**Exhibit10.88**

 
|   | FILED NO. 050242      | REC 24200                |
|--------|-----------------------|--------------------------|
|   | STATE OF IOWA         | AUD                      |
|   | CLARKE COUNTY         | TRNS                     |
|   | 2005 FEB 2 PM 2 18    | E-COM                    |
|   | BOOK 154 PAGE 524-571 | REL                      |
|   | PENNIE GONSETH        | COPY  Rý       |
|   | RECORDER              | INDEX   ý |
|   |                  | SCAN                     |
|   |                  | RETURN                   |

 

PREPARER INFORMATION WilliamM. Scott IV, Esq 333 South Hope Street, 48th Floor, Los Angeles,CA  90071, (213) 620-1780

 

 
| INDIVIDUAL’S NAME | STREET ADDRESS | CITY |   | PHONE |
|------------------------|----------------|------|--------|-------|

 

**Space above Line Reserved For Recorder’s Use**

 
| **1.**     | ** ** | **Title of  Document****:**                             | ** **     | **Mortgage,  Assignment of Rents and Fixture Filing** |
|------------|------------|---------------------------------------------------------|----------------|-------------------------------------------------------|
| ** ** |       |                                                    |           |                                                  |
| **2.**     | ** ** | **Date of  Document:**                                  | ** **     | **January 31,  2005**                            |
| ** ** |       |                                                    |           |                                                  |
| **3.**     | ** ** | **Mortgagor****:**                                      | ** **     | **HGI -  Lakeside, a Nevada corporation**             |
| ** ** |       |                                                    |           |                                                  |
| **4.**     | ** ** | **Mortgagee****:**                                      | ** **     | **Bank of  America, N.A., as Administrative Agent**   |
| ** ** |       |                                                    |           |                                                  |
| **5.**     | ** ** | **Statutory  Mailing Address(es)****:**                 | **Mortgagor:** |
| ** ** | ** ** | ** **                                              | ** **     | ** **                                            | **c/o  Herbst Gaming, Inc.** |
| ** ** | ** ** | ** **                                              | ** **     | ** **                                            | **5195 Las  Vegas Blvd.** |
| ** ** | ** ** | ** **                                              | ** **     | ** **                                            | **Las  Vegas, NV 89119** |
| ** ** | ** ** | ** **                                              | ** **     | ** **                                            | **Attn:  Mary Beth Higgins** |
| ** ** |       |                                                    |           |                                                  |   |
| ** ** | ** ** | ** **                                              | ** **     | ** **                                            | **Mortgagee:** |
| ** ** | ** ** | ** **                                              | ** **     | ** **                                            | **Bank of  America, N.A.** |
| ** ** | ** ** | ** **                                              | ** **     | ** **                                            | **Mail  Code: TX1-492-14-11** |
| ** ** | ** ** | ** **                                              | ** **     | ** **                                            | **Bank of  America Plaza** |
| ** ** | ** ** | ** **                                              | ** **     | ** **                                            | **901 Main  Street, 14th Floor** |
| ** ** | ** ** | ** **                                              | ** **     | ** **                                            | **Dallas,  TX 75202-3714** |
| ** ** | ** ** | ** **                                              | ** **     | ** **                                            | **Attn:  Chris M. Levine, Assistant Vice President** |
| ** ** | ** ** | ** **                                              | ** **     | ** **                                            | ** ** | **Agency  Management Officer II** |
| ** ** |       |                                                    |           |                                                  |   | **GCIB  Agency Management Central I** |
| ** ** |       |                                                    |           |                                                  |
| **6.**     | ** ** | **Legal  description****:**                             | ** **     | **See Exhibit  A annexed to the document**            |
| ** ** |       |                                                    |           |                                                  |
| **7.**     | ** ** | **Reference(s)  to Book(s) and Page(s)****:**           |
| ** ** |       |                                                    |           |                                                  |   |
| **8.**     | ** ** | **Prepared  by and following recording return to****:** |
| ** ** | ** ** | ** **                                              | ** **     | ** **                                            | **Sheppard,  Mullin, Richter & Hampton LLP** |
| ** ** | ** ** | ** **                                              | ** **     | ** **                                            | **333 South  Hope Street, 48th Floor** |
| ** ** | ** ** | ** **                                              | ** **     | ** **                                            | **Los  Angeles, California 90071** |
| ** ** | ** ** | ** **                                              | ** **     | ** **                                            | **Attn:  William M. Scott IV, Esq.** |
| ** ** | ** ** | ** **                                              | ** **     | ** **                                            | **(213)620-1780** |
|            |            |                                                         |                |                                                       |  |  |  |  |  |

 

----

 

MORTGAGE, ASSIGNMENT OF RENTS AND FIXTURE FILING

 

Theparties to this Mortgage, Assignment of Rents and Fixture Filing (“Mortgage”),dated as of January 31, 2005, are HGI - Lakeside, a Nevada corporation (“Mortgagor”),as mortgagor, and BANK OF AMERICA, N.A., as “Administrative Agent” for the “Lenders”including, without limitation, “the Swing Line Lender” (as each of those threeterms is defined in the Credit Agreement), as mortgagee and secured party (“Mortgagee”).  Capitalized terms used and not otherwisedefined herein shall have the meanings given to them in that certain CreditAgreement, dated as of October 8, 2004 (as amended, extended, renewed,modified or supplemented from time to time, the “Credit Agreement”) by andamong Herbst Gaming, Inc., a Nevada corporation (“Borrower”), each lender whosename is set forth on the signature pages therein and each lender that mayhereafter become a party to the Credit Agreement pursuant to Section 10.06therein (each a “Lender” and collectively, the “Lenders”), Bank of America,N.A., as Administrative Agent, Swing Line Lender and L/C Issuer.  The Credit Agreement initially provided forRevolving Loans in the aggregate principal amount of $175,000,000.  Concurrently herewith, the Credit Agreementis being amended by a Term Joinder Agreement pursuant to which Term Loans inthe aggregate principal amount of $100,000,000 are being extended to theBorrower in addition to such Revolving Loans, for an aggregate credit facilityof $275,000,000.  The outside maturitydate for the Revolving Loans and the Term Loans is January 31, 2011.

 

Thelenders party to the Credit Agreement as of the date of this Mortgage arelisted on Exhibit B.

 

**NOTICE:This Mortgage secures credit in the amount of up to $300,000,000 (includingloans and letters of credit of up to $275,000,000 plus the amount of any creditexposure owed to the Lenders in respect of the Secured Swap Contracts referredto below).  Loans and advances up to thisamount, together with interest, are senior to indebtedness to other creditorsunder subsequently recorded or filed mortgages and liens.**

 

1.                                       Grant of Mortgage.

 

1.1                                 Grant of Mortgage.  Forgood and valuable consideration, the receipt and adequacy of which are herebyacknowledged, and in order to secure the payment and performance of each andall of the Secured Obligations defined and described in Section 1.2,Mortgagor has mortgaged, granted and conveyed and by these presents does herebysell, mortgage, grant and convey to Mortgagee, its successors and assigns, allof Mortgagor’s right,

 

2

----

 

title and interest, whethernow existing or hereafter acquired, in and to all of the following (all or anypart of such property, or any interest in all or any part of it, as the contextmay require, the “Property”), TO HAVE AND TO HOLD said Property unto and to theproper use and benefit of Mortgagee, its successors and assigns, forever:

 

(a)                                  All of Mortgagor’s right, title and interestunder and in connection with that certain Lease dated as of August 19,1997, between City of Osceola, Iowa, a municipal corporation, as landlord,Osceola Water Works Board of Trustees, as landlord, and Southern Iowa GamingCo., an Iowa corporation, as original tenant and predecessor in interest toTrustor (as amended, the “Operating Lease”), a memorandum of which (the “Memorandumof Lease”) dated November 16, 1998, was recorded on November 19,1998, in Book 83, Page 853, in the Official Records (the “Official Records”) ofClarke County (the “County”), including, without limitation, (i) alloptions to extend or renew the Operating Lease (and the leasehold estate forthe term of each extension or renewal), (ii) all options and rights offirst refusal contained in the Operating Lease to purchase the real propertywhich is subject to the Operating Lease, and (iii) all of Mortgagor’sother rights, titles and interests under the Operating Lease; together with

 

(b)                                 The real property located in the County,State of Iowa, as described in Exhibit A, together with allexisting and future easements and rights affording access to it (the “Land”);together with

 

(c)                                  All buildings, structures and improvementsnow located or later to be constructed on the Land, including, withoutlimitation, all parking areas, roads, driveways, walks, fences, walls, docks,berms, landscaping, recreation facilities, drainage facilities, lightingfacilities and other site improvements (the “Improvements”); together with

 

(d)                                 All existing and future appurtenances,privileges, easements, franchises, hereditaments and tenements of the Land,including all minerals, oil, gas, other hydrocarbons and associated substances,sulphur, nitrogen, carbon dioxide, helium and other commercially valuablesubstances which may be in, under or produced from any part of the Land, alldevelopment rights and credits, air rights, water, water courses, water rights(whether riparian, appropriative or otherwise, and whether or not appurtenant),water stock and water permits (together with the statutory right to fileapplications to change, and any and all applications to change the same),including any water permits, easements, rights of way, rights of ingress andegress, drainage rights, gores or strips of land, any land lying in thestreets, highways, ways, sidewalks, alleys, passages, roads or avenues, open orproposed, in front of or adjoining the Land and Improvements, any land in thebed of any body of water adjacent to the Land, any land adjoining the Landcreated by artificial means or by accretion, all air space and rights to usesuch air space, and all development and similar rights; together with

 

(e)                                  Subject to Article 2, below, allexisting and future leases, subleases, subtenancies, licenses (except forgaming licenses and liquor licenses that are not transferable), occupancyagreements, concessions and any other agreement devising any portion of theProperty or relating to the use and enjoyment of all or any part of the

 

3

----

 

Landand Improvements, and any and all guaranties and other agreements relating toor made in connection with any of the foregoing, whether written or oral andwhether in existence at or upon the recordation of this Mortgage or enteredinto after the recordation of this Mortgage (some or all collectively, as thecontext may require, “Leases”), and all rents, security deposits, royalties,issues, profits, receipts, earnings, revenue, income, products and proceeds andother benefits of the Land and Improvements, whether now due, past due or tobecome due, including, without limitation, all prepaid rents, securitydeposits, fixed, additional and contingent rents, deficiency rents andliquidated damages, license fees, occupancy charges, hotel room charges, cabanacharges, casino revenues, show ticket revenues, food and beverage revenues,room service revenues, merchandise sales revenues, parking, maintenance, commonarea, tax, insurance, utility and service charges and contributions, proceedsof sale of electricity, gas, heating, air-conditioning, cable and otherutilities and services, green fees, cart rental fees, instruction fees,membership charges, restaurant, snack bar and pro shop revenues, liquidateddamages, and all other rights to payments, together with and any and allguaranties and other agreements relating to or made in connection with any ofsuch leases (some or all collectively, as the context may require, “Rents”);together with

 

(f)                                    All goods, materials, supplies, chattels,furniture, fixtures, equipment, machinery and other property now or later to beattached to, placed in or on, or used in connection with the use, enjoyment,occupancy or operation of all or any part of the Land and Improvements, whetherstored on the Land or elsewhere, including all pumping plants, engines, pipes,ditches and flumes, and also all gas, electric, cooking, heating, cooling, airconditioning, lighting, refrigeration and plumbing fixtures and equipment, allwater, sanitary and storm sewer, drainage, electricity, steam, gas, telephone,cable and other utility equipment and facilities, all plumbing, lighting,heating, ventilating, air conditioning, refrigerating, incinerating,compacting, fire protection and sprinkler, surveillance and security, vacuumcleaning, public address and communications equipment and systems, all kitchenand laundry appliances, screens, awnings, floor coverings, partitions,elevators, escalators, motors, machinery, pipes, fittings and other items ofequipment and property of every kind and description, all of which shall beconsidered to the fullest extent of the law to be real property for purposes ofthis Mortgage (it being agreed that, if the lien of this Mortgage shall besubject to a conditional bill of sale, chattel mortgage, or other securityinterest covering any such property, then all the right, title and interest ofMortgagor in and to such property, together with the benefits of any depositsor payments now or hereafter made thereon, are and shall be covered by the lienof this Mortgage); together with

 

(g)                                 All building materials, equipment, work inprocess or other personal property of any kind, whether stored on the Land orelsewhere, which have been or later will be acquired for the purpose of beingdelivered to, incorporated into or installed in or about the Land orImprovements; together with

 

(h)                                 All rights to the payment of money, accounts,accounts receivable, reserves, deferred payments, refunds, cost savings,payments and deposits, room revenues, food revenues, beverage revenues andcasino revenues, whether now or later to be received from third parties(including all earnest money sales deposits) or deposited by

 

4

----

 

Mortgagorwith third parties (including all utility deposits), contract rights,development and use rights, governmental permits and licenses (except forgaming licenses and liquor licenses that are not transferable), authorizations,certificates, variances, consents and approvals, applications, architecturaland engineering plans, specifications and drawings, as-built drawings, guaranties,warranties, management agreements, operating and/or licensing agreements,supply and service contracts for water, sanitary and storm sewer, drainage,electricity, steam, gas, telephone, cable, satellite, and other utilities,property and title insurance policies and proceeds thereof (including withoutlimitation the right to assert, prosecute and settle claims under suchpolicies), chattel paper, instruments, documents, notes, certificates ofdeposit, securities, other investments, drafts and letters of credit (otherthan letters of credit in favor of Mortgagee), which arise from or relate toconstruction on the Land or to any business now or later to be conducted on it,or to the Land and Improvements generally; together with

 

(i)                                     All proceeds, including all rights and claimsto, dividends of and demands for them, of the voluntary or involuntaryconversion of any of the Land, Improvements or the other property describedabove into cash or liquidated claims, including proceeds of all present andfuture fire, hazard or casualty insurance policies (whether or not any suchinsurance policy is required by this Mortgage or any other Loan Document) andall condemnation awards or payments now or later to be made by any public bodyor decree by any court of competent jurisdiction for any taking or inconnection with any condemnation or eminent domain proceeding, and all causesof action and their proceeds for any damage or injury to the Land, Improvementsor the other property described above or any part of them, or breach ofwarranty in connection with the construction of the Improvements, includingcauses of action arising in tort, contract, fraud or concealment of a materialfact; together with

 

(j)                                     All books and records pertaining to any andall of the property described above, including computer readable memory and anycomputer hardware or software necessary to access and process such memory (“Booksand Records”); together with

 

(k)                                  All proceeds of, additions and accretions to,substitutions and replacements for, changes in, and greater right, title andinterest in, to and under or derived from, any of the property described aboveand all extensions, improvements, betterments, renewals, substitutions andreplacements thereof and additions and appurtenances thereto, including allproceeds of any voluntary or involuntary disposition or claim, right and remedyrespecting any such property (arising out of any judgment, condemnation oraward, or otherwise arising) and all goods, documents, general intangibles,chattel paper and accounts, wherever located, acquired with cash proceeds ofany of the foregoing or its proceeds.

