<PAGE>
 
                                                                    EXHIBIT 10.1

                                   AGREEMENT

   This Agreement (herein so called) is entered into as of this 2nd day of
September, 1998 by and among Greate Bay Hotel and Casino, Inc. ("GBHC"), GB
Holdings, Inc., ("GBH"), GB Property Funding Corp. ("GBPF") (collectively with
their Subsidiaries, the "Debtors"), on the one hand, and Greate Bay Casino Corp.
("GBCC"), PHC Acquisition Corp. ("PHC"), Lieber Check Cashing, LLC. ("Lieber"),
Jack E. Pratt, William D. Pratt, and Edward T. Pratt, Jr. (collectively, the
"Pratts" and together with GBCC, PHC, and Lieber, the "Defendants"), and
Hollywood Casino Corporation ("HCC"), on the other.

 .                                R E C I T A L S

A. On January 5, 1998, the Debtors commenced proceedings under Chapter 11 of
   Title 11 of the United States Code (the "Chapter 11 Proceedings") in the
   United States Bankruptcy Court for the District of New Jersey, Camden
   Vicinage (the "Court").

B. On July 27, 1998, GBHC filed a certain adversary proceeding against the
   Defendants in the Court that was docketed at No. 98-1220 seeking to recover,
   among other things, the rights under that certain contract of sale between
   PHC and FGP Bala, Inc. ("FGP") dated as of January 1, 1998 for the sale of
   Lots 5, 6, 7, 2, 3, 16, 19, & 42 on Block 30 and Lot 73 on Block 33 on the
   Tax Map of the City of Atlantic City and what is commonly known in Atlantic
   City, New Jersey as the Midtown Bala (the "Midtown Bala Option"), and the
   rights to Lot 14 on Block 30 of the Tax Map of the City of Atlantic City that
   Lieber acquired, subject to a purchase money mortgage, from Andermatt Corp.
   by deed dated July 22, 1996 (the "Lieber Parcel"), and to restrain the
   Defendants from using the Net Operating Loss tax attributes (the "NOL's") of
   the Debtors (the "Adversary Proceeding").

C. On or about August 19, 1998, the Defendants filed a Motion in the Adversary
   Proceeding seeking to disqualify Gibbons Del Deo Griffinger & Vecchione as
   counsel to the Debtors in the Adversary Proceeding (the "Gibbons DQ Motion"),
   and on or about August 20, 1998 filed a Motion seeking a Preliminary
   Injunction Against Frederick H. Kraus (the "FK Motion").

D. On August 24, 1998, GBCC filed a Response and Emergency Application in the
   Adversary Proceeding (the "Consolidated Return Motion").

E. The Debtors, on one side, and the Defendants, on the other side, have reached
   a settlement in the Adversary Proceeding which resolves all of the issues
   raised in the Adversary Proceeding, including the Consolidated Return Motion,
   and which results in the dismissal with prejudice of the Gibbons DQ Motion
   and the FK Motion.
<PAGE>
 
   NOW, THEREFORE, the Debtors, the Defendants, and where applicable, HCC, for
themselves and all entities owned or controlled by them, including direct or
indirect subsidiaries ("Subsidiaries") stipulate and agree as follows:

   1.  Forthwith upon the execution of this Agreement and approval of this
Agreement by the Court, the Debtors will provide GBCC with executed Internal
Revenue Service Form 1122's for the 1997 tax year with respect to the GBCC
Group, as hereafter defined, for each of the Debtors and the Subsidiaries of GBH
and the remaining tax issues are resolved in accordance with the terms as
follows:

       a.   HCC may file an amended consolidated federal corporate tax return
       ("Amended Return") for calendar year 1996.  HCC may use any NOL's
       attributable to the Debtors as of December 31, 1996 for any purpose in
       the Amended Return.  However, if any tax, interest or penalties are due
       on the Amended Return, HCC, GBCC or any of GBCC's Subsidiaries other than
       the Debtors will satisfy all such obligations from its or their own
       funds.

       b.  GBCC will file a timely return by the September 15, 1998 extended
       date for the filing of a return previously obtained by GBCC for a new
       consolidated group for calendar year 1997 consisting of GBCC and all of
       its Subsidiaries (the "GBCC Group"). GBCC may use any NOL's attributable
       to the Debtors as of December 31, 1997 for any purpose in the GBCC 1997
       return.  However, if any tax is due on the GBCC 1997 return, GBCC or any
       of its Subsidiaries other than the Debtors will satisfy all such
       obligations from its or their own funds.

