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       PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED BASED ON A REQUEST FOR
                              CONFIDENTIAL TREATMENT

                                                                 Exhibit 10.22

                                LICENSE AGREEMENT

     This License Agreement ("AGREEMENT") is made as of this 16 day of
August, 2000 (the "EFFECTIVE DATE") by and between ABBOTT LABORATORIES, an
Illinois corporation, with its principal office at 100 Abbott Park Road,
Abbott Park, IL 60064 ("ABBOTT") and DRUG ABUSE SCIENCES, INC., a California
corporation, with its principal office at 330 Distel Circle, Suite 150, Los
Altos, CA 94022 ("DAS").

                                   WITNESSETH

     WHEREAS, Abbott is the holder of certain patent applications and patents
("PATENTS," as more fully defined below) relating to Compound (as defined
below);

     WHEREAS, Abbott also possesses proprietary Know-How (as defined below)
relating to Compound and/or Product (as defined below);

     WHEREAS, DAS wishes to obtain, and Abbott wishes to grant to DAS and its
Affiliates (as defined below), an exclusive license in the Territory (as defined
below) under the Patents and Know-How for the development and commercialization
of Product for Pharmaceutical Uses (as defined below); and

     WHEREAS, DAS and Abbott acknowledge that there is substantial additional
formulation and clinical work to be done in order to successfully develop and
commercialize Product.

     NOW THEREFORE, in consideration of the mutual obligations and promises as
set forth herein, the parties do hereby agree as follows:

1.   DEFINITIONS. As used in this Agreement, the following terms shall have the
following respective meanings:

     1.1  "ABBOTT'S TECHNOLOGY" means the Patents and Know-How, including all
          Improvements developed by Abbott.

     1.2  "ABT-431" means the following pure form of the compound more
          specifically described as:[******]

     1.3  [******][******][******]"AFFILIATE" means any corporation, company,
          partnership, joint venture and/or firm which controls, is controlled
          by, or is under common control of either party hereto. For purposes of
          this definition, control shall mean direct or indirect ownership of
          more than fifty percent (50%) of the stock or participating shares
          entitled to vote for the election of directors (but only as long as
          such ownership exists).

     1.4  "COMPOUND" means any and all tetracyclic compounds with the following
          formula:

[******] Confidential Treatment Requested. The confidential portions have
been filed separately with the Securities & Exchange Commission.

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        [******]

     1.5  "CONFIDENTIAL INFORMATION" means any and all information or data
          relating to the Compound and/or Product which a party discloses to the
          other party, its employees or representatives, or is conceived or
          reduced to practice during the Term by either party or by a third
          party conducting feasibility and evaluation studies for DAS, whether
          in writing, orally or by observation, including, without limitation,
          all scientific, clinical, technical, commercial, financial and
          business information and Know-How, and other information or data
          considered confidential in nature. The Confidential Information of DAS
          shall also include: (i) the fact that DAS intends to develop, use or
          market any particular product, process or system; and (ii) all
          information concerning the business, products, marketing efforts,
          technology or finances of DAS. Subject to SECTION 7.1 hereof, Abbott
          shall hold in confidence and shall not directly or indirectly disclose
          or provide to any third party information pertaining to the Compound,
          the Process Technology or Abbott Technology without DAS's prior
          written consent. Confidential Information shall not include
          information or any portion thereof which:

          (a)  is known to the receiving party at the time of disclosure and
               documented by written records made prior to the date of this
               Agreement;

          (b)  is subsequently disclosed to the receiving party without any
               obligations of confidence by an unaffiliated third person who has
               not obtained it directly or indirectly from the other party and
               who has the right to make such disclosure;

          (c)  becomes patented, published or otherwise part of the public
               domain;

          (d)  is independently developed by or for the receiving party by
               person(s) having no knowledge of or access to such information
               and without breach of any confidentiality obligation as evidenced
               by its written records; or

          (e)  is required to be disclosed by legal, regulatory, statutory or
               governmental process or authorities, provided in each case the
               party disclosing information promptly informs the other and uses
               its best efforts to limit the disclosure and to maintain
               confidentiality to the maximum extent possible and permits the
               other party to attempt by appropriate legal means to limit such
               disclosure.

          The contents of and the Exhibits to this Agreement shall constitute
Confidential Information.

     1.6  [******]

     1.7  "EFFECTIVE DATE" shall have the meaning ascribed to such term in the
          opening paragraph of this Agreement.

[******] Confidential Treatment Requested. The confidential portions have
been filed separately with the Securities & Exchange Commission.

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     1.8  "FIRST COMMERCIAL SALE" means the first sale of Product in the
          Territory, after Regulatory Approval, by DAS or its Affiliates (or
          their sublicensee(s)) to any unaffiliated third party as evidenced by
          the selling party's invoice or other relevant document to such third
          party. A sale to an unaffiliated third party shall not include
          quantities delivered solely for research purposes, for clinical trials
          or quantities distributed as samples or promotions.

     1.9  "IMPROVEMENTS" means all additions, developments, modifications,
          enhancements and adaptations (i) which directly relate to or are used
          in connection with the Process Technology or any Pharmaceutical Uses,
          or any formulations thereof or additions, developments, modifications,
          enhancements, improvements and adaptations thereto, and (ii) which are
          conceived or reduced to practice during the Term. Ownership of
          Improvements shall be as set forth in ARTICLE 13 hereof.

     1.10 "IND" means an investigational new drug application filed with the
          applicable Regulatory Authority in a country of the Territory, in
          order to commence human clinical testing of a drug. An IND, together
          with all supplemental filings referencing the initial IND filing,
          shall be deemed one and the same IND for all purposes of this
          Agreement.

     1.11 "KNOW-HOW" means any proprietary technology, information, methods of
          use, processes, techniques or ideas or inventions (other than the
          Patents) owned, possessed or used by Abbott as of the Effective Date
          which is directly related to or used in connection with the Process
          Technology or any Pharmaceutical Uses, including all trade secrets and
          any other technical information relating to development, use or sale
          of the Compound and/or Product, provided that Abbott has the right to
          license and/or sublicense to DAS. To the best of Abbott's knowledge
          and belief, Abbott has the right to license and/or sublicense
          substantially all of the Know-How.

     1.12 "NDA" means an application (whether original, supplementary or
          abbreviated) to the applicable Regulatory Authority in a country of
          the Territory, for approval by such Regulatory Authority, necessary
          for the commercial sale of Product in such country. An NDA, together
          with all supplemental filings referencing the initial NDA filing,
          shall be deemed one and the same NDA for all purposes of this
          Agreement.

     1.13 "NET SALES" means gross sales of the Product by DAS, by any Affiliates
          of DAS, or any contract sales force of DAS or its Affiliates to
          unrelated third parties, in arm's length transactions, including, but
          not limited to, pharmaceutical wholesalers, pharmacies, hospitals or
          dispensing physicians, less any of the following charges or expenses
          that are incurred in connection with gross sales of the Product during
          the Term:

[******] Confidential Treatment Requested. The confidential portions have
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          (a)  discounts, including cash discounts, customary trade allowances
               or rebates actually taken, governmental rebates, chargebacks,
               commissions, and group purchasing management fees for formulary
               access;

          (b)  credits or allowances given or made for rejection, recall or
               return of previously sold Product actually taken;

          (c)  any tax or government charge, duty or assessment (including any
               tax such as a value added or similar tax or government charge)
               levied on the sale, transportation or delivery of Product when
               included on the invoice or other written document between the
               parties as payable by the purchaser and collectable by DAS, its
               Affiliate or sub-licensee; and

          (d)  freight, postage, transportation, insurance and duties on
               shipment of Product when included on the invoice or other written
               document between the parties as payable by the purchaser and
               collectable by DAS, its Affiliate or sublicensee.

     1.14 "PATENTS" means the patent applications and patents listed in Exhibit
          A hereto and any and all other patent applications and patents and
          amendments thereto, including foreign equivalents, and any and all
          substitutions, extensions, additions, reissues, re-examinations,
          renewals, divisions, continuations, continuations-in-part or
          supplementary protection certificates owned by or licensed to (with
          the right to sublicense) Abbott during the Term relating to the
          Product or any Improvements.

     1.15 "PHARMACEUTICAL USES" means any therapeutic use of the Compound and/or
          Product for the management of a disease or condition of the human
          body, excluding (a) any non-therapeutic use or non-human use (which
          non-therapeutic or non-human use shall include, but not be limited to,
          imaging, diagnostics, veterinary medicine, etc.), and (b) [******]

     1.16 "PROCESS TECHNOLOGY" means any technology within the scope of the
          claims of U.S. Patent No. 5,659,037 and/or any foreign equivalents
          listed on EXHIBIT D that are necessary or used for making, using or
          selling Compound and/or Product, and any and all other patent
          applications and patents and amendments thereto, and any and all
          substitutions, extensions, additions, reissues, re-examinations,
          renewals, divisions, continuations, continuations-in-part or
          supplementary protection certificates owned by or licensed to (with
          the right to sublicense) Abbott during the Term relating to the
          Process Technology and applicable to any Compound that are necessary
          or used for making, using or selling Compound and/or Product.

[******] Confidential Treatment Requested. The confidential portions have
been filed separately with the Securities & Exchange Commission.

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     1.17 "PRODRUG" means different pharmaceutical compounds which, following
          administration, are converted into structurally similar active
          metabolites.

     1.18 "PRODUCT" means any formulation containing the Compound or any
          Improvement as an active ingredient for Pharmaceutical Uses.

     1.19 "REGULATORY APPROVAL" means all governmental approvals and
          authorizations necessary for the manufacture and commercial sale of
          the Product in a country of the Territory, including, but not limited
          to, marketing authorization, pricing approval and pricing
          reimbursement, as applicable.

     1.20 "REGULATORY AUTHORITY" means the United States Food and Drug
          Administration or any successor entity and its equivalent in other
          countries of the Territory, including, but not limited to, EMEA.

     1.21 "ROYALTY PERIOD" shall have the meaning ascribed to such term in
          SECTION 5.7(a) of this Agreement.

     1.22 "SUBSTANCE ABUSE INDICATION" shall mean any treatment of addiction
          (including, but not limited to, addiction to cocaine, heroin,
          methamphetamine, and alcohol).

     1.23 "TERM" means the period commencing on the Effective Date and
          terminating as set forth in ARTICLE 8 below.

     1.24 "TERRITORY" means the entire world.

     1.25 "TRADEMARK" means any trademark registered, owned and chosen for
          Product by DAS in any country of the Territory.

     1.26 "WORK PLAN" means each "Feasibility and Development Work Plan"
          specific to each Product indication attached hereto as EXHIBIT B, B-2,
          B-3, etc.

[******] Confidential Treatment Requested. The confidential portions have
been filed separately with the Securities & Exchange Commission.

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2.   LICENSE GRANT. Abbott hereby grants to DAS and its Affiliates an exclusive
right and license in the Territory, under Abbott's Technology and the Process
Technology, for all Pharmaceutical Uses, with the right to grant sublicenses
pursuant to SECTION 4.7 hereof, to: (i) research, develop, modify, improve, make
or have made, Compound and Product; (ii) apply for and obtain Regulatory
Approvals, all as may be required to manufacture and commercialize Product; and
(iii) make, have made, register, use, import/export, market, offer to sell and
sell, Product and Compound, including co-promotion and co-marketing. During the
development phase of the Product, DAS shall have the right to use the Compound
for therapeutic drug monitoring for research and development purposes only. If a
Regulatory Authority requires therapeutic drug monitoring as a part of Product
labeling in connection with NDA approval, then DAS will offer Abbott the first
opportunity to develop and market such a therapeutic drug monitoring assay.
Should Abbott be unable or unwilling to develop and market such an assay within
a commercially reasonable time period, then DAS will have a non-exclusive
royalty bearing license to develop (or have developed) and commercialize such
assay with a [******].

3.   INFORMATION; EXCLUSIVITY.

     3.1  CONVEYANCE OF INFORMATION/INVENTORY:

          (a)  Within forty-five (45) days following the Effective Date, Abbott
               shall convey to DAS most of the information under Abbott's and
               its Affiliates' control involving the Compound, the Process
               Technology and Pharmaceutical Uses of the Compound, including but
               not limited to all information relating to Patents and Know-How,
               worldwide regulatory documentation, draft and final clinical
               reports, toxicity study reports, manufacturing protocol and batch
               records, claims related to potential violations of any third
               party rights, and all collaborative research agreements in the
               possession of Abbott, its Affiliates and agents, but excluding
               raw data sources which are not customarily required for
               regulatory submission (e.g., laboratory notebooks and other
               laboratory databases) and all information related to
               non-Pharmaceutical Uses of the Compound. Abbott shall use
               reasonable efforts in good faith to provide any remaining
               information in the following forty-five (45) days. Abbott will
               promptly provide DAS any other such information of which it
               becomes aware during the term of this Agreement. With regard to
               information from raw data sources, in the event that such
               information is requested from DAS by a Regulatory Authority,
               Abbott shall use reasonable efforts to provide DAS with such
               information. If such information is requested for other purposes,
               Abbott shall use reasonable efforts to provide DAS with such
               information pursuant to SECTION 3.3 of this Agreement or, if
               SECTION 3.3 is no longer applicable or if DAS so requests,
               [******]. For purposes of this SECTION 3.1, information shall not
               be deemed under Abbott's and its Affiliates' control if such
               information is protected by confidentiality agreements with third
               parties. With respect to such protected information, Abbott shall
               use reasonable efforts to obtain the consent of such third
               parties to release the protected information to DAS.

[******] Confidential Treatment Requested. The confidential portions have
been filed separately with the Securities & Exchange Commission.

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          (b)  Abbott shall convey to DAS all available inventory of the
               Compound as requested by DAS, except for such quantities required
               by Abbott in connection with internal research purposes and
               non-Pharmaceutical Uses and/or internal research uses of the
               Compound. Any inventory of Compound conveyed to DAS under this
               SECTION 3.1(b) shall be conveyed "AS IS" and "WITH ALL FAULTS,"
               WITHOUT WARRANTY OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED,
               INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR
               PARTICULAR PURPOSE. DAS shall pay [******] under this SECTION
               3.1(b). DAS shall be responsible for all testing, quality control
               and certification of such Compound.

     3.2  ABBOTT EXCLUSIVITY.

          (a)  During the Term, and except as described in SECTION 4.3(a),
               neither Abbott nor its Affiliates, shall directly or through
               intermediaries, undertake any development or commercialization
               activities related to Pharmaceutical Uses, except that Abbott
               shall be entitled to utilize the Compound for its internal
               research purposes (including pharmaceutical research), provided
               in no event shall such utilization permit Abbott to develop
               and/or commercialize Pharmaceutical Uses. For the avoidance of
               doubt, Abbott shall have the express right to undertake
               development and commercialization activities relating to the
               Compound for non-Pharmaceutical Uses.

          (b)  For a period of five (5) years after the Effective Date, neither
               Abbott nor its Affiliates shall undertake any development or
               commercialization activities with respect to any [******] for any
               Substance Abuse Indication. Notwithstanding the foregoing, Abbott
               shall have the express right to undertake development and
               commercialization activities relating to [******] for
               non-therapeutic and/or non-human uses even if related to
               Substance Abuse Indication (which non-therapeutic uses and/or
               non-human uses shall include, but not be limited to, imaging,
               diagnostics, veterinary medicine, etc.). For the avoidance of
               doubt, Abbott shall also have the express right to undertake
               development and commercialization activities relating to [******]
               (excluding any Compound for Pharmaceutical Uses) for any use or
               indication other than any Substance Abuse Indication, as set
               forth above.

          (c)  Notwithstanding SECTIONS 3.2(a) and (b) above, Abbott shall have
               the right to use the Process Technology solely in connection with
               compounds or products that are not, and do not contain, Compound,
               and in its development and commercialization activities related
               to the Compound as permitted in this Agreement.

     3.3  ASSISTANCE. During the period commencing on the Effective Date and
          ending on the first submission to a Regulatory Authority for
          Regulatory Approval of the

[******] Confidential Treatment Requested. The confidential portions have
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          third Product indication, Abbott will use commercially reasonable
          efforts to provide DAS information (in the possession of Abbott) and
          assistance as reasonably required by DAS for regulatory purposes in
          connection with this Agreement, provided, that in no event shall
          Abbott be obligated to incur expenses as a result of providing such
          assistance nor shall Abbott employees be required to spend a
          substantial amount of time (collectively, not more than twenty (20)
          hours) providing such assistance. In the event that additional time is
          required by DAS, the parties shall negotiate in good faith a mutually
          acceptable hourly rate to be charged DAS for such Abbott employee
          time.

     3.4  DAS EXCLUSIVITY. During the Term, neither DAS nor its Affiliates nor
          their sublicensees, shall directly or through intermediaries, utilize
          the Process Technology for any purpose other than developing, making,
          using or selling Compound and/or Product under this Agreement.

4.   FEASIBILITY/EVALUATION/DEVELOPMENT/MANUFACTURING/MARKETING/OTHER.

     4.1  FEASIBILITY/EVALUATION STUDIES:

          (a)  DAS shall use commercially reasonable efforts to evaluate the
               Compound for at least three (3) indications of Pharmaceutical
               Uses. As of the Effective Date, the parties acknowledge that only
               cocaine abuse and Parkinson's Disease are recognized indications
               for the Compound. For purposes of DAS's obligations under this
               Agreement or any Work Plan, the term "commercially reasonable
               efforts" shall mean those efforts that would be commercially
               reasonable for a company substantially similar to DAS as set
               forth generally in the initial Work Plan (EXHIBIT B). DAS shall
               have sole responsibility for conducting and/or supervising the
               feasibility and evaluation studies on the Compound as set forth
               in the Work Plan (EXHIBIT B), which Work Plan shall include a
               schedule of the clinical development activities to be conducted
               by DAS for the first indication under SECTION 4.3 below.
               Beginning with the Effective Date and until the First Commercial
               Sale, DAS shall use commercially reasonable efforts to conduct
               and/or supervise the studies called for by the Work Plan. All
               such studies shall be paid for by DAS. DAS shall provide Abbott
               with summaries of such studies, including summaries of reports
               and data generated under such studies, at the quarterly review
               meetings held pursuant to SECTION 4.2 below (or otherwise), and
               all such information shall be treated as DAS's Confidential
               Information. Periodically, as the progress of the studies may
               dictate, the Work Plan may be amended at DAS's reasonable
               discretion, and such amendments shall be reflected in an amended
               EXHIBIT B to be prepared, distributed, and attached hereto by
               DAS. Recognizing that the Work Plan calls for certain work to be
               done by one or more third parties and recognizing such work
               (e.g., formulations) may involve the patented subject matter of
               such third party, DAS will use commercially reasonable efforts to
               (i) provide in its license with the third party that the patented
               subject matter of such third party

[******] Confidential Treatment Requested. The confidential portions have
been filed separately with the Securities & Exchange Commission.

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               may be sublicensed to Abbott in the event that the Compound and
               Product are returned to Abbott under SECTIONS 4.3(c) and 4.8; and
               (ii) negotiate a royalty-free license/sublicense with such third
               party. In the event that DAS is unable to negotiate a
               royalty-free license/sublicense, Abbott agrees to assume the
               royalty obligations thereunder if it elects to practice under
               such license/sublicense following the return of the Compound and
               Product under SECTIONS 4.3(c) and 4.8. DAS agrees to promptly
               provide Abbott with written notice of the terms of any licenses
               entered into with third parties which pertain to the Compound
               and/or Product.

          (b)  Upon commencement of work to develop the second and subsequent
               indications of the Product, DAS shall provide Abbott with a Work
               Plan for the feasibility and evaluation studies and for the
               clinical development activities on the Compound that it proposes
               to undertake with respect to the second and subsequent Product
               indications, which Work Plan shall contain substantially similar
               content and time frames as provided in the initial Work Plan
               attached hereto. Such Work Plan shall be in the same general form
               as that provided for in SECTION 4.1 above, shall be attached to
               this Agreement as EXHIBIT B-2, B-3, etc., and shall be subject to
               the same rights of amendment, license and review as provided
               herein, including Abbott's rights to initiate an ADR under
               SECTION 4.3(c).

     4.2  REVIEW: Beginning one month following the Effective Date and until the
          First Commercial Sale, three (3) representatives of Abbott and three
          (3) representatives of DAS shall meet for informational purposes on a
          quarterly basis, rotating such meetings so that one is held via
          teleconference in one quarter and the second is held in person the
          next quarter, each such meeting to be held at a mutually agreeable
          time, to review the progress of each Work Plan, the results of such
          work and studies remaining to be completed under the Work Plan, as the
          same shall exist from time to time. In the event any such personal
          meeting is not held at Abbott Park, DAS shall reimburse Abbott for the
          reasonable travel and lodging expenses incurred by up to three (3)
          Abbott personnel to attend the meeting. Each meeting shall include
          review of the status of Patents and of any proposed studies of
          Compound. DAS will provide Abbott with summaries of the data generated
          under each Work Plan. In the event either party believes that it would
          be beneficial to meet less frequently than quarterly, or that it would
          be beneficial to end the practice of such meetings prior to the First
          Commercial Sale, then such party shall inform the other party of its
          desires, and, if the other party agrees, the parties shall then
          establish a mutually agreeable meeting schedule.

     4.3  CLINICAL DEVELOPMENT:

          (a)  DAS shall use commercially reasonable efforts to develop the
               Compound for at least three (3) indications of Pharmaceutical
               Uses. As of the Effective Date, the parties acknowledge that only
               cocaine abuse and Parkinson's Disease are recognized indications
               for the Compound. DAS shall have sole responsibility for
               designing, conducting and paying for the

[******] Confidential Treatment Requested. The confidential portions have
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               cost of the clinical development of Product and shall use
               commercially reasonable efforts to diligently conduct such
               clinical development as set forth below. Except as set forth in
               SECTION 3.2 above, Abbott hereby agrees that it shall not
               undertake any research or development related to Pharmaceutical
               Uses of the Compound during the Term, except as may be necessary
               following the license granted to Abbott under SECTION 4.8 in the
               event of a termination of this Agreement under SECTIONS 8.2, 8.3
               or 8.4, or a partial termination of this Agreement under SECTION
               4.3(c).

          (b)  After successfully completing formulation, bioavailability and
               delivery work for the first indication of Pharmaceutical Uses,
               DAS shall use commercially reasonable efforts to develop two (2)
               additional indications of Pharmaceutical Uses. DAS shall be
               obligated to commence development of the second such indication
               within two (2) years of commencing development of the first
               indication. Subject to DAS's reasonable determination of the
               commercial viability of a third indication and Abbott's rights
               under SECTION 4.3(c) below, DAS shall be obligated to commence
               development of the third such indication within two (2) years of
               commencing development of the second indication. For purposes of
               this SECTION 4.3(b), development of an indication shall be deemed
               to have commenced upon enrollment of the first subject in the
               first clinical study for an indication using the formulation
               selected for clinical development.

          (c)  In the event DAS breaches a material obligation under this
               Agreement or under a Work Plan, Abbott may then advise DAS that
               Abbott believes that DAS has breached such material obligation
               and that Abbott is adversely impacted thereby. Upon so advising
               DAS, Abbott may initiate an alternative dispute resolution
               procedure ("ADR") as set forth in EXHIBIT C, and request the ADR
               to rule upon whether DAS has breached any such material
               obligation. In the event that the neutral party to such ADR
               renders a ruling that DAS has breached such material obligation
               and that Abbott was adversely impacted thereby, and DAS fails to
               comply with the terms of the neutral's ruling within the time
               specified therein for compliance, or if such compliance cannot be
               fully achieved by such date, DAS has failed to commence
               compliance and/or has failed to use diligent efforts to achieve
               full compliance as soon thereafter as is reasonably possible,
               then Abbott's sole remedy shall be (i) the right to terminate
               this Agreement and the licenses granted hereunder, and to obtain
               from DAS a license to Improvements under SECTION 4.8; or (ii) if,
               at the time Abbott initiates the ADR, the ADR only alleges DAS's
               failure to develop the Product for some, but not all of those
               indications, then Abbott shall only be entitled to a partial
               termination of this Agreement and the licenses granted hereunder
               as to those Product indications for which failure to develop is
               alleged and determined by the ADR, and shall obtain from DAS a
               license to Improvements under SECTION 4.8 as to Improvements only
               with respect to such Product indications, with no effect on DAS's
               rights hereunder for those Product indications and Improvements
               that the

[******] Confidential Treatment Requested. The confidential portions have
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               neutral party has not declared have not been adequately developed
               by DAS hereunder.

     4.4  COMMERCIALIZATION: DAS shall use commercially reasonable efforts to
          develop and commercialize the Product in at least the following major
          countries: United States, Canada, Germany, France, U.K., Italy and
          Spain (each a "Major Country"), at least three (3) additional European
          countries, at least two (2) Latin American countries, and Japan, using
          at least that level of effort it would use with similar compounds in
          its portfolio, provided that DAS's marketing analyses support the
          profitability of Product commercialization in any such country. In the
          event that DAS elects not to market in a particular country(ies),
          either directly or through third parties, Abbott shall have the right,
          upon notice to DAS, to market, either directly or through third
          parties, the Product in each such country, by paying to DAS the same
          royalty to which Abbott would otherwise be entitled if DAS was
          marketing the Product in such country. DAS agrees to provide Product
          to Abbott for sale in each such country at the same cost (as evidenced
          by DAS's internal records) incurred by DAS in procuring or
          manufacturing Product for its own sales. If there is any material
          disagreement between the parties concerning whether commercially
          reasonable efforts towards commercialization have been made with
          respect to a particular indication after Regulatory Approval in a
          country, then the matter may be submitted to ADR where remedies for
          failure to expend such efforts could include a requirement to expend
          additional efforts to make up for any failures, damages and/or
          termination of the license rights in the applicable country, unless
          DAS chooses to undertake such activities and expenses as needed to
          correct the failure.

     4.5  MARKETING: DAS shall have sole responsibility for marketing Product,
          including entering into any co-marketing and/or co-promotion
          arrangements. DAS shall distribute all Product samples in the United
          States in accordance with the Prescription Drug Marketing Act.

     4.6  MANUFACTURING: DAS and its Affiliates shall have sole responsibility
          for manufacturing Product or having Product manufactured for it by a
          third party manufacturer. However, during the three (3) month period
          following the Effective Date, DAS will negotiate in good faith
          exclusively with Abbott with respect to the manufacture of the Product
          for clinical and commercial supply. Thereafter, in the event DAS
          negotiates terms and conditions with a third party manufacturer of
          Product, DAS shall, prior to executing a definitive agreement with
          such third party, provide Abbott with a summary of the material terms
          and conditions and allow Abbott the opportunity to meet or beat such
          terms and conditions. If Abbott fails to meet or beat such terms and
          conditions within twenty-one (21) days of its receipt, DAS shall be
          free to execute a definitive agreement for the manufacture and supply
          of Product with such third party.

     4.7  SUBLICENSING:

[******] Confidential Treatment Requested. The confidential portions have
been filed separately with the Securities & Exchange Commission.

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          (a)  During the two (2) year period following the Effective Date, DAS
               may sublicense to unrelated third parties its rights to one or
               more Product indications under this Agreement, only with Abbott's
               prior written consent, which consent shall not be unreasonably
               withheld. After such two year period, DAS may sublicense to
               unrelated third parties its rights to one or more Product
               indications under this Agreement without obtaining Abbott's prior
               written consent. Each sublicense shall be in writing and shall
               include provisions acknowledging that such sublicense is subject
               to the license granted DAS under this Agreement, that each
               sublicensee shall make reports and keep and maintain records of
               sales to at least the same extent as required under this
               Agreement, allowing Abbott the same access and audit rights
               permitted under this Agreement, and that such sublicense shall be
               automatically terminated upon termination of this Agreement. DAS
               shall remain primarily liable for the performance of
               sublicensees. DAS shall provide Abbott with a copy of each
               sublicense agreement.

          (b)  All consideration received by DAS as a result of each sublicense
               of its rights under this Agreement and any sub-sublicense
               agreement (including, but not limited to fees, payments,
               milestones, royalties, etc.) (collectively, the "SUBLICENSE
               CONSIDERATION") shall be divided between DAS and Abbott as
               follows:

               (i)  For any sublicense executed between [******].

              (ii)  For any sublicense executed [******], the Sublicense
                    Consideration shall be [******].

             (iii)  For any sublicense executed [******], the Sublicense
                    Consideration shall be [******].

              (iv)  For any sublicense executed [******], the Sublicense
                    Consideration shall be [******].

               (v)  For any sublicense executed [******], the Sublicense
                    Consideration shall be [******].

          (c)  Furthermore, the amount of such Sublicense Consideration payable
               to Abbott under SECTION 4.7(b) above shall be [******]. Such
               research and development costs shall consist of those customary
               costs to perform a clinical protocol which are documented and are
               payable upon receipt of a signed clinical study report. All
               research and development costs for which reimbursement is
               requested by DAS shall be measurable and are subject to Abbott's
               audit rights under SECTION 5.7(c).

          (d)  Notwithstanding anything to the contrary contained in this
               SECTION 4.7, no sublicense or sub-sublicense may be entered into
               by DAS without Abbott's prior written approval, which may be
               withheld by Abbott in its

[******] Confidential Treatment Requested. The confidential portions have
been filed separately with the Securities & Exchange Commission.

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<PAGE>

               sole discretion, if such sublicense would result in [******]. For
               example, if [******].

     4.8  IMPROVEMENTS: All Improvements and all new patents which relate to the
          Compound or the Product which come into existence during the Term and
          which relate to or are derived from work done by or for DAS or their
          Affiliates or sublicensees relating to the Compound without any
          contribution by Abbott, its Affiliates, contractors, or agents, shall
          be deemed the property of DAS. Provided, however, in the event this
          Agreement is terminated by Abbott for any reason, as set forth in
          ARTICLE 8, or is partially terminated by Abbott as set forth in
          SECTION 4.3(c), all such Improvements shall be exclusively licensed to
          Abbott solely for use with the Compound and Product on a worldwide,
          royalty-free, paid-up basis, and DAS retains all rights in and to any
          such Improvements for any and all other uses.

5.   EXECUTION FEE, MILESTONE PAYMENTS AND ROYALTIES.

     5.1  EXECUTION FEE. DAS shall pay to [******].

     5.2  MILESTONE PAYMENTS (FIRST SUBSTANCE ABUSE INDICATION): DAS shall make
          the following milestone payments to Abbott for the first Substance
          Abuse Indication for the Product within [******], regardless of
          whether or not DAS has sublicensed any of its rights under this
          Agreement:

          (a)  FIRST MILESTONE PAYMENT: [******].

          (b)  SECOND MILESTONE PAYMENT: [******].

          (c)  THIRD MILESTONE PAYMENT: [******].

          (d)  FOURTH MILESTONE PAYMENT: [******].

     5.3  MILESTONE PAYMENTS (PARKINSON'S INDICATION): DAS shall make the
          following milestone payments to Abbott for the [******]

          (a)  FIRST MILESTONE PAYMENT: [******].

          (b)  SECOND MILESTONE PAYMENT: [******].

          (c)  THIRD MILESTONE PAYMENT: [******].

          (d)  FOURTH MILESTONE PAYMENT: [******].

     5.4  MILESTONE PAYMENTS [******] DAS shall make the following milestone
          payments to Abbott for the first Non-Parkinson's Disease and
          Non-Substance Abuse Indication for the Product [******] occurrence of
          the following events, regardless of whether or not DAS has sublicensed
          any of its rights under this Agreement:

[******] Confidential Treatment Requested. The confidential portions have
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          (a)  FIRST MILESTONE PAYMENT: [******]

          (b)  SECOND MILESTONE PAYMENT: [******]

          (c)  THIRD MILESTONE PAYMENT: [******]

          (d)  FOURTH MILESTONE PAYMENT: [******]

     5.5  MILESTONE PAYMENTS (OTHER INDICATIONS): [******]

     5.6  SALES MILESTONES:

          (a)  Upon the first attainment of [******] of all Products in a
               calendar year of [******] payment is otherwise due.

          (b)  Upon the first attainment of [******] of all Products in a
               calendar year of [******]

          (c)  For purposes of calculating Net Sales of all Products under this
               SECTION 5.6 for the one-time payment of sales milestones, Net
               Sales shall include the combined sales of Products by DAS, its
               Affiliates, their contract sales forces and all sublicensees and
               their contract sales forces.

     5.7  ROYALTY PAYMENTS:

          (a)  ROYALTY RATE AND ROYALTY PERIOD: [******]:

<TABLE>
<CAPTION>
          ANNUAL NET SALES            ROYALTY
<S>                                 <C>
          [******]                    [******]
          [******]                    [******]
          [******]                    [******]
          [******]                    [******]
</TABLE>

          If DAS is required to pay [******] provided, however, that [******].

          For example, if DAS is [******].

          The obligation of DAS to pay a [******] ("ROYALTY PERIOD").

     (b)  REDUCED ROYALTY PERIOD: Upon the end of the Royalty Period in any
          [******] (the "REDUCED ROYALTY PERIOD").

          The royalty payable for the Reduced Royalty Period shall be calculated
          by (i) [******]; (ii) [******]; (iii) [******]; and (iv) [******]

          For example, if [******]:

     (i)  [******]

[******] Confidential Treatment Requested. The confidential portions have
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          (ii)  [******]

          (iii) [******]

          (iv)  [******]

     (c)  ROYALTY REPORTS AND PAYMENTS: Beginning with the [******]. Each report
          shall be accompanied by [******]. In the event that conversion from
          foreign currency is required in calculating a royalty payment
          hereunder, the exchange rate used shall be the ratio in effect at the
          end of the last business day of the applicable quarter for which
          royalties are calculated, as reported by THE WALL STREET JOURNAL, or a
          substantially similar global publication if THE WALL STREET JOURNAL is
          no longer published.

     (d)  BOOKS AND RECORDS/AUDIT RIGHTS: DAS shall keep books and records
          accurately showing all Products manufactured, used or sold under the
          terms of this Agreement. The relevant portions of such books and
          records shall be open to inspection by representatives of Abbott, at
          Abbott's cost, solely for the purposes of determining the correctness
          of the royalties payable under this Agreement. Such audit, conducted
          no more than one time per calendar year, shall be during normal
          business hours after reasonable advance notice and subject to suitable
          confidentiality provisions. In the event an audit shows a deficiency
          to be due, [******]. If the audit shows that an excess was paid, DAS
          shall be entitled to deduct the amount of such excess from the payment
          due for the next calendar quarter. Such books and records shall be
          preserved for a period of at least three (3) years after the date of
          the royalty payment to which they pertain, and no audit may be
          conducted with respect to royalties due in any calendar year that is
          more than two (2) years preceding the calendar year in which the audit
          is being conducted. Books and records for a given calendar year may
          only be audited once.

     (e)  WITHHOLDING TAXES ON ROYALTIES: Where any sum due to be paid to Abbott
          hereunder is subject to any withholding or similar tax, the parties
          shall use all reasonable efforts to do all such acts and things and to
          sign all such documents as will enable them to take advantage of any
          applicable double taxation agreement or treaty. In the event there is
          no applicable double taxation agreement or treaty, or if an applicable
          double taxation agreement or treaty reduces but does not eliminate
          such withholding or similar tax, DAS shall pay such withholding or
          similar tax to the appropriate government authority, deduct the amount
          paid from the amount due Abbott and secure and send to Abbott the best
          available evidence of such payment sufficient to enable Abbott to
          obtain a deduction for such withheld taxes or obtain a refund thereof.

[******] Confidential Treatment Requested. The confidential portions have
been filed separately with the Securities & Exchange Commission.

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<PAGE>

6.   REPRESENTATIONS/WARRANTIES.

     6.1  REPRESENTATIONS AND WARRANTIES OF ABBOTT: Abbott represents and
          warrants that it is duly organized, validly existing and in good
          standing under the laws of Illinois, that it has full corporate power
          and authority to enter into this Agreement and to carry out its
          provisions, and that there are no outstanding agreements, assignments
          or encumbrances in existence that are inconsistent with the provisions
          of this Agreement. Abbott further represents and warrants that it is
          duly authorized to execute and deliver this Agreement and to perform
          its obligations hereunder and that the execution, delivery and
          performance of this Agreement by it does not require the consent,
          approval or authorization of or notice, filing or registration with
          any governmental or regulatory agency.

     6.2  REPRESENTATIONS AND WARRANTIES OF DAS: DAS represents and warrants
          that it is duly organized, validly existing and in good standing under
          the laws of California, that it has full corporate power and authority
          to enter into this Agreement and to carry out its provisions, and that
          there are no outstanding agreements, assignments or encumbrances in
          existence that are inconsistent with the provisions of this Agreement.
          DAS further represents and warrants that it is duly authorized to
          execute and deliver this Agreement and to perform its obligations
          hereunder, and that the execution, delivery and performance of this
          Agreement by it does not require the consent, approval or
          authorization of or notice, filing or registration with any
          governmental agency or Regulatory Authority.

     6.3  INDEMNIFICATION BY DAS: DAS shall indemnify and hold Abbott, its
          Affiliates and their directors, officers, employees and agents
          harmless from and against any and all liabilities, actions, suits,
          claims, demands, prosecutions, damages, costs, expenses or money
          judgments finally awarded (including reasonable legal fees)
          (collectively, "LIABILITIES") incurred by or instituted or rendered
          against Abbott to the extent such Liabilities result from a third
          party claim arising from the willful misconduct or the negligent acts
          or omissions of DAS or its Affiliates or DAS's material breach of this
          Agreement, except to the extent such third party claims arise out of
          the gross negligence or willful misconduct of Abbott, its Affiliates
          and their directors, officers, employees and agents, and provided that
          Abbott gives DAS prompt notice in writing of any such claim or lawsuit
          and permits DAS to undertake sole control of the defense and
          settlement thereof at DAS's expense. In any such claim or lawsuit:

          (a)  Abbott will cooperate in the defense by providing access to
               witnesses and evidence available to it. Abbott shall have the
               right to participate, at its expense, in any defense to the
               extent that in its reasonable judgment Abbott may be prejudiced
               by DAS's sole defense thereof.

          (b)  With respect to this Agreement, Abbott shall not settle, offer to
               settle or admit liability in any claim or suit in which Abbott
               intends to seek

[******] Confidential Treatment Requested. The confidential portions have
been filed separately with the Securities & Exchange Commission.

                                       16
<PAGE>

               indemnification by DAS without the written consent of a duly
               authorized officer of DAS.

     6.4  REPORTABLE OCCURRENCES: Each party warrants that it shall advise the
          other promptly of any occurrence which is reported or reportable by it
          to the Regulatory Authorities relating in any way to the Compound or
          the Product.

     6.5  LIMITATION: EXCEPT FOR THE EXPRESS WARRANTIES IN THIS ARTICLE 6,
          NEITHER PARTY MAKES ANY WARRANTIES, EXPRESS OR IMPLIED, IN FACT OR BY
          OPERATION OF LAW, STATUTORY OR OTHERWISE. EACH PARTY SPECIFICALLY
          DISCLAIMS ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
          PARTICULAR PURPOSE. EXCEPT FOR VIOLATIONS OF ARTICLE 7 AND AMOUNTS
          FINALLY AWARDED FOR INDEMNIFICATION FOR THIRD PARTY LIABILITIES UNDER
          SECTION 6.3, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY HERETO
          OR TO ANY THIRD PARTY FOR ANY SPECIAL, CONSEQUENTIAL, EXEMPLARY OR
          INCIDENTAL DAMAGES (INCLUDING LOST OR ANTICIPATED PROFITS RELATING TO
          THE SAME) ARISING FROM ANY CLAIM RELATING TO THIS AGREEMENT, WHETHER
          SUCH CLAIM IS BASED ON CONTRACT, TORT (INCLUDING NEGLIGENCE) OR
          OTHERWISE, EVEN IF AN AUTHORIZED REPRESENTATIVE OF SUCH PARTY IS
          ADVISED OF THE POSSIBILITY OR LIKELIHOOD OF SAME.

7.   CONFIDENTIALITY AND NON-DISCLOSURE.

     7.1  NONDISCLOSURE: Neither party shall use or disclose any Confidential
          Information received by it from the other party pursuant to this
          Agreement without the prior written consent of the other. This
          obligation will continue for a period of seven (7) years after
          termination of this Agreement or expiration of the Term, whichever is
          earlier. The parties recognized in SECTION 3.2 of this Agreement that
          Abbott may be utilizing Compound, Process Technology and Abbott
          Technology in certain limited circumstances, including, but not
          limited to, non-Pharmaceutical Uses and for internal research
          purposes. Abbott shall be permitted to disclose information pertaining
          to the Compound, the Abbott Technology and the Process Technology in
          such circumstances only if the recipient of such information is under
          a duty of confidentiality to Abbott, and further, provided that no
          such disclosure of such information shall be made for Pharmaceutical
          Uses, nor shall Confidential Information of DAS be disclosed.

     7.2  RESTRICTION: Each party shall restrict dissemination of Confidential
          Information to those of its employees, contractors, agents and
          sublicensees (if any) who have an actual need to know and have a legal
          obligation to protect the confidentiality of such Confidential
          Information. All Confidential Information disclosed by one party to
          the other shall remain the sole property of the disclosing party and
          neither party shall obtain any right of any kind to the Confidential
          Information disclosed, except as granted under this Agreement.

[******] Confidential Treatment Requested. The confidential portions have
been filed separately with the Securities & Exchange Commission.

                                       17
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     7.3  RESTRICTION EXEMPTIONS: Nothing contained in this ARTICLE 7 shall be
          construed to restrict the parties from using or disclosing
          Confidential Information solely to the extent and solely as required:

          (a)  for regulatory, tax or customs reasons;

          (b)  for audit purposes;

          (c)  by court order or other governmental order or request; or

          (d)  to perform acts permitted by this Agreement, including (i)
               disclosure by DAS to third parties undertaking feasibility and
               evaluation studies, clinical trials and the like on behalf of
               DAS, so long as such third parties are under a legal obligation
               to DAS to protect the confidentiality of such Confidential
               Information, or (ii) disclosure by DAS in connection with the
               marketing and commercial sale of Product, to the extent required
               by law.

8.   TERM AND TERMINATION.

     8.1  This Agreement shall continue in effect unless and until terminated as
          provided in this SECTION 8 or in SECTIONS 4.3 or 4.4. Upon the end of
          the Royalty Period in any country of the Territory, DAS shall have an
          exclusive, perpetual and irrevocable license under Abbott's
          Technology, with all of the rights granted under ARTICLE 2 hereof, and
          without any further obligation to Abbott, except for the payment
          obligations accruing prior to such date and except for any obligation
          to pay [******] Reduced Royalty Period, as provided in SECTION 5.7(b)
          hereof.

     8.2  If DAS determines in its reasonable scientific and commercial judgment
          that the Compound does not have an acceptable profile or a reasonable
          likelihood of commercial success, or that it is economically or
          technically impractical for DAS to continue developing and marketing
          the Product, DAS shall have the right to terminate this Agreement upon
          ninety (90) days written notice, at the end of which the termination
          shall be effective. Upon such termination DAS shall pay all payments,
          milestones or royalties which may have become due prior to the
          effective date of such termination, and DAS shall assign and Abbott
          shall be entitled to retain for its own use, all studies and
          information relating to the Compound and shall be granted a license to
          all Improvements as set forth in SECTION 4.8 hereof.

     8.3  Either party may terminate this Agreement by giving to the other party
          prior written notice of not less than thirty (30) days in the case of
          a monetary breach and of not less than ninety (90) days in the event
          the other party shall commit a non-monetary material breach of this
          Agreement, and such breaching party shall fail to cure, or commence
          action to cure, such breach during such thirty (30) or ninety (90) day
          period, as applicable. In the case of a non-monetary breach, the cure
          period may be extended for such longer period as may reasonably be
          necessary if cure is not reasonably possible within the initial ninety
          (90) day period, provided the breaching party continues its diligent
          efforts to cure. No

[******] Confidential Treatment Requested. The confidential portions have
been filed separately with the Securities & Exchange Commission.

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          such cancellation and termination shall release the breaching party
          from any obligations hereunder incurred prior thereto. In the event of
          a dispute whether a material breach has occurred, the existence of
          material breach shall be determined using the ADR set forth in EXHIBIT
          C. A party's right to terminate this Agreement shall only apply if the
          breaching party fails to cure such breach in the manner required by
          the final judgment of the ADR hearing. In the event that this
          Agreement is terminated for DAS's material breach, Abbott shall be
          entitled to retain for its own use all funds previously paid by DAS,
          together with all studies, information and Improvements generated
          hereunder. In the event that this Agreement is terminated for Abbott's
          material breach, DAS shall not be liable for payments not yet due and
          payable under ARTICLE 5 hereof, and DAS shall be entitled to retain
          for its own use all studies, information and Improvements generated
          hereunder.

     8.4  Either party may terminate this Agreement on thirty (30) days notice
          if the other party passes a resolution or the court makes an order for
          its winding up; or has a receiver or administrator appointed over its
          business or all of its assets; or is or becomes bankrupt; or ceases
          its business operations. In the event that this Agreement is
          terminated under this SECTION 8.4 subject to the other terms of this
          Agreement, the terminating party shall be entitled to retain for its
          own use all studies, information and Improvements (subject to the
          license set forth in SECTION 4.8 as it concerns Abbott) generated
          hereunder. Notwithstanding the bankruptcy or insolvency of Abbott or
          the impairment of performance by Abbott of its obligations under this
          Agreement as a result of bankruptcy or insolvency of Abbott, DAS shall
          be entitled to retain the licenses granted herein, without any further
          obligation to Abbott other than the payment obligations under ARTICLE
          5.

     8.5  Termination of this Agreement shall be without prejudice to any rights
          of either party against the other which may have accrued up to the
          date such termination becomes effective.

     8.6  All causes of action accruing to either party under this Agreement
          shall survive expiration or termination of this Agreement for any
          reason.

     8.7  Upon any termination or expiration of this Agreement, each party shall
          promptly return to the other party all written Confidential
          Information, and all copies thereof (retaining one copy of the
          Confidential Information of the other in its confidential files for
          archival purposes only), which is not covered by a paid-up license or
          other rights specified herein surviving such termination or
          expiration.

9.   INFRINGEMENT OF PATENTS BY THIRD PARTY. In the event of an actual or
suspected infringement of a Patent by a third party, the following shall
apply:

     9.1  NOTICE: Each party shall give the other written notice if one of them
          becomes aware of any infringement by a third party of any Patent. Upon
          notice of any such infringement, the parties shall promptly consult
          with one another with a view toward reaching agreement on a course of
          action to be pursued.

[******] Confidential Treatment Requested. The confidential portions have
been filed separately with the Securities & Exchange Commission.

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     9.2  DAS'S RIGHT TO BRING INFRINGEMENT ACTION:

          (a)  DAS ELECTION: If a third party infringes any Patent, DAS shall
               have the first right, but not the obligation, to institute and
               prosecute an action or proceeding to abate such infringement and
               to resolve such matter by settlement or otherwise.

               (i)  DAS shall notify Abbott of its intention to bring an action
                    or proceeding prior to filing the same and in sufficient
                    time to allow Abbott the opportunity to discuss with DAS the
                    choice of counsel for such matter. DAS shall keep Abbott
                    timely informed of material developments in the prosecution
                    or settlement of such action or proceeding. DAS shall be
                    responsible for all fees and expenses of any action or
                    proceeding against infringers which DAS initiates. Abbott
                    shall cooperate fully at its expense by joining as a party
                    plaintiff if reasonably requested to do so by DAS or if
                    required to do so by law to maintain such action or
                    proceeding and by executing and making available such
                    documents as DAS may reasonably request. Abbott may be
                    represented by counsel in any such legal proceedings, at
                    Abbott's own expense.

              (ii)  If DAS elects not to exercise such first right, Abbott shall
                    have the right, at its discretion, to institute and
                    prosecute an action or proceeding to abate such infringement
                    and to resolve such matter by settlement or otherwise. DAS
                    shall cooperate fully by joining as a party plaintiff if
                    reasonably requested to do so by Abbott or if required to do
                    so by law to maintain such action and by executing and
                    making available such documents as Abbott may reasonably
                    request. DAS may be represented by counsel in any such
                    action, at its own expense.

          (b)  DAS USE OF PROCEEDS: All amounts of every kind and nature
               recovered from an action or proceeding of infringement brought by
               DAS shall belong to DAS, and shall be used first to reimburse DAS
               for its documented and actual costs of prosecution, including
               attorneys' fees, expert fees and all other related expenses,
               second to reimburse Abbott for its documented and actual costs if
               it is represented by counsel in the proceeding, and the balance
               shall thereafter be considered Net Sales under this Agreement and
               subject to royalty payments under SECTION 5.7.

          (c)  ABBOTT'S USE OF PROCEEDS: All amounts of every kind and nature
               recovered from an action or proceeding of infringement brought by
               Abbott shall belong to Abbott, and shall first be used to
               reimburse Abbott for its documented and actual costs of
               prosecution, second to reimburse DAS for its documented and
               actual costs if it is represented by counsel in the proceedings,
               and the balance shall belong to Abbott.

[******] Confidential Treatment Requested. The confidential portions have
been filed separately with the Securities & Exchange Commission.

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10.  INFRINGEMENT OF THIRD PARTY RIGHTS; DAS DEFENSE OF SUIT: If Abbott, its
Affiliates, DAS, its Affiliates, sublicensees, distributors or other customers
are sued or threatened with suit in the Territory by a third party alleging
infringement in one or more countries of the Territory of patents or other
intellectual property rights that are alleged to cover the manufacture, use,
sale, import, export or distribution of one or more Products, Abbott or DAS,
whichever is relevant, will promptly notify the other in writing and provide a
copy of the lawsuit or claim. DAS shall control the defense in any such claim or
suit. If DAS expends any amounts in connection with any third party claim of
infringement or misappropriation, or is required to pay a royalty or other
amount to a third party for the manufacture, use, sale, import, export or
distribution of one or more Products in the Territory as a result of a final
judgment or settlement, such amounts shall be fully deductible by DAS from the
royalties payable and accruing to Abbott thereafter under SECTION 5.7, but only
where such claim, judgement or settlement arises out of DAS's practice of a
Patent, the Process Technology or use of the Abbott Technology. Abbott shall
fully cooperate with DAS in the defense of any such action at Abbott's expense.
DAS shall have the right to settle any such suit, including the right to grant
one or more sublicenses, with the prior written approval, which approval shall
not unreasonably be withheld, provided that DAS shall not otherwise have the
right to surrender, limit or adversely affect any rights to the Patents.

11.  Patent Prosecution and Maintenance; Patent Costs; Patent Term Extension.

     11.1 DISCLOSURE OF PATENTS/APPLICATIONS TO DAS: Within thirty (30) days
          following the Effective Date, Abbott shall disclose to DAS the
          complete text of, and all other information in its possession or
          control directly related to (a) all patent applications included in
          the Patents filed anywhere in the Territory; and (b) all patents
          included in the Patents as well as all information in Abbott's, its
          Affiliates and its patent counsel's possession concerning the
          institution or possible institution of any interference, opposition,
          reexamination, reissue, revocation, nullification or any official
          proceeding involving an issued patent included in the Patents anywhere
          in the Territory.

     11.2 PROSECUTION AND MAINTENANCE: Abbott shall be solely responsible for
          the preparation, filing, prosecution and maintenance of the Patents
          and Process Technology patents in Abbott's name, including oppositions
          and interferences, subject to DAS's right to assume such duties in the
          event Abbott reasonably fails to adequately prepare, file, prosecute
          and maintain the Patents and Process Technology patents. Abbott and
          DAS shall consult and cooperate with each other, and Abbott shall keep
          DAS reasonably informed, with respect to the prosecution and
          maintenance of the Patents and Process Technology patents hereunder.
          Abbott will provide DAS with copies of all material documents received
          or prepared by Abbott in the prosecution and maintenance of the
          Patents and Process Technology patents. Abbott shall provide copies in
          a timely manner to allow DAS an opportunity, if it so elects, to
          review and comment on Abbott's proposed patent strategy. Abbott shall
          invoice DAS and DAS shall promptly reimburse Abbott for one-half of
          all reasonable direct prosecution and maintenance costs (including but
          not limited to, outside attorneys' and translation fees) incurred by
          Abbott for all of the Patents and Process Technology patents after the
          Effective Date.

[******] Confidential Treatment Requested. The confidential portions have
been filed separately with the Securities & Exchange Commission.

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     11.3 PATENT EXTENSIONS: DAS shall have the right and sole responsibility
          for obtaining patent term extensions under the provisions of 35 USC
          Section 156 for any U.S. Patent and for non-U.S. Patents under
          similar provisions of law of other countries involving a Product
          which has obtained Regulatory Approval.

12.  TRADEMARK: DAS may select any Trademark or Trademarks for the Product in
the Territory. All costs related to the selection and maintenance of the
Trademark(s) shall be borne by DAS. The Trademark(s) shall be owned by DAS, and
Abbott shall have no claims or rights in or to the Trademark(s).

