees. The Priority of the water delivered under the Tenant
Accommodation Agreement shall be same as that of the Currently Unallocated Water
under Subsection 13.4(f).  Landlord’s right upon termination of this Lease to
the Water Rights and the Facilities is referred to hereinafter as “Landlord’s
Rights on Termination.”

 

(b)           Any encumbrance of the Facilities by Tenant shall be made subject
to Landlord’s Rights on Termination.

 

5.4           Allotment of Water Rights.

 

(a)           Tenant’s Leasehold Water Rights. Tenant’s Leasehold Water Rights
shall only be utilized on and for the benefit of the Property, Tenant’s Fee
Land, and the Existing Water Agreements; provided, however, that the maximum
amount of consumptive use Tenant may make of the Water Rights on Tenant’s Fee
Lands is 100 acre-feet annually.

 

(b)           Water to Remain Appurtenant to Benefited Property.  Landlord and
Tenant shall only use the Water Rights as authorized by Nevada law for overlying
uses within the Benefited Property and shall not export any of the water
comprising the Water Rights or change the place of use of the Water Rights to a
location outside the boundaries of the Benefited Property.

 

(c)           Intentionally left blank.

 

(d)           Intentionally left blank

 

(e)           Priority of Tenant’s Leasehold Water Rights.  Landlord and Tenant
agree that Tenant’s “Existing Uses”, as defined below, shall have priority over
all uses of water under the Landlord’s Reserved Water Rights.  For purposes of
this Subsection, “Existing Uses” means six hundred sixty-six (666) acre-feet in
annual consumptive use, until such time as the Reliant Water becomes part of
Landlord’s Reserved Water Rights, after which Tenant’s Existing Uses shall be a
number varying from time to time between four hundred fourteen (414) and four
hundred ninety-three (493) acre-feet of annual consumptive use depending upon,
at any specific date, the proportion of Reliant Water taken by Landlord as Fresh
Water versus Effluent, and the resulting calculation of Landlord consumptive
uses set forth in Subsection 1.2. As an example, if, after termination of the
Reliant Water Agreement, Landlord uses the Reliant Water as 100 acre-feet
annually of Effluent, and the balance as Fresh Water (104.35 acre-feet annually
pursuant to the calculation set forth in Subsection 1.2), Landlord’s total
consumptive uses would be 100 (Effluent) + 104.35 (Fresh Water) = 204.35
acre-feet annually.  Accordingly, under the example, Tenant’s Existing Uses
solely for priority purposes would amount to 751 (total consumptive uses allowed
under the Water Rights) - 85 (Currently Unallocated Water) - 204.35 (Landlord’s
total allowed consumptive uses) = 461.65 acre-feet annually.

 

(f)            Shortfalls and Priority.  If, due to legal, physical, or other
constraints, diversions of the Water Rights cannot reasonably be made in amounts
allowing a full 751 acre-feet annually of calculated consumptive use (a
“Shortfall”), the Parties shall in good faith discuss measures that might
address such Shortfall by means of conservation.  The Parties

 

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acknowledge that a Shortfall may not require an actual curtailment of water use
because the Parties may not be consuming the full 751 acre-feet of annual
consumptive use allowed by the Water Rights at the time of such Shortfall. 
Accordingly, in the event a Shortfall does not require a curtailment of then
existing uses, each Party may continue to use water until such time as the
Shortfall requires an actual curtailment.  Such continued use of water in the
event of a Shortfall shall not affect Tenant’s ability to initiate or complete
Tenant’s Existing Uses at any time during the Lease.  If, to the extent, and
when a Shortfall requires an actual curtailment of uses, use of Water Rights
shall be curtailed to make up the Shortfall in the following order of
curtailment priority (“Priority”):

 

First, in conformance with any action taken by the Nevada State Engineer
relative to the use of specific Water Rights;

 

Second, if the Shortfall occurs after termination of the Reliant Water Contract,
then the number of acre-feet of annual consumptive use that become part of
Landlord’s Reserved Water Rights from the Reliant Water pursuant to the
calculation set forth in Subsection 1.2;

 

Third, up to eighty-five (85) acre-feet annually of Water Rights (up to a
maximum of forty-two and one-half (42.5) acre-feet in consumptive use by
Landlord and forty-two and one-half acre-feet in consumptive use by Tenant) not
currently allocated to any specific Development Increment (“Currently
Unallocated Water”) in the following order:  (i) pro-rata among the Parties to
the extent both parties have rights under this Lease to use Currently
Unallocated Water that is not reasonably necessary to service a Development
Increment; (ii) to the balance of any Currently Unallocated Water either party
has a right to use under this Lease that is not reasonably necessary to service
a Development Increment at the time of such Shortfall and is not curtailed
pro-rata pursuant to (i), above; and (iii) to Water Rights reasonably required
to service Development Increments, beginning with the last Development Increment
to be commenced, and continuing in reverse chronological order until all
eighty-five (85) acre-feet of Currently Unallocated Water Rights have been
curtailed or the Shortfall is satisfied, whichever first occurs.

 

Fourth, after the curtailment of Water Rights dictated by the first three
curtailment priorities above, Tenant shall satisfy the balance of any Shortfall
by curtailing Water Rights use in such amounts and at such times as Tenant, in
Tenant’s sole discretion, deems necessary under State law and which will satisfy
Tenant’s various contractual obligations to third-parties.

 

(g)           Intentionally left blank.

 

(h)           Administrative Requirements.  Tenant shall have the exclusive
right and obligation to prosecute and maintain all filings and approvals with
the Nevada State Engineer and to take all practicable administrative actions to
maintain the validity and good standing of the Water Rights, including the
filing of Extraction Notices in California, the filing of change applications in
the Nevada State Engineer’s office, and maintenance of Bureau of

 

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Land Management rights of way (“Administrative Requirements”).  Tenant shall, at
Landlord’s request, make any necessary filings and seek in good faith to obtain
approval for Landlord’s use of Landlord’s Reserved Water Rights in connection
with Landlord’s development of any Benefited Property otherwise consistent with
this Lease.  Tenant shall provide Landlord with copies of any filings made
pursuant to the Administrative Requirements at the time of such filings. 
Landlord shall execute such documents and instruments as Tenant deems necessary
to allow Tenant to exercise such rights and to receive all notices and
communication from the Nevada State Engineer.  Tenant agrees to exercise
reasonable commercial efforts to maintain the validity and good standing of the
Water Rights; provided, however, that both Parties acknowledge the State
Engineer of Nevada may, in exercising his statutory discretion, cancel or
forfeit, as may be applicable, unused Water Rights (including Tenant’s Leasehold
Water Rights, Landlord’s Reserved Water Rights, or some combination or portions
thereof) with or without warning; and provided further that Tenant shall bear no
responsibility for non-use of any portion of Landlords’ Reserved Water Rights,
and Landlord shall bear no responsibility for non-use of any portion of Tenant’s
Leasehold Water Rights.

 

Tenant shall take such actions and make such filings as are contemplated in this
Section 13 at Tenant’s cost, but shall be entitled to reimbursement for same as
a Water Facilities Operations Cost; provided, however, that where such actions
and filings are undertaken for the exclusive benefit of an identifiable Party,
such Party shall be exclusively responsible for all costs at the time incurred
by Tenant.

 

(i)            Expansion of Water Rights.  In the event that the State Engineer
enlarges the volume of permitted extraction of water for the Water Rights based
upon a determination that consumptive use losses to the Ivanpah Basin #164 are
less than the State Engineer’s original estimate of ten percent, such Extractive
Right increase shall inure to the Parties’ benefit in direct proportion to the
amount of water returned by each Party to the RIBs, such that the Parties’
allowed consumptive uses under this Lease are not affected.  Landlord shall not
file any application with the Nevada State Engineer to appropriate water in
addition to the Water Rights: (a) within Ivanpah Basin #164; or (b) from a
source outside of Ivanpah Basin #164 if such appropriation outside Ivanpah Basin
#164 may affect adversely the quality or quantity of water available within
Ivanpah Basin #164 or Tenant’s costs to extract, treat, and deliver water from
the Water Rights under this Section 1.3. In the event the State Engineer grants
additional water rights to Landlord based upon Tenant’s filings such that the
consumptive use of the Water Rights together with any new permits exceeds 751
acre-feet annually, the amount by which total allowed consumptive uses exceed
751 acre-feet annually shall be allocated 50% to Tenant’s Leasehold Water
Right’s and 50% to Landlord’s Reserved Water Rights. If Landlord believes making
additional filings within Ivanpah Basin #164 would be desirable, but Tenant does
not, Landlord may separately file for same on the following conditions: (a) such
appropriation shall not affect the quality or quantity of water available within
Ivanpah Basin #164 or Tenant’s costs to extract, treat, and deliver water from
the Water Rights under this Section 13; (b) the parties must have placed not
less than eighty percent (80%) of the allowed consumptive use under the Water
Rights to beneficial use the year prior to such filings; and (c) the amount of
additional consumptive uses granted by the State Engineer shall be allocated 50%
to Tenant’s Leasehold Water Right’s and 50% to Landlord’s Reserved Water Rights.