       c.  The GBCC Group will file a return for calendar year 1998 and in a
       manner in accordance with prior practice.  HCC represents and covenants
       that it will take no action that will require any cancellation of debt
       income or any gains on disposition of assets to be recognized by the GBCC
       Group in 1998.  GBCC represents and covenants that any restructuring of
       the obligations of Pratt Casino Corporation ("PCC"), PRT Funding Corp.
       ("PRT"), and/or New Jersey Management, Inc. ("NJMI") (the "PRT
       Restructuring") will not result in any cancellation of debt income or
       other taxable gains to the GBCC Group while the Debtors are members of
       the GBCC Group; provided that nothing herein shall prevent the
       cancellation of indebtedness in a bankruptcy proceeding.   In the event
       that GBHC seeks to take a deduction for tax purposes for post petition
       interest expense as part of the 1998 return, GBHC will deliver to GBCC an
       opinion addressed to GBCC from a law firm reasonably satisfactory to GBCC
       or from a nationally recognized "Big Five" certified public accounting
       firm that there is substantial authority for such deduction.  GBCC
       represents and covenants that NOL's of the GBCC Group will be available
       to shelter any taxable income from GBH and Subsidiaries in 1998 or from
       the deconsolidation of the GBH Group as hereafter defined, and otherwise
       GBCC or its Subsidiaries will pay any resulting tax liability.  However,
       to the extent that there is tax actually due as a result of GBHC not
       taking a deduction for post petition interest expense and if the
       remaining NOL's of the GBCC Group are insufficient to shelter the tax
       liability resulting from nondeducted 

                                       2
<PAGE>
 
       post petition interest expense, GBHC will be obligated to pay any such
       tax liability. In addition, after allowing for the use of GBCC Group
       NOL's to shelter any income of the Debtors, regardless of whether such
       income results from nondeducted interest or otherwise, HCC may take
       action that would result in cancellation of debt income or gain on the
       disposition of assets to the GBCC Group, if GBCC and its Subsidiaries
       other than the Debtors pay any tax due.

       d.  On or before December 31, 1998, GBCC will cause GBH and its
       Subsidiaries to become deconsolidated from the GBCC Group by causing PCC
       to transfer 21% of the stock ownership interest of PCC in GBH (the "GBH
       Stock Interest") free and clear of liens and encumbrances to a person
       other than any member of the GBCC Group such that PCC and its affiliates
       would no longer be the owner of at least 80% of the vote and value of the
       GBH stock as set forth in 26 USC (S)1504 or, with the written consent of
       GBHC, by otherwise causing GBH and its Subsidiaries to cease to be
       members of the GBCC Group so that GBH and its Subsidiaries can form a new
       consolidated group with GBH as the common parent (the GBH Group").
       Unless GBCC notifies GBHC within seven (7) days of the approval of this
       Agreement by the Court that GBCC will otherwise cause the deconsolidation
       of GBH and its Subsidiaries or notifies GBHC of the identity of a person
       to hold the GBH Stock Interest, GBCC authorizes GBHC to file a petition
       with the New Jersey Casino Control Commission, seeking approval to
       transfer the GBH Stock Interest to a designee of the Debtors (or to the
       person designated by GBCC if notice is provided within such seven (7)
       days) effective on or before December 31, 1998 and will cooperate with
       GBHC, using GBCC's good faith best efforts, to cause such approval to be
       obtained. GBHC will use its good faith best efforts to obtain approval of
       such a petition.  In addition, GBCC will cause PCC to take no action that
       will prevent the effectiveness of the consent of GBH to be the common
       parent of the GBH Group.  At the deconsolidation of GBH and its
       Subsidiaries, the Debtors will receive their allocated share of any
       unused NOL's available to the GBCC Group in accordance with regulations
       and procedures of the IRS. GBCC Group shall not make an election under
       Treas. Reg. 1.1502-20(g) with respect to such deconsolidation.  If
       because of the deconsolidation, any adjustment is required by the
       Treasury Regulations promulgated under 26 U.S.C. Section 1502, GBCC will
       fully disclose to the Debtors its analysis and calculation of such
       adjustments on a timely basis but no later than forty-five (45) days
       before the GBCC Group's 1998 federal income tax return is due (taking
       into account any extension).  The inclusion of all such adjustments that
       relate to the GBH Group as a result of such deconsolidation shall be
       subject to the written consent of the GBH Group.  Any dispute concerning
       such adjustments shall be resolved by the Court.