13.  IMPROVEMENTS: All Improvements made solely by DAS and/or its Affiliates
hereunder shall be the sole and exclusive property of DAS. All Improvements made
solely by Abbott and/or its Affiliates shall become part of Abbott's Technology,
licensed exclusively to DAS with all of the rights set forth in ARTICLE 2
hereof. All Improvements made jointly by Abbott and DAS (or by their Affiliates)
hereunder shall become jointly owned, provided that to the extent that such
Improvements are owned by Abbott, they shall be included in the license granted
to DAS under ARTICLE 2 hereof. The provisions of this ARTICLE 13 are subject to
the rights of the terminating party under ARTICLE 8 hereof.

14.  MISCELLANEOUS.

     14.1 FORCE MAJEURE: If the performance by either party of any of its
          obligations under this Agreement shall be prevented by circumstances
          beyond its reasonable control which could not have been avoided by the
          exercise of reasonable diligence, then such party shall be excused
          from the performance of that obligation for the duration of the event.
          The affected party shall promptly notify the other party in writing
          should such circumstances arise, give an indication of the likely
          extent and duration thereof, and shall use commercially reasonable
          efforts to resume performance of its obligations as soon as
          practicable.

     14.2 NOTICES: Any notice required to be given or made under this Agreement
          by one of the parties hereto to the other shall be in writing, by
          personal delivery, registered U.S. mail or overnight courier,
          addressed to such other party at its address indicated below, or to
          such other address as the addressee shall have last furnished in
          writing to the addressor and shall be effective upon the date of
          receipt.

          If to DAS:         Drug Abuse Sciences, Inc.
                             330 Distel Circle
                             Suite 150
                             Los Altos, CA 94022
                             Attn:    Philippe Pouletty, M.D., CEO and Chairman

          If to Abbott:      Abbott Laboratories
                             100 Abbott Park Road
                             Dept. 309; Bldg. AP30

[******] Confidential Treatment Requested. The confidential portions have
been filed separately with the Securities & Exchange Commission.

                                       22
<PAGE>

                             Abbott Park, IL  60064-3537
                             Attn:    Senior Vice President,
                                      Pharmaceutical Operations

          With a copy to:    Abbott Laboratories
                             100 Abbott Park Road
                             Dept. 364; Bldg. AP6D
                             Abbott Park, IL  60064-6032
                             Attn:    Senior Vice President,
                                      General Counsel and Secretary

     14.3 APPLICABLE LAW/COMPLIANCE: This Agreement shall be governed by and
          construed in accordance with the laws of the State of New York,
          excluding its conflict of laws provision. Each party hereto shall
          comply with all applicable laws, rules, ordinances, guidelines,
          consent decrees and regulations of any federal, state or other
          governmental authority.

     14.4 ENTIRE AGREEMENT: This Agreement and the attachments (Exhibits)
          contain the entire understanding of the parties with respect to the
          subject matter hereof. All express or implied agreements and
          understandings, either oral or written, heretofore made are expressly
          merged in and made a part of this Agreement. This Agreement may be
          amended, or any term hereof modified, only by a written instrument
          duly executed by both parties hereto.

     14.5 COUNTERPARTS: This Agreement may be executed in two or more
          counterparts, each of which shall be deemed an original, but all of
          which together shall constitute one and the same instrument.

     14.6 SEVERABILITY/HEADINGS: If any provision of this Agreement is deemed
          unenforceable, the remainder of the Agreement will not be affected
          and, if appropriate, the parties will attempt to replace the
          unenforceable provision with a new provision that, to the extent
          possible, reflects the parties' original intent. The captions and
          headings used in this Agreement are for reference only and are not to
          be construed in any way as terms or used to interpret the provisions
          of this Agreement.

     14.7 ASSIGNMENT: Neither party may without written approval of the other
          assign this Agreement or transfer its interest or any part thereof
          under this Agreement to any third party except that (i) either party
          may assign this Agreement without consent to a third party that
          acquires all or substantially all of the business to which this
          Agreement pertains, or, (ii) either party may assign this Agreement in
          whole or part to any Affiliate or sublicensee of that party and such
          party hereby guarantees the performance by such Affiliates and
          sublicensees.

     14.8 DISPUTE RESOLUTION: The parties hereto shall attempt to settle any
          dispute arising out of or relating to this Agreement in an amicable
          way. Except for claims for injunctive or other equitable relief, which
          may be brought in any court of

[******] Confidential Treatment Requested. The confidential portions have
been filed separately with the Securities & Exchange Commission.

                                       23
<PAGE>

          competent jurisdiction, any controversy, claim or right of termination
          for cause which may arise under, out of, in connection with, or
          relating to this Agreement, or any breach thereof, shall be settled
          according to the Alternative Dispute Resolution provisions attached
          hereto as EXHIBIT C.

     14.9 INDEPENDENT CONTRACTOR: It is understood that both parties hereto are
          independent contractors and engage in the operation of their own
          respective businesses and neither party hereto is to be considered the
          agent of the other party for any purpose whatsoever and neither party
          has any authority to enter into any contract or assume any obligation
          for the other party or to make any warranty or representation on
          behalf of the other party. Each party shall be fully responsible for
          its own employees, servants and agents, and the employees, servants
          and agents of one party shall not be deemed to be employees, servants
          and agents of the other party for any purpose whatsoever.

    14.10 BOARD OF DIRECTOR APPROVAL: This Agreement is subject to approval of
          DAS's Board of Directors, notice of which shall be given by DAS to
          Abbott within five (5) days of the date hereof. In the event DAS fails
          to give notice within such time period, Board of Director approval
          will be deemed to have been given.

    14.11 PUBLICITY: No press release or other public announcement shall be
          made by either party concerning the execution of this Agreement or the
          fact that DAS has licensed the Compound from Abbott. Neither party
          shall use the name of the other party, its officers, the other party's
          employees and agents for purposes of any public commercial activity
          without the other party's prior written consent, except where the name
          of the other party must be disclosed as a matter of law. Should either
          party be required by law to make a disclosure, the disclosing party
          shall submit a copy of the proposed disclosure to the other party for
          review. The non-disclosing party shall have three (3) weeks to review
          and comment on the content of such disclosure. The disclosing party,
          subject to legal requirements, shall use all reasonable efforts to
          accommodate the non-disclosing party's comments. For non-routine
          matters like an emergency, special circumstance, or other situation
          where the law compels a disclosure in less than three (3) week's time,
          the non-disclosing party agrees to use commercially reasonable efforts
          to provide its review and comment in order to meet the disclosing
          party's timetable.

[******] Confidential Treatment Requested. The confidential portions have
been filed separately with the Securities & Exchange Commission.

                                       24
<PAGE>

                  IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the Effective Date.

ABBOTT LABORATORIES                      DRUG ABUSE SCIENCES, INC.

By:  /s/ Arthur J. Higgins               By:   /s/ Philippe Pouletty
   ---------------------------------         ---------------------------------
Name: Arthur J. Higgins                  Name: Philippe Pouletty, M.D.
     -------------------------------          --------------------------------

Its:       Senior Vice President,        Its:      Chairman and CEO
           Pharmaceutical Operations

[******] Confidential Treatment Requested. The confidential portions have
been filed separately with the Securities & Exchange Commission.

<PAGE>

                                    EXHIBIT A

                                       TO
                           EXCLUSIVE LICENSE AGREEMENT
                                     BETWEEN
                               ABBOTT LABORATORIES
                                       AND
                            DRUG ABUSE SCIENCES, INC.
                           DATED AUGUST ________, 2000

                         PATENTS AND PATENT APPLICATIONS

U.S. Patent No. 5,597,832

Corresponding Pending Ex-U.S. patent applications:

<TABLE>
<CAPTION>
         Country         Application #      Filing Date
         ----------------------------------------------
<S>                        <C>              <C>
         Canada            2,159,481        03/18/1994
         EP                94912799.7       03/18/1994
         Israel            108,993          03/16/1994
         Korea             95704355         03/18/1994
         Norway            19953957         03/18/1994
         Philippines       48037            04/05/1994
         PC                PCT/US94/02894   03/18/1994
</TABLE>

Corresponding Issued Ex-U.S. patent applications:

<TABLE>
<CAPTION>
         Country           Application #    Filing Date
         ----------------------------------------------
<S>                        <C>              <C>
         Australia         6520394          03/18/1994
         China             94912799.7       03/18/1994
         Japan             108,993          03/18/1994
         Mexico            95704355         03/29/1994
</TABLE>

[******] Confidential Treatment Requested. The confidential portions have
been filed separately with the Securities & Exchange Commission.

                                      E-1

<PAGE>

                                    EXHIBIT B

                                       TO
                           EXCLUSIVE LICENSE AGREEMENT
                                     BETWEEN
                               ABBOTT LABORATORIES
                                       AND
                            DRUG ABUSE SCIENCES, INC.
                           DATED AUGUST _______, 2000

                                    WORK PLAN

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
    TITLE                            DESCRIPTION                        INVESTIGATOR          DURATION     EXPECTED
                                                                                                           COMPLETION
------------------------------------------------------------------------------------------------------------------------
<S>                             <C>                                <C>                       <C>           <C>
    Proof of Concept on IV      -        [******]                       To be determined      [******]        06.01
    formulation
------------------------------------------------------------------------------------------------------------------------
    Formulation Improvement     -        [******]                  [******]                   [******]       12.01

                                                                                                             09.02
------------------------------------------------------------------------------------------------------------------------
    [******]                    -        [******]                       To Be Determined      [******]       3.03

                                -        End points: [******]
------------------------------------------------------------------------------------------------------------------------
    Pivotal Trial               -        [******]                       [******]              [******]       03.04
------------------------------------------------------------------------------------------------------------------------
    NDA Filing, US and EU                                                                     [******]       05.04
------------------------------------------------------------------------------------------------------------------------
    NDA approval US                                                                                          12.04
    NDA approval EU                                                                                          06.05
------------------------------------------------------------------------------------------------------------------------
</TABLE>

[******] Confidential Treatment Requested. The confidential portions have
been filed separately with the Securities & Exchange Commission.

                                      E-2
<PAGE>

                                    EXHIBIT C

                                       TO
                           EXCLUSIVE LICENSE AGREEMENT
                                     BETWEEN
                               ABBOTT LABORATORIES
                                       AND
                            DRUG ABUSE SCIENCES, INC.
                           DATED AUGUST ________, 2000

                         ALTERNATIVE DISPUTE RESOLUTION

     The parties recognize that a bona fide dispute as to certain matters may
arise from time to time during the term of this Agreement which relates to
either party's rights and/or obligations. To have such a dispute resolved by
this Alternative Dispute Resolution (ADR) provision, a party must send written
notice of the dispute to the other party for attempted resolution by good faith
negotiations between their respective presidents (or their equivalents) of the
affected subsidiaries, divisions, or business units within twenty-eight (28)
days after such notice is received (all references to "days" in this ADR
provision are to calendar days). If the matter has not been resolved within
twenty-eight (28) days of the notice of the dispute, or if the parties fail to
meet within such twenty-eight (28) days, either party may initiate an ADR
proceeding as provided herein. The parties shall have the right to be
represented by counsel in such a proceeding.

     1. To begin an ADR proceeding, a party shall provide written notice to the
other party of the issues to be resolved by ADR. Within fourteen (14) days after
receipt of such notice, the other party may, by written notice to the party
initiating the ADR, add additional issues to be resolved within the same ADR.

     2. Within twenty-one (21) days following receipt of the original ADR
notice, the parties shall select a mutually acceptable independent and neutral
third party (a "neutral") to preside in the resolution of any disputes in this
ADR proceeding. If the parties are unable to agree on a mutually acceptable
neutral within such period, either party may request the President of the CPR
Institute for Dispute Resolution (CPR), 366 Madison Avenue, 14th Floor, New
York, New York 10017, to select a neutral pursuant to the following procedures:

          (i)  The CPR shall submit to the parties a list of not less than five
               (5) candidates within fourteen (14) days after receipt of the
               request, along with a CURRICULUM VITAE for each candidate. No
               candidate shall be an employee, director, or shareholder of, or
               in any way affiliated with, either party or any of their
               subsidiaries or Affiliates.

         (ii)  Such list shall include a statement of disclosure by each
               candidate of any circumstance likely to affect his or her
               impartiality.

        (iii)   Each party shall number the candidates in order of preference
               (with the number one (1) signifying the greatest preference) and
               shall

[******] Confidential Treatment Requested. The confidential portions have
been filed separately with the Securities & Exchange Commission.

                                      E-3
<PAGE>

               deliver the list to the CPR within seven (7) days following
               receipt of the list of candidates. If a party believes a conflict
               of interest exists regarding any of the candidates, the party
               shall provide a written explanation of the conflict to the CPR
               along with its list showing its order of preference for the
               candidates. Any party failing to return a list of preferences on
               time shall be deemed to have no order of preference.

          (iv) If the parties collectively have identified fewer than three (3)
               candidates deemed to have conflicts, the CPR shall designate as
               neutral the candidate for whom the parties collectively have
               indicated the greatest preference. If a tie shall result between
               two candidates, the CPR may designate either candidate. If the
               parties collectively have identified three (3) or more candidates
               deemed to have conflicts, the CPR shall review the explanations
               regarding conflicts, and, in its sole discretion, may either (i)
               immediately designate as the neutral the candidate for whom the
               parties collectively have indicated the greatest preference, or
               (ii) issue a new list of not less than five (5) candidates, in
               which case the procedures set forth in subparagraphs 2(a) through
               2(d) shall be repeated.

     (b)  No earlier than twenty-eight (28) days or later than fifty-six (56)
          days after the selection, the neutral shall hold a hearing to resolve
          each of the issues identified by the parties. The ADR proceeding shall
          take place at a location agreed upon by the parties. If the parties
          cannot agree, the neutral shall designate a location other than the
          principle place of business of either party or any of their
          subsidiaries or Affiliates.

     (c)  At least seven (7) days prior to the hearing, each party shall submit
          the following to the other party and the neutral:

          (i)  a copy of all exhibits on which such party intends to rely in any
               oral or written presentation to the neutral;

         (ii)  a list of any witnesses such party intends to call at the
               hearing, and a short summary of the anticipated testimony of each
               witness;

        (iii)  a proposed ruling on each issue to be resolved, together with a
               request for a specific damage award or other remedy for each
               issue. The proposed rulings and remedies shall not contain any
               recitation of the facts or any legal arguments and shall not
               exceed one (1) page per issue.

         (iv)  a brief in support of each party's proposed rulings and remedies
               provided that the brief shall not exceed twenty (20) pages. This

[******] Confidential Treatment Requested. The confidential portions have
been filed separately with the Securities & Exchange Commission.

                                      E-4
<PAGE>
               page limitation shall apply regardless of the number of issues
               raised in the ADR proceeding.

          Except as expressly set forth in subparagraphs 4(a) - 4(d), no
          discovery shall be required or permitted by any means, including
          depositions, interrogations, requests for admissions, or
          production of documents.

     (d)  The hearing shall be conducted on two (2) consecutive days and shall
          be governed by the following rules:

          (i)  Each party shall be entitled to five (5) hours of hearing time to
               present its case. The neutral shall determine whether each party
               has had the five (5) hours to which it is entitled.

         (ii)  Each party shall be entitled, but not required, to make an
               opening statement, to present regular and rebuttal testimony,
               documents or other evidence, to cross examine witnesses, and to
               make a closing argument. Cross examination of witnesses shall
               occur immediately after their direct testimony, and cross
               examination shall be charged against the party conducting the
               cross examination.

        (iii)  The party initiating the ADR shall begin the hearing and, if it
               chooses to make an opening statement, shall address not only
               issues it raised but also any issues raised by the responding
               party. The responding party, if it chooses to make an opening
               statement, also shall address all issues raised in the ADR.
               Thereafter, the presentation of regular and rebuttal testimony
               and documents, other evidence, and closing arguments shall
               proceed in the same sequence.

         (iv)  Except when testifying, witnesses shall be excluded from the
               hearing until closing arguments.

          (v)  Settlement negotiations, including any statements made therein,
               shall not be admissible under any circumstances. Affidavits
               prepared for purposes of the ADR hearing also shall not be
               admissible. As to all other matters, the neutral shall have sole
               discretion regarding the admissibility of any evidence.

     (e)  Within seven (7) days following completion of the hearing, each party
          may submit to the other party and the neutral a posthearing brief in
          support of its proposed rulings and remedies, provided that such brief
          shall not contain or discuss any new evidence and shall not exceed ten
          (10) pages. This page limitation shall apply regardless of the number
          of issues raised in the ADR proceeding.

[******] Confidential Treatment Requested. The confidential portions have
been filed separately with the Securities & Exchange Commission.

                                      E-5
<PAGE>

     (f)  The neutral shall rule on each disputed issue within fourteen (14)
          days following completion of the hearing.

     (g)  The neutral shall be paid a reasonable fee plus expenses. These fees
          and expenses, along with the reasonable legal fees and expenses of the
          prevailing party (including all expert witness fees and expenses), the
          fees and expenses of a court recorder, and any expenses for a hearing
          room, shall be paid as follows:

          (i)  If the neutral rules in favor of one party on all disputed issues
               in the ADR, the losing party shall pay 100% of such fees and
               expenses.

         (ii)  If the neutral rules in favor of one party on some issues, and
               the other party on other issues, the neutral shall issue with the
               rulings a written determination as to how such fees and expenses
               shall be allocated between the parties. The neutral shall
               allocate the fees and expenses in a way that bears a reasonable
               relationship to the outcome of the ADR, with the party prevailing
               on more issues, or on issues of greater value or gravity,
               recovering a relatively larger share of its legal fees and
               expenses.

     (h)  The rulings of the neutral and the allocation of fees and expenses
          shall be binding, nonreviewable, and nonappealable, and may be entered
          as a final judgment in any court having jurisdiction.

     (i)  Except as provided in paragraph 9 and except as to such disclosure
          which is required by applicable law or regulation, the existence of
          the dispute, any settlement negotiations, the ADR hearing, any
          submissions (including exhibits, testimony, proposed rulings, and
          briefs), and the rulings shall be deemed Confidential Information. The
          neutral shall have the authority to impose sanctions for unauthorized
          disclosure of Confidential Information.

[******] Confidential Treatment Requested. The confidential portions have
been filed separately with the Securities & Exchange Commission.

                                      E-6
<PAGE>

                                    EXHIBIT D

                                       TO
                           EXCLUSIVE LICENSE AGREEMENT
                                     BETWEEN
                               ABBOTT LABORATORIES
                                       AND
                            DRUG ABUSE SCIENCES, INC.
                           DATED AUGUST ________, 2000

                           PROCESS TECHNOLOGY PATENTS

U.S. Patent No. 5,659,037

Corresponding Pending Ex-U.S. patent applications:

<TABLE>
<CAPTION>
         Country           Application #    Filing Date
         ----------------------------------------------
<S>                        <C>              <C>
         Canada            2,195,676        08/03/1995
         EPC               959275660        08/03/1995
         Japan             50809696         08/03/1995
         Mexico            971221           08/03/1995
         PC                PCT/US95/09859   08/03/1995
</TABLE>

[******] Confidential Treatment Requested. The confidential portions have
been filed separately with the Securities & Exchange Commission.

                                      E-7EXHIBIT 10.1

                                                           EXECUTION COPY

                                  $350,000,000

                                CREDIT AGREEMENT

                                      among

                           PENN NATIONAL GAMING, INC.,

                                  as Borrower,

                               The Several Lenders

                        from Time to Time Parties Hereto,

                              LEHMAN BROTHERS INC.,

                   as Lead Arranger and Book-Running Manager,

                            CIBC WORLD MARKETS CORP.,

                as Co-Lead Arranger and Co-Book-Running Manager,

                          LEHMAN COMMERCIAL PAPER INC.,

                              as Syndication Agent,

                       CANADIAN IMPERIAL BANK OF COMMERCE,

                             as Administrative Agent

                                       and

                    THE CIT GROUP/EQUIPMENT FINANCING, INC.,

              FIRST UNION NATIONAL BANK and WELLS FARGO BANK, N.A.,

                             as Documentation Agents

                           Dated as of August 8, 2000

<PAGE>

                                TABLE OF CONTENTS

                                                                        PAGE
SECTION 1. DEFINITIONS                                                  1
1.1      Defined Terms.                                                 1
1.2      Other Definitional Provisions.                                 31
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS                              32
2.1      Term Loan Commitments.                                         32
2.2      Procedure for Term Loan Borrowing.                             32
2.3      Repayment of Term Loans.                                       32
2.4      Revolving Credit Commitments.                                  34
2.5      Procedure for Revolving Credit Borrowing.                      34
2.6      Swing Line Commitment.                                         35
2.7      Procedure for Swing Line Borrowing; Refunding of Swing
         Line Loans.                                                    35
2.8      Repayment of Loans; Evidence of Indebtedness.                  37
2.9      Commitment Fees, etc.                                          38
2.10     Termination or Reduction of Revolving Credit Commitments.      38
2.11     Optional Prepayments.                                          38
2.12     Mandatory Prepayments and Commitment Reductions.               39
2.13     Conversion and Continuation Options.                           41
2.14     Minimum Amounts and Maximum Number of Eurodollar Tranches.     41
2.15     Interest Rates and Payment Dates.                              41
2.16     Computation of Interest and Fees.                              42
2.17     Inability to Determine Interest Rate.                          42
2.18     Pro Rata Treatment and Payments.                               43
2.19     Requirements of Law.                                           46
2.20     Taxes.                                                         47
2.21     Indemnity.                                                     49
2.22     Illegality.                                                    49
2.23     Change of Lending Office; Etc.                                 49
2.24     Replacement of Lenders.                                        50
SECTION 3. LETTERS OF CREDIT                                            51
3.1      L/C Commitment.                                                51
3.2      Procedure for Issuance of Letter of Credit.                    51
3.3      Fees and Other Charges.                                        52
3.4      L/C Participations.                                            52
3.5      Reimbursement Obligation of the Borrower.                      53
3.6      Obligations Absolute.                                          54
3.7      Letter of Credit Payments.                                     54
3.8      Applications.                                                  54
3.9      Indemnification; Nature of Issuing Lenders' Duties             54
SECTION 4. REPRESENTATIONS AND WARRANTIES                               55
4.1      Financial Condition.                                           56
4.2      No Change                                                      56
4.3      Corporate Existence; Compliance with Law.                      56
4.4      Corporate Power; Authorization; Enforceable Obligations.       57
4.5      No Legal Bar.                                                  57
4.6      No Material Litigation.                                        57
                                       i
<PAGE>

4.7      No Default.                                                    58
4.8      Ownership of Property; Liens.                                  58
4.9      Intellectual Property.                                         58
4.10     Taxes.                                                         58
4.11     Federal Regulations.                                           58
4.12     Labor Matters.                                                 59
4.13     ERISA.                                                         59
4.14     Investment Company Act; Other Regulations.                     59
4.15     Subsidiaries.                                                  59
4.16     Use of Proceeds.                                               60
4.17     Environmental Matters.                                         60
4.18     Accuracy of Information, etc.                                  61
4.19     Security Documents.                                            61
4.20     Solvency.                                                      62
4.21     Senior Indebtedness.                                           63
4.22     Regulation H.                                                  63
4.23     [Intentionally omitted].                                       63
4.24     Insurance.                                                     63
4.25     Real Estate.                                                   63
4.26     Acquisition Documentation.                                     65
4.27     Permits.                                                       65
4.28     Leases.                                                        66
4.29     New Jersey Joint Venture                                       67
4.30     Consent Solicitation.                                          67
SECTION 5. CONDITIONS PRECEDENT                                         67
5.1      Conditions to Initial Extension of Credit.                     67
5.2      Conditions to Each Extension of Credit.                        74
SECTION 6. AFFIRMATIVE COVENANTS                                        74
6.1      Financial Statements.                                          74
6.2      Certificates; Other Information.                               75
6.3      Payment of Obligations.                                        77
6.4      Conduct of Business and Maintenance of Existence, etc.         77
6.5      Maintenance of Property; Insurance.                            78
6.6      Inspection of Property; Books and Records; Discussions.        79
6.7      Notices.                                                       79
6.8      Environmental Laws.                                            81
6.9      Interest Rate Protection.                                      81
6.10     Additional Collateral, etc.                                    81
6.11     ERISA Documents.                                               83
6.12     Use of Proceeds.                                               84
6.13     Post-Closing Deliverables and Undertakings.                    84
6.14     Further Assurances.                                            84
6.15     Gaming Facilities.                                             84
6.16     Registration of Barges.                                        84
SECTION 7. NEGATIVE COVENANTS                                           84
7.1      Financial Condition Covenants.                                 84
7.2      Limitation on Indebtedness.                                    88
7.3      Limitation on Liens.                                           89
7.4      Limitation on Fundamental Changes.                             90
7.5      Limitation on Disposition of Property.                         91

                                       ii
<PAGE>

7.6      Limitation on Restricted Payments.                             91
7.7      Limitation on Capital Expenditures.                            92
7.8      Limitation on Investments.                                     92
7.9      Limitation on Optional Payments and Modifications of
         Indebtedness.                                                  96
7.10     Limitation on Transactions with Affiliates.                    96
7.11     Limitation on Sales and Leasebacks.                            96
7.12     Limitation on Changes in Fiscal Periods.                       96
7.13     Limitation on Negative Pledge Clauses.                         97
7.14     Limitation on Restrictions on Subsidiary Distributions, etc.   97
7.15     Limitation on Lines of Business.                               97
7.16     Limitation on Amendments to Acquisition Documentation.         97
7.17     Limitation on Hedge Agreements.                                97
7.18     Restriction on Leases.                                         97
SECTION 8. EVENTS OF DEFAULT                                            98
SECTION 9. THE AGENTS; THE ARRANGERS                                    102
9.1      Appointment.                                                   102
9.2      Delegation of Duties.                                          102
9.3      Exculpatory Provisions.                                        102
9.4      Reliance by Agents.                                            103
9.5      Notice of Default.                                             103
9.6      Non-Reliance on Agents and Other Lenders.                      104
9.7      Indemnification.                                               104
9.8      Arrangers and Agents in Their Individual Capacities.           105
9.9      Successor Agents.                                              105
9.10     Authorization to Release Liens.                                105
9.11     The Arrangers and the Documentation Agents.                    106
SECTION 10. MISCELLANEOUS                                               106
10.1     Amendments and Waivers.                                        106
10.2     Notices.                                                       107
10.3     No Waiver; Cumulative Remedies.                                110
10.4     Survival of Representations and Warranties                     110
10.5     Payment of Expenses.                                           110
10.6     Successors and Assigns; Participations and Assignments.        111
10.7     Adjustments; Set-off.                                          114
10.8     Counterparts.                                                  115
10.9     Severability.                                                  115
10.10    Integration.                                                   115
10.11    GOVERNING LAW.                                                 115
10.12    Submission To Jurisdiction; Waivers.                           115
10.13    [Intentionally omitted].                                       116
10.14    Acknowledgments.                                               116
10.15    Confidentiality.                                               116
10.16    Release of Collateral and Guarantee Obligations.               116
10.17    Accounting Changes.                                            117
10.18    Delivery of Lender Addenda.                                    117
10.19    Construction.                                                  117
10.20    WAIVERS OF JURY TRIAL.                                         118

                                      iii

<PAGE>

ANNEXES:

A                                       Pricing Grid

SCHEDULES:

1.1               Mortgaged Properties

4.4               Consents, Authorizations, Filings and Notices
4.15(a)           Subsidiaries
4.15(b)           Outstanding Subscriptions, etc.
4.17              Environmental Matters
4.19(a)-1         Uniform Commercial Code Filing Jurisdictions - Collateral
4.19(a)-2         Uniform Commercial Code Financing Statements to Remain on File
4.19(a)-3         Uniform Commercial Code Financing Statements to be Terminated
4.19(b)           Mortgage Filings Jurisdictions
4.19(c)           Uniform Commercial Code Filing Jurisdictions -
                  Intellectual Property
4.19(d)           Collateral
                  Ship Mortgage Filing Locations

4.25              Real Estate
4.25(g)           Structural Defects
4.25(h)           Possessory Interest in Real Estate
4.26              Acquisition Documentation
4.29(a)           New Jersey Joint Venture Ownership Structure
4.29(b)           New Jersey Joint Venture Contingent Obligations
5.1(s)(iv)        Foreign Qualifications
6.5(d)            Vessel and Barge Insurance
6.13              Post-Closing Deliverables and Undertakings
7.2(d)            Existing Indebtedness
7.3(f)            Existing Liens
8(g)(i)           Required Payments to Employee Welfare Benefit Plans
8(g)(ii)          Required Payments to Multiemployer Plans

A                 Form of Guarantee and Collateral Agreement
B                 Form of Compliance Certificate
C                 Form of Closing Certificate
D                 Form of Mortgage---(INTENTIONALLY OMITTED)
E                 Form of Assignment and Acceptance
F                 Form of Legal Opinion of Morgan, Lewis & Bockius LLP
                  (INTENTIONALLY OMITTED)
G-1               Form of Term Note
G-2               Form of Revolving Credit Note
G-3               Form of Swing Line Note
H                 Form of Prepayment Option Notice
I                 Form of Exemption Certificate
J                 Form of Lender Addendum
K                 Form of Solvency Certificate
                                       iv
<PAGE>

L                 Form of Subordinated Intercompany Note
M                 Form of Notice of Borrowing
N                 Form of Ship Mortgage
O                 Form of Estoppel
P                Form of Subordination, Non-Disturbance and Attornment Agreement

                                       v
<PAGE>

     CREDIT  AGREEMENT,  dated as of August 8, 2000, among Penn National Gaming,
Inc., a Pennsylvania  corporation (the "Borrower"),  the several banks and other
financial  institutions  or entities from time to time parties to this Agreement
(the "Lenders"), LEHMAN BROTHERS INC., as lead arranger and book-running manager
(in such capacity,  the "Lead  Arranger"),  CIBC WORLD MARKETS CORP., as co-lead
arranger and co-book-running  manager (in such capacity,  the "Co-Lead Arranger"
and together with the Lead Arranger,  the "Arrangers"),  LEHMAN COMMERCIAL PAPER
INC., as syndication agent (in such capacity, the "Syndication Agent"), CANADIAN
IMPERIAL  BANK OF  COMMERCE,  as  administrative  agent (in such  capacity,  the
"Administrative  Agent"),  and THE CIT  GROUP/EQUIPMENT  FINANCING,  INC., FIRST
UNION NATIONAL BANK and WELLS FARGO BANK, N.A., each as documentation  agent (in
such capacity, the "Documentation Agents").

                              W I T N E S S E T H:

     WHEREAS, the Borrower has agreed to acquire,  directly or indirectly,  from
Pinnacle  Entertainment,  Inc.  (formerly  known as Hollywood Park,  Inc.),  the
assets  of the Bay  St.  Louis  Casino  in Bay St.  Louis,  Mississippi  and the
Boomtown Casino in Biloxi, Mississippi pursuant to the Acquisition Agreements;

     WHEREAS,  the  Acquisition  will be consummated  for an aggregate  purchase
price not exceeding  $195,000,000 (plus any adjustment pursuant to Section 3.3.2
of each Acquisition Agreement), plus fees and expenses;

     WHEREAS, the Borrower has requested that the Lenders make credit facilities
available to the Borrower:

(i)  in order to finance the acquisition of the Acquired Business;

(ii) in order to refinance  approximately  $97,000,000  of existing  debt of the
     Borrower  and its  Subsidiaries  (including  a tender  offer for all of the
     Borrower's existing 105/8% Senior Notes due 2004); and

(iii)for the other  purposes set forth herein,  including,  without  limitation,
     financing the working capital needs of the Borrower and its Subsidiaries;

     WHEREAS,  the Lenders are willing to make such credit facilities  available
upon and subject to the terms and conditions hereinafter set forth;

     NOW,  THEREFORE,  in  consideration  of the  premises  and  the  agreements
hereinafter set forth, the parties hereto hereby agree as follows:

SECTION 1.                    DEFINITIONS

1.1  Defined Terms. As used in this Agreement,  the terms listed in this Section
     1.1 shall have the respective meanings set forth in this Section 1.1.

     "Accepting Lender": as defined in Section 2.18(d).
<PAGE>

     "Acknowledgement  and  Consent":  the  Acknowledgement  and Consent of each
Issuer (as defined in the Guarantee and Collateral Agreement) that is not also a
Grantor (as defined in the  Guarantee  and  Collateral  Agreement)  or otherwise
excluded, substantially in the form of Exhibit A to the Guarantee and Collateral
Agreement.

     "Acquired  Business":  collectively,  the  Bay  St.  Louis  Casino  and the
Boomtown Casino.

     "Acquisition": the Borrower's acquisition of the Acquired Business pursuant
to the Acquisition Agreements.

     "Acquisition Agreements":  collectively,  the two asset purchase agreements
which BSL, Inc. and BTN, Inc.,  respectively,  entered into on December 9, 1999,
each with a separate  wholly-owned  subsidiary of Pinnacle  Entertainment,  Inc.
(formerly known as Hollywood Park, Inc.), Casino Magic Corporation and Boomtown,
Inc.,  respectively,  to  acquire  all of the  assets  comprising  the  Acquired
Business, as each may be amended,  supplemented,  replaced or otherwise modified
from time to time in accordance with this Agreement.

     "Acquisition Documentation":  collectively,  the Acquisition Agreements and
all schedules, exhibits, annexes and amendments thereto and all side letters and
agreements affecting the terms thereof or entered into in connection  therewith,
in each case, as amended, supplemented, replaced or otherwise modified from time
to time.

     "Administrative Agent": as defined in the preamble hereto.

     "Affiliate":  as to  any  Person,  any  other  Person  which,  directly  or
indirectly, is in control of, is controlled by, or is under common control with,
such Person.  For purposes of this  definition,  "control" of a Person means the
power, directly or indirectly,  either to (a) vote 10% or more of the securities
having  ordinary  voting  power  for  the  election  of  directors  (or  persons
performing  similar  functions)  of such  Person  or (b)  direct  or  cause  the
direction of the management and policies of such Person,  whether by contract or
otherwise.

     "Affiliated  Fund":  means,  with respect to any Lender that is a fund that
invests (in whole or in part) in commercial  loans,  any other fund that invests
(in whole or in part) in commercial  loans and is managed by the same investment
advisor as such Lender or by an Affiliate of such investment advisor.

     "Agents":   the  collective   reference  to  the  Syndication   Agent,  the
Administrative Agent and the Documentation Agents.

     "Aggregate  Exposure":  with  respect to any Lender at any time,  an amount
equal to (a) until the  Closing  Date,  the  aggregate  amount of such  Lender's
Commitments at such time and (b)  thereafter,  the sum of (i) the aggregate then
unpaid  principal amount of such Lender's Term Loans and (ii) the amount of such
Lender's  Revolving Credit Commitment then in effect or, if the Revolving Credit
Commitments  have  been  terminated,  the  amount  of  such  Lender's  Revolving
Extensions of Credit then outstanding.
                                       2
<PAGE>

     "Aggregate Exposure Percentage" with respect to any Lender at any time, the
ratio  (expressed as a percentage) of such Lender's  Aggregate  Exposure at such
time to the Aggregate Exposure of all Lenders at such time.

     "Aggregate  Required  Lenders":  means, at any time, the Required Revolving
Credit  Lenders,  the  Required  Tranche A Term Loan  Lenders  and the  Required
Tranche B Term Loan Lenders, each voting as a separate class.

     "Agreement": this Credit Agreement, as amended,  supplemented,  replaced or
otherwise  modified  from  time  to  time  in  accordance  with  this
Agreement.

     "Applicable  Margin":  for each Type of Loan,  the rate per annum set forth
under the relevant column heading below:

                                                 Base Rate         Eurodollar
                                                 Loans             Loans

                 Revolving Credit Loans          2.25%             3.25%
                 Swing Line Loans                2.25%             N/A
                 Tranche A Term Loans            2.25%             3.25%
                 Tranche B Term Loans            3.00%             4.00%

provided,  that on and after the date that is six months after the Closing Date,
the Applicable Margin with respect to Revolving Credit Loans,  Swing Line Loans,
Tranche A Term Loans and Tranche B Term Loans will be determined pursuant to the
Pricing Grid.

     "Application":  an  application,  in such form as the  Issuing  Lender  may
specify  from time to time,  requesting  the Issuing  Lender to open a Letter of
Credit.

     "Arrangers": as defined in the preamble hereto.

     "Asset Sale": any Disposition of Property or series of related Dispositions
of Property (excluding any such Disposition permitted by clause (a), (b), (c) or
(d) of Section 7.5) which  yields  gross  proceeds to the Borrower or any of its
Subsidiaries  (valued at the  initial  principal  amount  thereof in the case of
non-cash  proceeds  consisting of notes or other debt  securities  and valued at
fair market value (as  determined  by the  Administrative  Agent) in the case of
other non-cash proceeds) in excess of $50,000.

     "Assignee": as defined in Section 10.6(c).

     "Assignor": as defined in Section 10.6(c).

     "Available Revolving Credit Commitment":  as to any Revolving Credit Lender
at any  time,  an  amount  equal to the  excess,  if any,  of (a) such  Lender's
Revolving  Credit  Commitment  then in effect over (b) such  Lender's  Revolving
Extensions  of  Credit  then  outstanding;  provided,  that in  calculating  any
Lender's  Revolving  Extensions  of Credit for the purpose of  determining  such
Lender's Available  Revolving Credit Commitment  pursuant to Section 2.9(a), the
aggregate  principal amount of Swing Line Loans then outstanding shall be deemed
to be zero.
                                       3
<PAGE>

     "Barges":  means (i) the Casino Magic barge, #Patco 300, (ii) Entertainment
barge, hull number 1931 (one of two barges comprising the entertainment  complex
at the Bay St. Louis Casino),  (iii) Entertainment  barge, hull number 1973 (one
of two barges comprising the entertainment complex at the Bay St. Louis Casino),
(iv) Driveway barge,  Y250 Work Barge and (v) any other barge or barges,  all of
which are located at the Bay St. Louis Casino in Bay St. Louis, Mississippi.

     "Base Rate":  at any time, the higher of (x) the Reference Rate, or (y) the
rate which is 1/2 of 1% in excess of the Federal Funds Effective Rate.

     "Base Rate Loans": Loans for which the applicable rate of interest is based
upon the Base Rate.

     "Bay St. Louis Casino":  the Gaming Facility known as "The Casino Magic Bay
St.  Louis  Casino"  owned  immediately  prior to the Closing Date by Mardi Gras
Casino Corporation,  a wholly-owned subsidiary of Pinnacle  Entertainment,  Inc.
(formerly known as Hollywood Park, Inc.), located in Bay St. Louis, Mississippi.

     "Benefited Lender": as defined in Section 10.7.

     "Board": the Board of Governors of the Federal Reserve System of the United
States (or any successor).

     "Boomtown  Casino":  the  Gaming  Facility  known as "The  Boomtown  Biloxi
Casino" owned  immediately  prior to the Closing Date by Mississippi - I Gaming,
L.P., a wholly-owned subsidiary of Pinnacle Entertainment,  Inc. (formerly known
as Hollywood Park, Inc.), located in Biloxi, Mississippi.

     "Borrower": as defined in the preamble hereto.

     "Borrowing  Date":  any Business Day specified by the Borrower as a date on
which the Borrower requests the relevant Lender(s) to make Loans hereunder.

     "Business  Day":  (i) for all purposes other than as covered by clause (ii)
below, any day excluding  Saturday,  Sunday and any day which is a legal holiday
under  the  laws  of  the  State  of  New  York  or is a day  on  which  banking
institutions  located in such state are  authorized  or required by law or other
governmental   action  to  close,   and  (ii)  with   respect  to  all  notices,
determinations,  fundings and payments in connection with Eurodollar  Loans, any
day that (a) is a Business Day  described in clause (i) above,  and (b) which is
also a day for trading by and between banks in Dollar  deposits in the interbank
eurodollar market.

     "Capital  Expenditures":  for any period,  with respect to any Person,  the
aggregate  of all  expenditures  by such  Person  and its  Subsidiaries  for the
                                       4
<PAGE>

acquisition or leasing  (pursuant to a capital lease) of fixed or capital assets
or additions  to  equipment  (including  replacements,  capitalized  repairs and
improvements  during such period)  which should be  capitalized  under GAAP on a
consolidated balance sheet of such Person and its Subsidiaries.

     "Capital  Lease  Obligations":  as to any Person,  the  obligations of such
Person to pay rent or other  amounts  under  any lease of (or other  arrangement
conveying the right to use) real or personal property, or a combination thereof,
which  obligations  are required to be  classified  and accounted for as capital
leases on a balance sheet of such Person under GAAP ("Capital Leases"), and, for
the purposes of this Agreement, the amount of such obligations at any time shall
be the  capitalized  amount thereof at such time  determined in accordance  with
GAAP.

     "Capital   Leases":   as  defined  in  the  definition  of  "Capital  Lease
Obligations."

     "Capital Stock":  any and all shares,  interests,  participations  or other
equivalents (however designated) of capital stock of a corporation,  any and all
equivalent  ownership  interests in a Person (other than a corporation)  and any
and all warrants, rights or options to purchase any of the foregoing.

     "Cash  Equivalents":  (a)  marketable  direct  obligations  issued  by,  or
unconditionally  guaranteed  by, the United  States  Government or issued by any
agency thereof and backed by the full faith and credit of the United States,  in
each  case  maturing  within  one  year  from  the  date  of  acquisition;   (b)
certificates  of deposit,  time deposits,  eurodollar time deposits or overnight
bank  deposits  having  maturities  of six  months  or  less  from  the  date of
acquisition  issued by any Lender or by any commercial  bank organized under the
laws of the  United  States of  America  or any state  thereof  having  combined
capital and surplus of not less than  $100,000,000;  (c) commercial  paper of an
issuer  rated at least A-1 by S&P or P-1 by Moody's,  or carrying an  equivalent
rating by a nationally recognized rating agency, if both of the two named rating
agencies cease  publishing  ratings of commercial paper issuers  generally,  and
maturing  no more  than  nine  months  from the date of  creation  thereof;  (d)
repurchase  obligations of any Lender or of any commercial  bank  satisfying the
requirements of clause (b) of this definition, having a term of not more than 30
days with respect to  securities  issued or fully  guaranteed  or insured by the
United States  government;  (e) securities  with  maturities of one year or less
from  the  date  of  acquisition  issued  or  fully  guaranteed  by  any  state,
commonwealth or territory of the United States, by any political  subdivision or
taxing authority of any such state,  commonwealth or territory or by any foreign
government,  the securities of which state, commonwealth,  territory,  political
subdivision,  taxing  authority or foreign  government  (as the case may be) are
rated at least A by S&P or A by Moody's;  (f) securities  with maturities of six
months or less from the date of acquisition  backed by standby letters of credit
issued by any Lender or any  commercial  bank  satisfying  the  requirements  of
clause (b) of this  definition;  or (g) shares of money market mutual or similar
funds which invest  exclusively in assets satisfying the requirements of clauses
(a) through (f) of this definition.
                                       5
<PAGE>

     "Casino  Rama":  the Gaming  Facility known as the "Casino Rama" managed by
CRC and located in Ontario, Canada.

     "Casino  Rouge":  the Gaming  Facility  known as the "Casino  Rouge"  owned
immediately  prior to the CRC Closing  Date by LCCI and located in Baton  Rouge,
Louisiana.

     "Charles Town Gaming  Facility":  the Gaming Facility known as "The Charles
Town Races at the Charles Town Entertainment  Complex," located in Charles Town,
West Virginia.

     "Closing  Date":  the date on which the  conditions  precedent set forth in
Section 5.1 shall have been satisfied, which date shall not be later than August
9, 2000.

     "Code": the Internal Revenue Code of 1986, as amended from time to time.

     "Collateral":  all  Property of the Loan  Parties,  now owned or  hereafter
acquired, upon which a Lien is purported to be created by any Security Document,
including, without limitation, the Intellectual Property Collateral.

     "Commitment":  as to  any  Lender,  the  sum  of the  Tranche  A Term  Loan
Commitment,  the  Tranche  B Term  Loan  Commitment  and  the  Revolving  Credit
Commitment of such Lender.

     "Commitment Fee Rate": 1/2 of 1% per annum.

     "Commonly Controlled Entity": an entity, whether or not incorporated, which
is under common control with the Borrower  within the meaning of Section 4001 of
ERISA or is part of a group that  includes the Borrower and that is treated as a
single employer under Section 414 of the Code.

     "Compliance  Certificate":  a  certificate  duly  executed by a Responsible
Officer substantially in the form of Exhibit B.

     "Confidential   Information   Memorandum":   the  Confidential  Information
Memorandum dated July 2000, as supplemented  from time to time, and furnished to
the initial Lenders.

     "Consolidated  EBITDA":  of any Person  for any period of four  consecutive
fiscal quarters, Consolidated Net Income of such Person and its Subsidiaries for
such period plus, without duplication and to the extent reflected as a charge in
the statement of such  Consolidated  Net Income for such period,  the sum of (a)
income tax expense,  (b)  Consolidated  Interest  Expense of such Person and its
Subsidiaries, amortization or write-off of debt discount and debt issuance costs
and  commissions,   discounts  and  other  fees  and  charges   associated  with
Indebtedness  (including,  in the case of the Borrower, the Loans and Letters of
Credit), (c) depreciation expense, (d) amortization expense, (e) any pre-opening
expenses,  (f) any  non-recurring  non-cash  charges,  (g) any cash dividends or
distributions  actually  paid  to such  Person  and its  Subsidiaries  by  joint
                                       6
<PAGE>

ventures and (h) any customary and reasonable transaction costs directly related
to the negotiation and  consummation of the CRC  Acquisition,  and minus, to the
extent  included  in the  statement  of such  Consolidated  Net  Income for such
period,  the sum of (a)  interest  income  (except  to the  extent  deducted  in
determining  Consolidated Interest Expense) and (b) any non-recurring,  non-cash
income, all as determined on a consolidated basis; provided that for purposes of
calculating Consolidated EBITDA of the Borrower and its Subsidiaries (i) for the
period ending  September 30, 2000, the Consolidated  EBITDA  attributable to the
Charles Town Gaming Facility shall be twice the sum of the  Consolidated  EBITDA
for such  facility  for the fiscal  quarters  ending  (x) June 30,  2000 and (y)
September  30,  2000 and (ii) for the  period  ending  December  31,  2000,  the
Consolidated  EBITDA  attributable  to the Charles Town Gaming Facility shall be
the sum of the  Consolidated  EBITDA for such  facility for the fiscal  quarters
ending (x) June 30,  2000,  (y)  September  30, 2000 and (z)  December 31, 2000,
multiplied by 4/3.

     "Consolidated  Fixed Charge Coverage Ratio":  for any period,  the ratio of
(a)  Consolidated  EBITDA of the Borrower and its  Subsidiaries  for such period
minus Maintenance Capital Expenditures for such period to (b) Consolidated Fixed
Charges for such period.

     "Consolidated Fixed Charges": for any period, the sum (without duplication)
of (a)  Consolidated  Interest  Expense of the Borrower and its Subsidiaries for
such period plus  capitalized  interest of the Borrower and its Subsidiaries for
such period minus interest income of the Borrower and its  Subsidiaries for such
period,  (b)  provision  for income tax  expense of the  Borrower  or any of its
Subsidiaries on a consolidated basis in respect of such period and (c) scheduled
payments made during such period on account of principal of  Indebtedness of the
Borrower or any of its Subsidiaries  (including  scheduled principal payments in
respect of the Term Loans).

     "Consolidated  Interest Expense":  of any Person for any period, total cash
interest expense  (including that attributable to Capital Lease  Obligations) of
such Person and its Subsidiaries for such period with respect to all outstanding
Indebtedness of such Person and its Subsidiaries (including, without limitation,
all  commissions,  discounts and other fees and charges owed by such Person with
respect to letters of credit and bankers' acceptance  financing and net costs of
such Person under Hedge  Agreements  in respect of interest  rates to the extent
such net costs are allocable to such period in accordance  with GAAP);  provided
that  Consolidated  Interest Expense shall not in any event include  capitalized
interest.

     "Consolidated Lease Occupancy Cost Payments": for any period, the aggregate
of all  amounts  paid or  payable  by the  Borrower  and its  Subsidiaries  on a
consolidated basis during such period according to any occupancy cost formula in
any  Operating  Leases  of real  property  to which the  Borrower  or any of its
Subsidiaries is a party as lessee.

     "Consolidated  Leverage  Ratio":  as at the last day of any  period of four
consecutive  fiscal quarters,  the ratio of (a) Consolidated  Total Debt on such
day to (b)  Consolidated  EBITDA of the Borrower and its  Subsidiaries  for such
period (after giving pro forma effect to any acquisitions  and/or Asset Sales or
other Dispositions during such period).
                                       7
<PAGE>

     "Consolidated Net Income":  of any Person for any period,  the consolidated
net  income  (or loss) of such  Person  and its  Subsidiaries  for such  period,
determined on a consolidated  basis in accordance with GAAP;  provided,  that in
calculating  Consolidated  Net  Income  of the  Borrower  and  its  consolidated
Subsidiaries for any Period, there shall be excluded (a) the income (or deficit)
of any Person  accrued prior to the date it becomes a Subsidiary of the Borrower
or is merged into or consolidated  with the Borrower or any of its Subsidiaries,
(b) the income  (or  deficit)  of any Person  (other  than a  Subsidiary  of the
Borrower)  in which the  Borrower or any of its  Subsidiaries  has an  ownership
interest,  and (c) the undistributed  earnings of any Subsidiary of the Borrower
to  the  extent  that  the  declaration  or  payment  of  dividends  or  similar
distributions  by such  Subsidiary is not at the time  permitted by the terms of
any Contractual  Obligation  (other than under any Loan Document) or Requirement
of Law applicable to such Subsidiary.

     "Consolidated  Net  Worth":  at  any  date,  all  amounts  that  would,  in
conformity  with  GAAP,  be  included  on a  consolidated  balance  sheet of the
Borrower and its Subsidiaries under stockholders' equity at such date.

     "Consolidated Rental Payments": for any period, the aggregate amount of all
base  rents  paid  or  payable  by  the  Borrower  and  its  Subsidiaries  on  a
consolidated  basis  during  such  period  under  all  Operating  Leases of real
property to which the Borrower or any of its  Subsidiaries is a party as lessee;
provided,  that such amount shall not include  Consolidated Lease Occupancy Cost
Payments.

     "Consolidated  Senior Leverage Ratio":  as at the last day of any period of
four consecutive  fiscal quarters,  the ratio of (a) Consolidated  Total Debt on
such day minus all unsecured  subordinated  Indebtedness of the Borrower and its
Subsidiaries  at such date to (b)  Consolidated  EBITDA of the  Borrower and its
Subsidiaries  for such period (after giving pro forma effect to any acquisitions
and/or Asset Sales or other Dispositions during such period).

     "Consolidated  Total Debt": at any date, the aggregate  principal amount of
all  Indebtedness of the Borrower and its Subsidiaries at such date of the types
described in clauses (a), (c), (e), (f), (h) (other than to the extent involving
Indebtedness  of the types  referred  to in clauses  (d) or (g))) and (i) of the
definition of "Indebtedness" in this Section, determined on a consolidated basis
in accordance with GAAP.

     "Continuing  Directors":  as to any Person, the directors of such Person on
the  Closing  Date,  after  giving  effect  to the  Acquisition  and  the  other
transactions  contemplated  hereby,  and each other director,  if, in each case,
such other director's  nomination for election to the board of directors of such
Person is recommended by at least 75% of the then  Continuing  Directors or such
other director  receives the vote of each of the  shareholders of such Person on
the Closing Date in his or her election by the shareholders of such Person.
                                       8
<PAGE>

     "Contractual  Obligation":  as to any Person, any provision of any security
issued by such Person or of any  agreement,  instrument or other  undertaking to
which such Person is a party or by which it or any of its Property is bound.

     "Control Agreement": each Control Agreement to be executed and delivered by
each Loan Party  thereto,  substantially  in the form of Exhibit C, Exhibit D or
Exhibit E, as the case may be, to the Guarantee and Collateral Agreement, as the
same may be amended,  supplemented,  replaced or otherwise modified from time to
time in accordance with this Agreement.

     "Control Investment Affiliate": as to any Person, any other Person that (a)
directly or  indirectly,  is in control of, is controlled by, or is under common
control with, such Person and (b) is organized by such Person  primarily for the
purpose  of making  equity or debt  investments  in one or more  companies.  For
purposes of this definition,  "control" of a Person means the power, directly or
indirectly,  to direct or cause the direction of the  management and policies of
such Person whether by contract or otherwise.

