EXHIBIT 10.13



                           LOAN AND SECURITY AGREEMENT


                                  by and among


                          PENINSULA GAMING COMPANY, LLC

                                  as Borrower,

                                       and

                          FOOTHILL CAPITAL CORPORATION

                                    as Lender


                          Dated as of February 23, 2001



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                           LOAN AND SECURITY AGREEMENT

     THIS LOAN AND SECURITY AGREEMENT (this "Agreement"),  is entered into as of
February  23,  2001,   between  FOOTHILL  CAPITAL   CORPORATION,   a  California
corporation  ("Lender") and PENINSULA  GAMING COMPANY,  LLC, a Delaware  limited
liability company ("Borrower").

     The parties agree as follows:

1. DEFINITIONS AND CONSTRUCTION.

     1.1 Definitions.  As used in this Agreement, the following terms shall have
the following definitions:

     "Account Debtor" means any Person who is or who may become obligated under,
with  respect  to, or on account  of, an Account,  chattel  paper,  or a General
Intangible.

     "Accounts"  means all of Borrower's now owned or hereafter  acquired right,
title,  and interest with respect to "accounts"  (as that term is defined in the
Code), and any and all supporting obligations in respect thereof.

     "Acquired  Debt" means  Indebtedness  of a Person existing at the time such
Person is merged with or into Borrower or a Restricted Subsidiary of Borrower or
becomes a Restricted Subsidiary of Borrower, other than Indebtedness incurred in
connection  with,  or in  contemplation  of,  such Person  merging  with or into
Borrower  or a  Restricted  Subsidiary  of  Borrower  or  becoming a  Restricted
Subsidiary of Borrower.

     "Additional Documents" has the meaning set forth in Section 4.4.

     "Advances" has the meaning set forth in Section 2.1.

     "Affiliate" means, as applied to any Person, any other Person who, directly
or indirectly, controls, is controlled by, or is under common control with, such
Person.  For  purposes  of this  definition,  "control"  means  the  possession,
directly or indirectly,  of the power to direct the management and policies of a
Person,  whether  through the  ownership of Stock,  by contract,  or  otherwise;
provided,  however,  that,  in any event:  (a) any Person which owns directly or
indirectly 10% or more of the securities  having  ordinary  voting power for the
election of directors or other members of the governing  body of a Person or 10%
or more of the partnership or other ownership  interests of a Person (other than
as a limited partner of such Person) shall be deemed to control such Person, (b)
each  director  (or  comparable  manager)  of a Person  shall be deemed to be an
Affiliate of such Person,  and (c) each  partnership or joint venture in which a
Person is a partner or joint venturer shall be deemed to be an Affiliate of such
Person.

     "Agreement" has the meaning set forth in the preamble hereto.


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     "Annualized Quarterly EBITDA" means, as of any date of determination (which
date of  determination  shall be as of the last day of any month and need not be
the end of a fiscal quarter), the product of Borrower's EBITDA for the period of
three months then ending times four.

     "Applicable Capital Gain Tax Rate" means a rate equal to the sum of (i) the
highest  marginal  Federal capital gain tax rate applicable to an individual who
is a citizen of the United  States plus (ii) the greater of (a) an amount  equal
to the sum of the  highest  marginal  state  and  local  capital  gain tax rates
applicable to an individual who is a resident of the State of California and (b)
an amount equal to the sum of the highest marginal state and local capital gains
tax rates  applicable to an  individual  who is a resident of the State of Iowa,
multiplied by a factor equal to 1 minus the rate described in clause (i) above.

     "Applicable Gaming Laws" has the meaning set forth in Section 9.1.

     "Applicable  Income  Tax  Rate"  means a rate  equal  to the sum of (i) the
highest  marginal  Federal income tax rate  applicable to an individual who is a
citizen of the United States plus (ii) the greater of (a) an amount equal to the
sum of the highest  marginal  state and local income tax rates  applicable to an
individual  who is a resident of the State of California and (b) an amount equal
to the sum of the highest  marginal state and local income tax rates  applicable
to an individual who is a resident of the State of Iowa,  multiplied by a factor
equal to 1 minus the rate described in clause (i) above.

     "Applicable Prepayment Premium" means, as of any date of determination,  an
amount  equal to (a)  during  the  period of time from and after the date of the
execution  and  delivery  of this  Agreement  up to the date that is the  second
anniversary  of the Closing Date,  $300,000,  (b) during the period of time from
and including the date that is the second  anniversary of the Closing Date up to
the date that is the third  anniversary of the Closing Date,  $200,000,  and (c)
during  the  period  of time  from  and  including  the date  that is the  third
anniversary of the Closing Date up to the Maturity Date, $100,000.

     "Asset Sale" means any (i) direct or indirect sale,  assignment,  transfer,
lease,  conveyance,  or other disposition,  other than in the ordinary course of
business, of any assets of Borrower or any of its Restricted Subsidiaries,  (ii)
direct or  indirect  issuance  or sale of any  capital  Stock of any  Restricted
Subsidiary of Borrower (other than directors'  qualifying  shares) to any Person
(other than Borrower or any Restricted  Subsidiary of Borrower),  or (iii) Event
of  Loss  with  respect  to any  assets  of  Borrower  or any of its  Restricted
Subsidiaries.  For purposes of this  definition,  (a) any series of transactions
that are part of a common plan shall be deemed a single Asset Sale, (b) the term
"Asset  Sale"  shall  not  include  (i) any  exchange  of  gaming  equipment  or
furniture,  fixtures or other  equipment for  replacement  items in the ordinary
course of business,  and (ii) any transaction or series of  transactions  (other
than any transaction or series of transactions set forth in the immediately



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preceding clause (i) that have a fair market value (or result in gross proceeds)
of less than  $1,000,000  and do not have an  aggregate  fair market  value (and
gross  proceeds) in excess of  $5,000,000,  and (c) any merger or  consolidation
that is governed by Section 7.3(a) shall not constitute an Asset Sale.

     "Authorized Person" means any officer or other employee of Borrower.

     "Availability"  means, as of any date of  determination,  if such date is a
Business  Day,  and  determined  at the  close of  business  on the  immediately
preceding Business Day, if such date of determination is not a Business Day, the
amount that Borrower is entitled to borrow as Advances  under Section 2.1 (after
giving effect to all then outstanding Obligations and all sublimits and reserves
applicable hereunder).

     "Bankruptcy  Code" means the United  States  Bankruptcy  Code, as in effect
from time to time.

     "Base  LIBOR  Rate"  means  the rate per  annum,  determined  by  Lender in
accordance with its customary procedures, and utilizing such electronic or other
quotation sources as it considers appropriate (rounded upwards, if necessary, to
the next 1/16%),  on the basis of the rates at which Dollar deposits are offered
to major banks in the London interbank market on or about 11:00 a.m. (California
time) 2  Business  Days prior to the  commencement  of the  applicable  Interest
Period,  for a term and in amounts  comparable to the Interest Period and amount
of the LIBOR Rate Loan requested by Borrower in accordance  with this Agreement,
which determination shall be conclusive in the absence of manifest error.

     "Base Rate" means, the rate of interest announced within Wells Fargo at its
principal  office in San Francisco as its "prime rate",  with the  understanding
that the "prime rate" is one of Wells  Fargo's base rates (not  necessarily  the
lowest of such  rates) and serves as the basis  upon  which  effective  rates of
interest  are  calculated  for  those  loans  making  reference  thereto  and is
evidenced by the  recording  thereof  after its  announcement  in such  internal
publication or publications as Wells Fargo may designate.

     "Base Rate Loan" means each portion of an Advance that bears  interest at a
rate determined by reference to the Base Rate.

     "Base Rate Margin" means .75 percentage points.

     "Benefit Plan" means a "defined  benefit plan" (as defined in Section 3(35)
of ERISA) for which  Borrower or any  Subsidiary or ERISA  Affiliate of Borrower
has been an "employer" (as defined in Section 3(5) of ERISA) within the past six
years.

     "Board of Directors" means the board of directors (or comparable  managers)
of Borrower or any  committee  thereof duly  authorized  to act on behalf of the
board.



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<PAGE>

     "Books" means Borrower's now owned or hereafter  acquired books and records
(including all of its Records indicating,  summarizing, or evidencing its assets
(including the  Collateral) or liabilities,  all of its Records  relating to its
business  operations  or  financial  condition,  and all of its goods or General
Intangibles related to such information).

     "Borrower" has the meaning set forth in the preamble to this Agreement.

     "Borrowing" means a borrowing hereunder of an Advance.

     "Borrowing Base" has the meaning set forth in Section 2.1.

     "Borrowing  Base  Certificate"  means a certificate  in the form of Exhibit
B-1.

     "Business Day" means any day that is not a Saturday,  Sunday,  or other day
on which national  banks are authorized or required to close,  except that, if a
determination  of a Business  Day shall  relate to a LIBOR  Rate Loan,  the term
"Business Day" also shall exclude any day on which banks are closed for dealings
in Dollar deposits in the London interbank market.

     "Capital  Lease"  means a lease  that is  required  to be  capitalized  for
financial reporting purposes in accordance with GAAP.

     "Capitalized  Lease  Obligation"  means  any  Indebtedness  represented  by
obligations under a Capital Lease.

     "Cash  Equivalents"  means  (a)  marketable  direct  obligations  issued or
unconditionally  guaranteed by the United States or issued by any agency thereof
and  backed by the full  faith and  credit of the  United  States,  in each case
maturing  within 1 year from the date of  acquisition  thereof,  (b)  marketable
direct  obligations  issued by any state of the United  States or any  political
subdivision  of any such state or any public  instrumentality  thereof  maturing
within  1 year  from  the  date  of  acquisition  thereof  and,  at the  time of
acquisition,  having the highest rating  obtainable  from either S&P or Moody's,
(c)  commercial  paper maturing no more than 1 year from the date of acquisition
thereof  and,  at the time of  acquisition,  having a rating  of A-1 or P-1,  or
better,  from S&P or  Moody's,  and (d)  certificates  of  deposit  or  bankers'
acceptances  maturing within 1 year from the date of acquisition  thereof either
(i)  issued by any bank  organized  under the laws of the  United  States or any
state  thereof  which  bank  has a rating  of A or A2,  or  better,  from S&P or
Moody's,  or (ii)  certificates of deposit less than or equal to $100,000 in the
aggregate  issued by any other bank  insured by the  Federal  Deposit  Insurance
Corporation.

     "Certificate of Designation"  means the certificate of designation or other
document evidencing the rights and preferences of the Seller Preferred.



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<PAGE>

     "Change of Control"  means (a) any "person" or "group"  (within the meaning
of Sections 13(d) and 14(d) of the Exchange Act), other than Permitted  Holders,
who becomes the  beneficial  owner (as defined in Rule 13d-3 under the  Exchange
Act),  directly or indirectly,  of 33%, or more, of the Stock of Borrower having
the right to vote for the election of members of the Board of Directors,  or (b)
a majority of the members of the Board of Directors do not constitute Continuing
Directors,  or (c)  Borrower  ceases to  directly  own and  control  100% of the
outstanding  capital Stock of each of its Subsidiaries  extant as of the Closing
Date.

     "Closing  Date"  means the date of the making of the  initial  Advance  (or
other extension of credit) hereunder or the date on which Agent sends Borrower a
written  notice that each of the  conditions  precedent set forth in Section 3.1
either have been satisfied or have been waived.

     "Closing Date Business  Plan" means the set of  Projections of Borrower for
the 3 year period  following the Closing Date (on a year by year basis,  and for
the 1 year period  following the Closing  Date,  on a month by month basis),  in
form  and  substance   (including  as  to  scope  and  underlying   assumptions)
satisfactory to Lender.

     "Code" means the California Uniform Commercial Code, as in effect from time
to time.

     "Collateral" means all of Borrower's now owned or hereafter acquired right,
title, and interest in and to each of the following:

     (a) Accounts,

     (b) Books,

     (c) Equipment,

     (d) General Intangibles,

     (e) Inventory,

     (f) Investment Property,

     (g) Negotiable Collateral,

     (h) Real Property Collateral,

     (i) money or other assets of Borrower  that now or hereafter  come into the
possession, custody, or control of Lender, and



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<PAGE>

     (j) the proceeds and products,  whether  tangible or intangible,  of any of
the  foregoing,  including  proceeds  of  insurance  covering  any or all of the
foregoing,  and any and all Accounts,  Books,  Equipment,  General  Intangibles,
Inventory,  Investment Property,  Negotiable Collateral,  Real Property,  money,
deposit accounts,  or other tangible or intangible  property  resulting from the
sale, exchange, collection, or other disposition of any of the foregoing, or any
portion thereof or interest therein, and the proceeds thereof.

     The  foregoing  to the  contrary  notwithstanding,  "Collateral"  shall not
include Excluded Assets.

     "Collateral  Access  Agreement" means a landlord waiver,  mortgagee waiver,
bailee letter,  or  acknowledgement  agreement of any  warehouseman,  processor,
lessor,  consignee,  or other Person in  possession  of,  having a Lien upon, or
having  rights  or  interests  in the  Collateral,  in each  case,  in form  and
substance reasonably satisfactory to Lender.

     "Collections" means all cash, checks, notes,  instruments,  and other items
of  payment  (including  insurance  proceeds,  proceeds  of cash  sales,  rental
proceeds, and tax refunds) of Borrower.

     "Compliance  Certificate" means a certificate  substantially in the form of
Exhibit C-1 delivered by the chief financial officer of Borrower to Lender.

     "Consolidated  Cash Flow" means with  respect to any Person for any period,
the sum of:

     (a)  consolidated  income  (loss)  from  operation  of such  Person and its
Subsidiaries for such period, determined in accordance with GAAP, plus

     (b) to the extent such  amounts are  deducted  in  calculating  such income
(loss) from  operation of such Person for such period,  and without  duplication
(i) amortization,  depreciation,  and other non-cash charges (including, without
limitation,  amortization  of  goodwill,  deferred  financing  fees,  and  other
intangibles  but excluding (x) non-cash  charges  incurred  after the Issue Date
that require an accrual of or a reserve for cash charges for any future  period,
and  (y)  normally   recurring   accruals  such  as  reserves  against  accounts
receivables),  and (ii) non-capitalized transaction costs incurred in connection
with actual or proposed financings, acquisitions, or divestitures;

provided, that (1) the income from operations of any Person that is not a Wholly
Owned Subsidiary of such Person or that is accounted for by the equity method of
accounting  will be included  only to the extent of the amount of  dividends  or
distributions  paid  during  such  period to such  Person  or to a Wholly  Owned
Subsidiary of such Person, (2) the income from operations of any Person acquired
in a pooling of interest  transaction  for any period  prior to the date of such
acquisition  will be  excluded,  and  (3)  the  income  from  operations  of any
Restricted  Subsidiary  will not be included to the extent that  declarations of
dividends or



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<PAGE>


similar  distributions  by  such  Restricted  Subsidiary  are  not at  the  time
permitted,   directly  or   indirectly,   by  operation  of  the  terms  of  its
organizational documents or any agreement,  instrument, judgment, decree, order,
statute,   rule  or  governmental   regulation  applicable  to  such  Restricted
Subsidiary or its owners.

     "Consolidated  Interest  Expense" means, with respect to any Person for any
period,  the result of (a) the consolidated  interest expense of such Person and
its   Subsidiaries  for  such  period,   whether  paid  or  accrued   (including
amortization  of original issue  discount,  noncash  interest  payment,  and the
interest component of Capital Lease Obligations), to the extent such expense was
deducted in  computing  Consolidated  Net Income of such Person for such period,
minus, (b) amortization  expense,  write-off of deferred financing costs and any
charge related to any premium or penalty paid, in each case, accrued during such
period in  connection  with  redeeming or retiring any  Indebtedness  before its
stated  maturity,  as  determined  in  accordance  with GAAP, to the extent such
expense,  cost,  or charge was  including in the  calculation  made  pursuant to
clause (a) above.

     "Consolidated Net Income" means, with respect to any Person for any period,
the  aggregate  of the Net Income of such person and its  Subsidiaries  for such
period,  determined on a consolidated  basis in accordance with GAAP;  provided,
however that (i) the Net Income of any other  Person  relating to any portion of
such period that such other Person (a) is not a Wholly Owned  Subsidiary of such
Person,  or (b) is  accounted  for by the equity  method of  accounting  will be
included only to the extent of the amount of dividends or distributions  paid to
such Person or a Wholly Owned  Subsidiary  of such Person during such portion of
such period,  (ii) the Net Income of any other  Person  acquired in a pooling of
interests  transaction for any period prior to the date of such acquisition will
be excluded,  and (iii) the Net Income of any Restricted  Subsidiary will not be
included to the extent that  declarations of dividends or similar  distributions
by  such  Restricted  Subsidiary  are not at the  time  permitted,  directly  or
indirectly,  by  operation of the terms of its  organizational  documents or any
agreement,  instrument,  judgment, decree, order, statute, rule, or governmental
regulation applicable to such Restricted Subsidiary or its owners.

     "Consolidated  Net Worth"  means,  with  respect to any  Person,  the total
stockholders'  (or members') equity of such Person  determined on a consolidated
basis in accordance  with GAAP,  adjusted to exclude (to the extent  included in
calculating such stockholders' (or members') equity), (i) the amount of any such
stockholders' (or members') equity attributable to Disqualified Capital Stock or
treasury stock of such Person and its consolidated Subsidiaries, (ii) all upward
re-valuations  and other write-ups in the book value of any asset of such Person
or a  consolidated  Subsidiary of such Person  subsequent to the Issue Date, and
(iii) all Investments in  Subsidiaries of such Person that are not  consolidated
Subsidiaries and in Persons that are not Subsidiaries of such Person.



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<PAGE>

     "Continuing  Director"  means (a) any member of the Board of Directors  who
was a director (or comparable  manager) of Borrower on the Closing Date, and (b)
any individual who becomes a member of the Board of Directors  after the Closing
Date if such  individual was appointed or nominated for election to the Board of
Directors by a majority of the  Continuing  Directors,  but  excluding  any such
individual  originally  proposed  for  election  in  opposition  to the Board of
Directors  in office at the  Closing  Date in an actual or  threatened  election
contest  relating to the election of the directors (or  comparable  managers) of
Borrower  (as such terms are used in Rule  14a-11  under the  Exchange  Act) and
whose initial  assumption of office resulted from such contest or the settlement
thereof.

     "Consulting  Agreements" means those certain consulting  agreements between
Borrower and certain executive  officers of Gaming Partners,  as in effect as of
the Issue Date.

     "Daily  Balance"  means,  with  respect to each day during the term of this
Agreement, the amount of an Obligation owed at the end of such day.

     "DDA" means any  checking or other demand  deposit  account  maintained  by
Borrower.

     "Default"  means an event,  condition,  or default that, with the giving of
notice, the passage of time, or both, would be an Event of Default.

     "Designated  Account" means account  number ***** of Borrower  maintained
with  Borrower's  Designated  Account  Bank,  or such other  deposit  account of
Borrower (located within the United States) that has been designated as such, in
writing, by Borrower to Lender.

     "Designated  Account Bank" means  American  Trust and Savings  Bank,  whose
office is located at 895 Main  Street,  Dubuque,  Iowa,  and whose ABA number is
*****.

     "Destroyed Value" has the meaning set forth in Section 6.8(e) hereof.

     "Diamond Jo" means  Borrower's  riverboat  casino which is documented under
the laws and flag of the United States with Official  Number  973800,  and which
has as its hailing port Dubuque, Iowa.

     "Diamond Jo II" means Borrower's riverboat casino which is documented under
the laws and flag of the United States with Official  Number  973801,  and which
has as its hailing port Dubuque, Iowa.

     "Diamond  Jo Vessels"  means  those  certain  riverboat  casinos  owned and
operated by Borrower as of the Closing  Date,  which are known as Diamond Jo and
Diamond Jo II.



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<PAGE>

     "Diamond Jo Ship  Mortgage"  means that Preferred Ship Mortgage dated as of
the date hereof and  executed by  Borrower in favor of Lender,  encumbering  the
Diamond Jo Vessels and their related personal property.

     "Disqualified  Capital  Stock" means any Stock that (i) either by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable)  is or upon the  happening  of an event  would be  required  to be
redeemed or  repurchased  prior to the final stated  maturity of the Notes or is
redeemable  at the option of the holder  thereof at any time prior to such final
stated  maturity,  or (ii) is convertible  into or exchangeable at the option of
the issuer thereof or any other Person for debt securities.

     "Dollars" or "$" means United States dollars.

     "EBITDA"  means,  with  respect to any fiscal  period,  Borrower's  and its
Restricted Subsidiaries consolidated net earnings (or loss), minus extraordinary
gains,  plus interest  expense,  income taxes, and depreciation and amortization
for such period, as determined in accordance with GAAP.

     "Environmental  Law"  means  any  applicable  federal,  state,  provincial,
foreign or local statute, law, rule,  regulation,  ordinance,  code, binding and
enforceable guideline, binding and enforceable written policy, or rule of common
law now or hereafter  in effect and in each case as amended,  or any judicial or
administrative  interpretation thereof, including any judicial or administrative
order, consent decree or judgment,  to the extent binding on Borrower,  relating
to  the  environment,  employee  health  and  safety,  or  Hazardous  Materials,
including CERCLA; RCRA; the Federal Water Pollution Control Act, 33 USC ss. 1251
et seq.; the Toxic  Substances  Control Act, 15 USC, ss. 2601 et seq.; the Clean
Air Act, 42 USC ss. 7401 et seq.;  the Safe Drinking Water Act, 42 USC. ss. 3803
et seq.;  the Oil Pollution Act of 1990, 33 USC. ss. 2701 et seq.; the Emergency
Planning and the Community Right-to-Know Act of 1986, 42 USC. ss. 11001 et seq.;
the  Hazardous  Material  Transportation  Act, 49 USC ss. 1801 et seq.;  and the
Occupational  Safety and Health  Act, 29 USC.  ss.651 et seq.  (to the extent it
regulates occupational exposure to Hazardous Materials);  any state and local or
foreign counterparts or equivalents, in each case as amended from time to time.

     "Environmental  Liabilities  and  Costs"  means all  liabilities,  monetary
obligations,  Remedial Actions, losses, damages, punitive damages, consequential
damages,  treble  damages,  costs and expenses  (including all reasonable  fees,
disbursements  and expenses of counsel,  experts,  or consultants,  and costs of
investigation  and  feasibility  studies),  fines,  penalties,   sanctions,  and
interest  incurred  as a result  of any  claim  or  demand  by any  Governmental
Authority or any third party, and which relate to any Environmental Action.

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



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<PAGE>

     "Equipment" means all of Borrower's now owned or hereafter  acquired right,
title, and interest with respect to equipment, machinery, machine tools, motors,
furniture,  furnishings,  fixtures,  vehicles (including motor vehicles), tools,
parts, goods (other than consumer goods, farm products, or Inventory),  wherever
located,  including  all  attachments,  accessories,  accessions,  replacements,
substitutions, additions, and improvements to any of the foregoing.

     "Equity  Holder"  means (a) with respect to a  corporation,  each holder of
stock of such  corporation,  (b) with respect to a limited  liability company or
similar entity, each member of such limited liability company or similar entity,
(c) with respect to a partnership,  each partner of such  partnership,  (d) with
respect to an entity  described  in clause  (a)(iv) of the  definition  of "Flow
Through  Entity,"  the owner of such  entity,  and (e) with  respect  to a trust
described  in clause  (a)(v) of the  definition  of "Flow  Through  Entity," the
persons  treated  for  Federal  income tax  purposes  as the owners of the trust
property.

     "ERISA"  means the Employee  Retirement  Income  Security  Act of 1974,  as
amended, and any successor statute thereto.

     "ERISA Affiliate" means (a) any Person subject to ERISA whose employees are
treated as employed by the same employer as the employees of Borrower  under IRC
Section 414(b),  (b) any trade or business  subject to ERISA whose employees are
treated as employed by the same employer as the employees of Borrower  under IRC
Section 414(c),  (c) solely for purposes of Section 302 of ERISA and Section 412
of the IRC, any organization  subject to ERISA that is a member of an affiliated
service  group of which  Borrower is a member under IRC Section  414(m),  or (d)
solely for  purposes of Section  302 of ERISA and  Section  412 of the IRC,  any
Person  subject to ERISA that is a party to an  arrangement  with  Borrower  and
whose  employees are aggregated with the employees of Borrower under IRC Section
414(o).

     "Event of Default" has the meaning set forth in Section 8.

     "Event of Loss" means, with respect to any property or asset, any (a) loss,
destruction,  or damage of such  property  or  asset,  or (b) any  condemnation,
seizure, or taking, by exercise of the power of eminent domain or otherwise,  of
such  property  or  asset  or  confiscation  or  requisition  of the use of such
property or asset.

     "Excess  Availability"  means the amount,  as of the date any determination
thereof is to be made, equal to Availability minus the aggregate amount, if any,
of all trade  payables  of  Borrower  aged in excess of  historical  levels with
respect thereto and all book  overdrafts in excess of historical  practices with
respect  thereto,  in  each  case  as  determined  by  Lender  in its  Permitted
Discretion.

     "Exchange Act" means the Securities Exchange Act of 1934, as in effect from
time to time.



                                       10
<PAGE>

     "Excluded  Assets"  means  (a)  cash,  deposit  accounts,  and  other  Cash
Equivalents,  (b) assets  securing  Purchase Money  Indebtedness  or Capitalized
Lease  Obligations  permitted to be incurred under this  Agreement,  and (c) any
agreements, permits, licenses (including Gaming Licenses), or the like solely in
the event and to the extent that: (i) such agreements, permits, licenses, or the
like cannot be subjected to a  consensual  security  interest in favor of Lender
without the consent of the  licensor or other party to such  agreement,  permit,
license,  or the like,  (ii) any such  restriction is effective and  enforceable
under  applicable  law;  and (iii) such consent is not  obtainable  by Borrower;
provided, however, that Excluded Assets shall not include (and, accordingly, the
Collateral shall include) any and all proceeds of any of the assets described in
clauses (b) and (c) above  (unless and to the extent  such  proceeds  constitute
cash, deposit accounts, or other Cash Equivalents); provided, further, that, any
agreement,  permit,  license,  or the like qualifying as an Excluded Asset under
clause (c) above no longer shall constitute an Excluded Asset (and instead shall
constitute  Collateral)  from and after such time as the licensor or other party
to such  agreement,  permit,  license,  or the like  consents  to the grant of a
security interest in favor of Lender in such agreement,  permit, license, or the
like or the prohibition against granting a security interest therein in favor of
Lender shall cease to be effective; provided further, however, that, anything in
this definition to the contrary notwithstanding,  any property or asset acquired
by Borrower for cash or Cash Equivalents,  or otherwise  received by Borrower in
exchange for cash or Cash Equivalents,  shall not constitute  Excluded Assets so
long as such acquired or received property or asset is not an asset described in
clause (a), (b), or (c) above.

     "Fee Letter" means that certain fee letter, dated as of even date herewith,
between Borrower and Lender, in form and substance satisfactory to Lender.

     "FEIN" means Federal Employer Identification Number.

     "Flow  Through  Entity"  means an entity  that (a) for  federal  income tax
purposes  constitutes (i) an "S  corporation"  (as defined in Section 1361(a) of
the IRC),  (ii) a  "qualified  subchapter S  subsidiary"  (as defined in Section
1361(b)(3)(B) of the IRC), (iii) a "partnership"  (within the meaning of Section
7701(a)(2) of the IRC) other than a "publicly traded partnership" (as defined in
Section  7704 of the IRC),  (iv) a business  entity  that is  disregarded  as an
entity separate from its owners under the IRC, the Treasury Regulations,  or any
published administrative guidance of the Internal Revenue Service or (v) a trust
to the extent its income is includible  in the taxable  income of the grantor or
another  person under  Sections 671 through 679 of the IRC (each of the entities
described in the preceding  clauses (i), (ii),  (iii),  (iv) and (v), a "Federal
Flow Through Entity"),  and (b) for state and local  jurisdictions is subject to
treatment  on  a  basis  under   applicable   state  or  local  income  tax  law
substantially similar to a Federal Flow Through Entity.

     "Funding Date" means the date on which a Borrowing occurs.

     "Funding Losses" has the meaning set forth in Section 2.13(b)(ii).



                                       11
<PAGE>

     "GAAP" means  generally  accepted  accounting  principles as in effect from
time to time in the United States, consistently applied.

     "Gaming Authority" means any agency, authority,  board, bureau, commission,
department,  office or  instrumentality  of any nature  whatsoever of the United
States of America or foreign government (including Native American governments),
any state, province or city or other political subdivision thereof,  whether now
or hereafter existing, or any officer or official thereof,  including the Gaming
Commission, and any other agency with authority to regulate any gaming operation
(or proposed gaming operation) owned,  managed or operated by Borrower or any of
its Subsidiaries.

     "Gaming  Commission"  means the Iowa Racing and Gaming  Commission,  or any
successor Gaming Authority.

     "Gaming  Corporation"  means  Peninsula  Gaming  Corporation,   a  Delaware
corporation.

     "Gaming  License"  means any  material  license,  franchise,  registration,
qualification,  findings  of  suitability  or other  approval  or  authorization
required  to own,  lease,  operate or  otherwise  conduct  or manage  riverboat,
dockside or land-based  gaming  activities in any state or jurisdiction in which
Borrower or any of its Restricted  Subsidiaries  conduct  business or propose to
conduct business  (including,  without limitation,  all such licenses granted by
the Gaming  Commission  under  Chapter  99F of the Iowa Code,  and the rules and
regulations promulgated thereunder), and all applicable liquor licenses.

     "Gaming  Management"  means an entity that will be formed subsequent to the
date of this Agreement as a wholly-owned  Subsidiary of Gaming  Partners for the
purpose of owning  equity in and  providing  management  services  to any Person
whose business consists primarily of riverboat,  dockside,  or land-based casino
gaming in the United States.

     "Gaming Partners" means Peninsula Gaming Partners,  LLC, a Delaware limited
liability company.

     "General  Intangibles"  means  all of  Borrower's  now  owned or  hereafter
acquired  right,  title,  and  interest  with  respect  to  general  intangibles
(including  payment  intangibles,  contract  rights,  rights to payment,  rights
arising under common law, statutes, or regulations,  choses or things in action,
goodwill,   patents,   trade  names,   trademarks,   servicemarks,   copyrights,
blueprints, drawings, purchase orders, customer lists, monies due or recoverable
from pension  funds,  route lists,  rights to payment and other rights under any
royalty  or  licensing  agreements,   infringement  claims,  computer  programs,
information contained on computer disks or tapes, software, literature, reports,
catalogs,  money, deposit accounts,  insurance premium rebates, tax refunds, and
tax refund claims),  and any and all supporting  obligations in respect thereof,
and any other personal property other than goods, Accounts, Investment Property,
and Negotiable Collateral.