       e.  HCC and GBCC represent and covenant with respect to any audits for
       returns covering tax periods beginning prior to January 1, 1997, and GBCC
       represents and covenants with respect to any audits covering tax periods
       beginning subsequent to December 31, 1996 and until formation of the GBH
       Group, that the Debtors will be protected from exposure to liabilities
       resulting from activities of HCC and its Subsidiaries or GBCC and its
       Subsidiaries, as the case may be, other than the Debtors, and, to the
       extent there is money 

                                       3
<PAGE>
 
       due the IRS as a result of audits with respect to such activities, HCC
       and/or GBCC will be responsible for payment of such amounts. The Debtors
       represent and covenant with respect to any audit adjustments covering tax
       periods prior to the formation of the GBH Group that the GBCC Group
       (other than the Debtors) and HCC will be protected from exposure to
       liabilities resulting from activities of the Debtors and, to the extent
       there is money due the IRS as a result of audits with respect to such
       activities, the Debtors will be responsible for payment of such amounts.

       f.  Except as provided in this Agreement, neither HCC nor GBCC will enter
       into any agreements with the IRS or take a position in any IRS audit or
       amend any returns that will adversely affect the tax attributes of the
       Debtors or any tax issues affecting the Debtors without the written
       consent of the Debtors nor will HCC and/or GBCC engage in any
       negotiations with the IRS where either HCC or GBCC will make concessions
       with respect to issues or tax attributes affecting the Debtors in return
       for favorable treatment or the absence of any action with respect to
       issues or tax attributes affecting HCC and/or GBCC and their Subsidiaries
       other than the Debtors without the Debtors written consent.  HCC and GBCC
       will fully disclose to the Debtors all audit issues, notices and
       correspondence with the IRS as they arise that would affect the Debtors
       so the Debtors can enforce, at their expense, the rights provided to them
       under the provisions of this paragraph.

   2.  With respect to that certain promissory note by GBHC in favor of GBCC
dated February 7, 1997 in the amount of $8,000,000 together with accrued
interest (the "GBHC Demand Note"), and with respect to that certain claim in the
amount of $10,902,000 for the claimed double payment of taxes by GBHC against
GBCC arising from the payment of deferred taxes to Pratt Casino Properties,
Inc., PPI Corporation, or GBCC (the "Deferred Tax Claim"), GBHC releases GBCC
and its Subsidiaries, their officers, directors, employees, shareholders,
agents, and insurers from the Deferred Tax Claim in exchange for a release of
GBHC, which GBCC hereby grants to GBHC and its Subsidiaries, their officers,
directors, employees, shareholders, agents, and insurers, from the claims
arising from the GBHC Demand Note.

   3.  With respect to the claim of GBHC against PCPI Funding Corp. ("PCPI")
arising from an advance on or about September 27, 1990 in the amount of $6.6
million plus accrued interest (the "PCPI Advance"), GBHC covenants not to sue
any members of the GBCC Group or any of their officers, directors, employees,
shareholders, agents, and insurers for, or take any other action with respect
to, any claim arising out of the PCPI Advance, except that GBHC preserves
whatever rights it may have to offset the amount of the PCPI Advance against the
holders of, and with respect to, the Subordinated Notes as hereafter defined.

   4.  PHC represents that it and FGP entered into that certain Extension of
Closing Date Agreement dated as of July 28, 1998, which extended the closing
date under the Midtown Bala Option until September 30, 1999 (the "Extension").
Under the Midtown Bala Option, PHC has made the required down payment of
$1,000,000 to be applied against the purchase price and the down payment of
$1,000,000 is being held in escrow in accordance with the terms of that certain
Escrow Agreement dated as of January 1, 1998 (the "Escrow") between PHC, FGP,
and the Title Company 