 

Notwithstandingthe foregoing, the term “Property,” as used in this Mortgage, shall not include(i) any personal property or fixtures, the purchase of which was financed by apurchase money security interest, including any capital lease obligation,permitted under the Credit Agreement to the extent that the documents creatingsuch purchase money security interest or capital lease prohibit the grantingthereon, but only for so long as the related indebtedness

 

5

----

 

remains outstanding, (ii)any capital stock or other equity interests in any gaming licenses, and (iii)any gaming licenses and liquor licenses which are not transferable.

 

Mortgagorshall and will warrant and forever defend the Property in the quiet andpeaceable possession of the Mortgagee, its successors and assigns against alland every Person or Persons lawfully claiming or to claim the whole or any partthereof.  Mortgagor agrees that anygreater title to the Property hereafter acquired by Mortgagor during the termhereof shall be subject hereto.

 

1.2                                 Secured Obligations.

 

1.2.1                        Mortgagor makes the grant, bargain,conveyance, sale, transfer and assignment set forth in Section 1.1and grants the security interest set forth in Article 3 for thepurpose of securing the following obligations (collectively, the “SecuredObligations”) in any order of priority that Mortgagee may choose:

 

(a)                                  Except as specified in Section 1.2.2below, the payment and performance of each obligation of Mortgagor pursuant tothat certain Guaranty (as amended as of the date hereof, the “Guaranty”), datedJune 10, 2004, entered into by Mortgagor in favor of Mortgagee pursuant tothat Instrument of Joinder to Guaranty dated as of October 8, 2004.  The Guaranty has been entered into byMortgagor to, among other things, guaranty the payment and performance of allobligations of Borrower to Mortgagee under the Credit Agreement and all relatedLoan Documents, pursuant to which the Lenders have extended or have agreed toextend to the Borrower certain secured revolving and term credit facilities,presently in the aggregate principal amount of $275,000,000 (the “Commitment”),including, but not limited to the payment of all amounts owing under the SwingLine, the payment of all amounts owing with respect to the Letters of Credit,including without limitation unreimbursed drawings and obligations to furnishcash collateral as provided in the Credit Agreement, and the payment of allamounts owing under any and all Secured Swap Contracts entered into by theBorrower with any Lender or Affiliate thereof;

 

(b)                                 The payment and performance of all futureadvances and other obligations that Mortgagor or any other Person or entity mayowe to Mortgagee and/or any Lender (whether as principal, surety or guarantor),when a writing evidences Mortgagor’s and Mortgagee’s agreement that suchadvances or obligations be secured by this Mortgage;

 

(c)                                  The payment and performance of allobligations of Mortgagor under this Mortgage;

 

(d)                                 The payment and performance of allmodifications, amendments, extensions and renewals, however evidenced, of anyof the Secured Obligations described in clause (a), (b) or (c) above.

 

1.2.2                        Notwithstanding any provision of thisMortgage or any other Loan Document, the obligations and liability ofMortgagor, any Borrower or any other Person arising under Sections 5.09and/or 10.04 of the Credit Agreement (and/or under any separateagreement

 

6

----

 

relating to HazardousMaterials which states that it is not secured by real property) are not andshall not be Secured Obligations under this Mortgage.

 

1.2.3                        All Persons who may have or acquire aninterest in all or any part of the Property will be considered to have noticeof, and will be bound by, the terms of the Secured Obligations and each otheragreement or instrument made or entered into in connection with each of theSecured Obligations.  Such terms includeany provisions in the Credit Agreement or the other Loan Documents which permitborrowing, repayment and reborrowing, or which provide that the interest rateon one or more of the Secured Obligations may vary from time to time.

 

1.2.4                        In addition to the indebtedness evidenced bythe Guaranty and all other Secured Obligations, this Mortgage, to the fullestextent permitted by the Laws of the State of Iowa, shall secure also andconstitute a Lien on the Property for all future advances made by the Mortgageeto Borrower and future obligations incurred by Borrower to Mortgagee inconnection with the Property to the same extent as if such future advances weremade or such future obligations incurred on the date of the execution of this Mortgage.  The total amount of the indebtedness that maybe secured by this Mortgage shall not exceed a maximum principal amount equalto $300,000,000.00 plus future advances and/or future obligations made orincurred for the reasonable protection of the security or to enable completionof a contemplated improvement.

 

2.                                       Assignment of Rents and Leases.

 

2.1                                 Assignment.  Mortgagor hereby irrevocably,absolutely, presently and unconditionally assigns, transfers and sets over toMortgagee all of the right, title and interest which Mortgagor now has or maylater acquire in and to the Rents and the Leases, and confers upon Mortgageethe right to collect such Rents and enforce the provisions of the Leases withor without taking possession of the Property. This is an absolute assignment, not an assignment for security only.

 

2.2                                 Grant of License. Mortgagee hereby confers upon Mortgagor a license (“License”) to collectand retain the Rents as they become due and payable, so long as no Event ofDefault, as defined in Section 6.2, shall exist and becontinuing.  If an Event of Default hasoccurred and is continuing, Mortgagee shall have the right, which it may chooseto exercise in its absolute discretion, to terminate this License without noticeto or demand upon Mortgagor, and without regard to the adequacy of Mortgagee’ssecurity under this Mortgage.

 

2.3                                 Collection and Application of Rents. Subject to the License granted to Mortgagor under Section 2.2,Mortgagee has the right, power and authority to collect any and all Rents andexercise Mortgagor’s right, title and interest under the Leases.  Mortgagor hereby appoints Mortgagee itsattorney-in-fact to perform any and all of the following acts, if and at thetimes when Mortgagee in its absolute discretion may so choose:

 

(a)                                  Demand, receive and enforce payment of anyand all Rents and any other right, title and interest of Mortgagor under theLeases; or

 

7

----

 

(b)                                 Give receipts, releases and satisfactions forany and all Rents and any other obligations and duties under the Leases; or

 

(c)                                  Sue either in the name of Mortgagor or in thename of Mortgagee for any and all Rents and to enforce any other obligationsand duties under the Leases.

 

Mortgagee’s right to theRents and the Leases does not depend on whether or not Mortgagee takespossession of the Property as permitted under Section 6.3.3.  In Mortgagee’s absolute discretion, Mortgageemay choose to collect Rents and exercise the right, title and interest ofMortgagor under the Leases either with or without taking possession of theProperty.  Mortgagee shall apply allRents collected by it in the manner provided under Section 6.6.  If an Event of Default shall have occurredand Mortgagee is in possession of all or part of the Property and is collectingand applying Rents and exercising any right, title and interest of Mortgagorunder the Leases as permitted under this Mortgage, then Mortgagee and anyreceiver shall nevertheless be entitled to exercise and invoke every right andremedy afforded any of them under this Mortgage and at law and in equity.

 

2.4                                 Mortgagee Not Responsible. Under no circumstances shall Mortgagee have any duty to produce Rentsfrom the Property or maintain the Leases. Regardless of whether or not Mortgagee, in Person or by agent, takesactual possession of the Land and Improvements, Mortgagee is not and shall notbe deemed to be:

 

(a)                                  a “mortgagee in possession” for any purpose;or

 

(b)                                 responsible for performing any of theobligations under any Lease; or

 

(c)                                  responsible for any waste committed bylessees or any other parties, any dangerous or defective condition of theProperty, or any negligence in the management, upkeep, repair or control of theProperty; or

 

(d)                                 liable in any manner for the Property or theuse, occupancy, enjoyment or operation of all or any part of it.

 

Notwithstanding theforegoing, this Section 2.4 shall not be construed as a waiver ofany liability of Mortgagee to Mortgagor that would otherwise exist as a resultof Mortgagee’s gross negligence or willful misconduct.

 

2.5                                 Leasing.  Without Mortgagee’s priorwritten consent, Mortgagor shall not accept any deposit or prepayment of Rentsfor any period exceeding one (1) month, and Mortgagor shall not lease theProperty or any part of it except strictly in accordance with the LoanDocuments.  Mortgagor shall not apply anyRents in any manner prohibited by the Loan Documents.

 

3.                                       Grant of Security Interest.

 

3.1                                 Security Agreement.  Theparties intend for this Mortgage to create a lien on and security interest inthe Property, and an absolute assignment of the Rents and the Leases,

 

8

----

 

all in favor ofMortgagee.  The parties acknowledge thatsome of the Property and some of the Rents and Leases may be determined underapplicable law to be personal property or fixtures.  To the extent such Property, Rents or Leasesconstitute personal property, Mortgagor, as debtor, hereby grants to Mortgagee,as secured party, a security interest in all such Property, Rents and Leases,to secure payment and performance of the Secured Obligations, and Mortgagor, asdebtor, also has granted a security interest in such Property, Rents and Leasespursuant to that certain Amended and Restated Security Agreement dated October 8,2004, executed by the Borrower and each of its Subsidiaries, as debtor, infavor of Mortgagee, as secured party, as modified from time to time.  This Mortgage constitutes a securityagreement under the Iowa Uniform Commercial Code, as amended or recodified fromtime to time, covering all such Property, Rents and Leases.  To the extent any revenues generated inconnection with the operation of the Property from time to time are not realproperty encumbered by the lien created by Section 1.1, above, andare not absolutely assigned by the assignment set forth in Section 2.1,above, it is the intention of the parties that such revenues shall constitute “proceeds,products, offspring, rents or profits” (as defined in and for the purposes of Section 552(b)of the United States Bankruptcy Code, as such section may be modified orsupplemented) of the Land and Improvements, and/or “fees, charges, accounts, orother payments for the use or occupancy of rooms and other public facilities inhotels, motels or other lodging properties,” as applicable (as such terms aredefined in and for the purpose of Section 552(b) of the United StatesBankruptcy Code, as such Section may be modified or supplemented).

 

3.2                                 Financing Statements. Mortgagor consents to the filing by Mortgagee of one or more financingstatements and such other documents as Mortgagee may from time to time requireto perfect or continue the perfection of Mortgagee’s security interest in anyProperty, Rents or Leases.  As providedin Section 5.10, Mortgagor shall pay all fees and costs thatMortgagee may incur in filing such documents in public offices and in obtainingsuch record searches as Mortgagee may reasonably require.  If Mortgagor fails to execute any financingstatements or other documents for the perfection or continuation of anysecurity interest, Mortgagor hereby appoints Mortgagee as its true and lawfulattorney-in-fact (which appointment is irrevocable and coupled with aninterest) to execute any such documents on its behalf.  If any financing statement or other documentis filed in the records normally pertaining to personal property, that filingshall never be construed as in any way derogating from or impairing thisMortgage or the rights or obligations of the parties under it.

 

4.                                       Fixture Filing.  ThisMortgage constitutes a financing statement filed as a fixture filing under theIowa Uniform Commercial Code, as amended or recodified from time to time,covering any Property which now is or later may become fixtures attached to theLand or Improvements.  In connectiontherewith, the addresses of Mortgagor, as debtor, and Mortgagee, as securedparty, are as set forth in Section 8.11, below.  The foregoing address of Mortgagee, assecured party, is also the address from which information concerning thesecurity interest may be obtained by any interested party.  The property subject to this fixture filingis described in Section 1.1, above. Portions of the property subject to this fixture filing as identified inthis Section are or are to become fixtures related to the real estatedescribed in Exhibit A attached hereto.

 

9

----

 

5.                                       Rights and Duties of the Parties.

 

5.1                                 Representations and Warranties. Mortgagor represents and warrants that, except as previously disclosedto Mortgagee in a writing making reference to this Section 5.1:

 

(a)                                  Mortgagor lawfully possesses and holds feesimple title to all of the Land and Improvements thereon and has or will havegood title to all Property (other than personal property utilized by Mortgagorunder such equipment leases and similar financing arrangements as weredisclosed to Mortgagee in writing prior to the execution of this Mortgage or asare hereafter entered into by Mortgagor in accordance with the CreditAgreement);

 

(b)                                 Mortgagor has the full and unlimited power,right and authority to encumber the Property and assign the Rents and theLeases;

 

(c)                                  This Mortgage creates a first and prior lienon and security interest in the Property;

 

(d)                                 The Property includes all property and rightswhich may be reasonably necessary to promote the present beneficial use andenjoyment of the Land and Improvements;

 

(e)                                  Mortgagor owns any Property which is personalproperty free and clear of any security agreements, reservations of title orconditional sales contracts, and there is no financing statement affecting suchpersonal property on file in any public office (other than personal propertyutilized by Mortgagor under such equipment leases and similar financing arrangementsas were disclosed to Mortgagee in writing prior to the execution of thisMortgage or as are hereafter entered into by Mortgagor in accordance with theCredit Agreement);

 

(f)                                    Mortgagor’s place of business, or its chiefexecutive office if it has more than one place of business, is located at theaddress specified below; and

 

(g)                                 The Property is located in an area having oridentified as having special flood hazards or any similar designation under theNational Flood Insurance Act of 1968, as amended or recodified from time totime, or the Flood Disaster Protection Act of 1973, as amended or recodifiedfrom time to time.

 

(h)                                 None of the Property constitutes and none ofthe loans secured by the Mortgage will be used to purchase any: (i) real propertythat is a single-family or a two-family dwelling occupied or to be occupied bythe Mortgagor; (ii) agricultural products or property used for an agriculturalpurpose as defined in Section 535.13 of the Iowa Code, now enacted orhereafter modified, amended or replaced; (iii) agricultural land as defined in Section 9H.1(2)of the Iowa Code, now enacted or hereafter modified, amended or replaced; or(iv) property used for an agricultural purpose as defined in Section 570A.1(2)of the Iowa Code, now enacted or hereafter modified, amended or replaced.

 

10

----

 

5.2                                 Taxes and Assessments. Mortgagor shall pay prior to delinquency all taxes, levies, charges andassessments, including assessments on appurtenant water stock, imposed by anypublic or quasi-public authority or utility company which are (or if not paid,may become) a lien on or security interest in all or part of the Property orany interest in it, or which may cause any decrease in the value of theProperty or any part of it.  If any suchtaxes, levies, charges or assessments become delinquent, Mortgagee may requireMortgagor to present evidence that they have been paid in full, on ten (10)days’ written notice by Mortgagee to Mortgagor. This Section 5.2 is subject to the right granted in Section 5.11of the Credit Agreement to contest in good faith certain taxes, assessments,charges and levies.

 

5.3                                 Performance of Secured Obligations. Mortgagor shall promptly pay and perform each Secured Obligation in accordancewith its terms.

 

5.4                                 Liens, Charges and Encumbrances. Mortgagor shall immediately discharge any lien on or security interestin the Property to which Mortgagee has not consented in writing.  Subject to any applicable rights to contestset forth in the Credit Agreement, Mortgagor shall pay, prior to delinquency,each obligation secured by or reducible to a lien, security interest, charge orencumbrance which now does or later may encumber or appear to encumber all orpart of the Property or any interest in it, whether the lien, securityinterest, charge or encumbrance is or would be senior or subordinate to thisMortgage.