     "CRC":  CRC  Holdings,   Inc.,  a  Florida  corporation,   which  (i)  owns
approximately  59% of LCCI and  (ii)  manages  Casino  ---  Rama  pursuant  to a
management contract with a term through 2011.

     "CRC Acquired Business": collectively, CRC and LCCI.

     "CRC Acquisition": the acquisition by the Borrower of CRC and approximately
41% of LCCI, in  accordance  with all of the terms and  conditions  set forth in
Section  7.8(e),  pursuant to that certain  Agreement and Plan of Merger,  dated
July 31, 2000, by and among CRC, the Borrower, Casino Holdings, Inc., a Delaware
corporation, and Sherwood Weiser and Donald E. Lefton, each a shareholder.

     "CRC Closing Date":  the date on which all of the conditions  precedent set
forth in Section 7.8(e) shall have been satisfied.

     "Debt Service Maintenance Agreement": that certain Debt Service Maintenance
Agreement among the Borrower, Backside, Inc., The Downs Racing, Inc., Mill Creek
Land, Inc., Mountainview Thoroughbred Association,  Northeast Concessions, Inc.,
PNGI Pocono,  Inc., Penn National  Gaming of West Virginia,  Inc., Penn National
GSFR,  Inc.,  Penn  National  Holding  Company,  Penn National  Speedway,  Inc.,
Pennsylvania  National Turf Club, Inc., Sterling Aviation Inc., Tennessee Downs,
Inc. and Wilkes-Barre  Downs, Inc. for the benefit of Commerce Bank, N.A., dated
as of July 29,  1999,  as amended  or  otherwise  modified  from time to time in
accordance with this Agreement.

     "Default":  any of the events  specified  in Section 8,  whether or not any
requirement  for the  giving of  notice,  the lapse of time,  or both,  has been
satisfied.

     "Derivatives Counterparty": as defined in Section 7.6.
                                       9
<PAGE>

     "Disposition":  with respect to any  Property,  any sale,  lease,  sale and
leaseback,  assignment,  conveyance,  transfer or other disposition thereof; and
the terms "Dispose" and "Disposed of" shall have correlative meanings.

     "Disqualified  Stock":  any  Capital  Stock or other  ownership  or  profit
interest  of any Loan Party that any Loan Party is or,  upon the passage of time
or the  occurrence  of any event,  may  become  obligated  to redeem,  purchase,
retire,  defease or  otherwise  make any payment in respect of in  consideration
other than Capital Stock (other than Disqualified Stock).

     "Documentation Agents": as defined in the preamble hereto.

     "Dollars"  and "$":  dollars in lawful  currency  of the  United  States of
America.

     "Domestic  Subsidiary":  any Subsidiary of the Borrower organized under the
laws of any jurisdiction within the United States of America.

     "Eligible  Assignee":  any Person that is (I) to the extent  required under
applicable  Gaming Laws,  registered  with,  approved by, or not  disapproved by
(whichever may be required under applicable  Gaming Laws), all applicable Gaming
Authorities,  and (II)(A)(i) a commercial bank,  savings and loan association or
savings bank organized under the laws of the United States or any state thereof;
provided that such financial  institution has a combined  capital and surplus of
at least  $100,000,000;  (ii) a commercial  bank organized under the laws of any
other country or a political subdivision thereof; provided that (x) such bank is
acting  through a branch or agency located in the United States or (y) such bank
is organized  under the laws of a country  that is a member of the  Organization
for Economic  Cooperation  and  Development  or a political  subdivision of such
country; (iii) any other entity which is an "accredited investor" (as defined in
Regulation D under the Securities Act) which extends credit or buys loans as one
of its businesses,  including insurance companies, mutual funds, lease financing
companies and  investment  funds and any Affiliated  Funds thereof;  or (iv) any
other Person  approved by the  Administrative  Agent and the Borrower or (B) any
Lender or any Affiliate,  Control Investment Affiliate or Affiliated Fund of any
Lender;  provided  that  no  Affiliate  of the  Borrower  shall  be an  Eligible
Assignee.

     "Environmental  Laws":  any  and  all  laws,  rules,  orders,  regulations,
statutes,  ordinances, codes, decrees, or other legally enforceable requirements
(including,  without  limitation,  common law) of any  international  authority,
foreign government,  the United States, or any state, local,  municipal or other
Governmental  Authority,  regulating,  relating  to  or  imposing  liability  or
standards  of  conduct  concerning  protection  of the  environment  or of human
health,  or employee health and safety,  as has been, is now, or may at any time
hereafter be, in effect.

     "Environmental  Permits":  any  and  all  permits,   licenses,   approvals,
registrations,  notifications,  exemptions and any other authorization  required
under any Environmental Law.
                                       10
<PAGE>

     "ERISA":  the Employee  Retirement  Income Security Act of 1974, as amended
from time to time.

     "Estoppels":  collectively,  (i) that certain  Lessor  Consent and Estoppel
Certificate executed by Raphael Skrmetta in connection with the Boomtown Casino,
(ii) that  certain  Lessor  Consent  and  Estoppel  Certificate  executed by the
Secretary  of State of the  State of  Mississippi,  on  behalf  on the  State of
Mississippi in connection  with the Boomtown  Casino,  (iii) that certain Lessor
Consent and Estoppel  Certificate  executed by Martha Peresich  McDermott or her
successor or assign in connection  with the Boomtown  Casino,  (iv) that certain
Lessor Consent and Estoppel Certificate executed by Gary Gollott,  Tommy Gollott
and Tyrone  Gollott in  connection  with the Boomtown  Casino,  (v) that certain
Lessor  Consent and  Estoppel  Certificate  executed by Andrew  Cvitanovich  and
Anthony C. Cvitanovich in connection with the Boomtown Casino, (vi) that certain
Lessor Consent and Estoppel  Certificate  executed by Joseph A. Suarez,  Jr. and
Mary Ellen Suarez in  connection  with the Boomtown  Casino,  (vii) that certain
Lessor  Consent and Estoppel  Certificate  executed by R.A.  Fayard Seafood Co.,
Inc. in connection with the Boomtown Casino,  (viii) that certain Lessor Consent
and Estoppel  Certificate executed by James A. Desporte and Linda L. Desporte in
connection  with the  Boomtown  Casino,  (ix) that  certain  Lessor  Consent and
Estoppel Certificate executed by Marilyn C. Hille in connection with the Bay St.
Louis  Casino,  and (x) that certain  Lessor  Consent and  Estoppel  Certificate
executed by L.D. Lang, Jr. in connection with the Bay St. Louis Casino,  each of
which Lessor Consents and Estoppels shall be  substantially in the form attached
hereto as Exhibit O.

     "Eurocurrency Reserve Requirements": for any day as applied to a Eurodollar
Loan,  the stated  maximum  rate  (expressed  as a  percentage)  of all  reserve
requirements (including any marginal, emergency,  supplemental, special or other
reserves)  applicable  on such day to any  member  bank of the  Federal  Reserve
System in respect of  "Eurocurrency  liabilities" as defined in Regulation D (or
any successor category of liabilities under Regulation D).

     "Eurodollar  Base  Rate":  with  respect to each day during  each  Interest
Period  pertaining to a Eurodollar  Loan,  (x) the rate of interest equal to (a)
the rate per annum  determined  on the basis of the rate for deposits in Dollars
for a period equal to such Interest  Period  commencing on the first day of such
Interest  Period and  appearing on page 3750 of the Telerate  screen at or about
11:00 A.M.,  London time,  two Business Days prior to the  commencement  of such
Interest  Period,  or (b) if such a rate  does not  appear  on page  3750 of the
Telerate screen,  the average  (rounded  upwards,  if necessary,  to the nearest
1/100 of 1%) of the rates  per annum at which  Dollar  deposits  in  immediately
available  funds  are  offered  to the  Administrative  Agent  in the  interbank
Eurodollar  market as at or about 11:00 A.M.  (New York City time) two  Business
Days prior to the  beginning of such  Interest  Period for delivery on the first
day of such Interest Period, and in an amount  approximately equal to the amount
of such  Eurodollar Loan and for a period  approximately  equal to such Interest
Period.

     "Eurodollar Loans": Loans the rate of interest applicable to which is based
upon the Eurodollar Rate.
                                       11
<PAGE>

     "Eurodollar  Rate":  with respect to each day during each  Interest  Period
pertaining  to a Eurodollar  Loan, a rate per annum  determined  for such day in
accordance with the following  formula  (rounded upward to the nearest 1/16th of
1%):

                              Eurodollar Base Rate
                    1.00 - Eurocurrency Reserve Requirements

     "Eurodollar Tranche": the collective reference to Eurodollar Loans the then
current Interest Periods with respect to all of which begin on the same date and
end on the same later date (whether or not such Loans shall originally have been
made on the same day).

     "Event of Default": any of the events specified in Section 8, provided that
any requirement  for the giving of notice,  the lapse of time, or both, has been
satisfied.

     "Excluded Foreign  Subsidiary":  any Foreign Subsidiary in respect of which
either  (i)  the  pledge  of all of the  Capital  Stock  of such  Subsidiary  as
Collateral  or (ii) the  guaranteeing  by such  Subsidiary  of the  Obligations,
would,  in the good faith judgment of the Borrower,  result in material  adverse
tax consequences to the Loan Parties, taken as a whole; provided,  however, that
a Foreign Subsidiary that is treated as a pass-through  entity for United States
federal income tax purposes shall not be an Excluded Foreign Subsidiary while so
treated.

     "Existing Credit Facilities":  (a) that certain Second Amended and Restated
Credit  Agreement  among the Borrower,  various  banks and First Union  National
Bank,  as agent,  dated as of January  28,  1999,  and (b) that  certain  Senior
Secured  Multiple Draw Term Loan  Agreement  among Penn National  Gaming of West
Virginia, Inc., as borrower, the Borrower, as guarantor, the lenders referred to
therein and Bank of America, N.A., as administrative agent, dated as of December
13, 1999, each as may be amended,  supplemented,  replaced or otherwise modified
from time to time.

     "Existing Notes": the Borrower's existing 10 5/8% Senior Notes due 2004.

     "Extraordinary  Receipts": any cash or Cash Equivalents received by or paid
to or  for  the  account  of  any  Loan  Party  from  pension  plan  reversions,
indemnities,  warranties,  purchase  price  adjustments  or amounts  received in
settlement  of or in  respect  of  litigation,  including,  without  limitation,
indemnity   payments  and  purchase  price  adjustments  under  the  Acquisition
Agreements and the other Acquisition Documentation.

     "Facility": each of (a) the Tranche A Term Loan Commitments and the Tranche
A Term Loans made  thereunder  (the  "Tranche  A Term Loan  Facility"),  (b) the
Tranche B Term Loan  Commitments  and the  Tranche B Term Loans made  thereunder
(the "Tranche B Term Loan  Facility") and (c) the Revolving  Credit  Commitments
and the extensions of credit made thereunder (the "Revolving Credit Facility").

     "Federal  Funds  Effective  Rate":  means,  for any period,  a  fluctuating
interest  rate equal for each day during such period to the weighted  average of
the rates on overnight  federal funds  transactions  with members of the Federal
                                       12
<PAGE>

Reserve System arranged by federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the immediately  preceding  Business Day)
by the Federal  Reserve  Bank of New York,  or, if such rate is not so published
for any day which is a Business Day, the average of the  quotations for such day
on such  transactions  received by the  Administrative  Agent from three federal
funds brokers of recognized standing selected by the Administrative Agent.

     "Fee Letter": the Fee Letter, dated June 12, 2000, among the Borrower,  the
Agents and the Arrangers, as the same may be amended, supplemented,  replaced or
otherwise modified from time to time in accordance with this Agreement.

     "Foreign Subsidiary": any Subsidiary of the Borrower that is not a Domestic
Subsidiary.

     "FQ1",   "FQ2",   "FQ3",  and  "FQ4":  when  used  with  a  numerical  year
designation,   means  the  first,  second,  third  or  fourth  fiscal  quarters,
respectively,  of such fiscal year of the  Borrower.  (e.g.,  FQ3 2000 means the
third fiscal  quarter of the Borrower's  2000 fiscal year,  which ends September
30, 2000).

     "Funded Debt":  as to any Person,  all  Indebtedness  of such Person of the
types  described in clauses (a) through (e) of the definition of  "Indebtedness"
in this Section.

     "Funding   Office":   the  office  specified  from  time  to  time  by  the
Administrative  Agent as its funding  office by notice to the  Borrower  and the
Lenders.

     "GAAP":  generally accepted  accounting  principles in the United States of
America as in effect from time to time, except that for purposes of Section 7.1,
GAAP shall be determined  on the basis of such  principles in effect on the date
hereof and  consistent  with those used in the  preparation  of the most  recent
audited financial statements delivered pursuant to Section 4.1(b).

     "Gaming  Approval" means any and all approvals,  authorizations,  consents,
rulings,  orders or  directives of any  Governmental  Authority (i) necessary to
enable  the  Borrower  or any of  its  Subsidiaries  to  engage  in the  casino,
gambling,  horse racing or gaming business or otherwise  continue to conduct its
business as it is conducted  on the Closing  Date,  (ii)  required by any Gaming
Authority or under any Gaming Law or (iii) necessary to accomplish the financing
and other transactions contemplated hereby.

     "Gaming Authority" means any governmental agency, authority, board, bureau,
commission,  department, office or instrumentality with regulatory, licensing or
permitting  authority or jurisdiction  over any gaming business or enterprise or
any Gaming Facility  (including,  without  limitation,  the  Mississippi  Gaming
Commission,  the Pennsylvania  State Horse Racing  Commission , the Pennsylvania
State Harness Racing Commission,  the West Virginia Racing Commission,  the West
Virginia Lottery Commission, the New Jersey Racing Commission and the New Jersey
Casino  Control  Commission),  or  with  regulatory,   licensing  or  permitting
authority  or  jurisdiction  over  any  gaming  operation  (or  proposed  gaming
operation)   owned,   managed  or  operated  by  the  Borrower  or  any  of  its
Subsidiaries.
                                       13
<PAGE>

     "Gaming  Facility"  means any gaming  establishment  and other  property or
assets directly  ancillary thereto or used in connection  therewith,  including,
without  limitation,  any  casinos,  hotels,  resorts,  race  tracks,  off-track
wagering  sites,  theaters,  parking  facilities,  recreational  vehicle  parks,
timeshare operations,  retail shops,  restaurants,  other buildings,  land, golf
courses and other recreation and  entertainment  facilities,  marinas,  vessels,
barges, ships and related equipment.

     "Gaming Laws" means all applicable provisions of all:

(i)  constitutions,  treaties,  statutes or laws governing gaming  operations or
     Gaming Facilities  (including,  without  limitation,  card club casinos and
     pari mutuel race tracks) and rules,  regulations,  codes and ordinances of,
     and all administrative or judicial orders or decrees or other laws pursuant
     to which, any Gaming Authority  possesses  regulatory,  licensing or permit
     authority over gambling,  gaming or Gaming Facility activities conducted by
     the Borrower or any of its Subsidiaries within its jurisdiction,

(ii) Gaming Approvals and

(iii)orders,  decisions,  determinations,  judgments,  awards and decrees of any
     Gaming Authority.

     "Governing  Documents":  collectively,  as to any Person,  the  articles or
certificate of incorporation and bylaws, any shareholders agreement, certificate
of formation,  limited liability  company  agreement,  partnership  agreement or
other formation or constituent documents of such Person.

     "Governmental Acts": as defined in Section 3.9.

     "Governmental  Authority":  any  nation or  government,  any state or other
political subdivision thereof and any entity exercising executive,  legislative,
judicial,  regulatory or administrative functions of or pertaining to government
(including, without limitation, any Gaming Authority).

     "Ground  Leases":  collectively,  (i) that  certain  Ground  Lease  between
Raphael  Skrmetta,  as  landlord,  and  BTN,  Inc.,  successor  in  interest  to
Mississippi-I  Gaming,  L.P.,  as  tenant,  dated as of  October  19,  1993,  in
connection  with the Boomtown Casino (the "Skrmetta  Lease"),  (ii) that certain
Public Trust Tidelands Lease entered into by the Secretary of State of the State
of  Mississippi,  on behalf of the State of Mississippi,  as landlord,  and BTN,
Inc.,  successor in interest to Mississippi-I  Gaming, L.P., as tenant, dated as
of August 15,  1994,  in  connection  with the Boomtown  Casino (the  "Tidelands
Lease"),  (iii) that certain Lease Agreement between Martha Peresich  McDermott,
as landlord, and BTN, Inc., successor in interest to Mississippi-I Gaming, L.P.,
as tenant, dated as of June 2, 1995, in connection with the Boomtown Casino (the
"McDermott  Lease"),  (iv) that certain  Lease  Agreement  between Gary Gollott,
Tommy Gollott and Tyrone  Gollott,  collectively,  as landlord,  and BTN,  Inc.,
successor in interest to  Mississippi-I  Gaming,  L.P.,  as tenant,  dated as of
                                       14
<PAGE>

September  22,  1994,  in  connection  with the  Boomtown  Casino (the  "Gollott
Lease"), (v) that certain Lease Agreement between Andrew Cvitanovich and Anthony
C. Cvitanovich,  together, as landlord,  and BTN, Inc., successor in interest to
Mississippi-I  Gaming, L.P., as tenant, dated as of March 3, 1994, in connection
with the Boomtown  Casino (the  "Cvitanovich  Lease"),  (vi) that certain  Lease
Agreement  between  Joseph A. Suarez,  Jr. and Mary Ellen Suarez,  together,  as
landlord, and BTN, Inc., successor in interest to Mississippi-I Gaming, L.P., as
tenant,  dated as of May 9, 1994,  in connection  with the Boomtown  Casino (the
"Suarez Lease"),  (vii) that certain Lease Agreement between R.A. Fayard Seafood
Co., Inc., as landlord,  and BTN, Inc.,  successor in interest to  Mississippi-I
Gaming,  L.P.,  as  tenant,  dated as of May 9,  1994,  in  connection  with the
Boomtown  Casino (the  "Fayard  Lease"),  (viii) that  certain  Lease  Agreement
between James A. Desporte and Linda L. Desporte, together, as landlord, and BTN,
Inc.,  successor in interest to Mississippi-I  Gaming, L.P., as tenant, dated as
of June 25, 1998, in connection with the Boomtown Casino (the "Desporte Lease"),
(ix) that certain Lease Agreement  between  Marilyn C. Hille,  as landlord,  and
BSL, Inc.,  successor in interest to Casino Advertising,  Inc., as tenant, dated
as of July 10,  1992,  in  connection  with the Bay St. Louis Casino (the "Hille
Lease") and (x) that certain  Lease with Option to Purchase  between L.D.  Lang,
Jr., as  landlord,  and BSL,  Inc.,  successor  in interest to Mardi Gras Casino
Corp.,  as tenant,  dated as of March 30, 1994, in  connection  with the Bay St.
Louis  Casino (the "Lang  Lease"),  each as it may be or may have been  amended,
supplemented, replaced or otherwise modified from time to time.

     "Guarantee  and  Collateral   Agreement":   the  Guarantee  and  Collateral
Agreement  to be executed and  delivered  by the  Borrower  and each  Guarantor,
substantially   in  the  form  of  Exhibit  A,  as  the  same  may  be  amended,
supplemented,  replaced or otherwise  modified  from time to time in  accordance
with this Agreement.

     "Guarantee  Obligation":  as to any Person (the "guaranteeing person"), any
obligation  of (a) the  guaranteeing  person or (b) another  Person  (including,
without limitation,  any bank under any letter of credit) to induce the creation
of which the guaranteeing person has issued a reimbursement, counterindemnity or
similar  obligation,  in either case guaranteeing or in effect  guaranteeing any
Indebtedness, leases, dividends or other obligations (the "primary obligations")
of any other  third  Person  (the  "primary  obligor")  in any  manner,  whether
directly or indirectly,  including,  without  limitation,  any obligation of the
guaranteeing person, whether or not contingent, (i) to purchase any such primary
obligation or any Property  constituting  direct or indirect security  therefor,
(ii) to  advance  or supply  funds (1) for the  purchase  or payment of any such
primary  obligation or (2) to maintain  working capital or equity capital of the
primary  obligor or  otherwise  to  maintain  the net worth or  solvency  of the
primary obligor,  (iii) to purchase  Property,  securities or services primarily
for the  purpose of assuring  the owner of any such  primary  obligation  of the
ability of the primary  obligor to make  payment of such primary  obligation  or
(iv)  otherwise  to  assure  or hold  harmless  the  owner of any  such  primary
obligation  against loss in respect thereof;  provided,  however,  that the term
Guarantee  Obligation shall not include  endorsements of instruments for deposit
or  collection in the ordinary  course of business.  The amount of any Guarantee
Obligation of any guaranteeing  person shall be deemed to be the lower of (a) an
amount equal to the stated or determinable  amount of the primary  obligation in
respect of which such  Guarantee  Obligation is made and (b) the maximum  amount
for which such  guaranteeing  person may be liable  pursuant to the terms of the
instrument embodying such Guarantee  Obligation,  unless such primary obligation
and the maximum amount for which such guaranteeing  person may be liable are not
stated or  determinable,  in which case the amount of such Guarantee  Obligation
shall be such guaranteeing person's maximum reasonably  anticipated liability in
respect thereof as determined by the Borrower in good faith.
                                       15
<PAGE>

     "Guarantors":  each  Subsidiary  of the  Borrower  other than any  Excluded
Foreign Subsidiary.

     "Hedge  Agreements":  all interest rate swaps, caps or collar agreements or
similar  arrangements  entered into by the  Borrower or any of its  Subsidiaries
providing for  protection  against  fluctuations  in interest  rates or currency
exchange rates or the exchange of nominal interest obligations, either generally
or under specific contingencies.

     "Indebtedness":  of any Person at any date,  without  duplication,  (a) all
indebtedness  of such Person for borrowed  money,  (b) all  obligations  of such
Person for the deferred purchase price of Property or services (other than trade
payables  incurred in the ordinary  course of such Person's  business),  (c) all
obligations  of such  Person  evidenced  by notes,  bonds,  debentures  or other
similar  instruments,   (d)  all  indebtedness  created  or  arising  under  any
conditional  sale or other title  retention  agreement  with respect to Property
acquired by such Person  (even  though the rights and  remedies of the seller or
lender under such agreement in the event of default are limited to  repossession
or sale of such Property),  (e) all Capital Lease Obligations or Synthetic Lease
Obligations of such Person,  (f) all  obligations of such Person,  contingent or
otherwise,  as an account  party under  acceptance,  letter of credit or similar
facilities,  (g) all  obligations  of such Person,  contingent or otherwise,  to
purchase,  redeem,  retire or otherwise  acquire for value any Capital  Stock of
such  Person,  (h) all  Guarantee  Obligations  of such  Person  in  respect  of
obligations  of the kind  referred to in clauses (a) through (g) above;  (i) all
obligations  of the kind referred to in clauses (a) through (h) above secured by
(or for which the holder of such obligation has an existing right, contingent or
otherwise,  to  be  secured  by)  any  Lien  on  Property  (including,   without
limitation,  accounts and contract rights) owned by such Person,  whether or not
such Person has assumed or become liable for the payment of such obligation, (j)
for the purposes of Section 8(e) only, all obligations of such Person in respect
of Hedge Agreements and (k) the liquidation value of any preferred Capital Stock
of such Person or its Subsidiaries held by any Person other than such Person and
its Wholly Owned Subsidiaries.

     "Indemnified Liabilities": as defined in Section 10.5.

     "Indemnitee": as defined in Section 10.5.

     "Insolvency":  with respect to any  Multiemployer  Plan, the condition that
such Plan is insolvent within the meaning of Section 4245 of ERISA.

     "Insolvent": pertaining to a condition of Insolvency.
                                       16
<PAGE>

     "Insurance  Requirements":  all  material  terms  of any  insurance  policy
required  pursuant to this  Agreement or any Security  Document and all material
regulations and then current standards  applicable to or affecting any Mortgaged
Property or any part thereof or any use or condition thereof,  which may, at any
time,  be  recommended  by the  Board  of  Fire  Underwriters,  if  any,  having
jurisdiction over any Mortgaged  Property,  or any other body exercising similar
functions.

     "Intellectual Property": the collective reference to all rights, priorities
and privileges relating to intellectual  property,  whether arising under United
States, state,  multinational or foreign laws or otherwise,  including,  without
limitation, copyrights, patents, trademarks, service-marks, technology, know-how
and processes,  recipes,  formulas,  trade secrets, or licenses (under which the
applicable Person is licensor or licensee)  relating to any of the foregoing and
all rights to sue at law or in equity for any  infringement or other  impairment
thereof, including the right to receive all proceeds and damages therefrom.

     "Intellectual  Property Collateral":  all Intellectual Property of the Loan
Parties,  now owned or hereafter acquired,  upon which a Lien is purported to be
created by the Intellectual  Property  Security  Agreements or the Guarantee and
Collateral Agreement.

     "Intellectual  Property  Security  Agreements":  the Intellectual  Property
Security  Agreements  to be executed  and  delivered  by certain  Loan  Parties,
substantially  in  the  form  of  Exhibit  C to  the  Guarantee  and  Collateral
Agreement,  as the same may be  amended,  supplemented,  replaced  or  otherwise
modified from time to time in accordance with this Agreement.

     "Interest Payment Date" (a) as to any Base Rate Loan, the last Business Day
of each  March,  June,  September  and  December  to occur  while  such  Loan is
outstanding  and the final  maturity date of such Loan, (b) as to any Eurodollar
Loan having an  Interest  Period of three  months or less,  the last day of such
Interest  Period and (c) as to any  Eurodollar  Loan having an  Interest  Period
longer than three months,  each day which is three months,  or a whole  multiple
thereof,  after the first day of such  Interest  Period and the last day of such
Interest Period.

     "Interest  Period":  as to any Eurodollar  Loan, (a) initially,  the period
commencing on the borrowing or conversion date, as the case may be, with respect
to such Eurodollar Loan and ending one, two, three or six months thereafter,  as
selected by the Borrower in its Notice of Borrowing or notice of conversion,  as
the case may be, given with respect  thereto;  and (b)  thereafter,  each period
commencing on the last day of the next preceding  Interest Period  applicable to
such  Eurodollar  Loan and ending one, two, three or six months  thereafter,  as
selected by the Borrower by irrevocable notice to the  Administrative  Agent not
less than three Business Days prior to the last day of the then current Interest
Period with respect  thereto;  provided  that,  all of the foregoing  provisions
relating to Interest Periods are subject to the following:

(i)  if any Interest  Period would otherwise end on a day that is not a Business
     Day, such Interest Period shall be extended to the next succeeding Business
                                       17
<PAGE>

     Day  unless the result of such  extension  would be to carry such  Interest
     Period into  another  calendar  month in which event such  Interest  Period
     shall end on the immediately preceding Business Day;

(ii) any  Interest  Period  that begins on the last  Business  Day of a calendar
     month (or on a day for which there is no numerically  corresponding  day in
     the calendar  month at the end of such  Interest  Period)  shall end on the
     last Business Day of a calendar month;

(iii)no Interest  Period  with  respect to any portion of any Type of Term Loans
     shall  extend  beyond a date on which the  Borrower  is  required to make a
     scheduled payment of principal of such Type of Term Loans unless the sum of
     (a) the aggregate principal amount of such Type of Term Loans that are Base
     Rate Loans  plus (b) the  aggregate  principal  amount of such Type of Term
     Loans that are Eurodollar Loans with Interest Periods expiring on or before
     such date equals or exceeds  the  principal  amount  required to be paid on
     such Type of Term Loans on such date; and

(iv) in the event the  Borrower  fails to  specify  an  Interest  Period for any
     Eurodollar Loan in the applicable  Notice of Borrowing,  the Borrower shall
     be deemed to have selected an Interest Period of one month.

     "Investments": as defined in Section 7.8.

     "Issuing Lender":  Canadian  Imperial Bank of Commerce,  in its capacity as
issuer of any Letter of Credit and any other Lender which agrees or is otherwise
obligated to issue a Letter of Credit, determined as provided in Section 3.4.

     "L/C Commitment": $10,000,000.

     "L/C Fee Payment  Date":  the last day of each March,  June,  September and
December and the last day of the Revolving Credit Commitment Period.

     "L/C  Obligations":  at any  time,  an  amount  equal to the sum of (a) the
aggregate then undrawn and unexpired amount of the then  outstanding  Letters of
Credit and (b) the  aggregate  amount of drawings  under  Letters of Credit that
have not then been reimbursed pursuant to Section 3.5.

     "L/C  Participants":  the collective  reference to all the Revolving Credit
Lenders other than the applicable Issuing Lender.

     "LCCI": Louisiana Casino Cruises, Inc., a Louisiana corporation.

     "Lender  Addendum":  with respect to any initial Lender, a Lender Addendum,
substantially  in the form of Exhibit J, to be executed  and  delivered  by such
Lender on the Closing Date as provided in Section 10.18.

     "Lenders":  as defined in the  preamble  hereto and  includes  the  Issuing
Lender and the Swing Line Lender.
                                       18
<PAGE>

     "Letters of Credit": as defined in Section 3.1(a).

     "Lien":   any  mortgage,   pledge,   hypothecation,   assignment,   deposit
arrangement,  encumbrance,  lien (statutory or other),  charge or other security
interest or any preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement and any capital lease having
substantially the same economic effect as any of the foregoing).

     "Loan": any loan made by any Lender pursuant to this Agreement.

     "Loan Documents":  this Agreement,  the Security Documents, the Fee Letter,
the Applications and the Notes.

     "Loan Parties": the Borrower and each Subsidiary of the Borrower which is a
party to a Loan Document (including pursuant to Section 6.10).

     "Maintenance Capital  Expenditures":  Capital Expenditures for maintenance,
repair, upkeep and renovation.

     "Majority Facility Lenders":  with respect to any Facility,  the holders of
more than 50% of the  aggregate  unpaid  principal  amount of the Tranche A Term
Loans or the Tranche B Term Loans or the Total  Revolving  Extensions of Credit,
as the case may be,  outstanding  under such  Facility  (or,  in the case of the
Revolving  Credit  Facility,  prior to any  termination of the Revolving  Credit
Commitments,  the  holders  of  more  than  50% of the  Total  Revolving  Credit
Commitments).

     "Majority Revolving Credit Facility Lenders": the Majority Facility Lenders
in respect of the Revolving Credit Facility.

     "Material  Adverse  Effect":  a material adverse effect on or affecting (a)
the Acquisition,  (b) the business,  assets,  liabilities,  property,  condition
(financial or otherwise), results of operations,  prospects, value or management
of the Loan Parties taken as a whole, (c) the validity or enforceability of this
Agreement or any of the other Loan Documents,  (d) the validity,  enforceability
or priority of the Liens purported to be created by the Security  Documents,  or
(e) the rights or remedies of any Secured  Party  hereunder  or under any of the
other Loan Documents.

     "Material  Environmental  Amount":  an amount  or  amounts  payable  by the
Borrower  and/or  any of  its  Subsidiaries,  in  the  aggregate  in  excess  of
$1,000,000,  for:  costs to  comply  with any  Environmental  Law;  costs of any
investigation,  and any remediation,  of any Materials of Environmental Concern;
and  compensatory  damages  (including,  without  limitation  damages to natural
resources), fines, and penalties pursuant to any Environmental Law.

     "Materials of Environmental  Concern": any gasoline or petroleum (including
crude  oil or any  fraction  thereof)  or  petroleum  products,  polychlorinated
biphenyls,  urea-formaldehyde insulation,  asbestos,  pollutants,  contaminants,
radioactive  substances,  and any other substances included in the definition of
"hazardous  substances,"  "hazardous  materials," "hazardous wastes," "extremely
hazardous wastes,"  "restricted  hazardous wastes," "toxic  substances,"  "toxic
pollutants,"   "pollutants,"   "regulated   substances,"   "solid   wastes,"  or
"contaminants" or words of similar import, under any Environmental Law.
                                       19
<PAGE>

     "MGC Loan  Report":  The report  required to be filed with the  Mississippi
Gaming Commission within 30 days after the Closing Date pursuant to MGC Reg. II.
I. Section 11.

     "Moody's": Moody's Investors Service, Inc.

     "Mortgaged Properties": the real properties and leasehold estates listed on
Schedule  1.1,  as to which  the  Administrative  Agent for the  benefit  of the
Secured Parties shall be granted a Lien pursuant to the Mortgages.

     "Mortgages": each of the (i) mortgages or deeds of trust and (ii) leasehold
mortgages  or deeds of trust  made by any  Loan  Party in favor  of,  or for the
benefit of, the  Administrative  Agent for the  benefit of the Secured  Parties,
substantially  in the form of Exhibit D (with such  changes  thereto as shall be
advisable  under the law of the  jurisdiction  in which such mortgage or deed of
trust is to be recorded), as the same may be amended, supplemented,  replaced or
otherwise modified from time to time in accordance with this Agreement.

     "Multiemployer  Plan":  a Plan that is a  multiemployer  plan as defined in
Section 3(37) or 4001(a)(3) of ERISA.

     "Net Cash Proceeds":  (a) in connection with any Asset Sale or any Recovery
Event, the proceeds thereof in the form of cash and Cash Equivalents  (including
any such proceeds received by way of deferred payment of principal pursuant to a
note or  installment  receivable  or purchase  price  adjustment  receivable  or
otherwise,  but only as and when received) of such Asset Sale or Recovery Event,
net of reasonable and customary attorneys' fees,  accountants' fees,  investment
banking fees,  amounts  required to be applied to the repayment of  Indebtedness
secured  by a Lien  expressly  permitted  hereunder  on any  asset  which is the
subject of such Asset Sale or Recovery  Event (other than any Lien pursuant to a
Security Document) and other reasonable and customary fees and expenses, in each
case, to the extent actually  incurred in connection  therewith and net of taxes
paid or  reasonably  estimated to be payable as a result  thereof  (after taking
into  account  any  available  tax  credits or  deductions  and any tax  sharing
arrangements)  and (b) in  connection  with  any  issuance  or  sale  of  equity
securities or debt  securities or instruments  or the  incurrence of loans,  the
cash proceeds  received from such issuance or incurrence,  net of reasonable and
customary   attorneys'  fees,   investment  banking  fees,   accountants'  fees,
underwriting  discounts and commissions and other  reasonable and customary fees
and  expenses,  in each case,  to the extent  actually  incurred  in  connection
therewith.
                                       20
<PAGE>

     "New Jersey Joint  Venture":  The joint venture between  Greenwood  Racing,
Inc. (and its successors and assigns) and Penn National Holding Company (and its
successors and assigns) comprising Pennwood.

     "Non-Excluded Taxes": as defined in Section 2.20(a).

     "Non-U.S. Lender": as defined in Section 2.20(f).

     "Notes":  the collective  reference to the Revolving Credit Notes, the Term
Notes and the Swing Line Notes, if any, evidencing Loans.

     "Notice of Borrowing": a certificate duly executed by a Responsible Officer
of the Borrower substantially in the form of Exhibit M.

     "Obligations":  the unpaid principal of and interest on (including, without
limitation,  interest accruing after the maturity of the Loans and Reimbursement
Obligations  and  interest   accruing  after  the  filing  of  any  petition  in
bankruptcy,  or the  commencement  of any  insolvency,  reorganization  or  like
proceeding,  relating to any Loan Party,  whether or not a claim for post-filing
or post-petition interest is allowed in such proceeding) the Loans and all other
obligations and liabilities of the Loan Parties to any Arranger, to any Agent or
to any Lender (or, in the case of Specified Hedge  Agreements,  any Affiliate of
any Lender),  whether  direct or  indirect,  absolute or  contingent,  due or to
become due, or now existing or hereafter  incurred,  which may arise under,  out
of, or in connection with, this Agreement,  any other Loan Document, the Letters
of Credit,  any Specified Hedge Agreement or any other document made,  delivered
or given in connection  herewith or therewith,  whether on account of principal,
interest,   reimbursement  obligations,   fees,  indemnities,   costs,  expenses
(including,  without limitation,  all fees, charges and disbursements of counsel
to any  Arranger,  to any Agent or to any Lender that are required to be paid by
any Loan Party  pursuant  hereto or to any other Loan  Document)  or  otherwise;
provided, that (i) Obligations of the Borrower or any other Loan Party under any
Specified  Hedge  Agreement  shall be secured  and  guaranteed  pursuant  to the
Security  Documents  only to the  extent  that,  and for so long as,  the  other
Obligations  are so secured and guaranteed and (ii) any release of Collateral or
Guarantors  effected in the manner permitted by this Agreement shall not require
the consent of holders of obligations under Specified Hedge Agreements.

     "Operating  Gaming  Facility":  each  of (i)  Penn  National  Race  Course,
(including the Penn National Off-Track Wagering  Facilities),  (ii) Pocono Downs
Race Course (including the Pocono Downs Off-Track  Wagering  Facilities),  (iii)
the Charles Town Gaming Facility, (iv) Bay St. Louis Casino, (v) Boomtown Casino
and (vi) any other Gaming Facility  acquired or opened by the Borrower or any of
its  Subsidiaries  after  the  date of  this  Agreement,  including,  if the CRC
Acquisition is consummated, the Casino Rouge Gaming Facility and the Casino Rama
Gaming Facility.

     "Operating  Leases":  as applied to any Person,  any leases  (including any
leases that may be  terminated  by the lessor at any time) of any Property  that
are not Capital Leases.
                                       21
<PAGE>

     "Other Taxes":  any and all present or future stamp or documentary taxes or
any other excise or property  taxes,  charges or similar levies arising from any
payment made  hereunder or from the execution,  delivery or  enforcement  of, or
otherwise with respect to, this Agreement or any other Loan Document.

     "Participant": as defined in Section 10.6(b).

     "Payment Amount": as defined in Section 3.5.

     "Payment  Office":  the office of the  Administrative  Agent  specified  in
Section 10.2 or as otherwise  specified from time to time by the  Administrative
Agent as its payment office by notice to the Borrower and the Lenders.

     "PBGC": the Pension Benefit Guaranty  Corporation  established  pursuant to
Subtitle A of Title IV of ERISA (or any successor).

     "Penn  National Race Course":  the Gaming  Facility known as "Penn National
Race Course", located in Grantville, Pennsylvania.

     "Penn National  Off-Track  Wagering  Facilities":  collectively,  the owned
Gaming  Facilities  known  as (i)  Williamsport  Off-Track  Wagering  Facility",
located  in  Muncy,  Pennsylvania,  and (ii)  "Chambersburg  Off-Track  Wagering
Facility", located in Chambersburg, Pennsylvania.

     "Pennwood":  collectively,  Pennwood Racing, Inc., a Delaware  corporation,
and its subsidiaries,  including, without limitation, GS Park Services, L.P., FR
Park Services, L.P., GS Park Racing, L.P. and FR Park Racing, L.P.

     "Permits":  the collective reference to (i) Environmental Permits, and (ii)
any and all other franchises,  licenses,  leases, permits, approvals (including,
without   limitation,   Gaming   Approvals),   notifications,    certifications,
registrations,  authorizations, exemptions, qualifications, easements, rights of
way,  Liens  and other  rights,  privileges  and  approvals  required  under any
Requirement of Law.

     "Permitted  Investors":  the collective  reference to the issue of Peter D.
Carlino.

     "Permitted  Liens":  the  collective  reference  to  (i)  in  the  case  of
Collateral other than Pledged Stock,  Liens permitted by Section 7.3 and (ii) in
the  case of  Collateral  consisting  of  Pledged  Stock,  non-consensual  Liens
permitted by Section 7.3 to the extent arising by operation of law.

     "Permitted Vessel Liens":  maritime Liens on ships, barges or other vessels
for wages of a stevedore, when employed directly by a Person listed in 46 U.S.C.
ss.31341,  crew's wages,  salvage and general  average,  whether now existing or
hereafter  arising and other  maritime  Liens which  arise by  operation  of law
during normal  operations of such ships,  barges or other vessels which are paid
in the  ordinary  course of  business  and which are not overdue for a period of
more  than 30 days or that are  being  contested  in good  faith by  appropriate
proceedings.
                                       22
<PAGE>

     "Person":  an  individual,  partnership,   corporation,  limited  liability
company,  business  trust,  joint stock  company,  ------ trust,  unincorporated
association,  joint venture,  Governmental Authority or other entity of whatever
nature.

     "Plan":  at a particular time, any employee benefit plan that is covered by
ERISA  and which the  Borrower  or any  Commonly  Controlled  Entity  maintains,
administers,  contributes  to or is required to contribute to or under which the
Borrower or any Commonly Controlled Entity could incur any liability.

     "Pledged  Stock":  as defined in the  Guarantee and  Collateral  Agreement.

     "Pocono Downs Race Course": the Gaming Facility known as "Pocono Downs Race
Course", located in Wilkes Barre, Pennsylvania.

     "Pocono  Downs  Off-Track  Wagering  Facilities":  collectively,  the owned
Gaming Facilities known as (i) "Erie Off-Track  Wagering  Facility",  located in
Erie,  Pennsylvania,  (ii)  "Lehigh  Off-Track  Wagering  Facility",  located in
Allentown,  Pennsylvania,  and (iii) "Carbondale  Off-Track Wagering  Facility",
located in Carbondale, Pennsylvania.

     "Prepayment Option Notice":  a notice executed by a Responsible  Officer of
the Borrower substantially in the form of Exhibit H.

     "Pricing Grid": the pricing grids attached hereto as Annex A.

     "Pro Forma Balance Sheet": as defined in Section 4.1(a).

     "Pro Rata Prepayment Amount": as defined in Section 2.18(d).

     "Projections": as defined in Section 6.2(c).

     "Property": any right or interest in or to property of any kind whatsoever,
whether real,  personal or mixed and whether tangible or intangible,  including,
without limitation, Capital Stock, Vessels and Barges.

     "Real  Estate":  all  real  Property  used  by the  Borrower  or any of its
Subsidiaries  which the Borrower or such  Subsidiary  owns in fee or in which it
has a leasehold interest.

     "Recovery  Event":  any  settlement  of or  payment in excess of $50,000 in
respect  of any  property  or  casualty  insurance  claim  or  any  condemnation
proceeding  (or series of related claims or  proceedings)  relating to any asset
(or series of related assets) of the Borrower or any of its Subsidiaries.

     "Reference  Rate":  the rate that the  Administrative  Agent announces from
time to time as its prime lending rate, as in effect from time to time.

     "Refunded Swing Line Loans": as defined in Section 2.7(b).

     "Refunding Date": as defined in Section 2.7(c).
                                       23
<PAGE>

     "Register": as defined in Section 10.6(d).

     "Regulation  D":  Regulation  D of the Board as in effect from time to time
(and any successor to all or a portion thereof).

     "Regulation  H":  Regulation  H of the Board as in effect from time to time
(and any successor to all or a portion thereof).

     "Regulation  T":  Regulation  T of the Board as in effect from time to time
(and any successor to all or a portion thereof).

     "Regulation  U":  Regulation  U of the Board as in effect from time to time
(and any successor to all or a portion thereof).

     "Regulation  X":  Regulation  X of the Board as in effect from time to time
(and any successor to all or a portion thereof).

     "Reimbursement Obligation": the obligation of the Borrower to reimburse the
Issuing  Lender  pursuant  to Section 3.5 for  amounts  drawn  under  Letters of
Credit.

     "Reinvestment Deferred Amount": with respect to any Reinvestment Event, the
aggregate Net Cash Proceeds  received by the Borrower or any of its Subsidiaries
in connection  therewith that are not applied to prepay the Term Loans or reduce
the Revolving Credit Commitments  pursuant to Section 2.12(b) as a result of the
delivery of a Reinvestment Notice.

     "Reinvestment  Event": any Asset Sale or Recovery Event in respect of which
the Borrower has delivered a Reinvestment Notice.

     "Reinvestment  Notice": a written notice executed by a Responsible  Officer
of the Borrower  stating that no Default or Event of Default has occurred and is
continuing and that the Borrower  (directly or indirectly through a Wholly Owned
Subsidiary to the extent otherwise  permitted  hereunder) intends and expects to
use all or a  specified  portion  of the Net Cash  Proceeds  of an Asset Sale or
Recovery Event to acquire assets useful in its or such Subsidiary's business.

     "Reinvestment  Prepayment Amount":  with respect to any Reinvestment Event,
the Reinvestment Deferred Amount relating thereto less any amount expended prior
to the relevant  Reinvestment  Prepayment  Date to acquire  assets useful in the
Borrower's business.

     "Reinvestment Prepayment Date": with respect to any Reinvestment Event, the
earlier of (a) the date occurring six months after such  Reinvestment  Event and
(b) the date on which the Borrower  shall have  determined not to, or shall have
otherwise  ceased to,  acquire assets useful in the Borrower's or the applicable
Subsidiary's  business  with all or any  portion  of the  relevant  Reinvestment
Deferred Amount.
                                       24
<PAGE>

     "Reorganization":  with respect to any  Multiemployer  Plan,  the condition
that such plan is in reorganization within the meaning of Section 4241 of ERISA.

     "Replaced Lender": as defined in Section 2.24.

     "Replacement Lender": as defined in Section 2.24.

     "Reportable  Event":  any of the  events  set forth in  Section  4043(c) of
ERISA,  other  than those  events as to which the  thirty  day notice  period is
waived under  subsections  .27, .28, .29, .30, .31, .32, .34 or .35 of PBGC Reg.
Section 4043.

     "Required Lenders":  at any time, the holders of more than 50% of (a) until
the  Closing  Date,  the  Commitments  and  (b)  thereafter,  the sum of (i) the
aggregate  unpaid  principal  amount of the Term Loans then outstanding and (ii)
the Total  Revolving  Credit  Commitments  then in effect  or, if the  Revolving
Credit  Commitments  have been  terminated,  the Total  Revolving  Extensions of
Credit  then  outstanding  (unless  at such  time  any  two  Lenders  and  their
Affiliates,  collectively, hold more than 35% of (a) until the Closing Date, the
Commitments and (b) thereafter,  the sum of (i) the Term Loans then  outstanding
and (ii) the  Total  Revolving  Credit  Commitments  then in  effect  or, if the
Revolving  Credit   Commitments  have  been  terminated,   the  Total  Revolving
Extensions of Credit then  outstanding,  in which case "Required  Lenders" shall
mean the Supermajority Facility Lenders).

     "Required Prepayment Lenders":  the Majority Facility Lenders in respect of
each Facility.

     "Required  Revolving  Credit  Lenders":  means,  at any time, the Revolving
Credit  Lenders  holding  in the  aggregate  more  than  50% of the  outstanding
Revolving Credit Loans.

     "Required  Tranche A Term Loan Lenders":  means, at any time, the Tranche A
Term Loan  Lenders  holding in the  aggregate  more than 50% of the  outstanding
Tranche A Term Loans.

     "Required  Tranche B Term Loan Lenders":  means, at any time, the Tranche B
Term Loan  Lenders  holding in the  aggregate  more than 50% of the  outstanding
Tranche B Term Loans.

     "Requirement  of Law": as to any Person,  the  Governing  Documents of such
Person, and any law, treaty, rule or regulation (including,  without limitation,
any  Gaming  Law)  or  determination  of  an  arbitrator  or a  court  or  other
Governmental  Authority,  in each case applicable to or binding upon such Person
or any of its  Property  or to  which  such  Person  or any of its  Property  is
subject.

     "Responsible  Officer":  as to any  Person,  the chief  executive  officer,
president  or chief  financial  officer of such Person,  but in any event,  with
respect to financial matters, the chief financial officer of such Person. Unless
otherwise qualified,  all references to a "Responsible Officer" shall refer to a
Responsible Officer of the Borrower.
                                       25
<PAGE>

     "Restricted Payments": as defined in Section 7.6.

     "Revolving  Credit  Commitment":  as to any Lender,  the obligation of such
Lender, if any, to make Revolving Credit Loans and/or  participate in Swing Line
Loans and Letters of Credit, in an aggregate principal and/or face amount not to
exceed the amount set forth  under the  heading  "Revolving  Credit  Commitment"
opposite such Lender's  name on Schedule 1 to the Lender  Addendum  delivered by
such Lender,  or, as the case may be, in the Assignment and Acceptance  pursuant
to which such Lender became a party hereto, as the same may be changed from time
to time pursuant to the terms hereof.

     "Revolving  Credit  Commitment  Period":  the period from and including the
Closing Date to the Revolving Credit Termination Date.

     "Revolving  Credit  Lender":  each  Lender  that  has  a  Revolving  Credit
Commitment or that is the holder of Revolving Credit Loans.

     "Revolving Credit Loans": as defined in Section 2.4.

     "Revolving Credit Notes": as defined in Section 2.8(e).

     "Revolving  Credit  Percentage":  as to any Revolving  Credit Lender at any
time,  the  percentage  which such Lender's  Revolving  Credit  Commitment  then
constitutes of the Total Revolving Credit Commitments (or, at any time after the
Revolving Credit  Commitments  shall have expired or terminated,  the percentage
which the  aggregate  principal  and/or face amount of such  Lender's  Revolving
Credit  Extensions  of Credit  then  outstanding  constitutes  of the  aggregate
principal  and/or face amount of the Total  Revolving  Extensions of Credit then
outstanding).

     "Revolving  Credit  Termination  Date": the fifth (5th)  anniversary of the
Closing Date.

     "Revolving  Extensions of Credit": as to any Revolving Credit Lender at any
time,  an amount equal to the sum of (a) the aggregate  principal  amount of all
Revolving Credit Loans made by such Lender then  outstanding,  (b) such Lender's
Revolving Credit Percentage of the L/C Obligations then outstanding and (c) such
Lender's Revolving Credit Percentage of the aggregate  principal amount of Swing
Line Loans then outstanding.

     "S&P": Standard & Poor's Ratings Services.

     "SEC": the Securities and Exchange  Commission (or successors thereto or an
analogous Governmental Authority).

     "Secured  Parties":  collectively,  the Arrangers,  the Agents, the Lenders
and, with respect to any Specified Hedge Agreement,  any affiliate of any Lender
                                       26
<PAGE>

party  thereto that has agreed to be bound by the  provisions  of Section 7.2 of
the Guarantee and Collateral  Agreement as if it were a party thereto and by the
provisions of Section 9 hereof as if it were a Lender party hereto.

     "Securities Act": means the Securities Act of 1933, as amended from time to
time, and any successor statute.

     "Security  Documents":  the  collective  reference  to  the  Guarantee  and
Collateral Agreement, the Intellectual Property Security Agreements, the Control
Agreements,  the Mortgages, the Ship Mortgages and all other pledge and security
documents hereafter delivered to the Administrative Agent granting a Lien on any
Property of any Person to secure the  obligations  and  liabilities  of any Loan
Party under any Loan Document.

     "Senior  Subordinated  Notes":  senior  subordinated  notes of the Borrower
issued on customary  market terms and conditions,  with a maturity date at least
six months after the final maturity of the Facilities and in substance otherwise
reasonably satisfactory to the Agents.

     "Ship  Mortgage":  means a security  instrument  pertaining  to each Vessel
(whether  designated as a first preferred ship mortgage or by any similar title)
executed and delivered by the applicable Loan Party,  substantially in such form
as may be approved by the Administrative Agent in its reasonable discretion,  in
each case with such  changes  thereto as may be  reasonably  recommended  by the
Administrative  Agent's or the Borrower's local counsel based on customary first
preferred  ship  mortgage  practices,   to  be  filed  in  the  National  Vessel
Documentation  Center  of the  United  States  Coast  Guard,  as  such  security
instrument may be amended, supplemented or otherwise modified from time to time,
substantially  in the  form of  Exhibit  N.  "Ship  Mortgages"  means  all  such
instruments, collectively.

     "Single  Employer Plan": any Plan that is covered by Title IV of ERISA, but
which is not a Multiemployer Plan.

     "Skrmetta  Lease":  as  defined  in  the  definition  of  "Ground  Leases".

     "Solvency  Certificate":  the  Solvency  Certificate  to  be  executed  and
delivered by the chief  financial  officer of the Borrower and a duly authorized
officer of each other Loan Party (such officer to be familiar with the financial
condition  and  operations  of such Loan  Party),  substantially  in the form of
Exhibit K, as the same may be amended,  supplemented or otherwise  modified from
time to time in accordance with this Agreement.

     "Solvent":  when  used  with  respect  to any  Person,  as of any  date  of
determination, (a) the amount of the "present fair saleable value" of the assets
of such Person will, as of such date,  exceed the amount of all  "liabilities of
such Person, contingent or otherwise", as of such date, as such quoted terms are
determined  in  accordance  with  applicable  federal  and state laws  governing
determinations of the insolvency of debtors, (b) the present fair saleable value
of the assets of such Person will,  as of such date,  be greater than the amount
that will be required to pay the  liability  of such Person on its debts as such
debts become  absolute and  matured,  (c) such Person will not have,  as of such
                                       27
<PAGE>

date,  an  unreasonably  small  amount of  capital  with  which to  conduct  its
business,  (d) such Person will be able to pay its debts as they mature, and (e)
such Person is not insolvent  within the meaning of any applicable  Requirements
of Law.  For  purposes  of this  definition,  (i) "debt"  means  liability  on a
"claim", and (ii) "claim" means any (x) right to payment,  whether or not such a
right is reduced  to  judgment,  liquidated,  unliquidated,  fixed,  contingent,
matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured
or (y) right to an  equitable  remedy for breach of  performance  if such breach
gives rise to a right to  payment,  whether  or not such  right to an  equitable
remedy  is  reduced  to  judgment,  fixed,  contingent,  matured  or  unmatured,
disputed, undisputed, secured or unsecured.