                                       4
<PAGE>
 
of Jersey (the "Title Company"). PHC also represents that it has paid the
$300,000 required under the Extension to FGP and that the only act required to
extend the Midtown Bala Option under the Extension to September 30, 1999 is the
payment of another $1,000,000 to be held under the Escrow and to be applied
against the purchase price under the Midtown Bala Option. PHC also represents
that its rights under the Midtown Bala Option remain freely assignable as
provided under the original provisions of the Midtown Bala Option. PHC agrees to
assign, and, by this Agreement, does hereby assign, effective immediately after
the transfer of the Membership interests in Lieber to GBHC, as described in
paragraph 5 below, all of its right, title, and interest under the Midtown Bala
Option and the Extension and to the funds held by the Title Company under the
Escrow to Lieber in return for the payment by GBHC of $1,300,000 upon approval
of this Agreement by the Court and for the Confirmation Payment as hereafter
defined. PHC also agrees to deliver to GBHC a separate confirmatory instrument
of assignment consistent with the provisions of this paragraph and in a form
reasonably satisfactory to GBHC.

   5. Lieber owns the Lieber Parcel.  The Lieber Parcel shall be conveyed as
described below, subject to the purchase money mortgage in favor of Andermatt
Corp. (the "Mortgage"), for the sum of (a) $150,000, representing the payments
made to Andermatt Corp. on account of the purchase price (the "Downpayment")
plus (b) principal and interest payments on the Mortgage (the "P&I Payments"),
plus (C) out of pocket expenses incurred by Lieber at or after closing for the
Lieber Parcel (other than attorney's fees) (the "Expenses") less (d) all income
received in respect of the Lieber Parcel on or after closing (the "Income") (the
"Downpayment", the "P&I Payments", and the "Expenses" less the "Income,
collectively, the "Purchase Price") upon the approval of this Agreement by the
Court, and upon payment of the Purchase Price.  GBHC and Lieber agree that the
Purchase Price equals the $251,000 advanced by GBCC under the Lieber Note as
hereafter defined provided that GBHC shall be entitled to any cash on hand in
the checking account of Lieber.  GBHC will pay the Purchase Price to GBCC in
complete satisfaction of that certain promissory note by Lieber in favor of GBCC
dated July 22, 1996 (the "Lieber Note") and in return for the transfer of the
ownership of the Lieber Parcel, and the rights to the lease for the Lieber
Parcel to FGP (the "Lieber Lease") upon the approval of this Agreement by the
Court.  The transfer of the ownership of the Lieber Parcel and the rights to the
Lieber Lease shall be accomplished by transfer of the Membership Interests of
PHC Properties, Inc. ("PHCP") and PHC Holdings, Inc. ("PHCH") in Lieber to GBHC
and, by this Agreement, the Membership Interests of PHCP and PHCH in Lieber,
constituting all of the Membership Interests in Lieber, are assigned to GBHC
upon approval of this Agreement by the Court and upon payment of the Purchase
Price.  Except for the Mortgage, Lieber represents and covenants that the
transfer of the Lieber Parcel and the Lieber Lease will be free and clear of the
claims of any persons other than customary restrictions and easements of record
and identified in the "marked-up" title commitment of the Title Company at the
closing on the Lieber Parcel on July 22, 1996, and GBCC represents that Lieber
has no debts or obligations to anyone other than the Lieber Note that will be
satisfied as a result of the actions contemplated in this paragraph.  GBCC also
agrees to deliver to GBHC a confirmatory instrument of assignment of the
Membership interests of PHCH and PHCP in Lieber consistent with the provisions
of this paragraph and in a form reasonably satisfactory to GBHC.

                                       5
<PAGE>
 
   6.  The Confirmation Payment is $500,000, is not subject to offset, and is
payable to a designee of GBCC as an allowed administrative claim under Sections
503 and 507 of the Bankruptcy Code upon the effective date of a Plan of
Reorganization of GBHC.

   7.  This Agreement resolves all of the issues raised in the Adversary
Proceeding and the Adversary Proceeding including the Consolidated Return
Motion, the Gibbons DQ Motion and the FK Motion are dismissed with prejudice.
Except to the extent set forth herein, HCC on its behalf and on behalf of its
Subsidiaries and GBCC on its behalf and on behalf of its Subsidiaries exclusive
of the Debtors, on one side, and the Debtors on their own behalf and on behalf
of their Subsidiaries, on the other side, do hereby release each other and their
respective officers, directors, employees, shareholders, counsel, agents, and
insurers (collectively, the "Released Parties").  The Released Parties agree to
deliver to each other confirmatory mutual releases consistent with the
provisions of this paragraph and in a form reasonably satisfactory to each
other.  Nothing in this paragraph shall be deemed to amend those certain
agreements dated June 28, 1998, which were approved by the Court on July 7, 1998
and by the Casino Control Commission on July 8, 1998, and those agreements
remain in effect in accordance with their terms.  Nothing in this Agreement
shall release any claim against a party that is not a Released Party.

