Document:

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                                                                     EXHIBIT 4.1

(Rev 1)

                                 LOAN AGREEMENT

         THIS LOAN AGREEMENT (this "Agreement") is dated June , 2003 between and
among Mid-State Raceway, Inc., a New York corporation ("Raceway"), Mid-State
Development Corporation, a New York corporation ("Development", and Raceway and
Development collectively "Borrower") both with a mailing address at P.O. Box
860, Vernon, New York 13476 and Vestin Mortgage, Inc., a Nevada corporation
having an address at 2901 El Camino Avenue, Las Vegas, Nevada 89102 (referred to
herein as the "Lender").

                                    RECITALS

                  WHEREAS, Borrower is the owner of the real property described
on Exhibit "A" annexed hereto (the "Real Property") together with the
improvements thereon, thereunder and/or thereto made (collectively the
"Improvements") and all furniture, fixtures, equipment and other personal
property (tangible, intangible, fixed and contingent) now or hereafter used in
the use, management and operation of the Real Property and/or Improvements (the
"Personal Property", and the Real Property, Improvements and Personal Property
collectively referred to herein as the "Property"); and

                  WHEREAS, the Property is presently encumbered with mortgages
securing $18,000,000 of existing debt (the "Existing Debt") which bears interest
at the rate of 12% per annum and which is payable in full July 31,2004 (subject
to extension for an additional 12 months, in the absence of default and payment
of $900,000.00 in extension fees); and

                  WHEREAS, in order for the Borrower to construct and/or
complete facilities (the "Facilities") sufficient to install and operate
approximately 1,200 video lottery terminals ("VLT's") at its Vernon Downs
facilities, it will be required to expend approximately $2,700,000.00; and

                  WHEREAS, the Borrower desires to borrow from the Lender
$23,000,000.00 (the "Loan") for the purposes of refinancing the Existing Debt,
funding the construction of the Facilities and for working capital as set forth
on Exhibit "B" annexed hereto and made a part hereof.

         NOW, THEREFORE, in consideration of the foregoing and of the covenants,
conditions and agreements contained herein, the Borrower and Lender agree as
follows:

         1. In this Agreement the following terms shall have the following
meanings:

                  (a) "Assignment of Contracts and Permits" -- the Assignment of
Licenses, Permits, Approvals, Contracts, Installment Purchase Agreements and
Equipment Leases to Lender from each of Raceway and Development.

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                  (b) "Assignment of Leases" -- the Assignment of Leases and
Rents to Lender from each of Raceway and Development.

                  (c) "Environmental Indemnity" -- the Hazardous Substances
Indemnity Agreement from Borrower to Lender.

                  (d) "Loan Documents" -- this Agreement, the Note, the
Mortgage, the Assignment of Leases, the Security Agreement, the Environmental
Indemnity, the Assignment of Contracts and Permits, the Financing Statements and
the CD Agreement; and such other documents and agreements as Lender may require
in connection with the Loan, each as the same may be modified or amended from
time to time.

                  (e) "Mortgage" -- (i) the Consolidated and Restated Mortgage,
Assignment of Leases and Rents, Security Agreement and Fixture Filing from
Raceway to Lender encumbering that portion of the Property owned by Raceway and
securing all of Borrower's obligations under the Note and the other Loan
Documents, (ii) the Mortgage, Assignment of Leases and Rents, Security Agreement
and Fixture Filing from Raceway to Lender encumbering that portion of the
Property owned by Raceway and securing all of Borrower's obligations under the
Note and the other Loan Documents, and (iii) the Mortgage, Assignment of Leases
and Rents, Security Agreement and Fixture Filing from Development to Lender
encumbering that portion of the Property owned by Development and securing all
of Borrower's obligations under the Note and the other Loan Documents.

                  (f) "Note" -- (i) the Consolidated Secured Promissory Note
from Borrower to the order of Lender in the original stated principal amount of
up to Twenty Three Million ($23,000,000.00) Dollars, as the same may be modified
or amended from time to time, and (ii) the Secured Promissory Note from Borrower
to the order of Lender in the original stated principal amount of up to Five
Million ($5,000,000.00) Dollars, as the same may be modified or amended from
time to time.

                  (g) "Security Agreement" -- (i) the Security Agreement from
Raceway, as debtor, to Lender, as secured party, and (ii) the Security Agreement
from Development, as debtor, to Lender, as secured party .

                  (h) "Financing Statements" -- the UCC-1 Financing Statements
naming each Borrower as debtor and Lender as secured party and filed with the
offices of the Secretary of the State of New York and in the County of Oneida in
connection with the Mortgage and the Security Agreement.

                  (i) "Title Policy" - both (i) a mortgagee's policy of title
insurance issued by Commonwealth Land Title Insurance Company or another title
insurance company acceptable to Lender in its sole and absolute discretion (the
"Title Company") in the aggregate face amount of $23,000,000.00, and on such
form as shall be acceptable to Lender in its sole and absolute

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discretion, guaranteeing as of the date of the Closing, the Mortgage to be a
valid first and prior lien on Borrower's fee simple interest in the Property
(including any easements appurtenant thereto) and insuring against Indian land
claims, subject only to those encumbrances as shall be acceptable to Lender in
its sole and absolute discretion (the "Permitted Encumbrances"), and (ii) an
owner's policy of title insurance issued by the Title Company, and on such form
as shall be acceptable to Lender in its sole and absolute discretion,
guaranteeing as of the date of the Closing, the Borrower's fee simple interest
in the Property (including any easements appurtenant thereto) subject only to
those encumbrances as shall be acceptable to Lender in its sole and absolute
discretion (the "Permitted Encumbrances). The Title Policy shall contain such
endorsements as Lender may reasonably require.

                  (j) "Closing" - the date (within 30 days of the date hereof)
designated by the Lender (upon no less than 3 days prior written notice to the
Borrower) at which the Initial Disbursement (as defined) shall be made by the
Lender to or for the benefit of the Borrower as herein provided. The Closing
shall take place at the offices of the Borrower in Vernon, New York, at 10:00 on
the date so designated by the Lender.

                  (l) "Allcap Note" - the Consolidated Secured Promissory Note
dated January 29, 2003 executed by the Borrower in favor of All Capital, LLC
("Allcap") in the aggregate principal amount of $18,000,000.00.

                  (m) "Allcap Mortgage" - the Consolidated and Restated
Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing
dated January 29, 2003 executed by Raceway in favor of Allcap and securing the
Allcap Note.

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                  (n) ""Development Mortgage" - the Mortgage, Assignment of
Leases and Rents, Security Agreement and Fixture Filing dated January 29, 2003
executed by Development in favor of Allcap and securing the Allcap Note.

                  (o) "Impositions" -- All taxes of every kind and nature, sewer
rents, charges for water, for setting or repairing meters and for all other
utilities serving the Property, and assessments, levies, inspection and license
fees and all other charges imposed upon or assessed against the Property or any
portion thereof (including the income derived from the Property), and any stamp
or other taxes which might be required to be paid with respect to any of the
Loan Documents, any of which might, if unpaid, result in a lien on the Property
or any portion thereof, regardless of to whom assessed.

                  (p) "Assigned Documents" - all of the Allcap Mortgage, the
Development Mortgage, the Allcap Note, the security agreement, financing
statements on From UCC-1, assignment of leases and rents, assignment of
licenses, permits, approvals, contracts, installment purchase agreements and
equipment leases and hazardous substances indemnity agreement all executed by
the Borrower in favor of Allcap.

                  2.(a) On the basis of the covenants, agreements and
representations of Borrower contained in, and subject to the terms and
conditions set forth in, this Agreement and the other Loan Documents , Lender
agrees to lend to Borrower the principal sum of up to Twenty Three Million
($23,000,000.00) Dollars. The terms and conditions of the Loan as set forth in
the Loan Documents are hereby incorporated herein by reference with the same
full force and effect as if set forth herein in full. The proceeds of the Loan
shall be disbursed by Lender: (i) for the payment of those items described on
Exhibit "B" ; (ii) to pay certain closing costs approved by Lender in connection
with the Loan; (iii) to fund working capital and (iv) to fund the construction
of the Facilities. Borrower shall use the Loan proceeds for the purpose for
which they were advanced and for no other purpose.

                  (b) Subject to the satisfaction of the terms and conditions
herein contained, there shall be disbursed to or for the benefit of the
Borrower, at the Closing, the aggregate amount of $20,300,000.00 (the "Initial
Disbursement") which shall be applied by or for the benefit of the Borrower as
set forth on Exhibit "B-1".

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                  (c) The remaining $2,700,000.00 proceeds of the Loan shall be
disbursed by Lender as provided in Paragraph 4 hereof.

               3. (a) It shall be a condition precedent to Lender's obligation
to make the Loan that at or before the Closing, Borrower shall execute and
deliver or cause to be duly executed and delivered to Lender all of the Loan
Documents and that all of the Loan Documents shall be satisfactory to Lender in
form and substance.

                  (b) In addition to the Loan Documents, prior to the Closing,
Borrower shall deliver or cause to be delivered to Lender each of the following,
all of which shall be in form and substance satisfactory to Lender and each of
which shall be a condition precedent to Lender's obligation to make the Loan:

                           (i) The Title Policy;

                           (ii) A survey of the Land and Improvements, certified
to Lender and the Title Company by a surveyor reasonably satisfactory to Lender,
which survey shall contain the minimum detail for land surveys as most recently
adopted by ALTA/ASCM, and which survey shall comply with Lender's survey
requirements and shall contain a form certification reasonably acceptable to
Lender. Said survey shall show no state of facts or conditions objectionable to
Lender in the exercise of its reasonable discretion.

                           (iii) An opinion of Borrower's counsel dated the date
of the Closing and relating to such matters with respect to this Agreement and
the transaction contemplated hereby (including usury and the compliance of the
all Loan Documents with all applicable laws) as Lender may reasonably require,
including without limitation those matters set forth on Exhibit "C" annexed
hereto. By its execution and delivery of this Agreement, Borrower authorizes and
directs such counsel to render such opinion.

                           (iv) The insurance policies described on Exhibit "D"
annexed hereto, or certificates of insurance evidencing the same.

                           (v) Uniform Commercial Code searches made in the
State of New York and County of Oneida showing no filings relating to Property
other than those made pursuant to this Agreement and/or assigned to the Lender
as hereinprovided and/or as set forth on the Schedule of Exceptions.

                           (vi) Certified copies of Borrower's certificate of
incorporation, by-laws, certificates of good standing for the State of New York
and original corporate resolutions and certificates of incumbency with specimen
signatures for the authorized officer(s).

                           (vii) An environmental site assessment with respect
to the Real Property and Improvements prepared by an environmental consultant
reasonably satisfactory to Lender showing no matters unsatisfactory to Lender
(in the exercise of its reasonable discretion), a letter

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from the consultant preparing the environmental site assessment stating that
Lender is authorized to rely on the information contained therein, and evidence
reasonably satisfactory to Lender of said environmental consultant's errors and
omissions insurance coverage.

                           (viii) Certified copies of all leases with respect to
a portion of the Real Property or Improvements which shall be satisfactory to
Lender in its sole discretion, together with a subordination, non-disturbance
and attornment agreement executed by each such tenant.

                           (ix) Evidence reasonably satisfactory to the Lender
that the Property has all required and applicable licenses, permits and
approvals as Lender or any governmental authority having jurisdiction over the
Borrower and/or the Property may require in connection with the use and
occupancy of the Property as currently used and occupied.

                           (x) Certified copies of all operating agreements,
service contracts and equipment leases, if any, relating to Borrower's ownership
and operation of the Property.

                           (xi) Evidence reasonably satisfactory to Lender as to
the zoning compliance of the Property.

                           (xii) Such other documents and instruments as Lender
may reasonably require.

                           (xiii) Payment to the Lender of the amounts described
in Paragraph 5 hereof.

                           (xiv) Evidence reasonably satisfactory to the Lender
of the payment, or agreement for the payment, of all real estate taxes and other
assessments and charges due at or prior to the Closing at or prior to the
Closing; or, alternatively, the elimination in the Title Policy of such real
estate taxes as an exception to coverage provided by such Title Policy.

                           (xv) Evidence reasonably satisfactory to the Lender
that notification of the within transaction to all racing authorities having
jurisdiction over the Borrower and/or its business and operations shall have
been completed, if required, and all consents and approvals of such authorities,
if any, shall have been received.

                           (xvi) An appraisal of the Property in form and
content reasonably acceptable to the Lender.

                           (xvii) Assignments in favor of the Lender of each of
the Assigned Documents; each of which assignments shall be without recourse
against the assignor thereof.

                4. (a) So long as no Event of Default exists, Lender shall, on
the terms and conditions set forth below, make advances (each an "Advance" and
collectively the "Advances) to Borrower (on no more than nine occasions) of up
to an aggregate amount of $2,700,000.00;

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provided however that no such advance shall be for less than $100,000.00 nor be
made subsequent to the Maturity Date (as defined in the Note). The Advances
shall be made by Lender and utilized by the Borrower, for the purposes set forth
on Exhibit "B-2" annexed hereto.