                                       12
<PAGE>

     "Governing Documents" means, with respect to any Person, the certificate or
articles of incorporation,  by-laws, or other  organizational  documents of such
Person.

     "Governmental   Authority"  means  any  federal,  state,  local,  or  other
governmental or  administrative  body,  instrumentality,  department,  or agency
(including any Gaming Authority and Gaming  Commission) or any court,  tribunal,
administrative  hearing body,  arbitration panel,  commission,  or other similar
dispute-resolving panel or body.

     "Guarantors"  means all of the Restricted  Subsidiaries of Borrower and all
other Persons executing a guaranty of the Obligations in favor of Lender.

     "Guaranty"  means a  General  Continuing  Guaranty,  in form and  substance
satisfactory to Lender, executed by each of the Guarantors in favor of Lender.

     "Guarantor  Security  Agreement"  means a Security  Agreement,  in form and
substance satisfactory to Lender, between Lender and each of the Guarantors.

     "Hazardous  Materials"  means (a) substances that are defined or listed in,
or otherwise  classified  pursuant to, any  applicable  laws or  regulations  as
"hazardous   substances,"  "hazardous  materials,"  "hazardous  wastes,"  "toxic
substances,"  or any other  formulation  intended to define,  list,  or classify
substances  by  reason  of   deleterious   properties   such  as   ignitability,
corrosivity,   reactivity,   carcinogenicity,   reproductive  toxicity,  or  "EP
toxicity",  (b) oil, petroleum,  or petroleum derived  substances,  natural gas,
natural gas liquids,  synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any  radioactive  materials,  and (d)  asbestos  in any  form  or  electrical
equipment  that  contains  any oil or  dielectric  fluid  containing  levels  of
polychlorinated biphenyls in excess of 50 parts per million.

     "Hedging Obligations" means, with respect to any Person, the obligations of
such  Person  under  (a)  interest  rate  swap  agreements,  interest  rate  cap
agreements,  and interest rate collar  agreements,  and (b) other  agreements or
arrangements  designed to protect such Person against  fluctuations  in interest
rates;  provided,  that, in any such case,  such agreement or arrangement  shall
have been entered  into for risk  management  purposes  and not for  speculative
purposes.

     "Ice Harbor Facility" means the Diamond Jo Vessels (or either of them), the
Real Property or the Lease.

     "Ice  Harbor  Parking  Agreement"  means that  certain  Ice Harbor  Parking
Agreement  dated July 2, 1990,  by and among Dubuque  Casino Belle,  the City of
Dubuque,  Dubuque Racing Association,  Ltd., the Dubuque Historical Society, and
Robert River Rides, Inc. regarding the parking rights of the parties relating to
the real property that is the subject of the Lease.



                                       13
<PAGE>

     "Indebtedness" means, with respect to any Person (without duplication): (a)
all liabilities and obligations,  contingent or otherwise, of such Person (i) in
respect of borrowed  money  (regardless  of whether the recourse of lender is to
the whole of the  assets of such  Person  or only to a  portion  thereof),  (ii)
evidenced  by  bonds,  debentures,  notes or other  similar  instruments,  (iii)
representing  the deferred  purchase  price of property or services  (other than
trade payables on customary  terms incurred in the ordinary course of business),
(iv)  created or arising  under any  conditional  sale or other title  retention
agreement  with  respect to property  acquired by such Person  (even  though the
rights and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property),  (v) representing
Capital Lease Obligations,  (vi) under bankers'  acceptance and letter of credit
facilities,  (vii) to purchase, redeem, retire, defease or otherwise acquire for
value  any  Disqualified   Capital  Stock,  or  (viii)  in  respect  of  Hedging
Obligations;  (b) all  Indebtedness of others that is guaranteed by such Person;
and (c) all  Indebtedness  of others that is secured by (or for which the holder
of such  Indebtedness  has an existing  right,  contingent or  otherwise,  to be
secured by) any Lien on property  (including,  without limitation,  accounts and
contract  rights) owned by such Person,  even though such Person has not assumed
or become liable for the payment of such Indebtedness, provided, that the amount
of such Indebtedness  shall (to the extent such Person has not assumed or become
liable  for the  payment  of such  Indebtedness)  be the  lesser of (i) the fair
market value of such property at the time of  determination  and (ii) the amount
of such Indebtedness. The amount of Indebtedness of any Person at any date shall
be the  outstanding  balance at such date of all  unconditional  obligations  as
described  above  and  the  maximum  liability,   upon  the  occurrence  of  the
contingency giving rise to the obligation, of any contingent obligations at such
date. The principal amount outstanding of any Indebtedness  issued with original
issue discount is the accreted value of such Indebtedness

     "Indemnified Liabilities" has the meaning set forth in Section 11.3.

     "Indemnified Person" has the meaning set forth in Section 11.3.

     "Indenture" means that certain Indenture,  dated as of July 15, 1999, among
Borrower,  Peninsula Gaming Corporation,  a Delaware corporation,  and Indenture
Trustee.

     "Indenture  Trustee" means (a) Firstar Bank of Minnesota,  N.A., a National
Association,  in its  capacity  as  trustee  under  the  Indenture,  or (b)  any
successor trustee under the Indenture from time to time.

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

     "Intercreditor   Agreement"  means  that  certain  Intercreditor  Agreement
between  Lender and the Indenture  Trustee,  in the form of Exhibit I-1 attached
hereto.



                                       14
<PAGE>

     "Interest  Coverage Ratio" means with respect to any Person for any period,
the ratio of (a) such  Person's  Consolidated  Cash  Flow,  to (b)  Consolidated
Interest Expense of such Person,  in each case, for such period.  In calculating
Interest  Coverage Ratio for any period,  pro forma effect shall be given to the
incurrence,   assumption,  guarantee,  repayment,  repurchase,   redemption,  or
retirement  by  such  Person  or  any of its  Subsidiaries  of any  Indebtedness
subsequent  to the  commencement  of the period for which the Interest  Coverage
Ratio is being calculated,  as if the same had occurred at the beginning of such
period and  Consolidated  Cash Flow for such period shall be calculated  without
giving  effect to clause  (2) of the  proviso  set  forth in the  definition  of
Consolidated  Cash Flow.  For  purposes  of making the  computation  referred to
above,   acquisitions  that  have  been  made  by  Borrower  or  any  Restricted
Subsidiary,  including  all  mergers  and  consolidations,   subsequent  to  the
commencement  of such period shall be calculated on a pro forma basis,  assuming
that all such  acquisitions,  mergers,  and  consolidations  had occurred on the
first  day of  such  period.  Without  limiting  the  foregoing,  the  financial
information  of Borrower  with  respect to any portion of such period that falls
before the Issue Date shall be adjusted to give pro forma effect to the issuance
of the  Notes  and the  application  of the  proceeds  therefrom  as if they had
occurred at the beginning of such period.

     "Interest  Period"  means,  with  respect to each LIBOR Rate Loan, a period
commencing  on the date of the making of such LIBOR Rate Loan and ending 1, 2, 3
or 6 months thereafter; provided, however, that (a) if any Interest Period would
end on a day that is not a Business Day, such Interest  Period shall be extended
(subject to clauses  (c)-(e)  below) to the next  succeeding  Business  Day, (b)
interest shall accrue at the applicable  rate based upon the LIBOR Rate from and
including the first day of each Interest  Period to, but  excluding,  the day on
which any Interest Period  expires,  (c) any Interest Period that would end on a
day that is not a Business Day shall be extended to the next succeeding Business
Day unless such Business Day falls in another calendar month, in which case such
Interest  Period shall end on the next preceding  Business Day, (d) with respect
to an Interest  Period that begins on the last Business Day of a calendar  month
(or on a day for which there is no numerically corresponding day in the calendar
month at the end of such Interest Period),  the Interest Period shall end on the
last  Business Day of the  calendar  month that is 1, 2, 3 or 6 months after the
date on which the Interest Period began, as applicable, and (e) Borrower may not
elect an Interest Period which will end after the Maturity Date.

     "Inventory"  means all  Borrower's now owned or hereafter  acquired  right,
title, and interest with respect to inventory,  including goods held for sale or
lease or to be furnished  under a contract of service,  goods that are leased by
Borrower as lessor,  goods that are  furnished  by Borrower  under a contract of
service,  and raw materials,  work in process,  or materials used or consumed in
Borrower's business.

     "Investment"  means,  with respect to any Person,  any  investment  by such
Person  in any  other  Person  (including  Affiliates)  in the  form  of  loans,
guarantees,  advances,  or  capital  contributions  (excluding  (a)  commission,
travel,  and similar  advances to officers and  employees of such Person made in
the ordinary  course of business,  and (b) bona fide  Accounts  arising from the
sale of goods or  rendition  of  services  in the  ordinary  course of



                                       15
<PAGE>

business  consistent with past practice),  purchases or other  acquisitions  for
consideration of Indebtedness or Stock, and any other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.

     "Investment  Property"  means  all of  Borrower's  now  owned or  hereafter
acquired  right,  title,  and interest with respect to "investment  property" as
that term is  defined in the Code,  and any and all  supporting  obligations  in
respect thereof.

     "Iowa Code" means the Code of Iowa (1999), as amended from time to time.

     "IRC" means the Internal  Revenue  Code of 1986,  as in effect from time to
time.

     "Issue Date" has the meaning set forth in the Indenture.

     "L/C" has the meaning set forth in Section 2.12(a).

     "L/C  Disbursement"  means a payment made by Lender pursuant to a Letter of
Credit.

     "L/C Undertaking" has the meaning set forth in Section 2.12(a).

     "Lease" means that certain Lease  Agreement  dated as of February 28, 1990,
between  the City of Dubuque,  Iowa,  a municipal  corporation,  as lessor,  and
Dubuque Racing Association,  Ltd., an Iowa nonprofit corporation,  as lessee, as
amended  from  time to time,  together  with  any  subleases  relating  thereto,
including  (i) that  certain  Sublease  Agreement  dated as of October 18, 1993,
between  Dubuque  Racing  Association,  Ltd.,  as lessor,  and  Greater  Dubuque
Riverboat  Entertainment  Company,  L.C., an Iowa limited liability company,  as
lessee, as amended by that certain First Amendment to Sublease Agreement entered
into effective as of July 15, 1999, by and between  Dubuque Racing  Association,
Ltd., as lessor, and Greater Dubuque Riverboat  Entertainment  Company, L.C., an
Iowa  limited  liability  company,  as lessee,  and (ii) that  certain  Sublease
Assignment  entered into as of July 15,  1999,  by and between  Greater  Dubuque
Riverboat  Entertainment  Company,  L.C., an Iowa limited liability company,  as
assignor, and Borrower, as assignee.

     "Lender" has the meaning set forth in the preamble to this Agreement.

     "Lender's  Account"  means an account at a bank  designated  by Lender from
time to time as the  account  into which  Borrower  shall make all  payments  to
Lender  under  this  Agreement  and the other Loan  Documents;  unless and until
Lender notifies Borrower to the contrary, Lender's Account shall be that certain
deposit account bearing account number  ***** and maintained by Lender with
The Chase  Manhattan  Bank,  4 New York Plaza,  15th Floor,  New York,  New York
10004, ABA #*****.

     "Lender's  Liens" means the Liens  granted by Borrower to Lender under this
Agreement or the other Loan Documents.



                                       16
<PAGE>

     "Lender  Expenses" means all (a) costs or expenses  (including  taxes,  and
insurance  premiums)  required  to be paid by  Borrower  under  any of the  Loan
Documents  that are paid or incurred  by Lender,  (b) the actual fees or charges
paid or  incurred  by Lender  in  connection  with  Lender's  transactions  with
Borrower,  including, fees or charges for photocopying,  notarization,  couriers
and messengers,  telecommunication,  public record searches (including tax lien,
litigation,  and UCC  searches  and  including  searches  with  the  patent  and
trademark  office,  the copyright  office, or the department of motor vehicles),
filing,  recording,   publication,   appraisal  (including  periodic  Collateral
appraisals or business  valuations to the extent of the fees and charges (and up
to the amount of any  limitation)  contained  in this  Agreement),  real  estate
surveys, real estate title policies and endorsements,  and environmental audits,
(c) costs and  expenses  incurred  by  Lender  in the  disbursement  of funds to
Borrower (by wire transfer or otherwise), (d) charges paid or incurred by Lender
resulting from the dishonor of checks, (e) reasonable costs and expenses paid or
incurred by Lender to correct any default or enforce any  provision  of the Loan
Documents,  or in gaining  possession  of,  maintaining,  handling,  preserving,
storing,  shipping,  selling,  preparing  for sale, or  advertising  to sell the
Collateral,  or  any  portion  thereof,   irrespective  of  whether  a  sale  is
consummated, (f) audit fees and expenses of Lender related to audit examinations
of the Books to the extent of the fees and charges  (and up to the amount of any
limitation)  contained in this Agreement,  (g) reasonable  costs and expenses of
third party  claims or any other suit paid or incurred by Lender in enforcing or
defending the Loan Documents or in connection with the transactions contemplated
by the Loan Documents or Lender's relationship with Borrower or any guarantor of
the Obligations,  (h) Lender's reasonable fees and expenses (including attorneys
fees) incurred in advising, structuring, drafting, reviewing,  administering, or
amending  the Loan  Documents,  and (i)  Lender's  reasonable  fees and expenses
(including  attorneys  fees)  incurred  in  terminating,   enforcing  (including
attorneys  fees  and  expenses  incurred  in  connection  with  a  "workout,"  a
"restructuring,"  or  an  Insolvency   Proceeding   concerning  Borrower  or  in
exercising  rights or remedies under the Loan Documents),  or defending the Loan
Documents,  irrespective  of whether suit is brought,  or in taking any Remedial
Action required by a Governmental  Authority or reasonably  deemed  necessary by
Lender concerning the Collateral.

     "Lender-Related  Person"  means  Lender,   Lender's  Affiliates,   and  the
officers, directors, employees, and agents of Lender.

     "Letter  of  Credit"  means an L/C or an L/C  Undertaking,  as the  context
requires.

     "Letter  of  Credit  Usage"  means,  as of any date of  determination,  the
aggregate undrawn amount of all outstanding Letters of Credit.

     "LIBOR Deadline" has the meaning set forth in Section 2.13(b)(i).

     "LIBOR Notice" means a written notice in the form of Exhibit L-1.



                                       17
<PAGE>

     "LIBOR Rate" means,  for each Interest Period for each LIBOR Rate Loan, the
rate per annum determined by Lender (rounded upwards, if necessary,  to the next
1/16%) by dividing (a) the Base LIBOR Rate for such Interest Period, by (b) 100%
minus the Reserve Percentage.  The LIBOR Rate shall be adjusted on and as of the
effective day of any change in the Reserve Percentage.

     "LIBOR Rate Loan" means each portion of an Advance that bears interest at a
rate determined by reference to the LIBOR Rate.

     "LIBOR Rate Margin" means 3.0 percentage points.

     "Lien" means (a) any interest in an asset  securing an obligation  owed to,
or a claim by,  any  Person  other  than the owner of the  asset,  whether  such
interest shall be based on the common law,  statute,  or contract,  whether such
interest  shall be recorded or  perfected,  and whether such  interest  shall be
contingent  upon the  occurrence of some future event or events or the existence
of some future  circumstance  or  circumstances,  including the lien or security
interest  arising  from  a  mortgage,  deed  of  trust,   encumbrance,   pledge,
hypothecation,  assignment, deposit arrangement, security agreement, conditional
sale or trust receipt,  or from a lease,  consignment,  or bailment for security
purposes and also including reservations, exceptions, encroachments,  easements,
rights-of-way,  covenants,  conditions,  restrictions,  leases,  and other title
exceptions and encumbrances affecting Real Property, and (b) any option or other
agreement to sell or give a security  interest in and any filing of or agreement
to give any financing  statement  under the Code (or equivalent  statutes of any
jurisdiction).

     "Loan Account" has the meaning set forth in Section 2.10.

     "Loan  Documents" means this Agreement,  the Diamond Jo Ship Mortgage,  the
Fee Letter, the Letters of Credit, the Mortgages, the Officers' Certificate, the
Trademark Security  Agreement,  the Intercreditor  Agreement,  any note or notes
executed by Borrower in  connection  with this  Agreement and payable to Lender,
any  Guaranty  or  Guarantor  Security  Agreement  executed  or entered  into in
connection  with this  Agreement  in favor of  Lender,  and any other  agreement
entered into,  now or in the future,  by Borrower and Lender in connection  with
this Agreement.

     "Manager" means (a) for so long as Borrower is a limited liability company,
the Managers of Borrower appointed pursuant to the Operating  Agreement,  or (b)
otherwise, the Board of Directors of Borrower.

     "Material  Adverse  Change"  means  (a) a  material  adverse  change in the
business, prospects,  operations,  results of operations, assets, liabilities or
condition  (financial or otherwise)  of Borrower,  (b) a material  impairment of
Borrower's  ability to perform its obligations under the Loan Documents to which
it is a party or of Lender's  ability to enforce the Obligations or realize upon
the Collateral,  or (c) a material  impairment of the enforceability or priority
of the Lender's Liens with respect to the Collateral as a result of an action or
failure to act on the part of Borrower.



                                       18
<PAGE>

     "Maturity Date" has the meaning set forth in Section 3.4.

     "Maximum  L/C  Amount"  means the  lesser of (i)  $10,000,000,  or (ii) the
maximum  amount  Borrower  may  borrow  pursuant  to  Section  4.9 (b)(i) of the
Indenture.

     "Maximum  Revolver  Amount"  means (a) up to the  Referendum  Determination
Date,  if any,  the  lesser  of (i)  $10,000,000,  and (ii) the  maximum  amount
Borrower may borrow pursuant to Section 4.9 (b)(i) of the Indenture, or (b) from
and after the Referendum Determination Date, if any, the lesser of (i) as of any
date  of  determination,  the  result  of  (y)  the  outstanding  amount  of the
Obligations as of the Referendum Determination Date, minus (z) the result of (1)
the number of whole months  elapsed  since the  Referendum  Determination  Date,
times (2) an amount equal to the outstanding amount of the Obligations as of the
Referendum  Determination  Date divided by the number of whole months originally
existing  between the Referendum  Determination  Date and the Maturity Date, and
(ii) the maximum  amount  Borrower may borrow  pursuant to Section 4.9 (b)(i) of
the Indenture.

     "Member"  shall mean any Person  having any interest in or to the assets or
earnings  of a limited  liability  company  within  the  meaning  of the laws of
Delaware governing Delaware limited liability companies.

     "Mortgages"  means,  individually and collectively,  one or more mortgages,
deeds of trust,  or deeds to secure debt,  executed and delivered by Borrower in
favor of Lender, in form and substance satisfactory to Lender, that encumber the
Real Property Collateral and the related improvements thereto.

     "Negotiable  Collateral"  means all of  Borrower's  now owned and hereafter
acquired right, title, and interest with respect to letters of credit, letter of
credit rights,  instruments,  promissory notes, drafts,  documents,  and chattel
paper (including  electronic  chattel paper and tangible chattel paper), and any
and all supporting obligations in respect thereof.

     "Net Capital Gain" has the meaning set forth in IRC Section 1222.

     "Net Income" means, with respect to any Person for any period,  (a) the net
income  (loss) of such Person for such period,  determined  in  accordance  with
GAAP,  excluding (to the extent included in calculating such net income) (i) any
gain or loss,  together  with any related  taxes paid or accrued on such gain or
loss,  realized in connection with any Asset Sales and dispositions  pursuant to
sale-leaseback transactions,  (ii) any extraordinary gain or loss, together with
any taxes  paid or  accrued  on such gain or loss,  and  (iii)  amortization  of
goodwill arising on the Issue Date from the Acquisition (as such term is defined
in the Indenture) and related transactions, reduced by (b) the maximum amount of
Permitted Tax Distributions for such period.

     "Net Long-Term Capital Loss" has the meaning set forth in IRC Section 1222.

     "Net  Short-Term  Capital  Gain" has the  meaning  set forth in IRC Section
1222.



                                       19
<PAGE>

     "Net Proceeds" means,  with respect to any Asset Sale, the aggregate amount
of proceeds received in the form of cash or Cash Equivalents (including issuance
or other  payments  in an Event of Loss and  payments  in  respect  of  deferred
payment  obligations and any cash or Cash Equivalents  received upon the sale or
other disposition of any non-cash  consideration received in such Asset Sale, in
each case when received), net of:

     (a) the reasonable  and customary  direct  out-of-pocket  costs relating to
such Asset Sale;

     (b) taxes required to be paid by Borrower, any of its Subsidiaries,  or any
Equity Holder of Borrower (or, in the case of any Equity Holder of Borrower that
is a Flow  Through  Entity,  the Upper Tier Equity  Holder of such Flow  Through
Entity) in  connection  with such Asset Sale in the  taxable  year in which such
sale  is  consummated  or  in  the  immediately  succeeding  taxable  year,  the
computation  of which shall take into  account the  reduction  in tax  liability
resulting from any available operating losses and net operating loss carryovers,
tax credits and tax credit carry-forwards, and similar tax attributes;

     (c)  amounts  required  to  be  applied  to  the  permanent   repayment  of
Indebtedness in connection with such Asset Sale; and

     (d) appropriate amounts provided as a reserve by Borrower or any Restricted
Subsidiary  of  Borrower,  in  accordance  with GAAP,  against  any  liabilities
associated  with such Asset Sale and  retained by  Borrower  or such  Restricted
Subsidiary,  as  applicable,  after such Asset Sale  (including,  as applicable,
pension and other  post-employment  benefit liabilities,  liabilities related to
environmental  matters,  and liabilities under any indemnification  arising from
such Asset Sale).

     "Note"  and  "Notes"  shall  have  the  meanings  ascribed  thereto  in the
Indenture.

     "Obligations"  means  all  loans,  Advances,  debts,  principal,   interest
(including any interest  that,  but for the  provisions of the Bankruptcy  Code,
would  have  accrued),  contingent  reimbursement  obligations  with  respect to
outstanding  Letters of Credit,  premiums  (including the Applicable  Prepayment
Premium),  liabilities (including all amounts charged to Borrower's Loan Account
pursuant hereto),  obligations, fees (including the fees provided for in the Fee
Letter),  charges,  costs, Lender Expenses (including any fees or expenses that,
but for the  provisions  of the  Bankruptcy  Code,  would have  accrued),  lease
payments, guaranties, covenants, and duties of any kind and description owing by
Borrower  to  Lender  pursuant  to  or  evidenced  by  the  Loan  Documents  and
irrespective  of whether for the payment of money,  whether  direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising,
and  including  all  interest  not paid when due and all  Lender  Expenses  that
Borrower is  required  to pay or  reimburse  by the Loan  Documents,  by law, or
otherwise.  Any  reference  in this  Agreement  or in the Loan  Documents to the
Obligations shall include all amendments,  changes,  extensions,  modifications,
renewals replacements,  substitutions,  and supplements, thereto and thereof, as
applicable, both prior and subsequent to any Insolvency Proceeding.



                                       20
<PAGE>

     "Officers'   Certificate"  means  the  representations  and  warranties  of
officers  submitted by Lender to Borrower,  together with  Borrower's  completed
responses to the  inquiries  set forth  therein,  the form and substance of such
responses to be satisfactory to Lender.

     "Operating  Agreement"  means that certain  Amended and Restated  Operating
Agreement dated as of July 15, 1999, between Gaming Partners and Greater Dubuque
Riverboat Entertainment Company, L.C., an Iowa limited liability company.

     "Overadvance" has the meaning set forth in Section 2.5.

     "Overdistribution" has the meaning set forth in Section 7.22(c).

     "Participant" has the meaning set forth in Section 14.1(d).

     "Permitted  Discretion" means a determination made in good faith and in the
exercise of reasonable  (from the perspective of a secured  asset-based  lender)
business judgment.

     "Permitted Holder" means Gaming Partners.

     "Permitted Indebtedness" means:

     (a) Indebtedness evidenced by this Agreement;

     (b) Purchase Money Indebtedness and obligations under banker's  acceptances
and letters of credit in an aggregate principal amount  outstanding,  at any one
time, not to exceed $2,500,000;

     (c)  Indebtedness  in respect of performance  bonds,  appeal bonds,  surety
bonds,  insurance  obligations or bonds, and other similar bonds and obligations
incurred in the ordinary  course of business  (including to maintain any license
or permit);

     (d) Hedging  Obligations  incurred to fix the interest rate on any variable
rate  Indebtedness  otherwise  permitted by this Agreement,  provided,  that the
notional  principal  amount of each such Hedging  Obligation does not exceed the
principal amount of the Indebtedness to which such Hedging Obligations relates;

     (e) Indebtedness set forth in Schedule P-1;



                                       21
<PAGE>

     (f) Indebtedness of Borrower or any Restricted  Subsidiary owed to and held
by a Restricted  Subsidiary  or Borrower,  as the case may be, that is unsecured
and subordinated in right of payment to the Obligations or the Guaranty,  as the
case may be, on terms and  conditions  satisfactory  to Lender in its  Permitted
Discretion; provided, that any such Restricted Subsidiary shall continue to be a
"Restricted  Subsidiary" at all times any such Indebtedness  remains outstanding
and neither  Borrower nor any such  Restricted  Subsidiary,  as the case may be,
shall  transfer  their  respective  rights or  obligations  in  respect  of such
Indebtedness  except  as  otherwise  provided  pursuant  to the  terms  of  this
Agreement;

     (g)  obligations  arising  from the  honoring by a bank or other  financial
institution of a check, draft, or similar instrument drawn against  insufficient
funds in the ordinary course of business;  provided,  that such obligation shall
not  constitute  Permitted  Indebtedness  if it continues to exist more than two
Business Days after the date of its initial incurrence;

     (h)  Indebtedness  outstanding  under the Notes in an  aggregate  principal
amount not to exceed  $71,000,000 at any one time outstanding and any Subsidiary
guaranties  thereof;  provided,  however,  such Subsidiary  guaranties shall not
constitute  Permitted  Indebtedness  unless the  obligations of such  Subsidiary
under any such guaranty are  subordinated  to the obligations of such Subsidiary
to Lender;

     (i)  refinancings,  renewals,  replacements,  refundings  or  extensions of
Indebtedness  permitted under clauses (b)-(h) of this  definition,  or otherwise
permitted  under  Section 7.1 so long as: (i) the terms and  conditions  of such
refinancings, renewals, replacements, refundings or extensions do not materially
impair the prospects of repayment of the  Obligations by Borrower,  (ii) the net
cash  proceeds  of such  refinancings,  renewals,  replacements,  refundings  or
extensions do not result in an increase in the aggregate principal amount of the
Indebtedness so refinanced,  renewed, replaced, refunded or extended, (iii) such
refinancings, renewals, replacements,  refundings or extensions do not result in
a shortening of the average weighted maturity of the Indebtedness so refinanced,
renewed,   replaced,   refunded  or  extended,  and  (iv)  to  the  extent  that
Indebtedness  that is  refinanced  was  subordinated  in right of payment to the
Obligations,  then the  subordination  terms and  conditions of the  refinancing
Indebtedness  must be at least as favorable to Lender as those applicable to the
refinanced Indebtedness.

     "Permitted Investments" means:

     (a) Investments in Borrower or any Wholly Owned Subsidiary of Borrower;

     (b) Investments in Cash Equivalents;



                                       22
<PAGE>

     (c)  Investments  in a Person,  if, as a result  of such  Investment,  such
Person (A) becomes a Wholly Owned Subsidiary of Borrower,  or (B) is, subject to
the terms and conditions of Section 7.3,  merged,  consolidated,  or amalgamated
with or into, or transfers or conveys  substantially all of its assets to, or is
liquidated into, Borrower or a Wholly Owned Subsidiary of Borrower;

     (d) Hedging Obligations;

     (e) Investments as a result of consideration received in connection with an
Asset Sale made in compliance with Section 7.4.

     (f)  Investments  existing as of the Closing Date and set forth on Schedule
P-2 attached hereto;

     (g)  credit  extensions  to  gaming  customers  in the  ordinary  course of
business consistent with industry practices;

     (h) Investments paid for solely with Stock (other than Disqualified Capital
Stock) of Borrower;

     (i) stock,  obligations,  or  securities  received in  settlement  of debts
created  in the  ordinary  course  of  business  and  owing to  Borrower  (a) in
satisfaction  of  judgments,  or (b) pursuant to any plan of  reorganization  or
similar  arrangement  upon the  bankruptcy or  insolvency of trade  creditors or
customers;

     (j) loans or advances to employees of Borrower and its Subsidiaries made in
the ordinary course of business in an aggregate amount not to exceed $500,000 at
any one time outstanding;

     (k) Permitted  Investments,  as that term is defined in the  Indenture,  or
Restricted Payments permitted by Section 4.7(b) of the Indenture; and,

     (l) an Investment in Gaming Management in an aggregate amount not to exceed
$15,000,000.