   8.  GBCC will cause the opposition to the pending Motion of GBHC to Reject
the Management Agreement, which is returnable September 28, 1998 (the "Rejection
Motion"), to be withdrawn and will do so in a form reasonably satisfactory to
GBHC for presentation to the Court contemporaneously at the hearing on the
approval of this Agreement for the entry of an Order granting the Rejection
Motion effective September 28, 1998. The withdrawal of the opposition to the
Rejection Motion is without prejudice to NJMI to assert a damages claim (the
"Rejection Claim") and without prejudice to the Debtors to assert any defenses
they have to that rejection damages claim and, except as provided in paragraph
8a below, including a fraudulent conveyance claim. Notwithstanding the
foregoing, and as provided in paragraph 8a below, the fraudulent conveyance
claim may not be asserted against any member of the GBCC Group (other than NJMI
and PRT) and HCC. Without limiting the standing of NJMI to assert the Rejection
Claim, the Rejection Claim may only be brought by or on behalf, and, in either
case, only for the benefit of, the bondholders of PRT (the "Bondholders") or the
designees of the Bondholders provided, however, that, if the Rejection Claim is
successful, whether by reason of settlement or trial, there shall be no direct
or indirect distribution to or for the benefit of the Released Parties except
that PCC or NJMI could use any proceeds to pay the operating expenses of PCC or
NJMI incurred on or before any such recovery. Neither HCC and its Subsidiaries
nor GBCC and its Subsidiaries other than NJMI or PRT will provide financial
support for the prosecution of the Rejection Claim.

   8a. Except with respect to NJMI and PRT, the Debtors will not assert and
hereby release claims arising under Chapter 5 of the Bankruptcy Code ("Avoidance
Actions/Claims") against HCC, GBCC, and their affiliates, including but not
limited to, PCC.  With respect to NJMI and PRT, the Debtors additionally will
not assert Avoidance Actions/Claims against either of them or the PRT
Bondholders unless a Rejection Claim is filed within 30 days after Court
approval of this Agreement (the "Rejection Claims Bar Date").  If a Rejection
Claim is not timely filed, it shall be deemed released and waived with
prejudice, and, similarly, any Avoidance Actions/Claims of the Debtors 

                                       6
<PAGE>
 
against NJMI and PRT and the PRT Bondholders will be deemed released and waived
with prejudice simultaneously with the expiration of the Rejection Claim at the
Rejection Claim Bar Date. If a Rejection Claim is timely filed by the Rejection
Claim Bar Date, then the Debtors may assert Avoidance Actions/Claims against PRT
or NJMI or against any holder of the Rejection Damage Claim or the Subordinated
Notes (except for PCC with respect to the PCC Sub Note other than the offset
described in the next sentence), but may not seek to levy, collect upon or
otherwise recover from any intercompany balance, debt, receivable, note, or
other obligation owing to PRT or NJMI from PCC or any other nonDebtor affiliate
of GBCC or HCC. Notwithstanding the release of the Avoidance Actions/Claims as
to PCC described in this paragraph, the Debtors may, in the event a Rejection
Claim is timely filed by the Rejection Bar Date, defensively assert Avoidance
Actions/Claims as an offset to the PCC Sub Note, but the Debtors may not assert
Avoidance Actions/Claims affirmatively against any other assets of PCC. Pursuant
to this Agreement, PCC and all other affiliates of GBCC and HCC, other than NJMI
and PRT, are buying their peace with the Debtors and are fully released from all
claims by the Debtors or their estates.