 

5.5                                 Damages and Insurance and CondemnationProceeds.

 

5.5.1                        Mortgagor hereby absolutely and irrevocablyassigns to Mortgagee, and authorizes the payor to pay to Mortgagee, thefollowing claims, causes of action, awards, payments and rights to payment:

 

(a)                                  All awards of damages and all othercompensation payable directly or indirectly because of a condemnation, proposedcondemnation or taking for public or private use which affects all or part ofthe Property or any interest in it; and

 

(b)                                 All other awards, claims and causes ofaction, arising out of any warranty affecting all or any part of the Property,or for damage or injury to or decrease in value of all or part of the Propertyor any interest in it; and

 

(c)                                  All proceeds of any insurance policiespayable because of loss sustained to all or part of the Property; and

 

(d)                                 All interest which may accrue on any of theforegoing.

 

5.5.2                        Mortgagor shall immediately notify Mortgageein writing if:

 

(a)                                  Any damage occurs or any injury or loss issustained in the amount of $250,000 or more to all or part of the Property, orany action or proceeding relating to any such damage, injury or loss iscommenced; or

 

11

----

 

(b)                                 Any offer is made, or any action orproceeding is commenced, which relates to any actual or proposed condemnationor taking of all or part of the Property.

 

5.5.3                        If Mortgagee chooses to do so, Mortgagee mayin its own name appear in or prosecute any action or proceeding to enforce anycause of action based on warranty, or for damage, injury or loss to all or partof the Property and, while any Event of Default remains uncured, Mortgagee maymake any compromise or settlement of the action or proceeding.  Mortgagee, if it so chooses, may participatein any action or proceeding relating to condemnation or taking of all or partof the Property, and may join Mortgagor in adjusting any loss covered byinsurance.  Mortgagor hereby irrevocablyappoints Mortgagee its true and lawful attorney-in-fact for all suchpurposes.  The power of attorney grantedhereunder is coupled with an interest and is irrevocable.  Mortgagor shall not settle, adjust orcompromise any such action or proceeding without the prior written approval ofMortgagee, which shall not be unreasonably withheld or delayed.

 

5.5.4                        All proceeds of these assigned claims, otherproperty and rights which Mortgagor may receive or be entitled to(collectively, “Proceeds”) shall be paid to Mortgagee.  In each instance, Mortgagee shall apply suchProceeds first toward reimbursement of all of Mortgagee’s costs and expenses ofrecovering the Proceeds, including attorneys’ fees.  If, in any instance, each and all of thefollowing conditions (the “Restoration Conditions”) are satisfied in Mortgagee’sreasonable judgment, Mortgagee shall permit Mortgagor to use the balance ofsuch Proceeds (“Net Claims Proceeds”) to pay costs of repairing or reconstructingthe Property in the manner described below:

 

(a)                                  The plans and specifications, cost breakdown,construction contract, construction schedule, contractor and payment andperformance bond for the work of repair or reconstruction must all be reasonablyacceptable to Mortgagee; and

 

(b)                                 Mortgagee must receive evidence reasonablysatisfactory to it that, after repair or reconstruction, the Property will beat least as valuable as it was immediately before the damage or condemnationoccurred; and

 

(c)                                  The Net Claims Proceeds must be sufficient inMortgagee’s reasonable determination to pay for the total cost of repair orreconstruction, including all associated development costs and interestprojected to be payable on the Secured Obligations until the repair orreconstruction is complete; or Mortgagor must provide its own funds in anamount equal to the difference between the Net Claims Proceeds and a reasonableestimate, made by Mortgagor and found acceptable by Mortgagee, of the totalcost of repair or reconstruction; and

 

(d)                                 No Event of Default shall have occurred andbe continuing.

 

If Mortgagee finds that suchconditions have been met, Mortgagee shall hold the Net Claims Proceeds and anyfunds which Mortgagor is required to provide in an interest-bearing passbooksavings account and shall disburse them to Mortgagor on a monthly basis inaccordance with Mortgagee’s customary construction lending procedures.  However, if an Event of Default has

 

12

----

 

occurred and is continuing,Mortgagee may apply the Net Claims Proceeds to pay or prepay (without premium)some or all of the Secured Obligations in such order and proportions asMortgagee in its absolute discretion may choose (subject to the provisions forpriority of application of payments set forth in the Credit Agreement).  Any and all Proceeds (including, withoutlimitation, any Net Claims Proceeds) held by Mortgagee from time to time shallbe collateral for the Secured Obligations, and Mortgagor hereby grants toMortgagee a security interest in and lien on such Proceeds and all rights andremedies available under applicable laws with respect to such Proceeds,including, without limitation, all rights and remedies under the Iowa UniformCommercial Code.  Mortgagor shall executeand deliver to Mortgagee and the Lenders any and all documents reasonablyrequested by Mortgagee in order to confirm, create and perfect such securityinterest in and lien on such Proceeds.  Inthe event that any Proceeds are applied to pay any Secured Obligations, thenMortgagee shall have no obligation to disburse or release such applied Proceedsto Mortgagor under this Section 5.5.  If no Event of Default shall have occurredand be continuing, any funds remaining upon completion of the repair orreconstruction shall be returned to Mortgagor.

 

5.5.5                        Mortgagor hereby specifically,unconditionally and irrevocably waives all rights of a property owner grantedunder applicable law, which provide for allocation of condemnation proceeds betweena property owner and a lienholder, and any other law or successor statute ofsimilar import.  Mortgagor herebyspecifically, unconditionally and irrevocably waives all right to recoveragainst Mortgagee or any Lender (or any officer, employee, agent orrepresentative of Mortgagee or any Lender) for any loss incurred by Mortgagorfrom any cause insured against or required by any Loan Document to be insuredagainst; provided, however, that this waiver of subrogation shall not beeffective with respect to any insurance policy if the coverage thereunder wouldbe materially reduced or impaired as a result.

 

5.5.6                        Notwithstanding anything to the contrary setforth in this Section 5.5, so long as no Event of Default remainsuncured, the proceeds of any casualty or condemnation for which the gross valueof the applicable damage and/or taking is less than $250,000 shall be paid toMortgagor rather than to Mortgagee (and shall be delivered to Mortgagor ifreceived by Mortgagee), and Mortgagor shall not be required to obtain Mortgagee’sconsent to settle, adjust or compromise any action or proceeding relating toany such casualty or condemnation (nor shall Mortgagee be entitled toparticipate in such action or proceeding).

 

13

----

 

5.6                                 Maintenance and Preservation of Property.

 

5.6.1                        Except as permitted in the Credit Agreement,Mortgagor shall not remove or demolish the Property or any part of it, oralter, restore or add to the Property, or initiate or allow any change in anyzoning or other land use classification which affects the Property or any partof it, except as permitted or required by the Credit Agreement or withMortgagee’s express prior written consent in each instance; provided that,without Mortgagee’s consent, Mortgagor shall be entitled to remove personalproperty in the ordinary course of Mortgagor’s business so long as any suchpersonal property is replaced with property of comparable value.

 

5.6.2                        If all or part of the Property becomesdamaged or destroyed, Mortgagor shall promptly and completely repair and/orrestore the Property in a good and workmanlike manner in accordance with soundbuilding practices, regardless of whether or not Mortgagee agrees to disburseinsurance proceeds or other sums to pay costs of the work of repair orreconstruction under Section 5.5.

 

5.6.3                        Mortgagor shall not commit or allow any actupon or use of the Property which would violate:  (i) any applicable law or order of anyGovernmental Agency, whether now existing or later to be enacted and whetherforeseen or unforeseen (except to the extent that noncompliance would not causea Material Adverse Effect or a License Revocation); or (ii) any public orprivate covenant, condition, restriction or equitable servitude affecting theProperty.  Mortgagor shall not bring orkeep any article on the Property or cause or allow any condition to existon it, that could invalidate or would be prohibited by any insurance coveragerequired to be maintained by Mortgagor on the Property or any part of it underthis Mortgage.

 

5.6.4                        Mortgagor shall not commit or allow waste ofthe Property.

 

5.6.5                        Mortgagor shall perform all other acts whichfrom the character or use of the Property may be reasonably necessary tomaintain and preserve its value. Without limiting the generality of theforgoing, Mortgagor shall protect and preserve all easements, rights-of-way andother appurtenances to the Land and/or Improvements.  Mortgagor shall not cause or allow any such easement,right-of-way and other appurtenance to be cancelled, rejected or otherwiseterminated, or modified (except for such terminations that occur pursuant tothe terms of such easement, right of way and other appurtenance).

 

5.7                                 Insurance.

 

5.7.1                        Mortgagor shall maintain the following insurancewith respect to the Property:

 

(a)                                  Mortgagor shall provide, maintain and keep inforce at all times during any period of construction with respect to theportion of the Property affected by such construction a policy or policies ofbuilder’s “all risk” insurance in nonreporting form in an amount not less thanthe full insurable completed value of such portion of the Property on areplacement cost basis.  The policy orpolicies shall insure against loss or damage by hazards customarily includedwithin such “all risk” policies and any other risks or hazards which Mortgageemay reasonably specify (and shall include boiler and

 

14

----

 

machineryinsurance from and after the date on which any such equipment is installed onthe Property), and each shall contain a Lender’s Loss Payable Endorsement (Form438 BFU or equivalent) in favor of Mortgagee; provided that Mortgagee shall notbe entitled to require Mortgagor to insure the Property against earthquakerisks during any period in which earthquake insurance is not available withrespect to the Property at commercially reasonable rates.

 

(b)                                 Mortgagor shall provide, maintain and keep inforce at all times for all portions of the Property not covered by a policy orpolicies described in Section 5.7.1(a), above, a policy or policiesof fire and hazards “all risk” insurance providing extended coverage, in anamount not less than the full insurable value of such portions of the Propertyon a replacement cost basis.  The policyor policies shall insure against loss or damage by hazards customarily includedwithin “all risk” and “extended coverage” policies and any other risks orhazards which Mortgagee may reasonably specify (and shall include boiler andmachinery insurance), and each shall contain a Lender’s Loss PayableEndorsement (Form 438 BFU or equivalent) in favor of Mortgagee.

 

(c)                                  Mortgagor shall provide, maintain and keep inforce at all times for all portions of the Property any policy or policies ofbusiness interruption insurance that Mortgagee reasonably requires (includinginsurance against income loss during a period of at least six (6) months), andeach such policy shall contain a Lender’s Loss Payable Endorsement (Form 438BFU or equivalent) in favor of Mortgagee.

 

(d)                                 Mortgagor shall provide, maintain and keep inforce at all times a policy or policies of comprehensive liability insurancenaming Mortgagee and the Lenders as additional insureds, on an “occurrence”basis, against claims for “personal injury” liability, including bodily injury,death or property damage liability, with a limit of not less than Fifty MillionDollars ($50,000,000).  Such insuranceshall be primary and noncontributory with any other insurance carried byMortgagee and/or any Lender(s).

 

(e)                                  Mortgagor shall provide, maintain and keep inforce at all times such policies of worker’s compensation insurance as may berequired by applicable laws (including employer’s liability insurance, ifrequired by Mortgagee), covering all employees of Mortgagor.

 

(f)                                    Mortgagor shall provide, maintain and keep inforce at all times any and all additional insurance that Mortgagee (asinstructed by the Requisite Lenders) may from time to time require, so long assuch insurance is available in the commercial market at reasonable rates.

 

(g)                                 If the Property is required to be insuredpursuant to the Flood Disaster Protection Act of 1973 or the National FloodInsurance Act of 1968, and the regulations promulgated thereunder, because itis located in an area which has been identified by the Secretary of Housing andUrban Development as a Flood Hazard Area, then Mortgagor shall provide,maintain and keep in force at all times a flood insurance policy covering theProperty in limits that would exceed the damage caused by what is expected tobe the most severe flood (or any greater limits to the extent required by

 

15

----

 

applicablelaw from time to time), containing a Lender’s Loss Payable Endorsement (Form438 BFU or equivalent) in favor of Mortgagee.

 

5.7.2                        All such policies of insurance shall beissued by companies approved by Mortgagee having a minimum A.M. Best’s ratingof A-:IX.  The limits, coverage, forms,deductibles, inception and expiration dates and cancellation provisions of allsuch policies shall be reasonably acceptable to Mortgagee.  Each property insurance policy maintained inconnection with any of the Property shall contain a Lender’s Loss PayableEndorsement (Form 438 BFU or equivalent) in favor of Mortgagee, and shallprovide that all proceeds be payable to Mortgagee to the extent of itsinterest.  Each liability insurancepolicy maintained in connection with any of the Property shall name Mortgageeand the Lenders as additional insureds. An approval by Mortgagee is not, and shall not be deemed to be, arepresentation of the solvency of any insurer or the sufficiency of any amountof insurance.  Each policy of insurancerequired hereunder shall provide that it may not be modified or cancelledwithout at least thirty (30) days’ prior written notice to Mortgagee (or ten(10) days’ prior written notice in the event of a premium nonpayment), andshall permit a waiver of subrogation by Mortgagor in favor of Mortgagee and theLenders.

 

5.7.3                        Mortgagor shall supply Mortgagee withcertificates of each policy required hereunder and any other policy ofinsurance maintained in connection with any of the Property, together with anoriginal (which may be a duplicate original) or underlyer of each such policyand all endorsements thereto.  When anyinsurance policy required hereunder expires, Mortgagor shall furnish Mortgageewith proof acceptable to Mortgagee that the policy has been reinstated or a newpolicy issued, continuing in force the insurance covered by the policy whichexpired.  If Mortgagor fails to pay anysuch premium, Mortgagee shall have the right, but not the obligation, to obtaincurrent coverage and advance funds to pay the premiums for it.  Mortgagor shall repay Mortgagee immediatelyon demand for any advance for such premiums, which shall be considered to be anadditional loan to Mortgagor bearing interest at the Default Rate, and securedby this Mortgage and any other collateral held by Mortgagee in connection withthe Secured Obligations.

 

5.8                                 Releases, Extensions, Modifications andAdditional Security.

 

5.8.1                        From time to time, Mortgagee and/or anyLender may perform any of the following acts without incurring any liability orgiving notice to any Person, and without affecting the personal liability ofany Person for the payment of the Secured Obligations (except as providedbelow), and without affecting the security hereof for the full amount of theSecured Obligations on all Property remaining subject hereto, and without thenecessity that any sum representing the value of any portion of the Propertyaffected by Mortgagee’s and/or such Lender’s action(s) be credited on theSecured Obligations:

 

(a)                                  Release any Person liable for payment of anySecured Obligation;

 

(b)                                 Extend the time for payment, or otherwisealter the terms of payment, of any Secured Obligation;

 

16

----

 

(c)                                  Accept additional real or personal propertyof any kind as security for any Secured Obligation, whether evidenced by deedsof trust, mortgages, security agreements or any other instruments of security;or

 

(d)                                 Alter, substitute or release any propertysecuring the Secured Obligations.

 

(e)                                  [Intentionally Omitted].