 

5.5           Intentionally left blank.

 

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5.6           Tenant’s Obligation to Deliver Water.  Subject to the Shortfall
and Priority limitations set forth above, Tenant agrees to extract, treat and
deliver to Landlord at the Points of Delivery, water comprising Landlord’s
Reserved Water Rights in a manner that does not discriminate against Landlord in
favor of Tenant.  Landlord acknowledges that Tenant is not responsible for the
Quality of the Source Water extracted from Tenant’s wells and Tenant makes no
warranty or representation concerning the Quality of the Source Water extracted
pursuant to the Water Rights.  Tenant is not acting as a water purveyor or water
utility, but is supplying Landlord with water from the Landlord’s Reserved Water
Rights as a matter of accommodation only.  Accordingly, under no circumstance
shall Tenant be liable to Landlord, Landlord’s Affiliates, or Landlord’s
successors, assigns, tenants, contractors, agents, employees or invitees for any
indirect, special, or consequential damage arising out of any failure by Tenant
to extract, treat, or deliver water to Landlord or others pursuant to the terms
of this Lease.

 

5.7           Existing Facilities and Related Costs.

 

(a)           Existing Facilities Capacity.  The Parties agree that Landlord’s
development on the Benefited Property may require the use of the Facilities, and
Tenant agrees to make such Facilities available to Landlord to provide
Landlord’s Reserved Water Rights on a non-discriminatory basis, subject to
Shortfall and Priority limitations set forth within Subsection 13.4(f).

 

(i)            Water Facilities.  Upon Landlord’s request, Tenant agrees to
accommodate, within a practicable period of time, Landlord’s water system needs
for the Remaining Property by providing to Landlord for the remaining term of
this Lease Water Facilities capacity, and Tenant is willing to extract, treat
and deliver to a mutually agreed upon Point or Points of Delivery upon
Landlord’s Remaining Property all or any portion of Landlord’s Reserved Water
Rights at a cost to Landlord equal to Tenant’s cost, as calculated as set forth
in Subsection 13.10.

 

(ii)           Wastewater Facilities.  Upon Landlord’s request, Tenant agrees to
accommodate, within a practicable period of time, Landlord’s wastewater
treatment needs for the Remaining Property by providing to Landlord for the
remaining term of this Lease Wastewater Facilities capacity and is willing to
treat and discharge Landlord’s wastewater at a cost equal to Tenant’s cost as
set forth in Subsection 13.15.

 

(b)           Expansion of Existing Facilities.  Landlord and Tenant agree that
if at the time Landlord requests that Tenant accommodate its water or wastewater
needs there is, in Tenant’s good faith discretion, insufficient excess capacity
in the Facilities to accommodate Landlord’s proposed uses, Landlord shall at its
sole expense pay in advance of construction for such capital improvements as are
required to expand the Facilities to accommodate Landlord’s Development
Increment.  To the extent:  (i) the estimated design, construction, and
permitting costs of any such expansion exceed $250,000; or (ii) Tenant is found
to be “insolvent” by a court of competent jurisdiction as such term is defined
under the U. S. Bankruptcy Code, Landlord may require Tenant to use a
third-party construction control account (the “Account”) for the disbursement of
funds in connection with the expansion, which Account shall employ customary and
prudent measures in light of the type of construction involved to protect
Landlords’ capital and the Property and any improvements thereon.  In the event
such capital improvements result

 

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in excess capacity, Landlord shall have the right to equitable reimbursement for
capital costs from the ultimate users of such excess capacity.  Except as set
forth in this Subsection and Subsection 13.8, Landlord shall not be obligated to
pay any further consideration for the rights granted in this Subsection other
than the mutual covenants of this Lease.

 

(c)           Notification of Requirements for the Delivery of Landlord’s
Reserved Water Rights.  To the extent Landlord desires to initiate delivery of
any portion of Landlord’s Reserved Water Rights (each an “Initial Delivery”),
Landlord shall provide a written notice to Tenant that includes at a minimum
Landlord’s good faith estimates of the following information: the amount of
water to be delivered, the use to which the water will be put together with
calculations showing the amount of water to be recharged, if any, return flow
water quality calculations, minimum flow requirements, including storage and
fire flow requirements, stated in gallons per minute and pounds per square inch,
and the location of the proposed Point or Points of Delivery within the
Remaining Property.

 

(d)           Points of Delivery.  Landlord and Tenant acknowledge that multiple
Points of Delivery may be required to deliver water cost-effectively to various
Development Increments on Benefited Property.  At the request of Landlord,
Tenant agrees to make reasonable accommodation to Landlord to deliver water to a
convenient Point of Delivery, provided that Landlord agrees to be solely
responsible to pay in advance the cost of any additional components to the Water
Facilities required to deliver water from Tenant’s then existing Water
Facilities to the Point of Delivery, and further provide that additional Points
of Delivery do not jeopardize the functioning and integrity of the Water
Facilities.

 

5.8           New Water and Wastewater Facilities.

 

(a)           Landlord agrees that Tenant, in Tenant’s sole discretion, may
determine during the term of the Lease and after the Initial Delivery that new
or additional extraction, delivery, and/or treatment facilities are required to:
(i) supply the Water Rights or otherwise comply with applicable Legal
Requirements (such new facilities collectively referred to hereinafter as “New
Water Facilities”); or (ii) treat wastewater generated by Landlord, Tenant, and
their various subtenants and affiliates or otherwise to comply with applicable
Legal Requirements (collectively, the “New Wastewater Facilities”).  In the
event Tenant deems New Water Facilities or New Wastewater Facilities necessary
or prudent, then Landlord will share in Tenant’s cost of such new Facilities
pursuant to Paragraph (b) below for New Water Facilities and Paragraph (c) below
for New Wastewater Facilities. Notwithstanding the foregoing, to the extent
Tenant constructs New Water Facilities or New Wastewater Facilities solely for
the purpose of allowing a new Development Increment by Landlord or Tenant, then
Landlord or Tenant, as the case may be, shall be solely responsible for the cost
of such new facilities.  In the event Tenant chooses to construct a reverse
osmosis water treatment facility (the “RO Facility”), capital contributions and
other rights and obligations of the Parties relating to the RO Facility shall be
as set forth in Subsections 13.8(d), (e), and (g), below.
Subsections 13.8(b) and (c) shall not be applicable to RO Facility rights or
obligations of either Party.

 

(b)           The parties shall determine the amount of water delivered under
the Landlord’s Reserved Water Rights as a percentage of all water produced by
Tenant pursuant to the Water Rights following the completion of the New Water
Facilities.  Landlord’s

 

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percentage use shall be determined in the same manner as set forth in
Subsection 13.10(a)(ii), except that, if the New Water Facilities relates in
part to water service for new development by Tenant which is not then utilizing
the Water Facilities, Landlord’s use shall be compared against the total water
actually extracted and the projected annual water needs of the future
development capable of being served by reason of the addition of the New Water
Facilities and further provided that Tenant shall have the right to seek
equitable reimbursement for capital costs from the ultimate users of such excess
capacity. The total cost of such New Water Facilities (including construction
and equipment costs, as well as reasonable soft costs of construction, such as
permitting, engineering, design and financing costs, if any, together with the
income tax effect, if any, of the contribution) shall be multiplied by
Landlord’s water usage percentage, determined as set forth above, and the amount
so derived will constitute Landlord’s share of such costs (“Landlord’s Share of
New Water Facilities Costs”).  Tenant shall prepare an estimate of the total
cost of New Water Facilities prior to construction, and Landlord shall pay
Tenant Eighty percent (80%) of the estimated Landlord’s Share of New Water
Facilities Costs in advance of construction.  Tenant shall provide Landlord an
invoice reconciling the actual costs with the estimated costs, and Landlord
shall pay the balance of Landlord’s Share of New Water Facilities Costs within
30 days of the invoice.  To the extent the New Water Facilities will serve
exclusively Landlord, Landlord shall pay in advance of construction 100% of the
estimated construction costs, and Tenant shall provide Landlord with an invoice
reconciling actual construction costs with estimated construction costs as soon
as is practicable after completion of the New Water Facilities. If costs
chargeable to Landlord under this Subsection exceed $250,000 or Tenant is found
by a court of competent jurisdiction to be “insolvent” as such term is defined
under the U.S. Bankruptcy Code, Tenant shall use an Account to receive and
disburse Landlord’s funds.