     "Permitted Liens" means:

     (a) Liens held by Lender;

     (b) Liens for  unpaid  taxes,  assessments  or other  governmental  charges
(other than Liens in favor of the United States Government unless such Liens are
not an Event of  Default  under  Section  8.7(a))  that  either  (i) are not yet
delinquent,  or (ii) do not constitute an Event of Default hereunder and are the
subject of Permitted Protests;

     (c) Liens set forth on Schedule P-3;

     (d) the interests of lessors under operating leases;



                                       23
<PAGE>

     (e) purchase  money Liens or the interests of lessors under Capital  Leases
to the extent that such Liens or interests  secure  Purchase Money  Indebtedness
and so  long as such  Lien  attaches  only to the  asset  purchased,  leased  or
acquired and the proceeds thereof;

     (f) Liens of warehousemen,  landlords,  carriers,  mechanics,  materialmen,
laborers,  or  suppliers,  or other like  Liens,  in each case,  incurred in the
ordinary course of business  consistent with industry practice (other than Liens
arising  under ERISA) and not in  connection  with the  borrowing of money,  and
which  Liens  either (i) are for sums that are not  overdue for a period of more
than 30 days, or (ii) are the subject of Permitted Protests;

     (g) Liens arising from pledges or deposits  made in the ordinary  course of
business  in  connection  with  obtaining  worker's  compensation,  unemployment
insurance and other types of social security  legislation,  or otherwise arising
from   statutory  or  regulatory   requirements   of  Borrower  or  any  of  its
Subsidiaries;

     (h)  Liens or  deposits  to secure  performance  of bids,  tenders,  trade,
contracts (other than contracts for the payment of money), or leases incurred in
the ordinary  course of business  and not in  connection  with the  borrowing of
money;

     (i) Liens granted as security for surety or appeal bonds,  performance  and
return-of-money  bonds and other obligations of a like nature in connection with
obtaining  such bonds in the  ordinary  course of business and  consistent  with
industry practice;

     (j) Liens resulting from any judgment,  decree or order of any court for an
amount and for a period not resulting in an Event of Default thereto, so long as
such Lien is being  contested in good faith and is  adequately  bonded,  and any
appropriate  legal  proceedings that may have been duly initiated for the review
of such  judgment,  decree,  or order  shall  not have  been  finally  adversely
terminated or the period within which such  proceedings  may be initiated  shall
not have expired;

     (k) Liens with respect to the Real Property  Collateral that are exceptions
to the commitments for title insurance  issued in connection with the Mortgages,
as accepted by Lender;

     (l) with respect to any Real Property that is not part of the Real Property
Collateral,  easements,  rights of way,  and zoning and  similar  covenants  and
restrictions, and similar encumbrances or title defects incurred in the ordinary
course of business,  consistent with industry practices, that, in the aggregate,
are not substantial in amount and do not in any case materially detract from the
value of the property  subject  thereto (as such property is used by Borrower or
its Subsidiaries);

     (m) Liens in favor of the  Indenture  Trustee  relative  to the Senior Note
Documents,  so long as and to the extent  such Liens  remain the  subject of the
Intercreditor Agreement;



                                       24
<PAGE>

     (n) with respect to any vessel included in the Collateral, certain maritime
liens including liens for crew's wages and salvage;

     (o) Liens in and to deposit  accounts or Cash  Equivalents  incurred in the
ordinary  course  of  business  securing  Hedging  Obligations,   which  Hedging
Obligations are permitted under this Agreement;

     (p)  Liens in and to the  Stock of any  Unrestricted  Subsidiary  to secure
Indebtedness of such Unrestricted Subsidiary;

     (q) Liens securing  Indebtedness  refinanced  pursuant to clause (i) of the
definition  of Permitted  Indebtedness,  incurred in  compliance  with the terms
hereof to refinance Indebtedness secured by Permitted Liens, provided,  that (i)
such Liens do not extend to any property or assets  other than such  property or
assets as were subject to Liens in respect of the Indebtedness being refinanced,
(ii) if the Liens securing the Indebtedness  being refinanced were  subordinated
to or pari  passu  with the  Liens of  Lender  or any  inter-company  loans,  as
applicable,  such new Liens are subordinated to or pari passu with such Liens to
the same extent,  and any related  subordination or  intercreditor  agreement is
confirmed on terms reasonably  satisfactory to Lender,  and (iii) such Liens are
no more adverse to the  interests of Lender than the Liens  replaced or extended
thereby;

     (r) Liens  that  secure  Acquired  Debt or Liens on  property  acquired  by
Borrower in the ordinary  course of business or in  connection  with a Permitted
Investment,  provided, that such Liens do not extend to or cover any property or
assets other than those of the Person  being  acquired and were not put in place
in anticipation of such acquisition; and

     (s) Liens  securing  reimbursement  obligations  with respect to commercial
letters of credit that encumber  documents and other  property  relating to such
letters of credit and the identifiable products and proceeds thereof.

     "Permitted  Protest" means the right of Borrower to protest any Lien (other
than any such Lien that  secures the  Obligations),  taxes  (other than  payroll
taxes or taxes that are the subject of a United  States  federal  tax lien),  or
rental  payment,  provided that (a) a reserve with respect to such obligation is
established  on the Books in such amount as is required under GAAP, (b) any such
protest is  instituted  promptly and  prosecuted  diligently by Borrower in good
faith,  and (c) Lender is  satisfied  that,  while any such  protest is pending,
there will be no impairment of the enforceability,  validity, or priority of any
of the Lender's Liens.

     "Permitted Quarterly Payment" has the meaning set forth in Section 7.11 (h)
hereof.

     "Permitted Tax  Distributions"  in respect of Borrower and each  Subsidiary
that qualifies as a Flow Through Entity shall mean,  with respect to any taxable
year,  the sum of: (i) the product of (a) the excess of (1) all items of taxable
income or gain (other than  capital  gain)  allocated  by Borrower to its Equity
Holders for such year over (2) the sum of all items



                                       25
<PAGE>

of taxable  deduction or loss (but not including any capital loss)  allocated to
such  Equity  Holders by Borrower  for such year and any Tax Loss Amount  (other
than a Tax Loss Amount  attributable to capital losses),  and (b) the Applicable
Income Tax Rate,  plus (ii) the product of (a) the Net Capital Gain  (including,
for this purpose,  any Tax Loss Amount  attributable  to Net  Long-Term  Capital
Loss), if any, allocated by Borrower to its Equity Holders for such year and (b)
the  Applicable  Capital  Gain Tax Rate,  plus (iii) the  product of (a) the Net
Short-Term  Capital  Gain  (including  for  this  purpose  any Tax  Loss  Amount
attributable to short-term  capital loss), if any,  allocated by Borrower to its
Equity Holders for such year and (b) the Applicable  Income Tax Rate,  provided,
that in no event shall the Applicable Income Tax Rate or the Applicable  Capital
Gain Tax  Rate  exceed  the  greater  of (1) the  highest  aggregate  applicable
effective  marginal  rate  of  Federal,  state,  and  local  income  to  which a
corporation  doing  business in the State of California  would be subject in the
relevant  year of  determination  (as  certified  to the Trustee by a nationally
recognized tax accounting firm) plus 5% and (2) 60%. The amount of the Permitted
Tax  Distribution  shall be computed  promptly  after the filing by Borrower and
each  Subsidiary  that is treated as a Flow Through  Entity of their  respective
annual  income tax returns.  Notwithstanding  the  foregoing,  the Permitted Tax
Distributions  shall be zero unless and until such time as  Borrower  shall have
obtained the contractual right to recover amounts from the Equity Holders in all
circumstances  in which  Borrower  has the  obligation  to collect  amounts from
Equity Holders under the terms of this Agreement.

     "Person" means natural persons, corporations,  limited liability companies,
limited  partnerships,  general  partnerships,  limited liability  partnerships,
joint ventures,  trusts, land trusts,  business trusts, or other  organizations,
irrespective  of whether they are legal  entities,  and governments and agencies
and political subdivisions thereof.

     "Personal  Property  Collateral"  means  all  Collateral  other  than  Real
Property.

     "Projections"  means Borrower's  forecasted (a) balance sheets,  (b) profit
and loss  statements,  and (c) cash flow  statements,  all  prepared  on a basis
consistent  with  Borrower's  historical  financial  statements,  together  with
appropriate supporting details and a statement of underlying assumptions.

     "Purchase  Money   Indebtedness"   means   Indebtedness   (other  than  the
Obligations, but including Capitalized Lease Obligations),  incurred at the time
of, or within 90 days after, the acquisition of any fixed assets for the purpose
of financing all or any part of the acquisition cost thereof.

     "Real  Property"  means any estates or interests in real property now owned
or hereafter acquired by Borrower and the improvements thereto.

     "Real  Property  Collateral"  means the parcel or parcels of Real  Property
identified on Schedule R-1 and any Real Property hereafter acquired by Borrower.

     "Record" means  information that is inscribed on a tangible medium or which
is stored in an electronic  or other medium and is  retrievable  in  perceivable
form.



                                       26
<PAGE>

     "Referendum"  means any  referendum in the County of Dubuque (the currently
scheduled  one of which is  scheduled  to take  place in the year  2002) that is
conducted  pursuant  to Iowa Code  Section  99f in order to  resolve  whether to
continue  in force the  gaming  laws in the County of  Dubuque,  in the state of
Iowa.

     "Referendum  Determination Date" means the date on which a Referendum fails
to pass.

     "Related  Business" means the gaming,  entertainment  and hotel  businesses
conducted (or proposed to be conducted) by Borrower and its  Subsidiaries  as of
the  Closing  Date  and any and all  other  businesses  that in the  good  faith
judgment of the  Managers  of  Borrower  are  materially  related or  incidental
businesses  (including,  without  limitation,  food  and  beverage  distribution
operations).

     "Remedial  Action"  means  all  actions  taken  to (a)  clean  up,  remove,
remediate,  contain,  treat,  monitor,  assess,  evaluate, or in any way address
Hazardous  Materials  in the  indoor or  outdoor  environment,  (b)  prevent  or
minimize a release or threatened  release of Hazardous  Materials so they do not
migrate or endanger or  threaten  to  endanger  public  health or welfare or the
indoor  or  outdoor   environment,   (c)  perform  any   pre-remedial   studies,
investigations,  or post-remedial operation and maintenance  activities,  or (d)
conduct any other actions authorized by 42 USC ss. 9601.

     "Replaced Value" has the meaning set forth in Section 6.8 (e) hereof.

     "Required Availability" means Excess Availability and unrestricted cash and
Cash Equivalents in an amount of not less than $10,000,000.

     "Reserve  Percentage" means, on any day, for Lender, the maximum percentage
prescribed  by the Board of  Governors  of the  Federal  Reserve  System (or any
successor  Governmental  Authority)  for  determining  the reserve  requirements
(including any basic, supplemental, marginal, or emergency reserves) that are in
effect on such date with respect to eurocurrency  funding (currently referred to
as "eurocurrency  liabilities") of Lender, but so long as Lender is not required
or directed under applicable  regulations to maintain such reserves, the Reserve
Percentage shall be zero.

     "Restoration Plan" has the meaning set forth in Section 6.8 (e) hereof.

     "Restricted Payments" has the meaning set forth in Section 7.11 hereof.

     "Restricted  Subsidiary"  means a  Subsidiary  of  Borrower  other  than an
Unrestricted Subsidiary.

     "Return from Unrestricted  Subsidiaries"  means (a) 50% of any dividends or
distributions   received  by  Borrower  or  a  Restricted   Subsidiary  from  an
Unrestricted Subsidiary, to the extent that such dividends or distributions were
not otherwise  included in Consolidated Net Income of Borrower,  plus (b) to the
extent not otherwise included in



                                       27
<PAGE>

Consolidated  Net Income of Borrower,  an amount  equal to the net  reduction in
Investments in  Unrestricted  Subsidiaries  resulting from (i) repayments of the
principal  of loans or advances or other  transfers of assets to Borrower or any
Restricted  Subsidiary  from  Unrestricted  Subsidiaries  or  (ii)  the  sale or
liquidation of any  Unrestricted  Subsidiaries,  plus (c) to the extent that any
Unrestricted  Subsidiary is designated to be a Restricted  Subsidiary,  the fair
market value of  Borrower's  Investment in such  Unrestricted  Subsidiary on the
date of such designation.

     "Revolver Usage" means, as of any date of determination, the sum of (a) the
then extant amount of outstanding  Advances,  plus (b) the then extant amount of
the Letter of Credit Usage.

     "SEC" means the United States  Securities  and Exchange  Commission and any
successor thereto.

     "Securities  Account" means a "securities  account" as that term is defined
in the Code.

     "Seller   Preferred"   means  the  $7,000,000  face  amount  of  Borrower's
redeemable preferred membership interests issued on the Issue Date.

     "Senior Note Documents" means, collectively,  the Indenture, the Notes, and
the Security Documents (as such term is defined in the Indenture).

     "Solvent" means, with respect to any Person on a particular date, that such
Person is not  insolvent  (as such term is  defined  in the  Uniform  Fraudulent
Transfer Act).

     "Stock" means all shares, options, warrants, interests,  participations, or
other  equivalents  (regardless of how  designated)  of or in a Person,  whether
voting or nonvoting,  including  common  stock,  preferred  stock,  or any other
"equity  security"  (as such term is defined in Rule 3a11-1 of the General Rules
and Regulations promulgated by the SEC under the Exchange Act).

     "Subordination  of Mortgage" means that  Subordination of Mortgage dated as
of the date hereof and executed by Borrower and Firstar Bank of Minnesota, N.A.,
in favor of Lender.

     "Subordination  of Preferred Fleet Mortgage"  means that  Subordination  of
Preferred Fleet Mortgage Upon Diamond Jo (Official No. 973800) and Diamond Jo II
(Official No. 973801)  (collectively  "Vessels") dated as of the date hereof and
executed by Firstar Bank of Minnesota, N.A., in favor of Lender.



                                       28
<PAGE>

     "Subsidiary"  of  a  Person  means  a  corporation,   partnership,  limited
liability  company,  or other entity in which that Person directly or indirectly
owns or controls  the shares of Stock  having  ordinary  voting power to elect a
majority of the board of directors  (or appoint  other  comparable  managers) of
such corporation, partnership, limited liability company, or other entity.

     "Survey    Affidavit/Indemnification"    means   that   Survey   Affidavit/
Indemnification dated as of the date hereof and executed by Borrower in favor of
Lender.

     "Tax Calculation Event" has the meaning set forth in Section 7.22(c).

     "Taxes" has the meaning set forth in Section 16.5.

     "Tax Loss Amount" means with respect to any taxable year,  the amount which
would be available to Borrower as a net operating  loss or net capital loss from
a prior taxable year of Borrower ending subsequent to the Issue Date if Borrower
were taxable as a corporation and not as a Flow Through Entity;  provided,  that
for such purpose the amount of any such net  operating  loss or net capital loss
shall be used only once to reduce Permitted Tax  Distributions  and in each case
shall be carried forward to the next succeeding  taxable year until so used. For
purposes of calculating the Tax Loss Amount, the proportionate part of the items
of taxable income, gain, deduction,  or loss (including capital gain or loss) of
any  Subsidiary  that  is a Flow  Through  Entity  for a  taxable  year  of such
Subsidiary  ending subsequent to the Issue Date shall be included in determining
the amount of net operating loss or net capital loss of Borrower.

     "Trademark   Security  Agreement"  means  a  trademark  security  agreement
executed and  delivered by Borrower and Lender,  the form and substance of which
is satisfactory to Lender.

     "Underdistribution" has the meaning set forth in Section 7.22(c).

     "Underlying Issuer" means a third Person which is the beneficiary of an L/C
Undertaking and which has issued a letter of credit at the request of Lender for
the benefit of Borrower.

     "Underlying Letter of Credit" means a letter of credit that has been issued
by an Underlying Issuer.

     "Unrestricted  Subsidiary"  means any  Subsidiary  of Borrower  that, at or
prior to the time of  determination,  shall have been designated by the Managers
as an Unrestricted Subsidiary;  provided, that such Subsidiary does not hold any
Indebtedness  or capital Stock of, or any Lien on any assets of, Borrower or any
Restricted Subsidiary of Borrower. If, at any time, any Unrestricted  Subsidiary
of Borrower  would fail to meet the foregoing  requirements  as an  Unrestricted
Subsidiary,  it shall  thereafter  cease to be an  Unrestricted  Subsidiary  for
purposes of this  Agreement and any  Indebtedness  of such  Subsidiary  shall be
deemed to be incurred by a Restricted  Subsidiary as of such date.  The Managers
may at  any



                                       29
<PAGE>

time  designate  any  Unrestricted  Subsidiary  to be a  Restricted  Subsidiary;
provided,  that  such  designation  shall  be  deemed  to  be an  incurrence  of
Indebtedness by a Restricted Subsidiary of any outstanding  Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (i) such
Indebtedness  is permitted  under the Interest  Coverage Ratio test set forth in
Section 7.1 hereof  calculated on a pro forma basis as if such  designation  had
occurred at the  beginning of the  four-quarter  reference  period,  and (ii) no
Default or Event of Default would be in existence  following  such  designation.
Borrower shall be deemed to make an Investment in each Subsidiary  designated as
an Unrestricted  Subsidiary  immediately following such designation in an amount
equal to the  Investment in such  Subsidiary  and its  Subsidiaries  immediately
prior  to such  designation.  Any  such  designation  by the  Managers  shall be
evidenced to Lender by filing with Lender a certified  copy of the resolution of
the Managers giving effect to such designation and a certificate from an officer
of  Borrower  certifying  that  such  designation  complies  with the  foregoing
conditions and is permitted by Section 7.1 hereof.

     "Upper Tier Equity Holder" means,  in the case of any Flow Through  Entity,
the Equity Holder of which is, in turn, a Flow Through  Entity,  the Person that
is  ultimately  subject  to tax on a net  income  basis on the items of  taxable
income, gain, deduction, and loss of Borrower and its Subsidiaries that are Flow
Through Entities.

     "Voidable Transfer" has the meaning set forth in Section 16.8.

     "Wells  Fargo"  means Wells Fargo Bank,  National  Association,  a national
banking association.

     "Wholly Owned  Subsidiary"  means, with respect to any Person, a Subsidiary
of such Person all the capital Stock of which (other than directors'  qualifying
shares) is owned  directly or  indirectly  by such Person;  provided,  that with
respect  to  Borrower,   Wholly  Owned  Subsidiary  shall  exclude  Unrestricted
Subsidiaries.

     1.2 Accounting Terms. All accounting terms not specifically  defined herein
shall  be  construed  in  accordance  with  GAAP.  When  used  herein,  the term
"financial  statements" shall include the notes and schedules thereto.  Whenever
the term  "Borrower"  is used in respect of a  financial  covenant  or a related
definition,  it shall be understood to mean Borrower and its  Subsidiaries  on a
consolidated basis unless the context clearly requires otherwise.

     1.3 Code.  Any terms used in this  Agreement  that are  defined in the Code
shall be construed and defined as set forth in the Code unless otherwise defined
herein.

     1.4  Construction.  Unless the context of this  Agreement or any other Loan
Document  clearly  requires  otherwise,  references  to the plural  include  the
singular, references to the singular include the plural, the term "including" is
not  limiting,  and the term "or" has,  except where  otherwise  indicated,  the
inclusive  meaning  represented  by the  phrase  "and/or."  The words  "hereof,"
"herein,"  "hereby,"  "hereunder,"  and similar  terms in this  Agreement or any
other Loan Document refer to this Agreement or such other Loan Document,  as the
case may be, as a whole and not to any particular provision of this Agreement or
such other  Loan  Document,  as the case may



                                       30
<PAGE>

be. Section, subsection,  clause, schedule, and exhibit references herein are to
this Agreement unless otherwise specified. Any reference in this Agreement or in
the other Loan Documents to any agreement, instrument, or document shall include
all  alterations,  amendments,  changes,  extensions,  modifications,  renewals,
replacements,  substitutions, joinders, and supplements, thereto and thereof, as
applicable  (subject  to  any  restrictions  on  such  alterations,  amendments,
changes,  extensions,  modifications,  renewals,  replacements,   substitutions,
joinders,  and supplements set forth herein). Any reference herein to any Person
shall be  construed  to  include  such  Person's  successors  and  assigns.  Any
requirement of a writing  contained  herein or in the other Loan Documents shall
be satisfied by the  transmission of a Record and any Record  transmitted  shall
constitute a representation  and warranty as to the accuracy and completeness of
the information contained therein.

     1.5 Schedules and Exhibits.  All of the schedules and exhibits  attached to
this Agreement shall be deemed incorporated herein by reference.

     1.6  Indenture.  Any terms defined in the Indenture  that are  incorporated
herein by reference shall be construed and defined as set forth in the Indenture
as in effect on the Closing Date.

2. LOAN AND TERMS OF PAYMENT.

     2.1 Revolver Advances.

     (a) Subject to the terms and conditions of this  Agreement,  and during the
term of this Agreement,  Lender agrees to make advances ("Advances") to Borrower
in an amount at any one time  outstanding  not to exceed an amount  equal to the
lesser of (i) the Maximum  Revolver  Amount less the Letter of Credit Usage,  or
(ii) the Borrowing  Base less the Letter of Credit  Usage.  For purposes of this
Agreement, "Borrowing Base," as of any



                                       31
<PAGE>

date of  determination,  shall  mean the  result  of (y) the  lesser  of (i) the
product of  Borrower's  EBITDA for the 12 month period ending as of the last day
of the month  immediately  preceding such date of  determination  times 125%, or
(ii) the product of Borrower's Annualized Quarterly EBITDA as of the last day of
the month immediately preceding such date of determination times 125%, minus (z)
the aggregate  amount of reserves,  if any,  established by Lender under Section
2.1(b).

     (b) Anything to the contrary in this  Section 2.1  notwithstanding,  Lender
shall have the right to establish reserves in such amounts,  and with respect to
such matters,  as Lender in its  Permitted  Discretion  shall deem  necessary or
appropriate,  against the Borrowing Base, including reserves with respect to (i)
sums that  Borrower is required  to pay (such as taxes,  assessments,  insurance
premiums, or, in the case of leased assets, rents or other amounts payable under
such  leases) and has failed to pay under any Section of this  Agreement  or any
other Loan Document (including the reserve  contemplated by Section 8.7 hereof),
and (ii) amounts owing by Borrower to any Person to the extent secured by a Lien
on, or trust over, any of the Collateral (other than any existing Permitted Lien
set forth on Schedule P-3 which is specifically  identified  thereon as entitled
to have priority over the Lender's Liens), which Lien or trust, in the Permitted
Discretion of Lender likely would have a priority superior to the Lender's Liens
(such  as Liens  or  trusts  in  favor  of  landlords,  warehousemen,  carriers,
mechanics,  materialmen,  laborers,  or  suppliers,  or Liens or  trusts  for ad
valorem,  excise,  sales,  or other taxes where given priority under  applicable
law) in and to such item of the Collateral.

     (c) Lender shall have no obligation to make additional  Advances  hereunder
to the extent such additional  Advances would cause the Revolver Usage to exceed
the Maximum Revolver Amount.

     (d) Amounts borrowed pursuant to this Section may be repaid and, subject to
the terms and  conditions of this  Agreement,  reborrowed at any time during the
term of this Agreement.

2.2   [Intentionally Omitted.]

2.3   Borrowing Procedures and Settlements

     (a) Procedure for Borrowing.  Each Borrowing  shall be made by a request by
an  Authorized  Person  delivered  to Lender  (which  notice must be received by
Lender no later than 10:00 a.m.  (California  time) on the  Business Day that is
the requested Funding Date specifying (i) the amount of such Borrowing, and (ii)
the requested Funding Date, which shall be a Business Day. At Lender's election,
in lieu of delivering  the  above-described  request in writing,  any Authorized
Person may give Lender  telephonic  notice of such request by the required time,
with such  telephonic  notice to be confirmed in writing  within 24 hours of the
giving of such notice.



                                       32
<PAGE>

     (b) Making of  Advances.  If Lender has  received  a timely  request  for a
Borrowing  in  accordance  with  the  provisions  hereof,  and  subject  to  the
satisfaction  of the applicable  terms and  conditions set forth herein,  Lender
shall make the proceeds of such Advance  available to Borrower on the applicable
Funding Date by transferring  immediately available funds equal to such proceeds
to Borrower's Designated Account.

2.4   Payments

     (a) Payments by Borrower.

          (i) Except as otherwise  expressly  provided  herein,  all payments by
     Borrower shall be made to Lender's Account and shall be made in immediately
     available  funds,  no later than 11:00 a.m.  (California  time) on the date
     specified  herein.  Any payment  received  by Lender  later than 11:00 a.m.
     (California  time) shall be deemed to have been  received on the  following
     Business Day and any  applicable  interest or fee shall  continue to accrue
     until such following Business Day.

     (b) Application and Reversal of Payments.

          (i) All  payments  shall be remitted  to Lender and all such  payments
     (other  than  payments  received  while no Default or Event of Default  has
     occurred and is continuing  and which relate to the payment of principal or
     interest of specific Obligations or which relate to the payment of specific
     fees), and all proceeds of Accounts or other Collateral received by Lender,
     shall be applied as follows:

               A. first, to pay any Lender Expenses then due to Lender under the
          Loan Documents, until paid in full,

               B.  second,  to pay any fees  then due to  Lender  under the Loan
          Documents until paid in full,

               C. third,  ratably to pay interest due in respect of the Advances
          until paid in full,

               D. fourth,  to pay the  principal  of all Advances  until paid in
          full,

               E. fifth,  if an Event of Default has occurred and is continuing,
          to be held by Lender as cash collateral in an amount up to 105% of the
          then extant Letter of Credit Usage until paid in full,

               F. sixth, to pay any other Obligations until paid in full, and

               G. seventh,  to Borrower (to be wired to the Designated  Account)
          or such other Person entitled thereto under applicable law.



                                       33
<PAGE>

               (ii) In each instance,  so long as no Default or Event of Default
          has occurred and is continuing,  Section 2.4(b) shall not be deemed to
          apply to any payment by Borrower  specified  by Borrower to be for the
          payment of specific  Obligations then due and payable (or pre-payable)
          under any provision of this Agreement.

               (iii) For purposes of the foregoing, "paid in full" means payment
          of all amounts owing under the Loan  Documents  according to the terms
          thereof,   including  loan  fees,  service  fees,  professional  fees,
          interest  (and  specifically  including  interest  accrued  after  the
          commencement of any Insolvency Proceeding), default interest, interest
          on interest, and expense reimbursements, whether or not the same would
          be or is allowed or disallowed  in whole or in part in any  Insolvency
          Proceeding.

               (iv) In the  event  of a direct  conflict  between  the  priority
          provisions of this Section 2.4 and other  provisions  contained in any
          other Loan  Document,  it is the intention of the parties  hereto that
          such priority  provisions in such documents shall be read together and
          construed,  to the fullest extent possible, to be in concert with each
          other. In the event of any actual, irreconcilable conflict that cannot
          be resolved as aforesaid, the terms and provisions of this Section 2.4
          shall control and govern.

     2.5  Overadvances.  If,  at any  time  or for any  reason,  the  amount  of
Obligations  owed by  Borrower to Lender  pursuant  to Sections  2.1 and 2.12 is
greater than either the Dollar or percentage  limitations  set forth in Sections
2.1 or 2.12, (an  "Overadvance"),  Borrower  immediately shall pay to Lender, in
cash, the amount of such excess,  which amount shall be used by Lender to reduce
the  Obligations in accordance  with the priorities set forth in Section 2.4(b).
In  addition,  Borrower  hereby  promises  to  pay  the  Obligations  (including
principal,  interest, fees, costs, and expenses) in Dollars in full to Lender as
and when due and payable  under the terms of this  Agreement  and the other Loan
Documents.

     2.6  Interest  Rates  and  Letter  of  Credit  Fee:  Rates,  Payments,  and
Calculations.

     (a) Interest Rates. Except as provided in clause (c) below, all Obligations
(except  for  undrawn  Letters  of  Credit)  that have been  charged to the Loan
Account  pursuant to the terms hereof shall bear  interest on the Daily  Balance
thereof,  at Borrower's option in accordance with Section 2.13 below, as follows
(i) if the relevant Obligation is an Advance that is a LIBOR Rate Loan, at a per
annum  rate  equal to the  LIBOR  Rate  plus the  LIBOR  Rate  Margin,  and (ii)
otherwise, at a per annum rate equal to the Base Rate plus the Base Rate Margin.

     The  foregoing  notwithstanding,  at no  time  shall  any  portion  of  the
Obligations  bear interest on the Daily Balance thereof at a per annum rate less
than 8.50%. To the extent that interest accrued  hereunder at the rate set forth
herein would be less than the foregoing  minimum  daily rate,  the interest rate
chargeable hereunder for such day automatically shall be deemed increased to the
minimum rate.



                                       34
<PAGE>

     (b) Letter of Credit Fee.  Borrower shall pay Lender a Letter of Credit fee
(in addition to the charges,  commissions,  fees, and costs set forth in Section
2.12(e))  which shall  accrue at a rate equal to 1.25% per annum times the Daily
Balance of the undrawn amount of all outstanding Letters of Credit.

     (c) Default Rate.  Upon the  occurrence and during the  continuation  of an
Event of Default,

          (i) all Obligations  (except for undrawn Letters of Credit ) that have
     been  charged to the Loan  Account  pursuant to the terms hereof shall bear
     interest  on the  Daily  Balance  thereof  at a per annum  rate  equal to 2
     percentage points above the per annum rate otherwise applicable  hereunder,
     and

          (ii) the Letter of Credit fee provided for above shall be increased to
     2  percentage  points  above  the  per  annum  rate  otherwise   applicable
     hereunder.

     (d) Payment.  Interest,  Letter of Credit fees,  and all other fees payable
hereunder shall be due and payable,  in arrears,  on the first day of each month
at any time that  Obligations  or  obligation  to extend  credit  hereunder  are
outstanding.  Borrower hereby authorizes Lender, in accordance with Section 2.10
below and from time to time without  prior  notice to  Borrower,  to charge such
interest  and fees,  all Lender  Expenses (as and when  incurred),  the charges,
commissions,  fees,  and costs  provided  for in  Section  2.12(e)  (as and when
accrued or  incurred),  the fees and costs  provided for in Section 2.11 (as and
when accrued or  incurred),  and all other  payments as and when due and payable
under any Loan Document to Borrower's  Loan  Account,  which amounts  thereafter
constitute  Advances  hereunder  and  shall  accrue  interest  at the rate  then
applicable  to  Advances  hereunder.  Any  interest  not paid  when due shall be
compounded  by being  charged to  Borrower's  Loan Account and shall  thereafter
constitute  Advances  hereunder  and  shall  accrue  interest  at the rate  then
applicable to Advances that are Base Rate Loans hereunder.

     (e) Computation.  All interest and fees chargeable under the Loan Documents
shall be computed  on the basis of a 360 day year for the actual  number of days
elapsed. In the event the Base Rate is changed from time to time hereafter,  the
rates  of  interest  hereunder  based  upon  the  Base  Rate  automatically  and
immediately shall be increased or decreased by an amount equal to such change in
the Base Rate.



                                       35
<PAGE>

     (f) Intent to Limit  Charges to Maximum  Lawful Rate. In no event shall the
interest rate or rates payable under this Agreement, plus any other amounts paid
in connection herewith, exceed the highest rate permissible under any law that a
court  of  competent   jurisdiction  shall,  in  a  final  determination,   deem
applicable.  Borrower and Lender,  in executing and delivering  this  Agreement,
intend legally to agree upon the rate or rates of interest and manner of payment
stated within it;  provided,  however,  that,  anything  contained herein to the
contrary notwithstanding, if said rate or rates of interest or manner of payment
exceeds the maximum  allowable under applicable law, then, ipso facto, as of the
date of this Agreement,  Borrower is and shall be liable only for the payment of
such maximum as allowed by law, and payment  received from Borrower in excess of
such legal maximum,  whenever received, shall be applied to reduce the principal
balance of the Obligations to the extent of such excess.