 

5.9                                 Reconveyance.  Upon(a) the expiration or termination of the Commitment, (b) the full andfinal payment in cash of the Loans and all interest and fees with respectthereto, (c) the payment of all other amounts then demanded by Mortgageeor any Lender or indemnitee and then owed under the Credit Agreement, and (d) thepayment of all other amounts then due under the Guaranty and the other LoanDocuments and the full payment and performance of all other Secured Obligations(other than indemnity obligations, if any, that are not then due), Mortgageeshall reconvey the Property, and shall surrender this Mortgage.  When Mortgagee receives all fees and othersums owing to Mortgagee under Section 5.10, Mortgagee shallreconvey the Property, or so much of it as is then held under this Mortgage,without warranty, to the Person or Persons legally entitled to it.  Such Person or Persons shall pay any costs ofrecordation.  In the reconveyance, thegrantee may be described as “the person or persons legally entitled thereto,”and the recitals of any matters or facts shall be conclusive proof of theirtruthfulness.  Mortgagee shall not haveany duty to determine the rights of Persons claiming to be rightful grantees ofany reconveyance.

 

5.10                           Compensation, Exculpation, Indemnification.

 

5.10.1                  Mortgagor agrees to pay reasonable fees asmay be charged by Mortgagee, subject to the maximum amounts legally permitted,for any services that Mortgagee may render in connection with this Mortgage,including Mortgagee’s providing a statement of the Secured Obligations orrendering of services in connection with a reconveyance.  Mortgagor shall also pay or reimburse all ofMortgagee’s costs and expenses which may be incurred in rendering any suchservices.  Mortgagor further agrees topay or reimburse Mortgagee for all costs, expenses and other advances which maybe incurred or made by Mortgagee in any efforts to enforce any terms of thisMortgage, including any rights or remedies afforded to Mortgagee under Section 6.3,whether any lawsuit is filed or not, or in defending any action or proceedingarising under or relating to this Mortgage, including reasonable attorneys’fees and other legal costs, costs of any Foreclosure Sale (as defined in Section 6.3.8)and any cost of evidence of title.  IfMortgagee chooses to dispose of the Property through more than one ForeclosureSale, Mortgagor shall pay all costs, expenses or other advances that may beincurred or made by Mortgagee in each of such Foreclosure Sales.

 

5.10.2                  Mortgagee shall not be directly or indirectlyliable to Mortgagor or any other Person as a consequence of any of thefollowing:

 

(a)                                  Mortgagee’s exercise of, or failure toexercise, any rights, remedies or powers granted to Mortgagee in this Mortgage;

 

17

----

 

(b)                                 Mortgagee’s failure or refusal to perform ordischarge any obligation or liability of Mortgagor under any agreement relatedto the Property or under this Mortgage; or

 

(c)                                  Any loss sustained by Mortgagor or any thirdparty resulting from Mortgagee’s failure to lease or operate the Property, or fromany other act or omission of Mortgagee in managing the Property, after an Eventof Default, unless the loss is caused by the willful misconduct and bad faithof Mortgagee.

 

Mortgagor hereby expresslywaives and releases all liability of the types described above, and agrees thatno such liability shall be asserted against or imposed upon Mortgagee.

 

5.10.3                  Mortgagor agrees to indemnify Mortgagee andthe Lenders (collectively, the “Indemnitees”) against and hold them harmlessfrom all losses, damages, liabilities, claims, causes of action, judgments,court costs, reasonable attorneys’ fees and other reasonable legal expenses,cost of evidence of title, cost of evidence of value, and other costs andexpenses which any of them may suffer or incur (except to the extent that anyof the foregoing are the result of the gross negligence or willful misconductof any such Indemnitee):

 

(a)                                  In performing any act required or permittedby this Mortgage or any of the other Loan Documents or by law;

 

(b)                                 Because of any failure of Mortgagor toperform any of Mortgagor’s obligations; or

 

(c)                                  Because of any alleged obligation of orundertaking by Mortgagee to perform or discharge any of the representations,warranties, conditions, covenants or other obligations in any document relatingto the Property other than the Loan Documents.

 

Each obligation or liabilityof Mortgagor to any Indemnitee under this Section 5.11.3 shallsurvive the release and cancellation of any or all of the Secured Obligationsand the full or partial release and/or reconveyance of this Mortgage.

 

5.10.4                  Mortgagor shall pay all obligations to paymoney arising under this Section 5.10 within five (5) business daysdemand by Mortgagee (or the applicable Indemnitee).  Each such obligation shall bear interest fromthe date the obligation arises at the Default Rate set forth in the CreditAgreement, and any such obligation to a Lender shall be added to, andconsidered to be part of, the principal of the Note in favor of such Lender(and, in the event that such Lender holds more than one Note, the allocation ofsuch obligation among such Notes shall be made by such Lender in its absolutediscretion).

 

5.11                           Defense and Notice of Claims and Actions.  AtMortgagor’s sole expense, Mortgagor shall protect, preserve and defend theProperty and title to and right of possession of the Property, and the securityof this Mortgage and the rights and powers of Mortgagee created under it,against all adverse claims.  Mortgagorshall give Mortgagee prompt notice in writing if any claim is asserted whichdoes or could affect any of such matters, or if any action or proceeding iscommenced which alleges or relates to any such claim.

 

18

----

 

5.12                           Subrogation.  Subject to Gaming Laws, Mortgageeshall be subrogated to the liens and security interests of all encumbrances,whether released of record or not, which are discharged in whole or in part byMortgagee in accordance with this Mortgage or with the proceeds of any loansecured by this Mortgage.

 

5.13                           Site Visits, Observation and Testing. Mortgagee and its agents and representatives shall have the right at anyreasonable time to enter and visit the Property for the purpose of performingappraisals.  In addition, each Personindemnified by the Borrower under Section 10.04 of the CreditAgreement (collectively, “Indemnified Parties”) and their agents andrepresentatives shall have the right at any reasonable time to enter and visitthe Property for the purposes of observing the Property, taking and removingsoil or groundwater samples, and conducting tests on any part of the Property;provided that, so long as no Event of Default remains uncured, the IndemnifiedParties shall not be entitled to conduct any tests that would significantly interferewith the operation of the Property.  TheIndemnified Parties have no duty, however, to visit or observe the Property orto conduct tests, and no site visit, observation or testing by any IndemnifiedParty shall impose any liability on any Indemnified Party.  In no event shall any site visit, observationor testing by any Indemnified Party be a representation that HazardousMaterials are or are not present in, on, or under the Property, or that therehas been or shall be compliance with any Hazardous Materials Law, or any otherapplicable Law.  Neither Mortgagor norany other party is entitled to rely on any site visit, observation or testingby any Indemnified Party.  The IndemnifiedParties owe no duty of care to protect Mortgagor or any other party against, orto inform Mortgagor or any other party of, any Hazardous Material or any otheradverse condition affecting the Property. Any Indemnified Party shall give Mortgagor reasonable notice beforeentering the Property.  The IndemnifiedParty shall make reasonable efforts to avoid interfering with Mortgagor’s useof the Property in exercising any rights provided in this Section.

 

5.14                           Notice of Change. Mortgagor shall give Mortgagee prior written notice of (a) anychange in the location of Mortgagor’s place of business or its chief executiveoffice if it has more than one place of business, (b) any change in thelocation of any of the Property, including the Books and Records, and (c) anychange to Mortgagor’s name or business structure.  Unless otherwise approved by Mortgagee inwriting, all Property that consists of personal property (other than the Booksand Records) will be located on the Land and all Books and Records for theportion of the Property owned by Mortgagor will be located at such Mortgagor’splace of business or chief executive office if such Mortgagor has more than oneplace of business.

 

5.15                           Title Insurance.  Atany time and from time to time at the reasonable request of Mortgagee,Mortgagor, at its sole cost and expense, shall deliver to Mortgagee suchadditional title insurance indorsements and reinsurance issued by titleinsurance companies, in form and substance and reasonably satisfactory toMortgagee, with respect to this Mortgage, including, without limitation, CLTA122 endorsements insuring that each advance is secured by this Mortgage(without any exception not set forth in the policy of title insurance insuringthis Mortgage other than (i) liens for taxes and assessments not yet dueand payable and (ii) other encumbrances, approved by the Mortgagee,insured to be subordinate to this Mortgage), and CLTA 101.4 endorsementsinsuring the priority of the Mortgage over any mechanic’s lien;

 

19

----

 

provided that Mortgagorshall not be obligated under this Section 5.15 to increase thestated amount of the policy of title insurance insuring this Mortgage.

 

6.                                       Accelerating Transfers, Defaults and Remedies.

 

6.1                                 Accelerating Transfers.

 

6.1.1                        “Accelerating Transfer” means any sale,contract to sell, conveyance, encumbrance, lease, alienation or furtherencumbrance of all or any material portion of the Property (or any interest init) which is not expressly permitted under the Credit Agreement, or any othertransfer of all or any material portion of the Property (or any interest init), whether voluntary, involuntary, by operation of law or otherwise, unlessMortgagee has given its prior written consent to such “Accelerating Transfer,”which consent may be given or not given in the absolute discretion ofMortgagee.  If Mortgagor is a corporationor limited liability company, “Accelerating Transfer” also means any transferof any share or shares in Mortgagor.  IfMortgagor is a partnership or limited liability company, “Accelerating Transfer”also means withdrawal or removal of any general partner or manager, as the casemay be, dissolution of the partnership or limited liability company underNevada law, or any transfer of any partnership interest or any ownershipinterest in the limited liability company.

 

6.1.2                        Mortgagor acknowledges that Mortgagee and theLenders are making one or more advances under the Credit Agreement in relianceon the expertise, skill and experience of Mortgagor; thus, the SecuredObligations include material elements similar in nature to a personal servicecontract.  In consideration of Mortgagee’sreliance, Mortgagor agrees that Mortgagor shall not make any AcceleratingTransfer, unless the transfer is preceded by Mortgagee’s written consent to theparticular transaction and transferee. Mortgagee may withhold such consent in its absolute discretion.  If any Accelerating Transfer occurs,Mortgagee may, in its absolute discretion (provided that it has received anyconsents or approvals of any other Lenders required under the CreditAgreement), declare all of the Secured Obligations to be immediately due andpayable, and Mortgagee may invoke any rights and remedies provided by Section 6.3of this Mortgage.

 

6.2                                 Events of Default. Mortgagor will be in default under this Mortgage upon the occurrence ofany one or more of the following events (“Events of Default”):

 

(a)                                  Mortgagor fails to perform any obligation topay money which arises under this Mortgage within two (2) Business Daysafter written demand therefor; or

 

(b)                                 Mortgagor fails to perform any otherobligation arising under this Mortgage within ten (10) Business Days afterthe giving of written notice by Mortgagee of such failure; or

 

(c)                                  Any Event of Default (as defined in theCredit Agreement or in any other Loan Document) occurs; or any other defaultoccurs under any of the Secured Obligations.

 

20

----

 

6.3                                 Remedies.  At any time after and duringthe continuance of an Event of Default (following the expiration of anyapplicable cure period) and provided that Mortgagee has received any consentsor approvals of any other Lenders required under the Credit Agreement,Mortgagee will be entitled to invoke any or all of the following rights andremedies (subject to any restrictions on those rights and remedies imposed byapplicable Gaming Laws), all of which will be cumulative, and the exercise ofany one or more of which shall not constitute an election of remedies:

 

6.3.1                        Acceleration. Mortgagee may declare any or all of the Secured Obligations to be dueand payable immediately.

 

6.3.2                        Receiver.  Mortgagee may apply to anycourt of competent jurisdiction for, and obtain appointment of, a receiver forthe Property; and Mortgagee may request, in connection with any foreclosureproceeding hereunder, that the Iowa Gaming and Racing Commission petition aDistrict Court of the State of Iowa for the appointment of a supervisor toconduct the normal gaming activities on the Property following such foreclosureproceeding.

 

6.3.3                        Entry.  To the extent permitted byapplicable law, Mortgagee, in person, by agent or by court-appointed receiver,may enter, take possession of, manage and operate all or any part of theProperty, and may also do any and all other things in connection with thoseactions that Mortgagee may in its absolute discretion consider necessary andappropriate to protect the security of this Mortgage.  Such other things may include, withoutlimitation:  taking and possessing all ofMortgagor’s or the then owner’s Books and Records; entering into, enforcing,modifying, or canceling Leases on such terms and conditions as Mortgagee mayconsider proper; obtaining and evicting tenants; collecting and receiving anypayment of money owing to Mortgagor; completing construction; and/or contractingfor and making repairs and alterations. If Mortgagee so requests, Mortgagor shall assemble all of the Propertythat has been removed from the Land and make all of it available to Mortgageeat the site of the Land.  To the extentpermitted by applicable law, Mortgagor hereby irrevocably constitutes andappoints Mortgagee as Mortgagor’s attorney-in-fact (which appointment iscoupled with an interest) to perform such acts and execute such documents asMortgagee in its absolute discretion may consider to be appropriate inconnection with taking these measures, including endorsement of Mortgagor’sname on any instruments.  Regardless ofany provision of this Mortgage or the Credit Agreement, Mortgagee shall not beconsidered to have accepted any property other than cash or immediatelyavailable funds in satisfaction of any obligation of Mortgagor to Mortgageeunless Mortgagee has given express written notice of Mortgagee’s election ofthat remedy.

 

6.3.4                        Cure; Protection of Security. Mortgagee may cure any breach or default of Mortgagor and, if it choosesto do so in connection with any such cure, Mortgagee may (subject to applicableGaming Laws) also enter the Property and/or do any and all other things whicheither may in its absolute discretion consider necessary and appropriate toprotect the security of this Mortgage. Such other things may include, without limitation:  appearing in and/or defending any action orproceeding which purports to affect the security of, or the rights or powers ofMortgagee under, this Mortgage; paying, purchasing, contesting or compromisingany encumbrance, charge, lien, security interest or claim of lien or securityinterest which (in

 

21

----

 

Mortgagee’s sole judgment)is or may be senior in priority to this Mortgage, such judgment of Mortgagee tobe conclusive as among the parties to this Mortgage; obtaining insurance and/orpaying any premiums or charges for insurance required to be carried under thisMortgage and the other Loan Documents; otherwise caring for and protecting anyand all of the Property; and/or employing counsel, accountants, contractors andother appropriate Persons to assist Mortgagee. Mortgagee may take any of the actions permitted under this Section 6.3.4either with or without giving notice to any Person.

 

6.3.5                        Uniform Commercial Code Remedies. Subject to applicable Gaming Laws, Mortgagee may exercise any or all ofthe remedies granted to a secured party under the Iowa Uniform Commercial Code,as amended or recodified from time to time.

 

6.3.6                        Judicial or Nonjudicial Foreclosure Action. Mortgagee may bring an action in any court of competent jurisdiction toforeclose this Mortgage or to obtain specific enforcement of any of thecovenants or other terms of this Mortgage. Mortgagee may also exercise any rights of nonjudicial foreclosure it mayhave under applicable law.