 

(c)           Landlord’s pro rata share of the cost of New Wastewater Facilities
shall be calculated on the basis of Landlord’s wastewater discharge to the
Wastewater Facilities as a percentage of all water treated by Tenant by the
Wastewater Facilities following the completion of the New Wastewater Facilities;
provided, however, that if the New Wastewater Facilities relate in part to
wastewater service for new development by Tenant which is not then utilizing the
Wastewater Facilities, Landlord’s discharge shall be compared against the sum of
the total water actually treated and the projected annual wastewater treatment
needs of the future development capable of being served by reason of the
addition of the New Wastewater Facilities, and further provided that Tenant
shall have the right to seek equitable reimbursement for capital costs from the
ultimate users of such excess capacity.  The total cost of such New Wastewater
Facilities (including construction and equipment costs, as well as reasonable
soft costs of construction, such as permitting, engineering, design and
financing costs, if any, together with the income tax effect, if any, of the
contribution) shall be multiplied by Landlord’s wastewater treatment percentage,
determined as set forth above, and the amount so derived will constitute
Landlord’s share of such costs (“Landlord’s Share of New Wastewater Facilities
Costs”).  Tenant shall prepare an estimate of the total cost of New Wastewater
Facilities prior to construction, and Landlord shall pay Tenant Eighty percent
(80%) of the estimated Landlord’s Share of New Wastewater Facilities Costs in
advance of construction.  Tenant shall provide Landlord an invoice reconciling
the actual costs with the estimated costs, and Landlord shall pay the balance of
Landlord’s Share of New Wastewater Facilities Costs within 30 days of the
invoice. To the extent Tenant constructs New Wastewater Facilities solely to
allow new Development Increments by Landlord, Landlord shall pay in advance of
construction 100% of

 

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the estimated construction costs, and Tenant shall provide Landlord with an
invoice reconciling actual construction costs with estimated construction costs
as soon as is practicable after completion of the New Wastewater Facilities.  If
costs chargeable to Landlord under this Subsection exceed $250,000 or a court of
competent jurisdiction finds that Tenant is “insolvent” as such term is defined
under the U. S. Bankruptcy Code, Tenant shall use an Account to receive and
disburse Landlord’s funds.

 

(d)           With respect to New Water Facilities and/or New Wastewater
Facilities, the cost of which Landlord is wholly or partially responsible for
under the terms of this Section 13, Tenant will use good commercial practices in
engaging contractors and consultants, taking into consideration matters Tenant
deems prudent.  Tenant shall not use “in-house” contractors or Affiliates of
Tenant to design or build New Water Facilities or New Wastewater Facilities
funded in part by Landlord unless the terms of Tenant’s engagement of such
“in-house” contractors or Affiliates are typical and customary in Southern
Nevada for the services and products provided and the cost of such services and
products is commercially reasonable for Southern Nevada.

 

(e)           Notification Regarding New Water Facilities.  Tenant shall provide
Landlord and Landlord’s consultants with an opportunity to meet and confer with
Tenant regarding the cost, design, construction and reasons for any New Water
Facilities.  Tenant shall use those Landlord suggestions which Tenant, in its
reasonable business judgment, believes may be utilized; provided, however, that
in the event of a disagreement regarding the cost, design, or prudence of any
New Water Facilities, Tenant’s reasonable business judgment with respect to the
construction of the New Water Facilities shall govern.

 

(f)            Notification Regarding New Wastewater Facilities.  Tenant shall
provide Landlord and Landlord’s consultants with an opportunity to meet and
confer with Tenant regarding the cost, design, construction and reasons for any
New Wastewater Facilities.  Tenant shall use those Landlord suggestions which
Tenant, in its reasonable business judgment, believes may be utilized; provided,
however, that in the event of a disagreement regarding the cost, design, or
prudence of any New Wastewater Facilities, Tenant’s reasonable business judgment
with respect to the construction of the New Wastewater Facilities shall govern.

 

(g)           RO Facility.  Tenant may, i Tenant’s sole discretion, construct an
RO Facility to treat water extracted under the Water Rights.  Landlord shall not
be entitled to receive water Tenant treats at the RO Facility unless Landlord
contributes capital as described herein toward such facility or expansion of the
RO Facility, either in advance of RO Facility construction or expansion as set
forth in this Subsection or, if Tenant has already constructed the RO Facility
and Tenant, in Tenant’s sole discretion, determines the RO Facility has
sufficient capacity at a later time to process water requested by Landlord for
Landlord’s uses, Landlord contributes its prorata share of prior operating,
maintenance, and capital expenditures made by Tenant for the RO Facility.  The
ratio for establishing Landlord’s “prorata share” shall be determined by
dividing the amount of water Landlord desires to have treated at the RO Facility
on an annual basis by the sum of the average annual amount of water treated at
the RO Facility for Tenant’s uses for the preceding three (3) years and the
amount of water Landlord desires to have treated at the RO Facility on an annual
basis. If three full years of Tenant RO Facility use data is not available to
calculate Landlord’s estimated use ratio, then Tenant shall make the

 

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calculation using two years of data, if available, or one year of data if not. 
If there is not one full year of Tenant use data available to calculate
Landlord’s use ratio, then the Tenant shall make the calculation by estimating
Tenant’s total RO Facility use for one full year. Landlord’s prorata share shall
then be determined by multiplying the ratio as determined herein by all costs
incurred by Tenant for design, permitting, construction, operation, and
maintenance through the date Landlord requests that Tenant deliver water treated
at the RO Facility, and summing that resulting amount with annual overhead
charges of ten percent (10%) and an annual return on employed capital of fifteen
percent (15%).

 

(i)            No Reserved Capacity for Reliant Water.  If Landlord desires that
Tenant’s initial RO Facility construction provide sufficient capacity to satisfy
Landlord’s Reserved Water Rights absent any additional Reliant Water that
becomes part of Landlord’s Reserved Water Rights in the event of a full or
partial termination of the Reliant Water Agreement (42.5 acre-feet of annual
consumption), Landlord shall pay to Tenant, subject to the construction control
Account provisions set forth within Subsection 13.7(b), if applicable, five and
seven tenths percent (5.7%) of Tenant’s estimated costs of design, construction,
and permitting of such RO Facility in advance of construction.

 

(ii)           Reservation of Capacity for Reliant Water.  Should Landlord
desire that Tenant construct an RO Facility with sufficient capacity to satisfy
Landlords’ Reserved Water Rights including any additional Reliant Water that
becomes part of Landlord’s Reserved Water Rights in the event of a full or
partial termination of the Reliant Water Agreement, Landlord shall pay to
Tenant, subject to the construction control Account provisions set forth within
Subsection 13.7(b), if applicable, 28.7% of Tenant’s estimated costs of design,
construction, and permitting of such RO Facility in advance of construction.

 

(iii)         Later Expansion of Capacity.  Should Landlord desire to wait until
after the construction of an RO Facility by Tenant and then, at some later time,
desire to use some of Landlord’s Reserved Water Rights to obtain water which
must be processed through a reverse osmosis process, Landlord may request that
Tenant construct or cause to be constructed the necessary expansion of the RO
Facility to accommodate Landlord’s request.  Tenant shall only be obligated to
make such expansion following the payment by Landlord in advance of the
construction of any such expansion the estimated costs of design, construction,
and permitting of such expansion of the RO Facility, together with an
administrative fee of ten percent (10%) of the total project cost. Landlord
shall pay such estimated costs to Tenant, subject to the construction control
Account provisions set forth within Subsection 13.7(b), if applicable, and
Tenant with reasonable diligence shall cause to be designed and constructed such
expansion of the RO Facility; provided, however, Tenant shall be under no
obligation to expand the RO Facility if and to the extent Tenant, in exercising
Tenant’s good faith discretion, believes such expansion will interrupt or
interfere with then-existing RO Facility operations.