     2.7 [Intentionally Omitted.]

     2.8 Crediting Payments. The receipt of any payment item by Lender shall not
be  considered a payment on account  unless such payment item is a wire transfer
of immediately  available  federal funds made to Lender's  Account or unless and
until such  payment  item is honored  when  presented  for  payment.  Should any
payment item not be honored when  presented for payment,  then Borrower shall be
deemed  not  to  have  made  such  payment  and  interest  shall  be  calculated
accordingly.  Anything to the contrary  contained  herein  notwithstanding,  any
payment  item shall be deemed  received by Lender  only if it is  received  into
Lender's Account on a Business Day on or before 11:00 a.m. (California time). If
any payment item is received into the Lender's  Account on a non-Business Day or
after 11:00 a.m. (California time) on a Business Day, it shall be deemed to have
been  received  by Lender  as of the  opening  of  business  on the  immediately
following Business Day.

     2.9  Designated  Account.  Lender is authorized  to make the Advances,  and
Lender is authorized to issue the Letters of Credit,  under this Agreement based
upon telephonic or other  instructions  received from anyone purporting to be an
Authorized  Person,  or without  instructions  if  pursuant  to Section  2.6(d).
Borrower  agrees to  establish  and  maintain  the  Designated  Account with the
Designated  Account  Bank for the  purpose  of  receiving  the  proceeds  of the
Advances  requested by Borrower and made by Lender  hereunder.  Unless otherwise
agreed by Lender and  Borrower,  any Advance  requested  by Borrower and made by
Lender hereunder shall be made to the Designated Account.

     2.10 Maintenance of Loan Account;  Statements of Obligations.  Lender shall
maintain an account on its books in the name of Borrower (the "Loan Account") on
which  Borrower  will be charged with all Advances made by Lender to Borrower or
for  Borrower's  account,  the Letters of Credit issued by Lender for Borrower's
account,  and with all other  payment  Obligations  hereunder or under the other
Loan  Documents,  including,  accrued  interest,  fees and expenses,  and Lender
Expenses. In accordance with Section 2.8, the Loan Account will be credited with
all payments received by Lender from Borrower or for Borrower's account.  Lender
shall  render  statements  regarding  the Loan  Account to  Borrower,  including
principal,  interest,  fees,  and  including an  itemization  of all charges and




                                       36
<PAGE>

expenses  constituting  Lender  Expenses  owing,  and such  statements  shall be
conclusively  presumed  to be correct and  accurate  and  constitute  an account
stated between Borrower and Lender unless,  within 30 days after receipt thereof
by  Borrower,  Borrower  shall  deliver  to  Lender  written  objection  thereto
describing the error or errors contained in any such statements.

     2.11 Fees.  Borrower  shall pay to Lender the  following  fees and charges,
which  fees and  charges  shall be  non-refundable  when paid  (irrespective  of
whether this Agreement is terminated thereafter):

     (a) Unused Line Fee. On the first day of each month during the term of this
Agreement,  an unused  line fee in an amount  equal to .375% per annum times the
result of (a) the Maximum Revolver  Amount,  less (b) the sum of (i) the average
Daily Balance of Advances that were outstanding during the immediately preceding
month,  plus (ii) the average Daily Balance of the Letter of Credit Usage during
the immediately preceding month,

     (b) Fee Letter Fees. As and when due and payable under the terms of the Fee
Letter, Borrower shall pay to Lender the fees set forth in the Fee Letter, and

     (c)  Audit,  Appraisal,   and  Valuation  Charges.  Audit,  appraisal,  and
valuation  fees and charges as follows (i) a fee of $650 per day,  per  auditor,
plus  out-of-pocket  expenses for each financial audit of Borrower  performed by
personnel employed by Lender,  (ii) a fee of $1,500 per day per appraiser,  plus
out-of-pocket  expenses,  for each  appraisal  of the  Collateral  performed  by
personnel  employed by Lender,  and (iii) the actual charges paid or incurred by
Lender if it elects to employ  the  services  of one or more  third  Persons  to
perform financial audits of Borrower, to appraise the Collateral, or any portion
thereof, or to assess Borrower's business valuation; provided, however, that, so
long as no Event of Default has occurred and is  continuing,  Borrower shall not
be obligated to reimburse Lender for the costs and expenses of more than 8 audit
days in any 12 consecutive month period.

     2.12 Letters of Credit.

     (a) Subject to the terms and conditions of this Agreement, Lender agrees to
issue  letters of credit  for the  account of  Borrower  (each,  an "L/C") or to
purchase  participations  or execute  indemnities or  reimbursement  obligations
(each such undertaking,  an "L/C Undertaking") with respect to letters of credit
issued by an Underlying  Issuer (as of the Closing Date, such issuing bank to be
Wells Fargo) for the account of  Borrower.  To request the issuance of an L/C or
an L/C  Undertaking (or the amendment,  renewal,  or extension of an outstanding
L/C or L/C Undertaking), Borrower shall hand deliver or telecopy (or transmit by
electronic  communication,  if  arrangements  for doing so have been approved by
Lender) to Lender  (reasonably  in advance of the  requested  date of  issuance,
amendment,  renewal, or extension) a notice requesting the issuance of an L/C or
L/C  Undertaking,  or  identifying  the L/C or L/C  Undertaking  to be  amended,
renewed, or extended,  the date of issuance,  amendment,  renewal, or extension,
the date on which such



                                       37
<PAGE>

L/C or L/C Undertaking is to expire,  the amount of such L/C or L/C Undertaking,
the name and  address of the  beneficiary  thereof  (or the  beneficiary  of the
Underlying Letter of Credit, as applicable), and such other information as shall
be necessary to prepare, amend, renew, or extend such L/C or L/C Undertaking. If
requested by Lender,  Borrower also shall be an applicant  under the application
with respect to any Underlying  Letter of Credit that is to be the subject of an
L/C Undertaking.  Lender shall have no obligation to issue a Letter of Credit if
any of the following would result after giving effect to the requested Letter of
Credit:

          (i) the Letter of Credit  Usage would exceed the  Borrowing  Base less
     the amount of outstanding Advances, or

          (ii) the Letter of Credit  Usage would  exceed the Maximum L/C Amount,
     or

          (iii) the Letter of Credit  Usage would  exceed the  Maximum  Revolver
     Amount less the then extant amount of outstanding Advances.

     Borrower and Lender  acknowledge and agree that certain  Underlying Letters
of  Credit  may be  issued  to  support  letters  of  credit  that  already  are
outstanding  as of the Closing  Date.  Each Letter of Credit (and  corresponding
Underlying  Letter of Credit)  shall  have an expiry  date no later than 20 days
prior to the  Maturity  Date and all such  Letters of Credit (and  corresponding
Underlying Letter of Credit) shall be in form and substance acceptable to Lender
(in the exercise of its Permitted  Discretion),  including the requirement  that
the  amounts  payable  thereunder  must be  payable  in  Dollars.  If  Lender is
obligated to advance funds under a Letter of Credit,  Borrower immediately shall
reimburse such L/C Disbursement to Lender by paying to Lender an amount equal to
such L/C  Disbursement  not later than 11:00 a.m.,  California time, on the date
that such L/C  Disbursement is made, if Borrower shall have received  written or
telephonic notice of such L/C Disbursement prior to 10:00 a.m., California time,
on such date, or, if such notice has not been received by




                                       38
<PAGE>

Borrower prior to such time on such date, then not later than 11:00 a.m.,
California time, on the Business Day that Borrower receives such notice, if such
notice is received prior to 10:00 a.m., California time, on the date of receipt,
and, in the absence of such reimbursement, the L/C Disbursement immediately and
automatically shall be deemed to be an Advance hereunder and, thereafter, shall
bear interest at the rate then applicable to Advances that are Base Rate Loans
under Section 2.6. To the extent an L/C Disbursement is deemed to be an Advance
hereunder, Borrower's obligation to reimburse such L/C Disbursement shall be
discharged and replaced by the resulting Advance.

     (b) Borrower  hereby agrees to  indemnify,  save,  defend,  and hold Lender
harmless from any loss, cost,  expense, or liability,  and reasonable  attorneys
fees  incurred  by Lender  arising  out of or in  connection  with any Letter of
Credit;  provided,  however,  that Borrower shall not be obligated  hereunder to
indemnify for any loss, cost,  expense, or liability that is caused by the gross
negligence or willful  misconduct of Lender.  Borrower agrees to be bound by the
Underlying Issuer's  regulations and interpretations of any Underlying Letter of
Credit  or by  Lender's  interpretations  of any L/C  issued by Lender to or for
Borrower's  account,  even  though this  interpretation  may be  different  from
Borrower's  own,  and Borrower  understands  and agrees that Lender shall not be
liable for any error, negligence, or mistake, whether of omission or commission,
in following Borrower's  instructions or those contained in the Letter of Credit
or any modifications,  amendments,  or supplements thereto. Borrower understands
that the L/C Undertakings may require Lender to indemnify the Underlying  Issuer
for certain costs or liabilities  arising out of claims by Borrower against such
Underlying Issuer.  Borrower hereby agrees to indemnify,  save, defend, and hold
Lender harmless with respect to any loss, cost,  expense  (including  reasonable
attorneys fees), or liability  incurred by Lender under any L/C Undertaking as a
result of Lender's indemnification of any Underlying Issuer; provided,  however,
that Borrower shall not be obligated  hereunder to indemnify for any loss, cost,
expense,  or  liability  that is  caused  by the  gross  negligence  or  willful
misconduct of Lender.

     (c) Borrower hereby authorizes and directs any Underlying Issuer to deliver
to Lender all instruments,  documents,  and other writings and property received
by such Underlying  Issuer  pursuant to such Underlying  Letter of Credit and to
accept and rely upon Lender's  instructions  with respect to all matters arising
in connection with such Underlying Letter of Credit and the related application.

     (d) Any and all charges,  commissions,  fees,  and costs incurred by Lender
relating to Underlying  Letters of Credit shall be Lender  Expenses for purposes
of this Agreement and  immediately  shall be  reimbursable by Borrower to Lender
for the account of Lender; it being acknowledged and agreed by Borrower that, as
of the Closing Date, the issuance charge imposed by the  prospective  Underlying
Issuer is .825% per annum  times the face  amount of each  Underlying  Letter of
Credit, that such issuance charge may be changed from time to time, and that the
Underlying Issuer also imposes a schedule of charges for amendments, extensions,
drawings, and renewals.



                                       39
<PAGE>

     (e) If by reason of (i) any change in any applicable law, treaty,  rule, or
regulation or any change in the  interpretation  or  application  thereof by any
Governmental  Authority,  or (ii) compliance by the Underlying  Issuer or Lender
with any direction,  request, or requirement (irrespective of whether having the
force of law) of any  Governmental  Authority or monetary  authority  including,
Regulation  D of the Federal  Reserve  Board as from time to time in effect (and
any successor thereto):

          (i) any  reserve,  deposit,  or  similar  requirement  is or  shall be
     imposed or modified in respect of any Letter of Credit issued hereunder, or

          (ii) there  shall be imposed  on the  Underlying  Issuer or Lender any
     other condition  regarding any Underlying Letter of Credit or any Letter of
     Credit issued pursuant hereto,

and the result of the foregoing is to increase, directly or indirectly, the cost
to Lender of issuing, making, guaranteeing,  or maintaining any Letter of Credit
or to reduce the amount  receivable in respect  thereof by Lender,  then, and in
any such case,  Lender  may, at any time within a  reasonable  period  after the
additional cost is incurred or the amount received is reduced,  notify Borrower,
and  Borrower  shall pay on demand  such  amounts  as Lender  may  specify to be
necessary to  compensate  Lender for such  additional  cost or reduced  receipt,
together with interest on such amount from the date of such demand until payment
in full thereof at the rate then  applicable to Base Rate Loans  hereunder.  The
determination by Lender of any amount due pursuant to this Section, as set forth
in a certificate  setting forth the  calculation  thereof in reasonable  detail,
shall, in the absence of manifest or demonstrable error, be final and conclusive
and binding on all of the parties hereto.

     2.13 LIBOR Option

     (a) Interest and Interest Payment Dates. In lieu of having interest charged
at the rate based upon the Base Rate, Borrower shall have the option (the "LIBOR
Option") to have  interest  on all or a portion of the  Advances be charged at a
rate of interest  based upon the LIBOR Rate.  Interest on LIBOR Rate Loans shall
be payable on the earliest of (i) the last day of the Interest Period applicable
thereto,  (ii) the  occurrence  of an Event of Default in  consequence  of which
Lender  has  elected  to  accelerate  the  maturity  of the  Obligations,  (iii)
termination  of this Agreement  pursuant to the terms hereof,  or (iv) the first
day of each month that such LIBOR Rate Loan is  outstanding.  On the last day of
each applicable  Interest  Period,  unless  Borrower  properly has exercised the
LIBOR Option with respect  thereto,  the interest rate  applicable to such LIBOR
Rate Loan automatically shall convert to the rate of interest then applicable to
Base Rate Loans of the same type hereunder. At any time that an Event of Default
has  occurred  and is  continuing,  Borrower no longer  shall have the option to
request that  Advances bear interest at the LIBOR Rate and Lender shall have the
right to convert the interest  rate on all  outstanding  LIBOR Rate Loans to the
rate then applicable to Base Rate Loans hereunder.



                                       40
<PAGE>

     (b) LIBOR Election.

     (i) Borrower may, at any time and from time to time, so long as no Event of
Default has  occurred and is  continuing,  elect to exercise the LIBOR Option by
notifying Lender prior to 11:00 a.m.  (California time) at least 3 Business Days
prior  to  the  commencement  of  the  proposed   Interest  Period  (the  "LIBOR
Deadline").  Notice of  Borrower's  election of the LIBOR Option for a permitted
portion of the Advances and an Interest Period pursuant to this Section shall be
made by delivery to Lender of a LIBOR Notice received by Lender before the LIBOR
Deadline,  or by telephonic  notice received by Lender before the LIBOR Deadline
(to be  confirmed  by  delivery to Lender of a LIBOR  Notice  received by Lender
prior to 5:00 p.m. (California time) on the same day).

     (ii) Each LIBOR Notice  shall be  irrevocable  and binding on Borrower.  In
connection with each LIBOR Rate Loan, Borrower shall indemnify, defend, and hold
Lender  harmless  against  any loss,  cost,  or expense  incurred by Lender as a
result of (a) the payment of any  principal of any LIBOR Rate Loan other than on
the last day of an Interest Period applicable  thereto (including as a result of
an Event of Default),  (b) the  conversion  of any LIBOR Rate Loan other than on
the last day of the Interest Period  applicable  thereto,  or (c) the failure to
borrow, convert, continue or prepay any LIBOR Rate Loan on the date specified in
any LIBOR Notice  delivered  pursuant hereto (such losses,  costs, and expenses,
collectively,  "Funding  Losses").  Funding  Losses shall be deemed to equal the
amount  determined  by Lender to be the  excess,  if any,  of (i) the  amount of
interest that would have accrued on the principal amount of such LIBOR Rate Loan
had such event not occurred,  at the LIBOR Rate that would have been  applicable
thereto,  for the period from the date of such event to the last day of the then
current  Interest  Period  therefor  (or,  in the case of a failure  to  borrow,
convert,  or continue,  for the period that would have been the Interest  Period
therefor), minus (ii) the amount of interest that would accrue on such principal
amount for such period at the  interest  rate which Lender would be offered were
it to be offered,  at the  commencement  of such  period,  Dollar  deposits of a
comparable  amount and period in the London  interbank  market. A certificate of
Lender  delivered to Borrower setting forth any amount or amounts that Lender is
entitled to receive pursuant to this Section shall be conclusive absent manifest
error.

     (iii) Borrower shall have not more than 5 LIBOR Rate Loans in effect at any
given time.  Borrower only may exercise the LIBOR Option for LIBOR Rate Loans of
at least $1,000,000 and integral multiples of $500,000 in excess thereof.



                                       41
<PAGE>

     (c)  Prepayments.  Borrower  may  prepay  LIBOR  Rate  Loans  at any  time;
provided,  however,  that in the event that LIBOR Rate Loans are  prepaid on any
date  that  is not the  last  day of the  Interest  Period  applicable  thereto,
including  as  a  result  of  any  automatic  prepayment  through  the  required
application  by Lender of proceeds of  Collections  in  accordance  with Section
2.4(b) or for any other reason,  including early termination of the term of this
Agreement  or  acceleration  of the  Obligations  pursuant to the terms  hereof,
Borrower shall indemnify,  defend, and hold Lender and its Participants harmless
against any and all Funding Losses in accordance with clause (b)(ii) above.

     (d) Special Provisions Applicable to LIBOR Rate.

          (i) The LIBOR Rate may be adjusted by Lender on a prospective basis to
     take  into  account  any  additional  or  increased   costs  to  Lender  of
     maintaining or obtaining any eurodollar  deposits or increased costs due to
     changes in applicable law occurring  subsequent to the  commencement of the
     then  applicable  Interest  Period,  including  changes in tax laws (except
     changes of general  applicability in corporate income tax laws) and changes
     in the  reserve  requirements  imposed  by the  Board of  Governors  of the
     Federal   Reserve  System  (or  any   successor),   excluding  the  Reserve
     Percentage,  which additional or increased costs would increase the cost of
     funding loans bearing interest at the LIBOR Rate. In any such event, Lender
     shall give Borrower notice of such a determination and adjustment and, upon
     its receipt of the notice from  Lender,  Borrower  may, by notice to Lender
     (y) require  Lender to furnish to Borrower a  statement  setting  forth the
     basis for  adjusting  such LIBOR Rate and the  method for  determining  the
     amount of such  adjustment,  or (z) repay the LIBOR Rate Loans with respect
     to which such  adjustment  is made  (together  with any  amounts  due under
     clause (b)(ii) above).

          (ii) In the event  that any  change in market  conditions  or any law,
     regulation,  treaty,  or  directive,  or  any  change  therein  or  in  the
     interpretation  of  application  thereof,  shall at any time after the date
     hereof,  in  the  reasonable  opinion  of  Lender,   make  it  unlawful  or
     impractical  for Lender to fund or maintain  LIBOR  Advances or to continue
     such funding or  maintaining,  or to determine or charge  interest rates at
     the LIBOR Rate,  Lender shall give notice of such changed  circumstances to
     Borrower and (y) in the case of any LIBOR Rate Loans that are  outstanding,
     the date specified in Lender's notice shall be deemed to be the last day of
     the Interest  Period of such LIBOR Rate Loans,  and interest upon the LIBOR
     Rate Loans  thereafter shall accrue interest at the rate then applicable to
     Base Rate Loans,  and (z) Borrower shall not be entitled to elect the LIBOR
     Option  until  Lender  determines  that it would no longer be  unlawful  or
     impractical to do so.



                                       42
<PAGE>

     (e) No Requirement of Matched Funding.  Anything to the contrary  contained
herein notwithstanding, neither Lender, nor any of its Participants, is required
actually  to acquire  eurodollar  deposits to fund or  otherwise  match fund any
Obligation as to which  interest  accrues at the LIBOR Rate.  The  provisions of
this Section shall apply as if Lender or its  Participants  had match funded any
Obligation  as to which  interest  is  accruing  at the LIBOR Rate by  acquiring
eurodollar  deposits  for each  Interest  Period in the amount of the LIBOR Rate
Loans.

     2.14 Capital  Requirements.  If, after the date hereof,  Lender  reasonably
determines  that (i) the adoption of or change in any law,  rule,  regulation or
guideline regarding capital requirements for banks or bank holding companies, or
any change in the  interpretation  or  application  thereof by any  Governmental
Authority charged with the administration  thereof, or (ii) compliance by Lender
or its parent bank holding company with any guideline,  request, or directive of
any such entity regarding  capital adequacy  (whether or not having the force of
law),  the effect of reducing the return on Lender's or such  holding  company's
capital as a consequence of Lender's obligations hereunder to a level below that
which Lender or such holding  company could have achieved but for such adoption,
change,  or  compliance  (taking  into  consideration  Lender's or such  holding
company's then existing  policies with respect to capital  adequacy and assuming
the full utilization of such entity's  capital) by any amount  reasonably deemed
by Lender to be material,  then Lender may notify  Borrower  thereof.  Following
receipt of such  notice,  Borrower  agrees to pay Lender on demand the amount of
such  reduction of return of capital as and when such  reduction is  determined,
payable within 90 days after presentation by Lender of a statement in the amount
and setting  forth in reasonable  detail  Lender's  calculation  thereof and the
assumptions  upon which such  calculation  was based (which  statement  shall be
deemed true and correct absent  manifest  error).  In  determining  such amount,
Lender may use any reasonable averaging and attribution methods.

3. CONDITIONS; TERM OF AGREEMENT.

     3.1 Conditions Precedent to the Initial Extension of Credit. The obligation
of Lender to make the  initial  Advance  (or  otherwise  to  extend  any  credit
provided for hereunder),  is subject to the fulfillment,  to the satisfaction of
Lender, of each of the conditions precedent set forth below:

     (a) the Closing Date shall occur on or before February 23, 2001;

     (b) Lender shall have received all financing statements required by Lender,
duly executed by Borrower,  and Lender shall have received  searches  reflecting
the filing of all such financing statements;

     (c) Lender shall have received each of the following documents, in form and
substance satisfactory to Lender, duly executed, and each such document shall be
in full force and effect:

          (i) the Fee Letter,



                                       43
<PAGE>

          (ii) the Mortgages,

          (iii) the Subordination of Mortgage,

          (iv) the Survey Affidavit/Indemnification,

          (v) the Officers' Certificate,

          (vi) the Trademark Security Agreement,

          (vii) the Diamond Jo Ship Mortgage,

          (viii) the Subordination of Preferred Fleet Mortgage, and

          (ix) the Intercreditor Agreement.

     (d) Lender shall have received a certificate from the Secretary of Borrower
attesting to the  resolutions of Borrower's  Manager  authorizing the execution,
delivery,  and  performance  of this  Agreement and the other Loan  Documents to
which  Borrower  is a party and  authorizing  specific  officers  of Borrower to
execute the same;

     (e) Lender shall have received copies of Borrower's Governing Documents, as
amended,  modified,  or  supplemented  to the  Closing  Date,  certified  by the
Secretary of Borrower;

     (f) Lender  shall have  received a  certificate  of status with  respect to
Borrower,  dated  within 10 days of the Closing  Date,  such  certificate  to be
issued  by the  appropriate  officer  of the  jurisdiction  of  organization  of
Borrower,  which certificate shall indicate that Borrower is in good standing in
such jurisdiction;

     (g) Lender  shall have  received  certificates  of status  with  respect to
Borrower, each dated within 30 days of the Closing Date, such certificates to be
issued  by  the  appropriate  officer  of  the  jurisdictions  (other  than  the
jurisdiction  of  organization  of  Borrower)  in which its  failure  to be duly
qualified  or  licensed  would  constitute  a  Material  Adverse  Change,  which
certificates   shall  indicate  that  Borrower  is  in  good  standing  in  such
jurisdictions;

     (h) Lender shall have  received a certificate  of insurance,  together with
the endorsements thereto, as are required by Section 6.8, the form and substance
of which shall be satisfactory to Lender;

     (i) Lender shall have  received an opinion of Borrower's  counsel,  in form
and substance  satisfactory to Lender in its Permitted Discretion,  such opinion
to include an opinion as to the due issuance and valid  existence of  Borrower's
Gaming Licenses;

     (j)  Lender  shall  have  received   satisfactory   evidence  (including  a
certificate  of the chief  financial  officer of Borrower)  that all tax returns
required  to be filed



                                       44
<PAGE>

by  Borrower  have  been  timely  filed  and  all  taxes  upon  Borrower  or its
properties,  assets,  income, and franchises  (including Real Property taxes and
payroll taxes) have been paid prior to  delinquency,  except such taxes that are
the subject of a Permitted Protest;

     (k) Lender shall have  completed its business,  legal,  and  collateral due
diligence,  including (i) a collateral  audit and review of Borrower's books and
records and verification of Borrower's representations and warranties to Lender,
the results of which shall be satisfactory to Lender,  and (ii) an inspection of
each of the locations where Inventory is located,  the results of which shall be
satisfactory to Lender;

     (l) Lender shall have received  completed  reference checks with respect to
Borrower's senior management, the results of which are satisfactory to Lender in
its Permitted Discretion;

     (m) Lender shall have received from an independent third party professional
selected by Lender,  an evaluation  of the  enterprise  value of Borrower's  Ice
Harbor Facility, the results of which shall be satisfactory to Lender;

     (n) Lender shall have received Borrower's Closing Date Business Plan;

     (o) Borrower shall pay all Lender Expenses  incurred in connection with the
transactions evidenced by this Agreement;

     (p) Lender  shall have  received  mortgagee  title  insurance  policies (or
marked commitments to issue the same) for the Real Property Collateral issued by
a title insurance company  satisfactory to Lender (each a "Mortgage Policy" and,
collectively,  the "Mortgage  Policies") in amounts  reasonably  satisfactory to
Lender assuring Lender that, after giving effect to the Intercreditor Agreement,
the Mortgages on such Real Property  Collateral are valid and enforceable  first
priority  mortgage Liens on such Real Property  Collateral free and clear of all
defects and  encumbrances  except  Permitted  Liens,  and the Mortgage  Policies
otherwise shall be in form and substance reasonably satisfactory to Lender;

     (q) Lender shall have received  copies of each of the following  documents,
together with a certificate  of the Secretary of Borrower  certifying  each such
document as being a true,  correct,  and complete copy  thereof:  (i) the Senior
Note  Documents,  (ii) the Operating  Agreement,  (iii) the Lease,  (iv) the Ice
Harbor  Parking  Agreement,   (v)  the  Consulting  Agreements,   and  (vi)  the
Certificate of Designation;

     (r) Borrower  shall have  received all  licenses,  approvals or evidence of
other  actions  required by any  Governmental  Authority,  including  the Gaming
Commission,  in  connection  with the execution and delivery by Borrower of this
Agreement  or  any  other  Loan  Document  or  with  the   consummation  of  the
transactions contemplated hereby and thereby;



                                       45
<PAGE>

     (s) the Diamond Jo Ship Mortgage shall have been recorded in the applicable
filing  office of the United  States  Coast  Guard and such  other  governmental
agency as shall be  necessary,  and  Lender  shall have  received  confirmation,
satisfactory to Lender, of such recordation;

     (t)  all  other   documents  and  legal  matters  in  connection  with  the
transactions contemplated by this Agreement shall have been delivered, executed,
or recorded and shall be in form and substance satisfactory to Lender; and

     (u) Borrower  shall have the Required  Availability  after giving effect to
the initial extensions of credit hereunder.

     3.2  Conditions   Subsequent  to  the  Initial  Extension  of  Credit.  The
obligation of Lender to continue to make  Advances (or  otherwise  extend credit
hereunder)  is subject  to the  fulfillment,  on or before  the date  applicable
thereto,  of each of the  conditions  subsequent set forth below (the failure by
Borrower  to so  perform  or  cause  to be  performed  constituting  an Event of
Default):

     (a) within 30 days of the Closing  Date,  Borrower  shall deliver to Lender
certified  copies of the policies of insurance,  together with the  endorsements
thereto,  as are required by Section 6.8, the form and  substance of which shall
be satisfactory to Lender and its counsel;

     (b) for the period from and after the  Closing  Date up to the date that is
30 days after the Closing Date, Borrower shall exercise commercially  reasonable
efforts to obtain the consent of the City of Dubuque, as lessor under the Lease,
and the Dubuque  Racing  Association,  Ltd.,  as sublessor  under the Lease,  to
Borrower's  conveyance  of a leasehold  mortgage on the Lease in favor of Lender
pursuant to the Mortgage;

     (c) Within 45 days of the Closing Date,  Borrower  shall have caused Lender
to receive a title policy  relating to the real  property that is the subject of
the  Lease  (the  "Title  Policy")  to be issued  by a title  insurance  company
satisfactory  to Lender  and the  Title  Policy  shall be in form and  substance
satisfactory to Lender.

     3.3  Conditions  Precedent to all  Extensions of Credit.  The obligation of
Lender to make all Advances (or to extend any other credit  hereunder)  shall be
subject to the following conditions precedent:

     (a) the representations and warranties  contained in this Agreement and the
other Loan Documents  shall be true and correct in all material  respects on and
as of the date of such  extension  of credit,  as though  made on and as of such
date  (except to the extent  that such  representations  and  warranties  relate
solely to an earlier date),

     (b) no Default or Event of Default shall have occurred and be continuing on
the date of such  extension of credit,  nor shall either  result from the making
thereof,



                                       46
<PAGE>

     (c) no injunction,  writ,  restraining  order, or other order of any nature
prohibiting,  directly or  indirectly,  the  extending of such credit shall have
been issued and remain in force by any Governmental  Authority against Borrower,
Lender, or any of their Affiliates.

     (d) no Material Adverse Change shall have occurred.

     3.4 Term.  This  Agreement  shall become  effective  upon the execution and
delivery  hereof by  Borrower  and Lender and shall  continue  in full force and
effect  for a term  ending on  February  23,  2005 (the  "Maturity  Date").  The
foregoing  notwithstanding,  Lender  shall  have  the  right  to  terminate  its
obligations  under  this  Agreement  immediately  and  without  notice  upon the
occurrence and during the continuation of an Event of Default.

     3.5 Effect of  Termination.  On the date of termination of this  Agreement,
all Obligations (including contingent reimbursement obligations of Borrower with
respect  to  outstanding  Letters of Credit)  immediately  shall  become due and
payable  without notice or demand.  No termination of this  Agreement,  however,
shall  relieve or discharge  Borrower of its duties,  Obligations,  or covenants
hereunder and the Lender's Liens in the Collateral  shall remain in effect until
all Obligations have been fully and finally discharged and Lender's  obligations
to provide additional credit hereunder have been terminated. When this Agreement
has been  terminated  and all of the  Obligations  have been  fully and  finally
discharged and Lender's  obligations to provide additional credit under the Loan
Documents  have been  terminated  irrevocably,  Lender will, at Borrower's  sole
expense,  execute and deliver any UCC  termination  statements,  lien  releases,
mortgage  releases,   re-assignments  of  trademarks,   discharges  of  security
interests, and other similar discharge or release documents (and, if applicable,
in  recordable  form) as are  necessary to release,  as of record,  the Lender's
Liens and all notices of security interests and liens previously filed by Lender
with respect to the Obligations.