   9.  Except as provided in paragraphs 8 or 8a of this Agreement, nothing in
this Agreement shall operate to prejudice the rights, if any, of the holders of
that certain Subordinated Promissory Note of GBHC in favor of PRT dated February
17, 1994 in the amount of $10,000,000 (the "PRT Sub Note") and that certain
Subordinated Promissory Note of GBHC in favor of PCC dated January 14, 1997 in
the amount of $5,000,000 (the "PCC Sub Note" and together with the PRT Sub Note,
the "Subordinated Notes").  All defenses, if any, the Debtors have to the
Subordinated Notes are preserved.  The rights, if any, in the Subordinated Notes
are preserved for the benefit of the Bondholders in the PRT Restructuring and,
in the event of recovery on the Subordinated Notes, whether by reason of
settlement or trial, there will be no distribution to or for the benefit of the
nonDebtor Released  Parties,  provided that the holders of the Subordinated
Notes have standing to assert any claim on the Subordinated Notes for the
benefit of the Bondholders.

   10. GBHC and HCC have already commenced the process of splitting off the
employees of GBHC from the HCC Employee 401K Retirement Savings Plan (the "401K
Plan") and will jointly cause the employees to become part of a separate 401K
Plan by January 1, 1999.  Until that changeover, HCC will continue to administer
the 401K Plan and GBHC will continue to pay its allocated share of external
costs of administration in accordance with present practice.

   11. This agreement is without prejudice to the proofs of claims filed by
HCC or GBCC or their Subsidiaries in the GBHC Chapter 11 Proceedings for goods,
services or royalty fees provided in the ordinary course of business to GBHC.
The only claims held by HCC, or any of the Defendants or any of their
Subsidiaries against any of the Debtors or the Debtors Subsidiaries as of the
date immediately prior to giving effect to this Agreement are set forth on
Exhibit A (the "Claims"). Except as provided herein, the defenses, offsets, and
counterclaims, if any, of GBHC to any such proofs of claims are also preserved
provided, however, that the counterclaims with respect to NJMI and PRT are
described in paragraphs 8 and 8a above and otherwise are limited to intercompany
accounts arising from the provision of goods or services by or on behalf of the
Debtors in the ordinary course of business to HCC or GBCC or their Subsidiaries.
HCC, the Defendants, and their Subsidiaries shall (a) not amend or increase any
of the Claims, (b) consent to the expungement of 

                                       7
<PAGE>
 
any of the Claims which are released pursuant to this Agreement, and (C) not
acquire or assert any claims against any of the Debtors or their Subsidiaries
which are not set forth on Exhibit A. Nothing in this paragraph 11 varies or
modifies the provisions of paragraphs 2, 3, 6, 8, 8a, or 9 above with respect to
the claims or defenses described therein. With respect to post petition
intercompany accounts between GBH and its Subsidiaries and HCC or its
Subsidiaries or GBCC or its Subsidiaries other than the Debtors, nothing in this
Agreement releases any person from any obligation for goods, services or
royalties provided by or on behalf of any other person in the ordinary course of
business.

   12.   Neither HCC nor any of the Defendants will make any application to
terminate the exclusivity period of the Debtors or to oppose any future
extension of the exclusivity period.  Neither HCC nor GBCC will seek, request,
apply for or support directly or indirectly the appointment of a trustee or
examiner for any of the Debtors.  HCC and GBCC will cause their Subsidiaries to
comply with the provisions of this paragraph.

   13.   Pending the hearing on the settlement on the Adversary Proceeding
represented by this Agreement, the Debtors agree to adjourn the date for
responsive pleadings in the Adversary Proceedings by the Defendants and, in the
event this settlement of the Adversary Proceeding is not approved by the Court,
agree that  such responsive pleadings may be filed within five days after the
date of a decision by the Court rejecting the settlement of the Adversary
Proceeding.  The dates by which GBHC may respond to the Gibbons DQ Motion, the
FK Motion, or any discovery served in this action is extended to the later of
the date otherwise required by the discovery rules or five days after the date
of a decision by the Court rejecting the settlement of the Adversary Proceeding.

   14.   The parties to this Agreement agree to cooperate with each other, and
to take all actions necessary, to confirm the transactions contemplated by this
Agreement.

   15.   Time is of the essence in the performance of this Agreement.

   16.   This Agreement may not be amended or modified in any respect except
with the written consent of the parties hereto, is binding upon the successors
and assigns of the parties and their successors in interest, and shall be
interpreted in accordance with New Jersey law without regard to the conflicts of
laws principles of New Jersey law.