                  (b) Prior to the first Advance (and as a condition precedent
thereto):

                           (i) the Borrower shall have delivered to the Lender,
all in form and content reasonably acceptable to the Lender:

                                    (A) a budget ("Budget") for the construction
of the Facilities broken down by line items;

                                    (B) a construction schedule ("Construction
Schedule") indicating the anticipated date of commencement of construction of
the Facilities ("Commencement Date") and for the completion of the construction
of the Facilities ("Completion Date");

                                    (C) plans and specifications ("Plans and
Specification") for the construction of the Facilities prepared by a licensed
architect (the "Architect") pursuant to an agreement with the Borrower
("Architecture Contract");

                                    (D) a guaranteed maximum price construction
contract ("Construction Contract") with a licensed general contractor
("Contractor") pursuant to which (y) the Contractor is obligated to construct
the Facilities in accordance with the Plans and Specifications prior to the
expiration of the Construction Schedule, and (z) 10% of each line item on the
Budget is subject to retention which shall only be payable upon completion of
the Facilities (as certified by the Architect and Contractor) and issuance of
all required use and operation permits and licenses including a certificate of
occupancy ; and

                                    (E) a Schedule of Requested Advances (which
schedule shall include the dates upon which it is anticipated each Advance will
be requested and the amount Borrower anticipates drawing on each such date); and

                                    (F) a construction disbursement agreement
(the "CD Agreement") among the Lender, the Borrower and Disbursement Management,
Inc., a Nevada corporation (the "Agent") with respect to the deposit with and
disbursement by the Agent of the proceeds of the Advances on terms and
conditions reasonably acceptable to the Lender;

                           (ii) Borrower shall have provided such policy or
policies of worker's compensation insurance as may be required by applicable
worker's compensation insurance laws (including employer's liability insurance,
if required by Lender), covering all employees of Borrower and the Contractor;

                           (iii) Borrower shall have provided a policy or
policies of builder's "all risk" insurance in an amount not less than the full
insurable completed value of the Property on a

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replacement cost basis. The policy or policies shall insure against loss or
damages by hazards customarily included within such 'all risk' policies and any
other risks or hazards which Lender may reasonably specify, and each shall
contain a Lender's Loss Payable Endorsement (Form 438 BFU or equivalent) in
favor of Lender;

                           (iv) Borrower shall have provided comprehensive
liability insurance naming Lender as an additional insured, on an "occurrence"
basis against claims for personal injury' liability, including bodily injury,
death or property damage liability, with a limit of not less than one million
dollars ($1,000,000.00). Such insurance shall be primary and noncontributory
with any other insurance carried by Lender;

                           (v) the Lender shall have approved the Budget;

                           (vi) the Lender shall have approved the Plans and
Specifications;

                  (c) Subject to the satisfaction of the provisions of
subparagraph 4(b) hereof and the provisions of subparagraph 4(d) hereof, Lender
shall make each Advance within ten (10) Business Days following the
satisfaction, in the sole discretion of Lender, of each of the following
conditions:

                           (i) No Advance shall be made in an amount of less
than $100,000;

                           (ii) There shall be no more than nine Advances and no
more than one per month; and no Advance shall be made more than 12 months
following the Closing;

                           (iii) Borrower shall have submitted to Lender a
completed request for advance (a "Request for Advance") in form and content
reasonably acceptable to Lender (and, if requested by Lender, certified by
Architect and Contractor that the Facilities as constructed to date conform to
the Plans and Specifications); which Request for Advance shall, among other
things, describe which of the items set forth on the Budget will be satisfied
with the proceeds of such Advance. Unless Borrower has notified Lender in
writing to the contrary, each Request for Advance shall constitute Borrower's
representation and warranty to Lender that (A) the Loan is "in balance", (B) all
prior disbursements, as well as that currently being requested, were and will be
used in strict compliance with the Budget, (C) no Event of Default has occurred,
and no event has occurred with notice or the passage of time could become an
Event of Default, and (D) the materials have been installed and the work
performed ;

                           (iv) Borrower shall have submitted documentary
evidence reasonably acceptable to Lender that Borrower has applied all prior
proceeds of the Loan in accordance with the terms and conditions of this
Agreement and the other Loan Documents;

                           (v) Lender may make Advances (A) payable directly to
Borrower, or (B) payable jointly to Borrower and third party payees, (C) payable
directly to third parties on behalf and for the benefit of Borrower, or (D) to
Disbursement Management, Inc.;

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                           (vi) Borrower shall be deemed to have remade, as of
the date of each Advance, each and every representation and warranty made by
Borrower in this Agreement and in every other Loan Document, and every such
representation and warranty shall be true and correct at the time of each
Advance;

                           (vii) Borrower shall have delivered to Lender an
endorsement to the Title Policy, which endorsement: (A) insures Lender against
unfiled mechanic's liens; (B) increases the coverage under said policy to the
full principal amount then advanced under the Loan; (C) insures that, since the
date of the policy or the most recent endorsement to the policy, there has been
no change in the status of title to the Property (except for the lien of unpaid
taxes, not yet due and payable), and (D) changes the effective date of the
policy to the date of the Advance being made by Lender;

                           (viii) Borrower shall have satisfied such other
conditions to any Advance which Lender may reasonably require or impose;

                           (ix) Since the date of the Loan Agreement there shall
have been no material adverse change in the business, operations or financial
condition of the Borrower;

                           (x) the Borrower shall have demonstrated to the
reasonable satisfaction of the Lender that (A) the sum of the remaining funds
subject to advancement under this Loan Agreement together with other readily
available proceeds from equity and/or debt financings and working capital, equal
or exceed (B) the remainder payable under the Construction Contract with respect
to the completion of the Facilities; and

                           (xi) At the time of each Advance the CD Agreement,
Architecture Contract, Construction Contract and the VLT Licenses shall be in
full force and effect and no breach thereof by Borrower shall have occurred or
be continuing.

                  (d) Anything in this Paragraph 4 to the contrary
notwithstanding the Lender shall not be required to make any further Advances
if:

                           (i) The Facilities are materially damaged and not
repaired, unless Lender receives funds from Borrower or insurance proceeds
sufficient to pay for all repairs in a timely manner; or

                           (ii) The Property or any interest in it is affected
by eminent domain or condemnation proceedings; or

                           (iii) For any reason the title insurer fails or
refuses at Lender's request to issue a CLTA Form 122 endorsement or its
equivalent, a CLTA Form 102.5 foundation endorsement (when foundation is
poured), or any other title policy endorsement that Lender in its reasonable
judgment ; or

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                           (iv) Lender receives a notice of lien claim, unless
Borrower obtains a release or procures a surety bond satisfactory to Lender in
its reasonable judgment; or

                           (v) The Loan is "out of balance" in that the
remaining proceeds of the Loan are not sufficient to pay, in full, all remaining
sums payable under the Construction Contract, and Borrower fails to comply with
any demand by Lender to deposit funds with the Lender in a sufficient amount to
offset any such shortfall; or

                           (vi) The Borrower violates any of the covenants set
forth in subparagraph 4(e) hereof and any such violation is neither cured by the
Borrower and/or waived by the Lender;

                  (e) In order to induce the Lender to make the Advances, the
Borrower expressly covenants as follows:

                           (i) Borrower shall commence construction of the
Facilities within thirty (30) days after the Commencement Date and shall
diligently continue construction to completion, no later than the Completion
Date;

                           (ii) By the Completion Date, Borrower shall have
completed construction of all the Facilities, which shall consist of the
structural components, operating systems and all other elements of such
buildings, except for tenant improvements, if any. The Facilities shall be
deemed complete for all purposes of this Agreement when they have been
substantially completed in accordance with the Plans and Specifications, as
evidenced by the written certification of the Architect and the Contractor in a
form satisfactory to Lender, Borrower has received a certificate of occupancy
from the appropriate governmental authorities, and all costs and liens relating
to the completed Facilities have been paid or discharged;

                           (iii) Borrower shall construct the Facilities in a
good and workmanlike manner in accordance with sound building practices as well
as the Plans and Specifications and the recommendations of any soils report
which is satisfactory to Lender. Borrower shall comply with all existing and
future laws, regulations, orders, building codes, restriction and requirements
of, and all agreements with and commitments to, all governmental, judicial or
legal authorities having jurisdiction over the Property, including those
pertaining to the construction, sale, leasing or financing of the Improvements,
and with all recorded covenants and restrictions affecting the Property (all
collectively, the "Requirements");

                           (iv) Borrower shall obtain the prior express written
approval of Lender for any change in the Plans and Specifications which:

                                    (A) might adversely affect the value of
Lender's security; or

                                    (B) regardless of cost, is a material change
in structure, design, function or exterior appearance; or

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                                    (C) would cause the amount of any line item
or category of the Budget to be materially changed (whether an increase or
decrease); or

                                    (D) might delay completion of the Facilities
beyond the Completion Date;

                           (v) Borrower shall obtain the prior express written
approval of Lender for all material changes in the scope or general conditions
of the Construction Contract, the Architecture Contract, or any other contracts
for the construction of the Facilities. Finally, Borrower shall obtain from the
appropriate persons or entities all approvals of any changes in plans,
specifications, work, materials or contracts that are required by any of the
Requirements or other agreement relating to the Property

                           (vi) Within fifteen (15) days after receiving
notification from Lender, Borrower shall deliver to Lender any and all of the
following information and documents that Lender may request, all in forms
acceptable to Lender:

                                    (A) Current plans and specifications for the
Facilities certified by the Architect as being complete and accurate;

                                    (B) A current, complete and correct list
showing the name, address and telephone number of each contractor, subcontractor
and material supplier engaged in connection with the construction of the
Facilities, and the total dollar amount of each contract and subcontract
(including any changes) together with the amounts paid through the date of the
list;

                                    (C) True and correct copies of the most
current versions of all executed contracts and subcontracts identified in the
list described in clause (B) above, including any changes;

                                    (D) A current construction progress schedule
showing the progress of construction and the projected sequencing and completion
times for uncompleted work, all as of the date of schedule;

                                    (E) Any update to any item described above,
which Borrower may have previously delivered to Lender; and

                                    (F) As-built plans and specifications for
the Facilities as actually completed, certified by the Architect as being
complete and accurate;

                           (vii) Borrower shall properly obtain, comply with and
keep in effect all permits, licenses and approvals which are required to be
obtained from governmental bodies in order to construct, occupy and operate
Facilities. Borrower shall promptly deliver copies of all such permits, licenses
and approvals to Lender;

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                           (viii) Borrower shall not purchase or contract for
any materials, equipment, furnishings, fixtures or articles of personal property
to be placed or installed in any Facilities under any security agreement or
other agreement where the seller reserves or purports to reserve title or the
right of removal or repossession, or the right to consider them personal
property after their incorporation in the work of construction, unless Lender in
each instance authorized Borrower to do so in writing;

                           (ix) Lender and its agents and representatives shall
have the right at any time to enter and visit the Property for the purposes of
performing an appraisal, observing the work of construction and examining the
materials, plans, specifications, working drawings and other matters relating to
the construction. For purposes of these site visits, Borrower shall at all times
maintain a full set of working drawings at the construction site. Lender shall
also have the right to examine, copy and audit the books, records, accounting
data and other documents of Borrower and its contractors which relate to the
Property or construction of Facilities. In each instance, Lender shall give
Borrower notice before entering the Property. Lender shall make an effort to
avoid interfering with Borrower's use of the Property when exercising any of the
rights granted in this subparagraph (ix);

                           (x) If Lender in its reasonable judgment determines
that any work or materials fail to conform to the approved Plans and
Specifications or sound building practices, or that they otherwise depart from
any of the requirements of this Agreement, Lender may cause the work to be
stopped and withhold disbursements until the matter is correct. If this occurs,
Borrower shall promptly correct the work to Lender's satisfaction, and pending
completion of such corrective work shall not allow any other work to proceed. No
such action by Lender shall affect Borrower's obligation to complete the
Facilities on or before the Completion Date;

                           (xi) Lender is under no duty to visit the
construction site, or to supervise or observe construction or to examine any
books or records. Any site visit, observation or examination by Lender shall be
solely for the purpose of protecting Lender's rights and interests. No site
visit, observation or examination by Lender shall impose any liability on Lender
or result in a waiver of any default of Borrower. In no event shall any site
visit, observation or examination by Lender be a representation that there has
been or shall be compliance with the Plans and Specifications, that the
construction is free from defective materials or workmanship, or that the
construction complies with the Requirements or any other applicable governmental
law. Neither Borrower nor any other party is entitled to rely on any site visit,
observation or examination by Lender. Lender owes no duty of care to protect
Borrower of any other party against, or to inform Borrower or any other party
of, any negligent or defective design or construction of the Facilities, or any
other adverse condition affecting the Property;

                           (xii) Borrower shall promptly pay or otherwise
discharge all claims and liens for labor done and materials and services
furnished in connection with the construction of the Facilities. Borrower shall
have the right to contest in good faith any claim or lien, provided

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that it does so diligently and without prejudice to Lender or delay in
completing Facilities. Upon Lender's request, Borrower shall promptly provide a
bond, cash deposit, or other security which Lender in its sole judgment
determines to be satisfactory;

                           (xiii) Borrower shall cooperate at all times with
Lender in bringing about the timely completion of the Improvements, and Borrower
shall resolve all disputes arising during the work of construction in a manner
which shall allow work to proceed expeditiously;

                           (xiv) Borrower shall promptly notify Lender in
writing of:

                                    (A) Any litigation(s) affecting Borrower,
where the aggregate amount claimed is Fifty Thousand Dollars ($50,000.00) or
more;

                                    (B) Any communication, whether written or
oral, that Borrower may receive from any governmental, judicial or legal
authority, giving notice of any claim or assertion that the Property fails in
any respect to comply with any of the Requirements or any applicable
governmental law;

                                    (C) Any material adverse change in the
physical condition of the Property (including any damage suffered as a result of
earthquakes or floods) or Borrower's financial condition or operations; and