     3.6 Early  Termination  by Borrower.  Borrower has the option,  at any time
upon 90 days prior  written  notice to Lender,  to terminate  this  Agreement by
paying to Lender,  in immediately  available funds,  the Obligations  (including
either (a) providing cash  collateral to be held by Lender in an amount equal to
105% of the then extant  Letter of Credit  Usage,  or (b)  causing the  original
Letters  of  Credit  to be  returned  to  Lender),  in full,  together  with the
Applicable   Prepayment  Premium;   provided,   however,  that  such  Applicable
Prepayment Premium (i) shall be reduced to zero if the Obligations are repaid in
full and this  Agreement  is  terminated  as a direct  result  of a  refinancing
provided by Wells Fargo at any time  subsequent to the first  anniversary of the
Closing Date, and (ii) shall be reduced by 50% if the  Obligations are repaid in
full and this Agreement is terminated as a direct result of the  consummation of
an  initial  public  offering  of  Borrower's  stock,  a  private  placement  of
Borrower's  stock or subordinated  debt, or a sale (other than a sale that takes
place as a consequence of a judicial or nonjudicial foreclosure proceeding or an
Insolvency  Proceeding)  in of all or  substantially  all the stock or assets of
Borrower.  If  Borrower  has  sent  a  notice  of  termination  pursuant  to the
provisions of this Section, then Lender's obligations to extend credit hereunder
shall  terminate  and  Borrower  shall be  obligated  to repay  the  Obligations



                                       47
<PAGE>

(including  either  (i)  providing  cash  collateral  to be held by Lender in an
amount equal to 105% of the then extant Letter of Credit Usage,  or (ii) causing
the original Letters of Credit to be returned to Lender), in full, together with
the  Applicable  Prepayment  Premium,  on the  date  set  forth  as the  date of
termination of this Agreement in such notice. In the event of the termination of
this  Agreement  and  repayment  of the  Obligations  at any  time  prior to the
Maturity Date, for any other reason, including (A) termination upon the election
of  Lender  to  terminate  after  the  occurrence  of an Event of  Default,  (B)
foreclosure and sale of Collateral, (C) sale of the Collateral in any Insolvency
Proceeding, or (D) restructure, reorganization, or compromise of the Obligations
by the confirmation of a plan of reorganization or any other plan of compromise,
restructure,  or arrangement in any Insolvency Proceeding,  then, in view of the
impracticability  and extreme  difficulty of  ascertaining  the actual amount of
damages  to  Lender  or  profits  lost by  Lender  as a  result  of  such  early
termination,  and  by  mutual  agreement  of  the  parties  as  to a  reasonable
estimation and  calculation  of the lost profits or damages of Lender,  Borrower
shall pay the Applicable  Prepayment Premium to Lender,  measured as of the date
of such termination.

4. CREATION OF SECURITY INTEREST.

     4.1  Grant  of  Security  Interest.  Borrower  hereby  grants  to  Lender a
continuing  security  interest in all of its right,  title,  and interest in all
currently   existing  and  hereafter   acquired  or  arising  Personal  Property
Collateral in order to secure prompt repayment of any and all of the Obligations
in accordance  with the terms and  conditions of the Loan Documents and in order
to secure  prompt  performance  by Borrower of each of its  covenants and duties
under the Loan  Documents.  The Lender's  Liens in and to the Personal  Property
Collateral shall attach to all Personal Property  Collateral without further act
on the part of Lender or Borrower.  Anything  contained in this Agreement or any
other Loan  Document  to the  contrary  notwithstanding,  except for Asset Sales
permitted  under  Section  7.4 of this  Agreement,  Borrower  has no  authority,
express or implied, to dispose of any item or portion of the Collateral.

     4.2  Negotiable  Collateral.  In the event that any  Collateral,  including
proceeds,  is evidenced by or consists of Negotiable  Collateral,  and if and to
the extent  that  perfection  or  priority  of  Lender's  security  interest  is
dependent on or enhanced by possession,  Borrower,  immediately upon the request
of Lender,  shall endorse and deliver  physical  possession  of such  Negotiable
Collateral to Lender.

     4.3 Collection of Accounts, General Intangibles, and Negotiable Collateral.
At any time after the  occurrence  and during  the  continuation  of an Event of
Default,  Lender or Lender's designee may (a) notify Account Debtors of Borrower
that the Accounts,  chattel paper, or General  Intangibles have been assigned to
Lender or that  Lender has a  security  interest  therein,  or (b)  collect  the
Accounts,  chattel  paper,  or  General  Intangibles  directly  and  charge  the
collection costs and expenses to the Loan Account.  Borrower agrees that it will
hold in trust for Lender, as Lender's trustee,  any Collections that it receives
and immediately  will deliver said  Collections to Lender in their original form
as received by Borrower.



                                       48
<PAGE>

     4.4 Delivery of  Additional  Documentation  Required.  At any time upon the
request of Lender,  Borrower  shall  execute and deliver to Lender,  any and all
financing  statements,  original  financing  statements in lieu of  continuation
statements,   fixture  filings,  security  agreements,   pledges,   assignments,
endorsements of certificates of title,  and all other documents (the "Additional
Documents")  that Lender may request in its  Permitted  Discretion,  in form and
substance  satisfactory to Lender,  to perfect and continue  perfected or better
perfect the  Lender's  Liens in the  Collateral  (whether now owned or hereafter
arising or acquired), to create and perfect Liens in favor of Lender in any Real
Property  acquired after the Closing Date, and in order to fully  consummate all
of the transactions  contemplated hereby and under the other Loan Documents.  To
the maximum extent permitted by applicable law,  Borrower  authorizes  Lender to
execute any such Additional  Documents in Borrower's name and authorizes  Lender
to file such executed Additional  Documents in any appropriate filing office. In
addition,  on such periodic basis as Lender shall reasonably  require,  Borrower
shall (a) provide Lender with a report of all new patentable,  copyrightable, or
trademarkable  materials  acquired or  generated  by  Borrower  during the prior
period, (b) cause all patents,  copyrights, and trademarks acquired or generated
by  Borrower  that  are not  already  the  subject  of a  registration  with the
appropriate filing office (or an application therefor diligently  prosecuted) to
be registered  with such  appropriate  filing  office in a manner  sufficient to
impart constructive notice of Borrower's  ownership thereof, and (c) cause to be
prepared,  executed,  and  delivered  to Lender  supplemental  schedules  to the
applicable Loan Documents to identify such patents,  copyrights,  and trademarks
as being subject to the security interests created thereunder.

     4.5 Power of Attorney. Borrower hereby irrevocably makes, constitutes,  and
appoints Lender (and any of Lender's officers,  employees,  or agents designated
by Lender) as Borrower's true and lawful attorney, with power to (a) if Borrower
refuses  to,  or fails  timely  to  execute  and  deliver  any of the  documents
described  in Section  4.4,  sign the name of Borrower  on any of the  documents
described  in Section 4.4, (b) at any time that an Event of Default has occurred
and is  continuing,  sign  Borrower's  name on any  invoice  or  bill of  lading
relating  to the  Collateral,  drafts  against  Account  Debtors,  or notices to
Account Debtors, (c) after the occurrence and during the continuance of an Event
of Default, send requests for verification of Accounts, (d) after the occurrence
and during the  continuance of an Event of Default,  endorse  Borrower's name on
any Collection item that may come into Lender's possession, (e) at any time that
an Event of Default has occurred and is continuing, make, settle, and adjust all
claims under Borrower's  policies of insurance and make all  determinations  and
decisions  with respect to such policies of insurance,  and (f) at any time that
an Event of Default has occurred and is continuing,  settle and adjust  disputes
and claims  respecting  the  Accounts,  chattel  paper,  or General  Intangibles
directly with Account Debtors, for amounts and upon terms that Lender determines
to be  reasonable,  and  Lender  may  cause to be  executed  and  delivered  any
documents and releases that Lender  determines to be necessary.  The appointment
of Lender as  Borrower's  attorney,  and each and  every one of its  rights  and
powers,  being  coupled  with  an  interest,  is  irrevocable  until  all of the
Obligations  have been fully and  finally  repaid  and  performed  and  Lender's
obligations to extend credit hereunder are terminated.



                                       49
<PAGE>

     4.6 Right to Inspect.  Lender and its officers,  employees, or agents shall
have the right,  from time to time and during normal business hours hereafter to
inspect the Books and to check,  test,  and appraise the  Collateral in order to
verify Borrower's financial condition or the amount,  quality,  value, condition
of, or any other matter relating to, the Collateral.

5. REPRESENTATIONS AND WARRANTIES.

     In order to induce Lender to enter into this Agreement,  Borrower makes the
following representations and warranties to Lender which shall be true, correct,
and  complete,  in all material  respects,  as of the date hereof,  and shall be
true, correct, and complete,  in all material respects,  as of the Closing Date,
and at and as of the date of the making of each  Advance (or other  extension of
credit)  made  thereafter,  as though made on and as of the date of such Advance
(or other extension of credit)  (except to the extent that such  representations
and warranties  relate solely to an earlier date) and such  representations  and
warranties shall survive the execution and delivery of this Agreement:

     5.1 No  Encumbrances.  Borrower  has  good  and  indefeasible  title to the
Collateral,  the  Diamond Jo Vessels  and the Real  Property,  free and clear of
Liens  except for  Permitted  Liens and except for  defects in title that do not
interfere in any material respect with its ability to conduct its business or to
utilize such property for its intended purpose.

     5.2 [Intentionally Omitted.]

     5.3 [Intentionally Omitted.]

     5.4  Equipment.  All of the Equipment is used or held for use in Borrower's
business and is fit for such purposes, except for Equipment that may have become
obsolete or worn-out.

     5.5 Location of Inventory  and  Equipment.  The Inventory and Equipment are
not stored with a bailee, warehouseman, or similar party (and will not be unless
Borrower has delivered to Lender a Collateral  Access  Agreement with respect to
such  location).  The  Inventory and Equipment are located only at the locations
identified on Schedule 5.5.

     5.6  Inventory  Records.   Borrower  keeps  correct  and  accurate  records
itemizing and  describing the type,  quality,  and quantity of its Inventory and
the book value thereof.

     5.7 Location of Chief Executive Office; FEIN. The chief executive office of
Borrower is located at the address indicated in Schedule 5.7 and Borrower's FEIN
is identified in Schedule 5.7.

     5.8 Due Organization and Qualification; Subsidiaries.

     (a) Borrower is duly  organized and existing and in good standing under the
laws of the jurisdiction of its organization and qualified to do business in any
state where



                                       50
<PAGE>

the failure to be so qualified  reasonably  could be expected to have a Material
Adverse Change.

     (b) Set forth on Schedule 5.8(b), is a complete and accurate description of
the authorized capital Stock of Borrower, by class, and, as of the Closing Date,
a  description  of the  number of shares of each such  class that are issued and
outstanding.   Other  than  as  described  on  Schedule  5.8(b),  there  are  no
subscriptions,  options, warrants, or calls relating to any shares of Borrower's
capital  Stock,  including  any  right  of  conversion  or  exchange  under  any
outstanding  security or other  instrument.  Except as may be required to comply
with  Applicable  Gaming  Laws,  Borrower  is  not  subject  to  any  obligation
(contingent  or  otherwise)  to  repurchase  or otherwise  acquire or retire any
shares of its capital Stock or any security convertible into or exchangeable for
any of its capital Stock.

     (c) Set forth on  Schedule  5.8(c),  is a  complete  and  accurate  list of
Borrower's direct and indirect  Subsidiaries,  showing:  (i) the jurisdiction of
their  organization,  (ii) the  number  of shares  of each  class of common  and
preferred Stock authorized for each of such  Subsidiaries,  and (iii) the number
and the percentage of the  outstanding  shares of each such class owned directly
or indirectly  by Borrower.  All of the  outstanding  capital Stock of each such
Subsidiary has been validly issued and is fully paid and non-assessable.

     (d) Except as set forth on  Schedule  5.8(c),  there are no  subscriptions,
options,  warrants, or calls relating to any shares of Borrower's  Subsidiaries'
capital  Stock,  including  any  right  of  conversion  or  exchange  under  any
outstanding  security or other  instrument.  Except as may be required to comply
with Applicable  Gaming Laws,  neither  Borrower nor any of its  Subsidiaries is
subject to any  obligation  (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of  Borrowers'  Subsidiaries'  capital Stock or any
security convertible into or exchangeable for any such capital Stock.

     5.9 Due Authorization; No Conflict

     (a) The execution,  delivery, and performance by Borrower of this Agreement
and the Loan  Documents to which it is a party have been duly  authorized by all
necessary action on the part of Borrower.

     (b) The execution,  delivery, and performance by Borrower of this Agreement
and the Loan  Documents  to which it is a party do not and will not (i)  violate
any  provision  of federal,  state,  or local law or  regulation  applicable  to
Borrower, the Governing Documents of Borrower, or any order, judgment, or decree
of any court or other Governmental Authority binding on Borrower,  (ii) conflict
with,  result in a breach of, or constitute (with due notice or lapse of time or
both) a default under any material  contractual  obligation  of Borrower,  (iii)
result in or  require  the  creation  or  imposition  of any Lien of any  nature
whatsoever  upon any  properties  or assets of  Borrower,  other than  Permitted
Liens,  or (iv)  require  any  approval  of  Borrower's  interestholders  or any
approval or consent of any Person under any material  contractual  obligation of
Borrower.



                                       51
<PAGE>

     (c) Other than the filing of financing statements, fixture filings, Diamond
Jo Ship Mortgage and Mortgages,  the  execution,  delivery,  and  performance by
Borrower of this  Agreement and the Loan  Documents to which Borrower is a party
do not and will not require any registration with,  consent,  or approval of, or
notice to, or other  action  with or by,  any  Governmental  Authority  or other
Person.

     (d) This  Agreement  and the other Loan  Documents  to which  Borrower is a
party, and all other documents  contemplated  hereby and thereby,  when executed
and delivered by Borrower will be the legally valid and binding  obligations  of
Borrower,  enforceable  against  Borrower in  accordance  with their  respective
terms,  except as  enforcement  may be limited  by  equitable  principles  or by
bankruptcy, insolvency, reorganization,  moratorium, or similar laws relating to
or limiting creditors' rights generally.

     (e) The Lender's Liens are validly  created,  perfected,  and, after giving
effect to the Intercreditor Agreement, are first priority Liens, subject only to
Permitted Liens.

     5.10 Litigation. Other than those matters disclosed on Schedule 5.10, there
are no actions,  suits,  or  proceedings  pending or, to the best  knowledge  of
Borrower,   threatened  against  Borrower,  any  of  its  Subsidiaries,  or  any
Guarantor,  as  applicable,  except for (a)  matters  that are fully  covered by
insurance (subject to customary deductibles),  and (b) matters arising after the
Closing Date that, if decided adversely to Borrower, any such Subsidiary, or any
such Guarantor,  as applicable,  reasonably could not be expected to result in a
Material Adverse Change.

     5.11 No Material  Adverse  Change.  All  financial  statements  relating to
Borrower or any Guarantor (if any) that have been  delivered by Borrower or such
Guarantor  ( if any) to  Lender  have  been  prepared  in  accordance  with GAAP
(except,  in the  case  of  unaudited  financial  statements,  for  the  lack of
footnotes and being subject to year-end audit adjustments) and present fairly in
all material respects,  Borrower's or such Guarantor's (if any), as the case may
be, financial condition as of the date thereof and results of operations for the
period then ended.  There has not been a Material Adverse Change with respect to
Borrower or such Guarantor (if any), as applicable, since the date of the latest
financial  statements submitted to Lender on or before the Closing Date (or with
respect to any Guarantor, if any, as of the date on which such Guarantor becomes
a "Guarantor" hereunder).

     5.12 Fraudulent Transfer

     (a) Borrower is Solvent.

     (b) No transfer of property is being made by Borrower and no  obligation is
being incurred by Borrower in connection with the  transactions  contemplated by
this Agreement or the other Loan Documents with the intent to hinder,  delay, or
defraud either present or future creditors of Borrower.



                                       52
<PAGE>

     5.13 Employee Benefits.  None of Borrower, any of its Subsidiaries,  or any
of their ERISA Affiliates maintains or contributes to any Benefit Plan.

     5.14  Environmental  Condition.  Except as set forth on  Schedule  5.14 and
except with respect to any other matters that  individually  or in the aggregate
could not reasonably be expected to result in a Material Adverse Change,  (a) to
the best of Borrower's  knowledge,  none of Borrower's assets has ever been used
by  Borrower  or by  previous  owners or  operators  in the  disposal  of, or to
produce,  store, handle, treat, release, or transport,  any Hazardous Materials,
where such production, storage, handling, treatment, release or transport was in
violation, in any material respect, of applicable  Environmental Law, (b) to the
best of Borrower's  knowledge,  none of Borrower's properties or assets has ever
been  designated  or  identified  in any manner  pursuant  to any  environmental
protection statute as a Hazardous  Materials disposal site, (c) Borrower has not
received notice that a Lien arising under any  Environmental Law has attached to
any  revenues or to any Real  Property  owned or operated by  Borrower,  and (d)
Borrower has not received a summons,  citation,  notice,  or directive  from the
Environmental  Protection  Agency or any  other  federal  or state  governmental
agency concerning any action or omission by Borrower  resulting in the releasing
or disposing of Hazardous Materials into the environment.

     5.15 Brokerage  Fees.  Borrower has not utilized the services of any broker
or finder in connection  with Borrower's  obtaining  financing from Lender under
this Agreement and no brokerage commission or finders fee is payable by Borrower
in connection herewith.

     5.16  Intellectual  Property.  Borrower  owns,  or holds  licenses  in, all
material  trademarks,  trade names,  copyrights,  patents,  patent  rights,  and
licenses  that  are  necessary  to the  conduct  of its  business  as  currently
conducted.  Attached  hereto as Schedule 5.16 is a true,  correct,  and complete
listing of all material  patents,  patent  applications,  trademarks,  trademark
applications,  copyrights,  and copyright  registrations as to which Borrower is
the owner or is an exclusive licensee.

     5.17 Leases.  Borrower enjoys peaceful and undisturbed possession under all
leases  material to the business of Borrower and to which it is a party or under
which it is  operating.  All of such  leases  are  valid and  subsisting  and no
material default by Borrower exists under any of them.

     5.18  DDAs.  Set  forth  on  Schedule  5.18  are  all of  Borrower's  DDAs,
including,  with  respect to each  depository  (i) the name and  address of such
depository,  and (ii) the account  numbers of the accounts  maintained with such
depository.

     5.19  Complete  Disclosure.  All  factual  information  (taken  as a whole)
furnished  by or on behalf of  Borrower  in  writing  to Lender  (including  all
information  contained in the Schedules  hereto or in the other Loan  Documents)
for purposes of or in connection with this Agreement,  the other Loan Documents,
or any transaction contemplated herein or therein is, and all other such factual
information  (taken as a whole) hereafter  furnished by or on behalf of Borrower
in writing to Lender will be, true and accurate,  in all material  respects,  on
the date as of which such  information  is dated or certified and not incomplete
by omitting to



                                       53
<PAGE>

state  any fact  necessary  to make  such  information  (taken  as a whole)  not
misleading  in any material  respect at such time in light of the  circumstances
under which such information was provided. On the Closing Date, the Closing Date
Projections  represent,  and as of the date on which any other  Projections  are
delivered to Lender, such additional Projections represent Borrower's good faith
best estimate of its future performance for the periods covered thereby.

     5.20 Indebtedness. Set forth on Schedule P-1 is a true and complete list of
all Indebtedness of Borrower  outstanding  immediately prior to the Closing Date
that  is to  remain  outstanding  after  the  Closing  Date  and  such  Schedule
accurately  reflects the aggregate principal amount of such Indebtedness and the
principal terms thereof.

     5.21 Licenses and Permits. (a) (a) (i) All material licenses (including all
necessary Gaming  Licenses),  permits,  and consents and similar rights required
from any  federal,  state,  or local  governmental  body  (including  the Gaming
Authorities),  for  the  ownership,  use,  or  operation  of the  businesses  or
properties  now  owned  or  operated  by  Borrower  (including  the  Ice  Harbor
Facility),  have been  validly  issued  and are in full force and  effect;  (ii)
Borrower is in compliance,  in all material respects, with all of the provisions
thereof applicable to it; and (iii) none of such licenses,  permits, or consents
is  the  subject  of any  pending  or,  to the  best  of  Borrower's  knowledge,
threatened  proceeding  for  the  revocation,   cancellation,   suspension,   or
non-renewal  thereof.  As of the Closing Date (and as of each subsequent date on
which  Borrower  delivers  to Lender an updated  schedule  pursuant to Section 6
below),  set forth on Schedule  5.21 is a complete and accurate list of all such
licenses,  permits,  and consents  that are necessary  and  appropriate  for the
operation of Borrower's  businesses  (including  the operation of the Ice Harbor
Facility), and such schedule identifies the date by which an application for the
renewal of such  license,  permit,  or consent must be filed and  describes  the
status of each such pending application.

     (b) Borrower has obtained (i) all material licenses,  permits, and consents
necessary or appropriate to conduct its business and operations  (including that
located  at the Ice  Harbor  Facility)  and  (ii) as of the  Closing  Date,  all
required approvals from the Gaming Authorities of the transactions  contemplated
hereby and by the other Loan Documents.

     (c)  Borrower  owns or  possesses  all  patents,  trademarks,  trade names,
copyrights,  and other similar rights  necessary for the conduct of its business
as now carried on or proposed to be conducted, without any known conflict of the
rights of others.

     5.22 Gaming Corporation.  As of the Closing Date, Gaming Corporation has no
assets and no liabilities.

6. AFFIRMATIVE COVENANTS.

     Borrower  covenants and agrees that, so long as any credit  hereunder shall
be available and until full and final payment of the Obligations, Borrower shall
and shall cause each of its Subsidiaries to do all of the following:



                                       54
<PAGE>

     6.1  Accounting  System.  Maintain  a system  of  accounting  that  enables
Borrower to produce  financial  statements in accordance  with GAAP and maintain
records  pertaining to the Collateral  that contain  information as from time to
time  reasonably  may be  requested  by  Lender.  Borrower  also  shall  keep an
inventory reporting system that shows all additions, sales, claims, returns, and
allowances with respect to the Inventory.

     6.2 Collateral  Reporting.  Provide Lender with the following  documents at
the following times in form satisfactory to Lender: (a) copies of each report in
respect of Borrower's  business issued by a Gaming Authority or made by Borrower
to a Gaming  Authority  within 15 days of their  respective  issuance  or filing
date;  and (b)  copies  of all  operating  and  capital  budgets,  and all other
budgets,  summaries  of sources and uses of funds,  projections,  and  financial
information  prepared by or on behalf of Borrower  (including  in respect of any
casino operated by Borrower)  promptly upon the preparation and delivery thereof
by the chief financial  officer of Borrower to any third party, but in any event
operating and capital  budgets  shall be delivered to Lender no less  frequently
than annually.

     In addition,  Borrower  agrees to cooperate fully with Lender to facilitate
and  implement a system of electronic  collateral  reporting in order to provide
electronic reporting of each of the items set forth above.

     6.3 Financial Statements, Reports, Certificates. Deliver to Lender:

     (a) as soon as  available,  but in any event within 30 days (45 days in the
case of a  month  that is the end of one of the  first 3  fiscal  quarters  in a
fiscal  year  and 90 days in the case of a month  that is the end of the  fiscal
year) after the end of each month during each of Borrower's fiscal years,

          (i) a company prepared  consolidated  balance sheet, income statement,
     and  statement  of cash  flow  covering  Borrower's  and its  Subsidiaries'
     operations during such period,

          (ii) a certificate  signed by the chief financial  officer of Borrower
     to the effect that:

               A.  the  financial   statements  delivered  hereunder  have  been
          prepared in accordance with GAAP (except for the lack of footnotes and
          being subject to year-end audit adjustments) and fairly present in all
          material  respects  the  financial   condition  of  Borrower  and  its
          Subsidiaries,

               B. the  representations  and warranties of Borrower  contained in
          this  Agreement  and the other Loan  Documents are true and correct in
          all material  respects on and as of the date of such  certificate,  as
          though  made on and as of such date  (except to the  extent  that such
          representations and warranties relate solely to an earlier date), and



                                       55
<PAGE>

               C. there does not exist any condition or event that constitutes a
          Default or Event of Default (or, to the extent of any  non-compliance,
          describing  such  non-compliance  as to  which  he  or  she  may  have
          knowledge and what action Borrower has taken,  is taking,  or proposes
          to take with respect thereto), and

          (iii) for each month that is the date on which a financial covenant in
     Section 7.20 is to be tested, a Compliance  Certificate  demonstrating,  in
     reasonable detail, compliance at the end of such period with the applicable
     financial covenants contained in Section 7.20, and

     (b) as soon as available,  but in any event within 90 days after the end of
each of Borrower's fiscal years,

          (i)  financial  statements of Borrower and its  Subsidiaries  for each
     such fiscal  year,  audited by  independent  certified  public  accountants
     reasonably acceptable to Lender and certified,  without any qualifications,
     by such  accountants  to have been prepared in  accordance  with GAAP (such
     audited financial  statements to include a balance sheet, income statement,
     and statement of cash flow and, if prepared,  such  accountants'  letter to
     management),

          (ii) a certificate  of such  accountants  addressed to Lender  stating
     that such accountants do not have knowledge of the existence of any Default
     or Event of Default under Section 7.20,

     (c) as soon as  available,  but in any event  within  30 days  prior to the
start of each of Borrower's fiscal years,

          (i) copies of Borrower's Projections, in form and substance (including
     as to scope and  underlying  assumptions)  satisfactory  to Lender,  in its
     Permitted  Discretion,  for the forthcoming 3 years,  year by year, and for
     the  forthcoming  fiscal  year,  month by  month,  certified  by the  chief
     financial  officer  of  Borrower  as being such  officer's  good faith best
     estimate of the financial performance of Borrower during the period covered
     thereby,

     (d) if and when filed by Borrower,

          (i) Form 10-Q quarterly  reports,  Form 10-K annual reports,  and Form
     8-K current reports,

          (ii) any other filings made by Borrower with the SEC,

          (iii)  copies  of  Borrower's  federal  income  tax  returns,  and any
     amendments thereto, filed with the Internal Revenue Service, and



                                       56
<PAGE>

          (iv)  any  other  information  that is  provided  by  Borrower  to its
     shareholders generally,

     (e) if and when filed by Borrower and as requested by Lender,  satisfactory
evidence of payment of applicable  excise taxes in each  jurisdictions  in which
(i) Borrower  conducts  business or is required to pay any such excise tax, (ii)
where Borrower's failure to pay any such applicable excise tax would result in a
Lien on the properties or assets of Borrower,  or (iii) where Borrower's failure
to pay any such applicable  excise tax reasonably could be expected to result in
a Material Adverse Change,

     (f) as soon as  Borrower  has  knowledge  of any  event or  condition  that
constitutes a Default or an Event of Default,  notice thereof and a statement of
the curative action that Borrower proposes to take with respect thereto, and

     (g) upon the  request  of Lender,  any other  report  reasonably  requested
relating to the financial condition of Borrower.

     In addition to the financial statements referred to above,  Borrower agrees
to deliver to Lender within 5 business days of the end of each month, Borrower's
calculation of its EBITDA and financial statements,  as well as a Borrowing Base
Certificate,  prepared on both a consolidated  and  consolidating  basis for the
immediately preceding month. Borrower agrees that no Subsidiary of Borrower will
have a fiscal year  different  from that of Borrower.  Borrower  agrees that its
independent  certified  public  accountants  are authorized to communicate  with
Lender  and to  release  to Lender  whatever  financial  information  concerning
Borrower  Lender  reasonably may request.  Borrower waives the right to assert a
confidential  relationship,  if any,  it may have  with any  accounting  firm or
service bureau in connection with any  information  requested by Lender pursuant
to or in  accordance  with this  Agreement,  and agrees  that Lender may contact
directly  any such  accounting  firm or service  bureau in order to obtain  such
information.

     6.4 Guarantor  Reports.  Cause any Guarantor of any of the  Obligations  to
deliver its annual financial  statements at the time when Borrower  provides its
audited  financial  statements  to Lender and copies of all  federal  income tax
returns as soon as the same are available and in any event no later than 30 days
after the same are required to be filed by law.

     6.5 Permitted Investment in Gaming Management

     Provide  Lender with (a) written  notice of Borrower's  intention to make a
Permitted  Investment  in  Gaming  Management  in  advance  of  making  any such
Permitted  Investment,  (b) written notice of Borrower's Permitted Investment in
Gaming Management promptly upon making any such Permitted Investment, (c) copies
of any  and all  documents  relating  to such  Permitted  Investment  in  Gaming
Management  promptly upon the  execution  and delivery of such  documents by the
parties to such Permitted Investment,  and (d) written notice describing any and
all Collateral Borrower receives in connection with such Permitted Investment in
Gaming Management promptly upon the receipt thereof.



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<PAGE>

     6.6  Maintenance of  Properties.  Maintain and preserve all of its material
properties  which are necessary or useful in the proper  conduct to its business
in good  working  order and  condition,  ordinary  wear and tear  excepted,  and
comply,  in all  material  respects,  at all times  with the  provisions  of all
material  leases to which it is a party as lessee so as to  prevent  any loss or
forfeiture thereof or thereunder.

     6.7 Taxes.  Cause all assessments  and taxes,  whether real,  personal,  or
otherwise,  due or payable by, or imposed,  levied, or assessed against Borrower
or any of its  assets  to be paid in full,  before  delinquency  or  before  the
expiration  of any extension  period,  except to the extent that the validity of
such  assessment  or tax shall be the subject of a Permitted  Protest.  Borrower
will make timely  payment or deposit of all tax payments and  withholding  taxes
required of it by applicable  laws,  including those laws  concerning  F.I.C.A.,
F.U.T.A.,  state  disability,  and local,  state,  and federal income taxes, and
will, upon request,  furnish Lender with proof satisfactory to Lender indicating
that  Borrower  has made such  payments  or  deposits.  Borrower  shall  deliver
satisfactory   evidence  of  payment  of   applicable   excise   taxes  in  each
jurisdictions in which Borrower is required to pay any such excise tax.

     6.8 Insurance.

     (a)  At  Borrower's  expense,  maintain  insurance  respecting  its  assets
wherever  located,  covering loss or damage by fire, theft,  explosion,  and all
other  hazards  and risks as  ordinarily  are insured  against by other  Persons
engaged in the same or similar businesses. Borrower also shall maintain business
interruption,  public  liability,  and product liability  insurance,  as well as
insurance against larceny, embezzlement, and criminal misappropriation.