     "Specified  Hedge  Agreement":  any Hedge Agreement (a) entered into by (i)
Borrower  or any of its  Subsidiaries  and  (ii)  any  Lender  or any  affiliate
thereof,  as  counterparty  and (b) which has been designated by such Lender and
the Borrower,  by notice to the  Administrative  Agent and the Syndication Agent
not later than 90 days after the execution and delivery  thereof by the Borrower
or  such  Subsidiary,  as  a  Specified  Hedge  Agreement;   provided  that  the
designation  of any Hedge  Agreement as a Specified  Hedge  Agreement  shall not
create in favor of any Lender or affiliate  thereof that is a party  thereto any
rights in connection  with the management or release of any Collateral or of the
obligations of any Guarantor under the Guarantee and Collateral Agreement.

     "Subordinated  Intercompany Note": the Subordinated Intercompany Note to be
executed  and   delivered  by  the  Borrower  and  each  of  its   Subsidiaries,
substantially   in  the  form  of  Exhibit  L,  as  the  same  may  be  amended,
supplemented,  replaced or otherwise  modified  from time to time in  accordance
with this Agreement.

     "SNDAs": as defined in Section 4.28(f).

     "Subsidiary":  (i) as to any Person,  a corporation,  partnership,  limited
liability  company or other entity of which  shares of stock or other  ownership
interests having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a contingency) to
elect  a  majority  of  the  board  of  directors  or  other  managers  of  such
corporation,  partnership  or  other  entity  are  at  the  time  owned,  or the
management of which is otherwise controlled,  directly or indirectly through one
or more  intermediaries,  or both, by such Person,  and (ii) as to the Borrower,
including,  without  limitation,  both  before  and after the  Acquisition,  the
Acquired Business.  Unless otherwise qualified, all references to a "Subsidiary"
or  to  "Subsidiaries"  in  this  Agreement  shall  refer  to  a  Subsidiary  or
Subsidiaries of the Borrower.

     "Supermajority Facility Lenders": collectively, the holders of more than 66
2/3% of the aggregate  unpaid  principal amount of the Tranche A Term Loans, the
Tranche B Term Loans and the Total  Revolving  Extensions of Credit  outstanding
under each such  Facility  (or, in the case of the  Revolving  Credit  Facility,
prior to any  termination of the Revolving  Credit  Commitments,  the holders of
more than 66 2/3% of the Total Revolving Credit Commitments).
                                       28
<PAGE>

     "Supplemental Accepting Lenders": as defined in Section 2.18(d).

     "Supplemental Prepayment Amount": as defined in Section 2.18(d).

     "Surviving Debt Instruments":  collectively, (a) Turf Debt and (b) the Debt
Service Maintenance Agreement.

     "Swing Line  Commitment":  the  obligation of the Swing Line Lender to make
Swing Line Loans pursuant to Section 2.6 in an aggregate principal amount at any
one time outstanding not to exceed $10,000,000.

     "Swing Line Lender": CIBC Inc., in its capacity as the lender of Swing Line
Loans.

     "Swing Line Loans": as defined in Section 2.6.

     "Swing Line Notes": as defined in Section 2.8(e).

     "Swing  Line   Participation   Amount":   as  defined  in  Section  2.7(c).

     "Synthetic Lease Obligations":  all monetary  obligations of a Person under
(a) a so-called  synthetic,  off-balance sheet or tax retention lease, or (b) an
agreement for the use or possession of property  creating  obligations  which do
not appear on the balance sheet of such Person but which, upon the insolvency or
bankruptcy of such Person,  would be  characterized  as the Indebtedness of such
Person (without regard to accounting treatment).

     "Taking":  a  taking  or  voluntary  conveyance  during  the  term  of this
Agreement of all or part of any Mortgaged  Property,  or any interest therein or
right  accruing  thereto or use thereof,  as the result of, or in settlement of,
any  condemnation  or  other  eminent  domain  proceeding  by  any  Governmental
Authority affecting a Mortgaged Property or any portion thereof,  whether or not
the same shall have actually been commenced.

     "Term Loan Facilities": the collective reference to the Tranche A Term Loan
Facility and the Tranche B Term Loan Facility.

     "Term Loan Lenders":  the  collective  reference to the Tranche A Term Loan
Lenders and the Tranche B Term Loan  Lenders.

     "Term Loans": the collective  reference to the Tranche A Term Loans and the
Tranche B Term Loans.

     "Term Notes": as defined in Section 2.8(e).

     "Title Insurance Company": as defined in Section 5.1(w).
                                       29
<PAGE>

     "Total Revolving Credit Commitments":  at any time, the aggregate amount of
the Revolving Credit Commitments then in effect; provided that the amount of the
Total Revolving Credit Commitments on the Closing Date shall be $75,000,000.

     "Total Revolving  Extensions of Credit":  at any time, the aggregate amount
of  the  Revolving   Extensions  of  Credit  of  the  Revolving  Credit  Lenders
outstanding at such time.

     "Trackpower Warrant":  the Borrower's right to purchase 5,000,000 shares of
common  stock  of  Trackpower,   Inc.   (formerly  known  as  American   Digital
Communications,  Inc.),  pursuant  to that  certain  Warrant by and  between the
Borrower and American Digital Communications, Inc., dated April 29, 1999.

     "Tranche A Term Loan": as defined in Section 2.1.

     "Tranche A Term Loan Commitment": as to any Tranche A Term Loan Lender, the
obligation of such Lender, if any, to make a Tranche A Term Loan to the Borrower
hereunder  in a  principal  amount not to exceed the amount set forth  under the
heading "Tranche A Term Loan Commitment" opposite such Lender's name on Schedule
1 to the Lender  Addendum  delivered by such Lender,  or, as the case may be, in
the  Assignment  and  Acceptance  pursuant to which such  Lender  became a party
hereto,  as the same may be  changed  from  time to time  pursuant  to the terms
hereof;  provided that the original  aggregate amount of the Tranche A Term Loan
Commitments is $75,000,000.

     "Tranche A Term Loan  Lender":  each  Lender that has a Tranche A Term Loan
Commitment or is the holder of a Tranche A Term Loan.

     "Tranche A Term Loan  Percentage":  as to any Tranche A Term Loan Lender at
any time prior to the Closing Date, the percentage which such Lender's Tranche A
Term Loan  Commitment  then  constitutes  of the  aggregate  Tranche A Term Loan
Commitments  or, at any time after the Closing Date,  the  percentage  which the
aggregate   principal  amount  of  such  Lender's  Tranche  A  Term  Loans  then
outstanding  constitutes of the aggregate principal amount of the Tranche A Term
Loans then outstanding.

     "Tranche B Term Loan": as defined in Section 2.1.

     "Tranche B Term Loan Commitment": as to any Tranche B Term Loan Lender, the
obligation of such Lender, if any, to make a Tranche B Term Loan to the Borrower
hereunder  in a  principal  amount not to exceed the amount set forth  under the
heading "Tranche B Term Loan Commitment" opposite such Lender's name on Schedule
1 to the Lender  Addendum  delivered by such Lender,  or, as the case may be, in
the  Assignment  and  Acceptance  pursuant to which such  Lender  became a party
hereto,  as the same may be  changed  from  time to time  pursuant  to the terms
hereof;  provided that the original  aggregate amount of the Tranche B Term Loan
Commitments is $200,000,000.

     "Tranche B Term Loan  Lender":  each  Lender that has a Tranche B Term Loan
Commitment or which is the holder of a Tranche B Term Loan.
                                       30
<PAGE>

     "Tranche B Term Loan  Percentage":  as to any Tranche B Term Loan Lender at
any time prior to the Closing Date, the percentage which such Lender's Tranche B
Term Loan  Commitment  then  constitutes  of the  aggregate  Tranche B Term Loan
Commitments  or, at any time after the Closing Date,  the  percentage  which the
aggregate   principal  amount  of  such  Lender's  Tranche  B  Term  Loans  then
outstanding  constitutes of the aggregate principal amount of the Tranche B Term
Loans then  outstanding;  provided,  that solely for purposes of calculating the
amount  of each  installment  of  Tranche  B Term  Loans  (other  than  the last
installment) payable to a Term Loan Lender pursuant to Section 2.3(b), such Term
Loan Lender's Tranche B Term Loan Percentage shall be calculated  without giving
effect to any portion of any prior mandatory or optional prepayment attributable
to such Term Loan  Lender's  Tranche B Term Loans which shall have been declined
by such Term Loan Lender  (or,  in the case of any Term Loan Lender  which shall
have acquired its Tranche B Term Loans by  assignment  from another  Person,  by
such other Person).

     "Transferee": as defined in Section 10.15.

     "Turf Debt":  Pennsylvania National Turf Club, Inc.'s monetary obligations,
equaling  approximately  $200,000,  which it owes to its former  shareholders in
lieu of fractional  shares resulting from a reverse stock split which took place
in 1986.

     "Type":  as to any Loan,  its  nature  as a Base Rate Loan or a  Eurodollar
Loan.

     "Vessels": shall mean (a) the BOOMTOWN and the BOOMTOWN II, each located at
the  Boomtown  Casino in Biloxi,  Mississippi,  and (b) the Barges to the extent
such Barges are documented vessels with the United States Coast Guard.

     "Wholly Owned  Guarantor":  any Guarantor that is a Wholly Owned Subsidiary
of the Borrower.

     "Wholly Owned  Subsidiary":  as to any Person,  any other Person all of the
Capital Stock of which (other than directors' qualifying shares required by law)
is owned by such Person directly and/or through other Wholly Owned Subsidiaries.

1.2  Other Definitional  Provisions.(a) (a) Unless otherwise  specified therein,
     all terms defined in this  Agreement  shall have the defined  meanings when
     used in the other Loan Documents or any  certificate or other document made
     or delivered pursuant hereto or thereto.

(b)  As used  herein and in the other Loan  Documents,  and any  certificate  or
     other  document made or delivered  pursuant  hereto or thereto,  accounting
     terms relating to the Borrower and its  Subsidiaries not defined in Section
     1.1 and  accounting  terms partly defined in Section 1.1, to the extent not
     defined, shall have the respective meanings given to them under GAAP.

(c)  The words  "hereof",  "herein" and  "hereunder" and words of similar import
     when used in this  Agreement  shall refer to this  Agreement as a whole and
     not to any particular  provision of this Agreement,  and Section,  Schedule
     and Exhibit references are to this Agreement unless otherwise specified.
                                       31
<PAGE>

(d)  The meanings given to terms defined  herein shall be equally  applicable to
     both the singular and plural forms of such terms.

(e)  The  expressions  "payment in full,"  "paid in full" and any other  similar
     terms or phrases  when used herein with  respect to the  Obligations  shall
     mean the payment in full, in  immediately  available  funds,  of all of the
     Obligations.

(f)  The words  "including" and "includes" and words of similar import when used
     in this Agreement shall not be limiting and shall mean  "including  without
     limitation" or "includes without limitation", as the case may be.

SECTION 2.                 AMOUNT AND TERMS OF COMMITMENTS

2.1 Term Loan Commitments.  Subject to the terms and conditions hereof, (a) each
Tranche A Term Loan  Lender  severally  agrees to make a term loan (a "Tranche A
Term Loan") to the Borrower on the Closing Date in an amount equal to the amount
of the Tranche A Term Loan Commitment of such Lender and (b) each Tranche B Term
Loan  Lender  severally  agrees to make a term loan (a "Tranche B Term Loan") to
the Borrower on the Closing Date in an amount equal to the amount of the Tranche
B Term Loan  Commitment of such Lender.  The Term Loans may from time to time be
Eurodollar  Loans or Base Rate Loans, as determined by the Borrower and notified
to the Administrative Agent in accordance with Sections 2.2 and 2.13.

2.2  Procedure  for Term Loan  Borrowing.(a)  (a) The  Borrower  shall  give the
Administrative  Agent irrevocable  notice in a Notice of Borrowing (which notice
must be received by the Administrative Agent not later than 11:00 A.M., New York
City time,  at least one Business  Day prior to the  anticipated  Closing  Date)
requesting  that the Term Loan  Lenders  make the Term Loans on the Closing Date
and  specifying  the amount to be  borrowed.  The Term Loans made on the Closing
Date shall initially be Base Rate Loans,  and no Term Loan may be converted into
or continued  as a Eurodollar  Loan prior to the date which is 14 days after the
Closing  Date.  Upon  receipt of such  notice  the  Administrative  Agent  shall
promptly  notify each Term Loan Lender  thereof.  Not later than 1:00 P.M.,  New
York City time,  on the Closing Date each Term Loan Lender shall make  available
to the  Administrative  Agent at the  Funding  Office an  amount in  immediately
available  funds equal to the Term Loan or Term Loans to be made by such Lender.
The  Administrative  Agent shall make available to the Borrower the aggregate of
the amounts made available to the Administrative  Agent by the Term Loan Lenders
in like funds.

(b) The Borrower shall notify the  Administrative  Agent prior to the funding of
any Term Loans in the event that any of the  matters  to which the  Borrower  is
required to certify in the applicable  Notice of Borrowing is no longer true and
correct as of the  Closing  Date,  and the  acceptance  by the  Borrower  of the
proceeds of any Term Loan shall constitute a  re-certification  by the Borrower,
as of the Closing  Date,  as to the matters to which the Borrower is required to
certify in the applicable Notice of Borrowing.

2.3  Repayment of Term  Loans.(a)  (a) The Tranche A Term Loan of each Tranche A
Term  Loan  Lender  shall  mature  in  20  consecutive  quarterly  installments,
commencing on September  30, 2000,  each of which shall be in an amount equal to
such Lender's Tranche A Term Loan Percentage  multiplied by the amount set forth
below opposite such installment.
                                       32
<PAGE>

      Installment                                        Principal Amount
      -----------                                        ----------------
      September 30, 2000                                         $1,875,000
      December 31, 2000                                          $1,875,000
      March 31, 2001                                             $1,875,000
      June 30, 2001                                              $1,875,000
      September 30, 2001                                         $2,812,500
      December 31, 2001                                          $2,812,500
      March 31, 2002                                             $2,812,500
      June 30, 2002                                              $2,812,500
      September 30, 2002                                         $3,750,000
      December 31, 2002                                          $3,750,000
      March 31, 2003                                             $3,750,000
      June 30, 2003                                              $3,750,000
      September 30, 2003                                         $4,687,500
      December 31, 2003                                          $4,687,500
      March 31, 2004                                             $4,687,500
      June 30, 2004                                              $4,687,500
      September 30, 2004                                         $5,625,000
      December 31, 2004                                          $5,625,000
      March 31, 2005                                             $5,625,000
      Fifth anniversary of Closing Date                          $5,625,000
                                                               ------------
                                         Total:                 $75,000,000

(b) The Tranche B Term Loan of each  Tranche B Term Loan Lender  shall mature in
24 consecutive quarterly installments, commencing on September 30, 2000, each of
which  shall  be in an  amount  equal  to  such  Lender's  Tranche  B Term  Loan
Percentage multiplied by the amount set forth below opposite such installment:

     Installment                                      Principal Amount
     -----------                                      ----------------
     September 30, 2000                                         $500,000
     December 31, 2000                                          $500,000
     March 31, 2001                                             $500,000
     June 30, 2001                                              $500,000
     September 30, 2001                                         $500,000
     December 31, 2001                                          $500,000
     March 31, 2002                                             $500,000
     June 30, 2002                                              $500,000
     September 30, 2002                                         $500,000
     December 31, 2002                                          $500,000
     March 31, 2003                                             $500,000
     June 30, 2003                                              $500,000
     September 30, 2003                                         $500,000
     December 31, 2003                                          $500,000
                                       33
<PAGE>

     March 31, 2004                                             $500,000
     June 30, 2004                                              $500,000
     September 30, 2004                                         $500,000
     December 31, 2004                                          $500,000
     March 31, 2005                                             $500,000
     June 30, 2005                                              $500,000
     September 30, 2005                                      $47,500,000
     December 31, 2005                                       $47,500,000
     March 31, 2006                                          $47,500,000
     Sixth anniversary of Closing Date                       $47,500,000
                                                            -------------
                                         Total:             $200,000,000

2.4 Revolving  Credit  Commitments.(a)  (a) Subject to the terms and  conditions
hereof,  each Revolving  Credit Lender severally agrees to make revolving credit
loans  ("Revolving  Credit  Loans") to the Borrower from time to time during the
Revolving Credit Commitment  Period in an aggregate  principal amount at any one
time outstanding  which, when added to such Lender's Revolving Credit Percentage
of the sum of (i) the L/C  Obligations  then  outstanding and (ii) the aggregate
principal amount of the Swing Line Loans then  outstanding,  does not exceed the
amount of such Lender's Revolving Credit Commitment. During the Revolving Credit
Commitment  Period the  Borrower may use the  Revolving  Credit  Commitments  by
borrowing,  prepaying  the  Revolving  Credit  Loans in  whole  or in part,  and
reborrowing,  all in  accordance  with the  terms  and  conditions  hereof.  The
Revolving  Credit Loans may from time to time be  Eurodollar  Loans or Base Rate
Loans, as determined by the Borrower and notified to the Administrative Agent in
accordance  with Sections 2.5 and 2.13,  provided that no Revolving  Credit Loan
shall be made as a Eurodollar  Loan with an Interest  Period  ending  beyond the
Revolving Credit Termination Date.

(b) The  Borrower  shall repay all  outstanding  Revolving  Credit  Loans on the
Revolving Credit Termination Date.

2.5  Procedure for Revolving  Credit  Borrowing.(a)  (a) The Borrower may borrow
under the Revolving Credit  Commitments  during the Revolving Credit  Commitment
Period  on  any  Business  Day,  provided  that  the  Borrower  shall  give  the
Administrative  Agent irrevocable  notice in a Notice of Borrowing (which Notice
of Borrowing must be received by the  Administrative  Agent not later than 11:00
A.M.,  New York  City  time,  (i) three  Business  Days  prior to the  requested
Borrowing Date, in the case of Eurodollar  Loans, or (ii) one Business Day prior
to the requested Borrowing Date, in the case of Base Rate Loans), specifying (A)
the amount and Type of Revolving Credit Loans to be borrowed,  (B) the requested
Borrowing  Date and (C) in the  case of  Eurodollar  Loans,  the  length  of the
initial Interest Period therefor. Any Revolving Credit Loans made on the Closing
Date shall  initially be Base Rate Loans , and no  Revolving  Credit Loan may be
made as,  converted  into or continued  as a  Eurodollar  Loan prior to the date
which is 14 days after the Closing  Date.  Each  borrowing  under the  Revolving
Credit  Commitments  shall be in an amount equal to (x) in the case of Base Rate
Loans,  $1,000,000  or a whole  multiple  thereof  (or,  if the  then  aggregate
Available  Revolving Credit  Commitments are less than  $1,000,000,  such lesser
amount) and (y) in the case of Eurodollar Loans,  $2,500,000 or a whole multiple
of  $1,000,000  in excess  thereof;  provided,  that the Swing  Line  Lender may
                                       34
<PAGE>

request,  on behalf of the  Borrower,  borrowings  under  the  Revolving  Credit
Commitments  which are Base Rate Loans in other amounts pursuant to Section 2.7.
Upon  receipt  of  any  such  Notice  of  Borrowing   from  the  Borrower,   the
Administrative Agent shall promptly notify each Revolving Credit Lender thereof.
Each Revolving  Credit Lender will make the amount of its pro rata share of each
borrowing available to the Administrative  Agent for the account of the Borrower
at the Funding  Office prior to 12:00 Noon, New York City time, on the Borrowing
Date  requested  by  the  Borrower  in  funds   immediately   available  to  the
Administrative Agent. Such borrowing will then be made available to the Borrower
by the  Administrative  Agent in like funds as  received  by the  Administrative
Agent.

(b) The Borrower shall notify the  Administrative  Agent prior to the funding of
any  Revolving  Credit  Loans in the event that any of the  matters to which the
Borrower is  required to certify in the  applicable  Notice of  Borrowing  is no
longer true and correct as of the applicable  Borrowing Date, and the acceptance
by the Borrower of the proceeds of any Revolving  Credit Loan shall constitute a
re-certification by the Borrower, as of the applicable Borrowing Date, as to the
matters to which the Borrower is required to certify in the applicable Notice of
Borrowing.

2.6 Swing Line  Commitment.(a)  (a) Subject to the terms and conditions  hereof,
the Swing Line Lender agrees to make a portion of the credit otherwise available
to the Borrower under the Revolving Credit  Commitments from time to time during
the Revolving Credit  Commitment  Period by making swing line loans ("Swing Line
Loans") to the Borrower;  provided that (i) the  aggregate  principal  amount of
Swing  Line  Loans  outstanding  at any time  shall not  exceed  the Swing  Line
Commitment then in effect (notwithstanding that the Swing Line Loans outstanding
at any time,  when  aggregated  with the Swing Line Lender's  other  outstanding
Revolving Credit Loans  hereunder,  may exceed the Swing Line Commitment then in
effect) and (ii) the Borrower shall not request, and the Swing Line Lender shall
not make,  any Swing  Line Loan if,  after  giving  effect to the making of such
Swing  Line  Loan,  the  aggregate  amount  of the  Available  Revolving  Credit
Commitments  would be less than zero.  During the  Revolving  Credit  Commitment
Period,  the Borrower may use the Swing Line  Commitment by borrowing,  repaying
and reborrowing,  all in accordance with the terms and conditions hereof.  Swing
Line Loans shall be Base Rate Loans only.

(b) The Borrower shall repay all outstanding  Swing Line Loans no later than the
earlier to occur of (i) the fifth  Business  Day after the  drawing  thereof and
(ii) the Revolving Credit Termination Date.

2.7 Procedure for Swing Line Borrowing;  Refunding of Swing Line Loans.  (a) (a)
Whenever the  Borrower  desires that the Swing Line Lender make Swing Line Loans
it shall give the Swing Line  Lender  irrevocable  telephonic  notice  confirmed
promptly in writing (which  telephonic notice must be received by the Swing Line
Lender not later than 11:00 A.M., New York City time, on the proposed  Borrowing
Date), specifying (i) the amount to be borrowed and (ii) the requested Borrowing
Date  (which  shall be a Business  Day during the  Revolving  Credit  Commitment
Period).  Each borrowing under the Swing Line  Commitment  shall be in an amount
equal to $250,000 or a whole multiple of $250,000 in excess  thereof.  Not later
than 1:00 P.M.,  New York City time, on the Borrowing Date specified in a notice
in respect of Swing Line Loans,  the Swing Line Lender  shall make  available to
                                       35
<PAGE>

the  Administrative  Agent  at the  Funding  Office  an  amount  in  immediately
available  funds  equal to the  amount of the Swing  Line Loan to be made by the
Swing Line  Lender.  The  Administrative  Agent shall make the  proceeds of such
Swing Line Loan  available to the Borrower on such Borrowing Date in immediately
available funds.

(b) The  Swing  Line  Lender,  at any time and from time to time in its sole and
absolute  discretion  may, on behalf of the Borrower  (which hereby  irrevocably
directs  the Swing Line  Lender to act on its  behalf),  on one  Business  Day's
notice  given by the Swing Line Lender no later than 11:00  A.M.,  New York City
time,  request each Revolving  Credit Lender to make, and each Revolving  Credit
Lender  hereby  agrees to make, a Revolving  Credit Loan,  in an amount equal to
such Revolving  Credit  Lender's  Revolving  Credit  Percentage of the aggregate
amount of the Swing Line Loans (the "Refunded Swing Line Loans")  outstanding on
the date of such notice,  to repay the Swing Line Lender.  Each Revolving Credit
Lender  shall make the amount of such  Revolving  Credit Loan  available  to the
Administrative  Agent at the Funding Office in immediately  available funds, not
later than 1:00 P.M.,  New York City time,  one  Business  Day after the date of
such notice.  The proceeds of such  Revolving  Credit Loans shall be immediately
made  available  by the  Administrative  Agent  to the  Swing  Line  Lender  for
application by the Swing Line Lender to the repayment of the Refunded Swing Line
Loans. The Borrower  irrevocably  authorizes the Swing Line Lender to charge the
Borrower's accounts with the Administrative Agent (up to the amount available in
each such account) in order to immediately pay the amount of such Refunded Swing
Line Loans to the extent amounts  received from the Revolving Credit Lenders are
not sufficient to repay in full such Refunded Swing Line Loans.

(c) If prior to the time a Revolving  Credit Loan would have otherwise been made
pursuant to Section  2.7(b),  one of the events  described in Section 8(f) shall
have occurred and be continuing with respect to the Borrower or if for any other
reason, as determined by the Swing Line Lender in its sole discretion, Revolving
Credit Loans may not be made as contemplated  by Section 2.7(b),  each Revolving
Credit Lender  shall,  on the date such  Revolving  Credit Loan was to have been
made  pursuant  to the notice  referred  to in Section  2.7(b)  (the  "Refunding
Date"),  purchase  for  cash an  undivided  participating  interest  in the then
outstanding  Swing Line Loans by paying to the Swing Line  Lender an amount (the
"Swing Line  Participation  Amount") equal to (i) such Revolving Credit Lender's
Revolving Credit Percentage times (ii) the sum of the aggregate principal amount
of Swing Line Loans then  outstanding  which were to have been  repaid with such
Revolving Credit Loans.

(d)  Whenever,  at any time after the Swing Line  Lender has  received  from any
Revolving Credit Lender such Lender's Swing Line Participation Amount, the Swing
Line Lender  receives any payment on account of the Swing Line Loans,  the Swing
Line Lender  will  distribute  to such  Revolving  Credit  Lender its Swing Line
Participation Amount (appropriately  adjusted, in the case of interest payments,
to  reflect  the period of time  during  which such  Revolving  Credit  Lender's
participating  interest was outstanding and funded and, in the case of principal
and  interest  payments,  to reflect  such  Revolving  Credit  Lender's pro rata
portion of such payment if such payment is not  sufficient  to pay the principal
of and interest on all Swing Line Loans then due);  provided,  however,  that in
the event that such payment  received by the Swing Line Lender is required to be
returned,  such Revolving Credit Lender will return to the Swing Line Lender any
portion thereof previously distributed to it by the Swing Line Lender.
                                       36
<PAGE>

(e) Each Revolving  Credit Lender's  obligation to make the Loans referred to in
Section  2.7(b) and to  purchase  participating  interests  pursuant  to Section
2.7(c)  shall be  absolute  and  unconditional  and shall not be affected by any
circumstance,  including,  without  limitation,  (i) any  setoff,  counterclaim,
recoupment,  defense or other right which such  Revolving  Credit  Lender or the
Borrower  may have  against  the Swing Line  Lender,  the  Borrower or any other
Person  for any reason  whatsoever;  (ii) the  occurrence  or  continuance  of a
Default  or an Event of  Default  or the  failure  to  satisfy  any of the other
conditions  specified  in Section 5; (iii) any adverse  change in the  condition
(financial or otherwise) of the Borrower;  (iv) any breach of this  Agreement or
any other  Loan  Document  by the  Borrower,  any other  Loan Party or any other
Revolving  Credit  Lender;  or (v) any other  circumstance,  happening  or event
whatsoever, whether or not similar to any of the foregoing.

2.8 Repayment of Loans;  Evidence of  Indebtedness.(a)  (a) The Borrower  hereby
unconditionally  promises to pay to the Administrative  Agent for the account of
the appropriate Revolving Credit Lender or Term Loan Lender, as the case may be,
(i) the then  unpaid  principal  amount of each  Revolving  Credit  Loan of such
Revolving  Credit  Lender  on the  Revolving  Credit  Termination  Date (or such
earlier date on which the Loans  become due and payable  pursuant to Section 8),
(ii) the then unpaid principal amount of each Swing Line Loan of such Swing Line
Lender on the Revolving  Credit  Termination Date (or such earlier date on which
the Loans become due and payable  pursuant to Section 8) and (iii) the principal
amount of each Term Loan of such Term Loan Lender in  installments  according to
the  amortization  schedule set forth in Section 2.3 (or on such earlier date on
which the Loans  become due and payable  pursuant  to Section  8). The  Borrower
hereby  further  agrees to pay  interest on the unpaid  principal  amount of the
Loans from time to time  outstanding  from the date hereof until payment in full
thereof at the rates per annum, and on the dates, set forth in Section 2.15.

(b) Each Lender shall maintain in accordance  with its usual practice an account
or accounts  evidencing  indebtedness  of the Borrower to such Lender  resulting
from each  Loan of such  Lender  from time to time,  including  the  amounts  of
principal  and interest  payable and paid to such Lender from time to time under
this Agreement.

(c) The  Administrative  Agent,  on behalf of the Borrower,  shall  maintain the
Register pursuant to Section 10.6(d),  and a subaccount therein for each Lender,
in which shall be recorded  (i) the amount of each Loan made  hereunder  and any
Note evidencing such Loan, the Type thereof and each Interest Period  applicable
thereto,  (ii) the amount of any  principal  or  interest  due and payable or to
become due and payable from the Borrower to each Lender hereunder and (iii) both
the amount of any sum received by the  Administrative  Agent  hereunder from the
Borrower and each Lender's share thereof.

(d) The entries made in the Register and the accounts of each Lender  maintained
pursuant to Section 2.8(b) shall, to the extent  permitted by applicable law, be
prima facie  evidence of the  existence  and amounts of the  obligations  of the
Borrower therein recorded;  provided, however, that the failure of any Lender or
the  Administrative  Agent to maintain the Register or any such account,  or any
error therein,  shall not in any manner affect the obligation of the Borrower to
repay (with applicable  interest) the Loans made to such Borrower by such Lender
in accordance with the terms of this Agreement.
                                       37
<PAGE>

(e) The Borrower  agrees that, upon the request to the  Administrative  Agent by
any Lender,  the  Borrower  will execute and deliver to such Lender a promissory
note of the Borrower evidencing any Term Loans,  Revolving Credit Loans or Swing
Line Loans,  as the case may be, of such Lender,  substantially  in the forms of
Exhibit G-1, G-2 or G-3,  respectively,  with appropriate  insertions as to date
and principal amount (such notes,  respectively,  "Term Notes", Revolving Credit
Notes" and "Swing Line Notes").  The Administrative Agent may deem and treat the
payee of any Note as the owner thereof for all purposes  hereof unless and until
an Assignment and Acceptance,  substantially in the form of Exhibit E, effecting
the   assignment   or  transfer   thereof   shall  have  been  accepted  by  the
Administrative Agent as provided in Section 10.6. Any request,  authorization or
consent of any Person  who,  at the time of making  such  request or giving such
authority or consent,  is the holder of any Note shall be conclusive and binding
on any subsequent holder,  assignee or transferee of that Note or of any Note or
Notes issued in exchange therefor.

2.9  Commitment   Fees,   etc.(a)  (a)  The  Borrower   agrees  to  pay  to  the
Administrative  Agent  for  the  account  of  each  Revolving  Credit  Lender  a
commitment  fee for the period from and  including  the Closing Date to the last
day of the Revolving Credit  Commitment  Period,  computed at the Commitment Fee
Rate on the average daily amount of the Available Revolving Credit Commitment of
such Lender  during the period for which payment is made,  payable  quarterly in
arrears on the last day of each March,  June,  September and December and on the
Revolving  Credit  Termination  Date,  commencing  on the first of such dates to
occur after the date hereof.

(b) The Borrower agrees to pay to the Syndication  Agent and the  Administrative
Agent the fees in the amounts and on the dates  previously  agreed to in writing
by the Borrower,  the Syndication Agent and the Administrative  Agent including,
without limitation, pursuant to the Fee Letter.

2.10  Termination  or Reduction of Revolving  Credit  Commitments.  The Borrower
shall have the  right,  upon not less than three  Business  Days'  notice to the
Administrative  Agent,  to terminate the Revolving  Credit  Commitments or, from
time to time, to reduce the amount of the Revolving Credit Commitments; provided
that no such termination or reduction of Revolving Credit  Commitments  shall be
permitted  if,  after  giving  effect  thereto  and  to any  prepayments  of the
Revolving  Credit Loans and Swing Line Loans made on the effective date thereof,
the Total Revolving Extensions of Credit would exceed the Total Revolving Credit
Commitments.  Any such reduction shall be in an amount equal to $1,000,000, or a
whole  multiple  thereof,  and shall reduce  permanently  the  Revolving  Credit
Commitments then in effect.

2.11 Optional  Prepayments.(a) (a) The Borrower may at any time and from time to
time prepay the Loans,  in whole or in part,  without  premium or penalty,  upon
irrevocable notice delivered to the Administrative Agent at least three Business
Days prior thereto in the case of Eurodollar Loans and at least one Business Day
prior  thereto in the case of Base Rate Loans,  which notice shall (i) designate
whether the Borrower is prepaying  Revolving Credit Loans,  Tranche A Term Loans
and/or  Tranche B Term  Loans  (subject  to  Section  2.11(b)  and (c)) and (ii)
specify  the date and amount of  prepayment  and whether  the  prepayment  is of
Eurodollar  Loans or Base Rate Loans;  provided,  that if a  Eurodollar  Loan is
prepaid on any day other  than the last day of the  Interest  Period  applicable
thereto, the Borrower shall also pay any amounts owing pursuant to Section 2.21.
                                       38
<PAGE>

Upon receipt of any such notice the  Administrative  Agent shall promptly notify
each relevant Lender thereof.  If any such notice is given, the amount specified
in such notice shall be due and payable on the date specified therein,  together
with (except in the case of Revolving  Credit Loans (unless all Revolving Credit
Loans are being repaid and the Revolving Credit Commitments terminated) that are
Base Rate  Loans and Swing  Line  Loans)  accrued  interest  to such date on the
amount  prepaid.  Partial  prepayments of Term Loans and Revolving  Credit Loans
shall be in an aggregate  principal  amount of  $1,000,000  or a whole  multiple
thereof.  Partial  prepayments  of Swing  Line  Loans  shall be in an  aggregate
principal amount of $100,000 or a whole multiple thereof.

(b) Each  optional  prepayment  in respect of the  Tranche B Term Loans shall be
accompanied by a prepayment  premium  sufficient so that the  prepayment  amount
shall  be  equal to (i) if such  prepayment  is made on or  prior  to the  first
anniversary of the Closing Date, 102% of the principal amount of such prepayment
and (ii) if such  prepayment is made after the first  anniversary of the Closing
Date and  through  the  second  anniversary  to the  Closing  Date,  101% of the
principal amount of such prepayment.

(c)  Subject  to  Section  2.18,  amounts  to  be  applied  in  connection  with
prepayments  made pursuant to this Section 2.11 shall be applied,  first, to the
prepayment  of the Swing Line Loans,  second,  to the  prepayment  of  Revolving
Credit Loans and, third, to the prepayment of the Term Loans. The application of
any prepayment  pursuant to this Section 2.11 shall be made, first, to Base Rate
Loans and, second,  to Eurodollar Loans. Each prepayment of the Loans under this
Section  2.11 and Section  2.12  (except in the case of  Revolving  Credit Loans
(unless the  Revolving  Credit Loans are being repaid in full and the  Revolving
Credit  Commitments  terminated)  that are Base Rate Loans and Swing Line Loans)
shall be accompanied by accrued  interest to the date of such  prepayment to the
applicable Lender on the amount prepaid.

2.12 Mandatory Prepayments and Commitment Reductions.(a) (a) Unless the Required
Prepayment  Lenders shall otherwise agree,  subject to Section  2.18(d),  if any
Capital  Stock  shall  be  issued  by the  Borrower  or any of its  Subsidiaries
(excluding  amounts (not in excess of $1,000,000  per calendar year) received in
connection with the exercise of certain employee stock options) or if any Funded
Debt  (excluding  any Funded Debt  incurred in  accordance  with Section  7.2(a)
through  (e) as in  effect  on the  date  of  this  Agreement  and  the  initial
$200,000,000 of the Senior  Subordinated Notes to the extent used as provided in
clauses  (A)(i) or  (A)(ii)(y)  of  Section  7.2(f))  shall be  incurred  by the
Borrower  or its  Subsidiaries,  an amount  equal to (i) in the case of  Capital
Stock  issued,  50% or (ii) in the  case of  Funded  Debt,  100% of the Net Cash
Proceeds  thereof  shall be applied on the date of such  issuance or  incurrence
toward the  prepayment  of the Term  Loans and the  reduction  of the  Revolving
Credit Commitments as set forth in Section 2.12(e)

(b) Unless the Required  Prepayment  Lenders shall otherwise  agree,  subject to
Section 2.18(d),  if on any date the Borrower or any of its  Subsidiaries  shall
receive Net Cash Proceeds from any Asset Sale or any Recovery Event then, unless
a Reinvestment  Notice shall be delivered in respect  thereof,  100% of such Net
Cash  Proceeds  shall be applied on such date toward the  prepayment of the Term
Loans and the  reduction of the  Revolving  Credit  Commitments  as set forth in
Section  2.12(e);   provided,  that,  notwithstanding  the  foregoing,  (i)  the
aggregate  Net Cash  Proceeds of Recovery  Events that may be excluded  from the
                                       39
<PAGE>

foregoing  requirement  pursuant  to a  Reinvestment  Notice  shall  not  exceed
$10,000,000  in any fiscal year of the  Borrower,  (ii) the  aggregate  Net Cash
Proceeds  of Asset  Sales that may be excluded  from the  foregoing  requirement
pursuant to a Reinvestment Notice shall not exceed $5,000,000 in any fiscal year
of the Borrower, and (iii) on each Reinvestment Prepayment Date, an amount equal
to the Reinvestment  Prepayment Amount with respect to the relevant Reinvestment
Event shall be applied toward the prepayment of the Term Loans and the reduction
of the Revolving Credit Commitments as set forth in Section 2.12(e).

(c) Unless the Required  Prepayment  Lenders shall otherwise  agree,  subject to
Section 2.18(d),  if, on any date, the Borrower or any of its Subsidiaries shall
receive any Extraordinary  Receipts, the Borrower shall apply or shall cause the
applicable  Subsidiary to apply, on such date, the amount of such  Extraordinary
Receipts  toward  the  prepayment  of the Term  Loans and the  reduction  of the
Revolving Credit Commitments as set forth in Section 2.12(e).

(d)      [Intentionally omitted].

(e)  Subject  to  Section  2.18,  amounts  to  be  applied  in  connection  with
prepayments  and Commitment  reductions made pursuant to this Section 2.12 shall
be  applied,  first,  to the  prepayment  of the Term Loans,  second,  to reduce
permanently the Revolving Credit Commitments, third, to the payment of any other
outstanding  Obligations then due and owing and, fourth, to the Borrower or such
other Person as shall be lawfully  entitled  thereto.  Any such reduction of the
Revolving Credit Commitments shall be accompanied by prepayment of the Revolving
Credit  Loans  and/or  Swing Line Loans to the  extent,  if any,  that the Total
Revolving  Extensions of Credit exceed the amount of the Total Revolving  Credit
Commitments as so reduced,  provided that if the aggregate  principal  amount of
Revolving  Credit Loans and Swing Line Loans then  outstanding  is less than the
amount of the Total  Revolving  Credit  Commitments  as so reduced  (because L/C
Obligations  constitute a portion thereof), the Borrower shall, to the extent of
the balance of such excess, replace outstanding Letters of Credit and/or deposit
an  amount  in  immediately   available  funds  in  a  cash  collateral  account
established with the Administrative Agent for the benefit of the Secured Parties
on terms  and  conditions  satisfactory  to the  Administrative  Agent  (and the
Borrower hereby grants to the  Administrative  Agent, for the ratable benefit of
the Secured Parties,  a continuing  security interest in all amounts at any time
on deposit in such cash collateral  account to secure all L/C  Obligations  from
time  to time  outstanding  and  all  other  Obligations).  If at any  time  the
Administrative  Agent  determines  that any funds  held in such cash  collateral
account  are  subject  to any  right  or  claim  of any  Person  other  than the
Administrative  Agent and the Secured  Parties or that the total  amount of such
funds is less than the amount of such excess, the Borrower shall, forthwith upon
demand  by  the  Administrative  Agent,  pay  to the  Administrative  Agent,  as
additional  funds to be deposited and held in such cash collateral  account,  an
amount  equal to the excess of (a) the amount of such  excess over (b) the total
amount of funds,  if any,  then held in such cash  collateral  account  that the
Administrative  Agent  determines  to be free and  clear of any such  right  and
claim. The application of any prepayment  pursuant to this Section 2.12 shall be
made,  first,  to Base  Rate  Loans  and,  second,  to  Eurodollar  Loans.  Each
prepayment  of the Loans under Section 2.11 and this Section 2.12 (except in the
case of Revolving  Credit  Loans  (unless the  Revolving  Credit Loans are being
repaid in full and the Revolving  Credit  Commitments  terminated) that are Base
Rate Loans and Swing Line Loans) shall be accompanied by accrued interest to the
date of such prepayment to the applicable Lender on the amount prepaid.
                                       40
<PAGE>

2.13  Conversion and  Continuation  Options.(a)  (a) The Borrower may elect from
time to time to  convert  Eurodollar  Loans to Base  Rate  Loans by  giving  the
Administrative  Agent prior  irrevocable  notice not later than 11:00 A.M.  (New
York City time) at least three  Business Days prior to the desired dated of such
conversion,  provided that any such  conversion of Eurodollar  Loans may only be
made on the last day of an Interest  Period with respect  thereto.  The Borrower
may elect from time to time to convert  Base Rate Loans to  Eurodollar  Loans by
giving the  Administrative  Agent prior irrevocable  notice not later than 11:00
A.M.  (New York City time) at least  three  Business  Days prior to the  desired
dated of such  conversion  (which notice shall specify the length of the initial
Interest  Period  therefor),  provided that no Base Rate Loan under a particular
Facility may be converted  into a Eurodollar  Loan (i) when any Event of Default
has  occurred and is  continuing  and the  Administrative  Agent or the Majority
Facility  Lenders in respect of such  Facility  have  determined in its or their
sole  discretion  not to permit such  conversions or (ii) after the date that is
one month prior to the final  scheduled  termination  or  maturity  date of such
Facility.  Upon  receipt  of any such  notice  the  Administrative  Agent  shall
promptly notify each relevant Lender thereof.

(b) Any Eurodollar Loan may be continued as such upon the expiration of the then
current Interest Period with respect thereto by the Borrower giving  irrevocable
notice to the Administrative Agent, in accordance with the applicable provisions
of the term  "Interest  Period"  set forth in Section  1.1, of the length of the
next Interest Period to be applicable to such Loans, provided that no Eurodollar
Loan under a particular  Facility may be continued as such (i) when any Event of
Default has occurred and is continuing and the  Administrative  Agent has or the
Majority  Facility Lenders in respect of such Facility have determined in its or
their sole  discretion not to permit such  continuations  or (ii) after the date
that is one month prior to the final  scheduled  termination or maturity date of
such Facility,  and provided,  further,  that if the Borrower shall fail to give
any required notice as described above in this paragraph or if such continuation
is  not  permitted  pursuant  to the  preceding  proviso  such  Loans  shall  be
automatically converted to Base Rate Loans on the last day of such then expiring
Interest Period. Upon receipt of any such notice the Administrative  Agent shall
promptly notify each relevant Lender thereof.

2.14 Minimum Amounts and Maximum Number of Eurodollar Tranches.  Notwithstanding
anything  to the  contrary  in  this  Agreement,  all  borrowings,  conversions,
continuations  and optional  prepayments of Eurodollar  Loans  hereunder and all
selections of Interest  Periods  hereunder  shall be in such amounts and be made
pursuant  to such  elections  so that,  (a) after  giving  effect  thereto,  the
aggregate  principal  amount of the Eurodollar  Loans comprising each Eurodollar
Tranche shall be equal to $2,500,000 or a whole multiple of $1,000,000 in excess
thereof and (b) no more than ten Eurodollar Tranches shall be outstanding at any
one time.

2.15 Interest Rates and Payment  Dates.(a) (a) Each  Eurodollar  Loan shall bear
interest for each day during each Interest Period with respect thereto at a rate
per  annum  equal  to the  Eurodollar  Rate  determined  for  such  day plus the
Applicable Margin.
                                       41
<PAGE>

(b) Each Base Rate Loan shall  bear  interest  at a rate per annum  equal to the
Base Rate plus the Applicable Margin.

(c) (i) If all or a portion of the principal amount of any Loan or Reimbursement
Obligation  shall not be paid  when due  (whether  at the  stated  maturity,  by
acceleration or otherwise),  all outstanding Loans and Reimbursement Obligations
(whether or not overdue)  shall bear  interest at a rate per annum that is equal
to (x) in the case of the Loans,  the rate that would  otherwise  be  applicable
thereto pursuant to the foregoing provisions of this Section plus 2.0% or (y) in
the case of  Reimbursement  Obligations,  the rate applicable to Base Rate Loans
under the Revolving  Credit  Facility plus 2.0%, and (ii) if all or a portion of
any interest payable on any Loan or  Reimbursement  Obligation or any commitment
fee or other amount payable hereunder shall not be paid when due (whether at the
stated maturity,  by acceleration or otherwise),  such overdue amount shall bear
interest  at a rate per  annum  equal to the rate then  applicable  to Base Rate
Loans under the relevant  Facility  plus 2.0% (or, in the case of any such other
amounts that do not relate to a particular Facility, the rate then applicable to
Base Rate Loans under the Revolving  Credit  Facility plus 2.0%),  in each case,
with  respect to clauses (i) and (ii) above,  from the date of such  non-payment
until such amount is paid in full (after as well as before judgment).

(d) Interest shall be payable in arrears on each Interest Payment Date, provided
that  interest  accruing  pursuant to  paragraph  (c) of this  Section  shall be
payable from time to time on demand.

2.16  Computation  of Interest and Fees.(a) (a) Interest,  fees and  commissions
payable  pursuant  hereto shall be calculated on the basis of a 360-day year for
the actual days elapsed,  except that,  with respect to Base Rate Loans the rate
of interest  on which is  calculated  on the basis of the  Reference  Rate,  the
interest  thereon  shall be  calculated  on the basis of a 365-day  year for the
actual days  elapsed.  The  Administrative  Agent  shall as soon as  practicable
notify  the  Borrower  and  the  relevant  Lenders  of each  determination  of a
Eurodollar  Rate.  Any change in the interest  rate on a Loan  resulting  from a
change in the Base Rate or the Eurocurrency  Reserve  Requirements  shall become
effective as of the opening of business on the day on which such change  becomes
effective.

(b) Each determination of an interest rate by the Administrative  Agent pursuant
to any  provision  of this  Agreement  shall be  conclusive  and  binding on the
Borrower and the Lenders in the absence of manifest  error.  The  Administrative
Agent shall, at the request of the Borrower, deliver to the Borrower a statement
showing the  quotations  used by the  Administrative  Agent in  determining  any
interest rate pursuant to Section 2.15(a).

2.17 Inability  to  Determine  Interest  Rate.  If prior to the first day of any
     Interest Period:

(a)  the Administrative  Agent shall have determined (which  determination shall
     be  conclusive   and  binding  upon  the  Borrower)   that,  by  reason  of
     circumstances  affecting the relevant market, adequate and reasonable means
     do not exist for ascertaining the Eurodollar Rate for such Interest Period,
     or
                                       42
<PAGE>

(b)  the  Administrative  Agent shall have  received  notice  from the  Majority
     Facility  Lenders in respect of the relevant  Facility that the  Eurodollar
     Rate  determined  or to be  determined  for such  Interest  Period will not
     adequately  and fairly  reflect the cost to such  Lenders (as  conclusively
     certified by such Lenders) of making or  maintaining  their  affected Loans
     during such Interest Period, the  Administrative  Agent shall give telecopy
     or telephonic  notice  thereof to the Borrower and the relevant  Lenders as
     soon as practicable thereafter.  If such notice is given (x) any Eurodollar
     Loans under the relevant Facility  requested to be made on the first day of
     such Interest Period shall be made as Base Rate Loans,  (y) any Loans under
     the relevant  Facility that were to have been converted on the first day of
     such Interest  Period to  Eurodollar  Loans shall be continued as Base Rate
     Loans and (z) any outstanding  Eurodollar Loans under the relevant Facility
     shall be  converted,  on the last day of the then current  Interest  Period
     with  respect  thereto,  to Base Rate  Loans.  Until  such  notice has been
     withdrawn by the  Administrative  Agent, no further  Eurodollar Loans under
     the relevant  Facility  shall be made or  continued as such,  nor shall the
     Borrower  have the right to convert  Loans under the  relevant  Facility to
     Eurodollar Loans.

2.18 Pro Rata Treatment and Payments.(a) (a) Each borrowing by the Borrower from
the Lenders hereunder, each payment by the Borrower on account of any commitment
fee and any reduction of the  Commitments  of the Lenders shall be made pro rata
according to the respective Tranche A Term Loan Percentages, Tranche B Term Loan
Percentages or Revolving Credit Percentages, as the case may be, of the relevant
Lenders.  Subject to Section 2.18(c),  each payment (other than  prepayments) in
respect of  principal  or interest in respect of the Loans,  and each payment in
respect of fees or expenses payable hereunder shall be applied to the amounts of
such  obligations  owing to the Lenders  pro rata  according  to the  respective
amounts then due and owing to the Lenders.  The  application  of any  prepayment
pursuant  to this  Section  2.18 shall be made,  first,  to Base Rate Loans and,
second, to Eurodollar Loans.

(b)  (i) Each  mandatory  prepayment  required by Section  2.12 to be applied to
     Term  Loans  shall be  allocated  among the Term Loan  Facilities  pro rata
     according to the  respective  outstanding  principal  amounts of Term Loans
     under such Facilities.  Each mandatory payment  (including each prepayment)
     of the Term  Loans  outstanding  under  any  Term  Loan  Facility  shall be
     allocated  among the Term Loan  Lenders  holding  such Term  Loans pro rata
     based on the  principal  amount of such Term  Loans  held by such Term Loan
     Lenders,  and shall be applied to the  installments  of such Term Loans pro
     rata  based  on  the  remaining   outstanding   principal  amount  of  such
     installments.

(ii) Each  optional  prepayment  in respect of the Term Loans shall be allocated
     among  the Term  Loan  Facilities  pro  rata  according  to the  respective
     outstanding  principal  amounts of Term Loans under such  Facilities.  Each
     optional payment  (including each prepayment) of the Term Loans outstanding
     under any Term Loan Facility shall be allocated among the Term Loan Lenders
     holding such Term Loans pro rata based on the principal amount of such Term
     Loans  held  by such  Term  Loan  Lenders,  and  shall  be  applied  to the
     installments of such Term Loans pro rata based on the remaining outstanding
     principal amount of such installments,  provided that the Borrower,  at its
     option, may apply such optional prepayments first to reduce the immediately
     succeeding two scheduled  installments  of principal of Term Loans (ratably
     as between  the Term Loan  Facilities)  and,  second,  to the extent of any
     remaining portion of any such optional prepayment,  to reduce the scheduled
     installments of principal of the Term Loans pro rata based on the remaining
     outstanding  principal amount of such installments of Term Loans under such
     Facilities.
                                       43
<PAGE>

(iii)    Amounts prepaid on account of the Term Loans may not be reborrowed.

(c) Each  payment  (including  each  prepayment)  by the  Borrower on account of
principal of and interest on the  Revolving  Credit Loans shall be made pro rata
according  to the  respective  outstanding  principal  amounts of the  Revolving
Credit Loans then held by the Revolving Credit Lenders.