                                    (D) Any default by the Contractor or any
subcontractor, material supplier, surety, or any material adverse change in the
financial conditions of operations of any of them known to the Borrower;

                                    (E) The recording of any and all liens
against the Property; and

                           (xv) Borrower agrees to indemnify and hold Lender
harmless from and against all liabilities, claims, actions, damages, costs and
expenses (including all legal fees and expenses of Lender's counsel) arising out
of or resulting from the construction or ownership of the Facilities or the
Property, including any defective workmanship or materials; or Lender's
performance of any act permitted under the Loan Documents (excluding Lender's
willful misconduct); or breach of any representation or warranty made or given
by Borrower to Lender; or breach of any obligation of Borrower contained in any
Loan Documents or any claim or cause of action of any kind by any party that
Lender is liable for any act or omission committed or made by Borrower or any
other person or entity in connection with the ownership, operation or
development of the Property, whether on account of any theory of derivative
liability, comparative negligence or otherwise. Upon demand by Lender, Borrower
shall defend any action or proceeding brought against Lender arising out of or
alleging any claim or cause of action covered by this indemnity, all at
Borrower's own costs and by counsel to be approved by Lender in the exercise of
its reasonable judgment. In the alternative, Lender may elect to conduct its own
defense at the expense of Borrower. Notwithstanding anything to the contrary in
any other Loan Document, the provisions of this subparagraph shall survive the
termination of

                                      -13-

<PAGE>

this Agreement and the repayment of the Loan or foreclosure of the Mortgage or
similar proceedings; and

         5. At the Closing the Borrower shall:

                  (a) pay to the Lender (out of the proceeds of the Initial
Disbursement) a Commitment and Loan Fee in the aggregate amount of
$1,840,000.00_(equal to 8 % of the Loan); and

                  (b) deposit with the Lender (out of the proceeds of the
Initial Disbursement) as an interest reserve (the "Interest Reserve") the amount
of $1,686,666.66; the proceeds of which Interest Reserve the Lender shall apply
in satisfaction of the first to mature interest payment obligations of the
Borrower under the Note; and

                  (c) reimburse Lender (out of the proceeds of the Initial
Disbursement) for the following costs of the Lender incurred in connection with
the subject transaction: all customary closing costs including, without
limitation, the fees and disbursements of Lender's legal counsel; the expense of
all Phase I environmental assessments and other environmental testing, if
required, appraisal fees; engineering fees, if required; title insurance
premiums, survey fees; mortgage recording taxes and document recording charges;
Lender's documentation and underwriting fees (estimated at $3,000.00) and

                  (d) make or cause to be made (out of the proceeds of the
Initial Disbursement) the remainder of the disbursements sets forth in Exhibit
"B-1".

         6. Unless otherwise specifically provided herein to the contrary, (a)
all funds of Borrower which are deposited with Lender pursuant to this Agreement
or any other Loan Document may be commingled with Lender's general funds (and no
interest shall accrue and/or be payable to the Borrower with respect thereto);
(b) to secure all of Borrower's obligations to Lender under the Loan Documents,
Borrower hereby grants to Lender a security interest in all funds now or
hereafter deposited with Lender or otherwise in Lender's possession, custody or
control pursuant to the provisions of this Agreement or any other Loan Document,
, (c) so long as any Event of Default exists, Lender shall have such rights with
respect to such funds and any interest accrued thereon as are provided by
applicable law and may apply such funds towards the satisfaction of Borrower's
obligations hereunder or under any other Loan Documents, and (d) at the request
of Lender, Borrower shall execute and deliver from time to time such documents
as may be necessary or appropriate, in Lender's reasonable judgment, to assure
Lender that it has a first priority perfected security interest in and lien on
all funds deposited pursuant to this Agreement.

         7. In order to induce the Lender to execute and perform this Agreement
and to make the Loan, Raceway and Development do hereby jointly and severally
represent, warrant, covenant and agree (which representations, warranties,
covenants and agreements shall be and be deemed to be continuing and survive the
execution, delivery and performance of this Agreement and the

                                      -14-

<PAGE>

Note) as follows:

                  (a) Each of Raceway and Development is a corporation duly
organized, validly existing and in good standing under the laws of State of New
York, with full power and authority, corporate and otherwise, and (except as
herein expressly provided to the contrary) with all licenses, permits,
certifications, registrations, approvals, consents and franchises necessary to
own or lease and operate its properties and to conduct its business as presently
being conducted. Each of Raceway and Development is duly qualified to do
business and is in good standing, in each jurisdiction where the conduct of its
business or the ownership of its assets requires such qualification;

                  (b) (i) The Borrower has the full power and authority,
corporate and otherwise, to execute, deliver and perform this Agreement, the
Note, the Mortgage, the Security Agreement and the remainder of the Loan
Documents and all instruments and documents executed and delivered with respect
thereto (collectively the "Transactional Documents") and to consummate the
transactions contemplated hereby; (ii) The execution, delivery and performance
of the Transactional Documents and the consummation of the transactions herein
contemplated by the Borrower have been duly authorized by all necessary
corporate and other action, and the Transactional Documents have been duly and
properly authorized, executed and delivered by the Borrower; (iii) The
Transactional Documents are the valid and binding obligations of the Borrower,
enforceable in accordance with their respective terms, subject, as to
enforcement of remedies, to applicable bankruptcy, insolvency, reorganization,
moratorium and other laws affecting the rights of creditors generally and the
discretion of courts in granting equitable remedies; (iv) The execution,
delivery and performance of the Transactional Documents does not, and will not,
with or without the giving of notice or the lapse of time, or both, (A) result
in any violation of the Certificate of Incorporation or By-Laws of the Borrower,
(B) result in a breach of or conflict with any of the terms or provisions of, or
constitute a default under, or result in the modification or termination of, or
result in the creation or imposition of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Borrower and/or pursuant
to, any indenture, mortgage, note, contract, commitment or other agreement or
instrument to which the Borrower is a party or by which the Borrower or any of
its properties or assets are or may be bound or affected; (C) violate any
existing applicable law, rule, regulation, judgment, order or decree of any
governmental agency or department, domestic or foreign, having jurisdiction over
the Borrower or any of its properties or businesses; or (D) have any effect on
any permit, certification, registration, approval, consent, license or franchise
necessary for the Borrower to own or lease and operate its properties and to
conduct its businesses or the ability of the Borrower to make use thereof. No
consent, approval, authorization or order of any court, governmental agency,
authority or body and/or any party to an agreement to which the Borrower is a
party and/or by which it is bound, is required in connection with the execution,
delivery and performance of Transactional Documents, and/or the consummation of
the transactions contemplated by Transactional Documents;

                  (c) The Borrower is not in violation of, or in default under,
(i) any term or provision of its constitutional documents; (ii) any material
term or provision or any financial

                                      -15-

<PAGE>

covenant of any indenture, mortgage, contract, commitment or other agreement or
instrument to which it is a party or by which it or any or its properties or
business is or may be bound or affected (except for claims set forth on the
Exception Schedule, as defined); or (iii) any existing applicable law, rule,
regulation, judgment, order or decree of any governmental agency or court,
domestic or foreign, having jurisdiction over it or any of its properties or
business. Except as set forth on the Exception Schedule (as defined) the
Borrower owns, possesses or has obtained all governmental and other licenses,
permits, certifications, registrations, approvals or consents and other
authorizations necessary to own or lease, as the case may be, and to operate its
properties and to conduct its business or operations as presently conducted and
all such governmental and other licenses, permits, certifications,
registrations, approvals, consents and other authorizations are outstanding and
in good standing, and there are no proceedings pending or, to the best of its
knowledge, threatened, or any basis therefore existing, seeking to cancel,
terminate or limit such licenses, permits, certifications, registrations,
approvals or consents or authorizations, or related to the breach or failure to
comply of the Borrower with any law, rule, regulation, judgment, order or
decree;

                  (d) The Borrower has not incurred any liability for any
finder's fees or similar payments in connection with the transactions herein
contemplated in the Transactional Documents except as set forth herein;

                  (e) Except as set forth on the Exception Schedule annexed
hereto as Exhibit "E", the Borrower is not in default, in any material respect,
under the terms of any outstanding agreement relating to the its business and
operations (collectively "Business") or its assets (collectively "Operating
Assets") or any part thereof, as the case may be; and to the best knowledge and
belief of the Borrower, there exists no event of default or event which, with
notice and/or the passage of time, or both, would constitute any such default;

                  (f) Except as set forth on the Exception Schedule, there are
no claims, actions, suits, proceedings, arbitrations, investigations or
inquiries before any court or governmental agency, court or tribunal, domestic,
or foreign, or before any private arbitration tribunal, pending, or, to the best
of the knowledge of the Borrower, threatened against the Borrower. As to those
items listed on the Exception Schedule none (other than the claims with respect
to the Exclusive Option Agreement and/or the claims of Dominic Giambona and John
Signorelli), if determined adversely to the Borrower, as the case may be, would,
individually or in the aggregate, have a material adverse effect on the Business
or Operating Assets of the Borrower as the case may be, or which question the
validity of the Transactional Documents or of any action taken or to be taken by
the Borrower pursuant to, or in connection with, Transactional Documents; nor,
to the best of the knowledge of the Borrower, after inquiry, is there any basis
for any such claim, action, suit, proceeding, arbitration, investigation or
inquiry to be made by any person and/or entity, including without limitation any
customer, supplier, lender, stockholder, former or current employee, agent or
landlord. Other than as set forth on the Exception Schedule, there are no
outstanding orders, judgments or decrees of any court, governmental agency or
other tribunal specifically naming the Borrower and/or enjoining it from taking,
or requiring it to take, any action, and/or by which it or its properties or
businesses are bound or subject;

                                      -16-

<PAGE>

                  (g) The Borrower has paid and/or provided for the payment (at
or prior to the Closing) of all employment related taxes (including withholding
taxes) with respect to its employees;

                  (h) There are no benefit programs, collective bargaining
agreements, or pension plans applicable to the Borrower's employees other than
as set forth on the Exception Schedule;

                  (i) All compensation and benefit payments including vacation,
holiday and sickness payments (but exclusive of accruals required to be paid to
employees of the Borrower has been paid other than as set forth on the Exception
Schedule;

                  (j) The Financial Statements described on Exhibit "F" fairly
present the financial position of the Borrower as of the respective dates
thereof and the results of operations, and changes in financial position of the
Borrower, for each of the periods covered thereby. The Financial Statements have
been prepared in conformity with generally accepted accounting principles,
applied on a consistent basis throughout the entire periods involved. As of the
date of the balance sheet forming a part of the Financial Statements, and except
as and to the extent reflected or reserved against therein, the Borrower has no
material liabilities, debts, obligations or claims (absolute or contingent)
asserted against it and/or which should have been reflected in a balance sheet
or the notes thereto; and all assets reflected thereon are properly reported and
present fairly the value of the assets therein stated in accordance with
generally accepted accounting principles;

                  (k) The financial and other books and records of the Borrower
(i) are in all material respects true, complete and correct and have, at all
times, been maintained in accordance with good business and accounting
practices; (ii) contain a complete and accurate description, and specify the
location, of all trucks, automobiles, machinery, equipment, furniture, supplies,
tools, drawings and all other tangible property (collectively the " Book
Property") owned by, in the possession of, or used by the Borrower in connection
with the operation of Business; (iii) except as set forth on the Exception
Schedule , none of such Book Property is leased or subject to a security
agreement, conditional sales contract or other title retention or security
agreement or is other than in the possession of, and under the control of, the
Borrower, and (iv) the Book Property reflected in such books and records
constitutes all of the tangible and intangible property necessary for the
conduct of the Business; and all of the same is in normal operating condition
and the use thereof as presently employed conforms to all applicable laws and
regulations;

                  (l) The Borrower owns and has good and marketable title in and
to all of its real and personal assets, properties and interests in properties
(except for leased assets described on the Exception Schedule) which are
reflected in the balance sheet included in the Financial Statements and/or
utilized in connection with the operation of the Business and/or acquired after
that date (except to the extent any of the same were disposed of since such date
in the ordinary

                                      -17-

<PAGE>

course of business), in all cases, free and clear of all liens, security
interests, claims and encumbrances of every kind, nature and description and
rights and options of others except as expressly set forth in such balance sheet
or Exception Schedule;

                  (m) The Exception Schedule contains a schedule setting forth a
description of (i) each parcel of improved or unimproved real property owned by
or leased to the Borrower; (ii) all buildings, fixtures and other improvements
situated on or affixed to each designated parcel; and (iii) each title insurance
policy, if any, insuring any of such parcels. Such schedule is true correct and
complete in all respects; each of such leases are in full force and effect with
no event of default in existence or event or occurrence which, with the passage
of time and/or giving of notice, would or could mature into an event of default
thereunder;

                  (n) The Borrower owns all trademarks, service marks, trade
names, copyrights, similar rights and their registrations, trade secrets,
methods, practices, systems, ideas, know how and confidential materials used or
proposed to be used in the conduct of Business (COLLECTIVELY THE "INTANGIBLES")
free and clear (except as set forth on the Exception Schedule) of all liens,
claims and encumbrances and rights and options of third parties (including,
without limitation, former or present officers, directors, shareholders,
employees and agents); The Borrower has not licensed or leased any of the
Intangibles and/or any interest therein to any person and/or entity; The
Borrower has not infringed, nor is infringing, upon the rights of others with
respect to the Intangibles; and the Borrower has not received any notice of
conflict with the asserted rights of others with respect to the Intangibles
which could, singly or in the aggregate, materially adversely affect its
business as presently conducted or prospects, financial condition or results of
operations, and the Borrower knows of any basis therefore; and, to the best of
the knowledge of the Borrower, no others have infringed upon the Intangibles;