     (b) At  Borrower's  expense,  obtain and maintain (i) insurance of the type
necessary to insure the Real Property Collateral,  for the full replacement cost
thereof,  against  any  loss by fire,  lightning,  windstorm,  hail,  explosion,
aircraft,  smoke damage, vehicle damage,  earthquakes,  elevator collision,  and
other risks from time to time included under  "extended  coverage"  polices,  in
such  amounts  as Lender  may  reasonably  require,  but in any event in amounts
sufficient to prevent  Borrower from becoming a co-insurer  under such policies,
(ii) combined single limit bodily injury and property damages  insurance against
any loss,  liability,  or damages on, about,  or relating to each parcel of Real
Property  Collateral,  in such  amounts  as may be  reasonably  satisfactory  to
Lender;  (iii) business rental insurance covering annual receipts for a 12-month
period for each parcel of Real Property Collateral;  and (iv) insurance for such
other risks as Lender  reasonably may require.  Replacement  costs,  at Lender's
option, may be re-determined by an insurance appraiser,  reasonably satisfactory
to Lender, not more frequently than once every 12 months at Borrower's cost.

     (c) All such  policies of insurance  shall be in such amounts and with such
insurance  companies as are  reasonably  satisfactory  to Lender.  All insurance
required  herein  shall be  written  by  companies  which are  authorized  to do
insurance  business in the State of Iowa. All hazard  insurance shall contain an
endorsement  reasonably  satisfactory to



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<PAGE>

Lender  showing  Lender as the loss payee  thereof as its  interest  may appear.
Every  policy of  insurance  referred to in this  Section  6.8 shall  contain an
agreement  by the insurer  that it will not cancel such policy  except  after 30
days prior written notice to Lender (or, in the case of non-payment of premiums,
10 days) and that any loss payable  thereunder shall be payable to Lender as its
interest may appear notwithstanding any act or omission of Borrower which might,
absent  such  agreement,  result  in a  forfeiture  of  all or a  part  of  such
insurance. Borrower shall deliver to Lender certified copies of such policies of
insurance and evidence of the payment of all premiums therefor.

     (d) Borrower  shall give Lender  prompt  notice of any loss covered by such
insurance  policies  or of any loss  relating  to a  condemnation  or  taking by
eminent domain.  Any monies received as payment of any award or compensation for
condemnation  or taking by  eminent  domain,  shall be paid over to Lender to be
applied to the prepayment of the Obligations. In each case where the amount of a
loss covered by the  insurance  policies  referenced  above in Sections  6.8(a),
6.8(b) and 6.8(c) is to be determined, it shall be mutually agreed upon, in good
faith,  by Borrower  and Lender and if  Borrower  and Lender are unable to reach
such agreement within 30 days of the date of the loss, it shall be determined by
Lender in its Permitted Discretion.  Borrower and Lender agree that the right to
make any adjustment of any losses covered by such insurance and the distribution
and application of monies received for losses covered by such insurance shall be
as follows:

          (i) If an Event of Default  has  occurred  and is  continuing,  Lender
     shall have the exclusive  right to adjust any losses payable under any such
     insurance policies, without any liability to Borrower whatsoever in respect
     of such adjustments, and shall have the option to apply any monies received
     as payment for any loss under any insurance  policy  (other than  liability
     insurance).

          (ii) If no Event of Default has occurred and is continuing:

               (A) Borrower shall have the exclusive  right to adjust any losses
          payable under any such insurance  policies and receive from Lender any
          monies  Lender has  received  as  payment  for any loss under any such
          policies  where  (1) the  amount of such loss is less than or equal to
          $1,000,000, (2) the amount of such loss is greater than $1,000,000 but
          less than or equal to $3,000,000 and the amount of the  Obligations on
          the date of such loss is less than or equal to $7,500,000,  or (3) the
          amount of such loss is greater than  $3,000,000 but less than or equal
          to $7,500,000  and the amount of the  Obligations  on the date of such
          loss is less than or equal to the amount of such loss; and



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<PAGE>

               (B) In all other  circumstances,  Lender shall have the exclusive
          right to adjust any losses payable under any such insurance  policies,
          without  any  liability  to  Borrower  whatsoever  in  respect of such
          adjustments, and shall have the option to apply any monies received as
          payment for any loss under any such policies  either to the prepayment
          of the  Obligations  or to  the  cost  of  repairs,  replacements,  or
          restorations of the damaged or destroyed  property by disbursing funds
          to Borrower in accordance with the terms of Section 6.8(e).

          (iii)Any monies Lender receives as payment for any loss under any such
     insurance  policy in excess of the amount of the Obligations on the date of
     such payment shall be distributed promptly to Borrower.

     (e) Borrower  acknowledges  and agrees that Lender shall have no obligation
to disburse any insurance  proceeds  received by Lender following the occurrence
of a casualty loss to Borrower for the repair,  replacement,  or  restoration of
the items of property damaged or destroyed unless (i) Lender shall have received
and approved, in its Permitted Discretion,  a written plan from Borrower for the
repair,  replacement  or  restoration  of the items of property  destroyed  (the
"Restoration   Plan"),  and  (ii)  the  following  conditions  shall  have  been
satisfied:  (A) no  Default  or Event of  Default  shall  have  occurred  and be
continuing or result from any such Advance or disbursement of monies received as
payment for any loss, (B) Borrower has cash, Cash  Equivalents,  Availability or
business  interruption  insurance  proceeds in amounts  sufficient,  in Lender's
reasonable judgment, to ensure that Borrower will be able to make payment as and
when due of each of its  Obligations  that will be payable  during the period of
such repair,  replacement,  or restoration,  (C) Lender is reasonably  satisfied
that the amount of such  cash,  Cash  Equivalents,  Availability,  or  insurance
proceeds will be sufficient  fully to repair,  replace,  or restore the affected
assets,  (D)  completion  of the  repair,  replacement,  or  restoration  of the
affected assets is to be completed in accordance with the Restoration  Plan, (E)
completion of the repair,  replacement,  or  restoration  shall be effected with
reasonable promptness and shall be of a value (the "Replaced Value") that is (1)
at least equal to the replacement  value (the  "Destroyed  Value") of the assets
destroyed prior to such  destruction,  or (2) of a value less than the Destroyed
Value so long as the  difference  between the  Destroyed  Value and the Replaced
Value is applied to the prepayment of the Obligations  without premium,  and (F)
all monies  paid by  Borrower  to Lender may be  commingled  with other funds of
Lender and will not bear interest pending disbursement hereunder.

     (f) Borrower  will not take out separate  insurance  concurrent  in form or
contributing in the event of loss with that required to be maintained under this
Section 6.8,  unless  Lender is included  thereon as named insured with the loss
payable to Lender under a lender's loss payable  endorsement or its  equivalent.
Borrower  immediately  shall notify Lender  whenever such separate  insurance is
taken out,  specifying  the insurer  thereunder  and full  particulars as to the
policies  evidencing  the same,  and copies of such policies  promptly  shall be
provided to Lender.



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<PAGE>

     6.9 Location of Inventory and  Equipment.  Keep the Inventory and Equipment
only at the  locations  identified  on Schedule  5.5;  provided,  however,  that
Borrower  may amend  Schedule  5.5 so long as such  amendment  occurs by written
notice to Lender not less than 30 days prior to the date on which  Inventory  or
Equipment is moved to such new location,  so long as such new location is within
the  continental  United  States,  and so long as,  at the time of such  written
notification,  Borrower  provides any financing  statements  or fixture  filings
necessary to perfect and continue perfected the Lender's Liens on such assets.

     6.10 Compliance with Laws.  Comply with the  requirements of all applicable
laws, rules,  regulations,  and orders of any Governmental Authority,  including
the Fair Labor Standards Act and the Americans With Disabilities Act, other than
laws, rules, regulations, and orders the non-compliance with which, individually
or in the aggregate, would not result in and reasonably could not be expected to
result in a Material Adverse Change.

     6.11 Leases.  Pay when due all rents and other  amounts  payable  under any
leases to which Borrower is a party or by which Borrower's properties and assets
are bound, unless such payments are the subject of a Permitted Protest.

     6.12 Brokerage Commissions. Pay any and all brokerage commission or finders
fees  incurred  by  Borrower  in  connection  with or as a result of  Borrower's
obtaining  financing from Lender under this Agreement,  other than a broker that
Lender may have retained.  Borrower agrees and acknowledges  that payment of all
such brokerage  commissions or finders fees shall be the sole  responsibility of
Borrower,  and Borrower  agrees to indemnify,  defend,  and hold Lender harmless
from and  against any claim of any broker or finder  arising  out of  Borrower's
obtaining financing from Lender under this Agreement.

     6.13  Existence.  At all times  preserve  and keep in full force and effect
Borrower's  valid  existence  and good  standing  and any rights and  franchises
material to Borrower's businesses, including those that relate to the Ice Harbor
Facility.

     6.14  Environmental.  (a) Keep any  property  either  owned or  operated by
Borrower  free of any  Environmental  Liens or post  bonds  or  other  financial
assurances  sufficient to satisfy the obligations or liability evidenced by such
Environmental  Liens, (b) comply, in all material  respects,  with Environmental
Laws and  provide  to  Lender  documentation  of such  compliance  which  Lender
reasonably  requests,  (c) promptly  notify Lender of any release of a Hazardous
Material in any  reportable  quantity from or onto property owned or operated by
Borrower  and take any  Remedial  Actions  required  to abate  said  release  or
otherwise to come into  compliance with  applicable  Environmental  Law, and (d)
promptly provide Lender with written notice within 10 days of the receipt of any
of the following:  (i) notice that an Environmental  Lien has been filed against
any of the real or  personal  property of  Borrower,  (ii)  commencement  of any
Environmental  Action  or  notice  that an  Environmental  Action  will be filed
against  Borrower,  and  (iii)  notice  of  a  violation,   citation,  or  other
administrative  order which reasonably could be expected to result in a Material
Adverse Change.



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<PAGE>

     6.15  Disclosure  Updates.  Promptly  and in no event later than 5 Business
Days  after  obtaining  knowledge  thereof,  (a)  notify  Lender if any  written
information,  exhibit,  or report  furnished  to  Lender  contained  any  untrue
statement of a material fact or omitted to state any material fact  necessary to
make  the  statements   contained   therein  not  misleading  in  light  of  the
circumstances  in which  made,  and (b)  correct any defect or error that may be
discovered therein or in any Loan Document or in the execution, acknowledgement,
filing, or recordation thereof.

     6.16 Government Authorization. Borrower shall deliver to Lender, as soon as
practicable, and in any event within ten (10) days after the receipt by Borrower
from any Gaming Authority or other  Governmental  Authority having  jurisdiction
over the  operations  of Borrower  (including  the  operations at the Ice Harbor
Facility)  or filing or receipt  thereof by Borrower  (i) copies of any order or
notice of such Gaming Authority or such other Governmental Authority or court of
competent  jurisdiction  which  designates  any Gaming License or other material
franchise,  permit, or other governmental operating authorization of Borrower or
any  application  therefor,  for a hearing or which refuses renewal or extension
of, or revokes or suspends the authority of Borrower to construct,  own, manage,
or operate  its  businesses,  including  the Ice  Harbor  Facility  (or  portion
thereof), and (ii) a copy of any competing application filed with respect to any
such  Gaming  License  or  other  authorization,  or  application  therefor,  of
Borrower, or any citation, notice of violation, or order to show cause issued by
any Gaming Authority or other  governmental  authority or any complaint filed by
any Gaming  Authority  or other  governmental  authority  which is  available to
Borrower.

     6.17 License  Renewals.  Commencing  on the date six months  following  the
Closing Date and continuing every six months thereafter,  Borrower shall deliver
to Lender an updated  Schedule 5.21 reflecting  thereon,  as of the date of such
delivery, the information described in Section 5.21.

     6.18 Licenses and Permits. (a) Ensure that all material licenses (including
all  necessary  Gaming  Licenses),  permits,  and  consents  and similar  rights
required from any federal,  state,  or local  governmental  body  (including the
Gaming  Authorities)  for the ownership,  use, or operation of the businesses or
properties now owned or operated by Borrower, including the Ice Harbor Facility,
have been validly  issued and are in full force and effect,  and (b) comply,  in
all material respects, with all of the provisions thereof applicable to it.

     6.19  Subsidiary  Guarantees.  Borrower  shall  cause  (i) each  Restricted
Subsidiary  of  Borrower  that is formed  or  acquired  after  the date  hereof,
concurrently  therewith,  to (ii) become a Guarantor  hereunder  and execute and
deliver to Lender a Guaranty pursuant to which such Restricted  Subsidiary shall
unconditionally guarantee all of the Obligations;  and (iii) execute a Guarantor
Security  Agreement  and  such  other  agreements  or  documents   necessary  or
reasonably requested by Lender to grant Lender a valid,  enforceable,  perfected
Lien on the collateral  described therein,  subject only to Permitted Liens; and
(iv)  cause  such  Restricted  Subsidiary  to  deliver  to Lender an  opinion of
counsel,  in form  reasonably



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<PAGE>

satisfactory to Lender, that (i) such guaranty,  security,  agreement, and other
agreements  and documents have been duly  authorized,  executed and delivered by
such Restricted Subsidiary and (ii) such guaranty,  security agreement, and such
other  agreements  and  documents   constitute  a  legal,  valid,   binding  and
enforceable  obligation  of such  Restricted  Subsidiary,  subject to  customary
assumptions and exceptions,  including for bankruptcy,  fraudulent  transfer and
equitable principles.

7. NEGATIVE COVENANTS.

     Borrower  covenants and agrees that, so long as any credit  hereunder shall
be available and until full and final payment of the Obligations,  Borrower will
not and will not  permit  any of its  Restricted  Subsidiaries  to do any of the
following:

     7.1 Indebtedness.  Create, incur, assume, permit,  guarantee,  or otherwise
become  or  remain,   directly  or  indirectly,   liable  with  respect  to  any
Indebtedness,  except for Permitted  Indebtedness  and except as permitted under
Section 7.6 hereof. The foregoing to the contrary notwithstanding,  Borrower may
incur  Indebtedness  (including,  without  limitation,  Acquired  Debt)  if  (a)
Borrower's  Interest Coverage Ratio for Borrower's most recently ended four full
fiscal   quarters  for  which  internal   financial   statements  are  available
immediately preceding the date on which such additional Indebtedness is incurred
would  have  been  not  less  than  2.0:1.0,  determined  on a pro  forma  basis
(including the pro forma application of the net proceeds therefrom),  as if such
additional  Indebtedness had been incurred at the beginning of such four-quarter
period, (b) the final stated maturity of such Indebtedness is after the Maturity
Date (except for Purchase Money Indebtedness,  Capitalized Lease Obligations, or
Acquired  Debt),  and  (c) no  Event  of  Default  shall  have  occurred  and be
continuing and no Referendum  Determination Date shall have occurred at the time
such Indebtedness is incurred, or would occur after giving effect on a pro forma
basis to such incurrence.

     7.2  Liens.  Create,  incur,  assume,  or  permit  to  exist,  directly  or
indirectly,  any Lien on or with  respect  to any of its  assets,  of any  kind,
whether now owned or  hereafter  acquired,  or any income or profits  therefrom,
except as to Subsidiaries other than Peninsula Gaming Corporation, for Permitted
Liens  (including  Liens that are  replacements of Permitted Liens to the extent
that the original Indebtedness is refinanced,  renewed, or extended under clause
(i) of the definition of "Permitted Indebtedness" and so long as the replacement
Liens only  encumber  those  assets that  secured the  refinanced,  renewed,  or
extended Indebtedness).

     7.3   Restrictions   on  Fundamental   Changes.   Enter  into  any  merger,
consolidation,  reorganization, or recapitalization, or reclassify its Stock, or
liquidate,   wind  up,  or  dissolve   itself  (or  suffer  any  liquidation  or
dissolution), or convey, sell, assign, lease, transfer, or otherwise dispose of,
in one transaction or a series of transactions,  all or substantially all of its
property  or  assets;   provided,   however,  that,  so  long  as  a  Referendum
Determination Date has not occurred:

     (a)  Borrower  or any  Restricted  Subsidiary  may  enter  into a merger or
consolidation so long as:



                                       63
<PAGE>

          (i) Borrower or such  Restricted  Subsidiary,  as  applicable,  is the
     surviving Person;

          (ii)  immediately  after giving  effect to such  transaction  on a pro
     forma basis, no Default or Event of Default exists;

          (iii) such  transaction  would not result in the loss or suspension or
     material  impairment of any Gaming License unless a comparable  replacement
     Gaming  License is  effective  prior to or  simultaneously  with such loss,
     suspension, or material impairment;

          (iv) (i) Borrower has  Consolidated Net Worth  (immediately  after the
     transaction but prior to any purchase accounting adjustments resulting from
     the  transaction)  equal to or greater than the  Consolidated  Net Worth of
     Borrower immediately  preceding such transaction,  and (ii) Borrower had an
     Interest  Coverage  Ratio of not less than  2.0:1.0 for the period from the
     date  hereof  to,  but  not  including,   January  1,  2003,  and  2.25:1.0
     thereafter,  in each case,  for  Borrower's  most recently  ended four full
     fiscal  quarters for which  internal  financial  statements  are  available
     immediately  preceding  the date of such  transaction  and after giving pro
     forma effect thereto as if such  transaction  had occurred at the beginning
     of the applicable four-quarter period; and

          (v) Borrower or such Restricted  Subsidiary,  as applicable,  prior to
     the  consummation  of any proposed  transaction,  shall deliver to Lender a
     certificate  of an officer of Borrower or such  Restricted  Subsidiary,  as
     applicable,  to the foregoing effect,  an opinion of counsel,  stating that
     all conditions  precedent to the proposed  transaction  provided for herein
     have been complied with and a written  statement from a firm of independent
     public   accountants  of   established   national   reputation   reasonably
     satisfactory  to Lender that the  proposed  transaction  complies  with the
     foregoing clause (iv).

     (b) Borrower or any Restricted Subsidiary may sell, transfer, assign, lease
or otherwise dispose of its assets in a transaction that is permitted by Section
7.4; and

     (c) Any  Restricted  Subsidiary  may  liquidate  or  dissolve  if  Borrower
determines in good faith that such  liquidation  or  dissolution  is in the best
interests of Borrower and is not materially disadvantageous to Lender.

     7.4 Ownership and Disposal of Assets

     (a) Make any  sale,  lease,  exchange,  or other  disposition,  in one or a
series of related transactions,  of all or any portion of the assets of Borrower
that compose the Ice Harbor Facility;



                                       64
<PAGE>

     (b) Make any Asset Sale, provided,  however, that an Asset Sale may be made
(other than an Asset Sale  comprised  of any assets that  compose the Ice Harbor
Facility) if:

          (i) no  Default  or  Event  of  Default  shall  have  occurred  and be
     continuing  or would  result  therefrom  (other  than a Default or Event of
     Default  arising  from an Asset Sale that is a  consequence  of an Event of
     Loss) and no Referendum Determination Date shall have occurred;

          (ii) Borrower or such Restricted Subsidiary,  as applicable,  receives
     consideration  of not less than the fair  market  value,  as of the time of
     such  Asset  Sale,  of the assets  that are the  subject of such Asset Sale
     (other than an Asset Sale that is a consequence of an Event of Loss);

          (iii) Borrower or such Restricted Subsidiary, as applicable,  receives
     75% of the consideration for such Asset Sale (other than an Asset Sale that
     is a  consequence  of an  Event  of  Loss)  in the  form  of  cash  or Cash
     Equivalents or the assumption by the transferee of liabilities  (other than
     liabilities  that, by their terms,  are subordinated to the Obligations) of
     Borrower or such  Restricted  Subsidiary,  as  applicable  (provided,  that
     following  such Asset Sale there is no further  recourse to Borrower or its
     Restricted Subsidiaries with respect to such liabilities);

          (iv) within 270 days of such Asset Sale, the Net Proceeds  thereof are
     (A)  invested  in  assets  related  to  the  business  of  Borrower  or its
     Restricted  Subsidiaries  (which,  in the case of a sale of a Gaming Vessel
     (as that term is defined in the Indenture) must be a Gaming Vessel having a
     fair market  value,  as determined by an  independent  appraisal,  at least
     equal  to the  fair  market  value  of the  Gaming  Vessel  being  replaced
     immediately  preceding the Asset Sale),  (B) applied to repay  Indebtedness
     under Purchase Money  Indebtedness  secured by the assets sold, (C) applied
     to repay  Indebtedness  under this Agreement and to permanently  reduce the
     Maximum Revolver Amount by the amount of Indebtedness so repaid, or (D) any
     combination of clauses (A), (B), or (C); and

          (v) the Net  Proceeds of any Asset Sale  involving a  condemnation  or
     taking by eminent  domain are paid over to Lender in  conformance  with the
     requirements of Section 6.8(d) hereof;

     (c) Pending the final  application of any Net Proceeds of any Asset Sale in
accordance  with Section  7.4(b),  Borrower shall apply such Net Proceeds to the
outstanding Obligations or retain such Net Proceeds, in each case, in accordance
with the terms hereof.

     7.5 Change Name.  Change  Borrower's name, FEIN,  corporate  structure,  or
identity,  or add any new fictitious name; provided,  however, that Borrower may
change  its name upon



                                       65
<PAGE>

at least 30 days prior  written  notice to Lender of such change and so long as,
at the  time of such  written  notification,  Borrower  provides  any  financing
statements or fixture  filings  necessary to perfect and continue  perfected the
Lender's Liens.

     7.6 Guarantee. Guarantee or otherwise become in any way liable with respect
to the obligations of any third Person except (a) by, endorsement of instruments
or items of  payment  for  deposit  to the  account  of  Borrower  or which  are
transmitted or turned over to Lender, (b) guarantees by Subsidiaries of Borrower
of the  obligations of Borrower  under the Indenture  provided that (i) any such
Subsidiary  shall have  guaranteed the  Obligations  in accordance  with Section
6.20, and (ii) such guarantee of the  obligations  under the Indenture  shall be
subordinate  in right of payment to such  guarantee of the  Obligations on terms
and conditions  reasonably  satisfactory to Lender, (c) guarantees  constituting
Investments  permitted  under  Section  7.13,  and (d)  guarantees  constituting
Indebtedness permitted under Section 7.1.

     7.7 Nature of  Business.  Directly  or  indirectly  engage to any  material
extent in any line or lines of business  activity other than that which,  in the
reasonable  good  faith  judgment  of the  Managers  of  Borrower,  is a Related
Business.

     7.8 Prepayments and Amendments.

     (a) Except in connection with a refinancing  permitted by clause (i) of the
definition of Permitted Indebtedness,  except as may be necessary to comply with
mandatory  provisions of Applicable Gaming Laws (including a Required Regulatory
Redemption in accordance with Section 3.8 of the Indenture), and except (so long
as no Event of Default has  occurred and is  continuing)  as may be necessary to
comply with Section 4.20 of the  Indenture,  prepay,  redeem,  retire,  defease,
purchase,  or otherwise acquire any Indebtedness of Borrower or its Subsidiaries
owing to any third Person,  other than the  Obligations in accordance  with this
Agreement; and

     (b) Except as may be  necessary  to comply  with  mandatory  provisions  of
Applicable Gaming Laws, directly or indirectly,  amend, modify, alter, increase,
or change  any of the  terms or  conditions  of (i) any  Senior  Note  Document,
provided,  however,  that  additional  Notes may be issued pursuant to the terms
thereof to the  extent the  Indebtedness  evidenced  by such Notes is  permitted
hereunder,  (ii) the Operating  Agreement and the  Certificate  of  Designation,
(iii) the Consulting Agreements,  or (iv) any agreement,  instrument,  document,
indenture,  or other writing evidencing or concerning (A) Indebtedness permitted
under  clause  (f)  of  the  definition  of  "Permitted  Indebtedness",  or  (B)
Indebtedness  refinanced  in  accordance  with clause (i) of the  definition  of
"Permitted  Indebtedness" in respect of any Indebtedness  permitted under clause
(f) of the  definition  of  "Permitted  Indebtedness",  if the  effect  of  such
amendment,  modification,  alteration,  or change would materially  increase the
obligations of Borrower or its Subsidiaries or confer additional material rights
on the  holder  of such  Indebtedness  in a  manner  adverse  to  Borrower,  its
Subsidiaries, or Lender.



                                       66
<PAGE>

     7.9 Change of Control.  Cause,  permit, or suffer,  directly or indirectly,
any Change of Control.

     7.10 Consignments.  Consign any Inventory or sell any Inventory on bill and
hold, sale or return, sale on approval, or other conditional terms of sale.

     7.11 Distributions. Except as set forth in Sections 7.13 and 7.22, make any
distribution  or declare or pay any dividends (in cash or other property) on, or
purchase,  acquire,  redeem,  or retire any of Borrower's  Stock,  of any class,
whether now or  hereafter  outstanding  (collectively,  "Restricted  Payments");
provided, however, that:

     (a) Borrower may redeem, purchase,  retire, or otherwise acquire Borrower's
Stock in exchange for, or out of the proceeds of, the  substantially  concurrent
sale (other than to a Subsidiary of Borrower) of, other Stock of Borrower (other
than Disqualified Capital Stock of Borrower),

     (b) so long as no Event of Default has  occurred and is  continuing  and no
Referendum  Determination  Date has  occurred,  Borrower  may redeem,  purchase,
retire, or otherwise acquire for value up to $3,000,000 of its Seller Preferred,

     (c)  Borrower may pay  dividends  and make  distributions  payable in Stock
(other than Disqualified Capital Stock) of Borrower;

     (d) Restricted  Subsidiaries  may make  distributions  and pay dividends to
Borrower or to other Restricted Subsidiaries,

     (e) so long as no Event of Default has  occurred and is  continuing  and no
Referendum  Determination Date has occurred,  Borrower may pay dividends or make
distributions in an aggregate amount not to exceed $1,000,000 during the term of
this Agreement,

     (f) so long as no Referendum Determination Date has occurred,  Borrower may
pay dividends within 30 days of the date of declaration thereof, if at such date
of declaration such payment was permitted by the terms of this Agreement,

     (g) Borrower may reimburse  Gaming Partners for reasonable tax preparation,
accounting,  and legal fees and  expenses  incurred on behalf of Borrower or its
Restricted  Subsidiaries  or in connection  with Gaming  Partners'  ownership of
Borrower, consistent with industry practice;

     (h)  Borrower  may pay (i)  reasonable  and  customary  directors  fees to,
provide an indemnity on behalf of, and pay customary reimbursement of travel and
similar expenses incurred in the ordinary course of business to, the Managers of
Gaming Partners and Borrower,  (ii) the compensation  owed to officers of Gaming
Partners  pursuant to, and in accordance  with, the Consulting  Agreements,  and
(iii) the reasonable and customary  compensation owed to officers,  directors or
consultants of Gaming Partners,  Borrower or any



                                       67
<PAGE>

Restricted  Subsidiary,  in each case for  services  provided to Borrower or any
Restricted  Subsidiary,  as determined in good faith by the management or senior
executives of Borrower,  provided,  however, that, if a Referendum Determination
Date occurs, such compensation payments shall not exceed (i) an aggregate amount
of  $187,500  in the  fiscal  quarter  of  Borrower  in  which  such  Referendum
Determination  Date  occurs,  and  (ii) in any  fiscal  quarter  thereafter,  an
aggregate amount equal to $187,500 (the "Permitted  Quarterly  Payment") plus an
amount equal to 100% of the aggregate unused portion of the Permitted  Quarterly
Payments for any immediately  preceding four fiscal quarters,  but excluding any
such  fiscal  quarters  prior to the  fiscal  quarter  in which  the  Referendum
Determination Date occurs; provided,  however, that such amount shall not exceed
the aggregate amount of $750,000 in any rolling twelve month period.

     (i) so long as no Event of Default  shall have  occurred and be  continuing
and no Referendum  Determination Date shall have occurred,  Borrower may pay the
Refinancing  Fee (as that term is defined in the Indenture) in connection with a
refinancing, redemption or repayment of the Notes; and

     (j) the  foregoing to the contrary  notwithstanding,  Borrower may make any
other  Restricted  Payments not permitted by subsections (a) through (i) of this
Section 7.11 if a Referendum Determination Date shall not have occurred and:

          (i) Borrower's  Interest  Coverage Ratio for Borrower's  most recently
     ended four full fiscal quarters for which internal financial statements are
     available  immediately  preceding  the date on which such  dividend is made
     would have been not less than  2.0:1.0  for the period from the date hereof
     to, but not including,  January 1, 2003, and 2.25:1.0  thereafter,  in each
     case, determined on a pro forma basis, as if such dividend had been made at
     the beginning of such four-quarter period;

          (ii) no Event of Default  shall have occurred and be continuing at the
     time  such  Restricted  Payment  is made or would  occur  as a  consequence
     thereof; and

          (iii) the amount of such Restricted  Payment,  together with all other
     Restricted   Payments  made  pursuant  to  this  Section  7.11(j)  and  all
     Investments  made  pursuant to Section  7.13(b)  after the Closing Date, is
     less than the sum of (1) 50% of the Consolidated Net Income of Borrower for
     the period (taken as one accounting period) from the beginning of the first
     fiscal quarter commencing  immediately after the Closing Date to the end of
     Borrower's  then most  recently  ended  fiscal  quarter for which  internal
     financial statements are available (or, if such Consolidated Net Income for
     such  period is a deficit,  100% of such  deficit),  plus,  (2) 100% of the
     aggregate net cash proceeds (or of the net cash proceeds  received upon the
     conversion of non-cash  proceeds  into cash)  received by Borrower from the
     issuance  or sale,  other than to a  Subsidiary  of  Borrower,  of Stock of
     Borrower (other than Disqualified Capital



                                       68
<PAGE>

     Stock)  after  the  Closing  Date  and on or  prior  to the  time  of  such
     Restricted Payment, plus (3) 100% of the aggregate net cash proceeds (or of
     the net cash  proceeds  received upon the  conversion of non-cash  proceeds
     into cash) received by Borrower from the issuance or sale,  other than to a
     Subsidiary of Borrower, of any convertible or exchangeable debt security of
     Borrower that has been converted or exchanged into Stock of Borrower (other
     than  Disqualified  Capital Stock)  pursuant to the terms thereof after the
     Closing  Date  and on or  prior  to the  time  of such  Restricted  Payment
     (including any additional net cash proceeds  received by Borrower upon such
     conversion or exchange),  plus (4) the aggregate  Return from  Unrestricted
     Subsidiaries  after  the  Closing  Date and on or prior to the time of such
     dividend.