 

5.9           Water Delivery and Metering.  Tenant shall meter water deliveries
to Landlord at the Point(s) of Delivery and shall, subject to Shortfall and
Priority limitations set forth in Section 13.4(f) and provided there is
sufficient Water Facilities capacity in place, also provide to Landlord such
portion of the Water Facilities capacity as required to deliver Landlord’s
Reserved Water Rights or a portion thereof (“Water Facilities Capacity Right”). 
Landlord shall be solely responsible for the construction and maintenance of any
water delivery

 

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and supply facilities necessary to convey water from a Point of Delivery to any
point of use within the Remaining Property, except that Tenant has the right to
inspect and approve the connection to the Water Facilities at the Point of
Delivery and the connection for discharge.  The meter (or meters) at the Point
(or points) of Delivery (the “Water Meter”) shall be owned by Tenant and
utilized by Tenant and Landlord to determine the amount of Landlord’s usage of
the Landlord’s Reserved Water Rights as provided in Section 13.11 and for
purposes of establishing the consideration for operation of the Water Facilities
to be paid by Landlord to Tenant, as set forth below.  The Water Meter shall be
recalibrated at Tenant’s direction by a qualified technician at least once every
five years.

 

5.10         Calculation of Water Facilities Assessment and Water Facilities
Operational Costs.  In consideration of Tenant providing the Water Facilities
Capacity Right to Landlord and Tenant’s undertakings hereunder, Landlord shall
pay to Tenant both the Water Facilities Assessment and Water Facilities
Operational Costs as described below.

 

(a)           Water Facilities Assessment In exchange for such Water Facilities
Capacity Right, Landlord agrees to pay an annual Assessment (the “Water
Facilities Assessment”), calculated as set forth below:

 

(i)            Calculation of Water Facilities Assessment.  For the purpose of
calculating the Water Facilities Assessment, Tenant shall in good faith
ascertain which of Tenant’s water system components are necessary or which
provide a material benefit to Landlord in the delivery of the Landlord’s
Reserved Water Rights water to Landlord, which components shall, at that time,
constitute the “Assessed Water Facilities.”  The Water Facilities Assessment
shall reflect Landlord’s pro rata share (determined as set forth below) of the
current “Depreciated Replacement Cost” (i.e., the current replacement cost of
the subject component less the product of (a) the quotient arrived at by
dividing such cost by the component’s estimated actual useful life, and (b) the
number of years the component has been in service) of each component of the
Assessed Water Facilities divided by the remaining estimated actual useful life
of the components of the Assessed Water Facilities.  The description of the
Assessed Water Facilities and the components included therein may be adjusted
from time to time as required by modifications to the Water Facilities.  The
lives for the components will only be adjusted downward based upon the passage
of time and such lives for additional components will be determined when
included in the calculation of the Water Facilities Assessment.  The Depreciated
Replacement Cost of components which have been replaced or removed shall be
excluded from the calculation of Water Facilities Assessment.

 

(ii)           Calculation of Pro Rata Share.  Landlord’s pro rata share for the
purpose of computing the Water Facilities Assessment shall be calculated on the
basis of Landlord’s extractive water usage for the immediately preceding
calendar year as a percentage of the total water extracted by the Tenant
pursuant to the Water Rights during the same calendar year; provided, however,
that for the first calendar year following the Initial Delivery, Landlord’s pro
rata share shall be based on Landlord’s projected use for that calendar year.

 

(iii)         Payment Schedule.  Landlord’s Water Facilities Assessment shall be
paid in equal installments due on the first day of each month.  Any Water
Facilities Assessment not received by Tenant when due will result in a
delinquency charge equal

 

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to six percent (6%) of the delinquent amount, compounded monthly.  The Water
Facilities Assessment shall be recalculated every five full years following the
Initial Delivery (excluding any partial initial year) pursuant to the procedure
set forth in Subparagraph (iv), below, and shall be adjusted on an annual basis
commencing with the second full year after Initial Delivery to reflect changes
in Landlord’s actual pro rata share as defined above based upon water usage
during the preceding calendar year, and shall also be subject to an annual
adjustment (“Index Adjustment”) pursuant to the procedure set forth in
Subsection 4.3 of the Lease, provided that the “Base Assessment” for such
purpose shall be the Water Facilities Assessment for the first full calendar
year of each and every five (5) year adjustment period.

 

(iv)          Adjustment of Assessment Amounts. Tenant shall adjust in good
faith the Water Facilities Assessment once every five years after the Initial
Delivery (each such five year period being referred to hereinafter as a “Cost
Period”) to reflect changes in the components of the Assessed Water Facilities
and to account for changes in the Depreciated Replacement Cost of the Assessed
Water Facilities components.  The first Cost Period will include any partial
year after the Initial Delivery in addition to the subsequent five full years,
and shall continue until the end of the fifth full calendar year thereafter. 
Each adjustment will be effective on July 1 of the first year following the end
of any Cost Period (“Adjustment Date”).  During the first three months following
the end of any Cost Period, Tenant shall in good faith adjust the amounts for
the successive Cost Period for the Water Facilities Assessment.  Such adjusted
amounts shall take into account the Depreciated Replacement Cost of the Assessed
Water Facilities components as the Assessed Water Facilities are then
configured.

 

(b)           Water Facilities Operational Costs.  The parties acknowledge that
Tenant’s operation of the Assessed Water Facilities involves various costs,
including, hut not limited to, costs of energy, direct administration,
accounting, compliance, consultants, chemicals, direct labor costs, insurance,
operation and maintenance, and similar day-to-day costs of operating the
Assessed Water Facilities (“Water Facilities Operational Costs”). Water
Facilities Operational Costs shall be expressed per 1000 gallons of water
produced by Tenant.  Landlord will be responsible for the actual Water
Facilities Operational Costs based upon Landlord’s actual metered use as
measured at the Point of Delivery to Landlord as provided in
Subsection 13.10(e), below.

 

(c)           Water Facilities Operational Costs; Rate and Invoicing.  The Water
Facilities Operational Costs Rate shall be One Hundred Twenty-Five percent
(125%) of the average of the Las Vegas Valley Water District’s published
threshold rates for domestic users, which the Parties believe is a good faith
estimate of the actual costs incurred by Tenant to deliver water pursuant to
this Lease.  On the first day of each month, Tenant will read the Water Meter
and determine the amount of water Landlord used during the preceding month. 
Tenant will provide to Landlord by the tenth (10th) day of each month a
statement showing the number of gallons used by Landlord during the preceding
month, the applicable rate per 1000 gallons, and the resulting calculation of
Landlord’s total monthly Water Facilities Operational Costs (“Monthly
Statement”).  Landlord shall pay Tenant such calculated monthly Water Facilities
Operational Costs on or before the first day of the succeeding month.

 

(d)           Water Facilities Assessment and Operational Costs Payments;
Delinquency Charge and Rents Offsets.  Any Water Facilities Assessment or Water
Facilities

 

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Operational Cost not received by Tenant when due will result in a delinquency
charge equal to six percent (6%) of the delinquent amount, compounded monthly.
In the event Landlord’s Water Facilities Assessment or Water Facilities
Operational Costs obligation shall be in arrears for sixty (60) days or greater
at the time any Tenant Rents become due under the Lease, Tenant may, without
notice of default under Section 17, offset such Rents by the total amount of
Water Facilities Assessments and Water Facilities Operational Costs then due and
owing, together with applicable delinquency charges.

 

(e)           Effect of Reverse Osmosis Costs.  In the event Tenant constructs
an RO Facility, Tenant may adjust the Water Facilities Operational Costs Rate to
account for additional costs necessary to operate and maintain the RO Facility.

 

5.11         Calculation of Landlord Consumptive Use.  Landlord consumptive use
shall be calculated by summing the following:  (i) the amount of water Landlord
takes as Effluent, if any; (ii) the amount of Fresh Water Landlord consumes, if
any (calculated by subtracting from the amount of Fresh Water delivered to
Landlord at the Water Meters the amount of wastewater Landlord returns to the
Wastewater Facilities through the Wastewater Meters); and (Hi) the amount of
water consumed by basin losses owing to Landlord’s uses, if any (calculated by
multiplying then existing, State Engineer approved, basin loss and evaporation
factors by the amount of water Landlord returns to the Wastewater Facilities
through the Wastewater Meters less any amounts taken by Landlord as Effluent). 
Tenant shall install any necessary meters to make the calculations required
herein, and the costs for such Facilities shall be born exclusively by Landlord
as provided in Section 13.8.