 

6.3.7                        Sales of Personal Property.

 

(a)                                  Mortgagee may elect to treat as personalproperty any Property which is intangible or which can be severed from the Landor Improvements without causing structural damage.  If it chooses to do so, Mortgagee may disposeof any personal property separately from the sale or other disposition of realproperty, in any manner permitted by Article 9 of the Iowa UniformCommercial Code, as amended or recodified from time to time, including anypublic or private sale, or in any manner permitted by any other applicablelaw.  Any proceeds of any suchdisposition shall not cure any Event of Default or reinstate any SecuredObligation.

 

(b)                                 In connection with any sale or otherdisposition of such Property, Mortgagor agrees that the following proceduresconstitute a commercially reasonable sale: Mortgagee shall mail written notice of the sale to Mortgagor not laterthan ten (10) days prior to such sale. Once per week during the three weeks immediately preceding such sale,Mortgagee will publish notice of the sale in a local daily newspaper of generalcirculation.  Upon receipt of any writtenrequest, Mortgagee will make the Property available to any bona fideprospective purchaser for inspection during reasonable business hours.  Notwithstanding any provision to thecontrary, Mortgagee shall be under no obligation to consummate a sale if, inits judgment, none of the offers received by it equals the fair value of theProperty offered for sale.  The foregoingprocedures do not constitute the only procedures that may be commerciallyreasonable.

 

6.3.8                        Single or Multiple Foreclosure Sales.  Ifthe Property consists of more than one lot, parcel or item of property,Mortgagee may:

 

(a)                                  Designate the order in which the lots,parcels and/or items shall be sold or disposed of or offered for sale ordisposition; and

 

(b)                                 Elect to dispose of the lots, parcels and/oritems through a single consolidated sale or disposition to be held or made inconnection with judicial

 

22

----

 

proceedings,or by virtue of a judgment and decree of foreclosure and sale; or by virtue ofa nonjudicial foreclosure or through two or more such sales or dispositions; orin any other manner Mortgagee may deem to be in its best interests (any suchsale or disposition being referred to herein as a “Foreclosure Sale”).

 

If Mortgagee chooses to havemore than one Foreclosure Sale, Mortgagee at its option may cause theForeclosure Sales to be held simultaneously or successively, on the same day,or on such different days and at such different times and in such order asMortgagee may deem to be in its best interests. No Foreclosure Sale shall terminate or affect the liens or securityinterests of this Mortgage on any part of the Property which has not been solduntil all of the Secured Obligations have been paid in full and the Commitmenthas been fully and finally terminated.

 

6.3.9                        Other Permitted Remedies. Mortgagee and the Lenders may refuse to make any advance to any Borroweror issue any Letter of Credit for the account of any Borrower.  Mortgagee and the Lenders may exercise anyand all other rights and remedies available under the Loan Documents andapplicable law, including, without limitation, the right to file applicationsto change, and to exercise all other rights and remedies available underapplicable law with respect to, all water permits and rights relating to theProperty; provided however that, notwithstanding the foregoing or any otherprovision contained in this Mortgage, the remedies provided by this Mortgageshall not include the right to take any action that violates applicable GamingLaws.

 

6.4                                 Credit Bids.  At any Foreclosure Sale, anyPerson, including Mortgagor or Mortgagee, may bid for and acquire the Propertyor any part thereof to the extent permitted by then applicable law.  Instead of paying cash for such property,Mortgagee may settle for the purchase price by crediting against the salesprice of the Property or any part thereof any or all of the outstanding SecuredObligations (including without limitation the portion of the SecuredObligations attributable to the expenses of sale, costs of any action and anyother sums for which Mortgagor is obligated to pay or reimburse Mortgagee andthe Lenders under Section 5.10) in such order and proportions asMortgagee in its absolute discretion may choose.

 

6.5                                 Application of Foreclosure Sale Proceeds.  Mortgageeshall apply the proceeds of any Foreclosure Sale in the manner required byapplicable law; provided that all proceeds that are to be applied against theSecured Obligations shall, except as otherwise required by applicable law, beapplied against the Secured Obligations in any order and proportions asMortgagee in its absolute discretion may choose (subject to any applicableprovisions for priority of application of proceeds set forth in either CreditAgreement).

 

6.6                                 Application of Rents and Other Sums. Mortgagee shall apply any and all Rents collected by it, and any and allsums other than proceeds of a Foreclosure Sale which Mortgagee may receive orcollect under Section 6.3, in the following manner:

 

(a)                                  First, to pay the portion of the SecuredObligations attributable to the costs and expenses of operation and collectionthat may be incurred by Mortgagee or any receiver;

 

23

----

 

(b)                                 Second, to pay all other Secured Obligationsin any order and proportions as Mortgagee in its absolute discretion may choose(subject to any applicable provisions for priority of application of paymentsset forth in the Credit Agreement); and

 

(c)                                  Third, to remit the remainder, if any, to thePerson or Persons entitled to it. Mortgagee shall have no liability for any funds which it does notactually receive.

 

6.7                                 Redemption.  It is agreed that if thisMortgage covers less than ten (10) acres of land, and in the event of theforeclosure of this Mortgage and sale of the property by sheriff’s sale in suchforeclosure proceedings, the time of one year for redemption from said saleprovided by the statutes of the State of Iowa shall be reduced to six (6)months provided the Mortgagee, in such action files an election to waive anydeficiency judgment against Mortgagor which may arise out of the foreclosureproceedings; all to be consistent with the provisions of Chapter 628 of theIowa Code, now enacted or hereafter modified, amended or replaced. If theredemption period is so reduced, for the first three (3) months after sale suchright of redemption shall be exclusive to the Mortgagor, and the time periodsin Sections 628.5, 628.15 and 628.16 of the Iowa Code shall be reduced to four(4) months.

 

Itis further agreed that the period of redemption after a foreclosure of thisMortgage shall be reduced to sixty (60) days if all of the three followingcontingencies develop: (1) The real estate is less than ten (10) acres in size;(2) the court finds affirmatively that the said real estate has been abandonedby the owners and those persons personally liable under this Mortgage at thetime of such foreclosure; and (3) Mortgagee in such action files an election towaive any deficiency judgment against Mortgagor or their successors in interestin such action.  If the redemption periodis so reduced, Mortgagor or its successors in interest or the owner shall havethe exclusive right to redeem for the first thirty (30) days after such sale,and the time provided for redemption by creditors as provided in Sections628.5, 628.15 and 628.16 of the Iowa Code shall be reduced to forty (40)days.  Entry of appearance by pleading ordocket entry by or on behalf of Mortgagor shall be a presumption that the propertyis not abandoned.  Any such redemptionperiod shall be consistent with all of the provisions of Chapter 628 of theIowa Code.  This paragraph shall not beconstrued to limit or otherwise affect any other redemption provisionscontained in Chapter 628 of the Iowa Code.

 

Itis further agreed, pursuant to Section 654.20 of the Iowa Code, nowenacted or hereafter modified, amended or replaced, that foreclosure withoutredemption may be conducted between the Mortgagor and Mortgagee.

 

7.                                       Leasehold Mortgage Provisions.  Theprovisions of this Article 7 shall apply in the event that, and solong as, any portion of the Property consists of Mortgagor’s interests astenant under any lease or leases (collectively, including the Operating Lease,the “Ground Leases”).  Unless otherwiseexpressly provided, the lien of this Mortgage shall encumber all of Mortgagor’srights and interests under and in connection with any Ground Lease, includingwithout limitation renewal and extension rights, options to expand, andpurchase options (all of which rights shall be collectively referred to hereinas a “Ground Leasehold”).  Mortgagorhereby agrees, with respect to each Ground Lease, as follows:

 

24

----

 

7.1                                 Mortgagor shall timely perform itsobligations in connection with each Ground Lease.  Without limiting the generality of Section 6.3.4,above, Mortgagor specifically acknowledges Mortgagee’s right, while any defaultby Mortgagor under any Ground Lease remains uncured, to perform the defaultedobligations and take all other actions which Mortgagee deems necessary toprotect its interests with respect thereto, and Mortgagor hereby irrevocablyappoints Mortgagee its true and lawful attorney-in-fact (which appointment iscoupled with an interest) in its name or otherwise to execute all documents,and perform all other acts, which Mortgagee reasonably deems necessary topreserve its or Mortgagor’s rights with respect to any Ground Lease.

 

7.2                                 Mortgagor shall not, without Mortgagee’sprior written consent, modify, or cause or permit the termination of, anyGround Lease, or waive or in any way release the landlord under any GroundLease of or from any obligation or condition.

 

7.3                                 Mortgagor shall notify Mortgagee promptly inwriting of (i) the occurrence of any default by the landlord under anyGround Lease and (ii) the receipt by Mortgagor of any notice claiming theoccurrence of any default by Mortgagor under any Ground Lease or the occurrenceof any event which, with the passage of time or the giving of notice or both,would constitute a default by Mortgagor under any Ground Lease (and Mortgagorshall also promptly deliver a copy of any such notice to Mortgagee).

 

7.4                                 Unless Mortgagee otherwise consents inwriting, so long as any Secured Obligation remains outstanding, neither the feetitle to, nor any other estate or interest in, the real property subject to anyGround Lease shall merge with any Ground Leasehold, notwithstanding the unionof such estates in the landlord or the tenant or in a third party.  Any acquisition of the landlord’s interest inany Ground Lease by Mortgagor or any affiliate of Mortgagor shall beaccomplished in such a manner as to avoid a merger of the interests of landlordand tenant unless Mortgagee consents to such merger in writing.

 

7.5                                 If Mortgagor acquires fee title to anyportion of the real property subject to any Ground Lease, this Mortgage shallautomatically be a lien on such fee title.

 

7.6                                 Mortgagor shall not subordinate any GroundLease or Ground Leasehold to any mortgage or other encumbrance of, or lien on,any interest in the real property subject to such Ground Leasehold without theprior written consent of Mortgagee.  Anysuch subordination without such consent shall, at Mortgagee’s option, be void.

 

7.7                                 All subleases entered into by Mortgagor withrespect to all or any portion of the Property (and all existing subleasesmodified by Mortgagor) shall provide that such subleases are subordinate to thelien of this Mortgage and any modifications of this Mortgage and theobligations secured hereby and that, if Mortgagee forecloses under thisMortgage or enters into a new lease with any landlord under any Ground Leasepursuant to the provisions for a new lease, if any, contained in the applicableGround Lease or in any other document or agreement, the subtenant shall attornto Mortgagee or its assignee and the sublease shall remain in full force andeffect in accordance with its terms notwithstanding the termination of theapplicable Ground Lease.

 

25

----

 

7.8                                 Mortgagor shall exercise any option or rightto renew or extend the term of any Ground Lease at least six months prior tothe date of termination of any such option or right, shall give immediatewritten notice thereof to Mortgagee, and shall execute, deliver and record anydocuments requested by Mortgagee to evidence the lien of this Mortgage on suchextended or renewed lease term.  IfMortgagor fails to exercise any such option or right as required herein, Mortgageemay exercise the option or right as Mortgagor’s agent and attorney-in-factpursuant to this Mortgage, or in Mortgagee’s own name or in the name of and onbehalf of a nominee of Mortgagee, as Mortgagee chooses in its absolutediscretion.

 

7.9                                 As security for the Secured Obligations,Mortgagor hereby assigns to Mortgagee a security interest in all prepaid rentsand security deposits and all other security which the landlords under theGround Leases hold for the performance of Mortgagor’s obligations thereunder.

 

7.10                           Promptly upon demand by Mortgagee, Mortgagorshall use reasonable efforts to obtain from the landlord under any Ground Leaseand furnish to Mortgagee an estoppel certificate of such landlord stating thedate through which rent has been paid, whether or not there are any defaults, andthe specific nature of any claimed defaults.

 

7.11                           Mortgagor shall notify Mortgagee promptly inwriting of any request by either party to any Ground Lease for arbitration,appraisal or other proceedings relating to any Ground Lease and of theinstitution of any such proceeding, and shall promptly deliver to Mortgagee acopy of all determinations in any such proceeding.  Mortgagee shall have the right, followingwritten notice to Mortgagor, to participate in any such proceeding inassociation with Mortgagor or on its own behalf as an interested party.  Mortgagor shall notify Mortgagee promptly inwriting of the institution of any legal proceeding involving obligations underany Ground Lease, and Mortgagee may intervene in any such legal proceeding andbe made a party.  Mortgagor shallpromptly provide Mortgagee with a copy of any decision rendered in connectionwith any such proceeding.

 

7.12                           To the extent permitted by law, the pricepayable by Mortgagor or any other party in the exercise of the right of redemption,if any, from any sale under, or decree of foreclosure of, this Mortgage shallinclude all rents and other amounts paid and other sums advanced by Mortgageeon behalf of Mortgagor as the tenant under the Ground Leases.

 

7.13                           In addition to all other Events of Defaultdescribed in this Mortgage, the occurrence of any of the following shall be anEvent of Default hereunder:

 

(a)                                  A breach or default by Mortgagor under anyGround Lease, subject to any applicable cure period; or

 

(b)                                 The occurrence of any event or circumstancewhich gives the landlord under any Ground Lease a right to terminate suchGround Lease.

 

7.14                           As used in this Mortgage, the “BankruptcyCode” shall mean 11 U.S.C. § 101 etseq., as modifiedand/or recodified from time to time. Notwithstanding anything to the contrary contained herein with respectto any Ground Lease:

 

26

----

 

(a)                                  The lien of this Mortgage attaches to all ofMortgagor’s rights under Subsection 365(h) of the Bankruptcy Code,including without limitation any and all elections to be made thereunder, anyand all rights under any Ground Lease which Mortgagor is entitled to retainpursuant to 11 U.S.C. § 365(h)(1)(A)(ii) in the event of a rejectionunder the Bankruptcy Code of such Ground Lease by the landlord thereunder, andany and all rights of offset under or as described in 11 U.S.C. § 365(h)(1)(B).