     7.12 Accounting  Methods.  Modify or change its method of accounting (other
than as may be required to conform to GAAP) or enter into,  modify, or terminate
any agreement currently existing, or at any time hereafter entered into with any
third party  accounting firm or service bureau for the preparation or storage of
Borrower's  accounting  records  without said  accounting firm or service bureau
agreeing to provide  Lender  information  regarding the Collateral or Borrower's
financial condition.

7.13 Investments.

     (a) Other than Permitted Investments, directly or indirectly make, acquire,
or incur any liabilities (including contingent obligations) for or in connection
with any Investment (including,  without limitation,  (i) the acquisition of the
securities  (whether debt or equity) of, or other  interests in, a Person,  (ii)
loans, advances, capital contributions, or transfers of property to a Person, or
(iii) the acquisition of all or substantially all of the properties or assets of
a Person).

     (b) The  foregoing  to the contrary  notwithstanding,  Borrower may make or
acquire an  Investment  not  otherwise  permitted in Section  7.13(a) above if a
Referendum Determination Date has not occurred and:

          (i) Borrower's  Interest  Coverage Ratio for Borrower's  most recently
     ended four full fiscal quarters for which internal financial statements are
     available  immediately  preceding the date on which such Investment is made
     would have been not less than  2.0:1.0  for the period from the date hereof
     to, but not including,  January 1, 2003, and 2.25:1.0  thereafter,  in each
     case,  determined on a pro forma basis, as if such Investment had been made
     at the beginning of such four-quarter period;

          (ii) no Event of Default  shall have occurred and be continuing at the
     time such Investment is made or would occur as a consequence thereof; and



                                       69
<PAGE>

          (iii)  the  amount  of  such  Investment,   together  with  all  other
     Investments  that are not  Permitted  Investments  and are made pursuant to
     this Section  7.13(b) and all dividends  made  pursuant to Section  7.11(j)
     after the Closing Date, is less than the sum of (1) 50% of the Consolidated
     Net Income of Borrower for the period (taken as one accounting period) from
     the beginning of the first fiscal quarter commencing  immediately after the
     Closing  Date to the end of  Borrower's  then most  recently  ended  fiscal
     quarter for which internal financial  statements are available (or, if such
     Consolidated  Net  Income  for  such  period  is a  deficit,  100%  of such
     deficit),  plus, (2) 100% of the aggregate net cash proceeds (or of the net
     cash proceeds  received upon the conversion of non-cash proceeds into cash)
     received by Borrower from the issuance or sale,  other than to a Subsidiary
     of Borrower,  of Stock of Borrower (other than Disqualified  Capital Stock)
     after the Closing Date and on or prior to the time of such Investment, plus
     (3) 100% of the  aggregate  net cash  proceeds (or of the net cash proceeds
     received upon the  conversion of non-cash  proceeds into cash)  received by
     Borrower from the issuance or sale, other than to a Subsidiary of Borrower,
     of any convertible or exchangeable  debt security of Borrower that has been
     converted  or  exchanged  into Stock of Borrower  (other than  Disqualified
     Capital Stock)  pursuant to the terms thereof after the Closing Date and on
     or prior to the time of such Investment  (including any additional net cash
     proceeds  received by Borrower upon such conversion or exchange),  plus (4)
     the aggregate Return from Unrestricted  Subsidiaries after the Closing Date
     and on or prior to the time of such Investment.

     7.14 Transactions with Affiliates.

          (a) Directly or indirectly sell, lease, transfer, or otherwise dispose
     of any of its  properties  or assets to, or purchase any property or assets
     from,  or  enter  into  or  permit  to  exist  any   contract,   agreement,
     understanding,  loan,  advance or guaranty with, or for the benefit of, any
     Affiliate of Borrower or any Affiliate of any Restricted  Subsidiary  (each
     of the  foregoing,  an  "Affiliate  Transaction")  except for, so long as a
     Referendum Determination Date has not occurred:

               (i) Affiliate Transactions entered into in the ordinary course of
          business that, together with all related Affiliate Transactions,  have
          an aggregate  value of not more than  $1,000,000;  provided,  that (A)
          such transactions are conducted in good faith and on terms that are no
          less favorable to Borrower or the relevant Restricted  Subsidiary than
          those that would have been  obtained in a  comparable  transaction  at
          such time by Borrower or such Restricted Subsidiary on an arm's-length
          basis  from a Person  that is not an  Affiliate  of  Borrower  or such
          Restricted  Subsidiary and (B) prior to entering into such transaction
          Borrower shall have delivered to Lender a certificate  from an officer
          of Borrower certifying to such effect;



                                       70
<PAGE>

               (ii) Affiliate  Transactions  entered into in the ordinary course
          of business that,  together with all related  Affiliate  Transactions,
          have an aggregate value of not more than  $5,000,000;  provided,  that
          (A)  a  majority  of  the  disinterested   Managers  or,  if  none,  a
          disinterested committee appointed by the Managers of Borrower for such
          purpose  determine that such  transactions are conducted in good faith
          and on terms that are no less  favorable  to Borrower or the  relevant
          Restricted  Subsidiary  than those that would have been  obtained in a
          comparable  transaction  at such time by Borrower  or such  Restricted
          Subsidiary  on an  arm's-length  basis  from a  Person  that is not an
          Affiliate of Borrower or such  Restricted  Subsidiary and (B) prior to
          entering into such transaction Borrower shall have delivered to Lender
          a certificate  from an officer of Borrower  certifying to such effect;
          or

               (iii) Affiliate  Transactions entered into in the ordinary course
          of business for which Borrower delivers to Lender an opinion as to the
          fairness to Borrower or such  Restricted  Subsidiary  from a financial
          point of view issued by an accounting, appraisal or investment banking
          firm of national standing.

     (b) Anything in Section 7.14(a) to the contrary notwithstanding,  Permitted
Investments,  Investments  permitted by Section 7.13  hereof,  and  dividends or
distributions  permitted  under  Section 7.11 hereof,  shall be deemed not to be
Affiliate Transactions.

     7.15  Suspension.  Suspend  or go  out  of a  substantial  portion  of  its
business.

     7.16 Compensation.  Increase the annual fee or per-meeting fees paid to the
members  of its  Board of  Directors  during  any year by more than 25% over the
prior year.

     7.17 Use of  Proceeds.  Use the  proceeds of the  Advances  for any purpose
other than (a) on the  Closing  Date,  to pay  transactional  fees,  costs,  and
expenses  incurred in connection with this Agreement,  the other Loan Documents,
and the  transactions  contemplated  hereby  and  thereby,  and (b)  thereafter,
consistent  with the terms and conditions  hereof,  for its lawful and permitted
purposes.

     7.18 Change in Location of Chief Executive Office;  Inventory and Equipment
with  Bailees.  Relocate its chief  executive  office to a new location  without
providing 30 days prior written  notification  thereof to Lender and so long as,
at the  time of such  written  notification,  Borrower  provides  any  financing
statements or fixture  filings  necessary to perfect and continue  perfected the
Lender's  Liens and also provides to Lender a Collateral  Access  Agreement with
respect to such location.  The Inventory and Equipment shall not at any time now
or  hereafter  be stored with a bailee,  warehouseman,  or similar  party unless
Borrower has delivered to Lender a Collateral  Access Agreement  entered into by
such bailee, warehouseman, or similar party, as the case may be.

     7.19 [Intentionally Omitted.]



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<PAGE>

     7.20  Financial  Covenants.  Fail to maintain  EBITDA as of the end of each
fiscal quarter (calculated based upon the immediately preceding 12 month period)
of at least $10,000,000.

     7.21  Operation  of Diamond Jo Vessels.  At any time operate the Diamond Jo
Vessels outside the navigation  limits of the insurance  carried pursuant to the
Diamond Jo Ship Mortgage.

     7.22 Permitted Tax Distributions.

     (a) Notwithstanding  Section 7.11, Borrower, at its option, may declare and
pay Permitted Tax Distributions to its Members;  provided,  that (i) no Event of
Default shall have occurred and be continuing at the time of any such  Permitted
Tax  Distribution  or would result  therefrom,  (ii) prior to the payment of any
such  Permitted  Tax   Distribution,   Borrower  shall  provide  Lender  with  a
certificate  from an officer of Borrower and an opinion of counsel to the effect
that Borrower and each Subsidiary of Borrower in respect of which such Permitted
Tax Distributions  are being made,  qualify as Flow Through Entities for federal
income tax  purposes  and for the states in respect of which such  distributions
are being made,  and (iii) at the time of any such  Permitted Tax  Distribution,
the most recent  audited  financial  statements  of Borrower  provided to Lender
pursuant to Section 6.3 provide  that  Borrower  and each such  Subsidiary  were
treated as Flow Through Entities for the period of such financial statements.

     (b) Estimated tax distributions  shall be made within thirty days following
March 15, May 15,  August  15, and  December  15 based upon an  estimate  of the
excess  of (x) the tax  distributions  that  would  be  payable  for the  period
beginning  on January 1 of such year and ending on March 15, May 15,  August 15,
and December 15 if such period were a taxable year (computed as provided  above)
over (y)  distributions  attributable  to all prior periods  during such taxable
year. The excess of the Permitted Tax  Distributions for a taxable year over the
amounts previously distributed as estimated tax distributions may be distributed
to Equity Holders within thirty days of the date on which Borrower has filed its
federal income tax return with respect to such taxable years. To the extent that
the estimated tax  distributions  previously paid to an Equity Holder in respect
of any taxable year are greater than the  Permitted Tax  Distributions  for such
year,  such excess  shall be treated for all  purposes of this  Agreement  as if
distributed as an estimated tax  distribution on March 15 of the next succeeding
year for the purpose of determining  amounts permitted to be distributed in such
succeeding taxable year.

     (c) The amount of the  Permitted  Tax  Distributions  shall be  re-computed
promptly after (i) the filing by Borrower of its annual tax return, and (ii) the
appropriate Federal or state taxing authority finally determines that the amount
of the items of taxable  income,  gain,  deduction,  or loss of  Borrower  which
affected the calculation of the Permitted Tax  Distributions for any year should
be changed or adjusted,  including the determination  that Borrower or any other
entity is not a Flow Through Entity (a "Tax Calculation Event"). In the event of
a Tax  Calculation  Event,  the amount by which the



                                       72
<PAGE>

Permitted Tax Distributions  would have been reduced had they been calculated in
accordance with the Tax Calculation Event (an  "Overdistribution")  shall offset
the  amounts  permitted  to be  distributed  through  the  next  two  successive
estimated tax payment dates (and such amounts  permitted to be distributed shall
be, for purposes of this Agreement,  treated as if distributed to Equity Holders
and used to repay the  Overdistribution).  If the amount of any Overdistribution
has not been repaid in full by the end of the second  estimated tax payment date
following  the Tax  Calculation  Event,  Borrower  will use its best  efforts to
collect  the  remaining  Overdistribution  Amount  from the Equity  Holders.  If
following  a Tax  Calculation  Event,  the  amount  by which the  Permitted  Tax
Distributions  would have been increased had they been  calculated in accordance
with the Tax  Calculation  Event (an  "Underdistribution"),  the  amount of such
Underdistribution  shall be  distributed to Equity Holders within 90 days of the
date of the Tax Calculation Event.

     (d) Prior to making any estimated tax distribution,  Borrower shall require
each Equity Holder to agree to make any payment  required under Section  7.22(c)
hereof.

     (e) To the extent that any tax distribution  would otherwise be made to any
Equity  Holder  at a time when an  obligation  of such  Equity  Holder to make a
payment to Borrower pursuant to Section 7.22(c) remains outstanding,  the amount
of any tax  distribution  to be made shall be reduced by the amounts such Equity
Holder is obligated to pay Borrower.

     7.23  Restrictions  on Sale and Issuance of  Subsidiary  Stock.  Sell,  nor
permit  any  Restricted  Subsidiary  to issue or sell,  any  Stock  (other  than
directors"  qualifying shares) of any Restricted  Subsidiary to any Person other
than Borrower or a Wholly Owned Subsidiary of Borrower;  provided, that Borrower
and its  Restricted  Subsidiaries  may sell all (but not less  than  all) of the
capital Stock of a Restricted  Subsidiary  owned by Borrower and its  Restricted
Subsidiaries  if the Net  Proceeds  from such Asset Sale are used in  accordance
with the terms of Section 7.4 hereof.

     7.24 Membership Interests.  Authorize or issue certificates  evidencing the
membership interests in Borrower.

     7.25 Limitation on Restricted Subsidiary Dividends. Directly or indirectly,
create or otherwise cause or suffer to exist or become effective any encumbrance
or restriction on the ability of any Restricted Subsidiary to:

     (a) pay dividends or make any other distributions to Borrower or any of its
Restricted  Subsidiaries  (i) on such Restricted  Subsidiary's  capital Stock or
(ii) with  respect to any other  interest or  participation  in, or measured by,
such Restricted Subsidiary's profits, or

     (b)  pay  any  Indebtedness  owed  to  Borrower  or any  of its  Restricted
Subsidiaries, or



                                       73
<PAGE>

     (c)  make  loans  or  advances  to  Borrower  or  any  of  its   Restricted
Subsidiaries, or

     (d)  transfer  any of  its  assets  to  Borrower  or any of its  Restricted
Subsidiaries,

except,  with respect to clauses (a) through (d) above, for such encumbrances or
restrictions existing under or by reason of:

          (i) this Agreement or the other Loan Documents;

          (ii) the Senior Note Documents;

          (iii) applicable law;

          (iv) Acquired Debt; provided,  that such encumbrances and restrictions
     are not  applicable  to any  Person,  or the  properties  or  assets of any
     Person,  other than the Person, or the property or assets of the Person, so
     acquired;

          (v) customary non-assignment and net worth provisions of any contract,
     lease or license entered into in the ordinary course of business;

          (vi)  customary  restrictions  on the transfer of assets  subject to a
     Permitted Lien imposed by the holder of such Lien;

          (vii) the agreements  governing  permitted  refinancing  Indebtedness;
     provided,  that such restrictions contained in any agreement governing such
     refinancing  Indebtedness  are no more  restrictive than those contained in
     any agreements governing the Indebtedness being refinanced; and

          (viii)  any  restrictions  with  respect  to a  Restricted  Subsidiary
     imposed pursuant to a binding  agreement that has been entered into for the
     sale  or  other  disposition  of all  or  substantially  all of the  Equity
     Interests or assets of such Restricted Subsidiary,  provided that such sale
     or disposition is permitted  hereunder and such  restrictions only apply to
     the Equity Interests or assets of such Restricted  Subsidiary being sold or
     otherwise disposed.

8. EVENTS OF DEFAULT.

     Any one or more of the  following  events  shall  constitute  an  event  of
default (each, an "Event of Default") under this Agreement:

     8.1 If Borrower fails to pay when due and payable, or when declared due and
payable, all or any portion of the Obligations  (whether of principal,  interest
(including any interest  which,  but for the provisions of the Bankruptcy  Code,
would have accrued on such amounts), fees and charges due Lender,  reimbursement
of  Lender  Expenses,  or other



                                       74
<PAGE>

amounts  constituting  Obligations);  provided,  however,  that  in the  case of
Overadvances  that are  caused by the  charging  of  interest,  fees,  or Lender
Expenses  to the Loan  Account,  such  event  shall not  constitute  an Event of
Default if, within 3 Business Days of Borrower's  receipt of telephonic or other
notice of such Overadvance, Borrower eliminates such Overadvance;

     8.2 If Borrower  fails or neglects  to  perform,  keep,  or observe (a) any
term, provision,  condition,  covenant, or agreement:  (i) contained in Sections
6.2 (Collateral Reporting), 6.3 (Financial Statements,  Reports,  Certificates),
6.4 (Guarantor  Reports),  6.7 (Tax Returns),  6.10 (Compliance with Laws), 6.11
(Leases), 6.12 (Brokerage  Commissions),  and 6.13 (Existence) of this Agreement
and such failure  continues for a period of 5 Business  Days;  (ii) contained in
Sections 6.1  (Accounting  System),  6.6  (Maintenance  of  Properties),  or 6.9
(Location of Inventory and  Equipment),  6.14  (exclusive of clause (d) thereof)
(Environmental),  6.17 (License  Renewals),  or 6.19 (Subsidiary  Guarantees) of
this  Agreement and such failure  continues for a period of 15 Business Days; or
(b) any other term,  provision,  condition,  covenant, or agreement contained in
this Agreement or any material term, provision, condition, covenant or agreement
contained  in any of the  other  Loan  Documents  (giving  effect  to any  grace
periods,  cure periods,  or required notices,  if any, expressly provided for in
such  other  Loan  Documents;  in each  case,  other  than any term,  provision,
condition,  covenant,  or agreement that is the subject of another  provision of
this


                                       75
<PAGE>

Section 8, in which event such other  provision of this Section 8 shall govern);
provided,  that,  during any period of time that any such  failure or neglect of
Borrower referred to in this Section 8.2 exists, even if such failure or neglect
is not yet an Event of  Default  by virtue of the  existence  of a grace or cure
period or the  pre-condition  of the  giving of a  notice,  Lender  shall not be
required to make Advances (or otherwise extend credit) hereunder;

     8.3 If any  material  portion  of  Borrower's  or any of its  Subsidiaries'
assets is  attached,  seized,  subjected to a writ or distress  warrant,  levied
upon, or comes into the possession of any third Person;

     8.4 If an  Insolvency  Proceeding  is  commenced  by Borrower or any of its
Subsidiaries;

     8.5 If an Insolvency  Proceeding is commenced against  Borrower,  or any of
its  Subsidiaries,  and any of the following  events occur:  (a) Borrower or the
Subsidiary consents to the institution of such Insolvency Proceeding against it,
(b)  the  petition   commencing   the   Insolvency   Proceeding  is  not  timely
controverted,  (c) the petition  commencing  the  Insolvency  Proceeding  is not
dismissed  within 60 calendar days of the date of the filing thereof;  provided,
however,  that, during the pendency of such period,  Lender shall be relieved of
its obligations to extend credit hereunder,  (d) an interim trustee is appointed
to take possession of all or any substantial portion of the properties or assets
of, or to operate all or any substantial portion of the business of, Borrower or
any of its  Subsidiaries,  or (e) an order for relief  shall  have been  entered
therein;

     8.6 If Borrower or any of its Subsidiaries is enjoined,  restrained,  or in
any way prevented by court order from  continuing to conduct all or any material
part of the business affairs of Borrower and its  Subsidiaries  taken as a whole
for a period of 5 consecutive Business Days;

     8.7 If (a) a notice of Lien,  levy,  or  assessment is filed of record with
respect to  Borrower's or any of its  Subsidiaries'  properties or assets by the
United States Government, or any department, agency, or instrumentality thereof,
or if any taxes or debts owing at any time  hereafter to any one or more of such
entities becomes a Lien, whether choate or otherwise,  upon Borrower's or any of
its  Subsidiaries'  properties or assets and the same is not paid on the payment
date thereof  (provided,  however,  that, if such Lien secures an amount that is
less than  $50,000  and if Lender is able to create and  maintain a reserve  for
such Lien in an amount  equal to 150  percent of the  obligation  that such Lien
secures  (which  Borrower  hereby  expressly  authorizes  Lender to do)  without
creating  an  Overadvance,  then such  Lien  shall  not  constitute  an Event of
Default), or (b) notices of Lien, levy, or assessment




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<PAGE>

in an aggregate  amount in excess of $5,000,000 are filed of record with respect
to  Borrower's  or any of its  Subsidiaries'  properties or assets by any state,
county, municipal, or governmental agency, or if any taxes or debts owing at any
time hereafter to any one or more of such entities  becomes a Lien exceeding the
foregoing aggregate limitation,  whether choate or otherwise, upon Borrower's or
any of its  Subsidiaries'  properties  or assets and the same is not paid before
the  earlier  of 30 days  after the date it first  arises or 5 days prior to the
date on which such asset is subject to being forfeited;

     8.8 If a final  non-appealable  judgment  or  judgments  for the payment of
money  (other  than  judgments  as to which a  reputable  insurance  company has
accepted full liability) is or are entered by a court of competent  jurisdiction
against  Borrower or any of its  Subsidiaries  and such  judgment  or  judgments
remain undischarged,  unbonded, or unstayed for a period of 60 days after entry;
provided, that the aggregate amount of all such judgments exceeds $5,000,000;

     8.9 If there is a default in any payment of Indebtedness  (beyond any grace
period) in any agreement to which Borrower or any of its Subsidiaries is a party
relative to Indebtedness  of Borrower or such Subsidiary  involving an aggregate
amount of $5,000,000  or more and such default (a) occurs at the final  maturity
of the  obligations  thereunder,  or (b)  results in a right by the other  party
thereto,  irrespective  of whether  exercised,  to  accelerate  the  maturity of
Borrower's  or its  Subsidiaries'  obligations  thereunder,  to  terminate  such
agreement, or to refuse to renew such agreement pursuant to an automatic renewal
right therein;

     8.10 If Borrower or any of its Subsidiaries makes any payment on account of
Indebtedness that has been contractually subordinated in right of payment to the
payment of the  Obligations,  except to the  extent  such  payment is  permitted
hereunder or by the terms of the  subordination  provisions  applicable  to such
Indebtedness;

     8.11 If any material misstatement or material  misrepresentation exists now
or  hereafter  in any  warranty,  representation,  statement,  or Record made to
Lender by Borrower,  its  Subsidiaries,  or any  officer,  employee,  agent,  or
director of Borrower or any of its Subsidiaries;

     8.12 If the  obligation of any Guarantor  under its guaranty or other third
Person under any Loan  Document is limited or  terminated by operation of law or
by the  Guarantor or other third  Person  thereunder,  or any such  Guarantor or
other third Person becomes the subject of an Insolvency Proceeding;

     8.13 If this Agreement or any other Loan Document that purports to create a
Lien, shall, for any reason,  fail or cease to create a valid and perfected and,
except to the extent  permitted by the terms hereof or thereof,  first  priority
Lien on or security interest in the Collateral covered hereby or thereby;



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<PAGE>

     8.14 Any provision of any Loan Document shall at any time for any reason be
declared to be null and void, or the validity or enforceability thereof shall be
contested by Borrower, or a proceeding shall be commenced by Borrower, or by any
Governmental  Authority having jurisdiction over Borrower,  seeking to establish
the invalidity or unenforceability thereof, or Borrower shall deny that Borrower
has any liability or obligation purported to be created under any Loan Document;

     8.15 If (i) there is an "Event of  Default"  under,  and as defined in, the
Indenture or (ii) there is a default  under the Lease that results in a right by
any party thereto (other than Borrower),  irrespective of whether exercised,  to
terminate  the  Lease or the Lease is not  renewed  or is  otherwise  terminated
(provided,  however,  that such termination or non-renewal of the Lease will not
constitute an Event of Default if such  termination or non-renewal will not have
a Material Adverse Change on Borrower and its business (due, for example, to the
prior  securing  of an  alternative  location  from  which  to  operate  with  a
substitute or alternative  lease on terms and conditions  satisfactory to Lender
in its Permitted Discretion);

     8.16 If, for a period of 5 consecutive  Business  Days,  Borrower  fails to
keep in full force and effect, suffers the termination,  revocation, forfeiture,
nonrenewal or  suspension  of, or suffers a material  adverse  amendment to, any
material  Gaming License,  franchise,  registration,  qualification,  finding of
suitability or other approval or  authorization  required to enable  Borrower to
own,  operate,  or otherwise  conduct or manage its  businesses,  including  the
riverboat,  dockside or land based gaming  activities at  Borrower's  Ice Harbor
Facility and any other location where Borrower conducts such business; or

     8.17 If, for a period of 5  consecutive  Business  Days,  any  Governmental
Authority terminates,  suspends,  amends, revokes, repeals or fails to renew any
law, license, franchise, registration,  qualification, finding of suitability or
other  approval  or  authorization  required  to enable  Borrower  or any of its
Subsidiaries  to own,  operate,  or otherwise  conduct or manage its businesses,
including the riverboat,  dockside or land-based gaming activities at Borrower's
Ice  Harbor  Facility  and any  other  location  where  Borrower  conducts  such
business.

9. LENDER'S RIGHTS AND REMEDIES.

     9.1 Rights and Remedies. Upon the occurrence,  and during the continuation,
of an Event of  Default,  Lender  (at its  election  but  without  notice of its
election  and without  demand) may do any one or more of the  following,  all of
which are authorized by Borrower:

     (a) Declare all Obligations, whether evidenced by this Agreement, by any of
the other Loan Documents, or otherwise, immediately due and payable;

     (b) Cease  advancing  money or  extending  credit to or for the  benefit of
Borrower under this  Agreement,  under any of the Loan  Documents,  or under any
other agreement between Borrower and Lender;



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<PAGE>

     (c) Terminate  this Agreement and any of the other Loan Documents as to any
future  liability or  obligation  of Lender,  but without  affecting  any of the
Lender's Liens in the Collateral and without affecting the Obligations;

     (d) Settle or adjust  disputes and claims directly with Account Debtors for
amounts  and upon terms which  Lender  considers  advisable,  and in such cases,
Lender will credit Borrower's Loan Account with only the net amounts received by
Lender in payment of such disputed  Accounts after deducting all Lender Expenses
incurred or expended in connection therewith;

     (e) Without  notice to or demand upon Borrower or any  Guarantor  make such
payments and do such acts as Lender considers necessary or reasonable to protect
its  security  interests  in the  Collateral.  Borrower  agrees to assemble  the
Personal  Property  Collateral  if Lender so requires,  and to make the Personal
Property  Collateral  available  to Lender at a place that Lender may  designate
which is reasonably  convenient to both parties.  Borrower  authorizes Lender to
enter the premises where the Personal  Property  Collateral is located,  to take
and maintain possession of the Personal Property Collateral,  or any part of it,
and to  pay,  purchase,  contest,  or  compromise  any  Lien  that  in  Lender's
determination  appears  to  conflict  with  the  Lender's  Liens  and to pay all
expenses incurred in connection  therewith and to charge Borrower's Loan Account
therefor.  With respect to any of Borrower's owned or leased premises,  Borrower
hereby grants Lender a license to enter into  possession of such premises and to
occupy the same,  without charge, in order to exercise any of Lender's rights or
remedies provided herein, at law, in equity, or otherwise;

     (f) Without notice to Borrower (such notice being  expressly  waived),  and
without  constituting  a  retention  of any  collateral  in  satisfaction  of an
obligation  (within  the  meaning  of  the  Code),  set  off  and  apply  to the
Obligations any and all (i) balances and deposits of Borrower held by Lender, or
(ii)  Indebtedness  at any time  owing to or for the  credit or the  account  of
Borrower held by Lender;

     (g) Hold, as cash collateral, any and all balances and deposits of Borrower
held by Lender to secure the full and final repayment of all of the Obligations;

     (h) Ship, reclaim,  recover, store, finish,  maintain,  repair, prepare for
sale,  advertise  for sale,  and sell (in the manner  provided  for  herein) the
Personal  Property  Collateral.  Borrower  hereby  grants to Lender a license or
other right to use,  without charge,  Borrower's  labels,  patents,  copyrights,
trade secrets, trade names,  trademarks,  service marks, and advertising matter,
or any property of a similar  nature,  as it pertains to the  Personal  Property
Collateral,  in completing  production of, advertising for sale, and selling any
Personal  Property  Collateral and Borrower's  rights under all licenses and all
franchise agreements shall inure to Lender's benefit;



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<PAGE>

     (i) Sell the  Personal  Property  Collateral  at either a public or private
sale, or both, by way of one or more contracts or  transactions,  for cash or on
terms,  in such manner and at such places  (including  Borrower's  premises)  as
Lender  determines is  commercially  reasonable.  It is not  necessary  that the
Personal Property Collateral be present at any such sale;

     (j) Lender shall give notice of the  disposition  of the Personal  Property
Collateral as follows:

          (i)  Lender  shall  give  Borrower a notice in writing of the time and
     place of  public  sale,  or, if the sale is a  private  sale or some  other
     disposition other than a public sale is to be made of the Personal Property
     Collateral,  then the  time on or after  which  the  private  sale or other
     disposition is to be made; and

          (ii) The notice  shall be  personally  delivered  or  mailed,  postage
     prepaid, to Borrower as provided in Section 12, at least 10 days before the
     earliest time of disposition set forth in the notice; no notice needs to be
     given  prior to the  disposition  of any portion of the  Personal  Property
     Collateral that is perishable or threatens to decline  speedily in value or
     that is of a type customarily sold on a recognized market;

     (k) Lender may credit bid and purchase at any public sale; and

     (l)  Lender  may seek the  appointment  of a  receiver  or  keeper  to take
possession  of all or any portion of the  Collateral  or to operate same and, to
the maximum extent permitted by law, may seek the appointment of such a receiver
without the requirement of prior notice or a hearing;

     (m) Lender shall have all other rights and remedies  available at law or in
equity or pursuant to any other Loan Document;

     (n) Borrower agrees that, upon the occurrence of and during the continuance
of an Event of Default and at Lender's  request,  Borrower  will, and will cause
each Restricted Subsidiary of Borrower to (and, by its execution and delivery of
a Guaranty or a joinder  thereto,  each of  Borrower's  Restricted  Subsidiaries
agrees to),  immediately file such  applications for approval and shall take all
other and  further  actions  required  by Lender to  obtain  such  approvals  or
consents of regulatory  authorities  as are necessary to transfer  ownership and
control to Lender,  of the Gaming  Licenses  held by it, or its  interest in any
Person  holding  any such Gaming  License.  To enforce  the  provisions  of this
Section  9.1(n),  Lender is empowered to request the  appointment  of a receiver
from any court of competent  jurisdiction.  Such receiver shall be instructed to
seek from the applicable Gaming Authority an involuntary  transfer of control of
any Gaming  License  for the  purpose of seeking a bona fide  purchaser  to whom
control will ultimately be transferred. Borrower hereby agrees to authorize, and
to cause each  Restricted  Subsidiary  of Borrower  to  authorize  (and,  by its
execution  and  delivery of a Guaranty  or a joinder  thereto,  each  Restricted
Subsidiary of



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<PAGE>

Borrower agrees to authorize)  such an involuntary  transfer of control upon the
request of the  receiver so  appointed  and, if Borrower or any such  Restricted
Subsidiary shall refuse to authorize the transfer,  its approval may be required
by the  court.  Upon the  occurrence  and  continuance  of an Event of  Default,
Borrower  shall further use its  reasonable  best efforts to assist in obtaining
approval of the  applicable  Gaming  Authority,  if required,  for any action or
transactions  contemplated by this Agreement or the Loan  Documents,  including,
preparation,  execution,  and filing with the applicable Gaming Authority of the
assignor's  or  transferor's  portion of any  application  or  applications  for
consent to the assignment of any Gaming License or transfer of control necessary
or appropriate under the applicable Gaming Authority's rules and regulations for
approval  of the  transfer  or  assignment  of any  portion  of the  Collateral,
together with any Gaming License or other authorization.  Borrower  acknowledges
that the  assignment  or  transfer  of Gaming  Licenses  is integral to Lender's
realization of the value of the Collateral,  that there is no adequate remedy at
law for failure by Borrower to comply with the provisions of this Section 9.1(n)
and that such  failure  would not be  adequately  compensable  in  damages,  and
therefore  agrees that the  agreements  contained in this Section  9.1(n) may be
specifically enforced; and

     (o) Any deficiency that exists after  disposition of the Personal  Property
Collateral as provided above will be paid  immediately  by Borrower.  Any excess
will be returned,  without  interest and subject to the rights of third Persons,
by Lender to Borrower.