                  (o) The Exception Schedule contains a schedule setting forth
is a true, correct and complete schedule of all insurance policies maintained by
the Borrower ; and the Borrower has insured its properties against loss or
damage by fire or other casualty, including liability insurance for acts or
omissions of employees, in an amount sufficient to preclude the Borrower from
being a co-insurer with respect to any claim;

                  (p) Except as and to the extent reflected or reserved against
in the Financial Statements, the Borrower did not have, as at date of such
Financial Statements, any material liabilities, debts, obligations or claims
asserted against it, whether accrued, absolute, contingent or otherwise, and
whether due or to become due, including, but not limited to, liabilities on
account of due and unpaid taxes, other governmental charges or lawsuits;

                  (q) The Borrower has filed all federal, state, municipal and
local tax returns (whether relating to income, sales, franchise, withholding,
real or personal property or otherwise) required to be filed under the laws of
the United States and all applicable states, and (except as set forth on the
Exception Schedule) has paid in full all taxes which are due pursuant to such
returns or claimed to be due by any taxing authority or otherwise due and owing.
No penalties or other charges are or will become due with respect to the late
filing of any such return. To the

                                      -18-

<PAGE>

best of the knowledge of the Borrower, after due investigation, each such tax
return heretofore filed by the Borrower correctly and accurately reflects the
amount of its tax liability thereunder. The Borrower has withheld, collected and
paid all other levies, assessments, license fees and taxes to the extent
required and, with respect to payments, to the extent that the same have become
due and payable;

                  (r) Except as set forth on the Exception Schedule, since the
date of the Financial Statements, the Borrower has not sustained any material
loss or interference with its business of any kind, nature or description
including, without limitation, from fire, storm, explosion, flood or other
casualty, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree; nor have there been any material
adverse change in or affecting the general affairs, management, financial
condition, equity, results of operations or properties of the Borrower;

                  (s) Other than as set forth on Exception Schedule, the
Borrower is not a party (i) to any contract or agreement calling for the payment
of more than $10,000 per annum or $25,000 in the aggregate and/or which cannot
be terminated on not more than 90 days' prior written notice to the other party
thereto; (ii) to any profit sharing, bonus, deferred compensation, pension or
retirement plan, severance policy or other similar agreement or arrangement;
(iii) to any collective bargaining agreement; or (iv) to any agreement not
entered into in the ordinary course of business except those related to the
transactions contemplated by the Transactional Documents;

(t) The copies of the constitutional documents of the Borrower heretofore
delivered to the Lender are true, correct and complete in all respects;

                  (u) Except as set forth on the Exception Schedule, all
documents heretofore filed by Raceway with the Securities and Exchange
Commission were, at the times filed, true, correct and complete in all material
respects;

                  (v) Borrower shall do all things necessary to preserve and
keep in full force and effect its respective existence and all franchises,
licenses, authorizations, registrations, permits and approvals under the laws of
the State of New York , and shall comply with all regulations, rules,
ordinances, statutes, orders and decrees of any governmental authority or court
applicable to Borrower and to the Property or any portion thereof;

                  (w) The present use of the Property does not violate (i) any
applicable law, regulation, ordinance or order of any kind whatsoever (including
any such laws relating to zoning, building and environmental protection), (ii)
any permit or license issued with respect to the Property, or (iii) any
condition, easement, right-of-way, covenant or restriction affecting the
Property. The Property is in compliance in all material respects with all
applicable laws, regulations, ordinances and orders applicable thereto,
including the applicable requirements of the Americans with Disabilities Act of
1990, as amended;

                  (x) All necessary and required franchises, licenses,
authorizations, registrations,

                                      -19-

<PAGE>

permits and approvals for the current use and occupancy of the Property have
been obtained from all governmental authorities having jurisdiction over the
Property so as to permit the operation of the Property as presently utilized;

                  (y) The Property is zoned for the use to which it is presently
employed, which zoning is final, unconditional and in full force and effect. In
the event that all or any part of the Improvements are destroyed or damaged,
said Improvements can be legally reconstructed to their condition prior to such
damage or destruction, and thereafter exist for the same use without violating
any zoning or other ordinances applicable thereto and without the necessity of
obtaining any variances or special permits. No legal proceedings are pending or
to the knowledge of Borrower threatened with respect to the zoning of the
Property. Neither the zoning nor any other right to use or operate the Property
is in any way dependent upon or related to any real estate other than the
Property;

                  (z) Neither this Agreement nor any document, financial
statement, credit information, certificate or statement provided to Lender by
Borrower contains any untrue statement of material fact or omits to state a
material fact necessary to make any statements made herein not misleading;

                  (aa) Borrower has not received any notice from any
governmental or quasi-governmental body or agency or from any person or entity
with respect to (and Borrower does not know of) any actual or threatened taking
of the Premises, or any portion thereof, for any public or quasi-public purpose
or of any moratorium which may affect the current use or operation of the
Property;

                  (bb) The Loan is an exempt transaction under the Truth-
in-Lending Act (15 U.S.C.A. Sections 1601 et seq.);

                  (cc) The Property has access to and full utilization of
completed public roads necessary for access to and full utilization of the
Property for its current and intended purposes;

                  (dd) Borrower is not a party to any plan defined and regulated
under the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
or Section 4975 of the Code. None of the assets of Borrower are "plan assets" as
defined in 29 C.F.R. Section 2509.75-2 or Section 2510.3-101;

                  (ee) The Mortgage constitutes a valid and enforceable first
lien on the Premises, subject only to the Permitted Encumbrances;

                  (ff) The Security Agreement together with the Financing
Statements filed in connection therewith and the Assigned Documents create a
valid, enforceable and perfected first priority security interest in the
Collateral (as defined therein) including the Personal Property, subject to no
other interests, liens or encumbrances senior to the Lender's security interest;

                                      -20-

<PAGE>

                  (gg) No petition in bankruptcy, whether voluntary or
involuntary, or assignment for the benefit of creditors, or any other action
involving debtors' and creditors' rights has ever been filed under the laws of
the United States of America or any state thereof, or threatened, against
Borrower;

                  (hh) Except as set forth on the Schedule of Exceptions, all of
the Improvements are in good condition and repair. Borrower is aware of no
latent or patent structural or other significant defect or deficiency in such
Improvements. Electrical and telephone facilities are available to the Property
within the boundary lines of the Property, and potable water and sanitary sewer
services are provided to the Property by private suppliers. The foregoing
utility services are sufficient to meet the reasonable needs of the Property as
now used, and no other utility facilities are necessary to meet the reasonable
needs of the Property as now used. Design and as-built conditions of the
Property are such that surface and storm water does not accumulate on the
Property and does not drain from the Property across land of adjacent property
owners. None of the Improvements create an encroachment over, across or upon any
of the Property's boundary lines, rights of way or easements, and no building or
other improvement on adjoining land create such an encroachment;

                  (ii) Borrower shall pay when due all payments and charges due
under or in connection with any liens and encumbrances on and security interests
in the Property or any portion thereof, all rents and charges under any ground
leases and other leases forming a part of the Property, and all claims and
demands of mechanics, materialmen, laborers and others which, if unpaid, might
result in or permit the creation of a lien on the Property or any portion
thereof, and shall cause the prompt (but in no event later than 30 days after
imposition), full and unconditional discharge of all liens imposed on or against
the Property or any portion thereof. Borrower shall do or cause to be done, at
the sole cost of Borrower, everything necessary to fully preserve the initial
priority of the Mortgage, as established by recordation. If Borrower fails to
make any such payment or if a lien (other than a Permitted Encumbrance) attaches
to the Property or any portion thereof, Lender may (but shall not be obligated
to) make such payment or discharge such lien and Borrower shall reimburse Lender
on demand for all such payments; and until such reimbursement any such payments
shall bear interest at the Default Rate as defined in the Note; and

                  (jj) Borrower warrants and covenants that the foregoing
representations and warranties will be true and shall be deemed remade as of the
date of the Closing and as of the date of each other Advance. All
representations and warranties made herein or in any other Loan Document or in
any certificate or other document delivered to Lender by or on behalf of
Borrower pursuant to or in connection with this Agreement or any other Loan
Document shall be deemed to have been relied upon by Lender, notwithstanding any
investigation heretofore or hereafter made by or on behalf of Lender. All such
representations and warranties shall survive the making of the Loan and any or
all of the Advances contemplated hereby and shall continue in full force and
effect until such time as the Loan has been paid in full.

                                      -21-

<PAGE>

         8. During the period from the date hereof until the Note and all
obligations of Borrower to Lender under the Loan Documents has been fully paid ,
the Borrower shall:

                  (a) Permit the officers and other authorized representatives
of the Lender (i) full and unrestricted access, from time to time and at one or
more times, to the offices and books and records of the Borrower situated at its
offices during normal business hours, and in connection with such books and
records, such inspection shall be at the offices where such records are normally
maintained, and such parties shall be entitled to make copies of and abstracts
from any of such books and records; (ii) the opportunity to meet, correspond and
communicate with the officers, directors, employees, counsel and accountants to
the Borrower, and to secure from each such information as such parties shall
deem necessary or appropriate; and (iii) to review and copy such other, further
and additional financial and operating date, materials and information as to the
business as may be requested by such parties, such access shall not materially
interfere with day-to-day operations of the Borrower;

                  (b) Take and perform any and all actions necessary to render
accurate and/or maintain the accuracy of, all of the representations and
warranties of the Borrower herein contained and/or satisfy each covenant or
condition required to be performed or satisfied by the Borrower;

                  (c) Not, without the prior written consent of the Lender, take
or perform any action which would or might cause any representation or warranty
made by the Borrower herein to be rendered inaccurate, in whole or in part
and/or which would prevent, inhibit or preclude the satisfaction, in whole or in
part of any covenant required to be performed or satisfied by the Borrower;

                  (d) Carry on and maintain the Business in the ordinary course
of business and in substantially the same form, style and manner as heretofore
operated by the Borrower; perform, in all material respects all of the
Borrower's obligations under all material agreements, leases and documents; and
use its best efforts to preserve, intact, the relationships with its suppliers,
customers, employees and others having business relations with the Borrower;

                  (e) Use its best efforts in good faith, to obtain and/or
maintain all licenses, consents or approvals (from every governmental or
regulatory body, or other person) required to be obtained and/or held by
Borrower for or with respect to its assets, businesses and/or operations;

                  (f) Immediately advise the Lender of any event, condition or
occurrence which inhibits or limits or is likely to prevent, inhibit or limit
the Borrower from satisfying, in full and on a timely basis, any covenant, term
or condition herein contained and/or implementing the Transactional Documents;

                  (g) Maintain a system of accounting established and
administered in accordance with generally accepted accounting principles
consistently applied;

                                      -22-

<PAGE>

                           (i) within 30 days following the close of each fiscal
quarter the Borrower shall distribute to the Lender copies of the financial
statements of the Borrower as at the end of such fiscal quarter and for the 3
month period then ending;

                           (ii) within 90 days following the close of each
fiscal year the Borrower shall distribute to the Lender copies of the financial
statements of the Borrower at the end of such fiscal year and for the 12 month
period then ending;

                           (iii) within 90 days following the close of each
fiscal year the Borrower shall distribute to the Lender copies of the financial
statements of the Borrower at the end of such fiscal year and for the 12 month
period then ending;

                  (h) Pay and discharge all Impositions prior to delinquency
(except with respect to those real estate taxes described on the Exception
Schedule as to which an installment payment plan has been concluded by the
Borrower with the appropriate taxing authorities)and shall provide to Lender
validated receipts or other evidence satisfactory to Lender showing the payment
of such Impositions within 15 days after the same would otherwise have become
delinquent. Borrower's obligation to pay Impositions pursuant to this Agreement
shall include, to the extent permitted by applicable law, taxes resulting from
future changes in law which impose upon Lender an obligation to pay any property
taxes or other Impositions. Should Borrower default in the payment of any
Impositions, Lender may (but shall not be obligated to) pay such Impositions or
any portion thereof and Borrower shall reimburse Lender on demand for all such
payments. Borrower shall not be required to pay, discharge or remove any
Imposition so long as Borrower contests in good faith such Imposition or the
validity, applicability or amount thereof by an appropriate legal proceeding
which operates to prevent the collection of such amounts and the sale of the
Property or any portion thereof; provided, however, that prior to the date on
which such Imposition would otherwise have become delinquent Borrower shall have
(i) given Lender prior written notice of such contest, and (ii) deposited with
Lender (including the balance, if any of the Tax Reserve), and shall deposit
such additional amounts as are necessary to keep on deposit at all times, (y) an
amount equal to at least one hundred ten percent (110%) of the total of (A) the
balance of such Imposition then remaining unpaid, and (B) all interest,
penalties, costs and charges accrued or accumulated thereon or (z) a bond
(issued by a surety reasonably satisfactory to Lender) in the amount (as
adjusted from time to time) equal to the amount otherwise subject to deposit
hereunder. Any such contest shall be prosecuted with due diligence, and Borrower
shall promptly pay the amount of such Imposition as finally determined, together
with all interest and penalties payable in connection therewith. Lender shall
have full power and authority to apply any amount deposited with Lender under
this subparagraph to the payment of any unpaid Imposition to prevent the sale or
forfeiture of the Property for non-payment thereof. Lender shall have no
liability, however, for failure to so apply any amount deposited. Any surplus
retained by Lender after payment of the Imposition for which a deposit was made
shall be repaid to Borrower unless an Event of Default shall have occurred, in
which case said surplus may be retained by Lender to be applied to the
Indebtedness. Notwithstanding any provision of this subparagraph to the
contrary, Borrower