 

(b)                                 Mortgagor acknowledges and agrees that, asthe mortgagee under this Mortgage and by operation of 11 U.S.C. § 365(h)(1)(D),Mortgagee has, and until this Mortgage has been fully reconveyed continuouslyshall have, whether before or after any default under any of the SecuredObligations or the taking of any action to enforce any of Mortgagee’s rightsand remedies under this Mortgage or any foreclosure sale hereunder, thecomplete, unfettered and exclusive right, in its sole and absolute discretion,to elect (the “365(h) Election”) whether (i) any Ground Lease that has beenrejected under the Bankruptcy Code by the landlord thereunder shall be treatedas terminated under 11 U.S.C. § 365(h)(1)(A)(i), or (ii) therights under such Ground Lease that are in or appurtenant to the real property,as described in 11 U.S.C. § 365(h)(1)(A)(ii), should be retainedpursuant to that subsection.  To theextent that, notwithstanding the preceding sentence and 11 U.S.C. § 365(h)(1)(D),Mortgagor now or at any time in the future has any right to make, or toparticipate in or otherwise in any manner affect the making of, the 365(h)Election with respect to any Ground Lease, Mortgagor hereby absolutely assignsand conveys to Mortgagee any and all such rights, and all of Mortgagor’s right,title, and interest therein, which may be used and exercised by Mortgageecompletely, exclusively, and without any restriction whatsoever, in Mortgagee’ssole and absolute discretion, whether before or after any default upon any ofthe Secured Obligations, the taking of any action to enforce any of Mortgagee’srights and remedies under this Mortgage, or any foreclosure salehereunder.  Mortgagor herebyunconditionally and irrevocably appoints Mortgagee as its attorney-in-fact toexercise Mortgagor’s right, if any, to make, or participate in or otherwise inany matter affect the making of, the 365(h) Election with respect to any GroundLease.  Mortgagor shall not in any mannerimpede or interfere with any action taken by Mortgagee and, at the request ofMortgagee, Mortgagor shall take or join in the taking of any action to make, orparticipate in or otherwise in any manner affect the making of, the 365(h)Election with respect to any Ground Lease, in such manner as Mortgageedetermines in its sole and absolute discretion. Unless and until instructed to do so by Mortgagee (as determined byMortgagee in its sole and absolute discretion), Mortgagor shall not take anyaction to make, or participate in or otherwise in any manner affect the makingof, the 365(h) Election with respect to any Ground Lease, including inparticular, but without limitation, any election to treat any Ground Lease asterminated.  Mortgagee shall have noobligation whatsoever to Mortgagor or any other person or entity in connectionwith the making of the 365(h) Election with respect to any Ground Lease or anyinstruction by Mortgagee to Mortgagor given, withheld or delayed in respectthereof, nor shall Mortgagee have any liability to Mortgagor or any otherperson or entity arising from any of the same.

 

(c)                                  As security for the Secured Obligations,Mortgagor hereby irrevocably assigns to Mortgagee all of Mortgagor’s rights todamages arising from any

 

27

----

 

rejectionby any landlord of any Ground Lease under the Bankruptcy Code.  Mortgagee and Mortgagor shall proceed jointlyor in the name of Mortgagor in respect of any claim or proceeding relating tothe rejection of any Ground Lease, including without limitation the right tofile and prosecute any proofs of claim, complaints, motions and other documentsin any case in respect of such landlord under the Bankruptcy Code.  This assignment shall continue in effectuntil all of the Secured Obligations have been satisfied in full.  Any amounts received by Mortgagee orMortgagor as damages arising from the rejection of any Ground Lease asaforesaid shall be applied first to all costs reasonably incurred by Mortgagee(including attorneys’ fees) in connection with this subsection (c) andthen in accordance with other applicable provisions of this Mortgage.

 

(d)                                 If, pursuant to the Bankruptcy Code,Mortgagor seeks to offset against the rent reserved in any Ground Lease theamount of any damages caused by the nonperformance of the landlord’sobligations after the rejection by the landlord of such Ground Lease, Mortgagorshall, prior to effecting such offset, notify Mortgagee in writing of itsintent to do so, setting forth the amounts proposed to be offset and, in theevent that Mortgagee objects, Mortgagor shall not effect any offset of theamounts to which Mortgagee objects.  IfMortgagee fails to object within 10 days following receipt of such notice,Mortgagor may offset the amounts set forth in Mortgagor’s notice.

 

(e)                                  If any legal proceeding is commenced withrespect to any Ground Lease in connection with any case under the BankruptcyCode, Mortgagee and Mortgagor shall cooperatively conduct any such proceedingwith counsel reasonably agreed upon between Mortgagor and Mortgagee.  Mortgagor shall, upon demand, pay toMortgagee all costs (including attorneys’ fees) reasonably incurred byMortgagee in connection with any such proceeding.

 

(f)                                    Mortgagor shall immediately notify Mortgageeorally upon learning of any filing by or against any landlord of a petitionunder the Bankruptcy Code.  Mortgagorshall thereafter promptly give written notice of such filing to Mortgagee, settingforth any information available to Mortgagor with respect to the date of suchfiling, the court in which such petition was filed, and the relief soughttherein.  Mortgagor shall promptlydeliver to Mortgagee all notices, pleadings and other documents received byMortgagor in connection with any such proceeding.

 

7.15                           No maintenance, repair or other obligation ofMortgagor hereunder which relates to the “Property” shall apply to any GroundLeasehold with respect to which the applicable Ground Lease imposes suchobligation on the landlord so long as (a) Mortgagor does not own thelandlord’s interest; (b) such landlord is performing such obligation inaccordance with the terms of such Ground Lease; and (c) the Ground Leasehas not been rejected by the landlord under the Bankruptcy Code.

 

7.16                           The generality of the provisions of thisMortgage shall not be limited by any provision of this Article 7that sets forth particular obligations of Mortgagor as the tenant under theGround Leases.

 

7.17                           Mortgagor hereby represents and warrants toMortgagee as follows:

 

28

----

 

(a)                                  The Operating Lease is in full force andeffect;

 

(b)                                 Mortgagor owns the entire tenant’s interestunder the Operating Lease and has the right under the Operating Lease toexecute this Mortgage; and

 

(c)                                  No default under the Operating Lease remainsuncured, nor has any event occurred which, with the passage of time or serviceof notice or both, would constitute such a default.

 

8.                                       Miscellaneous Provisions.

 

8.1                                 Additional Provisions.  TheLoan Documents fully state all of the terms and conditions of the parties’agreement regarding the matters mentioned in or incidental to thisMortgage.  The Loan Documents also grantfurther rights to Mortgagee and contain further agreements and affirmative andnegative covenants by Mortgagor which apply to this Mortgage and to theProperty.

 

8.2                                 No Waiver or Cure.

 

8.2.1                        Each waiver by Mortgagee must be in writing,and no waiver shall be construed as a continuing waiver.  No waiver shall be implied from any delay orfailure by Mortgagee to take action on account of any default ofMortgagor.  Consent by Mortgagee to anyact or omission by Mortgagor shall not be construed as a consent to any otheror subsequent act or omission or to waive the requirement for Mortgagee’sconsent to be obtained in any future or other instance.

 

8.2.2                        If any of the events described below occurs,that event alone shall not:  cure orwaive any breach, Event of Default or notice of default under this Mortgage orinvalidate any act performed pursuant to any such default or notice; or nullifythe effect of any notice of default or sale (unless all Secured Obligationsthen due have been paid and performed and all other defaults under the LoanDocuments have been cured); or impair the security of this Mortgage; orprejudice Mortgagee or any receiver in the exercise of any right or remedyafforded any of them under this Mortgage; or be construed as an affirmation byMortgagee of any tenancy, lease or option, or a subordination of the lien orsecurity interest of this Mortgage.

 

(a)                                  Mortgagee, its agent or a receiver takespossession of all or any part of the Property in the manner provided in Section 6.3.3.

 

(b)                                 Mortgagee collects and applies Rents as permittedunder Sections 2.3 and 6.6 or exercises Mortgagor’s right, titleand interest under the Leases, either with or without taking possession of allor any part of the Property.

 

(c)                                  Mortgagee receives and applies to any SecuredObligation proceeds of any Property, including any proceeds of insurancepolicies, condemnation awards, or other claims, property or rights assigned toMortgagee under Section 5.5.

 

(d)                                 Mortgagee makes a site visit, observes theProperty and/or conducts tests as permitted under Section 5.13.

 

29

----

 

(e)                                  Mortgagee receives any sums under thisMortgage or any proceeds of any collateral held for any of the SecuredObligations, and applies them to one or more Secured Obligations.

 

(f)                                    Mortgagee or any receiver invokes any rightor remedy provided under this Mortgage.

 

8.3                                 Powers of Mortgagee.

 

8.3.1                        If either Mortgagee or any Lender performsany act which it is empowered or authorized to perform under this Mortgage,including any act permitted by Section 5.8 or Section 6.3.4,that act alone shall not release or change the personal liability of any Personfor the payment and performance of the Secured Obligations then outstanding, orthe lien or security interest of this Mortgage on all or the remainder of theProperty for full payment and performance of all outstanding SecuredObligations.  The liability of theoriginal Mortgagor shall not be released or changed if Mortgagee or any Lendergrants any successor in interest to any Borrower or Mortgagor any extension oftime for payment, or modification of the terms of payment, of any SecuredObligation.  Neither Mortgagee nor anyLender shall be required to comply with any demand by any original Mortgagor orBorrower that Mortgagee or such Lender refuse to grant such an extension ormodification to, or commence proceedings against, any such successor ininterest

 

8.3.2                        Mortgagee may take any of the actionspermitted under Sections 6.3.2 and/or 6.3.3 regardless of theadequacy of the security for the Secured Obligations, or whether any or all ofthe Secured Obligations have been declared to be immediately due and payable,or whether notice of default and election to sell has been given under thisMortgage.

 

8.3.3                        From time to time, Mortgagee may apply to anycourt of competent jurisdiction for aid and direction in enforcing the rightsand remedies created under this Mortgage. Mortgagee may from time to time obtain orders or decrees directing,confirming or approving acts in enforcing these rights and remedies.

 

8.4                                 Merger.  No merger shall occur as aresult of Mortgagee’s acquiring any other estate in or any other lien on orsecurity interest in the Property unless Mortgagee consents to a merger inwriting.

 

8.5                                 Applicable Law.  ThisMortgage shall be governed by and construed in accordance with the laws of theState of Iowa (excluding conflict of laws rules).

 

8.6                                 Successors in Interest.  Theterms, covenants and conditions of this Mortgage shall be binding upon andinure to the benefit of the heirs, successors and assigns of the parties.  However, this Section 8.6 doesnot waive the provisions of Section 6.1.

 

8.7                                 Interpretation.

 

8.7.1                        Whenever the context requires, all words usedin the singular will be construed to have been used in the plural, and viceversa, and each gender will include any other gender.  The captions of the sections of this Mortgageare for convenience only and do not

 

30

----

 

define or limit any terms orprovisions.  The word “include(s)” means “include(s),without limitation,” and the word “including” means “including, but not limitedto.”

 

8.7.2                        The word “obligations” is used in itsbroadest and most comprehensive sense, and includes all primary, secondary,direct, indirect, fixed and contingent obligations.  It further includes all principal, interest,prepayment charges, late charges, loan fees and any other fees and chargesaccruing or assessed at any time, as well as all obligations to perform acts orsatisfy conditions.

 

8.7.3                        No listing of specific instances, items ormatters in any way limits the scope or generality of any language of thisMortgage.  All Exhibits and/or Schedulesattached to this Mortgage are hereby incorporated in this Mortgage.

 

8.8                                 In-House Counsel Fees.  WheneverMortgagor is obligated to pay or reimburse Mortgagee or any Lender for anyattorneys’ fees, those fees shall include the allocated costs for services ofin-house counsel.

 

8.9                                 Waiver of Marshalling.  Tothe extent permitted by applicable law, Mortgagor waives all rights, legal andequitable, it may now or hereafter have to require marshalling of assets or torequire foreclosure sales of assets in a particular order.  Each successor and assign of Mortgagor,including any holder of a lien or security interest subordinate to thisMortgage, by acceptance of its interest or lien or security interest, agreesthat it shall be bound by the above waiver, as if it had given the waiveritself.

 

8.10                           Severability.  Anyprovision in this Mortgage that is held to be inoperative, unenforceable orinvalid as to any party or in any jurisdiction shall, as to that party orjurisdiction, be inoperative, unenforceable or invalid without affecting theremaining provisions or the operation, enforceability or validity of that provisionas to any other party or in any other jurisdiction, and to this end theprovisions of this Mortgage are declared to be severable.

 

8.11                           Notices.  Mortgagor hereby requests thata copy of notice of default and notice of sale be mailed to it at the addressset forth below.  That address is alsothe mailing address of Mortgagor as debtor under the Iowa Uniform CommercialCode, as amended or recodified from time to time.  Mortgagee’s address given below is theaddress for Mortgagee as secured party under the Iowa Uniform Commercial Code,as amended or recodified from time to time.

 

Notices to Mortgagor:                                                                         c/o Herbst Gaming, Inc.5195 Las Vegas Blvd.Las Vegas, NV  89119Attn:  M. Higgins

 

31

----

 

Notices to Mortgagee:                                                                        Bank of America, N.A.Mail Code: TX1-492-14-11Bank of America Plaza901 Main Street, 14th FloorDallas, TX  75202-3714Attn:                    Chris M. Levine, Assistant Vice President                                                Agency Management Officer II                                                GCIB Agency Management Central I

 

8.12                           Lease of Property. Mortgagee hereby lets the Property to Mortgagor until a sale is heldunder this Mortgage, or until an Event of Default shall occur, upon thefollowing terms and conditions, to wit: Mortgagor and all persons claiming or possessing any of the Property by,through or under Mortgagor shall pay rent therefor during said term at the rateof one cent per month, payable monthly upon demand, and shall surrenderimmediate peaceable possession of the Property (and any and every part thereof)sold under the provisions of this Mortgage to the purchaser thereof under suchsale, without notice or demand therefor, and shall and will at once, withoutnotice, surrender up possession of the Property and every part thereof in theevent Mortgagee shall take charge and enter the Property as provided in thisMortgage.

 

8.13                           Surrender of Guaranty.  Inthe event of foreclosure of this Mortgage, the Mortgagor hereby agrees that acourt may, and request the court to, enter a special order directing the clerkof court to enter and record the judgment contained in the foreclosure decreeon the Guaranty secured by the Mortgage without requiring that the Guaranty befirst filed with the clerk of court for cancellation.  The Mortgagor further agrees, because theGuaranty secured by this Mortgage may also be secured by other collateral andwill be necessary for any realization upon such collateral, thatnotwithstanding Iowa Rule of Civil Procedure 1.961, as presently enacted or ashereinafter amended or replaced, the clerk of court may, in the event offoreclosure of this Mortgage, enter and record the judgment contained in theforeclosure decree on the Guaranty secured by the Mortgage without therequirement that the Guaranty be first filed with the clerk of court forcancellation.

 

8.14                           Non-Statutory Liens.  TheMortgagor hereby represents, warrants and agrees that the liens and securityinterest granted hereby are not the type of lien referred to in Chapter 575 ofthe Iowa Code, as now enacted or hereafter modified, amended, or replaced.  The Mortgagor, for itself and all personsclaiming by, through or under the Mortgagor, agrees that it claims no lien orright to a lien of the type contemplated by Chapter 575 or any other chapter ofthe Iowa Code and further waives all notices and rights pursuant to said lawwith respect to the liens and security interests hereby granted, and representsand warrants that it is the sole party entitled to do so and agrees toindemnify and hold harmless the Mortgagee and Lenders from any loss, damage andcost, including attorney’s fees, threatened or suffered by the Mortgagee andLenders arising either directly or indirectly as a result of any claim of theapplicability of said law to the liens and security interest hereby granted.

 

8.15                           Acknowledgement of Receipt of Documents. Mortgagor hereby acknowledges receipt of a copy of this Mortgagetogether with a copy of each other Loan Document.