(d)  Notwithstanding  anything to the contrary in Sections  2.11 or 2.12 or this
Section 2.18, so long as any Tranche A Term Loans are outstanding,  each Tranche
B Term Loan Lender may, at its option,  decline up to 100% of the portion of any
mandatory payment  applicable to the Tranche B Term Loans of such Tranche B Term
Loan Lender; accordingly, with respect to the amount of any mandatory prepayment
described  in Section  2.12 that is  allocated  to  Tranche B Term  Loans  (such
amounts,  the  "Tranche B Prepayment  Amount"),  at any time when Tranche A Term
Loans  remain  outstanding,  the  Borrower  will,  in the case of any  mandatory
prepayment  required to be made  pursuant to Section  2.12,  in lieu of applying
such  amount to the  prepayment  of Tranche B Term Loans as provided in Sections
2.12(e) and 2.18(b),  on the date specified in Section 2.12 for such prepayment,
(x)  deposit  such  amount  in  a  cash   collateral   account   opened  by  the
Administrative  Agent pending application of such amount in accordance with this
Section  2.18(d),  and (y)  give  the  Administrative  Agent  telephonic  notice
(promptly confirmed in writing) requesting that the Administrative Agent prepare
and provide to each  Tranche B Term Loan Lender a  Prepayment  Option  Notice as
described below. As promptly as practicable after receiving such notice from the
Borrower,  the Administrative Agent will send to each Tranche B Term Loan Lender
a  Prepayment  Option  Notice,  which shall  include an offer by the Borrower to
prepay on the date (each a "Prepayment Date") that is 10 Business Days after the
date of the Prepayment Option Notice,  the relevant Tranche B Term Loans of such
Tranche B Term Loan Lender by an amount  equal to the portion of the  Prepayment
Amount indicated in such Lender's  Prepayment  Option Notice as being applicable
to such Lender's  Tranche B Term Loans (the "Pro Rata  Prepayment  Amount") plus
(if requested by such Tranche B Term Loan Lender by completing and returning the
Prepayment  Option  Notice to the  Administrative  Agent  within the time period
specified below), if any, such Tranche B Term Loan Lender's  proportionate share
of the portion of the Tranche B Prepayment  Amount  declined by other  Tranche B
Term Loan Lenders (the  "Supplemental  Prepayment  Amount").  Any Tranche B Term
Loan Lender  which  desires to decline the  prepayment  of all or a portion,  as
applicable, of its Tranche B Term Loans or to accept any Supplemental Prepayment
Amount (with the understanding that such Supplemental Prepayment Amount will not
be determined  until other Tranche B Term Loan Lenders have accepted or rejected
all or a  portion  of their Pro Rata  Prepayment  Amount),  shall so notify  the
Administrative  Agent no later than 11:00 A.M.  (New York City time) on or prior
to the fifth  Business Day prior to the  Prepayment  Date and any Tranche B Term
Loan  Lender  who does not so  respond  shall be  deemed  to have  accepted  the
applicable Pro Rata Prepayment  Amount and declined any Supplemental  Prepayment
Amount.  On the Prepayment Date, (i) the  Administrative  Agent shall apply from
the amount  deposited in the cash  collateral  account  pursuant to this Section
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2.18(d) the aggregate amount necessary to prepay that portion of the outstanding
Tranche B Term  Loans in  respect  of which  Tranche B Term  Loan  Lenders  have
accepted prepayment as described above (each such Tranche B Term Loan Lender, an
"Accepting  Lender"),  and such amount  shall be applied to reduce the Tranche B
Prepayment   Amounts  with   respect  to  each   Accepting   Lender,   (ii)  the
Administrative  Agent  shall  apply  from  the  amount  deposited  in  the  cash
collateral  account  pursuant  to this  Section  2.18(d) an amount  equal to the
Supplemental Prepayment Amount to the proportionate  prepayment of the Tranche B
Term Loans of Tranche B Term Loan  Lenders who have  requested  payment from the
Supplemental  Prepayment Amount (the "Supplemental  Accepting Lenders") based on
the amount of Tranche B Term Loans held by such  Supplemental  Accepting Lenders
immediately  before  such  prepayment,  (iii) after  application  of all amounts
provided for in clauses (i) and (ii) above, the Administrative Agent shall apply
from the  amount  deposited  in the cash  collateral  account  pursuant  to this
Section  2.18(d) any remaining  amounts to the  prepayment of the Tranche A Term
Loans,  to the  extent  still  outstanding,  and (iv) after  application  of all
amounts  provided for in clauses (i), (ii) and (iii) above,  the  Administrative
Agent  shall  pay to the  Borrower  from  the  amount  deposited  in  such  cash
collateral pursuant to this Section 2.18(d) any remaining amounts; provided that
if the amount held in such cash collateral account is less than the total amount
required to be paid  pursuant to clauses (i),  (ii) and (iii) of this  sentence,
the Borrower shall pay to the  Administrative  Agent, on the Prepayment Date, in
immediately  available  funds an amount  equal to the  difference  between  such
amounts. The Borrower hereby grants to the Administrative Agent, for the ratable
benefit of the Secured Parties, a continuing security interest in all amounts at
any time on deposit in such cash  collateral  account to secure all  Obligations
from time to time outstanding.

(e) All payments  (including  prepayments) to be made by the Borrower hereunder,
whether on account of  principal,  interest,  fees or  otherwise,  shall be made
without setoff or  counterclaim  and shall be made prior to 12:00 Noon, New York
City time, on the due date thereof to the Administrative  Agent, for the account
of the Lenders,  at the Payment Office, in Dollars and in immediately  available
funds.  The  Administrative  Agent shall distribute such payments to the Lenders
promptly upon receipt in like funds as received. If any payment hereunder (other
than payments on the  Eurodollar  Loans)  becomes due and payable on a day other
than a Business  Day,  such  payment  shall be extended  to the next  succeeding
Business  Day. If any payment on a Eurodollar  Loan becomes due and payable on a
day other than a Business  Day,  the maturity  thereof  shall be extended to the
next  succeeding  Business Day unless the result of such  extension  would be to
extend such  payment into another  calendar  month,  in which event such payment
shall be made on the  immediately  preceding  Business  Day.  In the case of any
extension of any payment of principal  pursuant to the preceding two  sentences,
interest  thereon  shall be  payable at the then  applicable  rate  during  such
extension.

(f) Unless the  Administrative  Agent shall have been notified in writing by any
Lender prior to a borrowing that such Lender will not make the amount that would
constitute its share of such borrowing  available to the  Administrative  Agent,
the  Administrative  Agent may assume  that such  Lender is making  such  amount
available to the  Administrative  Agent,  and the  Administrative  Agent may, in
reliance upon such  assumption,  make available to the Borrower a  corresponding
amount. If such amount is not made available to the Administrative  Agent by the
required  time on the  Borrowing  Date  therefor,  such Lender  shall pay to the
Administrative  Agent,  on demand,  such amount with interest  thereon at a rate
                                       45
<PAGE>

equal to the daily  average  Federal Funds  Effective  Rate for the period until
such Lender makes such amount immediately available to the Administrative Agent.
A certificate of the  Administrative  Agent submitted to any Lender with respect
to any amounts owing under this paragraph  shall be conclusive in the absence of
manifest  error.  If such Lender's share of such borrowing is not made available
to the  Administrative  Agent by such Lender within three  Business Days of such
Borrowing Date, the Administrative  Agent shall also be entitled to recover such
amount with interest thereon at the rate per annum applicable to Base Rate Loans
under the  relevant  Facility,  on demand,  from the  Borrower.  Nothing in this
Section  2.18(f)  shall be deemed to relieve any Lender from its  obligation  to
fulfill its  Commitments  hereunder or to prejudice any rights that the Borrower
may have against any Lender as a result of any default by such Lender hereunder.

(g) Subject to Section 2.18(d),  unless the Administrative Agent shall have been
notified in writing by the Borrower  prior to the date of any payment being made
hereunder  that the Borrower  will not make such  payment to the  Administrative
Agent,  the  Administrative  Agent may assume  that the  Borrower is making such
payment,  and the  Administrative  Agent may,  but shall not be required  to, in
reliance upon such  assumption,  make available to the Lenders their  respective
pro rata shares of a  corresponding  amount.  If such payment is not made to the
Administrative Agent by the Borrower within three Business Days of such required
date, the  Administrative  Agent shall be entitled to recover,  on demand,  from
each  Lender  to which  any  amount  which was made  available  pursuant  to the
preceding  sentence,  such  amount with  interest  thereon at the rate per annum
equal to the daily average Federal Funds Effective Rate. Nothing herein shall be
deemed to limit the rights of the Administrative Agent or any Lender against the
Borrower.

2.19  Requirements  of  Law.(a)  (a) If the  adoption  of or any  change  in any
Requirement of Law or in the interpretation or application thereof or compliance
by any Lender  (including  the Issuing  Lender)  with any  request or  directive
(whether  or not  having  the  force  of law)  from  any  central  bank or other
Governmental Authority made subsequent to the date hereof:

(i)  shall subject any Lender to any tax of any kind  whatsoever with respect to
     this  Agreement,  any Letter of Credit,  any  Application or any Eurodollar
     Loan made by it, or change the basis of taxation of payments to such Lender
     in respect thereof (except for  Non-Excluded  Taxes covered by Section 2.20
     and changes in the rate of tax on the overall net income of such Lender);

(ii) shall  impose,  modify or hold  applicable  any reserve,  special  deposit,
     compulsory loan or similar  requirement against assets held by, deposits or
     other  liabilities  in or for the  account  of,  advances,  loans  or other
     extensions of credit by, or any other  acquisition  of funds by, any office
     of such Lender that is not otherwise  included in the  determination of the
     Eurodollar Rate hereunder; or

(iii) shall impose on such Lender any other condition;

and the result of any of the  foregoing  is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing  or  maintaining  Eurodollar  Loans or  issuing or  participating  in
Letters of  Credit,  or to reduce any  amount  receivable  hereunder  in respect
thereof,  then, in any such case,  the Borrower  shall promptly pay such Lender,
upon its demand,  any additional  amounts necessary to compensate such Lender on
an after-tax basis for such increased cost or reduced amount receivable.  If any
Lender  becomes  entitled  to claim  any  additional  amounts  pursuant  to this
Section,   it  shall   promptly   notify  the  Borrower  (with  a  copy  to  the
Administrative Agent) of the event by reason of which it has become so entitled.
                                       46
<PAGE>

(b) If any Lender  (including the Issuing Lender) shall have determined that the
adoption of or any change in any Requirement of Law regarding  capital  adequacy
or in the interpretation or application  thereof or compliance by such Lender or
any corporation  controlling such Lender with any request or directive regarding
capital adequacy  (whether or not having the force of law) from any Governmental
Authority  made  subsequent to the date hereof shall have the effect of reducing
the  rate  of  return  on  such  Lender's  or such  corporation's  capital  as a
consequence of its obligations hereunder or under or in respect of any Letter of
Credit to a level  below that which such Lender or such  corporation  could have
achieved but for such adoption,  change or compliance (taking into consideration
such Lender's or such  corporation's  policies with respect to capital adequacy)
by an amount deemed by such Lender to be material, then from time to time, after
submission  by such Lender to the  Borrower  (with a copy to the  Administrative
Agent) of a written request therefor, the Borrower shall pay to such Lender such
additional  amount or amounts as will  compensate  such  Lender on an  after-tax
basis for such reduction.

(c) A certificate as to any additional  amounts payable pursuant to this Section
submitted  by any  Lender  to the  Borrower  (with a copy to the  Administrative
Agent) shall be conclusive in the absence of manifest error.  The obligations of
the Borrower  pursuant to this Section  shall  survive the  termination  of this
Agreement and the payment of the Loans and all other amounts payable hereunder.

2.20 Taxes.(a) (a) All payments made by the Borrower under this Agreement or any
other Loan  Document  shall be made free and clear of, and without  deduction or
withholding  for or on account of, any present or future income,  stamp or other
taxes, levies, imposts,  duties, charges, fees, deductions or withholdings,  now
or  hereafter  imposed,   levied,   collected,   withheld  or  assessed  by  any
Governmental Authority,  excluding net income taxes and franchise taxes (imposed
in lieu of net income taxes) imposed on any Arranger, any Agent or any Lender as
a result of a present or former connection between such Arranger,  such Agent or
such Lender and the jurisdiction of the Governmental Authority imposing such tax
or any political  subdivision or taxing authority thereof or therein (other than
any such connection arising from such Arranger's,  such Agent's or such Lender's
having  executed,  delivered or performed its  obligations or received a payment
under,  or enforced,  this  Agreement or any other Loan  Document).  If any such
non-excluded  taxes,  levies,  imposts,  duties,  charges,  fees,  deductions or
withholdings ("Non-Excluded Taxes") are required to be withheld from any amounts
payable to any  Arranger,  any Agent or any  Lender  hereunder,  the  amounts so
payable to such  Arranger,  such Agent or such Lender  shall be increased to the
extent  necessary to yield to such  Arranger,  such Agent or such Lender  (after
payment of all Non-Excluded Taxes) interest or any such other amounts that would
have been received  hereunder had such withholding not been required;  provided,
however,  that the Borrower or a Guarantor shall not be required to increase any
such amounts  payable to any  Arranger,  any Agent or any Lender with respect to
any  Non-Excluded  Taxes  (i) that are  attributable  to such  Arranger's,  such
Agent's or such Lender's  failure to comply with the  requirements  of paragraph
(f) of this Section, or (ii) that are United States withholding taxes imposed on
                                       47
<PAGE>

amounts  payable to such  Arranger,  such Agent or such  Lender at the time such
Arranger, such Agent or such Lender becomes a party to this Agreement, except to
the extent that the imposition of such withholding  taxes was due to a change in
the United States tax law or interpretation  thereof that became effective after
the date of this  Agreement or such  Arranger's,  such Agent's or such  Lender's
assignor (if any) was entitled, at the time of assignment, to receive additional
amounts from the Borrower or a Guarantor with respect to such Non-Excluded Taxes
pursuant to this Section 2.20(a). The Borrower or the applicable Guarantor shall
make any required  withholding  and pay the full amount withheld to the relevant
tax  authority or other  Governmental  Authority in accordance  with  applicable
Requirements of Law.

(b) The  Borrower  shall  pay  any  Other  Taxes  to the  relevant  Governmental
Authority in accordance with applicable Requirements of Law.

(c) The Borrower shall  indemnify  each Arranger,  each Agent and any Lender for
the full amount of Non-Excluded  Taxes or Other Taxes arising in connection with
payments  made  under  this  Agreement  (including,   without  limitation,   any
Non-Excluded Taxes or Other Taxes imposed by any jurisdiction on amounts payable
under this Section 2.20) paid by such  Arranger,  such Agent or Lender or any of
their respective Affiliates and any liability (including penalties, additions to
tax interest and expenses)  arising  therefrom or with respect thereto.  Payment
under  this  indemnification  shall be made  within  ten days  from the date any
Arranger,  any Agent or any Lender or any of their  respective  Affiliates makes
written demand therefor.

(d) Whenever any Non-Excluded  Taxes or Other Taxes are payable by the Borrower,
as promptly as possible thereafter the Borrower shall send to the Administrative
Agent for the account of the relevant  Arranger or the relevant Agent or Lender,
as the case may be, a certified  copy of an original  official  receipt  showing
payment thereof.

(e) The  agreements in this Section 2.20 shall survive the  termination  of this
Agreement and the payment of the Loans and all other amounts payable hereunder.

(f) Each Lender (or Transferee)  that is not a citizen or resident of the United
States of  America,  a  corporation,  partnership  or other  entity  created  or
organized  in or  under  the  laws  of the  United  States  of  America  (or any
jurisdiction  thereof), or any estate or trust that is subject to federal income
taxation regardless of the source of its income (a "Non-U.S.  Lender") shall, to
the  extent  it is  legally  able  to do so,  deliver  to the  Borrower  and the
Administrative  Agent  (and,  in the case of a  Participant,  to the Lender from
which the related  participation shall have been purchased) two copies of either
U.S.  Internal Revenue Service Form W-8BEN or Form W-8ECI,  or, in the case of a
Non-U.S.  Lender  claiming  exemption from U.S.  federal  withholding  tax under
Section  871(h) or 881(c) of the Code with  respect to  payments  of  "portfolio
interest," a statement substantially in the form of Exhibit I to the effect that
such Lender is eligible for a complete  exemption from withholding of U.S. taxes
under Section 871(h) or 881(c) of the Code and a Form W-8BEN,  or any subsequent
versions thereof or successors  thereto properly  completed and duly executed by
such Non-U.S.  Lender  claiming  complete  exemption from, or a reduced rate of,
U.S.  federal  withholding  tax  on all  payments  by the  Borrower  under  this
Agreement  and the other Loan  Documents.  Such forms shall be delivered by each
Non-U.S.  Lender on or before the date it becomes a party to this Agreement (or,
in the case of any Participant, on or before the date such Participant purchases
the related participation). In addition, each Non-U.S. Lender shall deliver such
                                       48
<PAGE>

forms  promptly  upon the  obsolescence  or  invalidity  of any form  previously
delivered by such Non-U.S.  Lender.  Notwithstanding any other provision of this
paragraph, a Non-U.S.  Lender shall not be required to deliver any form pursuant
to this paragraph that such Non-U.S. Lender is not legally able to deliver.

2.21  Indemnity.  The Borrower  agrees to indemnify each Lender and to hold each
Lender  harmless  from any loss or expense that such Lender may sustain or incur
as a  consequence  of (a)  default by the  Borrower  in making a  borrowing  of,
conversion into or continuation of Eurodollar Loans after the Borrower has given
a  notice  requesting  the  same  in  accordance  with  the  provisions  of this
Agreement,  (b)  default  by the  Borrower  in making any  prepayment  after the
Borrower has given a notice  thereof in accordance  with the  provisions of this
Agreement or (c) the making of a prepayment or conversion of Eurodollar Loans on
a day that is not the last day of an Interest Period with respect thereto.  Such
indemnification  may include an amount  equal to the excess,  if any, of (i) the
amount of interest  that would have accrued on the amount so prepaid,  or not so
borrowed,  converted  or  continued,  for  the  period  from  the  date  of such
prepayment or of such failure to borrow,  convert or continue to the last day of
such  Interest  Period  (or,  in the case of a failure  to  borrow,  convert  or
continue,  the  Interest  Period that would have  commenced  on the date of such
failure) in each case at the applicable rate of interest for such Loans provided
for herein (excluding,  however, the Applicable Margin included therein, if any)
over (ii) the amount of interest (as reasonably  determined by such Lender) that
would have  accrued to such  Lender on such  amount by  placing  such  amount on
deposit for a comparable  period with leading banks in the interbank  eurodollar
market.  A  certificate  as to any  amounts  payable  pursuant  to this  Section
submitted to the Borrower by any Lender  shall be  conclusive  in the absence of
manifest  error.  This covenant shall survive the  termination of this Agreement
and the payment of the Loans and Letters of Credit and all other amounts payable
hereunder.

2.22 Illegality.  Notwithstanding any other provision herein, if the adoption of
or any change in any Requirement of Law or in the  interpretation or application
thereof  shall make it unlawful  for any Lender to make or  maintain  Eurodollar
Loans as  contemplated  by this  Agreement,  (a) the  commitment  of such Lender
hereunder  to make  Eurodollar  Loans,  continue  Eurodollar  Loans  as such and
convert Base Rate Loans to Eurodollar  Loans shall forthwith be canceled and (b)
such Lender's  Loans then  outstanding  as Eurodollar  Loans,  if any,  shall be
converted  automatically  to Base Rate Loans on the respective  last days of the
then current  Interest Periods with respect to such Loans or within such earlier
period as required by law. If any such conversion of a Eurodollar Loan occurs on
a day which is not the last day of the then current Interest Period with respect
thereto,  the Borrower shall pay to such Lender such amounts,  if any, as may be
required pursuant to Section 2.21.

2.23 Change of Lending Office; Etc. Each Lender agrees that, upon the occurrence
of any event giving rise to the operation of Section 2.19,  2.20(a) or 2.22 with
respect to such Lender,  it will, if requested by the Borrower,  use  reasonable
efforts (subject to overall policy  considerations  of such Lender) to take such
reasonable action,  including  designating  another lending office for any Loans
affected by such event,  to avoid or mitigate  the  consequences  of such event;
provided,  that such action or  designation  is made on terms that,  in the sole
judgment of such Lender,  cause such Lender and its lending  office(s) to suffer
                                       49
<PAGE>

no economic,  legal or  regulatory  disadvantage,  and provided,  further,  that
nothing in this Section shall affect or postpone any of the  obligations  of any
Borrower or the rights of any Lender pursuant to Section 2.19, 2.20(a) or 2.22.

2.24  Replacement  of  Lenders.  If the  Borrower  receives  a  notice  from any
applicable  Gaming  Authority that a Lender is no longer qualified to make Loans
to the Borrower under applicable Gaming Laws (and such Lender is notified by the
Borrower and the Administrative Agent in writing of such disqualification),  the
Borrower shall have the right, if no Default or Event of Default then exists, to
replace such Lender (a "Replaced  Lender") with one or more  Eligible  Assignees
(collectively, the "Replacement Lender") acceptable to the Administrative Agent;
provided that (i) at the time of any replacement  pursuant to this Section 2.24,
the Replacement Lender shall enter into one or more Assignments and Acceptances,
substantially  in the form of Exhibit E,  pursuant to Section 10.6 (and with all
fees payable pursuant to such Section 10.6 to be paid by the Replacement Lender)
pursuant to which the  Replacement  Lender shall acquire all of the  outstanding
Loans and Commitments of, and in each case  participations  in Letters of Credit
and Swing Line Loans by, the Replaced Lender and, in connection therewith, shall
pay to (x) the Replaced  Lender in respect thereof an amount equal to the sum of
(A) an amount equal to the  principal of all  outstanding  Loans of the Replaced
Lender and (B) an amount equal to all unpaid drawings with respect to Letters of
Credit that have been funded by (and not  reimbursed  to) such Replaced  Lender,
(y) the appropriate Issuing Lender an amount equal to such Replaced Lender's pro
rata share of any unpaid  drawings  with respect to Letters of Credit  (which at
such time remains an unpaid  drawing) issued by it to the extent such amount was
not theretofore funded by such Replaced Lender, and (z) the Swing Line Lender an
amount equal to such Replaced Lender's pro rata share of any Refunded Swing Line
Loans to the extent  such  amount was not  theretofore  funded by such  Replaced
Lender,  and (ii)  all  obligations  (including,  without  limitation,  all such
amounts,  if any, owing under Section 2.21 of the Borrower owing to the Replaced
Lender (other than those  specifically  described in clause (i) above in respect
of which the  assignment  purchase  price has been,  or is  concurrently  being,
paid),  shall be paid in full to such  Replaced  Lender  concurrently  with such
replacement.  All accrued  but unpaid  interest,  commitment  fees and letter of
credit  fees and other  amounts  payable to the  Replaced  Lender  shall be paid
pursuant to an Assignment and Acceptance,  substantially  in the form of Exhibit
E. Upon the execution and delivery of the respective  Assignment and Acceptance,
the payment of amounts referred to in clauses (i) and (ii) above and delivery to
the Replacement Lender of any applicable Note or Notes executed by the Borrower,
the Replacement  Lender shall become a Lender  hereunder and the Replaced Lender
shall  cease  to   constitute  a  Lender   hereunder   except  with  respect  to
indemnification and confidentiality provisions under this Agreement which by the
terms  of this  Agreement  survive  the  termination  of this  Agreement,  which
indemnification and confidentiality provisions shall survive as to such Replaced
Lender.  Notwithstanding  anything to the contrary  set forth above,  no Issuing
Lender may be  replaced  hereunder  at any time  while it has  Letters of Credit
outstanding  hereunder unless  arrangements  satisfactory to such Issuing Lender
(including  the  furnishing of a standby letter of credit in form and substance,
and issued by an issuer,  satisfactory  to such Issuing Lender or the furnishing
of cash collateral in amounts and pursuant to arrangements  satisfactory to such
Issuing  Lender or the  cancellation  and return of such  outstanding  Letter of
Credit) have been made with respect to such outstanding Letters of Credit.
                                       50
<PAGE>

SECTION 3.                      LETTERS OF CREDIT

3.1 L/C  Commitment.(a)  (a) Subject to the terms and  conditions  hereof,  each
Issuing  Lender,  in reliance on the  agreements of the other  Revolving  Credit
Lenders set forth in Section  3.4(a),  agrees to issue standby letters of credit
("Letters of Credit") for the account of the Borrower on any Business Day during
the Revolving Credit Commitment Period in such form as may be approved from time
to time by such Issuing  Lender;  provided that no Issuing Lender shall have any
obligation  to issue any  Letter  of  Credit  if,  after  giving  effect to such
issuance,  (i) the L/C  Obligations  would exceed the L/C Commitment or (ii) the
aggregate  amount of the Available  Revolving Credit  Commitments  would be less
than zero.  Each Letter of Credit shall (i) be  denominated  in Dollars and (ii)
expire no later  than the  earlier of (x) the first  anniversary  of its date of
issuance  and (y) the date which is five  Business  Days prior to the  Revolving
Credit Termination Date, provided that any Letter of Credit with a one-year term
may provide for the renewal thereof for additional one-year periods (which shall
in no event extend  beyond the date  referred to in clause (y) above);  provided
further  that no Letter of Credit  shall  require  payment  against a conforming
draft to be made  thereunder  on the same  Business  Day  (under the laws of the
jurisdiction  in which the office of the  Issuing  Lender to which such draft is
required  to be  presented  is  located)  that such draft is  presented  if such
presentation  is made after  10:00 A.M.  (in the time zone of such office of the
Issuing Lender) on such Business Day.

(b)  The  Borrower  shall  notify  the   applicable   Issuing  Lender  (and  the
Administrative  Agent, if the  Administrative  Agent is not such Issuing Lender)
prior to the  issuance  of any  Letter of  Credit  in the event  that any of the
matters  to  which  the  Borrower  is  required  to  certify  in the  applicable
Application is no longer true and correct as of the proposed date of issuance of
such  Letter of  Credit,  and upon the  issuance  of any  Letter  of Credit  the
Borrower shall be deemed to have re-certified,  as of the date of such issuance,
as to the  matters  to  which  the  Borrower  is  required  to  certify  in such
Application.

(c) No  Issuing  Lender  shall at any time be  obligated  to issue any Letter of
Credit  hereunder if such issuance  would  conflict  with, or cause such Issuing
Lender or any L/C  Participant  to exceed any limits  imposed by, any applicable
Requirement of Law.

3.2  Procedure  for Issuance of Letter of  Credit.(a)  (a) The Borrower may from
time to time  request  that an  Issuing  Lender  issue a  Letter  of  Credit  by
delivering to such Issuing Lender at its address for notices specified herein an
Application therefor,  completed to the satisfaction of such Issuing Lender, and
such other  certificates,  documents  and other papers and  information  as such
Issuing Lender may request. Upon receipt of any Application, such Issuing Lender
will process such Application and the  certificates,  documents and other papers
and information  delivered to it in connection  therewith in accordance with its
customary  procedures and shall  promptly  issue the Letter of Credit  requested
thereby  (but in no event  shall such  Issuing  Lender be  required to issue any
Letter of Credit  earlier  than three  Business  Days  after its  receipt of the
Application therefor and all such other certificates, documents and other papers
and  information  relating  thereto) by issuing  the  original of such Letter of
Credit  to the  beneficiary  thereof  or as  otherwise  may be agreed to by such
Issuing  Lender and the  Borrower.  Such Issuing  Lender shall furnish a copy of
such Letter of Credit to the Borrower  promptly  following the issuance thereof.
                                       51
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Each Issuing Lender shall promptly furnish to the  Administrative  Agent,  which
shall in turn  promptly  furnish to the  Lenders,  notice of the issuance of any
Letter of Credit issued by it (including the amount thereof).

(b) Upon  receipt by the  Administrative  Agent of an  Application  pursuant  to
Section 3.2(a)  requesting the issuance of a Letter of Credit,  in the event the
Administrative  Agent elects to issue such Letter of Credit,  the Administrative
Agent shall promptly so notify the Borrower,  and the Administrative Agent shall
be the Issuing Lender with respect thereto. In the event that the Administrative
Agent, in its sole  discretion,  elects not to issue such Letter of Credit,  the
Administrative  Agent  shall  promptly  so notify the  Borrower,  whereupon  the
Borrower may request any other  Revolving  Credit Lender to issue such Letter of
Credit by delivering to such Revolving  Credit Lender a copy of the Application.
Any  Revolving  Credit  Lender so requested to issue such Letter of Credit shall
promptly notify the Borrower and the Administrative Agent whether or not, in its
sole  discretion,  it has elected to issue such  Letter of Credit,  and any such
Lender  which so elects to issue  such  Letter  of Credit  shall be the  Issuing
Lender  with  respect  thereto.  In the event  that all other  Revolving  Credit
Lenders shall have declined to issue such Letter of Credit,  notwithstanding the
prior election of the  Administrative  Agent not to issue such Letter of Credit,
the  Administrative  Agent shall be obligated to issue such Letter of Credit and
shall be the Issuing Lender with respect thereto,  notwithstanding the fact that
the use of such Letter of Credit and with the use of all other Letters of Credit
issued by the  Administrative  Agent,  when aggregated  with the  Administrative
Agent's outstanding  Revolving Credit Loans and Swing Line Loans, may exceed the
Administrative Agent's Revolving Credit Commitment then in effect.

3.3 Fees and Other  Charges.(a) (a) The Borrower will pay a fee on the aggregate
face  amount of each  outstanding  Letter of Credit at a per annum rate equal to
the Applicable  Margin then in effect with respect to Eurodollar Loans under the
Revolving Credit Facility, shared ratably among the Revolving Credit Lenders and
payable  quarterly  in arrears on each L/C Fee Payment  Date after the  issuance
date of such  Letter of  Credit.  In  addition,  the  Borrower  shall pay to the
applicable  Issuing  Lender for its own account a fronting fee on the  aggregate
face amount of each outstanding Letter of Credit of 1/4 of 1% per annum, payable
quarterly  in arrears on each L/C Fee Payment  Date after the  issuance  date of
such Letter of Credit.

(b) In addition to the foregoing  fees, the Borrower shall pay or reimburse each
Issuing Lender for such normal and customary  costs and expenses as are incurred
or charged by such Issuing  Lender in issuing,  negotiating,  effecting  payment
under, amending or otherwise administering any Letter of Credit issued by it.

3.4 L/C  Participations.(a)  (a) Each Issuing Lender irrevocably agrees to grant
and hereby grants to each L/C Participant, and, to induce each Issuing Lender to
issue Letters of Credit hereunder,  each L/C Participant  irrevocably  agrees to
accept and purchase and hereby accepts and purchases  from each Issuing  Lender,
on the terms and conditions  hereinafter  stated, for such L/C Participant's own
account and risk an undivided interest equal to such L/C Participant's Revolving
Credit  Percentage in each such Issuing  Lender's  obligations  and rights under
each Letter of Credit  issued by it hereunder  and the amount of each draft paid
by such Issuing Lender  thereunder.  Each L/C  Participant  unconditionally  and
irrevocably  agrees with each Issuing  Lender that, if a draft is paid under any
Letter of Credit issued by it for which each Issuing Lender is not reimbursed in
full by the Borrower in accordance  with the terms of this  Agreement,  such L/C
                                       52

<PAGE>

Participant  shall pay to such Issuing  Lender,  regardless of the occurrence or
continuance of a Default or an Event of Default or the failure to satisfy any of
the other  conditions  specified  in Section  5, upon  demand,  at such  Issuing
Lender's  address  for  notices  specified  herein an  amount  equal to such L/C
Participant's  Revolving  Credit  Percentage of the amount of such draft, or any
part  thereof,  that  is  not  so  reimbursed;   provided,   however,  that  L/C
Participants  shall not be obligated to pay such Issuing  Lender if such Issuing
Lender  acted with gross  negligence  or willful  misconduct  when  issuing  the
applicable Letter of Credit.

(b) If any  amount  required  to be paid by any L/C  Participant  to an  Issuing
Lender pursuant to Section 3.4(a) in respect of any unreimbursed  portion of any
payment made by such  Issuing  Lender under any Letter of Credit is paid to such
Issuing  Lender  within three  Business Days after the date such payment is due,
such L/C Participant  shall pay to such Issuing Lender on demand an amount equal
to the product of (i) such amount,  times (ii) the daily  average  Federal Funds
Effective  Rate during the period from and  including  the date such  payment is
required  to the date on which such  payment is  immediately  available  to such
Issuing  Lender,  times (iii) a fraction the numerator of which is the number of
days that elapse during such period and the  denominator of which is 360. If any
such  amount  required  to be paid by any L/C  Participant  pursuant  to Section
3.4(a)  is not made  available  to the  applicable  Issuing  Lender  by such L/C
Participant  within three Business Days after the date such payment is due, such
Lender shall be entitled to recover from such L/C Participant,  on demand,  such
amount with interest thereon calculated from such due date at the rate per annum
applicable to Base Rate Loans under the Revolving Credit Facility. A certificate
of the applicable  Issuing Lender  submitted to any L/C Participant with respect
to any amounts  owing under this Section  shall be  conclusive in the absence of
manifest error.

(c)  Whenever,  at any time after an Issuing  Lender has made payment  under any
Letter of Credit and has received from any L/C Participant its pro rata share of
such payment in accordance with Section 3.4(a), such Issuing Lender receives any
payment related to such Letter of Credit (whether  directly from the Borrower or
otherwise,  including  proceeds of  collateral  applied  thereto by such Issuing
Lender), or any payment of interest on account thereof, such Issuing Lender will
distribute  to such  L/C  Participant  its pro  rata  share  thereof;  provided,
however, that in the event that any such payment received by such Issuing Lender
shall be required to be returned by such Issuing  Lender,  such L/C  Participant
shall return to such Issuing Lender the portion thereof  previously  distributed
by such Issuing Lender to it.

3.5 Reimbursement  Obligation of the Borrower.  The Borrower agrees to reimburse
each  Issuing  Lender on each date on which such  Issuing  Lender  notifies  the
Borrower of the date and amount of a draft  presented under any Letter of Credit
issued by it and paid by such Issuing Lender for the amount of (a) such draft so
paid and (b) any taxes,  fees,  charges or other costs or  expenses  incurred by
such Issuing  Lender in connection  with such payment (the amounts  described in
the foregoing clauses (a) and (b) in respect of any drawing,  collectively,  the
"Payment Amount"). Each such payment shall be made to such Issuing Lender at its
address for notices  specified  herein in lawful  money of the United  States of
America and in immediately  available  funds.  Interest shall be payable on each
Payment Amount from the date of the applicable  drawing until payment in full at
the rate set forth in (i) until the second  Business Day  following  the date of
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the applicable  drawing,  Section 2.15(b) and (ii) thereafter,  Section 2.15(c).
Each  drawing  under any  Letter of Credit  shall  (unless  an event of the type
described  in clause (i) or (ii) of Section  8(f)  shall  have  occurred  and be
continuing with respect to the Borrower,  in which case the procedures specified
in Section 3.4 for funding by L/C Participants shall apply) constitute a request
by the Borrower to the Administrative  Agent for a borrowing pursuant to Section
2.5 of Base Rate Loans (or,  at the option of the  Administrative  Agent and the
Swing Line Lender in their sole discretion,  a borrowing pursuant to Section 2.7
of Swing Line  Loans) in the amount of such  drawing.  The  Borrowing  Date with
respect  to such  borrowing  shall be the  first  date on which a  borrowing  of
Revolving  Credit  Loans (or, if  applicable,  Swing Line Loans)  could be made,
pursuant to Section 2.5 (or, if applicable,  Section 2.7), if the Administrative
Agent had received a notice of such  borrowing at the time of such drawing under
such Letter of Credit.

3.6 Obligations Absolute.  The Borrower's obligations under this Section 3 shall
be absolute and  unconditional  under any and all circumstances and irrespective
of any setoff,  counterclaim or defense to payment that the Borrower may have or
have had against the applicable  Issuing Lender,  any beneficiary of a Letter of
Credit or any other Person.  The Borrower  also agrees with each Issuing  Lender
that such  Issuing  Lender  shall not be  responsible  for,  and the  Borrower's
Reimbursement  Obligations  under  Section 3.5 shall not be affected  by,  among
other things,  the validity or genuineness  of documents or of any  endorsements
thereon,  even  though  such  documents  shall  in  fact  prove  to be  invalid,
fraudulent  or forged,  or any  dispute  between or among the  Borrower  and any
beneficiary  of any Letter of Credit or any other  party to which such Letter of
Credit may be transferred or any claims  whatsoever of the Borrower  against any
beneficiary of such Letter of Credit or any such  transferee.  No Issuing Lender
shall be liable for any error, omission,  interruption or delay in transmission,
dispatch  or  delivery  of  any  message  or  advice,  however  transmitted,  in
connection with any Letter of Credit.  The Borrower agrees that any action taken
or omitted by an Issuing Lender under or in connection with any Letter of Credit
or the related drafts or documents,  if done in accordance with the standards or
care specified in the Uniform Commercial Code of the State of New York, shall be
binding on the  Borrower  and shall not result in any  liability of such Issuing
Lender to the Borrower.

3.7 Letter of Credit Payments. If any draft shall be presented for payment under
any Letter of Credit,  the applicable  Issuing Lender shall promptly  notify the
Borrower of the date and amount thereof. The responsibility of an Issuing Lender
to the Borrower in  connection  with any draft  presented  for payment under any
Letter of Credit issued by such Issuing Lender shall, in addition to any payment
obligation  expressly  provided  for in such  Letter of  Credit,  be  limited to
determining  that the  documents  (including  each draft)  delivered  under such
Letter of Credit  in  connection  with such  presentment  are  substantially  in
conformity with such Letter of Credit.

3.8 Applications. To the extent that any provision of any Application related to
any Letter of Credit is inconsistent  with the provisions of this Section 3, the
provisions of this Section 3 shall apply.

3.9  Indemnification;  Nature of Issuing Lenders' Duties(a) . (a) In addition to
amounts  payable as provided in Section  10.5,  the  Borrower  hereby  agrees to
protect,  indemnify,  pay and save harmless each Issuing Lender from and against
any and all claims, demands,  liabilities,  damages,  losses, costs, charges and
expenses  (including  reasonable fees, expenses and disbursements of counsel and
allocated  costs of internal  counsel) which such Issuing Lender may incur or be
subject to as a  consequence,  direct or  indirect,  of (i) the  issuance of any
Letter of Credit by such Issuing Lender, other than as a result of (a) the gross
                                       54
<PAGE>

negligence or willful misconduct of such Issuing Lender as determined by a final
judgment of a court of competent  jurisdiction  or (b) subject to the  following
clause (ii), the wrongful dishonor by such Issuing Lender of a proper demand for
payment made under any Letter of Credit issued by it or (ii) the failure of such
Issuing Lender to honor a drawing under any such Letter of Credit as a result of
any act or omission,  whether rightful or wrongful,  of any present or future de
jure  or de  facto  government  or  governmental  authority  (all  such  acts or
omissions herein called "Governmental Acts").

(b) As between the Borrower  and any Issuing  Lender,  the Borrower  assumes all
risks of the acts and omissions of, or misuse of the Letters of Credit issued by
such Issuing Lender by, the respective  beneficiaries of such Letters of Credit.
In furtherance and not in limitation of the foregoing, such Issuing Lender shall
not  be  responsible  for:  (i)  the  form,  validity,  sufficiency,   accuracy,
genuineness or legal effect of any document submitted by any party in connection
with the application  for and issuance of any such Letter of Credit,  even if it
should  in  fact  prove  to be in  any or all  respects  invalid,  insufficient,
inaccurate,  fraudulent  or forged;  (ii) the  validity  or  sufficiency  of any
instrument  transferring  or assigning or  purporting  to transfer or assign any
such Letter of Credit or the rights or benefits  thereunder or proceeds thereof,
in whole or in part,  which  may  prove to be  invalid  or  ineffective  for any
reason;  (iii) failure of the beneficiary of any such Letter of Credit to comply
fully with any conditions  required in order to draw upon such Letter of Credit;
(iv) errors,  omissions,  interruptions or delays in transmission or delivery of
any messages, by mail, cable, telegraph, telex or otherwise, whether or not they
be in cipher;  (v) errors in interpretation of technical terms; (vi) any loss or
delay in the transmission or otherwise of any document required in order to make
a drawing under any such Letter of Credit or of the proceeds thereof;  (vii) the
misapplication  by the  beneficiary of any such Letter of Credit of the proceeds
of any drawing under such Letter of Credit;  or (viii) any consequences  arising
from  causes  beyond  the  control  of  such  Issuing   Lender,   including  any
Governmental  Acts, and none of the above shall affect or impair, or prevent the
vesting of, any of such Issuing Lender's rights or powers hereunder.

(c) In  furtherance  and  extension  and  not  in  limitation  of  the  specific
provisions  set forth in  Section  3.9(a),  any  action  taken or omitted by any
Issuing Lender under or in connection with the Letters of Credit issued by it or
any documents and certificates delivered thereunder, if taken or omitted in good
faith,  shall not put such Issuing  Lender under any resulting  liability to the
Borrower.

(d) Notwithstanding  anything to the contrary contained in this Section 3.9, the
Borrower  shall retain any and all rights it may have against any Issuing Lender
for any liability to the extent  arising out of the gross  negligence or willful
misconduct of such Issuing Lender,  as determined by a final judgment of a court
of competent jurisdiction.

SECTION 4.               REPRESENTATIONS AND WARRANTIES

     To induce the  Arrangers,  the  Agents  and the  Lenders to enter into this
Agreement  and to make the Loans  and issue or  participate  in the  Letters  of
Credit, the Borrower hereby represents and warrants to each Arranger, each Agent
and each Lender that:
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<PAGE>

4.1 Financial  Condition.(a)  (a) The unaudited pro forma  consolidated  balance
sheet of the Borrower and its consolidated  Subsidiaries as at December 31, 1999
(including the notes thereto) (the "Pro Forma Balance  Sheet"),  copies of which
have heretofore  been furnished to each Lender,  has been prepared giving effect
(as if such  events had  occurred on such date) to (i) the  consummation  of the
Acquisition,  (ii)  the  Loans  to be made on the  Closing  Date  and the use of
proceeds  thereof and (iii) the payment of fees and expenses in connection  with
the  foregoing.  The Pro Forma Balance Sheet has been prepared based on the best
information  available to the Borrower as of the date of delivery  thereof,  and
presents  fairly  on a pro forma  basis  the  estimated  financial  position  of
Borrower and its  consolidated  Subsidiaries  as at December 31, 1999,  assuming
that the events  specified in the  preceding  sentence had actually  occurred at
such date.

(b) The audited consolidated balance sheets of the Borrower and its consolidated
Subsidiaries  as at December 31, 1999,  December 31, 1998 and December 31, 1997,
and the  related  consolidated  statements  of income  and of cash flows for the
fiscal  years  ended  on  such  dates,  reported  on by  and  accompanied  by an
unqualified  report  from BDO  Seidman,  LLP,  present  fairly the  consolidated
financial condition of the Borrower and its consolidated Subsidiaries as at such
date, and the consolidated  results of its operations and its consolidated  cash
flows for the  respective  fiscal years then ended.  The unaudited  consolidated
balance sheet of the Borrower and its consolidated  Subsidiaries as at March 31,
2000, and the related unaudited consolidated statements of income and cash flows
for the three-month  period ended on such date,  present fairly the consolidated
financial condition of the Borrower and its consolidated Subsidiaries as at such
date, and the consolidated  results of its operations and its consolidated  cash
flows for the  three-month  period then ended (subject to normal  year-end audit
adjustments). All such financial statements, including the related schedules and
notes thereto,  have been prepared in accordance with GAAP applied  consistently
throughout the periods involved (except as approved by the  aforementioned  firm
of accountants and disclosed therein).  The Borrower and its Subsidiaries do not
have any material Guarantee Obligations,  contingent liabilities and liabilities
for taxes, or any long-term leases or unusual forward or long-term  commitments,
including,  without  limitation,  any interest rate or foreign  currency swap or
exchange transaction or other obligation in respect of derivatives, that are not
reflected in the most recent financial statements referred to in this paragraph.
During the period from December 31, 1999, to and including the date hereof there
has been no Disposition by the Borrower or any of its consolidated  Subsidiaries
of any material part of its business or Property.

4.2  No Change.  Since December 31, 1999, there has been no development or event
     that has had or could  reasonably  be expected  to have a Material  Adverse
     Effect.

4.3  Corporate  Existence;  Compliance  with Law.  Each of the  Borrower and its
     Subsidiaries  (a) is duly organized,  validly existing and in good standing
     under  the  laws  of the  jurisdiction  of its  organization,  (b)  has the
     corporate power and authority,  and the legal right, to own and operate its
     Property,  to lease the  Property  it operates as lessee and to conduct the
     business  in which it is  currently  engaged,  (c) is duly  qualified  as a
     foreign   corporation   and  in  good  standing  under  the  laws  of  each
     jurisdiction  where its  ownership,  lease or  operation of Property or the
     conduct of its  business  requires  such  qualification,  except  where the
     failure to so qualify  could not  reasonably be expected to have a Material
     Adverse  Effect  and (d) is in  compliance  with all  Requirements  of Law,
     including,  without limitation,  all Gaming Laws, except to the extent that
                                       56
<PAGE>

     the failure to comply therewith could not, in the aggregate,  reasonably be
     expected  to  have  a  Material  Adverse  Effect.  No  Pennsylvania  Gaming
     Authority  currently has any grounds under any  Pennsylvania  Gaming Law to
     revoke any  Pennsylvania  Gaming  Approval  or any other  license or permit
     applicable to any Loan Party.

4.4  Corporate Power;  Authorization;  Enforceable Obligations.  Each Loan Party
     has the  corporate  power  and  authority,  and the legal  right,  to make,
     deliver and perform the Loan  Documents and  Acquisition  Documentation  to
     which it is a party and, in the case of the Borrower,  to borrow hereunder.
     Each Loan Party has taken all necessary  corporate  action to authorize the
     execution,  delivery and  performance of the Loan Documents and Acquisition
     Documentation  to which it is a party and, in the case of the Borrower,  to
     authorize the borrowings on the terms and conditions of this Agreement.  No
     consent or authorization  of, filing with,  notice to or other act by or in
     respect of, any Governmental Authority (including,  without limitation, any
     Gaming  Authority) or any other Person is required in  connection  with the
     Acquisition  and the borrowings  hereunder,  with the execution,  delivery,
     performance,  validity or enforceability of this Agreement, any of the Loan
     Documents or any Acquisition Documentation or with the granting by the Loan
     Parties of Liens pursuant to the Security  Documents,  except (i) consents,
     authorizations,  filings  and notices  described  in  Schedule  4.4,  which
     consents,  authorizations,  filings and notices have been  obtained or made
     and are in full force and effect,  (ii) the filings  referred to in Section
     4.19 and  (iii)  the  filing of the MGC Loan  Report  with the  Mississippi
     Gaming Commission within 30 days after the Closing Date. Each Loan Document
     and the Acquisition  Documentation  has been duly executed and delivered on
     behalf of each Loan Party  thereto.  This Agreement  constitutes,  and each
     other Loan  Document and  Acquisition  Documentation  upon  execution  will
     constitute,  a legal,  valid and  binding  obligation  of each  Loan  Party
     thereto,  enforceable  against each such Loan Party in accordance  with its
     terms,  except as enforceability  may be limited by applicable  bankruptcy,
     insolvency,  reorganization,  moratorium  or  similar  laws  affecting  the
     enforcement  of  creditors'  rights  generally  and  by  general  equitable
     principles  (whether  enforcement  is sought by proceedings in equity or at
     law).

4.5  No Legal Bar. The execution,  delivery and  performance of this  Agreement,
     the other Loan Documents and the Acquisition Documentation, the issuance of
     Letters of Credit,  the  borrowings  hereunder  and the use of the proceeds
     thereof  and the  granting  of Liens by the Loan  Parties  pursuant  to the
     Security  Documents  will not violate any  Requirement  of Law  (including,
     without  limitation,  any Gaming Law) or any Contractual  Obligation of the
     Borrower or any of its Subsidiaries and will not result in, or require, the
     creation or imposition of any Lien on any of their respective properties or
     revenues  pursuant  to any  Requirement  of Law  or  any  such  Contractual
     Obligation  (other than the Liens  created by the Security  Documents).  No
     Contractual   Obligation   applicable   to  the  Borrower  or  any  of  its
     Subsidiaries  could  reasonably  be  expected  to have a  Material  Adverse
     Effect.  No  Requirement  of Law  applicable  to the Borrower or any of its
     Subsidiaries  could, as of the date this  representation  is deemed made or
     remade, reasonably be expected to have a Material Adverse Effect.

4.6  No Material  Litigation.  No litigation,  investigation or proceeding of or
     before any  arbitrator  or  Governmental  Authority  is pending  or, to the
     knowledge of the Borrower,  threatened by or against the Borrower or any of
     its Subsidiaries or against any of their respective  properties or revenues
     (a)  with  respect  to  any  of  the  Loan  Documents  or  the  Acquisition
                                       57
<PAGE>

     Documentation or any of the transactions contemplated hereby or thereby, or
     (b) that could reasonably be expected to have a Material Adverse Effect.

4.7  No Default.  Neither the Borrower nor any of its Subsidiaries is in default
     under or with respect to any of its Contractual  Obligations in any respect
     that could  reasonably be expected to have a Material  Adverse  Effect.  No
     Default or Event of Default has occurred and is continuing.

4.8  Ownership of Property;  Liens. Each of the Borrower and its Subsidiaries is
     the sole owner of, legally and beneficially,  and has good,  marketable and
     insurable title in fee simple to, or a valid leasehold interest in, all its
     Real Estate,  and good title to, or a valid leasehold  interest in, all its
     other Property, in each case to the extent necessary for the conduct of its
     business as currently  conducted.  None of such  Property is subject to any
     claims,  liabilities,  obligations,  changes or  restrictions  of any kind,
     nature or  description,  or to any Lien except for any Permitted Lien. None
     of the Pledged Stock is subject to any Lien except for Permitted Liens.

4.9  Intellectual  Property.  The Borrower and each of its Subsidiaries owns, or
     is licensed to use, all Intellectual  Property necessary for the conduct of
     its business as currently conducted. No material claim has been asserted or
     is  pending  by  any  Person  challenging  or  questioning  the  use of any
     Intellectual  Property or the validity or effectiveness of any Intellectual
     Property, nor does the Borrower know of any valid basis for any such claim.
     The use of Intellectual  Property by the Borrower and its Subsidiaries does
     not infringe on the rights of any Person in any material respect.

4.10 Taxes.  The Borrower and each of its Subsidiaries has filed or caused to be
     filed all Federal,  state and other  material tax returns that are required
     to be filed  and has paid all  taxes  shown to be due and  payable  on said
     returns or on any  assessments  made  against it or any of its Property and
     all other taxes, fees or other charges imposed on it or any of its Property
     by any Governmental  Authority (other than any taxes the amount or validity
     of which  are  currently  being  contested  in good  faith  by  appropriate
     proceedings and with respect to which reserves in conformity with GAAP have
     been provided on the books of the Borrower or its Subsidiaries, as the case
     may be);  the  contents  of all such  material  tax returns are correct and
     complete in all material respects,  no tax Lien has been filed, and, to the
     knowledge of the Borrower, no claim is being asserted,  with respect to any
     such tax, fee or other charge.

4.11 Federal  Regulations.  No part of the  proceeds  of the Loans or Letters of
     Credit will be used for  purchasing or carrying any "margin  stock" (within
     the meaning of Regulation U) or for the purpose of purchasing,  carrying or
     trading in any  securities  under  such  circumstances  as to  involve  the
     Borrower in a violation of  Regulation X or to involve any broker or dealer
     in a violation of  Regulation T. No  indebtedness  being reduced or retired
     out of the  proceeds  of the  Loans or  Letters  of  Credit  was or will be
     incurred  for the  purpose of  purchasing  or carrying  any "margin  stock"
     (within the meaning of Regulation U). Following application of the proceeds
     of the Loans and Letters of Credit,  "margin  stock" (within the meaning of
     Regulation U) does not constitute  more than 25% of the value of the assets
     of the Borrower and its Subsidiaries. None of the transactions contemplated
     by this Agreement (including,  without limitation,  the direct and indirect
     use of proceeds of the Loans and Letters of Credit)  will violate or result
                                       58
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     in a violation of Regulation T,  Regulation U or Regulation X. If requested
     by any Lender or the Administrative Agent, the Borrower will furnish to the
     Administrative Agent and each Lender a statement to the foregoing effect in
     conformity with the  requirements of FR Form G-3 or FR Form U-1 referred to
     in Regulation U.

4.12 Labor Matters.  There are no strikes,  stoppages,  slowdowns or other labor
     disputes against the Borrower or any of its Subsidiaries pending or, to the
     knowledge  of  the  Borrower,  threatened  that  (individually  or  in  the
     aggregate)  could reasonably be expected to have a Material Adverse Effect.
     Hours  worked by and payment  made to  employees  of the  Borrower  and its
     Subsidiaries  have not been in violation of the Fair Labor Standards Act or
     any other  applicable  Requirement  of Law dealing  with such  matters that
     (individually  or in the aggregate)  could reasonably be expected to have a
     Material  Adverse Effect.  All payments due from the Borrower or any of its
     Subsidiaries  on account of  employee  health and  welfare  insurance  that
     (individually  or in the aggregate)  could reasonably be expected to have a
     Material  Adverse  Effect  if not  paid  have  been  paid or  accrued  as a
     liability on the books of the Borrower or the relevant Subsidiary.