                                      -23-

<PAGE>

shall pay any Imposition which it might otherwise be entitled to contest if, in
the sole and absolute discretion of Lender, the Property is in jeopardy or in
danger of being forfeited or foreclosed. If Borrower refuses to pay any such
Imposition, Lender may (but shall not be obligated to) make such payment and
Borrower shall reimburse Lender on demand for all such payments; and until such
reimbursement any such payments shall bear interest at the Default Rate as
defined in the Note; and

                  (i) At the request of Lender, made at any time following the
occurrence of an Event of Default, deposit with Lender (or such agent of Lender
as Lender may designate in writing to Borrower from time to time), monthly, on
the due date of each monthly installment under the Note, 1/12th of the annual
charges (as estimated by Lender) for all real estate taxes. Following the
occurrence of an Event of Default and upon request from Lender, Borrower shall
make such monthly deposits for insurance premiums with respect to the Property
on the same basis as the deposit for real estate taxes. Borrower shall also
deposit with Lender, simultaneously with such monthly deposits and/or the
execution of this Agreement, a sum of money which together with such monthly
deposits will be sufficient to make the payment of the insurance premium charge
at least 30 days prior to the date initially due. Should such charges not be
ascertainable at the time any deposit is required to be made, the deposit shall
be made on the basis of the charges for the prior year or payment period, as
reasonably estimated by Lender. When the charges are fixed for the then current
year or period, Borrower shall deposit any deficiency on demand. Any interest
earned on the sums held by Lender pursuant to this subparagraph shall be deemed
to be the property of Borrower to the same extent as the sums being held by
Lender, and shall be added to said sums and shall be taxable to Borrower, and
shall, so long as no Event of Default shall have occurred, be disbursed by
Lender for the payment of the applicable real estate tax or insurance premium.
Should an Event of Default occur, the funds so deposited may be applied in
payment of the charges for which such funds shall have been deposited or to the
payment of the Indebtedness or any other charges for which Borrower is obligated
affecting the Property, as Lender in its sole and absolute discretion may
determine, but no such application shall be deemed to have been made by
operation of law or otherwise until actually made by Lender as herein provided.
Borrower shall provide Lender with bills and all other documents necessary for
the payment of the foregoing charges at least 30 days prior to the date on which
each payment thereof shall first become due;

                  (j) Pay any and all taxes, charges, filing, registration and
recording fees, excises and levies imposed upon Lender by reason of their
respective interests in, or measured by amounts payable under, the Note, this
Agreement, the Mortgage or any other Loan Document (other than income, franchise
and doing business taxes payable by Lender), and shall pay all stamp taxes and
other taxes required to be paid on the Note, this Agreement, the Mortgage or the
other Loan Documents. If Borrower fails to make such payment within five days
after notice thereof from Lender, Lender may (but shall not be obligated to) pay
the amount due, and Borrower shall reimburse Lender on demand for all such
payments; and until such reimbursement any such payments shall bear interest at
the Default Rate as defined in the Note. If applicable law prohibits Borrower
from paying such taxes, charges, filing, registration and recording fees,
excises, levies, stamp taxes or other taxes, then Lender may declare the portion
of

                                      -24-

<PAGE>

the Loan then unpaid to be immediately due and payable;

                  (k) Keep the Property free and clear of all liens, security
interests and encumbrances of every nature or description (whether for taxes or
assessments, or charges for labor, materials, supplies or services or any other
thing). Borrower will not cause or permit any instrument or document affecting
the Property to be recorded without Lender's prior written consent thereto;

                  (l) Keep and maintain the Property in good order, condition
and repair and shall make, as and when the same shall become necessary, all
structural and non-structural, exterior and interior, ordinary and
extraordinary, foreseen and unforeseen, repairs and maintenance necessary or
appropriate. Borrower shall suffer or commit no waste upon the Property or any
portion thereof. Borrower shall, at its expense, promptly repair, restore,
replace or rebuild any part of the Property which may be damaged or destroyed by
any casualty or as the result of any taking under the power of eminent domain to
the extent permitted given the size, scope and extent of the taking. Borrower
shall cause all repairs, maintenance, rebuilding, replacement or restoration to
be (in the reasonable opinion of Lender) of substantially equivalent quality.
Borrower shall not cause, suffer or permit the construction of any material
buildings, structures, or improvements on the Property (other than the
construction of the Facilities) without the prior written consent of Lender to
the proposed construction as well as to the plans and specifications relating
thereto. None of the buildings, structures, or improvements erected or located
on the Premises shall be removed, demolished or substantially or structurally
altered in any material respect (other than the construction of the Facilities)
without the prior written consent of Lender;

                  (m) Comply with all (A) building, zoning, fire, health,
environmental, disability and use laws, codes, ordinances, rules and
regulations, (B) covenants and restrictions of record and (C) easements which
are in any way applicable to the Premises, the Improvements or any part thereof
or to the construction of any improvements thereon and the use or enjoyment
thereof;

                  (n) Duly and punctually perform, observe and comply with all
of the terms, provisions, conditions, covenants and agreements on its part to be
performed, observed and complied with hereunder and under (i) the other Loan
Documents, and (ii) all agreements entered into or assumed by Borrower in
connection with the Property, and will not suffer or permit any Event of Default
(after giving effect to any applicable notice requirements and cure periods) to
exist under any of the foregoing;

                  (o) Within ten (10) Business Days following a request by
Lender, Borrower shall provide to Lender a duly acknowledged written statement
confirming the amount of the outstanding indebtedness under the Note, the terms
of payment and maturity date of the Note, the date to which interest has been
paid, and whether any offsets or defenses exist against the indebtedness. If any
such offsets or defenses are alleged to exist, the nature thereof shall be set
forth in detail; and

                                      -25-

<PAGE>

                  (p) Elect to the Board of Directors of Raceway three (3)
designees of the Lender.

               9. (a) Borrower, at its sole cost and expense, shall insure and
keep insured the Property against such perils and hazards, and in such amounts
and with such limits, as Lender may from time to time reasonably require.
Borrower shall also carry such other insurance, and in such amounts, as Lender
may from time to time reasonably require, against insurable risks which at the
time are commonly insured against in the case of premises similarly situated,
due regard being given to the availability of insurance and to the type of
construction, location, utilities, use and occupancy of the Property or any
replacements or substitutions therefor ("Additional Insurance"). Such Additional
Insurance may include (if available) flood, earth quake, war risk, nuclear
explosion, demolition and contingent liability from the operation of
"nonconforming" improvements on the Property, course of construction and/or
builder's risk and shall be obtained within 30 days after demand by Lender.
Otherwise, Borrower shall not obtain any separate or additional insurance which
is contributing in the event of loss, unless it is properly endorsed and
otherwise reasonably satisfactory to Lender in all respects. The proceeds of
insurance paid on account of any damage to or destruction of the Property or any
portion thereof ("Insurance Proceeds") shall be paid over to Lender to be
applied as hereinafter provided.

                  (b) The insurance shall be evidenced by the original policy or
a true and certified copy of the original policy, or in the case of liability
insurance, by certificates of insurance. Said certified copies or original
policies shall be delivered to Lender at or prior to Closing. On or before the
stated due date, Borrower shall pay all premiums and fees for the insurance
policies required hereunder. Borrower shall deliver certified copies of all
policies and renewals (or certificates evidencing the same) to Lender at least
thirty (30) days before the expiration of existing policies. Each such policy
shall provide that such policy may not be canceled or materially changed except
upon 30 days prior written notice of intention of non-renewal, cancellation or
material change to Lender, and that no act or thing done by Borrower shall
invalidate the policy as against Lender. Notwithstanding anything to the
contrary contained herein or in any provision of law, the Insurance Proceeds of
insurance policies coming into the possession of Lender and which are not to be
used for the Work (as hereinafter defined) shall not be deemed trust funds and
Lender shall be entitled to dispose of such Insurance Proceeds as hereinafter
provided. If Lender has not received satisfactory evidence of such renewal or
substitute insurance in the time frame herein specified, Lender shall have the
right, but not the obligation, to purchase such insurance for Lender's interest
only. Any amounts so disbursed by Lender pursuant to this subparagraph shall be
deemed to be a part of the Loan and shall bear interest at the rate provided in
the Note. Nothing shall require Lender to incur any expense or take any action
hereunder, and inaction by Lender shall never be deemed a waiver of any rights
accruing to Lender.

                  (c) Borrower shall not carry any separate insurance on the
Property concurrent in kind or form with any insurance required hereunder or
contributing in the event of loss without Lender's prior written consent (which
consent shall not be unreasonably withheld or delayed), and any such policy
shall have attached a standard non-contributing mortgagee clause, with loss
payable to Lender, and shall meet all other requirements set forth herein.

                                      -26-

<PAGE>

                  (d) In the event of any damage to or destruction of the
Property, Borrower shall give prompt written notice to Lender and, provided
Lender makes the Insurance Proceeds available for the costs of repair,
restoration and rebuilding, Borrower shall promptly commence and diligently
continue to completion the repair, restoration and rebuilding of the Property so
damaged or destroyed in full compliance with all legal requirements and with the
provisions hereof, and free and clear from any and all liens and claims. Such
repair, restoration and rebuilding of the Property are sometimes hereinafter
collectively referred to as the "Work." Borrower shall not adjust, compromise or
settle any claim for insurance proceeds without the prior written consent of
Lender (which consent shall not be unreasonably withheld or delayed). Lender
shall have the option in its sole discretion to apply any Insurance Proceeds it
may receive pursuant to this Agreement (less any cost to Lender of recovering
and paying out such Insurance Proceeds, including reasonable attorneys' fees) to
the payment of the indebtedness evidenced by the Loan Documents otherwise such
Insurance Proceeds shall be used for the Work. If any Insurance Proceeds are
applied to reduce the indebtedness evidenced by the Loan Documents, Lender
shall, so long as no Event of Default exists, apply the same in the following
order:

                           (i) first, to the payment of interest due on any
Advances;

                           (ii) next, to the principal amount of any Advances;

                           (iii) next, to any Late Charges (as provided in the
Note);

                           (iv) next, to accrued interest then due under the
Note; and

                           (v) finally, to the unpaid principal balance of the
Note (in the inverse order of maturity of principal installments thereof).

                  (e) Notwithstanding the foregoing, if, in Lender's reasonable
judgment, the cost of the Work shall not exceed $1,000,000 and the Work can be
completed within 12 months of the occurrence of said damage or destruction, then
Lender shall, upon request by Borrower, permit Borrower to use the Insurance
Proceeds for the Work, so long as Lender, in its reasonable judgment, is
satisfied that as of each date on which such Insurance Proceeds are to be
applied to payment of the cost of the Work:

                           (i) The Insurance Proceeds held by Lender in respect
of the applicable casualty (together with any sums Borrower may elect to provide
for such purpose) equal or exceed such estimated cost of effecting such repair
and restoration, or such portion thereof as then remains to be completed and
paid for;

                           (ii) The Work will be effected pursuant to plans and
specifications approved in writing by Lender (which approval shall not be
unreasonably withheld or delayed), and by a general contractor and major
subcontractors, and pursuant to contracts,

                                      -27-

<PAGE>

approved in writing by Lender (which approval shall not be unreasonably withheld
or delayed); and

                           (iii) The Work can be effected in compliance with all
applicable laws and Borrower has obtained all licenses, permits, consents and
approvals from all applicable governmental authorities or private parties
required to permit Borrower to effect such restoration and repair and to use,
operate and occupy the repaired and restored premises upon completion thereof
(other than those which will issue in the ordinary course upon completion) and
that the same are in full force and effect. Lender shall have no obligation to
make such Insurance Proceeds available to pay for the Work if (A) the principal
and accrued interest owing on the Loan have become due and payable, or (B) there
shall exist and be continuing an Event of Default.

                  (f) If any Insurance Proceeds are to be used for the Work,
then such Proceeds shall be held by Lender and shall be paid out from time to
time to Borrower as the Work progresses (less any cost to Lender of recovering
and paying out such Proceeds, including reasonable attorneys' fees and costs
allocable to inspecting the Work and the plans and specifications therefor).

                  (g) Notwithstanding any other provision hereof, if in Lender's
reasonable judgment the cost of the Work is less than $50,000 and such Work can
be completed in less than 30 days and provided no Event of Default has occurred
and is continuing, then Lender shall, upon request by Borrower, permit Borrower
to apply for and receive the Insurance Proceeds directly from the insurer (and
Lender shall advise the insurer to pay over such Proceeds directly to Borrower),
provided that Borrower shall apply such insurance Proceeds solely to the prompt
and diligent commencement and completion of such Work.

                  (h) In the event of the foreclosure of the Mortgage or other
transfer of title to or assignment of the Property in extinguishment of the
indebtedness evidenced by the Loan Documents in whole or in part, all right,
title and interest of Borrower in and to all policies of insurance required by
this Mortgage and any Insurance Proceeds shall inure to the benefit of and pass
to Lender or any purchaser or transferee of the Property; provided however, that
any of such proceeds in excess of the amount necessary to fully extinguish the
indebtedness evidenced by the Loan Documents shall be paid to the Borrower by
the Lender or such transferee, as the case may be.

                  (i) Borrower hereby authorizes Lender, during all periods in
which an Event of Default has occurred and remains uncured, to settle any
insurance claims, to obtain Insurance Proceeds, and to endorse any checks,
drafts or other instruments representing any Insurance Proceeds whether payable
by reason of loss thereunder or otherwise.