   17.   This Agreement will be effective when executed by all of the parties
hereto and when approved by the Court.  This Agreement may be executed in
counterparts by the parties and a

              THE REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK

                                       8
<PAGE>
 
telecopied signature is as effective as an original.

ACCEPTED AND AGREED:

   Greate Bay Casino Corporation         
   PHC Acquisition Corp.

BY:/s/ John C. Hull                      BY:/s/ William D. Pratt
   ----------------                         --------------------

   Lieber Check Cashing, LLC.               Hollywood Casino Corporation


BY:/s/ Jack E. Pratt                     BY:/s/   Edward T. Pratt III
   -----------------                        -------------------------
   Jack E. Pratt, President of its
   Members, PHC Properties, Inc. and
   PHC Holdings, Inc.

   Jack E. Pratt                         William D. Pratt


   /s/ Jack E. Pratt                     /s/ William D. Pratt
   ---------------------------           -------------------------


   Edward T. Pratt, Jr.


   /s/ Edward T. Pratt Jr.
   ---------------------------


   Greate Bay Hotel and Casino, Inc.     GB Holdings, Inc.


BY:/s/ Timothy A. Ebling                 BY:/s/ Timothy A. Ebling
   -------------------------------          ---------------------
   Timothy A. Ebling                        Timothy A. Ebling
   Exec. VP                                 Exec. VP

   GB Property Funding Corp.


BY:/s/ Timothy A. Ebling
   -------------------------------
   Timothy A. Ebling
   Exec. VP



 

                                       9
<PAGE>
 
                            EXHIBIT "A" TO AGREEMENT
                            DATED SEPTEMBER 2, 1998



               PROOFS OF CLAIM AND INTEREST FILED BY GBCC GROUP,
                   HCC AND AFFILIATES IN THE SANDS BANKRUPTCY
<TABLE>
<CAPTION>
 
 
Claimant          Amount/1/              Explanation
--------          --------               -----------
<S>             <C>                      <C>

PCC             $5,728,000.00            Based upon GBHC $5 Million Note, a.k.a. the "PCC
                                         Sub Note"

PCC               1,279.58               On account of routine corporate expenses paid prepetition
                                         on behalf of GB Holdings (claim is against GB Holdings)/2/

PCC                  N/A                 Proof of interest (as opposed to a proof of claim) to reflect
                                         PCC's 100% ownership interest in GB Holdings, as evidenced by
                                         that certain stock certificate dated October 27, 1993
                                         reflecting PCC's ownership of 1000 shares of common stock.

PRT             12,754,375.00            Based upon GBHC $10 Million Note, a.k.a. the "PRT Sub Note"

GBCC            9,479,871.98             Based upon GBHC $8 Million Note, a.k.a. the "GBHC Demand
                                         Note" (amount is net of certain prepetition payables owed to GBHC)/3/
</TABLE> 
---------------------

  /1/ Amounts include the respective claimants' computation of principal,
interest accrued as of the January 5, 1998 bankruptcy petition date with respect
to the Sands Group, charges and offsets, where applicable, all as set forth in
detail in the various proofs of claim.

  /2/ All other proofs of claim listed herein, with the exception of this one
proof of claim filed by PCC against GB Holdings, are against GBHC.  The proof of
interest described in the third line hereinabove is against GB Holdings.

  /3/ This proof of claim is to be deemed withdrawn and/or released pursuant to
paragraph 2 of the Agreement.
 

                                    1 of 2
<PAGE>
 
NJMI       128,899.60         On account of unpaid, prepetition management fees
                              for the 12/1/97 -1/4/98 time period (amount is net
                              of certain prepetition payables owed to GBHC).
                              NJMI will likely file an additional proof of claim
                              in respect of rejection damages, after the
                              September 28, 1998 rejection of the NJMI
                              Management Services Agreement, pursuant to
                              paragraph 7 of the Agreement.

ACSC        49,230.74         On account of various prepetition goods and
                              services provided (amount is net of certain
                              prepetition payables owed to GBHC)


PPI Corp.   22,467.09         On account of unpaid, prepetition royalty fees for
                              use of the "Sands" trademark for the 12/1/97 -
                              1/4/98 time period

HCC          3,360.30         On account of various prepetition services
                              provided (amount is net of certain prepetition
                              payables owed to GBHC)

HMI         19,253.35         On account of various prepetition services
                              provided (amount is net of certain prepetition
                              payables owed to GBHC)
 

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