4.13 ERISA.  Neither a Reportable Event nor an "accumulated  funding deficiency"
     (within the meaning of Section 412 of the Code or Section 302 of ERISA) has
     occurred  during  the  five-year  period  prior to the  date on which  this
     representation  is made or deemed made with  respect to any Plan,  and each
     Plan has complied in all material  respects with all applicable  provisions
     of  ERISA  and the  Code.  No  termination  of a Single  Employer  Plan has
     occurred,  and no Lien in favor of the  PBGC or a Plan has  arisen,  during
     such five-year period. The present value of all accrued benefits under each
     Single Employer Plan (based on those  assumptions  used to fund such Plans)
     did not,  as of the last annual  valuation  date prior to the date on which
     this  representation is made or deemed made, exceed the value of the assets
     of such Plan  allocable  to such  accrued  benefits  by a material  amount.
     Neither the Borrower nor any Commonly  Controlled Entity has had a complete
     or partial  withdrawal  from any  Multiemployer  Plan that has  resulted or
     could reasonably be expected to result in a material liability under ERISA,
     and neither the Borrower nor any  Commonly  Controlled  Entity would become
     subject to any material  liability  under ERISA if the Borrower or any such
     Commonly   Controlled   Entity  were  to  withdraw   completely   from  all
     Multiemployer  Plans as of the  valuation  date most closely  preceding the
     date  on  which  this  representation  is  made  or  deemed  made.  No such
     Multiemployer Plan is in Reorganization or Insolvent.

4.14 Investment Company Act; Other Regulations.  No Loan Party is an "investment
     company", or a company "controlled" by an "investment company",  within the
     meaning of the Investment Company Act of 1940, as amended. No Loan Party is
     subject to regulation  under any  Requirement of Law (other than Regulation
     X) which limits or conditions its ability to incur Indebtedness.

4.15 Subsidiaries.(a) (a) The Subsidiaries listed on Schedule 4.15(a) constitute
     all the  Subsidiaries  of the  Borrower as of the Closing Date after giving
     effect to the  Acquisition.  Schedule  4.15(a) sets forth as of the Closing
     Date and after giving effect to the Acquisition,  the name and jurisdiction
     of incorporation  of each Subsidiary and, as to each such  Subsidiary,  the
     percentage  and number of each class of Capital Stock owned by the Borrower
     and its Subsidiaries.
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<PAGE>

(b)  Except  as  set  forth  on  Schedule  4.15(b),  there  are  no  outstanding
     subscriptions,  options,  warrants,  calls,  rights or other  agreements or
     commitments (other than stock options granted to employees or directors and
     directors'  qualifying  shares) of any nature relating to any Capital Stock
     of the Borrower or any of its Subsidiaries.  None of the Borrower or any of
     its   Subsidiaries   has  issued,   or  authorized  the  issuance  of,  any
     Disqualified Stock.

4.16 Use of  Proceeds.  The  proceeds of the Term Loans shall be used to finance
     the Acquisition,  to repay and retire certain existing  indebtedness of the
     Borrower  and to  pay  related  fees  and  expenses.  The  proceeds  of the
     Revolving Credit Loans and the Swing Line Loans, and the Letters of Credit,
     shall be used,  in part,  to finance the  Acquisition,  to repay and retire
     certain  existing  indebtedness  of the  Borrower,  to pay related fees and
     expenses and for general corporate purposes.

4.17 Environmental  Matters.  Other than  exceptions to any of the following set
     forth on Schedule 4.17 that could not,  individually  or in the  aggregate,
     reasonably be expected to result in the payment of a Material Environmental
     Amount:

(a)  The  Borrower and its  Subsidiaries:  (i) are, and within the period of all
     applicable  statutes  of  limitation  have  been,  in  compliance  with all
     applicable  Environmental Laws; and (ii) reasonably believe that compliance
     with all  applicable  Environmental  Law that is or is  expected  to become
     applicable to any of them will be timely attained and  maintained,  without
     material expense.

(b)  Materials of  Environmental  Concern are not present at, on, under,  in, or
     about any real  property now or formerly  owned,  leased or operated by the
     Borrower or any of its Subsidiaries,  or at any other location  (including,
     without  limitation,  any  location  to which  Materials  of  Environmental
     Concern have been sent for re-use or recycling or for  treatment,  storage,
     or  disposal)  which  could  reasonably  be  expected  to (i) give  rise to
     liability of the Borrower or any of its  Subsidiaries  under any applicable
     Environmental  Law or  otherwise  result in costs to the Borrower or any of
     its  Subsidiaries,  or (ii)  interfere  with the  Borrower's  or any of its
     Subsidiaries' continued operations, or (iii) impair the fair saleable value
     of  any  real  property  owned  or  leased  by the  Borrower  or any of its
     Subsidiaries.

(c)  There is no judicial, administrative, or arbitral proceeding (including any
     notice  of  violation  or  alleged  violation)  under  or  relating  to any
     Environmental  Law to which the Borrower or any of its  Subsidiaries is, or
     to the  knowledge of the Borrower will be, named as a party that is pending
     or, to the knowledge of the Borrower, threatened.

(d)  Neither the Borrower nor any of its  Subsidiaries  has received any written
     request  for  information,  or  been  notified  that  it  is a  potentially
     responsible   party  under  or   relating  to  the  federal   Comprehensive
     Environmental  Response,  Compensation,  and  Liability  Act or any similar
     Environmental  Law,  or with  respect  to any  Materials  of  Environmental
     Concern.
                                       60
<PAGE>

(e)  Neither the Borrower nor any of its Subsidiaries has entered into or agreed
     to any consent  decree,  order,  or  settlement or other  agreement,  or is
     subject  to any  judgment,  decree,  or order or  other  agreement,  in any
     judicial, administrative,  arbitral, or other forum for dispute resolution,
     relating to compliance with or liability under any Environmental Law.

(f)  Neither the Borrower nor any of its  Subsidiaries  has assumed or retained,
     by contract or  operation  of law, any  liabilities  of any kind,  fixed or
     contingent,  known or unknown,  under any Environmental Law or with respect
     to any Material of Environmental Concern.

4.18 Accuracy of Information, etc. No statement or information contained in this
     Agreement, any other Loan Document, the Confidential Information Memorandum
     or any other document, certificate or statement furnished to the Arrangers,
     the Administrative  Agent, the Syndication Agent, the Documentation  Agents
     or the  Lenders or any of them,  by or on behalf of the  Borrower or any of
     its Subsidiaries  for use in connection with the transactions  contemplated
     by this  Agreement  or the other Loan  Documents,  contained as of the date
     such statement,  information, document or certificate was so furnished (or,
     in the case of the Confidential  Information Memorandum,  as of the date of
     this  Agreement),  any untrue  statement  of a material  fact or omitted to
     state a material fact necessary in order to make the  statements  contained
     herein or therein not  misleading.  The projections and pro forma financial
     information contained in the materials referenced above are based upon good
     faith estimates and assumptionsbelieved by management of the Borrower to be
     reasonable at the time made,  it being  recognized by the Lenders that such
     financial information as it relates to future events is not to be viewed as
     fact and that actual results  during the period or periods  covered by such
     financial  information  may differ  from the  projected  results  set forth
     therein by a material amount.  As of the Closing Date, the  representations
     and  warranties  contained in the  Acquisition  Documentation  are true and
     correct in all material respects. There is no fact known to the Borrower or
     any of its  Subsidiaries  that  could  reasonably  be  expected  to  have a
     Material Adverse Effect that has not been expressly  disclosed  herein,  in
     the other Loan Documents, in the Confidential  Information Memorandum or in
     any other documents,  certificates and written statements  furnished to the
     Arrangers,  the  Agents  and the  Lenders  for use in  connection  with the
     transactions contemplated hereby and by the other Loan Documents.

4.19 Security  Documents.(a)  (a) The  Guarantee  and  Collateral  Agreement  is
     effective to create in favor of the  Administrative  Agent, for the benefit
     of the Secured Parties, a legal,  valid,  binding and enforceable  security
     interest in the  Collateral  described  therein and  proceeds  and products
     thereof.  In the case of the  Pledged  Stock,  when any stock  certificates
     representing such Pledged Stock are delivered to the Administrative  Agent,
     and in the case of the other  Collateral  described  in the  Guarantee  and
     Collateral  Agreement,  when financing  statements in appropriate  form are
     filed in the offices  specified  on  Schedule  4.19(a)-1  (which  financing
     statements  have been duly  completed  and  executed  and  delivered to the
     Administrative Agent) and such other filings as are specified on Schedule 3
     to the  Guarantee and  Collateral  Agreement are made (all of which filings
     have been duly  completed and executed and delivered to the  Administrative
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<PAGE>
     Agent), the  Administrative  Agent, for the benefit of the Secured Parties,
     shall have a fully perfected Lien on, and security  interest in, all right,
     title and interest of the Loan Parties in such  Collateral and the proceeds
     thereof,  as security for the  Obligations (as defined in the Guarantee and
     Collateral  Agreement),  in each case  prior and  superior  in right to any
     other  Person  (except  Permitted  Liens).  Schedule  4.19(a)-2  lists each
     Uniform  Commercial Code financing  statement that (i) names any Loan Party
     as debtor and (ii) will  remain on file after the  Closing  Date.  Schedule
     4.19(a)-3 lists each Uniform  Commercial Code financing  statement that (i)
     names any Loan Party or  Mississippi-I  Gaming,  L.P.  or Mardi Gras Casino
     Corp.  as debtor  and (ii) will be  terminated  on or prior to the  Closing
     Date; and on or prior to the Closing Date, the Borrower will have delivered
     to the Administrative  Agent, or caused to be filed, duly completed Uniform
     Commercial  Code  termination  statements,  signed by the relevant  secured
     party, in respect of each such Uniform Commercial Code financing statement.

(b) Each of the Mortgages is effective to create in favor of the  Administrative
Agent,  for the  benefit of the Secured  Parties,  a legal,  valid,  binding and
enforceable  Lien  on,  and  security  interest  in,  the  Mortgaged  Properties
described,  and as defined, therein and proceeds thereof, and when the Mortgages
are filed (and  indexed,  if  applicable)  in the offices  specified on Schedule
4.19(b),  each such  Mortgage  shall  constitute a first  priority  Lien on, and
security  interest in, all Mortgaged  Properties  and the proceeds  thereof,  as
security  for the  Obligations,  in each case prior and superior in right to any
other Person, but subject to Permitted Liens.

(c) Each of the Intellectual Property Security Agreements is effective to create
in favor of the Administrative  Agent, for the benefit of the Secured Parties, a
legal,  valid and enforceable  security  interest in the  Intellectual  Property
Collateral  described therein and proceeds  thereof.  Upon the filing of (i) the
Intellectual  Property  Security  Agreements in the  appropriate  indexes of the
United  States Patent and Trademark  Office  relative to patents and  trademarks
(within  three (3)  months  after  the  Closing  Date),  and the  United  States
Copyright  Office  relative  to  copyrights  (within  thirty (30) days after the
Closing Date),  together with  provision for payment of all requisite  fees, and
(ii)  financing  statements  in  appropriate  form  for  filing  in the  offices
specified  on  Schedule  4.19(c)  (which  financing  statements  have  been duly
completed  and executed and  delivered  to the  Administrative  Agent) each such
Intellectual  Property  Security  Agreements  shall constitute a fully perfected
Lien on, and  security  interest  in, all right,  title and interest of the Loan
Parties in the Intellectual  Property  Collateral and the proceeds  thereof,  as
security  for the  Obligations  (as  defined  in the  Guarantee  and  Collateral
Agreement), in each case prior and superior in right to any other Person (except
Permitted Liens).

(d)  Each  of the  Ship  Mortgages  is  effective  to  create  in  favor  of the
Administrative  Agent, for the benefit of the Secured Parties,  a legal,  valid,
binding  and  enforceable  Lien  on,  and  security  interest  in,  the  Vessels
described,  and as defined,  therein and the proceeds thereof, and when the Ship
Mortgages are filed in the offices specified on Schedule 4.19(d), each such Ship
Mortgage shall constitute a "first preferred ship mortgage" and a first priority
Lien on, and  security  interest  in,  the  respective  Vessel and the  proceeds
thereof,  as security  for the  Obligations,  in each case prior and superior in
right to any other Person.

4.20  Solvency.  Each Loan Party is, and after giving effect to the  Acquisition
and the  incurrence  of all  Indebtedness  and  obligations  being  incurred  in
connection with the Loan Documents and the Acquisition will be and will continue
to be, Solvent.
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<PAGE>

4.21 4.21 Senior Indebtedness.  The Obligations (including,  without limitation,
     the  guarantee  obligations  of each  Guarantor  under  the  Guarantee  and
     Collateral  Agreement) will constitute  "Senior Debt,"  "Designated  Senior
     Debt" and  "Permitted  Debt"  under and as to be defined  in the  indenture
     governing the Senior Subordinated Notes.

4.22 Regulation H. Except for (i) Real Estate located in Biloxi, Mississippi and
     demised pursuant to the Tidelands Lease, doing business as Boomtown Casino,
     as amended, and (ii) Real Estate located in Bay St. Louis,  Mississippi and
     described  as the B, FI,  FII,  FIV,  FV BSL and Lang  Parcels in the title
     policy  delivered  to the Lenders  pursuant to Section  5.1(w)  hereof,  no
     Mortgage  encumbers improved real property which is located in an area that
     has been identified by the Secretary of Housing and Urban Development as an
     area having  special  flood  hazards and in which flood  insurance has been
     made available under the National Flood Insurance Act of 1968.

4.23     [Intentionally omitted].
         -----------------------

4.24 Insurance. The Borrower and each of its Subsidiaries is insured by insurers
     of recognized financial responsibility against such losses and risks and in
     such amounts as are prudent and customary in the  businesses in which it is
     engaged;  and  none  of the  Borrower  or any of its  Subsidiaries  (i) has
     received notice from any insurer or agent of such insurer that  substantial
     capital improvements or other material expenditures will have to be made in
     order to continue such  insurance or (ii) has any reason to believe that it
     will not be able to renew its existing  insurance coverage as and when such
     coverage  expires or to obtain similar  coverage from similar insurers at a
     cost that could not  reasonably  be  expected  to have a  Material  Adverse
     Effect.

4.25     Real Estate.

(a)  Schedule  4.25 sets forth a true,  complete  and  correct  list of all Real
Estate  used or occupied by the  Borrower or any of its  Subsidiaries  as of the
date hereof,  including a brief description thereof,  including,  in the case of
leases, the street address,  square footage,  landlord name, rent amount,  lease
date and lease expiration date. The Borrower has delivered to the Administrative
Agent true, complete and correct copies of all such documents.

(b) Each parcel of Real Estate and the  current  use thereof  complies  with all
applicable  Requirements  of Law (including  building and zoning  ordinances and
codes)  and (to the best of the  Borrower's  knowledge)  the  Borrower  is not a
non-conforming  user of such Real Estate, and such Real Estate complies with all
Insurance Requirements, except, in each such case, where noncompliance could not
reasonably be expected to have a Material Adverse Effect.

(c) To the best of the Borrower's knowledge,  no Taking has been commenced or is
contemplated with respect to all or any portion of the applicable Real Estate or
for the relocation of roadways providing access to such Real Estate.

(d) There are no current,  pending or, to the best  knowledge  of the  Borrower,
proposed  special or other  assessments  for public  improvements,  or otherwise
                                       63
<PAGE>

affecting any Real Estate in a material  amount,  nor are there any contemplated
improvements  to such  Real  Estate  that may  result in such  special  or other
assessments.

(e) None of the  Borrower or any of its  Subsidiaries  has  knowingly  suffered,
permitted or initiated  the joint  assessment  of any parcel of Real Estate with
any other real property constituting a separate tax lot.

(f) The  Borrower  and  each  of its  Subsidiaries  has  obtained  all  material
construction,  building,  occupancy  and use permits,  licenses,  variances  and
certificates  required by  Requirements of Law to be obtained by such Person and
necessary to the use and operation of each parcel of Real Estate.  The use being
made of each  parcel of Real Estate is in  conformity  with the  certificate  of
occupancy  and/or such other permits,  licenses,  variances and certificates for
such parcel of Real Estate and any other  restrictions,  covenants or conditions
affecting such parcel of Real Estate,  except where such nonconformity could not
foreseeably impair or prohibit the use of any Real Estate as now conducted.

(g)  Except as set  forth on  Schedule  4.25(g),  to the best  knowledge  of the
Borrower,  each parcel of Real Estate is free from material  structural  defects
and all  building  systems  contained  therein  are in good  working  order  and
condition,  ordinary wear and tear excepted, suitable for the purposes for which
they are currently being used.

(h)  Except as set forth on  Schedule  4.25(h),  no  Person  has any  possessory
interest  in any Real  Estate  or right to occupy  any Real  Estate  except  the
Borrower or its  Subsidiaries.  There are no outstanding  options to purchase or
rights  of first  refusal  affecting  any Real  Estate,  except  in favor of the
Borrower  or  a   Subsidiary.   There  are  no   outstanding   restrictions   on
transferability  affecting  any Real  Estate  except for  transfer  restrictions
contained in the Tidelands Lease.

(i) Except as set forth to the  contrary  in the  Surveys  of the Bay St.  Louis
Casino and the Boomtown  Casino  delivered  to the Lenders  prior to the Closing
Date, each parcel of Real Estate has adequate rights of access to public ways to
permit  the  Real  Estate  to be used  for its  current  use  and is  served  by
installed,  operating  and adequate  water,  electric,  gas,  telephone,  sewer,
sanitary sewer and storm drain facilities. All public utilities necessary to the
continued use and enjoyment of each parcel of Real Estate as used and enjoyed on
the Closing Date are located in the public right-of-way abutting the premises or
are furnished through recorded  easements,  and all such utilities are connected
so as to serve such Real Estate without  passing over other Property  except for
land of the utility  company  providing  such  utility  service and except where
permitted by easement.  All roads  necessary  for the full  utilization  of each
parcel of Real Estate for its current  purpose have been completed and dedicated
to public use and accepted by all Governmental Authorities or are the subject of
access easements for the benefit of such Real Estate.  Except for public streets
and sidewalks and minor encroachments shown on the Surveys, none of the Borrower
or any of its  Subsidiaries  uses or occupies any real property  other than such
Real Estate in connection with the use and operation of any Real Estate.

(j) Except as set forth to the  contrary  in the  Surveys  of the Bay St.  Louis
Casino and the Boomtown  Casino  delivered  to the Lenders  prior to the Closing
Date,  no  building  or  structure  constituting  a parcel of Real Estate or any
                                       64
<PAGE>

appurtenance  thereto or equipment thereon, or the use, operation or maintenance
thereof,  violates any restrictive  covenant or encroaches on any easement or on
any property owned by others,  which violation or  encroachment  interferes with
the use or  could  materially  adversely  affect  the  value  of such  building,
structure or appurtenance  or which  encroachment is necessary for the operation
of the  business  at any  parcel  of Real  Estate.  All  buildings,  structures,
appurtenances and equipment  necessary for the use of each parcel of Real Estate
for the  purpose  for which it is  currently  being used are located on the real
property encumbered by such Mortgage.

(k) Each parcel of Real Estate,  including  each lease,  has adequate  available
parking to meet operating  requirements and (with respect to Real Estate located
in the state of Pennsylvania) legal requirements.

(l) No portion of the Real Estate has suffered  any  material  damage by fire or
other  casualty  loss  that has not  heretofore  been  completely  repaired  and
restored to its original condition.

(m) The  Mortgaged  Property  includes  every parcel of Real Estate owned by the
Borrower or any of its Subsidiaries,  as well as every material interest in Real
Estate  consisting of a lease that expressly  permits the tenant to mortgage its
leasehold estate.

4.26 Acquisition Documentation. The Acquisition Documentation listed on Schedule
     4.26  attached  hereto   constitutes   all  of  the  material   agreements,
     instruments  and   undertakings  to  which  the  Borrower  or  any  of  its
     Subsidiaries  is bound or by which such  Person or any of its  property  or
     assets is bound or affected relating to, or arising out of, the Acquisition
     (including, without limitation, any agreements, instruments or undertakings
     assumed  pursuant to the  Acquisition  Agreements).  None of such  material
     agreements,  instruments or undertakings have been amended, supplemented or
     otherwise  modified,  and all such  material  agreements,  instruments  and
     undertakings  are in full  force and  effect.  No party to any  Acquisition
     Documentation is currently in default  thereunder and no party thereto,  or
     any other Person, has the right to terminate any Acquisition Documentation.
     Upon  application  of  certain of the  proceeds  of the  initial  borrowing
     hereunder,  the  Acquisition  shall have been  consummated  as set forth in
     Section 5.1(b).

4.27 Permits.(a)  (a) Other than  exceptions to any of the following  that could
     not,  individually  or in the  aggregate,  reasonably be expected to have a
     Material Adverse Effect (or, in the case of Environmental  Permits,  result
     in the payment of a Material  Environmental  Amount), both before and after
     consummation  of  the  Acquisition:  (i)  each  of  the  Borrower  and  its
     Subsidiaries  has  obtained  and holds all  Permits  required  for all Real
     Estate and any other Property otherwise operated by or on behalf of, or for
     the benefit of, such Person and for the operation of each of its businesses
     as  presently  conducted  and as  proposed to be  conducted,  (ii) all such
     Permits  are in full force and  effect,  and each of the  Borrower  and its
     Subsidiaries  has performed and observed all  requirements of such Permits,
     (iii) no event has occurred  which allows or results in, or after notice or
     lapse of time would allow or result in,  revocation or  termination  by the
     issuer  thereof or in any other  impairment  of the rights of the holder of
     any such Permit,  (iv) no such  Permits  contain any  restrictions,  either
     individually  or in the aggregate,  that are  materially  burdensome to the
     Borrower  or any of its  Subsidiaries,  or to the  operation  of any of its
     businesses  or any property  owned,  leased or  otherwise  operated by such
                                       65
<PAGE>

     Person, (v) each of the Borrower and its Subsidiaries  reasonably  believes
     that each of its Permits will be timely renewed and complied with,  without
     material expense,  and that any additional  Permits that may be required of
     such Person will be timely  obtained and complied  with,  without  material
     expense,  and (vi) the  Borrower  does not have any  knowledge or reason to
     believe  that  any   Governmental   Authority  is   considering   limiting,
     suspending,  revoking or renewing on materially  burdensome  terms any such
     Permit.

(b)  Both  before  and after  giving  effect to the  Acquisition,  no consent or
     authorization  of, filing with,  Permit from, or other act by or in respect
     of,  any  Governmental   Authority  is  required  in  connection  with  the
     execution,  delivery,  performance,   validity  or  enforceability  of,  or
     enforcement of remedies (including, without limitation,  foreclosure on the
     Collateral)  pursuant to, this Agreement and the other Loan Documents other
     than (i) consents, approvals and Permits that have been obtained and are in
     full force and effect  and (ii)  consents  and  approvals  of, and  Permits
     (other than  Environmental  Permits)  issued by,  Governmental  Authorities
     required in connection with any  foreclosure on the Collateral  pursuant to
     the Security Documents.

4.28 Leases.(a) (a) Both before and after giving effect to the Acquisition, each
     of the Borrower and its Subsidiaries  has paid all payments  required to be
     made by it under leases of real property  where any of the Collateral is or
     may be located from time to time including,  without limitation, the Ground
     Leases (other than any the amount or validity of which are currently  being
     contested  in good faith by  appropriate  proceedings  and with  respect to
     which  reserves in conformity  with GAAP have been provided on the books of
     the Borrower or such Subsidiary,  as the case may be); no landlord Lien has
     been  filed,  and,  to the  knowledge  of the  Borrower,  no claim is being
     asserted, with respect to any such payments.

(b) Each of the  material  leases  listed on Schedule  4.25 is in full force and
effect and is legal,  valid,  binding and  enforceable  in  accordance  with its
terms. No such lease has been amended, modified or assigned in any manner except
as set forth on Schedule 4.25. To the best of the Borrower's knowledge, there is
not under any such lease any existing breach, default, event of default or event
that,  with or  without  notice  or lapse of time or both,  would  constitute  a
breach,  default or an event of default by the  Borrower  or any other  party to
such lease.

(c) The Borrower has not received any written  notice of or made a written claim
with respect to any breach or default of a lease that has not now been cured. No
party to any lease has  commenced  any action or given or  received  any written
notice for the purpose of terminating any such lease.

(d) With respect to each Ground Lease: (i) all necessary consents,  if required,
to the  assignment of such Ground Lease to BTN,  Inc. or BSL,  Inc., as the case
may be, have been obtained;  (ii) the applicable  Estoppel  substantially in the
form attached here as Exhibit O (x) has been obtained from the ground lessor and
such  Estoppel does not reveal any breach or default by any party thereto or any
facts which could constitute a Material Adverse Effect,  or (y) shall be subject
to the  requirements  of Schedule  6.13;  (iii) all necessary  third party lease
consents to the consummation of the transactions  contemplated by the applicable
Acquisition Agreement have been obtained.
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(e) Except for the Ground Leases and the leases set forth on Schedule 4.25, none
of the Mortgaged  Property is subject to any lease,  sublease,  license or other
agreement granting to any Person any right to the use, occupancy or enjoyment of
the Mortgaged Property or any portion thereof.

(f) The interest of the tenant under the Ground Leases is vested in BTN, Inc. or
BSL, Inc., as applicable.  With the execution and delivery of the subordination,
non-disturbance and attornment  agreements ("SNDAs") in the form attached hereto
as  Exhibit P by the fee  mortgagees  under the  Suarez  Lease and the  Desporte
Lease,  and the  obtaining  of the  agreement  of the ground  lessors  under the
McDermott  Lease,  the Gollott  Lease and the  Cvitanovich  Lease that they will
obtain SNDAs from any future fee mortgagees, any existing or future fee mortgage
on all or any part of the Real  Property  encumbered  by the Ground Leases is or
will be at all times  subject  and  subordinate  to,  and shall not attach to or
encumber or otherwise  affect,  the lien of the applicable  Mortgages.  Once the
Estoppels  required under  subsection (d) have been obtained,  each Ground Lease
will provide for reasonable leasehold mortgagee protections,  including, without
limitation, (i) notice and cure provisions benefiting any leasehold lender, (ii)
provisions allowing any such leasehold lender to enter into a new lease with the
fee owner of the  applicable  Real Property in the event of a termination of the
Ground  Lease  following  a  bankruptcy  or  insolvency  of the  tenant  and its
subsequent  rejection of such Ground Lease and (iii) provisions stating that the

Ground Lease cannot be amended,  modified or  terminated  without the consent of
the leasehold lender.

4.29 New Jersey Joint Venture(a) . (a) The ownership structure of the New Jersey
     Joint Venture is as set forth on Schedule 4.29(a).

(b)  All of  the  Loan  Parties'  Guarantee  Obligations  and  other  contingent
obligations  with respect to the New Jersey Joint  Venture are shown on Schedule
4.29(b)  (which  description  includes the  circumstances  under which each such
Guarantee Obligation and other contingent obligation may become payable).

(c) There have been no  amendments  or other  modifications  of the Debt Service
Maintenance  Agreement as of the Closing Date. As of the Closing Date,  the Loan
Parties  have  made  aggregate  payments  under  the  Debt  Service  Maintenance
Agreement  totaling  $0 and the Loan  Parties'  total Debt  Service  Maintenance
Obligations under and as defined in the Debt Service Maintenance Agreement equal
$11,500,000.

4.30     Consent Solicitation.

     The Borrower has legally and  successfully  consummated  a tender offer and
consent  solicitation  for the  Existing  Notes and none of the  Existing  Notes
outstanding  at  the  commencement  of  the  consent  solicitation  will  remain
outstanding  after the  application on the Closing Date of the proceeds of Loans
made on the Closing Date.

SECTION 5.                      CONDITIONS PRECEDENT

5.1  Conditions to Initial Extension of Credit.  The agreement of each Lender to
     make the initial  extension of credit requested to be made by it is subject
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     to the  satisfaction,  prior to or  concurrently  with the  making  of such
     extension  of credit  on the  Closing  Date,  of the  following  conditions
     precedent:

(a)  Loan  Documents.  The  Administrative  Agent shall have  received  (i) this
     Agreement,  executed  and  delivered  by a duly  authorized  officer of the
     Borrower,  (ii)  the  Guarantee  and  Collateral  Agreement,  executed  and
     delivered by a duly authorized  officer of the Borrower and each Guarantor,
     (iii) the Intellectual Property Security Agreements, executed and delivered
     by a duly authorized  officer of each  applicable Loan Party,  the Borrower
     and each  Guarantor,  (iv) each  Acknowledgment  and Consent,  executed and
     delivered  by a duly  authorized  officer of the Issuer (as  defined in the
     Guarantee and Collateral  Agreement) party thereto, (v) a Mortgage covering
     each  of  the  Mortgaged  Properties,  executed  and  delivered  by a  duly
     authorized  officer  of each  Loan  Party  party  thereto,  (vi)  the  Ship
     Mortgages,  executed and delivered by each Loan Party party thereto,  (vii)
     the  Subordinated  Intercompany  Note,  executed  and  delivered  by a duly
     authorized officer of the Borrower and each of its Subsidiaries, and (viii)
     if  requested  by any  Lender,  for  the  account  of  such  Lender,  Notes
     conforming to the requirements  hereof and executed and delivered by a duly
     authorized officer of the Borrower.

(b)  Acquisition,  etc. The following  transactions shall have been consummated,
     in  each  case on  terms  and  conditions  reasonably  satisfactory  to the
     Lenders:

(i)  the Acquisition shall have been consummated for an aggregate purchase price
     not exceeding  $195,000,000 (plus any adjustment  pursuant to Section 3.3.2
     of each Acquisition Agreement), plus fees and expenses, pursuant to, and in
     strict  compliance  with,  Acquisition  Documentation  satisfactory  to the
     Administrative  Agent and the Syndication  Agent, and no material provision
     thereof  shall  have  been  waived,  amended,   supplemented  or  otherwise
     modified;

(ii) the capital structure of the Borrower and each other Loan Party immediately
     after the  Acquisition  shall be as  described  in  Schedule  4.15(a);  and

(iii)the  Borrower  shall have  legally and  successfully  consummated  a tender
     offer and consent  solicitation  for the Existing Notes, all of which shall
     be paid on the Closing  Date with the proceeds of Loans made on the Closing
     Date, and the Administrative  Agent shall have received on the Closing Date
     evidence of  completion  of such tender offer and payment to the trustee of
     the  Existing  Notes of all amounts  payable to the holders of the Existing
     Notes.

(c)  Pro Forma  Balance  Sheet;  Financial  Statements.  The Lenders  shall have
     received  (i)  the Pro  Forma  Balance  Sheet,  (ii)  audited  consolidated
     financial statements of the Borrower and its consolidated  Subsidiaries for
     the  1997,  1998  and  1999  fiscal  years  and  (iii)  unaudited   interim
     consolidated  financial  statements  of the Borrower  and its  consolidated
     Subsidiaries for each fiscal month and quarterly period ended subsequent to
     the date of the latest applicable  financial  statements delivered pursuant
     to clause (ii) of this paragraph as to which such financial  statements are
     available,  and such  financial  statements  shall not,  in the  reasonable
     judgment  of the  Lenders,  reflect  any  material  adverse  change  in the
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     consolidated  financial  condition  of the  Borrower  and its  Subsidiaries
     (including,  as  applicable,  the Acquired  Business),  as reflected in the
     financial   statements  or  projections   contained  in  the   Confidential
     Information Memorandum.

(d)  Approvals.  All governmental and third party approvals (including,  without
     limitation,  Gaming Approvals,  other regulatory  approvals and landlords',
     contract  counterparty and other consents)  necessary or, in the discretion
     of the Agents, advisable in connection with the Acquisition, the execution,
     delivery  and  performance  by the Loan Parties of this  Agreement  and the
     other Loan Documents  (including,  without limitation,  the pledging of the
     Collateral  as  security  for  the  Obligations  pursuant  to the  Security
     Documents),  the continuing  operations of the Borrower or its Subsidiaries
     and  the   transactions   contemplated   hereby  and  by  the   Acquisition
     Documentation shall have been obtained and be in full force and effect, and
     all applicable  waiting periods shall have expired without any action being
     taken or  threatened  by any  competent  authority  which  would  restrain,
     prevent or otherwise  impose adverse  conditions on the  Acquisition or the
     financing contemplated hereby.

(e)  Related Agreements.  The Administrative  Agent shall have received true and
     correct  copies,  certified as to  authenticity  by the  Borrower,  of such
     documents or instruments as may be reasonably  requested by the Syndication
     Agent or the Administrative Agent, including, without limitation, a copy of
     any debt instrument, security agreement or other material contract to which
     any Loan Party may be a party.

(f)  Termination of Existing Credit Facilities.  The Administrative  Agent shall
     have received  evidence  satisfactory to the  Administrative  Agent and the
     Syndication   Agent  that  the   Existing   Credit   Facilities   shall  be
     simultaneously  terminated,  all amounts thereunder shall be simultaneously
     paid in full and arrangements satisfactory to the Syndication Agent and the
     Administrative  Agent shall have been made for the termination of Liens and
     security  interests  granted in  connection  therewith  including,  without
     limitation,  receipt by the Administrative Agent of satisfactory notices of
     relinquishment   of  security   interest  or  the  like  with   respect  to
     Intellectual Property.

(g)  Fees.  The  Lenders,   the  Arrangers,   the  Syndication   Agent  and  the
     Administrative  Agent shall have received all fees required to be paid, and
     all expenses for which  invoices have been  presented  (including,  without
     limitation, the reasonable fees, disbursements and other charges of counsel
     to the  Agents),  on or before the Closing  Date.  All such amounts will be
     paid with  proceeds of Loans made on the Closing Date and will be reflected
     in the funding  instructions  given by the  Borrower to the  Administrative
     Agent on or before the Closing Date.

(h)  Business Plan. The Lenders shall have received a satisfactory business plan
     for fiscal  years  2000-2007  and a  satisfactory  written  analysis of the
     business and prospects of the Borrower and its  Subsidiaries for the period
     from the Closing Date through the final maturity of the Credit Facilities.
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(i)  Solvency.  The Lenders shall have received a Solvency  Certificate  (i) for
     the Borrower,  executed by the chief financial  officer of the Borrower and
     (ii) for each other Loan Party,  executed by a duly  authorized  officer of
     each other Loan Party  (such  officer  to be  familiar  with the  financial
     condition and operations of such Loan Party),  each of which shall document
     the  solvency of the  Borrower  and each other Loan Party after  giving pro
     forma effect to the  Acquisition  and the other  transactions  contemplated
     hereby.

(j)  Maximum Borrowing. No more than $310,000,000 shall have been borrowed under
     this Agreement on the Closing Date; provided, that an additional $5,000,000
     may be borrowed under this Agreement on the Closing Date if such additional
     $5,000,000 is immediately  applied  towards a required  downpayment for the
     CRC Acquisition (or  reimbursement of the Borrower for any such downpayment
     already made).

(k)  Lien Searches.  The Administrative Agent shall have received the results of
     a recent  lien,  tax lien,  judgment and  litigation  search in each of the
     jurisdictions  or offices  (including,  without  limitation,  in the United
     States  Patent and  Trademark  Office,  the  United  States  Department  of
     Transportation,  the  United  States  Coast  Guard  and the  United  States
     Copyright Office) in which Uniform Commercial Code financing  statements or
     other filings or  recordations  should be made to evidence or perfect (with
     the priority required under the Loan Documents)  security  interests in all
     Property of the Loan Parties,  and such search shall reveal no Liens on any
     of the assets of the  Borrower  or its  Subsidiaries  except for  Permitted
     Liens or Liens set forth in Schedule 4.19(a)-3.

(l)  Environmental  Matters.  The  Administrative  Agent  shall have  received a
     written  environmental  assessment  conforming to the standards of the ASTM
     "Standard  Practice for  Environmental  Assessments:  Phase I Environmental
     Site Assessment  Process"  regarding all Real Estate currently owned by the
     Borrower and regarding the Real Estate of the Acquired  Business,  prepared
     by an environmental  consultant  acceptable to the Agents,  in form, scope,
     and substance  satisfactory to the Agents,  together with a letter from the
     environmental  consultant  permitting  the  Agents,  the  Lenders and their
     representatives to rely on the environmental  assessment as if addressed to
     and prepared for each of them.

(m)  No Material  Adverse  Effect.  Since  December 31,  1999,  there shall have
     occurred  no  development  or event  that has had or  could  reasonably  be
     expected to have a Material Adverse Effect.

(n)  Market  Change.   Since  June  12,  2000,  there  shall  have  occurred  no
     development or event that has had or could reasonably be expected to have a
     material adverse effect on the financial or capital markets generally or in
     the markets for bank loan syndication, high yield debt or equity securities
     in  particular  or affecting  the  syndication  of bank loans or high yield
     securities (or the refinancing  thereof) that may have an adverse impact on
     the ability to syndicate the Facilities hereunder.
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(o)  No  Default.  No  Default or Event of Default  shall have  occurred  and be
     continuing on such date after giving effect to the extensions of credit and
     the other transactions contemplated to occur on such date.

(p)  Ratings.  The  Borrower  shall  have  received  ratings,  pro forma for the
     Acquisition and the financing contemplated hereby, equal to or greater than
     B1 and B+ on a senior basis from Moody's and S&P, respectively.

(q)  Due Diligence.  The  Administrative  Agent and Syndication Agent shall have
     completed,  and be  satisfied  with the  results  of,  their due  diligence
     investigation of the Borrower, its Subsidiaries and the Acquired Business.

(r)  Closing  Certificate.  The  Administrative  Agent  shall  have  received  a
     certificate of each Loan Party, dated as of the Closing Date, substantially
     in the form of Exhibit C, with appropriate insertions and attachments.

(s)  Other  Certifications.  The  Administrative  Agent shall have  received the
     following:

(i)  a copy of the charter or other organizational  document of the Borrower and
     each of its  Subsidiaries  and each amendment  thereto,  certified (as of a
     date reasonably near the date of the initial  extension of credit) as being
     a true  and  correct  copy  thereof  by the  Secretary  of  State  or other
     applicable  Governmental  Authority of the  jurisdiction in which each such
     Person is organized;

(ii) a copy of a  certificate  of the  Secretary  of State  or other  applicable
     Governmental  Authority  of the  jurisdiction  in which each such Person is
     organized,  dated  reasonably  near the date of the  initial  extension  of
     credit, certifying that (A) such Person has paid all franchise taxes to the
     date of such  certificate and (B) such Person is duly organized and in good
     standing under the laws of such jurisdiction;

(iii)a telephonic  confirmation  from the Secretary of State or other applicable
     Governmental  Authority of each  jurisdiction  in which any Loan Party that
     owns or leases any  Mortgaged  Property is organized  certifying  that such
     Loan Party is duly  organized and in good  standing  under the laws of such
     jurisdiction on the date of the initial extension of credit,  together with
     a written  confirmatory report in respect thereof prepared by, or on behalf
     of, a filing service acceptable to the Administrative Agent; and

(iv) a copy of a  certificate  of the  Secretary  of State  or other  applicable
     Governmental  Authority of each jurisdiction  listed on Schedule 5.1(s)(iv)
     in which  the  Borrower  and each of its  Subsidiaries  is  qualified  as a
     foreign corporation or entity (which,  with respect to the Borrower,  shall
     include  Mississippi),  dated  reasonably  near  the  date  of the  initial
     extension of credit, stating that the Borrower and each of its Subsidiaries
     is duly  qualified and in good standing as a foreign  corporation or entity
     in each such  jurisdiction  and has filed all annual reports required to be
     filed to the date of such certificate; and telephonic confirmation from the
     Secretary of State or other applicable  Governmental Authority of each such
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<PAGE>

     jurisdiction  on the date of the initial  extension of credit as to the due
     qualification  and continued good standing of each such Person as a foreign
     corporation  or entity in each such  jurisdiction  on or about  such  date,
     together with a written confirmatory report in respect thereof prepared by,
     or on behalf of, a filing service acceptable to the Administrative Agent.

(t)  Legal Opinions.  The Administrative Agent shall have received the following
     executed legal opinions:

(i)  the legal opinion of Morgan,  Lewis & Bockius LLP,  counsel to the Borrower
     and its Subsidiaries, substantially in the form of Exhibit F;

(ii) each  legal  opinion   delivered  in  connection   with  the   Acquisition,
     accompanied  by a reliance  letter in favor of the Agents and the  Lenders;
     and

(iii)the legal  opinion of local  counsel in each of  Mississippi,  Pennsylvania
     and West  Virginia  and of such other  special and local  counsel as may be
     required by the Administrative Agent.

         Each such legal opinion shall cover such other matters  incident to the
         transactions contemplated by this Agreement as the Administrative Agent
         may  reasonably  require  including,   without  limitation,  the  first
         priority  perfected  status (without  exception) of the  Administrative
         Agent's  Lien on all  Vessels,  Barges,  ships  and other  floating  or
         floatable Gaming  Facilities  comprising all or any part of the Bay St.
         Louis Casino or the Boomtown Casino.

(u)      Pledged Stock;  Stock Power;  Pledged Notes. The  Administrative  Agent
         shall have  received (i) the  certificates  representing  the shares of
         Capital  Stock  pledged   pursuant  to  the  Guarantee  and  Collateral
         Agreement,   together  with  an  undated  stock  power  for  each  such
         certificate  executed  in blank  by a duly  authorized  officer  of the
         pledgor   thereof  and  (ii)  each   promissory   note  (including  the
         Subordinated  Intercompany  Note) pledged to the  Administrative  Agent
         pursuant to the Guarantee and Collateral  Agreement  endorsed  (without
         recourse)  in blank (or  accompanied  by an executed  transfer  form in
         blank satisfactory to the Administrative Agent) by the pledgor thereof.

(v)      Filings,   Registrations  and  Recordings.  Each  document  (including,
         without  limitation,  any Uniform Commercial Code financing  statement)
         required by the Security Documents or under law or reasonably requested
         by the  Administrative  Agent to be filed,  registered  or  recorded in
         order to create in favor of the  Administrative  Agent, for the benefit
         of the Secured Parties,  a perfected Lien on, and security interest in,
         the Collateral  described  therein,  prior and superior in right to any
         other Person (other than Permitted Liens), shall have been delivered to
         the  Administrative  Agent in proper form for filing,  registration  or
         recordation.

(w)      Surveys.  Except to the extent of those  matters  set forth on Schedule
         6.13, the  Administrative  Agent and the Title Insurance  Company shall
         have received  maps or plats of an as-built  survey of the sites of the
         Mortgaged  Properties  certified  to the  Administrative  Agent and the
         Title Insurance  Company in a manner  reasonably  satisfactory to them,
                                       72
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         which maps or plats and the  surveys  on which they are based  shall be
         made in accordance with the Minimum  Standard Detail  Requirements  for
         Land Title Surveys jointly established and adopted by the American Land
         Title Association and the American Congress on Surveying and Mapping in
         1997 or 1999 and meeting the accuracy  requirements  as defined therein
         (collectively, the "Surveys" and each individually, a "Survey").

(x)      Title Insurance; Flood Insurance.

(i)  The  Administrative  Agent shall have received in respect of each Mortgaged
     Property a mortgagee's  title  insurance  policy (or policies) or marked up
     unconditional  binder for such insurance.  Each such policy shall (A) be in
     an amount  reasonably  satisfactory  to the  Administrative  Agent;  (B) be
     issued at ordinary  rates;  (C) insure that the  Mortgage  insured  thereby
     creates a valid first Lien on, and  security  interest  in, such  Mortgaged
     Property  free  and  clear  of all  defects  and  encumbrances,  except  as
     disclosed therein; (D) name the Administrative Agent for the benefit of the
     Secured Parties as the insured thereunder;  (E) be in the form of ALTA Loan
     Policy  - 1970  form B  (Amended  10/17/70  and  10/17/84)  (or  equivalent
     policies);  and (F) contain such  endorsements and affirmative  coverage as
     the  Administrative  Agent may  reasonably  request  in form and  substance
     reasonably acceptable to the Administrative Agent. The Administrative Agent
     shall  have  received  evidence  reasonably  satisfactory  to it  that  all
     premiums in respect of each such policy, all charges for mortgage recording
     tax, and all related expenses, if any, have been paid.

(ii) With respect to any Real Estate  located in a special  flood hazard area as
     designated  by any federal  governmental  authorities,  the  Administrative
     Agent shall have received (A) a policy of flood  insurance  that (1) covers
     any parcel of improved real property that is encumbered by any Mortgage (2)
     is written in an amount not less than the outstanding  principal  amount of
     the indebtedness  secured by such Mortgage that is reasonably  allocable to
     such real  property or the maximum limit of coverage  made  available  with
     respect  to the  particular  type of  property  under  the  National  Flood
     Insurance  Act of 1968,  whichever  is less,  and (3) has a term ending not
     later than the maturity of the  Indebtedness  secured by such  Mortgage and
     (B)  confirmation  that the  Borrower  has  received  the  notice  required
     pursuant to Section 208(e)(3) of Regulation H of the Board.

(iii)The  Administrative  Agent  shall  have  received  a copy  of all  recorded
     documents  referred  to,  or listed as  exceptions  to title in,  the title
     policy or policies referred to in clause (ii) above and a copy of all other
     material documents affecting the Mortgaged Properties.

(y)  Insurance.   The   Administrative   Agent  shall  have  received  insurance
     certificates  satisfying the  requirements  of Sections 4.24 and 6.5 and of
     Section 5.3 of the Guarantee and Collateral Agreement.

(z)  Appraisals.  The Administrative  Agent and the Syndication Agent shall have
     received  appraisals of certain assets of the Borrower and its Subsidiaries
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<PAGE>

     specified  by  the  Administrative  Agent  and  the  Syndication  Agent  by
     appraisers  satisfactory  to the  Administrative  Agent and the Syndication
     Agent, in form and substance  satisfactory to the Administrative  Agent and
     the Syndication Agent.

                  (aa) MGC Loan  Report.  The  Administrative  Agent  shall have
         received a copy of the duly completed and executed MGC Loan Report.

                  (bb)  Miscellaneous.   The  Administrative  Agent  shall  have
         received such other documents, agreements, certificates and information
         as it shall reasonably request.

5.2  Conditions  to Each  Extension of Credit.  The  agreement of each Lender to
     make  any  extension  of  credit  requested  to be made  by it on any  date
     (including, without limitation, its initial extension of credit) is subject
     to the satisfaction of the following conditions precedent:

(a)  Representations and Warranties.  Each of the representations and warranties
     made by any Loan Party in or pursuant to the Loan  Documents  shall be true
     and  correct  on and as of such  date  as if  made on and as of such  date,
     except for representations  and warranties  expressly stated to relate to a
     specific  earlier date, in which case such  representations  and warranties
     shall be true and correct as of such earlier date.

(b)  No  Default.  No  Default or Event of Default  shall have  occurred  and be
     continuing on such date or after giving effect to the  extensions of credit
     requested to be made on such date.

Each  borrowing  by and issuance of a Letter of Credit on behalf of the Borrower
hereunder shall constitute a  representation  and warranty by the Borrower as of
the date of such  extension  of credit  that the  conditions  contained  in this
Section 5.2 have been satisfied.

SECTION 6.                    AFFIRMATIVE COVENANTS

     The Borrower  hereby  agrees  that,  so long as the  Commitments  remain in
effect, any Letter of Credit remains  outstanding or any Loan or other amount is
owing to any Lender, any Arranger or any Agent hereunder, the Borrower shall and
shall cause each of its Subsidiaries to:

6.1      Financial Statements.  Furnish to each Agent and each Lender:

(a)  as soon as available, but in any event within 95 days after the end of each
     fiscal year of the Borrower, (i) a copy of the audited consolidated balance
     sheet of the Borrower and its  consolidated  Subsidiaries  as at the end of
     such year and the related audited consolidated  statements of income and of
     cash flows for such year,  setting forth in each case in  comparative  form
     the figures for the previous year, reported on without a "going concern" or
     like qualification or exception,  or qualification arising out of the scope
     of  the  audit,  by BDO  Seidman,  LLP,  or  independent  certified  public
     accountants of nationally  recognized standing  reasonably  satisfactory to
     the  Administrative  Agent and (ii) a narrative  discussion and analysis of
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     the  financial  condition and results of operations of the Borrower and its
     consolidated Subsidiaries for such fiscal year, as compared to the previous
     fiscal year;

(b)  as soon as available, but in any event not later than 50 days after the end
     of each of the first  three  quarterly  periods of each  fiscal year of the
     Borrower,  (i) the unaudited consolidated balance sheet of the Borrower and
     its consolidated Subsidiaries as at the end of such quarter and the related
     unaudited  consolidated  statements  of income  and of cash  flows for such
     quarter and the portion of the fiscal year through the end of such quarter,
     setting forth in each case in comparative form the figures for the previous
     year,  certified by a  Responsible  Officer as being  fairly  stated in all
     material respects (subject to normal year-end audit adjustments) and (ii) a
     narrative discussion and analysis of the financial condition and results of
     operations  of the  Borrower  and its  consolidated  Subsidiaries  for such
     fiscal  quarter and for the period from the  beginning  of the then current
     fiscal  year  to  the  end of  such  fiscal  quarter,  as  compared  to the
     comparable periods of the previous year; and

(c)  as soon as available, but in any event not later than 30 days after the end
     of each month  occurring  during each fiscal year of the  Borrower  (i) the
     unaudited  consolidated  statements  of income of the  Borrower and of each
     Operating Gaming Facility for such month and the portion of the fiscal year
     through the end of such month,  setting  forth in each case in  comparative
     form the figures for the previous year,  certified by a Responsible Officer
     as being fairly stated in all material respects (subject to normal year-end
     audit  adjustments)  and (ii) a narrative  discussion  and  analysis of the
     financial  condition  and results of  operations  of the  Borrower and each
     Operating Gaming Facility for such month and the portion of the fiscal year
     through the end of such month,  as compared to such  comparable  periods of
     the previous year.
All such  financial  statements  shall be complete  and correct in all  material
respects and shall be prepared in reasonable  detail and in accordance with GAAP
applied  consistently  throughout the periods  reflected  therein and with prior
periods (except as approved by such accountants or officer,  as the case may be,
and disclosed therein).