 

32

----

 

**IMPORTANT:  READ BEFORE SIGNING.  THE TERMS OF THIS MORTGAGE SHOULD BE READCAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE.  NO OTHER TERMS OR ORAL PROMISES NOT CONTAINEDIN THIS MORTGAGE MAY BE LEGALLY ENFORCED. YOU MAY CHANGE THE TERMS OF THIS MORTGAGE ONLY BY ANOTHER WRITTENAGREEMENT.  THIS NOTICE SHALL ALSO BEEFFECTIVE WITH RESPECT TO ALL OTHER LOAN DOCUMENTS NOW IN EFFECT BETWEEN YOUAND MORTGAGEE AND/OR LENDERS.  THEMODIFICATION OF ANY OTHER LOAN DOCUMENT NOW IN EFFECT BETWEEN YOU AND MORTGAGEEAND/OR LENDERS, WHICH OCCURS AFTER RECEIPT BY YOU OF THIS NOTICE, MAY BE MADEONLY BY ANOTHER WRITTEN INSTRUMENT.  ORALOR IMPLIED MODIFICATIONS TO SUCH LOAN DOCUMENTS ARE NOT ENFORCEABLE AND SHOULDNOT BE RELIED UPON.**

 

33

----

 

INWITNESS WHEREOF, this Mortgage has been executed as of the date first writtenabove.

 
|   | “Mortgagor”: |
|--------|------------------------|
|   |                   |
|   | HGI-LAKESIDE,          |
|   | a Nevada corporation   |
|   |                   |
|   |                   |
|   | By:                    | /s/ Edward Herbst |   |
|   | Name:                  |   |   |
|   | Title:                 |   |   |
|        |                        |  |  |  |

 

34

----

 
|            |   |   | ACKNOWLEDGEMENT |
|-----------------|--------|--------|-----------------|
|            |   |   |            |
| STATE OF Nevada | )      |   |            |
|            | )      | ss.    |            |
| COUNTY OF Clark | )      |   |            |
|            |   |   |            |

 

Onthis  28 day of January in the year2005 before me, Jenifer Cannon, a Notary Public in and for said State,personally appeared Edward Herbst, of HGI-LAKESIDE, a Nevada corporation, to mepersonally known, who being by me duly sworn did say that that person isPresident of said corporation and that said instrument is signed on behalf ofsaid corporation by it voluntarily executed.

 

INTESTIMONY WHEREOF, I have hereunder set my hand and affixed my official seal inthe County and State aforesaid, the day and year first above written.

 

 
| [SEAL]          | /s/ Jenifer E. Cannon |   |
|-----------------|-----------------------|--------|
|            | Notary Public         |
|            |                  |
|            |                  |
| My term expires | 1/17/07               | .      |   |
|                 |                       |        |  |  |

 

35

----

 

EXHIBIT “A”

 

(Legal Description of Land)

 

The following propertysituate in Clarke County, Iowa:

 

**SITE 1 -PARCEL 1:**

 

Parcel “E”, located in theSoutheast Quarter of the Northwest Quarter (SE1/4 NW1/4) and the SouthwestQuarter of the Northeast Quarter (SW1/4 NE1/4) of Section Thirteen (13),Township Seventy-two (72) North, Range Twenty-six (26) West of the 5th P.M.,Clarke County, Iowa, more particularly described as follows:

 

Commencing at the Center of Section Thirteen(13), Township Seventy-two (72) North, Range Twenty-six (26) West of the 5thP.M., Clarke County, Iowa; thence South 88°22’30” West, 165.05 feet along theSouth line of the Southeast Quarter of the Northwest Quarter (SE1/4 NW 1/4) ofsaid Section Thirteen (13) to the point of beginning;

 

thence South 88°22’30” West,527.69 feet along an existing fenceline which is the South line of theSoutheast Quarter of the Northwest Quarter (SE1/4 NW1/4) of said Section Thirteen(13);

 

thence North 01°47’28” East,1,342.24 feet along existing fenceline which is the East line of the West 627feet of the Southeast Quarter of the Northwest Quarter (SE 1/4 NW 1/4) of said Section Thirteen(13) to a point on the North line of the Southeast Quarter of the NorthwestQuarter (SE 1/4 NW 1/4) of said Section Thirteen (13);

 

thence North 88°37’ 02”East, 692.57 feet along the North line of the Southeast Quarter of theNorthwest Quarter (SE1/4 NW1/4) of said Section Thirteen (13) to theNortheast corner of the Southeast Quarter of the Northwest Quarter (SE 1/4NW1/4) of said Section Thirteen (13);

 

thence North 88°32’52” East,516.95 feet along the North line of the Southwest Quarter of the NortheastQuarter (SW 1/4 NE 1/4) of said Section Thirteen (13);

 

thence South 02°37’07” West,294.06 feet;

 

thence South 31 °49’00”West, 334.39 feet;

 

thence South 16°22’36” West,399.13 feet;

 

thence South 12°03’46” West,152.67 feet;

 

thence South 15°51’41” West,40.38 feet;

 

thence North 73°49’14” West,194.16 feet;

 

thence South 36°31’06” West,325.92 feet to the point of beginning.

 

1

----

 

**SITE 1 -PARCEL 2:**

 

A parcel of land located ina portion of the Southeast Quarter of the Northwest Quarter (SE1/4 NW1/4) and aportion of the Northeast Quarter of the Southwest Quarter (NE1/4 SW1/4) of Section Thirteen(13), Township Seventy-two (72) North, Range Twenty-six (26), West of the 5thP.M., in Clarke County, Iowa, more particularly described as:

 

Commencing at a 1-1/2” ironpin on the center of said Section Thirteen (13);

 

thence South 88°16’59” Westalong the South line of the Southeast Quarter of the Northwest Quarter (SE1/4NW1/4) of said Section Thirteen (13) a distance of 165.05 feet to a 1/2”iron pin on the point of beginning;

 

thence South 43°00’06” Westa distance of 231.67 feet;

 

thence North 73°07’44” Westa distance of 403.50 feet to a 5/8” iron pin;

 

thence North 37°01’04” Westa distance of 340.53 feet to a 5/8” iron pin;

 

thence North 39°58’09” Easta distance of 370.60 feet to a 5/8” iron pin on the East line of the West 627feet of the Southeast Quarter of the Northwest Quarter (SE1/4 NW1/4} of said Section Thirteen(13);

 

thence South 01°48’15” Westalong the East line of the West 627 feet of the Southeast Quarter of theNorthwest Quarter (SE 1/4 NW 1/4) of said section Thirteen (13) a distanceof 518.42 feet to a 5/8” iron pin on the Southeast corner of the West 627 feetof the Southeast Quarter of the Northwest Quarter (SE1/4 NW1/4);

 

thence North 88°25’03” Eastalong the South line of the Southeast Quarter of the Northwest Quarter (SE 1/4NW1/4) of said Section Thirteen (13) a distance of 527.61 feet to thepoint of beginning.

 

**SITE 1 -PARCEL 3:**

 

A parcel of land located inthe South One-half of the Northeast Quarter (S 1/2 NE 1/4) of Section Thirteen(13), Township Seventy-two (72) North, Range Twenty-six (26) West of the 5thP.M., Clarke County, Iowa, more fully described as follows:

 

Commencing at the Northeastcorner of the Southeast Quarter of the Northeast Quarter (SE1/4 NE1/4) of Section Thirteen(13), Township Seventy-two (72) North, Range Twenty-six (26) West of the 5thP.M.;

 

thence South 85°54’ West1,369.5 feet;

 

thence South 04°06’ East40.0 feet to a point on the South right-of-way line of Clarke County RouteH-33, the same being the point of beginning;

 

thence continuing South04°06’ East 355.0 feet;

 

2

----

 

thence North 85°54’ East40.4 feet to a point on an existing fenceline;

 

thence South 01°00’ East365.5 feet on said fenceline to a point on the Westerly right-of-way line of1-35;

 

thence North 31°20’ East25.5 feet along said right-of-way line;

 

thence North 34° 12’ East400 5 feet along said right-of-way line;

 

thence North 31 °20’ East431.0 feet along said right-of-way line to a point on the South right-of-wayline of Route H-33;

 

thence North 88° 18’ West296.5 feet along said right-of-way line;

 

thence South 85°54’ West267.5 feet along said right-of-way line to the point of beginning.

 

**SITE 1 –PARCEL 4:**

 

All that part of the S1/2NE1/4 lying West of the West right-of-way line of Interstate Highway #35 asshown on Official Plans for Project I-IG-35-02(3) 33(U-IG-853(4)) and SE1/4NW1/4 except the West 627 feet thereof; all in Section 13, Township 72North, Range 26 West of the 5th P.M.

 

EXCEPT a parcel of landlocated in the SW 1/4 NE 1/4 of Section 13, Township 72 North, Range 26West of the 5th P.M., more fully described as follows:

 

Commencing at the NE cornerof the SE 1/4 NE 1/4 of Section 13, Township 72 North, Range 26 West ofthe 5th P.M.,

 

thence South 85°54’ West,1815.6 feet along the centerline of county road H-33 to the point of beginning;

 

thence continuing South85°54’ West, 285.0 feet along said centerline;

 

thence South 04°06’ East,305.7 feet;

 

thence N85°54’E 285.0 feet;

 

thence North 04°06’ West,305.7 feet to the point of beginning.

 

And also EXCEPT a tract ofland in the N1/2 of Section 13, Township 72 North, Range 26 West of the5th P.M., located in Clarke County, Iowa, more particularly described as:

 

Beginning at the center ofsaid Section 13, said point being the true point of beginning;

 

thence South 85°56’30” Westalong the South line of the N1/2 of said Section 13, a distance of 165.00’to an iron pin,

 

thence North 34°05’30” Easta distance of 326.03 to an iron pin,

 

3

----

 

thence South 76°12’00” Easta distance of 250.00 to an iron pin,

 

thence South 04°03’30” Easta distance of 179.74’ to an iron pin, said pin being on the South line of the Nl/2 of said Section 13;

 

thence South 85°56’30” Westalong the South line of the N1/2 of said Section 13 a distance of 274.26’to the true point of beginning,

 

And also except

 

**Parcel “E”**, located in the Southeast Quarter of theNorthwest Quarter (SE1/4 NW1/4) and the Southwest Quarter of the NortheastQuarter (SW1/4 NE1/4) of Section 13, Township 72 North, Range 26 West ofthe 5th P.M., Clarke County, Iowa, more particularly described as follows:

 

Commencing at the Center of Section 13,Township 72 North, Range 26 West of the 5th P.M., Clarke County, Iowa; thenceSouth 88°22’30” West, 527.69 feet along an existing fenceline which is theSouth line of the SE 1/4 NW 1/4 of said Section 13;

 

thence North 1°47’28’ East,1342.24 feet along existing fenceline which is the East line of the West 627feet of the SE 1/4 NW 1/4 of said Section 13 to a point on the North lineof the SE 1/4 NW1/4 of said Section 13 to a point on the North line of theSE1/4 NW1/4 of said Section 13;

 

thence North 88°37’02” East,692.57 feet along the North line of the SE1/4 NW1/4 of said Section 13;

 

thence North 88°32’52” East,518.95 feet along the North line of the SW 1/4 NE 1/4 of said Section 13;

 

thence South 2°37’07” West,294.06 feet;

 

thence South 31 °49’00”West, 334.39 feet;

 

thence South 16°22’36” West,399.13 feet;

 

thence South 12°03’46” West,152.67 feet;

 

thence South 15°51’41” West,40.38 feet;

 

thence North 73°49’14” West,194 16 feet;

 

thence South 36°31’06” West,325.92 feet to the Point of Beginning.

 

**SITE 2:**

 

**Parcel “D”**, located in the West One-half of theSoutheast Quarter (W112 SE1/4) and the Northeast Quarter of the SouthwestQuarter (NE1/4 SW1/4) of Section Thirteen (13), Township Seventy-two (72)North, Range Twenty-six (26) West of the 5th P.M., Clarke County, Iowa, moreparticularly described as follows:

 

4

----

 

Beginning at the SoutheastCorner of the Northeast Quarter of the Southwest Quarter (NE1/4 SW1/4) of Section Thirteen(13), Township Seventy-two (72) North, Range Twenty-six (26) West of the 5thPM., Clarke County, Iowa;

 

thence South 86°08’20” Westalong the South line of the Northeast Quarter of the Southwest Quarter of said Section Thirteen(13), 739.70 feet;

 

thence North 0°00’19” West,560.68 feet;

 

thence North 86°03’05” East,739.73 feet;

 

thence South 57°17’05” East,692.80 feet;

 

thence South 57°24’56” East,197.54 feet to a point on the West right-of-way line of Interstate Highway 35;

 

thence Southeasterly 29.08feet along a 3065.00 foot radius curve concave Southeasterly with a chord ofSouth 2°01’58” East, 29.08 feet;

 

thence South 2°53’35” Eastalong the West R.O.W. fenceline of Interstate Highway 35, 367.89 feet;

 

thence North 70° 13’ 09”West, 498.40 feet to a point in an existing fenceline;

 

thence North 28°05’15” Westalong said fenceline, 181.13 feet to a point on the North line of the SouthwestQuarter of the Southeast Quarter (SW1/4 SE1/4) of said Section Thirteen(13);

 

thence South 86°32’19” Westalong the North line of the Southwest Quarter of the Southeast Quarter (SW 1/4SE1/4) of said Section Thirteen (13) which is an existing fenceline,214.97 feet to the Point of Beginning

 

**SITE 3:**

 

That land lying in theSoutheast Quarter of the Southeast Quarter (SE1/4 SE1/4) and the SouthwestQuarter of the Southeast Quarter (SW1/4 SE1/4) of Section Twelve (12); andthe Northeast Quarter of the Northeast Quarter (NE 1/4 NE 1/4) and theNorthwest Quarter of the Northeast Quarter (NW 1/4 NE 1/4) of Section Thirteen(13), all in Township Seventy-two (72) North, Range Twenty-six (26) West of the5th P.M., Clarke County, Iowa, being described as follows:

 

Commencing as a point ofreference at the East Quarter Corner (El/4 Corner) of said Section Twelve(12);

 

thence South 00°16’47” West(all bearings based on grid North Iowa State Plane Coordinate System SouthZone), a distance of 2,452.53 feet, on the East line of the Southeast Quarter(SE 1/4) of said Section Twelve (12) to the point of beginning;

 

5

----

 

thence continuing South09°64’7” West, a distance of 206.26 feet, to the Northeast Corner of said Section Thirteen(13);

 

thence South 00°18’55” West,a distance of 99.67 feet, on the East line of the Northeast Quarter (NE 1/4) ofsaid Section Thirteen (13) to the Westerly right-of-way of InterstateHighway 35 (formerly Interstate Road No. 02) as recorded in Book 65 on Page 505, in the Office of the ClarkeCounty Recorder;

 

thence South 31°39’27” West,a distance of 1,409.41 feet, on said Westerly right-of-way to a point being160.00 feet normally distant Northwesterly on the East lane of said Interstate Roadcenterline and 80.00 feet normally distant Northerly of Clay Street extended(formerly secondary road centerline);

 

thence South 80°18’38” West,a distance of 381.62 feet on the North right-of-way line of said Clay Street;

 

thence South 86°19’38” Westa distance of 213.22 feet to the West line of the Northeast Quarter of theNortheast Quarter (NE1/4 NE1/4) of said Section Thirteen (13);

 

thence South 00°31’51” West,a distance of 40.11 feet on said West line to the Southeast Corner of theNorthwest Quarter of the Northeast Quarter (NW1/4 NE1/4) of said Section Thirteen(13);

 

thence South 86°19’38” West,a distance of 922.59 feet on the South line of said Northwest Quarter of theNortheast Quarter (NW 1/4 NE 1/4);

 

thence North 00°07’56” East,a distance of 514.99 feet;

 

thence North 50°15’30” East,a distance of 699.72 feet, to a point of curvature;

 

thence Northeasterly adistance of 884.49 feet, on a curved line concave Northwest having a centralangle 50°07’35”, a radius of 1,011.00 feet, and a chord bearing North 25°11’43”East, a distance of 856.55 feet;

 

thence North 00°07’56” East,a distance of 191.46 feet;

 

thence South 89°52’04” East,a distance of 18.40 feet;

 

thence South 00°16’47” West,a distance of 191.30 feet;

 

thence South 89°45’02” East,a distance of 82.09 feet, to a point on a non-tangent curve;

 

thence Southwesterly adistance of 844.40 feet on a curved line non-tangent to the preceding course,concave Northwest having a central angle of 43°32’48”, a radius of 1,111.00feet and a chord bearing South 21 °54’20” West, a distance of 824.22 feet;

 

thence South 90°00’00” East,a distance of 440.85 feet, on a line non-tangent to the preceding curved line;

 

thence North 47°29’35” East,a distance of 413.06 feet;

 

6

----

 

thence North 61°57’38” East,a distance of 917.23 feet to the point of beginning.