 

5.12         Monitoring Rights.  Tenant agrees to make, upon not less than three
(3) days notice, reasonable accommodations to Landlord during normal business
hours to allow Landlord the right to inspect the Facilities.

 

5.13         Mutual Indemnities with Respect to the Delivery and Use of Water:

 

(a)           Tenant will not be liable for any damage or injury to Landlord,
Landlord’s business, or Landlord’s property, or to Landlord’s tenants or
successors-in-title, or their businesses or property resulting in any way from
the Quality of the Source Water.  Landlord agrees to defend, indemnify and hold
Tenant free and harmless from and against any and all claims, damages, and
liabilities of whatever nature in any way arising from or as a result of
Tenant’s delivery of water to Landlord pursuant to this Lease; provided,
however, that Landlord shall not be required to indemnify and hold harmless
Tenant if and to the extent such claims, damages or liabilities arise as a
direct result of Tenant’s negligent or willful introduction of Pollutants into
water delivered to Landlord under this Lease.

 

(b)           Tenant agrees to defend, indemnify, and hold Landlord harmless
from and against any and all claims, damages, and liabilities of whatever
nature, if and to the extent such claims, damages, or liabilities arise out of
Tenant’s grossly negligent or willful introduction of Pollutants into water
delivered to Landlord pursuant to this Lease.

 

(c)           Notwithstanding anything contained in this Lease to the contrary,
except to the extent Landlord or Tenant introduce unpermitted Pollutants into
ground water or

 

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extracted water, neither Party shall be liable to the other in any way for the
Quality of the Source Water extracted hereunder; provided, however, this
provision shall not relieve Landlord of any obligation set forth in
Subsection 13.13(a), above.

 

5.14         Landlord’s Rights in Landlord’s Reserved Water Rights and Tenant’s
Rights in Tenant’s Leasehold Water Rights.

 

(a)           Subject to the terms set forth herein including Tenant’s
obligations to fulfill Administrative Requirements, Landlord shall have sole
control and authority to direct the application and beneficial use of Landlord’s
Reserved Water Rights.

 

(b)           Tenant, subject to its obligations under this Section 13, shall
have the sole control and authority to direct the application and beneficial use
of Tenant’s Leasehold Water Rights.

 

(c)           Upon the written request of Tenant, Landlord agrees that it shall
permit Tenant’s Leasehold Water Rights, subject to Landlord’s rights under
Subsection 13.3 of the Lease, to be encumbered by a deed of trust and/or
security agreement in favor of Tenant’s Leasehold Mortgagee and Landlord shall
promptly execute all documents which are reasonable and necessary to effectuate
such encumbrance.  Landlord shall not encumber, sell, use, or otherwise dispose
of Tenant’s Leasehold Water Rights, except as provided in Subsection 13.23.

 

5.15         Treatment of Wastewater.

 

(a)           Tenant’s Obligation to Accept and Treat Wastewater.  Tenant agrees
to accept, treat, and dispose of Wastewater generated by Landlord on the same
basis and in a manner which does not discriminate in favor of the wastewater
generated from Tenant’s own hotels and casinos and other similar facilities at
Primm, provided there is, in Tenant’s discretion, sufficient Wastewater
Facilities capacity.  Tenant retains the right to reject any wastewater that
fails to meet applicable Legal Requirements or specifications necessary to
prevent upset or contamination of the Wastewater Treatment Facilities.  Tenant
is not acting as a provider of services for the disposal of sewage, but is
supplying Landlord with access to waste-water treatment as a matter of
accommodation only.  Accordingly, under no circumstance shall Tenant be liable
to Landlord, Landlord’s Affiliates, or Landlord’s successors, assigns, tenants,
contractors, agents, employees, or invitees for any indirect, special, or
consequential damage arising out of any failure by Tenant to accept, treat, and
dispose of wastewater generated by Landlord or others consistent with this
Lease.

 

(b)           Notification of Requirement for Wastewater Treatment.  To the
extent Landlord desires to initiate delivery of wastewater to Tenant, Landlord
shall provide a notice to Tenant that includes at a minimum Landlord’s good
faith estimate of the following information:  the amount of wastewater to be
delivered, a description of the use of the water and intervening processes prior
to proposed delivery, a description of estimated water quality, peak flow rates,
and the proposed Point of Discharge (“Point of Discharge”).

 

(c)           Wastewater Treatment Capacity Right.  If Tenant determines there
is sufficient Wastewater Facilities capacity available, Tenant agrees to provide
to Landlord a portion of the Wastewater Treatment Facilities capacity, which
portion (the “Wastewater

 

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Treatment Capacity Right”) shall be equal to Landlord’s annual metered
wastewater flows into the Wastewater Facilities as a percentage of the total
annual wastewater inflow into the Wastewater Facilities.  Landlord shall, at its
sole cost and expense, construct and maintain wastewater lines and delivery
facilities to a metered connection (which meter (or meters) is referred to
hereinafter as the “Wastewater Meter”) to Tenant’s Wastewater Treatment
Facilities at a location (Point of Discharge) acceptable to both Tenant and
Landlord. Landlord and Tenant acknowledge that multiple Points of Discharge may
be required to accept Wastewater from different Development Increments on the
Remaining Property.  Tenant agrees to make reasonable accommodation to Landlord
to accept wastewater at convenient Points of Discharge, provided that Landlord
agrees to be solely responsible for the cost of any additional components to the
Wastewater Facilities required to deliver wastewater to Tenant’s then existing
Wastewater Facilities, and further provided that additional Points of Discharge
do not jeopardize the functioning and integrity of the Wastewater Facilities.
Landlord shall pay in advance for any New Wastewater Facilities necessary to
serve Landlord as provided in Section 13.8(c).  If costs chargeable to Landlord
under this Subsection exceed $250,000 or a court of competent jurisdiction finds
that Tenant is “insolvent” as such term is defined under the U. S. Bankruptcy
Code, Tenant shall use an Account to receive and disburse Landlord’s funds.

 

(d)           Intentionally left blank.

 

(e)           Compliance with Laws and Permit Conditions.  Tenant’s Treatment
Facility is operated in accordance with Nevada Wastewater Treatment Permit
Number NEV9001 including all conditions contained in such permit.  Landlord
agrees that in its use of Wastewater Treatment Capacity Rights, it will comply
with all federal, state and local statutes, rules, regulations and permit
conditions with respect to wastewater discharged by Landlord into the Wastewater
Facilities.

 

5.16         Calculation of Wastewater Treatment Assessment and Operational
Costs. In consideration for providing the Wastewater Treatment Capacity Right by
Tenant to Landlord and Tenant’s undertakings hereunder, Landlord shall pay to
Tenant the Wastewater Treatment Facilities Assessment and Operational Costs as
described below.

 

(a)           Wastewater Facilities Assessment Tenant shall calculate an annual
Wastewater Facilities Assessment in the same manner as that dictated for Water
Facilities under Subsection 13.10, except that the basis for determining
Landlord’s proportionate share of such costs shall be the amount of water
Landlord discharges to Tenant as sewage as compared with the amount of water
Tenant treats at the wastewater treatment plant. Landlord shall pay the
Wastewater Facilities Assessment on the first day of each month.  Any Wastewater
Facilities Assessment not received by Tenant when due will result in a
delinquency charge equal to six percent (6%) of the delinquent amount,
compounded monthly.

 

(b)           Wastewater Facilities Operational Costs.  The parties acknowledge
that Tenant’s operation of the Water Facilities involves various costs,
including, but not limited to, costs of energy, direct administration,
accounting, compliance, consultants, chemicals, direct labor costs, insurance,
operation and maintenance, and similar day-to-day costs of operating the
Wastewater Facilities (“Wastewater Facilities Operational Costs”).  Wastewater
Facilities Operational Costs shall be expressed per thousand (1000) gallons of
water

 

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treated by the Wastewater Facilities.  Landlord will be responsible for the
actual Wastewater Facilities Operational Costs based upon Landlord’s actual
metered discharge as measured at the Wastewater Meter as follows:

 

(i)            Wastewater Facilities Operational Costs Rate.  The Wastewater
Facilities Operational Costs Rate shall be $1.35 per thousand (1000) gallons of
water treated by the Wastewater Facilities.  Beginning January 1, 2005, and on
January 1 of each year or portion thereof of the Term thereafter, the Wastewater
Facilities Operational Costs Rate shall be adjusted by reference to the Consumer
Price Index for All Urban Customers - All Items - U.S. City Average (“CPI”),
published by the United States Department of Labor, Bureau of Labor Statistics,
using as the initial CPI the last published CPI prior to the Effective Date. 
The CPI adjustment for any one calendar year shall not exceed eight percent
(8%).