All right,  remedies,  and powers  provided  in this  Agreement  relative to the
Collateral  may be exercised  only to the extent that the exercise  thereof does
not violate any applicable  mandatory  provision of the applicable  gaming laws,
rules,  and  regulations   enacted  by  the  applicable  Gaming  Authority  (the
"Applicable  Gaming Laws") and all provisions of this Agreement  relative to the
Collateral are intended to be subject to all applicable  mandatory provisions of
the Applicable  Gaming Laws and to be limited solely to the extent  necessary to
not render the provisions of this Agreement invalid or  unenforceable,  in whole
or in part.  Lender will timely apply for and receive all required  approvals of
the  applicable  Gaming  Authority for the sale or other  disposition  of gaming
Equipment  regulated  by  Applicable  Gaming  Laws  (including  any such sale or
disposition  of gaming  Equipment  consisting of slot  machines,  gaming tables,
cards,  dice,  gaming  chips,  player  tracking  systems,  and all other "gaming
devices" (as such term or words of like import referring  thereto are defined in
the Applicable  Gaming Laws), and "associated  equipment" (as such term or words
of like import referring thereto are defined in the Applicable Gaming Laws).

     9.2  Remedies  Cumulative.  The rights and  remedies  of Lender  under this
Agreement,  the  other  Loan  Documents,  and  all  other  agreements  shall  be
cumulative.  Lender shall have all other  rights and  remedies not  inconsistent
herewith as provided under the Code, by law, or in equity. No exercise by Lender
of one right or remedy shall be deemed an  election,  and no waiver by Lender of
any Event of Default  shall be deemed a  continuing  waiver.  No delay by Lender
shall constitute a waiver, election, or acquiescence by it.



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<PAGE>

10. TAXES AND EXPENSES.

     If Borrower fails to pay any monies (whether taxes, assessments,  insurance
premiums, or, in the case of leased properties or assets, rents or other amounts
payable under such leases) due to third  Persons,  or fails to make any deposits
or furnish any required  proof of payment or deposit,  all as required under the
terms of this Agreement,  then, Lender, in its Permitted  Discretion and without
prior notice to Borrower or any  Guarantor,  may do any or all of the following:
(a) make payment of the same or any part  thereof,  (b) set up such  reserves in
Borrower's  Loan  Account as Lender deems  necessary to protect  Lender from the
exposure  created by such  failure,  or (c) in the case of the failure to comply
with  Section 6.8 hereof,  obtain and  maintain  insurance  policies of the type
described  in Section 6.8 and take any action with  respect to such  policies as
Lender deems prudent.  Any such amounts paid by Lender shall  constitute  Lender
Expenses and any such  payments  shall not  constitute an agreement by Lender to
make  similar  payments  in the  future  or a waiver  by  Lender of any Event of
Default  under this  Agreement.  Lender  need not  inquire as to, or contest the
validity  of,  any such  expense,  tax,  or Lien and the  receipt  of the  usual
official  notice for the payment  thereof shall be conclusive  evidence that the
same was validly due and owing.

11. WAIVERS; INDEMNIFICATION.

     11.1 Demand;  Protest.  Borrower waives demand, protest, notice of protest,
notice of default or dishonor,  notice of payment and nonpayment,  nonpayment at
maturity, release, compromise,  settlement,  extension, or renewal of documents,
instruments,  chattel paper,  and guarantees at any time held by Lender on which
Borrower may in any way be liable.

     11.2 Lender's Liability for Collateral. Borrower hereby agrees that (absent
any  gross  negligence  and  willful  misconduct  of Lender  while  Lender is in
possession  of  the  Collateral):  (a) so  long  as  Lender  complies  with  its
obligations,  if any,  under the Code,  Lender shall not in any way or manner be
liable or responsible for: (i) the safekeeping of the Collateral,  (ii) any loss
or damage thereto  occurring or arising in any manner or fashion from any cause,
(iii) any  diminution  in the value  thereof,  or (iv) any act or default of any
carrier,  warehouseman,  bailee, forwarding agency, or other Person, and (b) all
risk of  loss,  damage,  or  destruction  of the  Collateral  shall  be borne by
Borrower.

     11.3 Indemnification.  Borrower shall pay, indemnify,  defend, and hold the
Lender-Related Persons, each Participant, and each of their respective officers,
directors,  employees,  agents,  and  attorneys-in-fact  (each,  an "Indemnified
Person")  harmless (to the fullest extent permitted by law) from and against any
and all  claims,  demands,  suits,  actions,  investigations,  proceedings,  and
damages, and all reasonable attorneys fees and disbursements and other costs and
expenses  actually  incurred  in  connection  therewith  (as and  when  they are
incurred and  irrespective  of whether suit is  brought),  at any time  asserted
against, imposed upon, or incurred by any of them (a) in connection with or as a
result of or related to the execution,  delivery,  enforcement,  performance, or
administration  of this  Agreement,  any of the  other  Loan  Documents,  or the
transactions  contemplated  hereby  or  thereby,  and (b)  with  respect  to any
investigation,  litigation,  or proceeding related to this



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Agreement,  any other Loan  Document,  or the use of the  proceeds of the credit
provided  hereunder  (irrespective of whether any Indemnified  Person is a party
thereto),  or any act,  omission,  event,  or circumstance in any manner related
thereto (all the foregoing,  collectively,  the "Indemnified Liabilities").  The
foregoing to the contrary notwithstanding,  Borrower shall have no obligation to
any  Indemnified  Person under this Section 11.3 with respect to any Indemnified
Liability  that a court of competent  jurisdiction  finally  determines  to have
resulted  from the gross  negligence or willful  misconduct of such  Indemnified
Person.  This provision  shall survive the termination of this Agreement and the
repayment of the Obligations. If any Indemnified Person makes any payment to any
other  Indemnified  Person with respect to an Indemnified  Liability as to which
Borrower  was  required to  indemnify  the  Indemnified  Person  receiving  such
payment,   the  Indemnified  Person  making  such  payment  is  entitled  to  be
indemnified and reimbursed by Borrower with respect thereto. WITHOUT LIMITATION,
THE FOREGOING  INDEMNITY SHALL APPLY TO EACH INDEMNIFIED  PERSON WITH RESPECT TO
INDEMNIFIED  LIABILITIES WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF
ANY NEGLIGENT ACT OR OMISSION OF SUCH INDEMNIFIED PERSON OR OF ANY OTHER PERSON.

12.   NOTICES.

     Unless  otherwise  provided  in this  Agreement,  all notices or demands by
Borrower  or Lender to the other  relating to this  Agreement  or any other Loan
Document  shall be in writing  and (except for  financial  statements  and other
informational  documents which may be sent by first-class mail, postage prepaid)
shall be personally  delivered or sent by registered or certified  mail (postage
prepaid, return receipt requested),  overnight courier, electronic mail (at such
email  addresses as Borrower or Lender,  as  applicable,  may  designate to each
other in accordance  herewith),  or telefacsimile to Borrower or Lender,  as the
case may be, at its address set forth below:

     If to Borrower:      PENINSULA GAMING COMPANY, LLC
                          d/b/a Diamond Jo Casino
                          3rd Street Ice Harbor
                          P.O. Box 1683
                          Dubuque, Iowa  52004-1638
                          Attn:     James P. Rix
                          Fax No. 319.557.0549



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<PAGE>

     with copies to:      MAYER, BROWN & PLATT
                          1675 Broadway
                          New York, New York  10019-5820
                          Attn:  Ronald S. Brody, Esq.
                          Fax No. 212.849.5600

     If to Lender:        FOOTHILL CAPITAL CORPORATION
                          2450 Colorado Avenue, Suite 3000 West
                          Los Angeles, California  90404
                          Attn: Business Finance Division Manager
                          Fax No. 310.453.7413

     with copies to:      BROBECK, PHLEGER & HARRISON LLP
                          550 South Hope Street, #2100
                          Los Angeles, California  90071-2604
                          Attn:  John Francis Hilson, Esq.
                          Fax No. 213.745.3345

     Lender and  Borrower  may  change the  address at which they are to receive
notices  hereunder,  by notice in writing in the  foregoing  manner given to the
other  party.  All notices or demands sent in  accordance  with this Section 12,
other than notices by Lender in connection with  enforcement  rights against the
Collateral  under the  provisions of the Code,  shall be deemed  received on the
earlier  of the date of actual  receipt or 3  Business  Days  after the  deposit
thereof in the mail.  Borrower  acknowledges  and agrees  that  notices  sent by
Lender in connection with the exercise of enforcement  rights against Collateral
under the provisions of the Code shall be deemed sent when deposited in the mail
or  personally   delivered,   or,  where   permitted  by  law,   transmitted  by
telefacsimile or any other method set forth above.

13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

     (a) THE VALIDITY OF THIS  AGREEMENT  AND THE OTHER LOAN  DOCUMENTS  (UNLESS
EXPRESSLY  PROVIDED TO THE CONTRARY IN ANOTHER LOAN  DOCUMENT IN RESPECT OF SUCH
OTHER LOAN DOCUMENT), THE CONSTRUCTION,  INTERPRETATION,  AND ENFORCEMENT HEREOF
AND  THEREOF,  AND THE RIGHTS OF THE PARTIES  HERETO AND THERETO WITH RESPECT TO
ALL MATTERS  ARISING  HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL
BE DETERMINED  UNDER,  GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF CALIFORNIA.



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<PAGE>

     (b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION
WITH THIS  AGREEMENT AND THE OTHER LOAN  DOCUMENTS  SHALL BE TRIED AND LITIGATED
ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE
OF CALIFORNIA,  PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY
COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT,  AT LENDER'S OPTION,  IN THE COURTS
OF ANY  JURISDICTION  WHERE  LENDER  ELECTS TO BRING  SUCH  ACTION OR WHERE SUCH
COLLATERAL OR OTHER  PROPERTY MAY BE FOUND.  BORROWER AND LENDER  WAIVE,  TO THE
EXTENT  PERMITTED  UNDER  APPLICABLE  LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE
DOCTRINE  OF FORUM  NON  CONVENIENS  OR TO  OBJECT  TO VENUE TO THE  EXTENT  ANY
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13(b).

     (c) BORROWER  AND LENDER  HEREBY  WAIVE THEIR  RESPECTIVE  RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION  BASED UPON OR  ARISING  OUT OF ANY OF THE
LOAN  DOCUMENTS  OR ANY  OF THE  TRANSACTIONS  CONTEMPLATED  THEREIN,  INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY  CLAIMS.  BORROWER AND LENDER  REPRESENT  THAT EACH HAS REVIEWED  THIS
WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION  WITH LEGAL  COUNSEL.  IN THE EVENT OF  LITIGATION,  A COPY OF THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.

     14.1 Assignments and Participations.

     (a)  Lender  may  assign and  delegate  to one or more  assignees  (each an
"Assignee")  all, or any ratable part of all, of the  Obligations  and the other
rights and  obligations of Lender  hereunder and under the other Loan Documents;
provided,  however,  that Borrower may continue to deal solely and directly with
Lender in  connection  with the  interest so  assigned to an Assignee  until (i)
written  notice  of  such  assignment,   together  with  payment   instructions,
addresses, and related information with respect to the Assignee, have been given
to Borrower by Lender and the  Assignee,  and (ii) Lender and its Assignee  have
delivered  to Borrower  an  appropriate  assignment  and  acceptance  agreement.
Anything contained herein to the contrary notwithstanding, Lender agrees for the
sole benefit of Borrower  that,  so long as no Event of Default has occurred and
is continuing,  Lender shall (x) retain at least 50.1 percent of the Obligations
and commitment to make Advances under Section 2.1 of this Agreement, and (y) not
assign any ratable part of the Obligations and commitment to make Advances under
Section 2.1 of this  Agreement  to more than three  Assignees at any given time,
provided,  however, that, the minimum retention of Obligations



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<PAGE>

and  commitment to make Advances and the  restriction on the number of Assignees
shall not be  applicable if such  assignment  is in connection  with any merger,
consolidation,  sale,  transfer,  or other disposition of all or any substantial
portion of the business or loan portfolio of Lender.

     (b) From and after the date that Lender provides Borrower with such written
notice and  executed  assignment  and  acceptance  agreement,  (i) the  Assignee
thereunder  shall  be a  party  hereto  and,  to  the  extent  that  rights  and
obligations  hereunder have been assigned to it pursuant to such  assignment and
acceptance  agreement,   shall  have  the  assigned  and  delegated  rights  and
obligations of Lender under the Loan  Documents,  and (ii) Lender shall,  to the
extent that rights and obligations  hereunder and under the other Loan Documents
have  been  assigned  and  delegated  by it  pursuant  to  such  assignment  and
acceptance agreement, relinquish its rights (except with respect to Section 11.3
hereof) and be released from its  obligations  under this  Agreement (and in the
case of an assignment  and acceptance  covering all or the remaining  portion of
Lender's  rights  and  obligations  under  this  Agreement  and the  other  Loan
Documents,  Lender  shall  cease to be a party  hereto  and  thereto),  and such
assignment shall affect a novation between Borrower and the Assignee.

     (c) Immediately upon Borrower's  receipt of such fully executed  assignment
and acceptance  agreement,  this Agreement  shall be deemed to be amended to the
extent,  but only to the  extent,  necessary  to  reflect  the  addition  of the
Assignee and the resulting adjustment of the rights and duties of Lender arising
therefrom.

     (d) Lender may at any time sell to one or more commercial banks,  financial
institutions,  or other Persons not Affiliates of such Lender (a  "Participant")
participating interests in the Obligations and the other rights and interests of
Lender hereunder and under the other Loan Documents; provided, however, that (i)
Lender shall remain the  "Lender"  for all  purposes of this  Agreement  and the
other Loan Documents and the Participant receiving the participating interest in
the  Obligations  and the  other  rights  and  interests  of  Lender  shall  not
constitute a "Lender"  hereunder or under the other Loan  Documents and Lender's
obligations  under this  Agreement  shall  remain  unchanged,  (ii) Lender shall
remain  solely  responsible  for  the  performance  of such  obligations,  (iii)
Borrower and Lender shall  continue to deal solely and directly  with each other
in connection with Lender's rights and obligations  under this Agreement and the
other Loan Documents,  (iv) Lender shall not transfer or grant any participating
interest under which the  Participant has the right to approve any amendment to,
or any consent or waiver  with  respect  to,  this  Agreement  or any other Loan
Document,  except to the extent  such  amendment  to, or consent or waiver  with
respect to this  Agreement  or of any other Loan  Document  would (A) extend the
final maturity date of the  Obligations  hereunder in which such  Participant is
participating,  (B) reduce  the  interest  rate  applicable  to the  Obligations
hereunder  in which such  Participant  is  participating,  (C)  release all or a
material portion of the Collateral or guaranties (except to the extent expressly
provided  herein or in any of the Loan  Documents)  supporting  the  Obligations
hereunder in which such Participant is  participating,  (D) postpone the payment
of, or reduce the amount of, the  interest or fees  payable to such  Participant
through  Lender,  or (E) change the amount or due dates of  scheduled  principal
repayments or



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<PAGE>

prepayments or premiums, and (v) all amounts payable by Borrower hereunder shall
be  determined  as if Lender had not sold such  participation,  except that,  if
amounts  outstanding under this Agreement are due and unpaid, or shall have been
declared or shall have become due and payable upon the occurrence of an Event of
Default,  each  Participant  shall be  deemed to have the  right of  set-off  in
respect of its  participating  interest in amounts owing under this Agreement to
the same  extent  as if the  amount of its  participating  interest  were  owing
directly to it as Lender  under this  Agreement.  The rights of any  Participant
only shall be derivative through Lender and no Participant shall have any rights
under this  Agreement  or the other Loan  Documents  or any direct  rights as to
Borrower,  the  Collections,  the  Collateral,  or  otherwise  in respect of the
Obligations.  No Participant shall have the right to participate directly in the
making of decisions by Lender.

     (e) In connection  with any such  assignment or  participation  or proposed
assignment or participation, a Lender may disclose all documents and information
which it now or hereafter may have relating to Borrower or Borrower's business.

     (f) Any other  provision in this Agreement  notwithstanding,  Lender may at
any time  create a security  interest  in, or pledge,  all or any portion of its
rights under and interest in this Agreement in favor of any Federal Reserve Bank
in accordance  with  Regulation A of the Federal  Reserve Bank or U.S.  Treasury
Regulation  31 CFR  ss.203.14,  and such  Federal  Reserve Bank may enforce such
pledge or security  interest in any manner  permitted under  applicable law. The
foregoing to the contrary  notwithstanding,  no such pledge shall relieve Lender
from any of its obligations hereunder.

     14.2 Successors.  This Agreement shall bind and inure to the benefit of the
respective  successors  and assigns of each of the parties;  provided,  however,
that  Borrower may not assign this  Agreement or any rights or duties  hereunder
without  Lender's prior written consent and any prohibited  assignment  shall be
absolutely  void ab initio.  No consent to  assignment  by Lender shall  release
Borrower from its  Obligations.  Lender may assign this  Agreement and the other
Loan Documents and its rights and duties  hereunder and  thereunder  pursuant to
Section 14.1 hereof and, except as expressly  required  pursuant to Section 14.1
hereof,  no consent or approval by Borrower is required in  connection  with any
such assignment.

15. AMENDMENTS; WAIVERS.

     15.1  Amendments  and Waivers.  No amendment or waiver of any  provision of
this  Agreement or any other Loan  Document,  and no consent with respect to any
departure by Borrower therefrom,  shall be effective unless the same shall be in
writing  and  signed by Lender  (or,  if Lender  has  assigned  a portion of the
Obligations  hereunder pursuant to Section 14.1(a) hereof,  lenders holding more
than 50% of the outstanding  Obligations)  and Borrower and then any such waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given.

     15.2 No Waivers;  Cumulative Remedies. No failure by Lender to exercise any
right,  remedy,  or option under this Agreement or any other Loan  Document,  or
delay by



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<PAGE>

Lender in exercising the same,  will operate as a waiver  thereof.  No waiver by
Lender will be  effective  unless it is in writing,  and then only to the extent
specifically  stated.  No  waiver  by Lender  on any  occasion  shall  affect or
diminish Lender's rights thereafter to require strict performance by Borrower of
any provision of this  Agreement.  Lender's  rights under this Agreement and the
other Loan  Documents will be cumulative and not exclusive of any other right or
remedy that Lender may have.

16. GENERAL PROVISIONS.

     16.1  Effectiveness.  This Agreement shall be binding and deemed  effective
when executed by Borrower and Lender.

     16.2 Section Headings.  Headings and numbers have been set forth herein for
convenience  only.  Unless the contrary is compelled by the context,  everything
contained in each Section applies equally to this entire Agreement.

     16.3  Interpretation.   Neither  this  Agreement  nor  any  uncertainty  or
ambiguity  herein shall be construed  against Lender or Borrower,  whether under
any rule of construction or otherwise.  On the contrary, this Agreement has been
reviewed by all parties and shall be construed and interpreted  according to the
ordinary  meaning of the words used so as to accomplish  fairly the purposes and
intentions of all parties hereto.

     16.4 Severability of Provisions.  Each provision of this Agreement shall be
severable  from every  other  provision  of this  Agreement  for the  purpose of
determining the legal enforceability of any specific provision.

     16.5 Withholding  Taxes.  All payments made by Borrower  hereunder or under
any note will be made without setoff, counterclaim,  or other defense, except as
required by  applicable  law other than for Taxes (as defined  below).  All such
payments  will be made free and clear of, and without  deduction or  withholding
for, any present or future taxes, levies, imposts,  duties, fees, assessments or
other charges of whatever  nature now or hereafter  imposed by any  jurisdiction
(other  than the  United  States)  or by any  political  subdivision  or  taxing
authority  thereof or therein  (other than of the United States) with respect to
such  payments (but  excluding,  any tax imposed by any  jurisdiction  or by any
political  subdivision or taxing authority thereof or therein (i) measured by or
based on the net income or net  profits of  Lender,  or (ii) to the extent  that
such tax  results  from a change in the  circumstances  of Lender,  including  a
change in the residence,  place of organization,  or principal place of business
of Lender,  or a change in the branch or lending office of Lender  participating
in the  transactions  set forth herein) and all  interest,  penalties or similar
liabilities with respect thereto (all such non-excluded taxes, levies,  imposts,
duties,  fees,  assessments or other charges being referred to  collectively  as
"Taxes"). If any Taxes are so levied or imposed, Borrower agrees to pay the full
amount of such Taxes,  and such  additional  amounts as may be necessary so that
every  payment  of all  amounts  due  under  this  Agreement  or under any note,
including  any amount paid  pursuant to this Section 16.5 after  withholding  or
deduction  for or on  account  of any  Taxes,  will not be less than the  amount
provided for herein;  provided,  however, that Borrower shall not be required to
increase  any such  amounts  payable



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<PAGE>

to Lender if the  increase in such amount  payable  results  from  Lender's  own
willful  misconduct  or gross  negligence.  Borrower  will  furnish to Lender as
promptly as possible  after the date the payment of any Taxes is due pursuant to
applicable  law  certified  copies of tax  receipts  evidencing  such payment by
Borrower.

     16.6 [Intentionally Omitted.]

     16.7 Counterparts;  Telefacsimile Execution. This Agreement may be executed
in any number of counterparts and by different parties on separate counterparts,
each of which,  when executed and delivered,  shall be deemed to be an original,
and all of which,  when taken  together,  shall  constitute but one and the same
Agreement.   Delivery  of  an  executed   counterpart   of  this   Agreement  by
telefacsimile  shall be equally as effective as delivery of an original executed
counterpart of this Agreement.  Any party delivering an executed  counterpart of
this  Agreement  by  telefacsimile  also  shall  deliver  an  original  executed
counterpart  of this  Agreement but the failure to deliver an original  executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.  The foregoing  shall apply to each other Loan Document  mutatis
mutandis.

     16.8 Revival and Reinstatement of Obligations. If the incurrence or payment
of the  Obligations by Borrower or any  Guarantor,  or the transfer to Lender of
any  property  should  for any reason  subsequently  be  declared  to be void or
voidable under any state or federal law relating to creditors' rights, including
provisions  of  the   Bankruptcy   Code  relating  to  fraudulent   conveyances,
preferences,  or other voidable or recoverable payments of money or transfers of
property  (collectively,  a "Voidable  Transfer"),  and if Lender is required to
repay or restore, in whole or in part, any such Voidable Transfer,  or elects to
do so upon the reasonable  advice of its counsel,  then, as to any such Voidable
Transfer,  or the amount  thereof  that Lender is required or elects to repay or
restore, and as to all reasonable costs,  expenses, and attorneys fees of Lender
related  thereto,  the  liability of Borrower and each  Guarantor  automatically
shall be  revived,  reinstated,  and  restored  and shall  exist as though  such
Voidable Transfer had never been made.

     16.9 Integration.  This Agreement,  together with the other Loan Documents,
reflects  the  entire   understanding   of  the  parties  with  respect  to  the
transactions  contemplated  hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.

                           [Signature page to follow.]




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<PAGE>

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
executed and delivered as of the date first above written.

                                 PENINSULA GAMING COMPANY, LLC,
                                 a Delaware limited liability
                                 company


                                 By:
                                    --------------------------------
                                           M. Brent Stevens
                                    Title: Chief Executive Officer



                                 FOOTHILL CAPITAL CORPORATION,
                                 a California corporation


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



                                      S-1

<PAGE>



                                TABLE OF CONTENTS


1.    DEFINITIONS AND CONSTRUCTION................................1
      1.1  Definitions............................................1
      1.2  Accounting Terms......................................30
      1.3  Code..................................................30
      1.4  Construction..........................................30
      1.5  Schedules and Exhibits................................31
      1.6  Indenture.............................................31

2.    LOAN AND TERMS OF PAYMENT..................................31
      2.1  Revolver Advances.....................................31
      2.2  [Intentionally Omitted.]..............................32
      2.3  Borrowing Procedures and Settlements..................32
      2.4  Payments..............................................33
      2.5  Overadvances..........................................34
      2.6  Interest Rates and Letter of Credit Fee:  Rates,
           Payments, and Calculations............................34
      2.7  [Intentionally Omitted.]..............................36
      2.8  Crediting Payments....................................36
      2.9  Designated Account....................................36
      2.10 Maintenance of Loan Account; Statements of
           Obligations...........................................36
      2.11 Fees..................................................37
      2.12 Letters of Credit.....................................37
      2.13 LIBOR Option..........................................40
      2.14 Capital Requirements..................................43

3.    CONDITIONS; TERM OF AGREEMENT..............................43
      3.1  Conditions Precedent to the Initial Extension of
           Credit................................................43
      3.2  Conditions Subsequent to the Initial Extension of
           Credit................................................46
      3.3  Conditions Precedent to all Extensions of Credit......46
      3.4  Term..................................................47
      3.5  Effect of Termination.................................47
      3.6  Early Termination by Borrower.........................47

4.    CREATION OF SECURITY INTEREST..............................48
      4.1  Grant of Security Interest............................48
      4.2  Negotiable Collateral.................................48
      4.3  Collection of Accounts, General Intangibles, and
           Negotiable Collateral.................................48
      4.4  Delivery of Additional Documentation Required.........49
      4.5  Power of Attorney.....................................49
      4.6  Right to Inspect......................................50

5.    REPRESENTATIONS AND WARRANTIES.............................50
      5.1  No Encumbrances.......................................50


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<PAGE>

      5.2  [Intentionally Omitted.]..............................50
      5.3  [Intentionally Omitted.]..............................50
      5.4  Equipment.............................................50
      5.5  Location of Inventory and Equipment...................50
      5.6  Inventory Records.....................................50
      5.7  Location of Chief Executive Office; FEIN..............50
      5.8  Due Organization and Qualification; Subsidiaries......50
      5.9  Due Authorization; No Conflict........................51
      5.10 Litigation............................................52
      5.11 No Material Adverse Change............................52
      5.12 Fraudulent Transfer...................................52
      5.13 Employee Benefits.....................................53
      5.14 Environmental Condition...............................53
      5.15 Brokerage Fees........................................53
      5.16 Intellectual Property.................................53
      5.17 Leases................................................53
      5.18 DDAs..................................................53
      5.19 Complete Disclosure...................................53
      5.20 Indebtedness..........................................54
      5.21 Licenses and Permits..................................54
      5.22 Gaming Corporation....................................54

6.    AFFIRMATIVE COVENANTS......................................54
      6.1  Accounting System.....................................55
      6.2  Collateral Reporting..................................55
      6.3  Financial Statements, Reports, Certificates...........55
      6.4  Guarantor Reports.....................................57
      6.5  Permitted Investment in Gaming Management.............57
      6.6  Maintenance of Properties.............................58
      6.7  Taxes.................................................58
      6.8  Insurance.............................................58
      6.9  Location of Inventory and Equipment...................61
      6.10 Compliance with Laws..................................61
      6.11 Leases................................................61
      6.12 Brokerage Commissions.................................61
      6.13 Existence.............................................61
      6.14 Environmental.........................................61
      6.15 Disclosure Updates....................................62
      6.16 Government Authorization..............................62
      6.17 License Renewals......................................62
      6.18 Licenses and Permits..................................62
      6.19 Subsidiary Guarantees.................................62



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<PAGE>

7.    NEGATIVE COVENANTS.........................................63
      7.1  Indebtedness..........................................63
      7.2  Liens.................................................63
      7.3  Restrictions on Fundamental Changes...................63
      7.4  Ownership and Disposal of Assets......................64
      7.5  Change Name...........................................65
      7.6  Guarantee.............................................66
      7.7  Nature of Business....................................66
      7.8  Prepayments and Amendments............................66
      7.9  Change of Control.....................................67
      7.10 Consignments..........................................67
      7.11 Distributions.........................................67
      7.12 Accounting Methods....................................69
      7.13 Investments...........................................69
      7.14 Transactions with Affiliates..........................70
      7.15 Suspension............................................71
      7.16 Compensation..........................................71
      7.17 Use of Proceeds.......................................71
      7.18 Change in Location of Chief Executive Office;
           Inventory and Equipment with Bailees..................71
      7.19 [Intentionally Omitted.]..............................71
      7.20 Financial Covenants...................................72
      7.21 Operation of Diamond Jo Vessels.......................72
      7.22 Permitted Tax Distributions...........................72
      7.23 Restrictions on Sale and Issuance of Subsidiary
           Stock.................................................73
      7.24 Membership Interests..................................73
      7.25 Limitation on Restricted Subsidiary Dividends.........73

8.    EVENTS OF DEFAULT..........................................74

9.    LENDER'S RIGHTS AND REMEDIES...............................78
      9.1  Rights and Remedies...................................78
      9.2  Remedies Cumulative...................................81

10.   TAXES AND EXPENSES.........................................82

11.   WAIVERS; INDEMNIFICATION...................................82
      11.1 Demand; Protest.......................................82
      11.2 Lender's Liability for Collateral.....................82
      11.3 Indemnification.......................................82



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<PAGE>

12.   NOTICES....................................................83

13.   CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.................84

14.   ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.................85
      14.1 Assignments and Participations........................85
      14.2 Successors............................................87

15.   AMENDMENTS; WAIVERS........................................87
      15.1 Amendments and Waivers................................87
      15.2 No Waivers; Cumulative Remedies.......................87

16.   GENERAL PROVISIONS.........................................88
      16.1 Effectiveness.........................................88
      16.2 Section Headings......................................88
      16.3 Interpretation........................................88
      16.4 Severability of Provisions............................88
      16.5 Withholding Taxes.....................................88
      16.6 [Intentionally Omitted.]..............................89
      16.7 Counterparts; Telefacsimile Execution.................89
      16.8 Revival and Reinstatement of Obligations..............89
      16.9 Integration...........................................89


                                       iv