 

EXCEPT

 

That land lying in theSoutheast Quarter of the Southeast Quarter (SE1/4 SE1/4) of Section Twelve(12), the Northeast Quarter of the Northeast Quarter (NE1/4 NE1/4) of Section Thirteen(13), and the Northwest Quarter of the Northeast Quarter (NW1/4 NE1/4) of Section Thirteen(13), all in Township Seventy-two (72) North, Range Twenty-six (26) West of theFifth Principal Meridian, Clarke County, Iowa, being described as follows:

 

Commencing as a point ofreference at the East Quarter Corner (E1/4 Corner) of said Section Twelve(12);

 

thence South 00°16’47” West(all bearings based on grid North Iowa State Plane Coordinate System SouthZone), a distance of 2,452.53 feet, on the east line of the Southeast Quarter(SE 1/4) of said Section Twelve (12) to the point of beginning;

 

thence continuing South00°16’47” West, a distance of 206.26 feet, to the Northeast Corner (NE Corner)of said Section Thirteen (13),

 

thence South 00°18’55” West,a distance of 99.67 feet on the east line of the Northeast Quarter (NE 1/4) ofsaid Section Thirteen (13) to the westerly right-of-way of InterstateHighway 35 (formerly Interstate Road Number 02) as recorded in Book 65 on page505, Office of the Clarke County Recorder;

 

thence South 31 °39’27”West, a distance of 1,409.41 feet on said westerly right-of-way to a pointbeing 160.00 feet normally distant northwesterly of the east lane of saidInterstate Road centerline and 80.00 feet normally distant northerly of ClayStreet extended (formerly secondary road centerline);

 

thence South 80°18’38” West,a distance of 316.84 feet on the north right-of-way line of said Clay Street;

 

thence North 89°25’15” West,a distance of 276.40 feet to the west line of the Northeast Quarter of theNortheast Quarter (NE 1/4 NE 1/4) of said Section Thirteen (13);

 

thence North 89°25’15” West,a distance of 39.59 feet;

 

thence southwesterly adistance of 198.39 feet on a curve concave to the Southeast having a centralangle of 17°13’21”, a radius of 660.00 feet, and a chord bearing South 81°58’05”West, a distance of 197.64 feet;

 

thence South 73°21’24” West,a distance of 203.72 feet; thence North 16°38’36” West, a distance of 80.00feet; thence North 73°21’24” East, a distance of 20.72 feet;

 

thence Northeasterly adistance of 153.31 feet on a curve concave southeasterly, having a centralangle of 11°52’12”, a radius of 740.00 feet and a chord bearing North 79°17’30”East, a distance of 153.03 feet;

 

7

----

 

thence North 44°39’29” East,a distance of 237.03 feet;

 

thence North 00°34’45” East,a distance of 294.68 feet;

 

thence North 26°49’55” East,a distance of 341.53 feet;

 

thence North 47°29’35” East,a distance of 413.06 feet;

 

thence North 61°57’38” East,a distance of 917.23 feet to the point of beginning.

 

**SITE 4: -PARCEL 1: Intentionally Omitted**

 

**SITE 4 -PARCEL 2:**

 

Parcel C”, located in theSouthwest Fractional Quarter of the Northwest Quarter (SW Fractional 1/4 NW1/4) of Section Eighteen (18), Township Seventy-two (72) North, RangeTwenty- five (25) West Of the 5th P.M., Clarke County, Iowa, more particularlydescribed as follows:

 

Commencing at the WestQuarter Corner of Section Eighteen (18), Township Seventy-two (72) North,Range Twenty-five (25) West of the 5th P.M., Clarke County, Iowa;

 

thence North 0°00’00” East,510.65 feet along the West line of the Southwest Fractional Quarter of theNorthwest Quarter (SW Fractional 1/4 NW 1/4) of said Section Eighteen (18)to the Point of Beginning;

 

thence North 0°00’00” East,765.65 feet along an existing fenceline which is the West line of the SouthwestFractional Quarter of the Northwest Quarter (SW Fractional 1/4 NW 1/4) of said Section Eighteen(18) to a point on the South line of a parcel purchased by the Iowa Departmentof Transportation for Highway right-of-way;

 

thence North 86°38’02” East,519.84 feet along said right-of-way line to a point on the centerline of ClarkeCounty Road H-33;

 

thence Southeasterly 446.62feet along said centerline, which is a 675.00 foot radius curve concaveSouthwesterly with a chord of South 54°17’27” East, 438.52 feet;

 

thence South 35°20’08” East,481.63 feet along said centerline;

 

thence South 82°43’20” West,1162.94 feet along the projection of an existing fenceline to the Point ofBeginning.

 

**SITE 5:**

 

All that part of said NE 1/4NE 1/4 that lies Northerly and Easterly of a line beginning at a point 60 feetradially distant Northerly from centerline on the East line of said NE 1/4 NE1/4 at Station 174+25;

 

thence to a point 140 feetnormally distant Northerly from Secondary Road centerline and 100 feet normallydistant Southeasterly from the centerline of Interstate Route No. 35;

 

8

----

 

thence Northeasterly along aline 100 feet normally distant Southeasterly from and parallel to the East Laneof Interstate Route No.  35 to a point onthe East line of said NE1/4 NE1/4, all in Section 13, Township 72 North,Range 26 West of the 5th P.M., Clarke County, Iowa.

 

AND

 

A part of the NW1/4 NW1/4 ofSection 18 and SW1/4 SW1/4 of Section 7, all in Township 72 North,Range 25 West of the 5th PM., Clarke County, Iowa, described as follows:

 

Beginning at a point of thatis 595.0 feet South of the Northwest Corner of said Section 18, thenceSouth 726.0 feet to the Southwest Corner of said NW 1/4 NW 1/4 of Section 18;thence East 586.0 feet along the South line of said NW1/4 NW1/4;

 

thence North 1651.4 feet tothe right of way line of Interstate Highway 1-35;

 

thence South 32°20’ West1096.5 feet along said right of way line to the point of beginning, subject toroad easement along the South side thereof.

 

EXCEPT

 

That land lying in theSouthwest Quarter of the Southwest Quarter (SW1/4 SW1/4) of Section Seven(7), Township Seventy-two (72) North, Range Twenty-six (26) West, the NortheastQuarter of the Northeast Quarter (NE1/4 NE1/4) of Section Thirteen (13),Township Seventy-two (72) North, Range Twenty-six (26) West of the 5th P M.,Clarke County, Iowa, being described as follows:

 

Commencing as a point ofreference at the Northwest Corner of said Section Eighteen (18);

 

thence South 00°18’55” West(all bearings based on grid North Iowa State Plane Coordinate System SouthZone), a distance of 599.54 feet, on the West line of the Northwest Quarter(NW1/4) of said Section Eighteen (18) to the easterly right-of-way ofInterstate Highway 35 (formerly Interstate Road Number 02) as recorded in Book65 on page 505, Office of the Clarke County Recorder, said point being thepoint of beginning;

 

thence North 32°57’52” East,along said easterly right-of-way of Interstate 35, a distance of 713.36 feet tothe south line of the Southwest Quarter of said Section Seven (7);

 

thence North 32°57’52” Easton the easterly right-of-way of said Interstate Highway 35 a distance of 255.21feet;

 

thence South 17°10’50” West,a distance of 224.33 feet to the South line of the Southwest Quarter of said Section Seven(7);

 

thence South 17°10’50” Westa distance of 191.05 feet;

 

thence South 00°34’45” Westa distance of 941.62 feet;

 

9

----

 

thence South 43°33’01 East,a distance of 228.29 feet to a point being 40.00 feet normally distantnortherly of Clay Street extended (formerly secondary road centerline);

 

thence North 89°49’25” East,a distance of 30.63 feet on the north right-of-way line of Clay Street to thewesterly line of Parcel “B” in the Northwest Quarter of said Section Eighteen(18), (as recorded in Book 43 on page 365, Office of the Clarke CountyRecorder);

 

thence South 00°5’55” West,a distance of 40.01 feet to the south line of the Northwest Quarter of said Section Eighteen(18);

 

thence South 89°49’25” West,a distance of 137.86 feet to Sta. 178+69 of Clay Street; thence North 00°10’35”West, a distance of 60.00 feet to the north right of-way line of Clay Street;

 

thence South 89°49’23” Westa distance of 447.74 feet on the north right-of-way line of Clay Street to apoint on the west line of the Northwest Quarter of said Section Eighteen(18), said point being 60.00 feet normally distant northerly of Clay Streetextended (formerly secondary road centerline);

 

thence North 79°17’03” West,a distance of 374.80 feet to the easterly right-of-way of said InterstateHighway 35, said point being 100.00 feet normally distant form centerline ofthe northbound lane of said Interstate Highway 35, thence North 31°39’27” East,a distance of 708.72 feet along said easterly right-of-way to the point ofbeginning.

 

10

----

 

**Clay StreetDevelopment Tract**

 

A parcel of land located inthe Southwest Quarter of the Northeast Quarter (SW/14 NE1/4) of Section 13,Township 72 North, Range 26 West of the 5th P.M., more fully described as follows:

 

Commencing at the Northeast(NE) corner of the Southeast Quarter of the Northeast Quarter (SW/14 NE1/4) of Section 13,Township 72 North, Range 26 West of the 5th P.M.;

 

Thence South 85°54’ West1,815.6 feet along the centerline of Country Road H-33 to the point ofbeginning;

 

Thence continuing South85°54’ West 285 feet along said centerline

 

Thence South 4°6’ East 305.7feet;

 

Thence North 85°54’ East 285feet;

 

Thence North 4°6’ West 305.7feet to the point of beginning.

 

 

**LEASEHOLDPARCEL:**

 

**DESCRIPTIONOF THE LEASEHOLD ESTATE**

 

Leasehold interest in thefollowing described property under the terms of that certain Agreement andLease dated August 19, 1997, and by and between the City of Osceola, Iowa,a Municipal corporation, the Osceola Water Works Board of Trustees and SouthernIowa Gaming Co., an Iowa corporation, as amended from time to time:

 

That portion of land ownedby the City of Osceola for West Lake lying in parts of Sections 13, 14, 23 and24, in Township 72 North, Range 26 West of the 5th P.M., in Clarke County,Iowa, and described as:

 

That land lying above thehigh water level (Elevation 1072.0) on the Easterly and Southerly side of Westlake beginning at the Southerly line of the boat ramp parking lot at the Eastend of the West Lake dam, thence running South, Southeasterly and Westerlyalong West Lake to the West line of the Southeast Quarter (SE 1/4) of said Section 14;plus

 

An option in the followingdescribed property under the terms of the foregoing Agreement and Leases:

 

That portion of land ownedby the City of Osceola for West Lake lying in parts of Sections 14, Township 72North, Range 26 West of the 5th P.M., in Clarke County, Iowa, described as:

 

That land lying above thehigh water level (Elevation 1072.0 feet) on the Northerly side of West Lakebeginning 50 feet South of the intake structure on the West end of dam at Westlake, thence running Southerly and Westerly along West Lake to the West line ofthe SE1/4 of said Section 14.

 

11

----

 

EXHIBIT “B”

 

(Schedule of Lenders)

 
| Bank of America, N.A.                       |
|---------------------------------------------|
| U.S. Bank National  Association             |
| Wells Fargo Bank, N.A                       |
| Lehman Commercial Paper  Inc.               |
| The CIT Group/Equipment  Financing, Inc.    |
| Comerica West Incorporated                  |
| Nevada State Bank                           |
| American Express  Certificate Company       |
| IDS Life Insurance Company                  |
| Centurion CDO 8, Limited                    |
| Black Diamond CLO 2005-1  Ltd.              |
| Carlyle High Yield  Partners II, Ltd.       |
| Carlyle High Yield  Partners III, Ltd.      |
| Carlyle High Yield  Partners VI, Ltd.       |
| Carlyle Loan Investment  Ltd                |
| Senior Debt Portfolio                       |
| Eaton Vance Institutional  Senior Loan Fund |
| Eaton Vance CDO III, Ltd.                   |
| Costantinus Eaton Vance  CDO V, Ltd.        |
| Eaton Vance CDO VI, Ltd.                    |
| Grayson & Co                            |
| The Norinchukin Bank, New  York Branch      |

 

1

----

 
| Tolli & Co.                                                                                   |
|---------------------------------------------------------------------------------------------------|
| Fidelity Central  Investment Portfolios LLC: Fidelity Floating Rate Central Investment  Portfolio |
| Fidelity Advisor Series  II: Fidelity Advisor Floating Rate High Income Fund (161)                |
| Franklin Floating Rate  Trust                                                                     |
| Franklin Floating Rate  Master Series                                                             |
| Franklin CLO IV, Limited                                                                          |
| ELF Funding Trust I                                                                               |
| Highland Offshore  Partners, L.P.                                                                 |
| Pioneer Floating Rate  Trust                                                                      |
| Loan Star State Trust                                                                             |
| ING Prime Rate Trust                                                                              |
| ING Senior Income Fund                                                                            |
| Floating Rate Income  Strategies Fund II, Inc. (FRB)                                              |
| Southport CLO, Limited                                                                            |
| Loan Funding XI LLC                                                                               |
| Harbour Town Funding LLC                                                                          |
| Race Point CLO, Limited                                                                           |
| Race Point II CLO, Limited                                                                        |
| ULT CBNA Loan Funding LLC                                                                         |
| Van Kampen Senior Income  Trust                                                                   |
| Van Kampen Senior Loan  Fund                                                                      |
| Bank of Scotland                                                                                  |

 

2

----