 

(ii)           Wastewater Facilities Operational Costs Payments.  Landlord shall
pay to Tenant the Wastewater Facilities Operational Costs set forth above, on a
monthly basis, as provided herein. Tenant will read each Wastewater Meter and
determine the amount of water Landlord discharged during the preceding month,
and provide to Landlord by the tenth (10th) day of each month in the Monthly
Statement a calculation showing the volume of Wastewater discharged by Landlord
during the preceding month, the applicable rate per 1000 gallons, and the
resulting calculation of Landlord’s total monthly Wastewater Facilities
Operational Costs.  Landlord shall pay Tenant such calculated monthly Wastewater
Facilities Operational Costs on or before the first day of the succeeding
month.  Any Wastewater Facilities Operational Costs not received by Tenant when
due will result in a delinquency charge equal to six percent (6%) of the
delinquent amount, compounded monthly.

 

(c)           Delinquency Charge and Rents Offsets.  Any Wastewater Facilities
Assessment or Wastewater Facilities Operational Cost not received by Tenant when
due will result in a delinquency charge equal to six percent (6%) of the
delinquent amount, compounded monthly.  In the event Landlord’s Wastewater
Facilities Assessment or Wastewater Facilities Operational Costs obligation
shall be in arrears for sixty (60) days or greater at the time any Tenant Rents
become due under the Lease, Tenant may, without notice of default under
Section 17, offset such Rents by the total amount of Wastewater Facilities
Assessments and Wastewater Facilities Operational Costs then due and owing,
together with applicable delinquency charges.

 

(d)           Point of Discharge, Metering.  Landlord shall provide and
maintain, at Landlord’s sole expense, Wastewater Meter(s) to meter all
wastewater discharged to Tenant’s Wastewater Facilities at the Point(s) of
Discharge.  Landlord shall recalibrate any Wastewater Meter at least once during
the six months immediately following the end each five year period after
installation.  Tenant shall have access at all times to all Wastewater Meters
for the purpose of reading such Wastewater Meter.

 

5.17         Maintenance and Inspection of Records.  Tenant shall maintain in
its office in Primm, Nevada, or upon written notice to Landlord, at such other
location determined by Tenant, complete and accurate records with respect to
Facilities operations.  Such records shall at all times be retained and
preserved by Tenant for not less than three (3) years, and Landlord shall be
afforded an opportunity upon not less than three (3) days notice, through

 

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Landlord’s duly authorized agents, to inspect and make copies of any such
records; provided that Landlord shall not conduct such an inspection more than
once in any calendar year.

 

5.18         Landlord Not Obligated to Continue Receiving Service.  Provided
Landlord is not in breach of any provision of this Lease, Landlord shall have
the right to discontinue Landlord’s receipt of Landlord’s Reserved Water Rights
and Landlord’s discharge of sewage to Tenant under this Lease; provided,
however, that Landlord must pay the balance of any unrecovered capital expenses
or assessments owing Tenant for the Facilities in advance of such termination.

 

5.19         Intentionally left blank

 

5.20         Integration.  It is the express intention of the Parties that
Landlord’s and Tenant’s rights and obligations stated in this Section 13, as
amended, shall be fully integrated with this Lease and shall not be severable
from this Lease,

 

5.21         Notice of Application.  Concurrently with Tenant’s submittal of any
application for water or well rights or permits, or Tenant’s obtainment of any
well/water permit or certificate, Tenant shall deliver a copy of such
applications), permit(s) or certificate(s) to Landlord.

 

5.22         Water and Utility Company Formation.  In the event it is necessary
by order of a regulatory agency, or Landlord and Tenant deem it desirable, to
form a utility or water company, or both, for the purpose of providing water and
sewer service to the Benefited Property, whether leased to Tenant or not, in
order to fulfill the provisions of this Section 13 with respect to Landlord’s
rights to receive water and sewer services from Tenant, Landlord and Tenant
shall proceed to form such entity as is chosen by them on the following bases:

 

(a)           The cost of entity formation, regulatory and governmental approval
shall be borne by Landlord and Tenant in the same percentages as their ownership
interest in such entity as determined pursuant to the terms and provisions of
Paragraph (f) of this Subsection 13.22.

 

(b)           All of the Water Rights and wastewater treatment and discharge
permits and licenses then owned by Landlord and Tenant, including, but not
limited to, all rights under pending applications therefor, shall be contributed
by Landlord and Tenant to such entity;

 

(c)           All Facilities then existing and servicing the Benefited Property,
or which with reasonable addition or modification, could serve such real
property, shall be contributed by Tenant to such entity;

 

(d)           All easement, lease or license rights necessary to support the
infrastructure described in Paragraph (c) immediately preceding, or any new
infrastructure constructed by such new entity, shall be contributed or granted
by Landlord and Tenant, as appropriate; subject, however, to the right of
Landlord and Tenant, at their respective cost, to relocate such easements, etc.
if such relocation does not significantly increase the cost of the applicable
service supported by such relocated easement, etc.;

 

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(e)           Unless agreed to otherwise between Landlord and Tenant in writing,
the service area of any such entity shall include only the Benefited Property
and such entity shall be committed to serve such properties subject only to the
availability of water and Facilities;

 

(f)            The sole owners of such entity shall be Landlord and Tenant, with
their respective ownership, control and management interests determined in
accordance with the fair market value of their respective contributions to such
entity (see Paragraphs (b), (c) and (d) immediately above) determined by
appraisal in a manner similar to that provided for in Subsection 4.4.; and

 

(g)           The rates charged by such entity, if not regulated by the State of
Nevada, shall be in keeping with rates charged by regulated entities providing
the same or similar services under as nearly as possible to ascertain similar
circumstances.

 

As to any other matters not specifically provided for in this Subsection 13.22,
Landlord and Tenant shall proceed in good faith to determine and accomplish such
matters in order to achieve the objectives of this Section 13.

 

5.23         Water Rights Encumbrances.

 

(a)           Tenant’s Lenders.  Tenant may grant security interests in or
otherwise encumber Tenant’s Leasehold Water Rights (or in the Water Rights if
Tenant has obtained ownership of the Water Rights pursuant to
Subsection 13.24(b)) to Leasehold Mortgagees without Landlord’s consent provided
the Leasehold Mortgagees in such transactions execute recognition,
nondisturbance and attornment agreements in a form and substance satisfactory to
Landlord, wherein the Leasehold Mortgagees recognize all rights of Landlord
under this Lease and agree upon any foreclosure not to disturb Landlord’s
Reserved Water Rights, Landlord’s right to use the Facilities under this Lease,
and Landlord’s Rights on Termination.

 

(b)           Rights of Landlord’s Lenders.  Landlord may grant security
interests in or otherwise encumber the Water Rights, provided such encumbrances
are made expressly subject to Tenant’s rights under the Lease, and the lenders
execute and deliver to Tenant subordination and non-disturbance agreements in a
form and substance satisfactory to Tenant, wherein the lenders recognize all
rights of Tenant under the Lease and agree upon any foreclosure not to disturb
Tenant’s Leasehold Water Rights (or the Water Rights if Tenant has obtained
ownership of the Water Rights pursuant to Subsection 13.24(b)) or the
Facilities.