         10. Each of the following shall constitute an "Event of Default" under
this Agreement:

                  (a) Borrower fails to pay, within five (5) days following the
due date thereof

                                      -28-

<PAGE>

(during which 5-day period cure shall be permitted) any installment of interest
or principal due and payable under the Note or Borrower fails to pay the Note in
full on or before the Maturity Date; or

                  (b) Borrower fails to pay, within five (5) days following
written notice from Lender (during which 5-day period cure shall be permitted)
any amounts due hereunder or under any of the other Loan Documents, other than
installments of principal and interest on the Note; or

                  (c) any material representation or warranty made by Borrower
in or pursuant to this Agreement or otherwise made in writing in connection with
or as contemplated by this Agreement shall be incorrect or false or misleading
in any material respect as of the period of time to which it relates; provided,
however, if such representation or warranty was not known to be false or
misleading by Borrower or any other Loan party at the time it was made or deemed
made, the same shall not constitute and Event of Default until thirty (30) days
following written notice by Lender to Borrower (during which period cure shall
be permitted); or

                  (d) An Event of Default exists under any other Loan Document,
following any required notice to Borrower and the expiration of any applicable
cure period thereunder; or

                  (e) Any financial statement provided to Lender pursuant to any
Loan Document, is or proves to be false or misleading in any material respect;
or

                  (f) Any order or decree (final beyond right of review) is
entered by any court of competent jurisdiction directly or indirectly enjoining
or prohibiting Lender or Borrower from performing any of their material
obligations under this Agreement; or

                  (g) Borrower makes an assignment for the benefit of creditors;
or petitions or applies to any court for the appointment of a trustee or
receiver for itself or for any part of its assets or for the Property or any
portion thereof, or commences any proceedings under any bankruptcy, insolvency,
readjustment of debt or reorganization statute or law of any jurisdiction,
whether now or hereafter in effect; or if any such petition or application is
filed or any such proceedings are commenced, and Borrower by any act indicates
any approval thereof, consent thereto, or acquiescence therein; or an order is
entered appointing any such trustee or receiver, or adjudicating Borrower
bankrupt or insolvent, or approving the petition in any such proceeding; or if
any petition or application for any such proceeding or for the appointment of a
trustee or receiver is filed by any third party against Borrower or the
Property, or any portion thereof, and any of the aforesaid proceedings is not
dismissed within sixty (60) days of its filing; or

                  (h) Borrower fails to comply with, keep or perform any of its
material obligations, agreements, undertakings, covenants, conditions or
warranties under (i) this Agreement, (ii) any other Loan Document, or (iii) any
other document or instrument executed and delivered to Lender by Borrower
pursuant to this Agreement, and such failure continues for a period of thirty
(30) days after written notice thereof by Lender to Borrower (during which
period cure shall be

                                      -29-

<PAGE>

permitted); or

                  (i) Construction of the Facilities is abandoned for any period
of (30) consecutive days, or construction of the Facilities is not completed on
or before the Completion Date; or

                  (j) Any governmental, judicial or legal authority having
jurisdiction over the Property orders or requires that construction of the
Facilities be stopped in whole or in part, or any required approval, license or
permit is withdrawn or suspended, and the order, requirement, withdrawal or
suspension remains in effect for a period of thirty (30) consecutive days
(Initial Cure Period). So long as Borrower begins within the Initial cure Period
and diligently continues to take steps to remove the effect of the order,
requirement, withdrawal or suspension, and Lender, in its judgment, determines
that Borrower is reasonable likely to prevail, the Initial Cure Period may be
extended by a period not to exceed ninety (90) days; or

                  (k) Raceway's racing and/or simulcast license is suspended,
terminated, rescinded or not extended and/or Raceway is prevented or precluded,
by action of the racing authorities having jurisdiction over Raceway and/or its
operations, from maintaining its live racing and /or simulcast operations; or

                  (l) Subject to the same being granted to Raceway, any or all
of its VLT Licenses is suspended, terminated, rescinded or not extended and/or
Raceway is prevented or precluded, by action of the lottery authorities having
jurisdiction over Raceway and/or its operations, from operating VLT's at the
Facilities; or

                  (m) Less than three (3) designees of Lender are full voting
members of the Board of Directors of Raceway; provided however, that the
voluntary resignation of any such nominees and the failure of Lender to
designate a successor(s) shall not constitute an Event of Default; or

                  (n) A judgment adverse to the Borrower is rendered in any
action with respect to the Exclusive Option Agreement described on the Exception
Schedule; or

                  (o) A judgment adverse to the Borrower is rendered in the
action pending with respect to the claims of Dominic Giambona and John
Signorelli described on the Exception Schedule.

         11. Upon the occurrence and continuation of an Event of Default, Lender
shall have the right, in addition to all the remedies conferred upon Lender by
law or equity or the terms of any Loan Document, to do any or all of the
following, concurrently or successively, without notice to Borrower:

                  (a) Declare the Note to be, and the Note shall thereupon
become, immediately due and payable without presentment, demand, protest, notice
of intention to accelerate, notice of acceleration or notice of any kind, all of
which are hereby expressly waived, anything contained herein or in the Note to
the contrary notwithstanding, and exercise any one or more of its rights

                                      -30-

<PAGE>

and remedies under the Loan Documents;

                  (b) Enter upon and take possession of the Property and all
material, equipment and supplies thereon and do anything necessary or desirable
to fulfill the obligations of Borrower hereunder and to sell, manage, maintain,
repair and protect the Property. Lender and its designees, representatives,
agents, licensees and contractors shall be entitled to the entry, possession and
use contemplated herein without the consent of any party and without any legal
process or other condition precedent whatsoever. Borrower acknowledges that any
denial of such entry, possession and use by Lender will cause irreparable injury
and damage to Lender and agrees that Lender may forthwith sue for any remedy to
enforce the immediate enjoyment of such right. Borrower hereby waives the
posting of any bond as a condition for exercising such remedy. Without limiting
the generality of the foregoing, Lender shall have the right in its sole
discretion to enter and take possession of the Property, whether in person, by
agent or by court-appointed receiver, and to take any and all actions which
Lender in its sole discretion may consider necessary to complete construction of
the Facilities, including making changes in plans, specifications, work or
materials and entering into, modifying or terminating any contractual
arrangements, all subject to Lender's right at any time to discontinue any work
without liability. If Lender chooses to complete the Facilities, it shall not
assume any liability to Borrower or any other person for completing the
Facilities, or for the manner or quality of construction of the Facilities, and
Borrower expressly waives any such liability. If Lender exercises any of the
rights or remedies provided in this subparagraph, that exercise shall not make
Lender, or cause Lender to be deemed to be, a partner or joint venturer of
Borrower. Lender in its sole discretion may choose to complete construction in
its own name. All sums which are expended by Lender in completing construction
shall be considered to have been disbursed to Borrower and shall be secured by
the Mortgage and any other collateral held by Lender in connection with the
Loan; any sums of principal shall be considered to be an additional loan to
Borrower bearing interest at the Default Rate, as defined in the Note, and shall
be secured by the Mortgage and any other collateral held by Lender in connection
with the Loan. For these purposes Lender, in its sole discretion, may reallocate
any line item or cost category of the Budget; and

                  (c) In case of the occurrence of any Event of Default
hereunder, Borrower will pay Lender's attorneys' fees and disbursements and
court costs (including those relating to appeals) and all related expenses in
connection with the enforcement of this Agreement or any of the other Loan
Documents.

              12. (a) Except for Losses (as hereinafter defined) which are
finally adjudicated by a court of competent jurisdiction to have arisen directly
and proximately from the gross negligence or willful misconduct of Lender,
Borrower shall protect, defend, indemnify and hold Lender, and its officers,
directors, employees and agents (each, an "Indemnified Party") harmless from and
against any and all harm, loss, liability, damage, suit, claim, demand, expense,
fees, costs, judgments and penalties (including reasonable attorneys' fees)
(each a "Loss") suffered or incurred by an Indemnified Party in connection with
(i) any claim, demand, suit or proceeding brought or asserted by any person
against an Indemnified Party arising out of or relating to Lender's entering
into or carrying out the terms of this Agreement or any of the other Loan

                                      -31-

<PAGE>

Documents or being the holder of the Note, (ii) any default by Borrower or any
other Loan Party hereunder or under any other Loan Document, (iii) any bodily
injury, death, other personal injury or property damage occurring in or upon the
Property through any cause whatsoever, (iv) any transaction otherwise arising
out of or in any way connected with the Property, this Agreement, any other Loan
Document or the Indebtedness, including any dispute between or among the parties
hereto, and (v) any injury or damage to person or property occurring on or about
the Property;

                  (b) Lender may, at Borrower's sole cost and expense, retain
counsel and control the defense of any claim relating to any Loss or potential
Loss (a "Claim"). If Lender so controls the defense of any such Claim, Borrower
will cooperate with Lender and provide Lender with copies of all existing
pleadings, discovery materials and other materials relating to said Claim. Upon
taking control of the defense of any Claim, Lender shall provide to Borrower
copies of all subsequent pleadings, discovery materials and other materials
relating to the Claim. Lender shall be entitled to settle any such Claim on such
terms as Lender deems appropriate in its sole and absolute discretion; provided,
however, Lender shall not settle any Claim for which Lender seeks
indemnification from Borrower pursuant hereto without the prior written consent
of Borrower, which consent shall not be unreasonably withheld or delayed. If
Lender does not elect to control the defense of any Claim, Borrower shall defend
said Claim and shall provide Lender with copies of all pleadings, filings and
correspondence relating thereto;

                  (c) In the event that Borrower shall at any time fail to duly
and punctually pay, perform, observe or comply with any of its covenants and
agreements hereunder or under the other Loan Documents, or if any Event of
Default hereunder shall exist, then Lender may (but shall in no event be
required to) make any such payment or perform any such term, provision,
condition, covenant or agreement or cure any such Event of Default. Lender shall
not take action under this subparagraph prior to the occurrence of an Event of
Default unless in Lender's judgment, such action is necessary or appropriate in
order to preserve the value of the collateral, to protect persons or property,
or Borrower has abandoned the Property or any portion thereof. Lender shall not
be obligated to continue any such action having commenced the same and may cease
the same without notice to Borrower. Any amounts expended by Lender in
connection with such action shall constitute additional advances hereunder, the
payment of which is additional indebtedness, secured by the Loan Documents and
shall become due and payable upon demand by Lender, with interest at the Default
Rate provided in the Note from the date of disbursement thereof until fully
paid. No further direction or authorization from Borrower shall be necessary for
such disbursements. The execution of this Agreement by Borrower shall and hereby
does constitute an irrevocable direction and authorization to Lender to so
disburse such funds;

                  (d) Lender may assign, negotiate, pledge or otherwise
hypothecate all or any portion of the Loan or grant participations therein, or
in any of its rights and security hereunder and under the other Loan Documents,
and Borrower shall accord full recognition thereto. Borrower shall provide and
execute any and all additional information and documentation required by any one
or more such purchasers, or potential purchasers. Borrower additionally

                                      -32-

<PAGE>

waives any and all notices of sale of interests, as well as all notices of any
repurchase of such interests. Lender may deliver copies to any potential
participant or assignee or transferee of financial statements and other
information from time to time furnished to Lender pursuant hereto or in
connection therewith;

                  (e) Borrower shall not assign or attempt to assign its rights
or obligations under this Agreement or any other Loan Document; provided however
that any purchaser of the Property shall, upon payment of the Assumption Fee (as
defined) acquire the Property subject to the Loan and Loan Documents and assume
the duties, obligations, benefits and rights of the Borrower under and pursuant
to the Loan Documents. For purposes of this Loan Agreement the term "Assumption
Fee" shall be and mean an amount equal to two (2 %) percent of outstanding
principal balance of the Loan at the time of the sale of the Property and the
assumption of the Loan and the Loan Documents by the purchaser thereof;

                  (f) The authority herein conferred upon Lender and any action
taken by Lender hereunder or in any other Loan Document will be taken by Lender
for its own protection only, and Lender does not and shall not be deemed to have
assumed any responsibility to Borrower or to any other person or persons with
respect to any such action here in authorized or taken by Lender. No person
shall be entitled to rely upon, or claim to have relied upon, any action taken
or failed to have been taken by Lender or any of its representatives;

                  (g) Time is of the essence of this Agreement.

                  (h) No waiver of any term, provision, condition, covenant or
agreement contained herein or in any other Loan Document shall be effective
unless set forth in a writing signed by the party to be charged, and any such
waiver shall be effective only to the extent set forth in such writing. Except
as expressly set forth below, no failure by any party hereto to exercise, or
delay by any party hereto in exercising, any right, power or privilege hereunder
or in any other Loan Document shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
any other or further exercise thereof, or the exercise of any other right or
remedy provided by law. No notice to or demand on Borrower in any case shall, in
itself, entitle Borrower to any other or further notice or demand in similar or
other circumstances or constitute a waiver of the rights of Lender to any other
or further action in any circumstances without notice or demand.