     6.2 Certificates; Other Information. Furnish to each Agent and each Lender,
or, in the case of clause (j), to the  relevant  Lender:

(a)  concurrently with the delivery of the financial  statements  referred to in
     Section  6.1(a),   a  certificate  of  the  independent   certified  public
     accountants  reporting on such financial  statements stating that in making
     the examination necessary therefor no knowledge was obtained of any Default
     or Event of Default, except as specified in such certificate;

(b)  concurrently  with the  delivery of any  financial  statements  pursuant to
     Section 6.1 (a) and (b), (i) a certificate of a Responsible Officer stating
     that, to the best of each such Responsible Officer's knowledge,  no Default
     or Event of Default exists except as specified in such certificate and (ii)
     in the case of quarterly or annual financial  statements,  (x) a Compliance
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     Certificate  containing  all  information  and  calculations  necessary for
     determining  compliance  by the  Borrower  and its  Subsidiaries  with  the
     provisions of this Agreement  referred to therein  (including  calculations
     necessary to determine any changes in the Applicable Margin pursuant to the
     Pricing  Grid),  in each case as of the last day of the  fiscal  quarter or
     fiscal year of the Borrower,  as the case may be, and (y) to the extent not
     previously  disclosed to the Administrative  Agent in writing, a listing of
     any county, state, territory,  province,  region or any other jurisdiction,
     or any  political  subdivision  thereof,  whether of the  United  States or
     otherwise,  where any Loan Party keeps  inventory or equipment  (other than
     mobile goods) and of any Intellectual  Property  acquired by any Loan Party
     since the date of the most  recent list  delivered  pursuant to this clause
     (y) (or, in the case of the first such list so delivered, since the Closing
     Date);

(c)  as soon as available,  and in any event no later than 45 days after the end
     of each fiscal year of the Borrower, a detailed consolidated budget for the
     following  fiscal  year on a  monthly  basis  for  the  Borrower  and  each
     Operating Gaming Facility (including a projected consolidated balance sheet
     of the Borrower and its  Subsidiaries as of the end of the following fiscal
     year,  and the related  consolidated  statements  of  projected  cash flow,
     projected changes in financial position and projected income), and, as soon
     as available, significant revisions, if any, of such budget and projections
     with respect to such fiscal year (collectively,  the "Projections"),  which
     Projections  shall  in  each  case be  accompanied  by a  certificate  of a
     Responsible  Officer stating that such  Projections are based on reasonable
     estimates,  information and assumptions and that such  Responsible  Officer
     has no reason to believe that such  Projections are incorrect or misleading
     in any material respect;

(d)  as soon as available, and in any event within 50 days after the end of each
     fiscal year of the Borrower,  a certificate  containing all information and
     calculations  necessary for determining the Consolidated Leverage Ratio and
     the  Consolidated  Senior Leverage Ratio as of the end of such fiscal year,
     in a form supplied to the Borrower by the Administrative Agent;

(e)  no later than 10 Business Days prior to the effectiveness  thereof,  copies
     of substantially final drafts of any proposed amendment, supplement, waiver
     or other modification with respect to any Surviving Debt Instrument, either
     Acquisition   Agreement,   any   other   Acquisition   Documentation,   any
     documentation  regarding  the Senior  Subordinated  Notes or the  Governing
     Documents of the Borrower or any of its Subsidiaries;

(f)  within  five  days  after  the  same  are  sent,  copies  of all  financial
     statements and reports that the Borrower or any of its  Subsidiaries  sends
     to the  holders  of any  class  of its debt  securities  or  public  equity
     securities  and,  within five days after the same are filed,  copies of all
     financial   statements  and  reports  that  the  Borrower  or  any  of  its
     Subsidiaries may make to, or file with, the SEC;

(g)  as soon as possible and in any event within ten days of obtaining knowledge
     thereof:  (i)  notice  of  any  development,   event,  or  condition  that,
     individually  or in  the  aggregate  with  other  developments,  events  or
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     conditions,  could  reasonably  be expected to result in the payment by the
     Borrower  or any of its  Subsidiaries,  in  the  aggregate,  of a  Material
     Environmental  Amount; and (ii) any notice that any Governmental  Authority
     may condition approval of, or any application for, an Environmental  Permit
     or  any  other  material  Permit  held  by  the  Borrower  or  any  of  its
     Subsidiaries on terms and conditions that are materially  burdensome to the
     Borrower  or any of its  Subsidiaries,  or to the  operation  of any of its
     businesses  (both before and after giving effect to the Acquisition) or any
     property owned, leased or otherwise operated by such Person;

(h)  on the date of the  occurrence  thereof,  notice that (i) any or all of the
     obligations  under the indenture  governing the Senior  Subordinated  Notes
     have been  accelerated,  or (ii) the  trustee  or the  required  holders of
     Senior Subordinated Notes has given notice that any or all such obligations
     are to be accelerated;

(i)  to the extent not included in clauses (a) through (h) above,  no later than
     the date the same are  required to be delivered  thereunder,  copies of all
     agreements,  documents or other instruments (including, without limitation,
     (i)  audited  and  unaudited,  pro forma and  other  financial  statements,
     reports,   forecasts,   and   projections,   together   with  any  required
     certifications  thereon by independent  public  auditors or officers of the
     Borrower or any of its Subsidiaries or otherwise,

(ii) press releases,  (iii) statements or reports  furnished to any other holder
     of the  securities  of the  Borrower or any of its  Subsidiaries,  and (iv)
     regular,  periodic and special securities reports) that the Borrower or any
     of its  Subsidiaries  is required  to provide  pursuant to the terms of any
     Surviving  Debt  Instrument  or any  documentation  relating  to the Senior
     Subordinated Notes; and

(j)  promptly, such additional financial and other information as any Lender may
     from time to time reasonably request.

6.3 Payment of  Obligations.  Pay,  discharge or otherwise  satisfy at or before
maturity or before they become delinquent,  as the case may be, all its material
obligations of whatever  nature (and provide the  Administrative  Agent proof of
such  payment,   discharge  or  satisfaction  upon  the  Administrative  Agent's
request),  except  where the  amount or  validity  thereof  is  currently  being
contested in good faith by  appropriate  proceedings  and reserves in conformity
with GAAP with respect  thereto have been  provided on the books of the Borrower
or its Subsidiaries, as the case may be.

6.4 Conduct of Business and  Maintenance  of  Existence,  etc. (a) (i) Preserve,
renew and keep in full force and effect its corporate  existence,  (ii) take all
reasonable action to maintain all rights, privileges and franchises necessary or
desirable in the normal conduct of its business,  including, without limitation,
all Gaming Approvals and all permits,  licenses,  qualifications and findings of
suitability required by any Gaming Authority, except, in each case, as otherwise
permitted  by Section 7.4 and except,  in the case of clause (ii) above,  to the
extent that failure to do so could not reasonably be expected to have a Material
Adverse  Effect and (iii) file the MGC Loan Report with the  Mississippi  Gaming
Commission  no  later  than 15 days  after  the  Closing  Date and  provide  the
Administrative  Agent with evidence thereof;  and (b) without limiting the other
provisions  of this  Agreement  or the other  Loan  Documents,  comply  with all
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Contractual  Obligations  and  Requirements  of Law  except to the  extent  that
failure to comply therewith could not, in the aggregate,  reasonably be expected
to have a Material Adverse Effect.

6.5  Maintenance  of Property;  Insurance.(a)  (a) Keep all Property and systems
useful and  necessary  in its  business  in good  working  order and  condition,
ordinary wear and tear excepted.

(b)  Maintain  all  rights  of way,  easements,  grants,  privileges,  licenses,
certificates,  and permits  necessary or advisable  for the use of any Mortgaged
Property and will not,  without the prior written consent of the  Administrative
Agent  (which  consent  shall  not  be  unreasonably  withheld,  conditioned  or
delayed),  consent  to any public or  private  restriction  as to the use of any
Mortgaged Property.

(c) Maintain with financially sound and reputable  insurance companies insurance
on all its Property (including, without limitation, all inventory, equipment and
vehicles)  in at least  such  amounts  and  against  at least  such risks as are
usually  insured  against in the same general  area by companies  engaged in the
same or a similar business;  and furnish to the Administrative Agent with copies
for each  Secured  Party,  upon  written  request,  full  information  as to the
insurance  carried;  provided  that in any  event the  Borrower  and each of its
Subsidiaries  will maintain (i) property and casualty  insurance on all Property
on an all risks basis  (including  the perils of flood and quake,  loss by fire,
explosion  and theft  and such  other  risks and  hazards  as are  covered  by a
standard extended coverage insurance policy), covering the repair or replacement
cost  of  all  such  Property  and  consequential  loss  coverage  for  business
interruption  and extra expense (which shall include  construction  expenses and
such other business  interruption  expenses as are otherwise generally available
to similar businesses),  (ii) public liability insurance, and (iii) building law
and ordinance  coverage in such amount as to address to the  satisfaction of the
Administrative  Agent any increased cost of construction,  debris removal and/or
demolition  expenses incurred as a result of the application of any building law
and/or  ordinance.  All such  insurance with respect to the Borrower and each of
its  Subsidiaries  shall be provided by insurers or reinsurers  which (x) in the
case of United States insurers and reinsurers,  have an A.M. Best  policyholders
rating of not less than A- with respect to primary insurance and B+ with respect
to  excess  insurance  and (y) in the  case of  non-United  States  insurers  or
reinsurers,  the providers of at least 80% of such  insurance have either an ISI
policyholders  rating of not less than A, an A.M. Best  policyholders  rating of
not less than A- or a surplus  of not less than  $500,000,000  with  respect  to
primary  insurance,  and an ISI  policyholders  rating of not less than BBB with
respect to excess insurance, or, if the relevant insurance is not available from
such insurers,  such other insurers as the  Administrative  Agent may approve in
writing.  All  insurance  shall  (i)  provide  that  no  cancellation,  material
reduction in amount or material  change in coverage  thereof  shall be effective
until at least 30 days  after  receipt  by the  Administrative  Agent of written
notice  thereof,  (ii) if  reasonably  requested  by the  Administrative  Agent,
include  a  breach  of  warranty  clause,  (iii)  contain  a  "Replacement  Cost
Endorsement"  with a waiver of depreciation and a waiver of subrogation  against
any Secured  Party,  (iv) contain a standard  noncontributory  mortgagee  clause
naming the Administrative Agent (and/or such other party as may be designated by
the  Administrative  Agent)  as the  party to which  all  payments  made by such
insurance company shall be paid, (v) if requested by the  Administrative  Agent,
contain  endorsements  providing  that  none  of  the  Borrower  or  any  of its
Subsidiaries,  any Secured Party or any other Person shall be a co-insurer under
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such  insurance  policies,  and (vi) be  reasonably  satisfactory  in all  other
respects to the  Administrative  Agent.  Each Secured Party shall be named as an
additional insured on all liability  insurance policies of the Borrower and each
of its Subsidiaries and the Administrative Agent shall be named as loss payee on
all property and casualty insurance policies of each such Person.

(d)  With respect to the Vessels and the Barges, maintain the insurance coverage
     set forth on Schedule 6.5(d).

     (e) Deliver to the  Administrative  Agent on behalf of the Secured Parties,
(i) on the Closing  Date, a  certificate  dated such date showing the amount and
types  of  insurance  coverage  as of  such  date,  (ii)  upon  request  of  the
Administrative  Agent from time to time,  full  information  as to the insurance
carried,  (iii) promptly following receipt of notice from any insurer, a copy of
any notice of  cancellation or material change in coverage from that existing on
the Closing Date,  (iv) forthwith,  notice of any  cancellation or nonrenewal of
coverage by the Borrower or any of its Subsidiaries, and (v) promptly after such
information  is  available  to the  Borrower  or any of its  Subsidiaries,  full
information  as to any claim for an amount in excess of $500,000 with respect to
any property and casualty  insurance policy maintained by the Borrower or any of
its Subsidiaries.

     (f) Preserve and protect the Lien status of each  respective  Mortgage and,
if any Lien (other than unrecorded  Liens permitted under Section 7.3 that arise
by operation of law and other Liens  permitted under Section 7.3(f)) is asserted
against  a  Mortgaged   Property,   promptly  and  at  its  expense,   give  the
Administrative  Agent  a  detailed  written  notice  of  such  Lien  and pay the
underlying  claim  in full or take  such  other  action  so as to cause it to be
released or bonded over in a manner satisfactory to Administrative Agent.

     (g) Preserve and protect the Lien status of each  respective  Ship Mortgage
and, if any Lien (other than  unrecorded  Liens permitted under Section 7.3 that
arise by operation of law and other Liens  permitted  under  Section  7.3(f)) is
asserted  against a Vessel or a Barge,  promptly  and at its  expense,  give the
Administrative  Agent  a  detailed  written  notice  of  such  Lien  and pay the
underlying  claim  in full or take  such  other  action  so as to cause it to be
released or bonded over in a manner satisfactory to Administrative Agent.

6.6  Inspection  of Property;  Books and Records;  Discussions.  (a) Keep proper
books of  records  and  account  in which  full,  true and  correct  entries  in
conformity  with GAAP and all  Requirements of Law shall be made of all dealings
and  transactions  in relation to its  business  and  activities  and (b) permit
representatives  of any Lender to visit and  inspect any of its  properties  and
examine and, at the Borrower's expense, make abstracts from any of its books and
records at any reasonable  time and as often as may reasonably be desired and to
discuss the business,  operations,  properties and financial and other condition
of the Borrower and its Subsidiaries with officers and employees of the Borrower
and its  Subsidiaries  and with their  respective  independent  certified public
accountants.

6.7 Notices.  Promptly give notice to the  Administrative  Agent and each Lender
(and, in the case of subsection (a) only, the West Virginia  Lottery  Commission
and the West Virginia Racing Commission) of:
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(a)  the occurrence of any Default or Event of Default;

(b)  any (i) default or event of default under any Contractual Obligation of the
     Borrower or any of its  Subsidiaries or (ii)  litigation,  investigation or
     proceeding  which may exist at any time  between the Borrower or any of its
     Subsidiaries  and any Governmental  Authority,  that in either case, if not
     cured or if adversely  determined,  as the case may be, could reasonably be
     expected to have a Material Adverse Effect;

(c)  any  litigation  or  proceeding  affecting  the  Borrower  or  any  of  its
     Subsidiaries  in which the amount sought to be recovered  from the Borrower
     or any of its Subsidiaries is $500,000 or more and not covered by insurance
     or in which injunctive or similar relief is sought;

(d)  the following  events,  as soon as possible and in any event within 15 days
     after the Borrower or any of its  Subsidiaries  knows or has reason to know
     thereof:  (i) the  occurrence of any  Reportable  Event with respect to any
     Plan, a failure to make any required  contribution  to a Plan, the creation
     of any Lien in favor of the PBGC or a Plan or any  withdrawal  from, or the
     termination,  Reorganization  or Insolvency of, any  Multiemployer  Plan or
     (ii) the  institution  of  proceedings or the taking of any other action by
     the  PBGC  or  the  Borrower  or  any  Commonly  Controlled  Entity  or any
     Multiemployer Plan with respect to the withdrawal from, or the termination,
     Reorganization or Insolvency of, any Plan;

(e)  any  development  or event that has had or could  reasonably be expected to
     have a Material Adverse Effect;

(f)  any notice of default given to the Borrower or any of its Subsidiaries from
     a landlord in connection  with any leased  property where  inventory of the
     Borrower or its Subsidiaries is located;

(g)  promptly upon any Responsible  Officer of the Borrower obtaining  knowledge
     of the  revocation  or  nonrenewal  of any  Permit  relating  to any Gaming
     Facility of any Loan Party or any other  material  Permit,  written  notice
     thereof together with such other information as may be reasonably available
     to the  Borrower to enable the Lenders and their  counsel to evaluate  such
     Permit  revocation  or  nonrenewal,  and such other  information  as may be
     reasonably requested by Administrative Agent;

(h)  any change in the members of Borrower's board of directors;

(i)  promptly upon any Person  becoming a Subsidiary of the Borrower,  a written
     notice setting forth with respect to such Person (a) the date on which such
     Person became a Subsidiary of the Borrower and (b) all of the data required
     to be set forth in Schedule  4.15(a)  annexed  hereto  with  respect to all
     Subsidiaries of the Borrower (it being  understood that such written notice
     shall be deemed to  supplement  Schedule  4.15(a)  annexed  hereto  for all
     purposes of this Agreement);

(j)  promptly,  and in any event  within ten  Business  Days after any  material
     contract  of the  Borrower  or any of its  Subsidiaries  is  terminated  or
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     amended in a manner that is  materially  adverse to the  Borrower or any of
     its  Subsidiaries,  as the case may be,  or any new  material  contract  is
     entered into, a written statement describing such event with copies of such
     material  amendments or new  contracts,  and an  explanation of any actions
     being taken with respect thereto;

(k)  promptly,  and in any event  within  three  Business  Days after  receiving
     notice thereof (and at least five Business Days prior to making any payment
     with respect  thereto),  any demand,  request or notice to make any payment
     under the Debt Service Maintenance Agreement; and

Each notice  pursuant to this Section shall be  accompanied  by a statement of a
Responsible  Officer setting forth details of the occurrence referred to therein
and stating what action the Borrower or the relevant Subsidiary proposes to take
with respect thereto.

6.8 Environmental  Laws.(a) (a) Comply in all material respects with, and ensure
compliance in all material respects by all tenants and subtenants, if any, with,
all applicable  Environmental  Laws and  Environmental  Permits,  and obtain and
maintain in all material  respects,  and ensure that all tenants and  subtenants
obtain and  maintain in all  material  respects,  all  applicable  Environmental
Permits.

(b) Conduct and complete all investigations,  studies, sampling and testing, and
all remedial,  removal and other actions required under  Environmental  Laws and
comply in all material  respects  with all lawful  orders and  directives of all
Governmental Authorities regarding Environmental Laws.

6.9 Interest Rate Protection.  In the case of the Borrower, within 30 days after
the earlier of (i) one year after the Closing Date (if the CRC  Acquisition  has
not been consummated by such date) and (ii) the date that either the Borrower or
CRC  announces,  or either the  Administrative  Agent or the  Syndication  Agent
reasonably determines,  that the Borrower is no longer seeking to acquire or CRC
is no  longer  seeking  to sell the CRC  Acquired  Business,  enter  into  Hedge
Agreements to the extent  necessary to provide that at least 50% of the weighted
average  aggregate  principal  amount of the Term  Loans is  subject to either a
fixed  interest rate or interest rate  protection  for a period of not less than
three years,  which Hedge Agreements shall have terms and conditions  reasonably
satisfactory to the Administrative Agent.

6.10 Additional  Collateral,  etc.(a) (a) With respect to any Property  acquired
after the Closing Date or, in the case of inventory or  equipment,  any Property
moved after the Closing Date by the Borrower or any of its  Subsidiaries  (other
than (x) any Property  described in paragraphs  (b), (c) or (d) of this Section,
(y) any Property subject to a Lien expressly permitted by Section 7.3(g) and (z)
Property   acquired  by  an  Excluded  Foreign   Subsidiary)  as  to  which  the
Administrative  Agent, for the benefit of the Secured  Parties,  does not have a
perfected  security  interest,  promptly  (and,  in any  event,  within  15 days
following  the  date  of  such  acquisition)  (i)  execute  and  deliver  to the
Administrative  Agent such amendments to the Guarantee and Collateral  Agreement
or such other documents as the Administrative Agent deems necessary or advisable
to grant to the Administrative  Agent, for the benefit of the Secured Parties, a
security  interest  in such  Property  and (ii) take all  actions  necessary  or
advisable to grant to the  Administrative  Agent, for the benefit of the Secured
Parties,  a  perfected  first  priority  security  interest  in  such  Property,
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including,  without limitation,  the filing of Uniform Commercial Code financing
statements  in  such  jurisdictions  as may be  required  by the  Guarantee  and
Collateral  Agreement  or by law or as may be  requested  by the  Administrative
Agent.

(b)  With  respect  to any fee  interest  in any  real  property  having a value
(together  with  improvements  thereon)  of at least  $1,000,000  (or  otherwise
necessary or useful to the operation of any Gaming  Facility or contiguous  with
any other Mortgaged Property) acquired after the Closing Date by the Borrower or
any of its Subsidiaries  (other than any such real property owned by an Excluded
Foreign Subsidiary or subject to a Lien expressly  permitted by Section 7.3(g)),
promptly  (and,  in any  event,  within  30  days  following  the  date  of such
acquisition)  (i) execute and deliver a first priority  Mortgage in favor of the
Administrative Agent, for the benefit of the Secured Parties, covering such real
property,   subject   only  to   Permitted   Liens  (ii)  if  requested  by  the
Administrative  Agent,  provide the Secured  Parties with (x) title and extended
coverage  insurance  covering  such real property in an amount at least equal to
the  purchase  price of such real  property  (or such  other  amount as shall be
reasonably  specified  by the  Administrative  Agent) as well as a current  ALTA
survey thereof,  together with a surveyor's  certificate and (y) any consents or
estoppels  reasonably deemed necessary or advisable by the Administrative  Agent
in connection  with such  Mortgage,  each of the foregoing in form and substance
reasonably  satisfactory to the  Administrative  Agent and (iii) if requested by
the Administrative  Agent,  deliver to the Administrative  Agent a legal opinion
relating to such Mortgage (and customary related issues), which opinion shall be
in  form  and  substance,  and  from  counsel,  reasonably  satisfactory  to the
Administrative Agent.

(c)  With  respect  to any  new  Subsidiary  (other  than  an  Excluded  Foreign
Subsidiary)  created or acquired after the Closing Date (which, for the purposes
of this  paragraph,  shall include any existing  Subsidiary that ceases to be an
Excluded  Foreign  Subsidiary),  by the  Borrower  or  any of its  Subsidiaries,
promptly (and, in any event,  within 30 days following such creation or the date
of such  acquisition) (i) execute and deliver to the  Administrative  Agent such
amendments to the Guarantee and Collateral Agreement as the Administrative Agent
deems  necessary  or  advisable to grant to the  Administrative  Agent,  for the
benefit of the Secured Parties, a security interest in the Capital Stock of such
new Subsidiary  that is owned by the Borrower or any of its  Subsidiaries,  (ii)
deliver to the Administrative  Agent the certificates  representing such Capital
Stock, together with undated stock powers, in blank, executed and delivered by a
duly authorized officer of the Borrower or such Subsidiary,  as the case may be,
(iii)  cause  such new  Subsidiary  (A) to become a party to the  Guarantee  and
Collateral   Agreement,   an  Intellectual   Property  Security  Agreement,   if
applicable,  and the Subordinated Intercompany Note and (B) to take such actions
necessary or advisable to grant to the  Administrative  Agent for the benefit of
the  Secured  Parties  a  perfected  first  priority  security  interest  in the
Collateral   described  in  the  Guarantee  and  Collateral  Agreement  and  the
Intellectual  Property Security Agreement,  if applicable,  with respect to such
new Subsidiary,  including,  without limitation, the recording of instruments in
the United States Patent and  Trademark  Office and the United States  Copyright
Office,  the  execution  and  delivery  by  all  necessary  Persons  of  Control
Agreements and the filing of Uniform  Commercial  Code  financing  statements in
such jurisdictions as may be required by the Guarantee and Collateral Agreement,
the Intellectual Property Security Agreement, if applicable, or by law or as may
be  requested  by  the  Administrative  Agent,  and  (iv)  if  requested  by the
Administrative  Agent,  deliver  to  the  Administrative  Agent  legal  opinions
relating to the matters  described  above,  which  opinions shall be in form and
substance,  and from  counsel,  reasonably  satisfactory  to the  Administrative
Agent.
                                       82
<PAGE>

(d) With  respect to any new  Excluded  Foreign  Subsidiary  created or acquired
after the  Closing  Date by the  Borrower or any of its  Subsidiaries,  promptly
(and, in any event,  within 30 days  following such creation or the date of such
acquisition) (i) execute and deliver to the Administrative Agent such amendments
to the  Guarantee and  Collateral  Agreement as the  Administrative  Agent deems
necessary or advisable in order to grant to the  Administrative  Agent,  for the
benefit of the Secured Parties, a security interest in the Capital Stock of such
new Subsidiary that is owned by the Borrower or any of its Domestic Subsidiaries
(provided that in no event shall more than 65% of the total outstanding  Capital
Stock of any such new Subsidiary be required to be so pledged),  (ii) deliver to
the  Administrative  Agent the  certificates  representing  such Capital  Stock,
together with undated stock powers,  in blank,  executed and delivered by a duly
authorized officer of the Borrower or such Domestic Subsidiary,  as the case may
be, and take such other  action as may be  necessary  or, in the  opinion of the
Administrative Agent, desirable to perfect a first priority security interest of
the  Administrative  Agent thereon,  (iii) cause such new Subsidiary to become a
party  to the  Subordinated  Intercompany  Note,  and (iv) if  requested  by the
Administrative  Agent,  deliver  to  the  Administrative  Agent  legal  opinions
relating to the matters  described  above,  which  opinions shall be in form and
substance,  and from  counsel,  reasonably  satisfactory  to the  Administrative
Agent.

(e)  Notwithstanding  anything to the contrary in this Section 6.10,  paragraphs
(a), (b), (c) and (d) of this Section 6.10 shall not apply to any Property,  new
Subsidiary  or new Excluded  Foreign  Subsidiary  created or acquired  after the
Closing Date, as applicable, as to which the Administrative Agent has determined
in its sole  discretion  that the collateral  value thereof is  insufficient  to
justify the  difficulty,  time and/or expense of obtaining a perfected  security
interest therein.

6.11     ERISA Documents.

     The  Borrower  will  cause to be  delivered  to the  Administrative  Agent,
promptly upon the Administrative  Agent's request,  any or all of the following:
(i) a copy of each Plan (or,  where any such Plan is not in writing,  a complete
description  thereof)  and, if  applicable,  related  trust  agreements or other
funding instruments and all amendments thereto, and all written  interpretations
thereof and written descriptions thereof that have been distributed to employees
or former  employees of the Borrower or any of its  Subsidiaries;  (ii) the most
recent  determination letter issued by the Internal Revenue Service with respect
to each  applicable  Plan;  (iii) for the three most recent plan years preceding
the Administrative Agent's request,  Annual Reports on Form 5500 Series required
to be filed  with any  governmental  agency  for each  applicable  Plan;  (iv) a
listing of all Multiemployer Plans, with the aggregate amount of the most recent
annual  contributions  required  to be  made  by the  Borrower  or any  Commonly
Controlled  Entity  to each such Plan and  copies of the  collective  bargaining
agreements  requiring  such  contributions;  (v) any  information  that has been
provided to the Borrower or any Commonly Controlled Entity regarding  withdrawal
liability under any  Multiemployer  Plan; (vi) the aggregate  amount of payments
made under any  employee  welfare  benefit  plan (as defined in Section  3(1) of
ERISA) to any retired  employees of the Borrower or any of its  Subsidiaries (or
any  dependents  thereof)  during the most recently  completed  fiscal year; and
(vii) documents  reflecting any agreements  between the PBGC and the Borrower or
any Commonly Controlled Entity with respect to any Plan.
                                       83

<PAGE>

6.12 Use of  Proceeds.  Use the  proceeds  of the  Loans  only for the  purposes
     specified in Section 4.16.

6.13 Post-Closing  Deliverables  and  Undertakings.   Comply  with  all  of  the
     obligations set forth on Schedule 6.13.

6.14 Further  Assurances.  From time to time execute and deliver, or cause to be
     executed  and  delivered,  such  additional  instruments,  certificates  or
     documents,  and take all such  actions,  as the  Administrative  Agent  may
     reasonably  request,  for the purposes of implementing or effectuating  the
     provisions of this Agreement and the other Loan Documents, or of more fully
     perfecting  or  renewing  the  rights of the  Administrative  Agent and the
     Lenders with respect to the  Collateral  (or with respect to any  additions
     thereto or replacements or proceeds or products  thereof or with respect to
     any other  property or assets  hereafter  acquired  by the  Borrower or any
     Subsidiary  which  may be  deemed  to be part of the  Collateral)  pursuant
     hereto or thereto.  Upon the  exercise by the  Administrative  Agent or any
     Lender of any power, right,  privilege or remedy pursuant to this Agreement
     or  the  other  Loan  Documents  which  requires  any  consent,   approval,
     recording,  qualification or  authorization of any Governmental  Authority,
     the  Borrower  will execute and deliver,  or will cause the  execution  and
     delivery  of,  all  applications,  certifications,  instruments  and  other
     documents  and papers that the  Administrative  Agent or such Lender may be
     required to obtain from the  Borrower or any of its  Subsidiaries  for such
     governmental consent, approval, recording, qualification or authorization.

6.15 Gaming  Facilities.  To the extent not done so by the Closing Date,  ensure
     that at all times each Gaming  Facility  of the  Borrower or any other Loan
     Party continues to be self-managed or that any management  contract for any
     such Gaming Facility is collaterally assigned (to the extent not prohibited
     under applicable Gaming Laws), with the consent of the manager  thereunder,
     to the Administrative Agent for the benefit of the Secured Parties.

6.16 Registration of Barges.  Use its best efforts to cause, as soon as possible
     after the Closing Date, the Barges to become (i) documented with the United
     States  Coast  Guard and (ii)  subject to Ship  Mortgages,  in favor of the
     Administrative  Agent,  for the  benefit of the Secured  Parties,  all in a
     manner reasonably satisfactory to the Administrative Agent.

SECTION 7.         NEGATIVE COVENANTS

                  The Borrower  hereby agrees that,  so long as the  Commitments
remain in effect, any Letter of Credit remains  outstanding or any Loan or other
amount is owing to any Lender, any Arranger or any Agent hereunder, the Borrower
shall  not,  and  shall not  permit  any of its  Subsidiaries  to,  directly  or
indirectly:

7.1      Financial Condition Covenants.

(a)  Consolidated  Leverage Ratio. Permit the Consolidated  Leverage Ratio as at
     the last day of any fiscal  quarter set forth below to exceed the ratio set
     forth below opposite such fiscal quarter:
                                       84
<PAGE>

                  (i)  Prior to consummation of the CRC Acquisition:

                                                                   Consolidated

                 Fiscal Quarter                                   Leverage Ratio

                 FQ3  2000                                      4.10:1.00
                 FQ4  2000                                      4.10:1.00
                 FQ1  2001                                      4.10:1.00
                 FQ2  2001                                      4.10:1.00
                 FQ3  2001                                      4.00:1.00
                 FQ4  2001                                      4.00:1.00
                 FQ1  2002                                      3.75:1.00
                 FQ2  2002                                      3.75:1.00
                 FQ3  2002                                      3.75:1.00
                 FQ4  2002                                      3.50:1.00
                 FQ1  2003                                      3.50:1.00
                 FQ2  2003                                      3.50:1.00
                 FQ3  2003                                      3.50:1.00
                 FQ4  2003                                      3.00:1.00
                 FQ1  2004                                      3.00:1.00
                 FQ2  2004                                      3.00:1.00
                 FQ3  2004                                      3.00:1.00
                 FQ4  2004                                      2.50:1.00
                 FQ1  2005                                      2.50:1.00
                 FQ2  2005                                      2.50:1.00
                 FQ3  2005                                      2.50:1.00
                 FQ4  2005 and thereafter                       2.50:1.00

                  (ii)  On and after consummation of the CRC Acquisition:

                                                                   Consolidated

                 Fiscal Quarter                                   Leverage Ratio

                 FQ3  2000                                      4.75:1.00
                 FQ4  2000                                      4.75:1.00
                 FQ1  2001                                      4.75:1.00
                 FQ2  2001                                      4.75:1.00
                 FQ3  2001                                      4.75:1.00
                 FQ4  2001                                      4.50:1.00
                 FQ1  2002                                      4.50:1.00
                 FQ2  2002                                      4.50:1.00
                 FQ3  2002                                      4.50:1.00
                 FQ4  2002                                      4.25:1.00
                 FQ1  2003                                      4.25:1.00
                 FQ2  2003                                      4.25:1.00
                 FQ3  2003                                      4.25:1.00
                                       85
<PAGE>

                 FQ4  2003                                      3.75:1.00
                 FQ1  2004                                      3.75:1.00
                 FQ2  2004                                      3.75:1.00
                 FQ3  2004                                      3.75:1.00
                 FQ4  2004                                      3.50:1.00
                 FQ1  2005                                      3.50:1.00
                 FQ2  2005                                      3.50:1.00
                 FQ3  2005                                      3.50:1.00
                 FQ4  2005 and thereafter                       3.00:1.00

(b) Minimum Consolidated EBITDA.  Permit the Consolidated EBITDA of the Borrower
for any period  ending  with any fiscal  quarter set forth below to be less than
the amount set forth below opposite such fiscal quarter:

                  (i)  Prior to consummation of the CRC Acquisition:

                                                                   Consolidated

                 Fiscal Quarter                                       EBITDA

                 FQ3  2000                                      $70,000,000
                 FQ4  2000                                      $75,000,000
                 FQ1  2001                                      $75,000,000
                 FQ2  2001                                      $75,000,000
                 FQ3  2001                                      $75,000,000
                 FQ4  2001                                      $80,000,000
                 FQ1  2002                                      $80,000,000
                 FQ2  2002                                      $80,000,000
                 FQ3  2002                                      $80,000,000
                 FQ4  2002                                      $85,000,000
                 FQ1  2003                                      $85,000,000
                 FQ2  2003                                      $85,000,000
                 FQ3  2003                                      $85,000,000
                 FQ4  2003                                      $87,500,000
                 FQ1  2004                                      $87,500,000
                 FQ2  2004                                      $87,500,000
                 FQ3  2004                                      $87,500,000
                 FQ4  2004                                      $90,000,000
                 FQ1  2005                                      $90,000,000
                 FQ2  2005                                      $90,000,000
                 FQ3  2005                                      $90,000,000
                 FQ4  2005 and thereafter                       $95,000,000

                  (ii)  On and after consummation of the CRC Acquisition:

                                                                   Consolidated

                 Fiscal Quarter                                       EBITDA
                                       86
<PAGE>

                 FQ3  2000                                      $100,000,000
                 FQ4  2000                                      $100,000,000
                 FQ1  2001                                      $105,000,000
                 FQ2  2001                                      $105,000,000
                 FQ3  2001                                      $105,000,000
                 FQ4  2001                                      $110,000,000
                 FQ1  2002                                      $110,000,000
                 FQ2  2002                                      $110,000,000
                 FQ3  2002                                      $110,000,000
                 FQ4  2002                                      $115,000,000
                 FQ1  2003                                      $115,000,000
                 FQ2  2003                                      $115,000,000
                 FQ3  2003                                      $115,000,000
                 FQ4  2003                                      $120,000,000
                 FQ1  2004                                      $120,000,000
                 FQ2  2004                                      $120,000,000
                 FQ3  2004                                      $120,000,000
                 FQ4  2004                                      $125,000,000
                 FQ1  2005                                      $125,000,000
                 FQ2  2005                                      $125,000,000
                 FQ3  2005                                      $125,000,000
                 FQ4  2005 and thereafter                       $130,000,000

(c)  Consolidated  Fixed Charge Coverage Ratio.  Permit the  Consolidated  Fixed
Charge Coverage Ratio for any period of four consecutive  fiscal quarters of the
Borrower  ending  with any fiscal  quarter  set forth  below to be less than the
ratio set forth below opposite such fiscal quarter:

                                                             Consolidated Fixed
                                                                      Charge
                 Fiscal Quarter                                 Coverage Ratio

                 FQ3  2000                                      1.15:1.00
                 FQ4  2000                                      1.15:1.00
                 FQ1  2001                                      1.15:1.00
                 FQ2  2001                                      1.15:1.00
                 FQ3  2001                                      1.15:1.00
                 FQ4  2001                                      1.15:1.00
                 FQ1  2002                                      1.15:1.00
                 FQ2  2002 and thereafter                       1.25:1.00

(d)  Maintenance  of Net  Worth.  Maintain  Consolidated  Net Worth  equal to or
greater  than the sum of (i) 90% of  Consolidated  Net  Worth as of the  Closing
                                       87

<PAGE>

Date, (ii) 75% of Consolidated  Net Income of the Borrower and its  consolidated
Subsidiaries  since the Closing  Date and (iii) 50% of the Net Cash  Proceeds of
the issuance or sale of Capital Stock of the Borrower or any of its consolidated
Subsidiaries since the Closing Date.

(e)  Consolidated  Senior Leverage  Ratio: On and after  consummation of the CRC
Acquisition permit the Consolidated  Senior Leverage Ratio as at the last day of
any fiscal  quarter set forth below to exceed the ratio set forth below opposite
such fiscal quarter:

                                                                Consolidated
                 Fiscal Quarter                                 Senior Leverage
                                                                Ratio

                 FQ3  2000                                      2.75:1.00
                 FQ4  2000                                      2.75:1.00
                 FQ1  2001                                      2.75:1.00
                 FQ2  2001                                      2.75:1.00
                 FQ3  2001                                      2.75:1.00
                 FQ4  2001                                      2.50:1.00
                 FQ1  2002                                      2.50:1.00
                 FQ2  2002                                      2.50:1.00
                 FQ3  2002                                      2.50:1.00
                 FQ4  2002                                      2.25:1.00
                 FQ1  2003                                      2.25:1.00
                 FQ2  2003                                      2.25:1.00
                 FQ3  2003                                      2.25:1.00
                 FQ4  2003 and thereafter                       2.00:1.00

7.2  Limitation on Indebtedness.  Create,  incur,  assume or suffer to exist any
     Indebtedness, except:

(a)  Indebtedness of any Loan Party created under any Loan Document;

(b)  Unsecured Indebtedness of the Borrower to any Solvent Subsidiary and of any
     Wholly Owned  Guarantor to the  Borrower or any other  Solvent  Subsidiary;
     provided that such  Indebtedness  is evidenced by, and subject to the terms
     and  conditions  of, the  Subordinated  Intercompany  Note and is otherwise
     subordinated  in  right  of  payment  to the  Obligations  under  the  Loan
     Documents on terms and conditions satisfactory to the Administrative Agent;

(c)  Indebtedness  of the  Borrower  and its  Subsidiaries  (including,  without
     limitation, Capital Lease Obligations) in an aggregate principal amount not
     to exceed $15,000,000 at any one time outstanding,  of which $10,000,000 of
     such $15,000,000  aggregate principal amount of Indebtedness may be secured
     by Liens permitted by Section 7.3(g) ;
                                       88
<PAGE>

(d)  Indebtedness of the Borrower and its  Subsidiaries  outstanding on the date
     hereof and listed on  Schedule  7.2(d)  and any  refinancings,  refundings,
     renewals or  extensions  thereof  (without  any  increase in the  principal
     amount  thereof or any  shortening of the maturity of any principal  amount
     thereof);

(e)  Unsecured Guarantee  Obligations made in the ordinary course of business by
     the Borrower or any of its  Subsidiaries  of obligations of the Borrower or
     any Guarantor;

(f)  Unsecured  Indebtedness  of the  Borrower  to be  created in respect of the
     Senior  Subordinated  Notes in an aggregate  principal amount not to exceed
     $200,000,000  (unless such Senior Subordinated Notes are issued pursuant to
     Section  7.8(e)(iii),  in which case the $200,000,000  limitation shall not
     apply)),  and  Guarantee  Obligations  of any  Guarantor in respect of such
     Indebtedness;  provided that such Guarantee Obligations are subordinated to
     the  obligations  of such  Guarantor  under the  Guarantee  and  Collateral
     Agreement to the same extent as the  obligations of the Borrower in respect
     of the  Senior  Subordinated  Notes are  subordinated  to the  Obligations;
     provided that, (A) if such Senior Subordinated Notes are issued pursuant to
     Section  7.8(e)(iii)  (as  certified  to  the  Administrative  Agent  by  a
     Responsible   Officer  of  the  Borrower),   the  proceeds  of  the  Senior
     Subordinated  Notes  are used by the  Borrower  (i) to  consummate  the CRC
     Acquisition  as   contemplated  by  Section  7.8(e)  or  (ii)  if  the  CRC
     Acquisition is not consummated within 15 months after the Closing Date (or,
     if sooner, on the date that either the Borrower or CRC announces, or either
     the  Administrative  Agent or the Syndication Agent reasonably  determines,
     that the  Borrower  is no longer  seeking to  acquire,  or CRC is no longer
     seeking to sell to the Borrower,  the CRC Acquired  Business) either to (x)
     immediately effect a mandatory  prepayment of the Loans pursuant to Section
     2.12(a) or (y) immediately repay the Senior  Subordinated  Notes at a price
     no greater than 101% of the principal  amount thereof;  provided,  further,
     that, until any such application of the proceeds of the Senior Subordinated
     Notes  pursuant  to  this  Section  7.2(f),  all  such  proceeds  shall  be
     maintained  in a  segregated  or  escrow  account  (as  determined  by  the
     Administrative  Agent and the underwriter of the Senior Subordinated Notes)
     and invested in Cash  Equivalents  in a manner deemed  satisfactory  to the
     Administrative  Agent to ensure the prompt and proper  application  of such
     proceeds in all circumstances  (which may include Liens on such proceeds in
     favor  of  the   Administrative   Agent  and  the  holders  of  the  Senior
     Subordinated  Notes) and (B) if such Senior  Subordinated  Notes are issued
     other than  pursuant to Section  7.8(e),  the Borrower  shall,  immediately
     effect a mandatory prepayment of the Loans pursuant to Section 2.12(a); and

(g)  Unsecured  Indebtedness of any Loan Party to be incurred in accordance with
     Section 7.8(j).

7.3 Limitation on Liens. Create,  incur, assume or suffer to exist any Lien upon
any of its Property, whether now owned or hereafter acquired, except for:
                                       89
<PAGE>

(a)  Liens for taxes not yet due or which are being  contested  in good faith by
     appropriate  proceedings,  provided  that  adequate  reserves  with respect
     thereto  are  maintained  on the  books  of the  applicable  Loan  Party in
     conformity with GAAP;

(b)  carriers', warehousemen's,  mechanics', materialmen's, repairmen's or other
     like Liens arising in the ordinary course of business which are not overdue
     for a period of more than 30 days or that are being contested in good faith
     by appropriate proceedings;

(c)  pledges or deposits in connection with workers' compensation,  unemployment
     insurance and other social security legislation;

(d)  deposits  by or on behalf of the  Borrower  or any of its  Subsidiaries  to
     secure the performance of bids,  trade  contracts  (other than for borrowed
     money), leases, statutory obligations, surety and appeal bonds, performance
     bonds and other  obligations  of a like  nature  incurred  in the  ordinary
     course of business;

(e)  easements,  rights-of-way,  restrictions  and  other  similar  encumbrances
     incurred in the ordinary course of business that, in the aggregate, are not
     substantial in amount and which do not in any case materially  detract from
     the value of the Property subject thereto or materially  interfere with the
     ordinary   conduct  of  the   business  of  the  Borrower  or  any  of  its
     Subsidiaries;

(f)  Liens in existence on the date hereof listed on Schedule  7.3(f),  securing
     Indebtedness  permitted by Section  7.2(d),  provided  that no such Lien is
     spread to cover any additional Property after the Closing Date and that the
     amount of Indebtedness secured thereby is not increased;

(g)  Liens  securing  Indebtedness  of the  Borrower or any of its  Subsidiaries
     incurred  pursuant to Section  7.2(c) so long as neither (i) the  aggregate
     outstanding  principal  amount of the obligations  secured thereby nor (ii)
     the aggregate fair market value (determined, in the case of each such Lien,
     as of the date such Lien is incurred) of the assets subject thereto exceeds
     (as to the  Borrower  and all  Subsidiaries)  at any one time  the  amounts
     permitted to be secured under Section 7.2(c);

(h)  Liens created pursuant to the Security Documents;

(i)  Permitted Vessel Liens;

(j)  any  interest  or title of a lessor  under  any lease  entered  into by the
     Borrower or any of its  Subsidiaries in the ordinary course of its business
     and covering only the assets so leased; and

(k)  Liens  which  appear  on  the  final  title   policies  for  the  Mortgaged
     Properties.

7.4  Limitation on Fundamental Changes. Enter into any merger,  consolidation or
     amalgamation,  or  liquidate,  wind up or  dissolve  itself  (or suffer any
     liquidation or dissolution),  or Dispose of all or substantially all of its
     Property or business, except that:
                                       90
<PAGE>

(a)  any Solvent  Subsidiary of the Borrower may be merged or consolidated  with
     or into the Borrower (provided that the Borrower shall be the continuing or
     surviving  corporation)  or with or into any Guarantor  (provided  that the
     Guarantor shall be the continuing or surviving corporation),  subject to at
     least 30 days prior written notice to the Administrative Agent; and

(b)  any  Subsidiary  of the  Borrower  may  Dispose of any or all of its assets
     (upon voluntary liquidation or otherwise) to the Borrower or any Guarantor.

7.5  Limitation  on  Disposition  of  Property.  Dispose of any of its  Property
(including,  without limitation,  receivables and leasehold interests),  whether
now  owned or  hereafter  acquired,  or,  in the case of any  Subsidiary  of the
Borrower,  issue or sell any shares of such  Subsidiary's  Capital  Stock to any
Person, except:

(a)  the  Disposition of obsolete or worn out property in the ordinary course of
     business;

(b)  the sale of inventory in the ordinary course of business;

(c)  Dispositions permitted by Section 7.4(b);

(d)  the  sale  or  issuance  of any  Subsidiary's  Capital  Stock  (other  than
     Disqualified Stock) to the Borrower or any Guarantor;

(e)  the Disposition by the Borrower or any of its  Subsidiaries of other assets
     having a fair market value not to exceed  $5,000,000  in the  aggregate for
     any fiscal year of the Borrower, provided, that the requirements of Section
     2.12(b) are complied with in connection therewith; and

(f)  any Recovery Event, provided,  that the requirements of Section 2.12(b) are
     complied with in connection therewith.

7.6 Limitation on Restricted  Payments.  Declare or pay any dividend (other than
dividends payable solely in common stock (excluding  Disqualified  Stock) of the
Person making such dividend) on, or make any payment on account of, or set apart
assets for a sinking or other  analogous  fund for,  the  purchase,  redemption,
defeasance,  retirement  or  other  acquisition  of,  any  Capital  Stock of the
Borrower or any of its Subsidiaries,  whether now or hereafter  outstanding,  or
make any other  distribution in respect thereof,  either directly or indirectly,
whether in cash or  property  or in  obligations  of the  Borrower or any of its
Subsidiaries,  or enter  into any  derivatives  or  other  transaction  with any
financial  institution,  commodities  or  stock  exchange  or  clearinghouse  (a
"Derivatives  Counterparty")  obligating the Borrower or any of its Subsidiaries
to make payments to such  Derivatives  Counterparty as a result of any change in
market value of any such Capital Stock  (collectively,  "Restricted  Payments"),
except that (i) any Subsidiary may make  Restricted  Payments to the Borrower or
any  Guarantor  and (ii) the  Borrower  may  repurchase  up to an  aggregate  of
$10,000,000 of its Capital Stock (increasing to $15,000,000  after  consummation
of the CRC Acquisition).
                                       91
<PAGE>

7.7  Limitation  on  Capital  Expenditures.  Make or commit to make any  Capital
Expenditure,   except  (i)  Maintenance  Capital   Expenditures  not  to  exceed
$12,000,000 in the aggregate in any fiscal year  (increasing to $16,000,000  per
fiscal year beginning with the first full fiscal year after  consummation of the
CRC Acquisition) and (ii) Capital  Expenditures  (other than Maintenance Capital
Expenditures) of the Borrower and its Subsidiaries:

     (a)  with  respect  to the  Charles  Town  Gaming  Facility,  not to exceed
          $55,000,000 in the aggregate;

     (b)  with respect to the Bay St. Louis Casino, not to exceed $32,500,000 in
          the aggregate;

     (c)  with  respect to the  purchase of the  Skrmetta  Lease,  not to exceed
          $20,000,000 in the aggregate;

     (d)  after  consummation  of  the  CRC  Acquisition,  with  respect  to the
          expansion of, and the purchase of the ground lease relating to, Casino
          Rouge, not to exceed $20,000,000 in the aggregate;

     (e)  made with Reinvestment Deferred Amounts; and

     (f)  additional  Capital  Expenditures  not  exceeding  $20,000,000  in the
          aggregate (which may be used for the purposes set forth in clauses (i)
          and  (ii)(a)  through  (e)  above in excess  of the  limits  set forth
          therein,  or for other Capital  Expenditures  (or for any  combination
          thereof)).

7.8 Limitation on Investments.  Make any advance,  loan, extension of credit (by
way of guaranty  or  otherwise)  or capital  contribution  to, or  purchase  any
Capital  Stock,  bonds,  notes,  debentures or other debt  securities of, or any
assets constituting an ongoing business from, or make any other investment in, a
joint venture or any other Person (all of the foregoing, "Investments"), except:

(a)  extensions of trade credit  (including to gaming customers) in the ordinary
     course of business;

(b)      Investments in Cash Equivalents;

(c)  Investments  arising in  connection  with the  incurrence  of  Indebtedness
     permitted by Section 7.2(b) and (e);

(d)  the Acquisition (including,  without limitation, any adjustment pursuant to
     Section 3.3.2 of each Acquisition Agreement);

(e)  the CRC Acquisition;  provided that such acquisition is consummated  within
     15 months after the Closing Date; and provided,  further,  that each of the
     following conditions is satisfied:
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(i)  the Agents shall be  reasonably  satisfied  with the structure and terms of
     the CRC  Acquisition,  including,  without  limitation,  all  legal and tax
     aspects thereof;

(ii) the capital structure of each Loan Party after the CRC Acquisition shall be
     reasonably satisfactory to the Agents;

(iii)the CRC  Acquisition  shall be  financed by the  Borrower's  issuance of at
     least $200,000,000 in aggregate  principal amount (or such amount less than
     $200,000,000 as may be consented to by the Supermajority  Facility Lenders)
     of Senior Subordinated Notes;

(iv) the Borrower's  ratings from Moody's and S&P after giving effect to the CRC
     Acquisition and the issuance of the Senior  Subordinated Notes shall not be
     lower than at the Closing Date;

(v)  there shall not have occurred or become known to the Agents any  continuing
     Default or Event of Default under the Loan  Documents  (including pro forma
     for the CRC Acquisition and the financing thereof contemplated hereby);

(vi) all  representations  and  warranties  of the  Borrower  contained  in this
     Agreement  shall  be  true  and  correct  after  giving  effect  to the CRC
     Acquisition (after allowing for the updating of Schedules to this Agreement
     and the Guarantee and  Collateral  Agreement to reflect the  acquisition by
     the Borrower of the assets comprising the CRC Acquired Business);

(vii)the  Consolidated  Leverage  Ratio  of the  Borrower  and its  Subsidiaries
     (after giving effect to the CRC  Acquisition) on the last day of the fiscal
     quarter ended most recently  prior to the CRC Closing Date shall not exceed
     4.50:1.00;

(viii) Consolidated  EBITDA of the Borrower and its  Subsidiaries  (after giving
     effect to the CRC  Acquisition)  shall be at least  equal to the amount set
     forth in  Section  7.1(b)(ii)  corresponding  to the last day of the fiscal
     quarter ended most recently prior to the CRC Closing Date;

(ix) there  shall not have  occurred  or become  known to the  Agents any event,
     development or  circumstance  since December 31, 1999 (the date of the most
     recent audited financial  statements delivered to the Agents as of the date
     hereof) that has caused or could reasonably be expected to cause a Material
     Adverse Effect,  or a material adverse condition or material adverse change
     in or affecting (A) the CRC  Acquisition,  (B) the condition  (financial or
     otherwise), business, results of operations, assets, liabilities, property,
     management,  prospects or value of (x) the  Borrower and its  Subsidiaries,
     taken as a whole, or (y) the CRC Acquired Business taken as a whole or that
     calls into question in any material  respect any financial  information and
     projections ("Projections") previously supplied to the Agents or any of the
     material assumptions on which the Projections were prepared or
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<PAGE>

     (C) the  validity or  enforceability  of any of the Loan  Documents  or the
     rights and remedies of the Administrative Agent or the Lenders thereunder;

(x)  the Agents shall have completed, and shall be reasonably satisfied with the
     results of, their due diligence investigation of the CRC Acquired Business;

(xi) the  Agents  shall  not have  become  aware  after  the date  hereof of any
     information or other matter affecting the Borrower,  its Subsidiaries,  the
     CRC  Acquired  Business  or the  transactions  contemplated  hereby that is
     inconsistent in a material and adverse manner with any such  information or
     other matter disclosed to the Agents prior to the date hereof;

(xii)all governmental  and third party approvals and consents,  including Gaming
     Approvals and regulatory approvals, necessary or, in the sole discretion of
     the  Agents,  advisable  in  connection  with  the CRC  Acquisition  or the
     financing  thereof  contemplated  hereby shall have been obtained and be in
     full  force and  effect,  and all  applicable  waiting  periods  shall have
     expired  without any action  being  taken or  threatened  by any  competent
     authority  that  would  restrain,   prevent  or  otherwise  impose  adverse
     conditions on the CRC  Acquisition  or the financing  thereof  contemplated
     hereby;

(xiii) the Agents shall have received  satisfactory audited and unaudited (which
     have been  reviewed  by the  independent  accountants  for the  Borrower as
     provided in Statement on Auditing Standards No. 71) financial statements of
     the Borrower,  the Guarantors  and the CRC Acquired  Business and all other
     completed  or  probable   acquisitions   (including  pro  forma   financial
     statements)  meeting  the  requirements  of  Regulation  S-X for a Form S-1
     registration  statement  under the Securities Act of 1933, as amended,  and
     all such financial  statements  shall be satisfactory in form to the Agents
     in their sole discretion;

(xiv)the Agents  shall have  received  the results of a recent  lien,  tax lien,
     judgment and litigation  search in each relevant  jurisdiction with respect
     to the CRC Acquired Business, and such search results shall reveal no liens
     on any  of the  assets  of the  CRC  Acquired  Business  except  for  liens
     permitted by the Loan  Documents or liens to be  discharged  on or prior to
     the CRC Closing Date pursuant to documentation satisfactory to the Agents;

(xv) the Agents shall have received an appraisal of certain  assets  included in
     the CRC Acquired  Business to be specified by the Agents by  appraisers  to
     the Agents, all in form and substance satisfactory to the Agents;

(xvi)the Agents  shall have  received a  Solvency  Certificate  of the  Borrower
     which shall  document the  Solvency of the  Borrower  and the  Subsidiaries
     after  giving  pro  forma  effect  to the CRC  Acquisition  and  the  other
     transactions contemplated hereby, all in form and substance satisfactory to
     the Agents;

(xvii) the Agents shall have received Phase I  environmental  reports (and where
     appropriate  based  upon  such  Phase I  environmental  reports  and at the
     request of the Agents,  Phase II  environmental  reports)  with  respect to
     certain real  property  included in the CRC Acquired  Business  from a firm
     satisfactory to the Agents,  all in form and substance  satisfactory to the
     Agents;
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<PAGE>

(xviii) the  Agents  shall be  satisfied  (in their  sole  discretion)  with the
     sufficiency of amounts  available  under the Revolving  Credit  Facility to
     meet the ongoing working capital needs of the Borrower and its Subsidiaries
     following  the   consummation   of  the  CRC   Acquisition  and  the  other
     transactions contemplated hereby;

(xix)the Agents shall have received such legal opinions  (including opinions (A)
     from  counsel to the Borrower and its  Subsidiaries,  (B)  delivered to the
     Borrower by counsel to the CRC Acquired  Business,  accompanied by reliance
     letters in favor of the Agents and (C) from such special and local  counsel
     as may be required by the Agents),  documents and other  instruments as are
     customary for transactions of this type or as they may reasonably request;

(xx) the Agents shall have received such  corporate and other  documentation  as
     they  shall  reasonably  request  including,   without  limitation,   board
     resolutions, incumbency certificates and good standing certificates; and

(xxi)immediately after giving effect to the CRC Acquisition,  the Administrative
     Agent,  for the  benefit of the  Secured  Parties,  shall have a  perfected
     security  interest in all material  Property  formerly  comprising  the CRC
     Acquired Business;

(f)  Investments   in  assets  useful  in  the   Borrower's  or  the  applicable
     Subsidiary's  business made by the Borrower or any of its Subsidiaries with
     the proceeds of any Reinvestment Deferred Amount;

(g)  Capital Expenditures permitted by Section 7.7;

(h)  Investments  (other than those relating to the  incurrence of  Indebtedness
     permitted by Section 7.8(c)) by the Borrower or any of its  Subsidiaries in
     the Borrower or any Person that, prior to such Investment, is a Guarantor;

(i)  up to $5,000,000 as a deposit in connection with the CRC Acquisition and up
     to  $2,000,000  to  extend  any  period   allowed  to  consummate  the  CRC
     Acquisition pursuant to the documentation governing the CRC Acquisition;

(j)  the investment by any Loan Party of up to $30,000,000 in unsecured  revenue
     bonds issued by the Mississippi Business Finance Corporation,  an agency of
     the State of Mississippi  chartered to promote the  development of business
     within   the  State  of   Mississippi   (on  terms   satisfactory   to  the
     Administrative  Agent and the  Syndication  Agent),  the  proceeds of which
     shall  be  loaned  to any  other  Loan  Party  to be used  to make  Capital
     Expenditures  with  respect  to a hotel  at the Bay St.  Louis  Casino,  as
     permitted  by  Section  7.7(b)  and to pay  customary  costs  and  expenses
     associated  with the  issuance of such bonds and the  construction  of such
     hotel, provided, however, that such revenue bonds are owned by the Borrower
     or one of its Subsidiaries;
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<PAGE>

(k)  in addition to Investments  otherwise  expressly permitted by this Section,
     Investments  by the  Borrower or any of its  Subsidiaries  in an  aggregate
     amount (valued at cost) not to exceed  $10,000,000  during the term of this
     Agreement   (increasing  to  $15,000,000  after  consummation  of  the  CRC
     Acquisition); and

(l)  exercise of the Trackpower Warrant, provided, however, that such Investment
     shall not exceed  $10,000,000  and provided  that the shares  received upon
     such  exercise  are  promptly  pledged  to  the  Administrative   Agent  as
     Collateral hereunder.