 

5.24         Special Landlord Defaults and Tenant Remedies.

 

(a)           Events of Special Landlord Default.  It shall be an event of
default under this Lease if Landlord:  (i) sells, transfers, conveys, pledges,
grants a security interest in, or otherwise assigns its rights in the Water
Rights, unless:  (a) such transfer, conveyance, pledge, grant or assignment is
made expressly subject to the rights of Tenant under this Lease; (b) the
assignee thereof executes and delivers a subordination and non-disturbance
agreement reasonably acceptable to Tenant; and (c) in the event of any sale,
transfer, pledge, or conveyance of any portion of the Water Rights, Landlord
simultaneously sells, transfers, pledges,

 

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or conveys to the same entity all of Landlord’s right title and interest in the
Benefited Property; (ii) interferes in any way with Tenant’s quiet enjoyment of
the Water Rights; (iii) takes or acquiesces in any action or matter that
jeopardizes the validity or good standing of the Water Rights or fails to take
reasonable action if necessary to protect such rights, including informing
Tenant of any facts or circumstances of which Landlord is aware that could have
a detrimental effect on the Water Rights; (iv) fails to cooperate with Tenant
with respect to any action or proceeding involving the Nevada State Engineer; or
(v) interrupts or threatens to interrupt Tenant’s full enjoyment of Tenant’s
interest in the Water Rights hereunder (together or singularly, a “Special
Landlord Default”). Tenant acknowledges that there shall not be a Special
Landlord Default in the event Landlord assists with, develops, or otherwise
supports the development of infrastructure and resources in connection with a
Public Water Supply at Primm, Nevada, nor shall there be a Special Landlord
Default in the event Landlord assists with, develops, or otherwise supports the
private development of water resources for use at Primm, Nevada; provided that
in either event, such development is not dependant upon water: (a) extracted
from within Ivanpah Basin #164; or (b) extracted from a source outside of
Ivanpah Basin #164 if such extraction outside Ivanpah Basin #164 may affect
adversely the quality or quantity of water available within Ivanpah Basin #164
or Tenant’s costs to extract, treat, and deliver water from the Water Rights
under this Lease.

 

(b)           Tenant’s Remedy for Special Landlord Default.  In the event of any
Special Landlord Default, and provided Landlord does not, upon receipt of
written notice from Tenant to Landlord, take all necessary action to correct
such default or eliminate such interruption or threat within thirty (30) days of
receipt of such notice, or such shorter period as Tenant reasonably determines
(and notifies Landlord of such shorter period) is necessary to protect Tenant’s
rights in the Water Rights, and further provided that Tenant is in material
compliance with its obligations under the Lease, Tenant shall have the following
special remedy, in addition to all other rights and remedies provided by law or
otherwise provided in this Lease (and Tenant may resort to such remedies
cumulatively or in the alternative):  The right to purchase the Water Rights
from Landlord upon the tender to Landlord of One Thousand Dollars ($1,000),
which purchase shall be effective immediately upon the making of such tender. 
Upon receipt of a tender hereunder, Landlord immediately shall execute and
deliver such documents and instruments and take such other action as is
necessary to vest in Tenant all right, title, and interest in the Water Rights
free and clear of any liens and encumbrances except the Accommodation
Agreements, if any, which Tenant shall take subject to, and shall pay all
transfer taxes and conveyance fees and costs associated therewith.  In the event
Tenant exercises the Water Rights purchase remedy set forth herein, the Parties’
rights and obligations under this Lease and in particularly this Section 13
shall not be affected, and, subject to Tenant’s right to enter into a Tenant
Accommodation Agreement as provided by subsection 13.3(a), Tenant shall convey
all of Tenant’s right, title, and interest to the Water Rights free and clear of
any liens and encumbrances to Landlord upon termination of this Lease.

 

5.25         Landlord’s Right to Enter into Accommodation Agreements.

 

(a)           Accommodation Agreements.  Landlord shall have the right to enter
into one or more agreements with any Affiliate of Landlord, any tenant of
Landlord, any tenant of any Affiliate of Landlord and any party who acquires by
purchase, or otherwise, all or any portion of Landlord’s Remaining Property
(hereinafter referred to singly as

 

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“Accommodatee” and collectively as “Accommodatees”) wherein Landlord agrees to
cause the delivery of, provide for the delivery of, or cause to make available
all or any portion of the water from Landlord’s Reserved Water Rights to an
Accommodatee or agrees to cause to make available Landlord’s right to utilize
the Facilities to an Accommodatee (“Landlord Accommodation Agreement”). 
Landlord shall not cause the delivery of, provide for the delivery of, or cause
to make available all or any portion of the water from Landlord’s Reserved Water
rights to any person except through an Accommodation Agreement.  Upon the
request of Landlord, Tenant agrees to acknowledge in writing to each
Accommodatee Landlord’s right to enter into such Landlord Accommodation
Agreement under this Section 13; provided, however, that any Landlord
Accommodation Agreement shall meet the following requirements:

 

(i)            the agreement is subject to all of the terms and conditions of
this Section 13;

 

(ii)           the agreement does not impose any additional burdens or
obligations on Tenant;

 

(iii)         Landlord shall give written notice of any Landlord Accommodation
Agreement to Tenant; and

 

(iv)          the agreement shall not relieve Landlord of any covenant,
condition, or other obligation hereunder, and Tenant shall have no direct
obligation to any Accommodatee except to give notice of default as provided
below and allow a cure of Landlord’s default subject to the conditions in (b),
below.

 

(b)           Accommodatees’ Protections.  Tenant hereby agrees and acknowledges
for the benefit of each Accommodatee that, in the event Landlord fails to cure a
default by Landlord under this Section 13 or any other default by Landlord that
would permit Tenant to terminate any of Landlord’s rights under this Section 13
(a “Section 13 Default”) within the applicable cure period, Tenant shall provide
each Accommodatee written notice (an “Expiration Notice”) that such Section 13
Default has not been cured within the applicable cure period (an “Uncured
Default”).  Tenant shall not terminate any right of Landlord under this
Section 13, if within fifteen (15) days of Expiration Notice, the Accommodatees:

 

(i)            Select and authorize in writing an agent to be the sole arid
exclusive point of contact with Tenant for the purpose of curing the Section 13
Default (the “Section 13 Default Agent”); and

 

(ii)           Affect a total cure of the Section 13 Default through the
Section 13 Default Agent.

 

Tenant shall accept performance by the Section 13 Default Agent of any covenant,
condition or agreement on Landlord’s part to be performed under Section 13
hereunder with the same force and effect as though performed by Landlord. 
Tenant shall not be required to accept performance of any covenant, condition,
or agreement, made on behalf of Landlord by any person other than the duly
authorized Section 13 Default Agent.

 

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If a Section 13 Default is cured timely by the Section 13 Default Agent, Tenant
shall have no further responsibility to the Accommodatees directly, except in
the event of an additional Section 13 Default by Landlord.  In the event there
are greater than two Uncured Defaults in any calendar year, Tenant, beginning
with the third such Uncured Default in the calendar year, may exercise any and
all remedies available to Tenant hereunder without providing Expiration Notices
to Accommodatees, and the Accommodatees shall have no right to cure such Uncured
Default.

 

6.             No Third Party Beneficiaries.  Except with respect to the limited
rights of Accommodatees to receive notice and affect cures of certain defaults
hereunder, it is the Party’s intention that no person, other than the Parties
hereto, shall inure to any benefit or right set forth in this Lease, and no
third-party may enforce any provision hereof.

 

7.             Amendment to Section 16.  Subsection 16B.1 of the Lease
(captioned “Prohibited”) is hereby deleted in its entirety and a new
Subsection 16B.1 is hereby added and shall read as follows:

 

16B.1      Prohibited.  Except for Permitted Transfers, Tenant shall not have
the power to, and shall not, transfer, sublet or assign this Lease or the
Tenant’s interest in this Lease or in and to the Property without the prior
written consent of Landlord, which consent shall not be unreasonably withheld. 
As used herein, a “Permitted Transfer” shall mean any and all of the following: 
(A) the transfers, assignments, hypothecations and mortgages described in
Section 16A above, (B) subleases made in the ordinary course of operating the
Property as improved from time to time and for the purposes and uses allowed
under this Lease, including, without limitation, space leases, rentals of hotel
rooms, concessions and similar occupancy agreements, (C) one or more agreements
with any Affiliate of Tenant, any tenant of Tenant, any tenant of any Affiliate
of Tenant and any party who acquires a possessory interest in, by purchase or
otherwise, all or any portion of Tenant’s Fee Land wherein Tenant agrees to
cause the delivery of; provide for the delivery of, or cause to make available
all or any portion of the water from Tenant’s Leasehold Water Rights for use on
Tenant’s Fee Land provided the agreement is subject to all of the terms and
conditions of Section 13 of this Lease and the agreement shall not relieve
Tenant of any covenant, condition, or other obligation under Section 13 of this
Lease, (D) transfers, subleases and assignments to entities wholly owned or
controlled by Affiliates of Tenant. Any attempted or purported transfer of this
Lease, or the Tenant’s interest in this Lease, or Tenant’s interest in and to
the Property under this Lease, in violation of the foregoing and without
Landlord’s prior written consent shall be void and confer no rights upon any
third person, and at Landlord’s election shall constitute a default.