                  (i) Any notice which any party hereto may be required or may
desire to give hereunder shall be delivered personally or if mailed, postage
prepaid, by registered or certified mail, return receipt requested, or by
overnight express courier, addressed in the case of Borrower to:

                           Mid-State Raceway, Inc.
                           P.O. Box 860
                           Vernon, New York 13476

                                      -33-

<PAGE>

                           Mid-State Development, Corp.
                           P.O. Box 860
                           Vernon, New York 13476

in the case of Lender to:

                           Vestin Mortgage, Inc.
                           2901 El Camino Avenue
                           Las Vegas, Nevada 89102

or at such other addresses or to the attention of such other persons as may from
time to time be designated by the party to be addressed by written notice to the
other in the manner herein provided;

                  (j) This Agreement shall inure to the benefit of the parties
and their respective successors and permitted assigns. No assignment made by
Borrower in violation of this Agreement shall confer any rights on any assignee
of Borrower;

                  (k) Borrower shall protect, defend, indemnify and hold Lender
harmless from and against all loss, cost, liability and expense incurred as a
result of any claim for a broker's or finder's fee against Lender or any person
or entity in connection with the transaction herein contemplated, provided such
claim is made by or arises through or under Borrower or is based in whole or in
part upon alleged acts or omissions of Borrower;

                  (l) All documents and other matters required by any of the
provisions of this Agreement to be submitted or provided to Lender shall be in
form and substance reasonably satisfactory to Lender;

                  (m) At any time or from time to time, upon the written request
of Lender, Borrower shall execute, and, if required, record, file (and pay all
fees, taxes or other expenses relating thereto) all such further documents and
do all such other acts and things as Lender may reasonably request to effectuate
the transaction contemplated herein in accordance with the terms hereof.
Borrower is aware that Lender is subject to state and federal laws and
regulations, which may from time to time require Lender to supply information to
regulators and/or auditors about this loan, which information must be confirmed
in writing by Borrower. Borrower hereby agrees that at any time any information
is requested by Lender relating in any manner to this loan by any regulators
and/or auditors, Borrower will fully cooperate by providing within ten (10) days
all information, and any and all written confirmations, Lender reasonably
requests of Borrower;

                  (n) This Agreement, the Exhibits hereto and the other Loan
Documents and other documents referred to herein constitute the entire agreement
between the Lender and Borrower with respect to the subject matter hereof and
may not be modified or amended in any manner other than by supplemental written
agreement executed by the parties hereto;

                                      -34-

<PAGE>

                  (o) If any provision of this Agreement or any other Loan
Document or the application thereof to any person or situation shall, to any
extent, be held invalid or unenforceable, the remainder of this Agreement or any
other Loan Document, and the application of such provision to persons or
situations other than those to which it shall have been held invalid or
unenforceable, shall not be affected thereby, but shall continue valid and
enforceable to the fullest extent permitted by applicable law;

                  (p) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEVADA APPLICABLE TO CONTRACTS MADE AND
TO BE PERFORMED IN THAT STATE;

                  (q) THE RIGHTS AND OBLIGATIONS OF BORROWER AND LENDER SHALL BE
DETERMINED SOLELY FROM THIS WRITTEN LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS,
AND ANY PRIOR ORAL OR WRITTEN AGREEMENTS BETWEEN LENDER AND BORROWER CONCERNING
THE SUBJECT MATTER HEREOF AND OF THE OTHER LOAN DOCUMENTS ARE SUPERSEDED BY AND
MERGED INTO THIS LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS;

                  (r) THIS LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY NOT
BE VARIED BY ANY ORAL AGREEMENTS OR DISCUSSIONS THAT OCCUR BEFORE,
CONTEMPORANEOUSLY WITH, OR SUBSEQUENT TO THE EXECUTION OF THIS LOAN AGREEMENT OR
THE LOAN DOCUMENTS;

                  (s) THIS WRITTEN LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENTS AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES;

                  (t) Borrower and Lender agree that the terms and conditions of
this Agreement and the other Loan Documents are the result of negotiations
between the parties and that this Agreement and the other Loan Documents shall
not be construed in favor of or against any party by reason of the extent to
which any party or its professionals participated in the preparation of this
Agreement;

                  (u) In any action or proceeding bought by Borrower against
Lender claiming or based upon an allegation that Lender unreasonably withheld
its consent to or approval of a proposed act by Borrower which requires Lender's
consent or approval hereunder, Borrower's sole and exclusive remedy in said
action or proceeding shall be injunctive relief or specific performance
requiring Lender to grant such consent or approval;

                  (v) LENDER AND BORROWER HEREBY WAIVE THE RIGHT TO A

                                      -35-

<PAGE>

TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT
MATTER OF THIS AGREEMENT. THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND
VOLUNTARILY MADE BY LENDER AND BORROWER, AND LENDER AND BORROWER ACKNOWLEDGE
THAT NO PERSON ACTING ON BEHALF OF ANOTHER PARTY TO THIS AGREEMENT HAS MADE ANY
REPRESENTATIONS OF FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO
MODIFY OR NULLIFY ITS EFFECT. LENDER AND BORROWER FURTHER ACKNOWLEDGE THAT THEY
HAVE BEEN REPRESENTED (OR HAVE HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE
SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL
COUNSEL, SELECTED OF THEIR OWN FREE WILL, AND THAT THEY HAVE HAD THE OPPORTUNITY
TO DISCUSS THIS WAIVER WITH COUNSEL;

                  (w) TO INDUCE LENDER TO ENTER INTO THE COMMERCIAL LOAN
TRANSACTION EVIDENCED BY AND SECURED BY THE LOAN DOCUMENTS, BORROWER AGREES THAT
THE SAID TRANSACTION IS COMMERCIAL AND NOT A CONSUMER TRANSACTION;

                  (x) (i) Subject to the provisions of subparagraph 12(x)(ii)
hereof, each party hereto hereby unconditionally and irrevocably submits, for
itself and its property, to the exclusive jurisdiction of the courts of the
State of Nevada and the Federal Courts sitting therein (collectively the
"Designated Courts"), over any action arising out of or relating to the any of
the Loan Documents (a " Designated Action"). All claims with respect to any
Designated Action shall be heard and determined in a Designated Court. No party
hereto shall commence any Designated Action except in a Designated Court. No
party hereto shall, and each party hereto hereby waives any right it may have
to: (a) plead or make any objection to the venue of any Designated Court; (b)
plead or make any claim that any Designated Action brought in any Designated
Court has been brought in an improper or otherwise inconvenient forum; or (c)
plead or make any claim that any Designated Court lacks personal jurisdiction
over it. The summons and complaint or any other process in any Designated Action
may be served by mailing to any of the addresses set forth herein or by hand
delivery to a person of suitable age and discretion at any such address, and
that any such service shall be deemed to be complete on the date such process is
so mailed or delivered and to have the same force and effect as personal service
within the State of Nevada; and

                      (ii) Notwithstanding the provisions of subparagraph
12(x)(i) hereof, Lender shall have the right to bring any Designated Action in
the courts of any other jurisdiction to the extent Lender deems it necessary,
appropriate, or desirable (in its sole and absolute discretion) in connection
with any Designated Action based upon, resulting from, arising out of, or
relating to the Mortgage and/or the Note.

                  (y) If the work of construction is directly affected and
delayed by fire, earthquake, or other acts of God, strike, lockout, acts of
public enemy, riot, insurrection, or governmental regulation of the sale or
transportation of materials, supplies or labor, Borrower

                                      -36-

<PAGE>

must notify Lender in writing within five (5) calendar days after the event
occurs which causes the delay. So long as no Event of Default has occurred and
is continuing, Lender shall extend the Completion Date by a period of time equal
to the period of delay, but not more than a total of ninety (90) days. Such an
extension, however, shall not affect the time for performance of, or otherwise
modify, any of Borrower's obligations under the Loan Documents or the maturity
of the Note.

         IN WITNESS WHEREOF, Borrower and Lender have caused this Agreement to
be executed by their duly authorized representatives as of the day, month and
year first above written.

                           BORROWER:

                           MID-STATE RACEWAY, INC.

                           By: _________________________________
                               Name: Hoolae Paoa
                               Title: President

                           MID-STATE DEVELOPMENT CORPORATION

                           By: _________________________________
                               Name: Hoolae Paoa
                               Title: President

                           LENDER:

                           VESTIN MORTGAGE, INC.

                           By: _________________________________
                               Name:
                               Title:

STATE OF NEW YORK )
                    ) ss:
COUNTY OF ONEIDA  )

         On this, the _____ day of June 2003, before me, the undersigned
officer, personally appeared Hoolae Paoa, who acknowledged himself to be the
President of Mid-State Raceway, Inc., a New York corporation, and that he, as
such President , being authorized so to do, executed the foregoing Loan
Agreement for the purposes therein contained.

                                      -37-

<PAGE>

         IN WITNESS WHEREOF, I hereunto set my hand and official seal.

                                               _________________________________

                                               Notary Public

STATE OF NEW YORK )
                    ) ss:
COUNTY OF ONEIDA  )

         On this, the _____ day of June 2003, before me, the undersigned
officer, personally appeared Hoolae Paoa, who acknowledged himself to be the
President of Mid-State Development Corporation, a New York corporation, and that
he, as such President , being authorized so to do, executed the foregoing Loan
Agreement for the purposes therein contained.

         IN WITNESS WHEREOF, I hereunto set my hand and official seal.

                                               _________________________________

                                               Notary Public

                                      -38-

<PAGE>

STATE OF _________ )
                     ) ss:
COUNTY OF ________ )

         On this, the _____ day of June 2003, before me, the undersigned
officer, personally appeared ________________, who acknowledged himself to be
the __________ of Vestin Mortgage, Inc., a Nevada corporation, and that he, as
such ____________ , being authorized so to do, executed the foregoing Loan
Agreement for the purposes therein contained.

         IN WITNESS WHEREOF, I hereunto set my hand and official seal.

                                               _________________________________

                                               Notary Public

                                      -39-

<PAGE>

                                   EXHIBIT "B"

1.       To refinance the indebtedness evidenced by that certain $18,000,000.00
         promissory note dated January 29, 2003 executed by the Borrower and
         made payable to All Capital, LLC; in the amount of $15,937,477.32 (net
         of interest reserve)plus interest from June 1, 2003; and

2.       Real Property Taxes of $430,777.32.

                                      -40-

<PAGE>

                                  EXHIBIT "B-1"

1.       Refinance the indebtedness evidenced by that certain $18,000,000.00
         promissory note dated January 29, 2003 executed by the Borrower and
         made payable to All Capital, LLC; in the amount of $15,937,477.32 (net
         of interest reserve) plus interest from June 1, 2003;

2.       Retention by the Lender of Loan Fee of $1,840,000.00;

3.       Estimated Loan Costs and reimbursement of Lender expenses of
         $150,000.00 (any excess to utilized by the Borrower for per diem
         interest on the Existing Debt and additional working capital; and any
         deficiency to be funded by the Borrower from working capital);

4.       Retention by Lender of Interest Reserve of $1,686,666.66;

5.       Real Estate Taxes of $430,777.32; and

6.       Working Capital of $255,078.70.

                                      -41-

<PAGE>

                                  EXHIBIT "B-2"

1.       Funding of construction of VLT Facilities of $2,200,000.00; and

2.       Funding of VLT "bank" of $500,000.00.

                                      -42-

<PAGE>

                                   EXHIBIT "C"

         1. Each of Raceway and Development is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York,
with full power and authority, corporate and otherwise, and (except as set forth
on the Exception Schedule forming a part of the Loan Agreement) with all
licenses, permits, certifications, registrations, approvals, consents and
franchises necessary to own or lease and operate its properties and to conduct
its business as presently being conducted.

         2. Each of Raceway and Development has the full power and authority,
corporate and otherwise, to execute, deliver and perform each of the
Transactional Documents to which it is a signatory and to consummate the
transactions contemplated thereby; the execution, delivery and performance of
each of the Transactional Documents, the consummation by Raceway and Development
of the transactions therein contemplated and the compliance by Raceway and
Development with the terms of each of the Transactional Documents have been duly
authorized by all necessary corporate action, and each of the Transactional
Documents to which each is a party has been duly and properly authorized,
executed and delivered by Raceway and Development; and each of the Transactional
Documents is the valid and binding obligation of the parties thereto,
enforceable in accordance with its respective terms, subject, as to enforcement
of remedies, to applicable bankruptcy, insolvency, reorganization, moratorium
and other laws affecting the rights of creditors generally and the discretion of
courts in granting equitable remedies.

         3. The execution, delivery and performance of the Transactional
Documents by Raceway and Development and the consummation by Raceway and
Development of the transactions therein contemplated does not, and will not,
with or without the giving of notice or the lapse of time, or both, (a) result
in any violation of the constitutional documents of any of Raceway and
Development or conflict with any of the terms or provisions of, or constitute a
default under, or result in the modification or termination of, or (except as
expressly provided in the Transactional Documents) result in the creation or
imposition of any lien, security interest, charge or encumbrance upon any of the
properties or assets of Raceway and Development pursuant to any indenture,
mortgage, note, contract, commitment or other agreement or instrument known to
such counsel after due inquiry to which any of the Raceway and Development is a
party or by which they or any of their properties or assets are or may be bound
or affected; (c) to our best knowledge, and after due investigation violate any
existing applicable law, rule, regulation, judgment, order or decree of any
governmental agency or court, domestic or foreign, having jurisdiction over any
of them or any of their properties or businesses; or (d) have any effect on any
permit, certification, registration, approval, consent, license or franchise
necessary for Raceway and Development to own or lease and operate any of their
properties and to conduct their businesses or the ability of Raceway and
Development to make use thereof.

                                      -43-

<PAGE>

         4. Except as otherwise expressly provided in the Transactional
Documents, no consent, approval, authorization or order of any court,
governmental agency, authority or body or any party to an agreement to which any
of Raceway or Development is a party and/or by which either of them is bound is
required in connection with the execution, delivery and performance of the
Transactional Documents, and/or the consummation by Raceway and Development of
the transactions contemplated by the Transactional Documents.

         5. Except as set forth on the Exception Schedule forming a part of the
Loan Agreement, there are no liens, judgements, actions or proceedings pending
against either of Raceway or Development in any court or before any governmental
authority or arbitration board which could reasonably be expected to materially
and adversely affect the business or finances of Raceway or Development.

         6. The Loan, as reflected in the Transactional Documents, is not
subject to the defense of usury under the laws of the State of New York.

         7. To the best of our knowledge and belief, the Property (as defined in
the Loan Agreement) is zoned for the use to which it is presently employed,
which zoning is final, unconditional and in full force and effect. In the event
that all or any part of the Improvements (as defined in the Loan Agreement) are
destroyed or damaged, said Improvements can be legally reconstructed to their
condition prior to such damage or destruction, and thereafter exist for the same
use without violating any zoning or other ordinances applicable thereto and
without the necessity of obtaining any variances or special permits. No legal
proceedings are pending or to our knowledge threatened with respect to the
zoning of the Property. Neither the zoning nor any other right to use or operate
the Property is in any way dependent upon or related to any real estate other
than the Property.

         9. The Loan is an exempt transaction under the Truth- in-Lending Act
(15 U.S.C.A. Sections 1601 et seq.)

         10. To the best of our knowledge and belief and except as set forth on
the Exception Schedule forming a part of the Loan Agreement:

                  (a)      All necessary and required franchises, licenses,
                           authorizations, registrations, permits and approvals
                           for the current use and occupancy of the Property
                           have been obtained from all governmental authorities
                           having jurisdiction over the Property so as to permit
                           the operation of the Property as presently utilized

                  (b)      The present use of the Property does not violate (i)
                           any applicable law, regulation, ordinance or order of
                           any kind whatsoever (including any such laws relating
                           to zoning, building and environmental protection),
                           (ii) any permit or license issued with respect to the
                           Property, or (iii) any condition, easement,
                           right-of-way, covenant or restriction affecting the
                           Property.

<PAGE>

                           The Property is in compliance in all material
                           respects with all applicable laws, regulations,
                           ordinances and orders applicable thereto, including
                           the applicable requirements of the Americans with
                           Disabilities Act of 1990, as amended;

                  (c)      All necessary and required franchises, licenses,
                           authorizations, registrations, permits and approvals
                           for the current use and occupancy of the Property
                           have been obtained from all governmental authorities
                           having jurisdiction over the Property;

                  (d)      Borrower has not received any notice from any
                           governmental or quasi-governmental body or agency or
                           from any person or entity with respect to (and
                           Borrower does not know of) any actual or threatened
                           taking of the Property, or any portion thereof, for
                           any public or quasi-public purpose or of any
                           moratorium which may affect the current use or
                           operation of the Property;

<PAGE>

                                  EXHIBIT "D"

                               INSURANCE POLICIES

<PAGE>

                                   EXHIBIT "E"

                               EXCEPTION SCHEDULE

1.       Messrs. Goldfarb, Cherry and Goldberg have claimed that Borrower is in
         default of its Exclusive Option Agreement with them. The Borrower
         terminated such agreement in July 2002. See Item 5 below for ensuing
         litigation.

2.       Borrower has been issued temporary live racing and simulcast licenses
         for 2003 by the New York State Racing and Wagering Board; which
         licenses have no expiration date.

3.       Borrower makes no representation as to what approvals are required from
         the New York State Racing and Wagering Board.

4.       Borrower is not up-to-date on its SEC filing requirements; having not
         filed a 10K for 2000 or 2001 and not filed completed 10Q's for 2000,
         2001 or 2002.

5.       See the certified December 31, 2001 financial statements of Borrower
         for various lawsuits Borrower is subject to, and, in addition: (a)
         Borrower is a defendant in two lawsuits which seek to overturn recent
         VLT legislation in New York; (b) Borrower was, until recently, a
         defendant in a lawsuit brought by Golden Cherry Racing Group, LLC,
         Sandford Goldfarb, Eric Cherry and Steven Goldberg alleging breach of
         contract, fraud and tortuous interference in connection with the
         Exclusive Option Agreement; which law suit was dismissed, without
         prejudice, at the direction of the presiding judge; and (c) Borrower is
         a defendant in an action commenced by Dominic Giambona and John
         Signorelli seeking damages and specific performance with respect to the
         issuance of warrants to purchase up to 175,000 shares of common stock
         and "bulk up" shares.

6.       Borrower is subject to collective bargaining agreements.

7.       Borrowers 2001 Corporation Tax Return is unfiled.

8.       No compensation and benefit payments, including vacation, holiday and
         sickness payments are unpaid except in the ordinary course of business.

9.       Property taxes are delinquent in the amount set forth on the annexed
         schedule. An agreement with the county has been reached for the payment
         of such taxes. With the proceeds of the Initial Disbursement all
         payments due under such agreement will be fully satisfied.

10.      Schedule of leases attached to $8,500,000 Loan Agreement sets forth
         book property that is leased or subject to a security agreement,
         conditional sales contract of other title retention or security
         agreement.

                                      -47-

<PAGE>

11.      See schedule of real property and improvements attached to $8,500,000
         Loan Agreement.

12.      See Exhibit "D" for schedule of insurance policies.

13.      See Schedule "A" to Assignment of Contracts, Licenses and Permits for a
         description of employment and consulting agreements calling for
         payments of more than $25,000 annually.

14.      Borrower is subject to an agreement with Autotote systems for signal
         uplink services.

15.      Borrower is subject to an agreement with Amtote International, Inc. for
         betting terminals.

16.      Borrower is subject to an agreement with American Teletimer Corp.

17.      Borrower is subject to an agreement with Harness Horse Association of
         Central New York.

18.      The Borrower previously filed a proxy statement with the Securities and
         Exchange Commission for the stockholder's vote on the Exclusive Option
         Agreement. The Borrower received but did not respond to comments
         thereto. See items 1 and 5 above.

                                      -48-

<PAGE>

                                   EXHIBIT "F"

                              Financial Statements

1. Certified Financial Statements of Borrower as of December 31, 1999;

2. Certified Financial Statements of Borrower as of December 31, 2000; and

3. Certified Financial Statements of Borrower as of December 31, 1998.

4. Consolidated Balance Sheet and Operating Statement for the Third Quarter of
2001.

5. Consolidated Balance Sheet and Operating Statement for the Fourth Quarter of
2001.

6. Consolidated Balance Sheet and Operating Statement for the First Quarter of
2002.

7. Consolidated Balance Sheet and Operating Statement for the Second Quarter of
2002.

8. Consolidated Balance Sheet and Operating Statement for the Third Quarter of
2002.

9. Consolidated Balance Sheet and Operating Statement for the Fourth Quarter of
2002.

10. Certified Financial Statements of Borrower as of December 31, 2001.

11. Draft of Financial Statements of Borrower as of December 31, 2002.

                                      -49-<PAGE>

                                                                     EXHIBIT 4.2

                        FIRST AMENDMENT TO LOAN AGREEMENT

                  FIRST AGREEMENT TO LOAN AGREEMENT, dated November , 2003
between and among Vestin Mortgage, Inc. ("Lender"), Mid-State Raceway, Inc.
("Raceway") and Mid-State Development Corporation ("Development" and Raceway and
Development collectively the "Borrower").

                                   WITNESSETH

                  WHEREAS, the Lender and the Borrower entered into a certain
Loan Agreement dated June 30, 2003 (the "Loan Agreement", the terms, conditions
and definitions of which are hereby incorporated herein by reference with the
same full force and effect as of set forth herein in full; and

                  WHEREAS, pursuant to the terms and conditions of the Loan
Agreement the Assignment of Contracts and Permits, Assignment of Leases,
Environmental Indemnity, Security Agreement (collectively the "Ancillary
Collateral Documents") were executed by the respective parties thereto on June
30, 2003; and

                  WHEREAS, the parties hereto desire to amend the Loan Agreement
and the Ancillary Collateral Documents to provide for the increase in the amount
of the Loan by $3,000,000.00 from $23,000,000.00 to $26,000,000.00 upon the
terms and conditions hereinbelow set forth.

                  NOW THEREFORE, in consideration of the premises and the terms,
covenants and conditions hereinbelow set forth, the parties hereto do hereby
agree as follows:

                  1.       The Loan Agreement is hereby amended as follows:

                                    (a)      The term "Loan" shall be and mean
                           the aggregate amount of TWENTY SIX MILLION
                           ($26,000,000.00) DOLLARS; and any and all references
                           in the Loan Agreement to the sum of $23,000,000.00
                           shall be and mean, from and after the date hereof,
                           the sum of $26,000,000.00;

                                    (b)      The term "Mortgage" shall include
                           (i) the Consolidated and Restated Mortgage,
                           Assignment of Leases and Rents, Security Agreement
                           and Fixture Filing from Raceway to Lender dated as of
                           the date hereof, encumbering that portion of the
                           Property owned by Raceway and securing all of
                           Borrower's obligations under the Note and the other
                           Loan Documents, (ii) the Mortgage, Assignment of
                           Leases and Rents, Security Agreement and Fixture
                           Filing from Raceway to Lender dated as of the

<PAGE>

                           date hereof, encumbering that portion of the Property
                           owned by Raceway and securing all of Borrower's
                           obligations under the Note and the other Loan
                           Documents, and (iii) the Mortgage, Assignment of
                           Leases and Rents, Security Agreement and Fixture
                           Filing from Development to Lender dated as of the
                           date hereof, encumbering that portion of the Property
                           owned by Development and securing all of Borrower's
                           obligations under the Note and the other Loan
                           Documents;

                                    (C))     The term "Note" shall include (i)
                           the Consolidated Secured Promissory Note dated as of
                           the date hereof, from Borrower to the order of Lender
                           in the original stated principal amount of up to
                           Twenty Six Million ($26,000,000.00) Dollars, as the
                           same may be modified or amended from time to time,
                           and (ii) the Secured Promissory Note dated as of the
                           date hereof, from Borrower to the order of Lender in
                           the original stated principal amount of up to Three
                           Million ($3,000,000.00) Dollars, as the same may be
                           modified or amended from time to time.

                                    (d)      The reference in subparagraph 2(C))
                           of the Loan Agreement to the sum of $2,700,000.00
                           shall be and mean, from and after the date hereof,
                           the sum of $5,700,000.00;

                                    (e)      The reference in subparagraph 4(a)
                           of the Loan Agreement to the sum of $2,700,000.00
                           shall be and mean, from and after the date hereof,
                           the sum of $5,700,000.00; and

                                    (f)      The Loan Agreement shall be amended
                           to include a new subparagraph designated as "4(f)"
                           which shall read in its entirety as follows:

                           "4(f) At the time of the making of the first Advance
                           in excess of $2,700,000.00 the Borrower shall pay to
                           the Lender (out of the proceeds of such Advance) an
                           additional Commitment and Loan Fee in the amount of
                           $150,000.00."

                                    (g) Exhibit "B-2" of the Loan Agreement
                           shall be amended to provide that the sum of
                           $5,700,000.00 shall be utilized for the construction
                           and furnishing of the VLT Facility; expenses incurred
                           in connection with the "start-up" of the operation of
                           the VLT Facility; and for working capital.

                  2.       In order to induce the Lender to execute and perform
                  this agreement ("First Amendment") the Borrower does hereby:

                                    (a)      remake as of the date hereof, each
                           of the representation, warranties and agreements set
                           forth in Paragraph 7 of the Loan Agreement

<PAGE>

                           except as set forth on Exhibit "A" annexed hereto and
                           made a part hereof; and

                                    (b)      represent, warrant, covenant and
                           agreement that each of Raceway and Development: has
                           the full power and authority to execute, deliver and
                           perform this First Amendment, the Note and Mortgage;
                           has taken all action necessary to authorize the
                           execution, delivery and performance of this First
                           Amendment, the Note and MOrtgage; and that the
                           execution, delivery and performance of this First
                           Amendment and the Note and Mortgage , does not
                           violate the constitutional documents of Raceway or
                           Development, respectively, any agreement to which
                           either of them is a party or by which either of them
                           is bound, or any law; and upon the execution and
                           delivery hereof by an officer of Raceway and
                           Development, respectively, this First Amendment, the
                           Note and the Mortgage shall be valid and binding upon
                           each of Raceway and Development and fully enforceable
                           in accordance with its respective terms.

                  3.       Each of the Ancillary Collateral Documents shall be
                  and be deemed to be amended to provide that from and after the
                  date hereof any and all references therein respectively to the
                  Loan Agreement, the Loan, the Note and/or the Mortgage shall
                  be and mean such terms as respectively defined in the Loan
                  Agreement as herein amended.

                  4.       The agreement sets forth the entire agreement among
                  the parties hereto with respect to the subject matter herein
                  contained; shall be governed and construed in accordance with
                  the laws of the State of Nevada; cannot be altered, amended,
                  modified, terminated or rescinded except by a writing executed
                  by all of the parties hereto; and shall inure to the benefit
                  of and be binding upon the parties hereto and their respective
                  successors, transferees and assigns.

                  IN WITNESS WHEREOF, the parties hereto have executed this
First Amendment as of the day and year first above written.

                                    Mid-State Raceway, Inc.

                                    By _______________________________
                                    Hoolae Paoa, President

                                    Mid-State Development Corporation

                                    By _______________________________

<PAGE>

                                    Hoolae Paoa, President

                                    Vestin Mortgage, Inc.

                                    By _______________________________

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00060-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00060-of-00352.parquet"}]]