 

8.             Amendments to Section 17.

 

(a)           Amendment to Section 17.1.  Section 17.1 shall be retitled “Tenant
Default” rather than “Default.” and shall be amended by replacing
Section 17.l(i) with the following:

 

(i)            Tenant shall have failed to pay any monetary obligation or charge
imposed herein within thirty (30) days of the date when due and such failure
shall not have been cured within ten (10) days

 

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after written notice of said failure to pay has been given to Tenant by
Landlord; provided, however, that Tenant may cure such default at any time prior
to a termination of this Lease by Landlord or a re-entry by Landlord by paying
all rents and other expenses or charges then due together with the legal rate of
interest then in effect under Nevada law per annum on the total amount then due,
from the date said amount becomes due through the date of payment, inclusive;
or. . .

 

(b)           Amendment to Section 17.2. Section 17.2 shall be retitled
“Landlord Remedies for Uncured Tenant Default.”  There shall be a new Landlord
Remedy Subsection 17.2(iii) as follows:

 

(i)            In the event of an uncured breach relating to Section 13 of this
Lease by Tenant, Landlord may, subject to the terms of this Lease, pursue
against Tenant all rights available to Landlord in law or in equity, including
the right of specific performance; provided, however, that if Tenant’s failure
under Section 13 is caused by an unexpected pipeline break, well or pump
failure, electricity outage or unexpected interruption of supply or other
unforeseen event, Tenant shall not be in breach if it notifies Landlord of the
problem as promptly as possible thereafter and promptly undertakes such repair
and other mitigation measures as necessary to make the Facilities operational.
In the event Tenant’s breach relating to Section 13 of this Lease creates an
immediate threat to life, public health or safety to Landlord or Affiliates of
Landlord, its employees, occupants, or invitees or Tenant has commenced delivery
of all or any portion of Landlord’s Reserved Water Rights or has accepted
delivery of Landlord’s wastewater then ceases such delivery of water or
acceptance of wastewater without justifiable cause and Tenant fails or refuses
to diligently cure or diligently commence to cure the breach, Landlord, after
notice to Tenant, may enter and operate the Facilities or cause a
court-appointed receiver to do the same in order to supply the Landlord’s
Reserved Water Rights or such lesser portion thereof as would be available
absent discriminating against the extraction, treatment, and delivery of
Tenant’s Leasehold Water Rights hereunder, and to accept wastewater discharge
until such time as Tenant has cured its breach and provided reasonable
assurances of the future performance of its obligations under this Lease. 
Landlord’s costs of such performance shall be a component of Landlord’s damages,
which Landlord shall have the right to offset against its monetary obligations
to Tenant.

 

(c)           New Section 17.3. There shall be a new Subsection 17.3 added to
the Lease as follows:

 

8.2           Landlord Default.  A breach of this Lease by Landlord shall exist
if any of the following events (severally “Landlord Event of Default” and
collectively “Landlord Events of Default”) shall occur:

 

(i)            Landlord shall have failed to pay any monetary obligation or
charge imposed herein within thirty (30) days of the date when due and such
failure shall not have been cured within (10) days after written notice of said
failure to pay has been given by Tenant to Landlord; provided, however, that
Landlord may cure such default at any time prior to a termination of this Lease
by Tenant by paying all amounts due hereunder, together with the legal rate of
interest then in effect under Nevada law per annum on the total amount due from
the

 

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date said amount becomes due through the date of payment and any applicable
interest and delinquency charges; or

 

(ii)           Landlord shall have failed to perform any term, covenant or
condition of this Lease except those requiring the payment of money, and
Landlord, except in the event of any Special Landlord Default where Tenant may
notice Landlord of cure periods less than thirty (30) days in length, shall have
failed to cure such breach within thirty (30) days after written notice from
Tenant where such breach could reasonably be cured within said thirty (30) day
period; provided, however, that where such failure (other than in the case of
any Special Landlord Default) could not reasonably be cured within said thirty
(30) day period, Landlord shall not be in default if Landlord commences a cure
within such thirty (30) day period and thereafter continues to make diligent and
reasonable efforts to cure such failure as soon as practicable.

 

(iii)         Landlord shall have assigned its assets for the benefit of its
creditors; or

 

(iv)          A court shall have made or entered any decree or order other than
under the bankruptcy law of the United States:

 

(a)           appointing a receiver, trustee, or assignee of Landlord in
bankruptcy or insolvency or for its property; or

 

(b)           directing the winding up or liquidation of Landlord and such
decree or order shall have continued for a period of thirty (30) days.

 

(b)           New Section 17.4. There shall be a new Section 17.4 added to the
Lease as follows:

 

8.3           Tenant Remedies for Uncured Landlord Default.  In the event
Landlord fails to cure any Landlord Event of Default within the applicable cure
period, Tenant may exercise, cumulatively or in the alternative, in addition to
any and all rights afforded at law or in equity (which rights shall not be
limited as a result of the specific provision of a remedy for any particular
Landlord Event of Default), the right to offset Rents for any monetary default
under Section 13 hereof, and the right to self help as necessary to ensure the
allowed uses of Water Rights and Facilities under this Lease.  If and to the
extent Landlord’s water uses exceed that allowed hereunder, Tenant may install
flow restrictors, meters, valves and other components to enable Tenant to ensure
that Landlord does not, absent Tenant’s permission, use more than Landlord’s
Reserved Water Rights on an annual basis.  The reasonable cost of all such
components added to the Facilities by Tenant in exercising self help rights
hereunder, may be used by Tenant to offset Rents.  Furthermore, if and to the
extent Landlord’s wastewater discharges violate any permit, condition, or
approval, associated with the Wastewater Facilities, constitute an imminent
threat to the operation of the Wastewater Facilities, or otherwise create an
imminent hazard, Tenant may, in its sole discretion, refuse to accept the
non-complying wastewater.

 

9.             Amendment to Subsection 21.1. Landlord and Tenant hereby
acknowledge and agree that the right of first refusal granted to Tenant under
Subsection 21.1 of the Lease shall not

 

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apply to (1) any transfer, with or without consideration, between or among
Landlord and Landlord’s Affiliate or Affiliates of all or any portion of the
Benefited Property (collectively a “Related Party Transfer”); (2) any lease of
all or any portion of the Benefited Property owned by Landlord or an Affiliate
of Landlord provided however if such lease is for gaming activities then
Landlord or Landlord’s Affiliate shall comply with Section 5.2 of the Lease; or
(3) normal and customary easements granted by or on behalf of Landlord in the
Benefited Property in connection with developing the Remaining Property. 
Landlord and Tenant acknowledge and agree that any transfer of real property
transferred as a Related Party Transfer (which but for the Related Party
Transfer would otherwise have been subject to Tenant’s right of first refusal
under Subsection 21.1) shall remain subject to Tenant’s right of first refusal
under Subsection 21.1 and the Exclusivity Covenant under Subsection 5.2 of the
Lease and in the event the Landlord or Landlord’s Affiliate should sell,
transfer or otherwise dispose of (excluding any lease for non gaming activities)
such real property to a Person who is not the Landlord or an Affiliate of
Landlord then such transfer shall be subject to Tenant’s right of first refusal
under Subsection 21.1.

 

10.          Agreement to Execute.  Landlord and Tenant agree to execute,
acknowledge and record an Amended Memorandum of Lease in the form and content
attached hereto as Exhibit “O”.

 

11.          Exhibits.  All exhibits referred to herein and attached to this
Third Amendment are incorporated herein by reference.

 

12.          Force and Effect.  The Lease, as amended hereby, shall remain in
full force and effect. If and to the extent any terms of this Third Amendment
are contrary or inconsistent with terms of the Amended and Restated Ground Lease
Agreement, the First Amendment to the Amended and Restated Ground Lease
Agreement, or the Second Amendment to the Amended and Restated Ground Lease
Agreement, the terms of this Third Amendment shall govern.

 

IN WITNESS WHEREOF, Landlord and Tenant have executed this Third Amendment to
the Amended and Restated Ground Lease as of the day and year first written
above.

 

LANDLORD:

PRIMM SOUTH REAL ESTATE COMPANY,

 

a Nevada corporation

 

 

 

 

 

By:

/s/ Janet Primm Rosa

 

Its:

President

 

 

 

 

TENANT:

THE PRIMADONNA COMPANY, a

 

Nevada limited-liability company

 

 

 

By:

/s/ Renes West

 

Its:

President, COO

 

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