7.9  Limitation on Optional  Payments and  Modifications  of  Indebtedness.  (a)
Except as  expressly  set  forth in  Section  7.2(f),  make or offer to make any
optional or voluntary  payment,  prepayment,  repurchase  or  redemption  of, or
otherwise  voluntarily or optionally  defease,  any  Indebtedness,  or segregate
funds for any such payment, prepayment, repurchase, redemption or defeasance, or
enter into any derivative or other transaction with any Derivatives Counterparty
obligating  the  Borrower or any of its  Subsidiaries  to make  payments to such
Derivatives  Counterparty  as a result of any  change  in  market  value of such
Indebtedness,  other than the prepayment of Indebtedness incurred hereunder, (b)
amend,  modify  or  otherwise  change,  or  consent  or agree to or  permit  any
amendment, modification, waiver or other change to, any of the terms (including,
without limitation,  the subordination terms) of (x) any Indebtedness (including
the  Indebtedness  evidenced  by the  Debt  Service  Maintenance  Agreement  but
excluding the  Indebtedness  hereunder) or (y) any other  contingent  obligation
listed on Schedule  4.29(b)  (other  than,  in the case of clause (x),  any such
amendment,  modification,  waiver or other  change  which (i) would  extend  the
maturity or reduce the amount of any payment of  principal  thereof,  reduce the
rate or extend the date for payment of interest thereon or relax any covenant or
other restriction applicable to the Borrower or any of its Subsidiaries and (ii)
does not  involve  the  payment  of a consent  fee) or (c)  amend or permit  the
amendment of its Governing Documents in any manner reasonably  determined by the
Administrative Agent to be adverse to the Lenders.

7.10 Limitation on Transactions  with  Affiliates.  Enter into any  transaction,
including,  without  limitation,  any  purchase,  sale,  lease  or  exchange  of
Property,  the  rendering  of any  service  or the  payment  of any  management,
advisory or similar  fees,  with any  Affiliate  (other than the Borrower or any
Guarantor)  unless  such  transaction  is (a)  otherwise  permitted  under  this
Agreement,  (b) in the  ordinary  course of  business  of the  Borrower  or such
Subsidiary,  as the case may be, and (c) upon fair and reasonable  terms no less
favorable to the Borrower or such Subsidiary,  as the case may be, than it would
obtain in a  comparable  arm's length  transaction  with a Person that is not an
Affiliate.

7.11  Limitation on Sales and Leasebacks.  Enter into any  arrangement  with any
Person  providing for the leasing by the Borrower or any of its  Subsidiaries of
Property  which has been or is to be sold or transferred by the Borrower or such
Subsidiary  to such Person or to any other Person to whom funds have been or are
to be  advanced  by such  Person  on the  security  of such  Property  or rental
obligations of the Borrower or such Subsidiary.

7.12 Limitation  on Changes  in Fiscal  Periods.  Permit the fiscal  year of the
     Borrower or any of its  Subsidiaries to end on a day other than December 31
     or change the Borrower's or any of its Subsidiaries'  method of determining
     fiscal quarters.
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<PAGE>

7.13  Limitation on Negative  Pledge  Clauses.  Enter into or suffer to exist or
become  effective  any  agreement  that  prohibits  or limits the ability of the
Borrower or any of its Subsidiaries to create,  incur, assume or suffer to exist
any Lien upon any of its  Property or  revenues,  whether now owned or hereafter
acquired,  to  secure  the  Obligations  or, in the case of any  guarantor,  its
obligations  under the Guarantee and Collateral  Agreement,  other than (a) this
Agreement  and the  other  Loan  Documents,  (b) any  agreements  governing  any
purchase money Liens or Capital Lease Obligations otherwise permitted hereby (in
which case, any  prohibition or limitation  shall only be effective  against the
assets  financed   thereby),   and  (c)  the  indenture   governing  the  Senior
Subordinated  Notes (to the extent not otherwise in conflict with this Agreement
and the other Loan Documents).

7.14 Limitation on Restrictions on Subsidiary Distributions,  etc. Enter into or
suffer to exist or become effective any consensual encumbrance or restriction on
the  ability of the  Borrower  or any of its  Subsidiaries  (or,  in the case of
clause (a) only, any Subsidiary of the Borrower) to (a) make Restricted Payments
in  respect  of  any  Capital  Stock  of  such  Subsidiary  held  by,  or pay or
subordinate any Indebtedness owed to, the Borrower or any other Subsidiary,  (b)
make  Investments in the Borrower or any other Subsidiary or (c) transfer any of
its assets to the Borrower or any other Subsidiary, except for such encumbrances
or  restrictions  existing under or by reason of (i) any  restrictions  existing
under the Loan Documents,  (ii) any restrictions  under the indenture  governing
the Senior Subordinated Notes (to the extent not otherwise in conflict with this
Agreement and the other Loan Documents), and (iii) any restrictions with respect
to a Subsidiary  imposed  pursuant to an agreement that has been entered into in
connection with the Disposition of all or substantially all of the Capital Stock
or assets of such Subsidiary to the extent not otherwise prohibited hereby.

7.15 Limitation on Lines of Business.  Enter into any business,  either directly
or through any Subsidiary, except for those businesses in which the Borrower and
its  Subsidiaries are engaged on the date of this Agreement (after giving effect
to the Acquisition) or that are reasonably related thereto.

7.16 Limitation on Amendments to Acquisition  Documentation.  Amend, supplement,
replace or otherwise modify (whether  pursuant to a waiver granted by or to such
Person or otherwise) or fail to enforce strictly the terms and conditions of any
of the Acquisition  Documentation  except to the extent that any such amendment,
supplement,  modification or failure to enforce could not reasonably be expected
to have a Material Adverse Effect.

7.17 Limitation on Hedge  Agreements.  Enter into any Hedge Agreement other than
in the ordinary course of business, and not for speculative purposes, to protect
against  changes in interest  rates or foreign  exchange  rates in an  aggregate
notional amount not to exceed $175,000,000 at any one time outstanding.

7.18 Restriction on Leases.  The Borrower shall not, and shall not permit any of
its Subsidiaries to, become liable in any way, whether directly or by assignment
or as a guarantor or other surety,  for the  obligations of the lessee under any
lease (other than intercompany  leases between the Borrower and its wholly-owned
Subsidiaries),  unless,  immediately  after giving  effect to the  incurrence of
liability  with  respect to such  lease,  at the time in effect  during the then
current fiscal year:
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(a)  the Consolidated Rental Payments shall not exceed (i) $5,750,000 before the
     consummation  of  the  CRC  Acquisition  and  (ii)  $6,250,000   after  the
     consummation of the CRC Acquisition; and

(b)  the  Consolidated  Lease  Occupancy Cost Payments shall equal the aggregate
     Consolidated Lease Occupancy Cost Payments which the Borrower or any of its
     Subsidiaries is obligated to pay according to any occupancy cost formula in
     any  Operating  Leases of real property to which the Borrower or any of its
     Subsidiaries  currently  is a party as lessee on the  Closing  Date or such
     lesser  amount  as  may  be  negotiated  by  the  Borrower  or  any  of its
     Subsidiaries.

SECTION 8.                      EVENTS OF DEFAULT

                  If any of the following events shall occur and be continuing:

(a)  The Borrower  shall fail to pay any principal of any Loan or  Reimbursement
     Obligation  when due in accordance  with the terms hereof;  or the Borrower
     shall fail to pay any interest on any Loan or Reimbursement  Obligation, or
     any Loan Party  shall fail to pay any other  amount  payable  hereunder  or
     under any other Loan Document,  within five days after any such interest or
     other amount  becomes due in accordance  with the terms hereof or the terms
     of such other Loan Document, as the case may be; or

(b)  Any representation or warranty made or deemed made by any Loan Party herein
     or in any other Loan  Document  or that is  contained  in any  certificate,
     document or financial or other statement  furnished by it at any time under
     or in connection  with this Agreement or any such other Loan Document shall
     prove to have been inaccurate in any material  respect on or as of the date
     made or deemed made; or

(c)  (i) Any Loan Party shall default in the  observance or  performance  of any
     agreement  contained  in  clause  (i) or (ii) of  Section  6.4(a),  Section
     6.7(a), Section 7 or Section 5 of the Guarantee and Collateral Agreement or
     (ii) an "Event of  Default"  under and as defined in any  Mortgage  or Ship
     Mortgage; or

(d)  Any Loan Party shall default in the  observance or performance of any other
     covenant  or  agreement  contained  in this  Agreement  or any  other  Loan
     Document  (other  than as provided  in  paragraphs  (a) through (c) of this
     Section),  and such default shall  continue  unremedied  for a period of 30
     days; or

(e)  The  Borrower  or any of its  Subsidiaries  shall (i) default in making any
     payment  of  any  principal  of  any   Indebtedness   (including,   without
     limitation,  any  Guarantee  Obligation,  but  excluding  the Loans) on the
     scheduled  or original due date with  respect  thereto;  or (ii) default in
     making any  payment of any  interest  on any such  Indebtedness  beyond the
     period of grace,  if any,  provided in the  instrument  or agreement  under
     which such Indebtedness was created;  or (iii) default in the observance or
     performance  of any  other  agreement  or  condition  relating  to any such
     Indebtedness  or  contained  in any  instrument  or  agreement  evidencing,
                                       98
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     securing or relating  thereto,  or any other event shall occur or condition
     exist, the effect of which default or other event or condition is to cause,
     or to permit the holder or beneficiary of such  Indebtedness  (or a trustee
     or agent on behalf of such holder or beneficiary) to cause, with the giving
     of notice if required,  such Indebtedness to become due prior to its stated
     maturity or (in the case of any such Indebtedness  constituting a Guarantee
     Obligation) to become payable; provided, that a default, event or condition
     described in clause (i), (ii) or (iii) of this  paragraph (e) shall
     not at any time constitute an Event of Default unless, at such time, one or
     more  defaults,  events or conditions of the type described in clauses (i),
     (ii) and (iii) of this  paragraph (e) shall have occurred and be continuing
     with respect to  Indebtedness  the  outstanding  principal  amount of which
     exceeds in the aggregate $1,000,000; or

(f)  (i) The  Borrower  or any of its  Subsidiaries  shall  commence  any  case,
     proceeding  or other  action  (A) under any  existing  or future law of any
     jurisdiction,  domestic or foreign,  relating  to  bankruptcy,  insolvency,
     reorganization  or relief of  debtors,  seeking to have an order for relief
     entered  with  respect  to it, or seeking to  adjudicate  it a bankrupt  or
     insolvent, or seeking reorganization,  arrangement, adjustment, winding-up,
     liquidation, dissolution, composition or other relief with respect to it or
     its debts, or (B) seeking  appointment of a receiver,  trustee,  custodian,
     conservator or other similar  official for it or for all or any substantial
     part of its assets, or the Borrower or any of its Subsidiaries shall make a
     general assignment for the benefit of its creditors; or (ii) there shall be
     commenced  against  the  Borrower  or  any of its  Subsidiaries  any  case,
     proceeding or other action of a nature referred to in clause (i) above that
     (A) results in the entry of an order for relief or any such adjudication or
     appointment  or (B) remains  undismissed,  undischarged  or unbonded  for a
     period of 60 days;  or (iii) there shall be commenced  against the Borrower
     or any of its  Subsidiaries  any case,  proceeding or other action  seeking
     issuance  of a warrant  of  attachment,  execution,  distraint  or  similar
     process against all or any  substantial  part of its assets that results in
     the entry of an order for any such relief that shall not have been vacated,
     discharged,  or  stayed or bonded  pending  appeal  within 60 days from the
     entry thereof;  or (iv) the Borrower or any of its Subsidiaries  shall take
     any action in furtherance of, or indicating its consent to, approval of, or
     acquiescence  in, any of the acts set forth in clause (i),  (ii),  or (iii)
     above; or (v) the Borrower or any of its Subsidiaries  shall generally not,
     or shall be unable to, or shall admit in writing its  inability to, pay its
     debts as they become due; or

(g)  (i) Any Person shall engage in any "prohibited  transaction" (as defined in
     Section 406 of ERISA or Section 4975 of the Code)  involving any Plan, (ii)
     any "accumulated  funding deficiency" (as defined in Section 302 of ERISA),
     whether or not waived,  shall exist with respect to any Plan or any Lien in
     favor of the PBGC or a Plan shall  arise on the assets of the  Borrower  or
     any Commonly  Controlled Entity,  (iii) a Reportable Event shall occur with
     respect to, or proceedings shall commence to have a trustee appointed, or a
     trustee  shall be appointed,  to  administer  or to  terminate,  any Single
     Employer Plan,  which  Reportable  Event or  commencement of proceedings or
     appointment  of a trustee  is, in the  reasonable  opinion of the  Required
     Lenders,  likely to result in the  termination of such Plan for purposes of
     Title IV of ERISA,  (iv) any  Single  Employer  Plan  shall  terminate  for
     purposes of Title IV of ERISA, (v) the Borrower or any Commonly  Controlled
     Entity  shall,  or in the  reasonable  opinion of the  Required  Lenders is
     likely to, incur any liability in connection with a withdrawal from, or the
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     Insolvency or Reorganization of, a Multiemployer Plan, (vi) the Borrower or
     any of its Subsidiaries or any Commonly Controlled Entity shall be required
     to make during any fiscal  year of the  Borrower  payments  pursuant to any
     employee  welfare  benefit  plan (as defined in Section 3(1) of ERISA) that
     provides  benefits to retired  employees (or their dependents) that, in the
     aggregate,  exceed the amount set forth on Schedule 8(g)(i) with respect to
     such fiscal  year,  (vii) the  Borrower or any of its  Subsidiaries  or any
     Commonly Controlled Entity shall be required to make during any fiscal year
     of the Borrower  contributions  to any defined benefit pension plan subject
     to  Title IV of ERISA  (including  any  Multiemployer  Plan)  that,  in the
     aggregate, exceed the amount set forth on Schedule 8(g)(ii) with respect to
     such fiscal year or (viii) any other similar event or condition shall occur
     or exist with  respect to a Plan;  and in each case in clauses  (i) through
     (viii) above, such event or condition,  together with all other such events
     or  conditions,  if any,  could  reasonably  be expected to have a Material
     Adverse Effect; or

(h)  One or more  judgments or decrees shall be entered  against the Borrower or
     any of its  Subsidiaries  involving  for the Borrower and its  Subsidiaries
     taken as a whole a liability  (not paid or fully covered by insurance as to
     which  the  relevant  insurance  company  has  acknowledged   coverage)  of
     $1,000,000 or more,  and all such  judgments or decrees shall not have been
     vacated,  discharged,  stayed or bonded  pending appeal within 30 days from
     the entry thereof; or

(i)  Any of the  Security  Documents  shall  cease,  for any reason  (other than
     pursuant to the terms thereof), to be in full force and effect, or any Loan
     Party or any  Affiliate  of any Loan  Party  shall so  assert,  or any Lien
     created by any of the Security  Documents shall cease to be enforceable and
     of the same effect and priority purported to be created thereby; or

(j)  The  guarantee  contained  in  Section 2 of the  Guarantee  and  Collateral
     Agreement  shall cease,  for any reason  (other than  pursuant to the terms
     thereof), to be in full force and effect or any Loan Party or any Affiliate
     of any Loan Party shall so assert; or

(k)  Any Loan Party or any  Affiliate  of any Loan Party  shall  assert that any
     provision of any Loan Document is not in full force and effect; or

(l)  (i) the Permitted  Investors shall cease to own of record and  beneficially
     an  amount  of common  stock of the  Borrower  equal to at least 20% of the
     amount of common stock of the Borrower owned by the Permitted  Investors of
     record and  beneficially  as of the  Closing  Date;  (ii) any  "person"  or
     "group"  (as  such  terms  are  used in  Sections  13(d)  and  14(d) of the
     Securities  Exchange  Act  of  1934,  as  amended  (the  "Exchange  Act")),
     excluding the Permitted Investors,  shall become, or obtain rights (whether
     by means or warrants,  options or  otherwise)  to become,  the  "beneficial
     owner" (as defined in Rules  13(d)-3 and 13(d)-5  under the Exchange  Act),
     directly or indirectly, of more than 15% of the outstanding common stock of
     the Borrower;  (iii) the board of directors of the Borrower  shall cease to
     consist  of a  majority  of  Continuing  Directors;  or (iv) a  "change  of
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     control" or similar event (howsoever  defined) with respect to the Borrower
     or any Guarantor under the documentation  governing the Senior Subordinated
     Notes shall occur; or

(m)  The  Indebtedness  under the Senior  Subordinated  Notes or any  guarantees
     thereof  shall cease,  for any reason,  to be validly  subordinated  to the
     Obligations or the  obligations  of the Guarantors  under the Guarantee and
     Collateral Agreement,  as the case may be, as provided in the documentation
     evidencing or governing the Senior  Subordinated  Notes, or any Loan Party,
     any Affiliate of any Loan Party or the holders (or any trustee on behalf of
     the  holders)  of at  least  25% in  aggregate  principal  amount  of  such
     Indebtedness shall so assert; or

(n)  The  Borrower  or  any of  its  Subsidiaries  shall  (i)  be  subject  to a
     suspension,   revocation,   denial  or  loss  of  a  material   license  or
     qualification or any other license or qualification issued or granted under
     any Gaming Law or by any Gaming  Authority,  or with  respect to any Gaming
     Facility  or be found not  suitable  by any Gaming  Authority  or under any
     applicable  Gaming Laws or (ii) fail to apply for a license,  qualification
     or a finding of  suitability  within 30 days (or such shorter period as may
     be required by the applicable Gaming Authority) after being requested to do
     so by a Gaming Authority; then, and in any such event, (A) if such event is
     an Event of Default  specified in clause (i) or (ii) of paragraph (f) above
     with  respect  to any  Loan  Party,  automatically  the  Commitments  shall
     immediately  terminate  and the  Loans  hereunder  (with  accrued  interest
     thereon) and all other  amounts  owing under this  Agreement  and the other
     Loan  Documents  (including,   without  limitation,   all  amounts  of  L/C
     Obligations,  whether  or not the  beneficiaries  of the  then  outstanding
     Letters of Credit shall have presented the documents  required  thereunder)
     shall  immediately  become  due and  payable,  and (B) if such event is any
     other  Event of  Default,  either or both of the  following  actions may be
     taken:  (i) with the  consent of the  Majority  Revolving  Credit  Facility
     Lenders,  the Administrative Agent may, or upon the request of the Majority
     Revolving  Credit  Facility  Lenders,  the  Administrative  Agent shall, by
     notice to the  Borrower  declare the  Revolving  Credit  Commitments  to be
     terminated  forthwith,  whereupon the Revolving  Credit  Commitments  shall
     immediately  terminate;  and (ii) with the consent of the Required Lenders,
     the Administrative  Agent may, or upon the request of the Required Lenders,
     the  Administrative  Agent shall,  by notice to the  Borrower,  declare the
     Loans hereunder (with accrued interest thereon) and all other amounts owing
     under this  Agreement  and the other  Loan  Documents  (including,  without
     limitation,   all   amounts  of  L/C   Obligations,   whether  or  not  the
     beneficiaries  of  the  then  outstanding  Letters  of  Credit  shall  have
     presented  the  documents  required  thereunder)  to  be  due  and  payable
     forthwith,  whereupon  the same shall  immediately  become due and payable.
     Upon the occurrence and during the continuation of an Event of Default, the
     Administrative  Agent and the Lenders shall be entitled to exercise any and
     all remedies  available under the Security  Documents,  including,  without
     limitation,  the Guarantee and Collateral Agreement,  the Mortgages and the
     Ship Mortgages,  or otherwise  available under applicable law or otherwise.
     With respect to all Letters of Credit with respect to which presentment for
     honor shall not have  occurred at the time of an  acceleration  pursuant to
     this  paragraph,  the  Borrower  shall  at  such  time  deposit  in a  cash
     collateral  account  opened  by  the  Administrative  Agent  an  amount  in
     immediately  available  funds  equal  to the  aggregate  then  undrawn  and
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     unexpired  amount of such Letters of Credit (and the Borrower hereby grants
     to the  Administrative  Agent,  for  the  ratable  benefit  of the  Secured
     Parties,  a  continuing  security  interest  in all  amounts at any time on
     deposit in such cash collateral account to secure the undrawn and unexpired
     amount of such Letters of Credit and all other Obligations). If at any time
     the  Administrative  Agent  determines  that any  funds  held in such  cash
     collateral  account are  subject to any right or claim of any Person  other
     than the  Administrative  Agent and the  Secured  Parties or that the total
     amount  of such  funds is less than the  aggregate  undrawn  and  unexpired
     amount of outstanding Letters of Credit, the Borrower shall, forthwith upon
     demand by the  Administrative  Agent, pay to the  Administrative  Agent, as
     additional funds to be deposited and held in such cash collateral  account,
     an amount equal to the excess of (a) such  aggregate  undrawn and unexpired
     amount over (b) the total amount of funds,  if any,  then held in such cash
     collateral account that the Administrative  Agent determines to be free and
     clear of any such right and  claim.  Amounts  held in such cash  collateral
     account  shall be applied  by the  Administrative  Agent to the  payment of
     drafts drawn under such Letters of Credit,  and the unused portion  thereof
     after all such  Letters of Credit  shall have  expired or been fully  drawn
     upon,  if any,  shall be applied  to repay  other  Obligations  of the Loan
     Parties  hereunder  and  under  the other  Loan  Documents.  After all such
     Letters  of Credit  shall  have  expired  or been  fully  drawn  upon,  all
     Reimbursement   Obligations   shall  have  been  satisfied  and  all  other
     obligations  of the  Loan  Parties  hereunder  and  under  the  other  Loan
     Documents  shall have been paid in full, the balance,  if any, in such cash
     collateral  account  shall be returned  to the Loan  Parties (or such other
     Person as may be lawfully entitled thereto).

SECTION 9.                THE AGENTS; THE ARRANGERS

9.1  Appointment.  Each Lender hereby  irrevocably  designates  and appoints the
Agents as the  agents of such  Lender  under this  Agreement  and the other Loan
Documents,  and each such Lender  irrevocably  authorizes  each  Agent,  in such
capacity,  to take  such  action on its  behalf  under  the  provisions  of this
Agreement  and the other Loan  Documents and to exercise such powers and perform
such  duties  as are  expressly  delegated  to such  Agent by the  terms of this
Agreement and the other Loan  Documents,  together with such other powers as are
reasonably  incidental  thereto.  Notwithstanding  any provision to the contrary
elsewhere in this Agreement, no Agent shall have any duties or responsibilities,
except those expressly set forth herein, or any fiduciary  relationship with any
Lender,  and  no  implied  covenants,   functions,   responsibilities,   duties,
obligations or  liabilities  shall be read into this Agreement or any other Loan
Document or otherwise exist against any Agent.

9.2  Delegation  of Duties.  Each Agent may execute any of its duties under this
Agreement and the other Loan Documents by or through agents or attorneys-in-fact
and shall be entitled to advice of counsel  concerning all matters pertaining to
such duties.  No Agent shall be responsible  for the negligence or misconduct of
any agents or attorneys in-fact selected by it with reasonable care.

9.3 Exculpatory Provisions. Neither any Arranger, nor any Agent nor any of their
respective officers, directors, partners, employees, agents, attorneys and other
advisors,  attorneys-in-fact  or  affiliates  shall be (i) liable for any action
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lawfully  taken  or  omitted  to be  taken  by it or  such  Person  under  or in
connection with this Agreement or any other Loan Document  (except to the extent
that any of the foregoing are found by a final and  nonappealable  decision of a
court of competent jurisdiction to have resulted solely and proximately from its
or such Person's own gross negligence or willful  misconduct in breach of a duty
owed to the party asserting  liability) or (ii) responsible in any manner to any
of the Lenders for any recitals, statements,  representations or warranties made
by any Loan Party or any officer  thereof  contained  in this  Agreement  or any
other Loan Document or in any certificate,  report,  statement or other document
referred to or provided for in, or received by the Arrangers or the Agents under
or in  connection  with,  this  Agreement or any other Loan  Document or for the
value, validity,  effectiveness,  genuineness,  enforceability or sufficiency of
this  Agreement or any other Loan  Document or for any failure of any Loan Party
thereto to perform its obligations hereunder or thereunder. The Agents shall not
be under any  obligation  to any  Lender to  ascertain  or to  inquire as to the
observance or performance  of any of the agreements  contained in, or conditions
of, this  Agreement or any other Loan  Document,  or to inspect the  properties,
books or records of any Loan Party.

9.4 Reliance by Agents. Each Agent shall be entitled to rely, and shall be fully
protected in relying, upon any instrument, writing, resolution, notice, consent,
certificate,  affidavit, letter, telecopy, telex or teletype message, statement,
order or other document or conversation believed by it to be genuine and correct
and to have been signed,  sent or made by the proper  Person or Persons and upon
advice and statements of legal counsel (including,  without limitation,  counsel
to the Borrower or the other Loan Parties),  independent  accountants  and other
experts  selected by such Agent.  The Agents may deem and treat the payee of any
Note  as the  owner  thereof  for  all  purposes  unless  a  written  notice  of
assignment,  negotiation  or  transfer  thereof  shall  have been filed with the
Administrative Agent. Each Agent shall be fully justified in failing or refusing
to take any action  under this  Agreement or any other Loan  Document  unless it
shall first receive such advice or  concurrence  of the Required  Lenders or the
requisite  Lenders  required  under  Section  10.1 to  authorize or require such
action  (or,  if so  specified  by this  Agreement,  all  Lenders)  as it  deems
appropriate or it shall first be indemnified to its  satisfaction by the Lenders
against any and all  liability  and expense that may be incurred by it by reason
of taking or continuing  to take any such action.  Each Agent shall in all cases
be fully protected in acting, or in refraining from acting, under this Agreement
and the other  Loan  Documents  in  accordance  with a request  of the  Required
Lenders or the requisite Lenders under Section 10.1 to authorize or require such
action (or, if so specified by this  Agreement,  all Lenders),  and such request
and any action  taken or failure to act pursuant  thereto  shall be binding upon
all the Lenders and all future holders of the Loans and Letters of Credit.

9.5 Notice of Default.  No Agent shall be deemed to have  knowledge or notice of
the  occurrence of any Default or Event of Default  hereunder  unless such Agent
has received  notice from a Lender or the Borrower  referring to this Agreement,
describing  such  Default or Event of Default and stating  that such notice is a
"notice of default".  In the event that the Administrative Agent receives such a
notice, the Administrative  Agent shall give notice thereof to the Lenders.  The
Administrative  Agent  shall take such action  with  respect to such  Default or
Event of Default as shall be reasonably  directed by the requisite  Lenders (or,
if so specified by this Agreement, all Lenders);  provided that unless and until
the Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be  obligated  to) take such  action,  or refrain  from
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taking such action, with respect to such Default or Event of Default as it shall
deem advisable in the best interests of the Lenders.

9.6 Non-Reliance on Agents and Other Lenders. Each Lender expressly acknowledges
that neither the  Arrangers,  the Agents nor any of their  respective  officers,
directors,   employees,   agents,   attorneys  and  other  advisors,   partners,
attorneys-in-fact  or affiliates have made any  representations or warranties to
it and that no act by any Arranger or any Agent hereinafter taken, including any
review of the affairs of a Loan Party or any affiliate of a Loan Party, shall be
deemed to constitute any representation or warranty by any Arranger or any Agent
to any Lender.  Each Lender  represents  to the Arrangers and the Agents that it
has,  independently  and without  reliance upon any Arranger or any Agent or any
other  Lender,  and based on such  documents  and  information  as it has deemed
appropriate,  made its own  appraisal of and  investigation  into the  business,
operations,   property,   financial   and   other   condition,   prospects   and
creditworthiness  of the Loan  Parties  and  their  affiliates  and made its own
decision to make its Loans (and in the case of the Issuing  Lender,  its Letters
of Credit) hereunder and enter into this Agreement.  Each Lender also represents
that it will,  independently and without reliance upon any Arranger or any Agent
or any other Lender,  and based on such  documents and  information  as it shall
deem  appropriate  at the  time,  continue  to  make  its own  credit  analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents,  and to make such  investigation as it deems necessary
to inform itself as to the business,  operations,  property, financial and other
condition,  prospects  and  creditworthiness  of  the  Loan  Parties  and  their
affiliates.  Except for notices,  reports and other documents expressly required
to be furnished to the Lenders by the  Administrative  Agent hereunder,  neither
any Arranger nor any Agent shall have any duty or  responsibility to provide any
Lender with any credit or other information concerning the business, operations,
property,  condition (financial or otherwise),  prospects or creditworthiness of
any  Loan  Party  or any  affiliate  of a Loan  Party  that  may  come  into the
possession  of such  Arranger or such Agent or any of its  officers,  directors,
employees, agents, attorneys and other advisors, partners,  attorneys-in-fact or
affiliates.

9.7 Indemnification. The Lenders agree to indemnify each Arranger and each Agent
in its  capacity  as such (to the  extent not  reimbursed  by the  Borrower  and
without limiting the obligation of the Borrower to do so), ratably  according to
their respective  Aggregate Exposure  Percentages in effect on the date on which
indemnification  is sought under this Section (or, if  indemnification is sought
after the date upon which the  Commitments  shall have  terminated and the Loans
shall have been paid in full, ratably in accordance with such Aggregate Exposure
Percentages  immediately  prior  to such  date),  from and  against  any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs,  expenses or  disbursements  of any kind  whatsoever that may at any time
(including,  without limitation, at any time following the payment of the Loans)
be imposed on,  incurred by or asserted  against such  Arranger or such Agent in
any way relating to or arising out of, the Commitments,  this Agreement,  any of
the  other  Loan  Documents,  the  Acquisition  Documentation  or any  documents
contemplated   by  or  referred  to  herein  or  therein  or  the   transactions
contemplated  hereby or thereby or any action taken or omitted by such  Arranger
or such Agent under or in connection with any of the foregoing; provided that no
Lender  shall be liable  for the  payment of any  portion  of such  liabilities,
obligations,  losses,  damages,  penalties,  actions,  judgments,  suits, costs,
expenses or disbursements  that are found by a final and nonappealable  decision
of a court of competent  jurisdiction  to have resulted  solely and  proximately
from such Arranger's or such Agent's gross  negligence or willful  misconduct in
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breach of a duty owed to such Lender.  The  agreements in this Section 9.7 shall
survive  the  payment of the Loans and  Letters of Credit and all other  amounts
payable hereunder.

9.8 Arrangers and Agents in Their Individual Capacities.  Each Arranger and each
Agent and their  respective  affiliates may make loans to, accept  deposits from
and generally  engage in any kind of business with any Loan Party as though such
Arranger  was not an Arranger  and such Agent was not an Agent.  With respect to
its Loans made or renewed by it and with respect to any Letter of Credit  issued
or  participated  in by it,  each  Arranger  and each Agent  shall have the same
rights  and powers  under this  Agreement  and the other Loan  Documents  as any
Lender and may  exercise the same as though it were not an Arranger or an Agent,
as the case may be, and the terms  "Lender"  and  "Lenders"  shall  include each
Arranger and each Agent in their respective individual capacities.

9.9 Successor  Agents.  The  Administrative  Agent may resign as  Administrative
Agent  upon  10  days'  notice  to  the  Lenders  and  the   Borrower.   If  the
Administrative  Agent shall resign as Administrative  Agent under this Agreement
and the other Loan Documents, then the Required Lenders shall appoint from among
the Lenders a  successor  agent for the  Lenders,  which  successor  agent shall
(unless an Event of Default  under  Section 8(a) or Section 8(f) with respect to
the Borrower  shall have occurred and be  continuing)  be subject to approval by
the Borrower  (which  approval shall not be  unreasonably  withheld or delayed),
whereupon such successor agent shall succeed to the rights, powers and duties of
the Administrative  Agent, and the term  "Administrative  Agent" shall mean such
successor  agent effective upon such  appointment  and approval,  and the former
Administrative  Agent's rights,  powers and duties as Administrative Agent shall
be  terminated,  without  any other or  further  act or deed on the part of such
former  Administrative  Agent or any of the  parties  to this  Agreement  or any
holders of the Loans or Letters of Credit.  If no  successor  agent has accepted
appointment  as  Administrative  Agent by the date that is 10 days  following  a
retiring   Administrative   Agent's   notice  of   resignation,   the   retiring
Administrative   Agent's   resignation  shall   nevertheless   thereupon  become
effective,  and the  Lenders  shall  assume and perform all of the duties of the
Administrative  Agent hereunder until such time, if any, as the Required Lenders
appoint a successor agent as provided for above.  Each of the Syndication  Agent
and the Documentation  Agents may, at any time, by notice to the Lenders and the
Administrative  Agent,  resign as Syndication  Agent or Documentation  Agent, as
applicable,   hereunder,   whereupon  the  duties,   rights,   obligations   and
responsibilities  of such  Syndication  Agent or  Documentation  Agent hereunder
shall   automatically   be  assumed  by,  and  inure  to  the  benefit  of,  the
Administrative Agent, without any further act by any Arranger,  any Agent or any
Lender.  After any retiring Agent's resignation as Agent, the provisions of this
Section 9 shall inure to its  benefit as to any  actions  taken or omitted to be
taken  by it  while  it was  Agent  under  this  Agreement  and the  other  Loan
Documents.

9.10  Authorization  to  Release  Liens.  The  Administrative  Agent  is  hereby
irrevocably  authorized  by each of the Lenders to release any Lien covering any
Property  of the  Borrower or any of its  Subsidiaries  that is the subject of a
Disposition  which is permitted by this Agreement or which has been consented to
in accordance with Section 10.1.
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9.11  The  Arrangers  and  the  Documentation  Agents.  The  Arrangers  and  the
Documentation  Agents,  in their  respective  capacities as such,  shall have no
duties or responsibilities (except, with respect to the Documentation Agents, as
expressly set forth in Section 7.8(e)), and shall incur no liability, under this
Agreement and the other Loan Documents.

SECTION 10.                  MISCELLANEOUS

10.1 Amendments and Waivers. Neither this Agreement nor any other Loan Document,
nor any terms hereof or thereof may be amended,  supplemented or modified except
in accordance with the provisions of this Section 10.1. The Required Lenders and
each Loan Party party to the relevant  Loan  Document  may, or (with the written
consent of the Required Lenders) the Administrative Agent, the Syndication Agent
and each Loan Party party to the relevant  Loan Document may, from time to time,
(a) enter into written  amendments,  supplements or modifications  hereto and to
the other  Loan  Documents  (including  amendments  and  restatements  hereof or
thereof) for the purpose of adding any provisions to this Agreement or the other
Loan  Documents  or  changing  in any manner the rights of the Lenders or of the
Loan Parties  hereunder or thereunder or (b) waive, on such terms and conditions
as may be specified in the instrument of waiver, any of the requirements of this
Agreement or the other Loan Documents or any Default or Event of Default and its
consequences;  provided,  however,  that no such  waiver and no such  amendment,
supplement or modification  shall (i) forgive or reduce the principal  amount or
extend  the  final  scheduled  date of  maturity  of any  Loan or  Reimbursement
Obligation,  extend the scheduled date of any amortization payment in respect of
any Term Loan,  reduce the stated rate of any interest or fee payable  hereunder
or extend the scheduled date of any payment  thereof,  or increase the amount or
extend the expiration date of any Commitment of any Lender, in each case without
the consent of each Lender subject to such forgiveness,  extension, reduction or
increase;  (ii) amend,  modify or waive any  provision of this Section or reduce
any  percentage  specified in, or otherwise  modify,  the definition of Required
Lenders or  Supermajority  Facility  Lenders or amend the definition of Required
Prepayment Lenders,  reduce any percentage specified in, or otherwise modify the
definition of, Required  Revolving Credit Lenders,  Required Tranche A Term Loan
Lenders,  Required  Tranche B Term Loan Lenders or Aggregate  Required  Lenders,
consent to the assignment or transfer by any Loan Party of any of its rights and
obligations  under  this  Agreement  and the  other  Loan  Documents,  release a
material portion of the Collateral or release any material  Guarantor from their
guarantee obligations under the Guarantee and Collateral Agreement, in each case
without the consent of all Lenders; (iii) reduce the percentage specified in the
definition of Majority Facility Lenders with respect to any Facility without the
written consent of all Lenders under such Facility;  (iv) amend, modify or waive
any  provision  of Section 9 without  the  consent of any  Arranger or any Agent
directly affected thereby;  (v) amend,  modify or waive any provision of Section
2.6 or 2.7  without the written  consent of the Swing Line  Lender;  (vi) amend,
modify or waive any  provision  of Section  2.12 or  Section  2.18  without  the
consent of each Lender directly affected thereby;  (vii) amend,  modify or waive
any provision of Section 3 without the consent of the Issuing Lender;  or (viii)
amend,  modify or waive any provision of Section 7.1 without the written consent
of the Supermajority  Facility Lenders.  Any such waiver and any such amendment,
supplement or modification  shall apply equally to each of the Lenders and shall
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be binding upon the Loan Parties, the Lenders, the Agents, the Arrangers and all
future  holders of the Loans and  Letters of Credit.  In the case of any waiver,
the Loan Parties, the Lenders, the Arrangers and the Agents shall be restored to
their former  position and rights  hereunder and under the other Loan Documents,
and any Default or Event of Default  waived  shall be deemed to be cured and not
continuing;  but no such waiver shall extend to any  subsequent or other Default
or Event of Default,  or impair any right consequent  thereon.  Any such waiver,
amendment,  supplement or modification shall be effected by a written instrument
signed by the parties  required to sign pursuant to the foregoing  provisions of
this Section;  provided, that delivery of an executed signature page of any such
instrument  by  facsimile  transmission  shall be  effective  as  delivery  of a
manually  executed  counterpart  thereof.  In addition,  this  Agreement  may be
amended (or  amended and  restated)  with the written  consent of the  Aggregate
Required Lenders,  the Arrangers,  the Agents and the Borrower (x) to add one or
more additional credit facilities to this Agreement and to permit the extensions
of credit from time to time outstanding  thereunder and the accrued interest and
fees in respect thereof (collectively, the "Additional Extensions of Credit") to
share  ratably in the benefits of this  Agreement  and the other Loan  Documents
with the Term Loans and Revolving  Extensions of Credit and the accrued interest
and  fees in  respect  thereof,  (y) to  increase  the  Total  Revolving  Credit
Commitments  (and to admit  new  Revolving  Credit  Lenders  to fund new  credit
facilities or, with the written  consent of a current  Revolving  Credit Lender,
increase such Revolving Credit Lender's  Revolving Credit Commitment) and (z) to
include   appropriately  the  Lenders  holding  such  new  or  increased  credit
facilities in any  determination of the Required  Lenders,  Required  Prepayment
Lenders, Majority Revolving Facility Lenders and Aggregate Required Lenders.

     Notwithstanding  anything to the contrary in this Section 10.1, the parties
to the Fee  Letter  may,  (a) enter  into  written  amendments,  supplements  or
modifications to the Fee Letter (including  amendments and restatements thereof)
for the purpose of adding any  provisions  thereto or changing in any manner the
rights  thereunder  of the  parties  thereto  or (b)  waive,  on such  terms and
conditions  as may be  specified  in the  instrument  of waiver,  (i) any of the
requirements  of the Fee  Letter or (ii) any  Default or Event of Default to the
extent (and only to the extent) relating to the Fee Letter,  it being understood
that the waiver of any Default or Event of Default (or portion thereof) relating
to any of the other Loan Documents may be accomplished  only as set forth in the
immediately preceding paragraph.

10.2  Notices.  All  notices,  requests  and  demands to or upon the  respective
parties hereto to be effective shall be in writing (including by telecopy), and,
unless otherwise  expressly  provided herein,  shall be deemed to have been duly
given or made when  delivered,  or three Business Days after being  deposited in
the mail,  postage prepaid,  or one Business Day after being delivered,  postage
prepaid, to a reputable nationally  recognized delivery service, or, in the case
of telecopy  notice,  when received,  addressed (a) in the case of the Borrower,
the Arrangers and the Agents, as follows and (b) in the case of the Lenders,  as
set forth on  Schedule I to the Lender  Addendum to which such Lender is a party
or, in the case of a Lender which becomes a party to this Agreement  pursuant to
an Assignment and  Acceptance,  in such  Assignment and Acceptance or (c) in the
case of any party,  to such other address as such party may hereafter  notify to
the other parties hereto:
                                      107
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     The Borrower:                      Penn National Gaming, Inc.
                                        Wyomissing Professional Center
                                        825 Berkshire Boulevard, Suite 200
                                        Wyomissing, Pennsylvania 19610
                                        Attention: Robert S. Ippolito
                                        Telecopy: (610) 376-2842
                                        Telephone: (610) 378-8384

     with a copy to:                    Morgan, Lewis & Bockius LLP
                                        1701 Market Street
                                        Philadelphia, PA 19103
                                        Attention:  Lawrence H. Berger
                                        Telecopy:  (215) 963-5299
                                        Telephone:  (215) 963-5480

     The Syndication Agent:             Lehman Commercial Paper Inc.
                                        3 World Financial Center
                                        New York, New York 10285
                                        Attention:  Andrew Keith
                                        Telecopy:  (212) 526-0242
                                        Telephone:  (212) 526-4059

     with a copy to:                    Latham & Watkins
                                        885 Third Avenue, Suite 1000
                                        New York, New York  10022
                                        Attention: Christopher R. Plaut
                                        Telecopy: (212) 751-4864
                                        Telephone: (212) 906-1200

     The Administrative Agent:          Canadian Imperial Bank of Commerce
                                        425 Lexington Avenue
                                        New York, New York 10017
                                        Attention:  Agency Services Group
                                        Telecopy:  (212) 856-3763
                                        Telephone:  (212) 856-4000

     with a copy to:                    Latham & Watkins
                                        885 Third Avenue, Suite 1000
                                        New York, New York  10022
                                        Attention: Christopher R. Plaut
                                        Telecopy: (212) 751-4864
                                        Telephone: (212) 906-1200
                                      108
<PAGE>

     The Lead Arranger:                 Lehman Brothers Inc.
                                        3 World Financial Center
                                        New York, New York 10285
                                        Attention:  Andrew Keith
                                        Telecopy:  (212) 526-0242
                                        Telephone:  (212) 526-4059

     with a copy to:                    Latham & Watkins
                                        885 Third Avenue, Suite 1000
                                        New York, New York  10022
                                        Attention: Christopher R. Plaut
                                        Telecopy: (212) 751-4864
                                        Telephone: (212) 906-1200

     The Co-Lead Arranger:              CIBC World Markets Corp.
                                        425 Lexington Avenue
                                        New York, New York 10017
                                        Attention:  Agency Services Group
                                        Telecopy:  (212) 856-3763
                                        Telephone:  (212) 856-4000

     with a copy to:                    Latham & Watkins
                                        885 Third Avenue, Suite 1000
                                        New York, New York  10022
                                        Attention: Christopher R. Plaut
                                        Telecopy: (212) 751-4864
                                        Telephone: (212) 906-1200

     The Documentation Agents:          The CIT Group/Equipment Financing, Inc.
                                        900 Ashwood Parkway, Suite 600
                                        Atlanta, Georgia 30338
                                       Attention: Barry Blailock, Assistant Vice
                                        President - Credit
                                        Telecopy: (770) 206-9295
                                        Telephone: (770) 551-7877
                                        First Union National Bank
                                        600 Penn Street, 3rd Floor
                                        P.O. Box 1102
                                        Reading, Pennsylvania 19603
                                      Attention: Tammy A. Reiter, Vice President
                                        Telecopy: (610) 655-1514
                                        Telephone: (610) 655-1162
                                      109
<PAGE>

                                        Wells Fargo Bank, N.A.
                                        5340 Kietzke Lane, #201
                                        Reno, Nevada 89511
                                        Attention: Rochanne Hackett
                                        Telecopy: (775) 689-6020
                                        Telephone: (775) 689-6007

Issuing Lender:  As notified by the Issuing Lender to the  Administrative  Agent
     and the Borrower provided that any notice, request or demand to or upon any
     Agent or any Lender shall not be effective until received.

10.3 No Waiver;  Cumulative  Remedies.  No failure to  exercise  and no delay in
exercising,  on the part of any  Arranger,  any Agent or any Lender,  any right,
remedy,  power or privilege  hereunder or under the other Loan  Documents  shall
operate as a waiver  thereof;  nor shall any single or partial  exercise  of any
right,  remedy,  power or  privilege  hereunder  preclude  any other or  further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights,  remedies,  powers and privileges herein provided are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.

10.4  Survival  of  Representations  and  Warranties.  All  representations  and
warranties  made  hereunder,  in the other Loan  Documents  and in any document,
certificate or statement  delivered  pursuant  hereto or in connection  herewith
shall survive the execution and delivery of this Agreement and the making of the
Loans and other extensions of credit hereunder.

10.5  Payment of  Expenses.  The  Borrower  agrees (a) to pay or  reimburse  the
Arrangers,  the  Administrative  Agent and the  Syndication  Agent for all their
reasonable  out-of-pocket  costs and expenses  incurred in  connection  with the
syndication  of the  Facilities  (including  the use of IntraLinks but excluding
fees  payable  to  syndicate   members)   and  the   development,   preparation,
negotiation,  execution and  performance  of, and any  amendment,  supplement or
modification  to,  this  Agreement  and the other Loan  Documents  and any other
documents prepared in connection herewith or therewith, and the consummation and
administration of the transactions  contemplated hereby and thereby,  including,
without  limitation,  the reasonable fees and disbursements and other charges of
counsel to each of the Arrangers,  the Administrative  Agent and the Syndication
Agent, (b) to pay or reimburse each Lender, each Arranger and each Agent for all
its  costs  and  expenses   incurred  in  connection  with  the  enforcement  or
preservation  of any rights under this  Agreement,  the other Loan Documents and
any  such  other  documents,   including,   without  limitation,  the  fees  and
disbursements  of counsel  (including the allocated fees and  disbursements  and
other  charges  of  in-house  counsel)  to each  Lender  and of  counsel to each
Arranger  and each  Agent,  (c) to pay,  indemnify,  and hold each  Lender,  the
Arrangers and the Agents  harmless  from,  any and all recording and filing fees
and any and all  liabilities  with  respect to, or  resulting  from any delay in
paying,  stamp,  excise  and  other  taxes,  if any,  which  may be  payable  or
determined  to be payable in  connection  with the execution and delivery of, or
consummation or  administration  of any of the transactions  contemplated by, or
any amendment,  supplement or modification of, or any waiver or consent under or
                                      110
<PAGE>

in respect  of,  this  Agreement,  the other Loan  Documents  and any such other
documents,  and (d) to pay, indemnify, and hold each Lender, each Arranger, each
Agent, their respective  affiliates,  and their respective officers,  directors,
partners, trustees,  employees,  affiliates,  shareholders,  attorneys and other
advisors,   agents,   attorneys-in-fact   and  controlling   persons  (each,  an
"Indemnitee")   harmless  from  and  against  any  and  all  other  liabilities,
obligations,  losses,  damages,  penalties,  actions,  judgments,  suits, costs,
expenses or  disbursements  of any kind or nature  whatsoever with respect to or
arising  out  of  the  execution,   delivery,   enforcement,   performance   and
administration  of this  Agreement,  the other Loan Documents and any such other
documents,  including,  without limitation, any of the foregoing relating to the
use  of  proceeds  of  the  Loans  or  Letters  of  Credit,  the  violation  of,
noncompliance  with or liability under, any  Environmental Law applicable to the
operations  of  any  Loan  Party  or  any  of the  Real  Estate  or  the  use by
unauthorized  persons of information or other materials sent through electronic,
telecommunications   or  other   information   transmission   systems  that  are
intercepted by such persons and the fees and  disbursements and other charges of
legal  counsel  in  connection  with  claims,  actions  or  proceedings  by  any
Indemnitee against the Borrower hereunder (all the foregoing in this clause (d),
collectively, the "Indemnified Liabilities"),  provided, that the Borrower shall
have no  obligation  hereunder to any  Indemnitee  with  respect to  Indemnified
Liabilities to the extent such Indemnified  Liabilities are found by a final and
nonappealable  decision of a court of competent  jurisdiction  to have  resulted
solely and proximately from the gross  negligence or willful  misconduct of such
Indemnitee.  Without  limiting  the  foregoing,  and to the extent  permitted by
applicable law, the Borrower agrees not to assert and to cause its  Subsidiaries
not to assert,  and hereby  waives  and agrees to cause its  Subsidiaries  so to
waive,  all rights for contribution or any other rights of recovery with respect
to all claims, demands,  penalties,  fines, liabilities,  settlements,  damages,
costs and expenses of whatever kind or nature, under or related to Environmental
Laws,  that  any of  them  might  have  by  statute  or  otherwise  against  any
Indemnitee. All amounts due under this Section shall be payable not later than 5
days after written demand therefor.  Statements payable by the Borrower pursuant
to this Section  shall be submitted to the Borrower in  accordance  with Section
10.2,  or to such other Person or address as may be hereafter  designated by the
Borrower in a written notice to the Administrative Agent. The agreements in this
Section shall survive repayment of the Loans and Letters of Credit and all other
amounts  payable  hereunder  and any  assignment by any Lender of its rights and
obligations hereunder pursuant to Section 10.6(c).

10.6  Successors  and  Assigns;  Participations  and  Assignments.(a)  (a)  This
Agreement  shall be binding upon and inure to the benefit of the  Borrower,  the
Lenders, the Arrangers,  the Agents, all future holders of the Loans and Letters
of Credit and their respective successors and assigns,  except that the Borrower
may not assign or transfer any of its  respective  rights or  obligations  under
this Agreement  without the prior written  consent of the Arrangers,  the Agents
and each Lender.

(b) Any Lender may, without the consent of the Borrower or any other Person,  in
accordance with applicable law, at any time sell to one or more banks, financial
institutions or other entities (each, a "Participant")  participating  interests
in any Loan owing to such  Lender,  any  Commitment  of such Lender or any other
interest of such Lender  hereunder  and under the other Loan  Documents.  In the
event of any such sale by a Lender of a participating interest to a Participant,
such  Lender's  obligations  under this  Agreement to the other  parties to this
Agreement shall remain  unchanged,  such Lender shall remain solely  responsible
for the  performance  thereof,  such Lender  shall remain the holder of any such
Loan for all purposes under this Agreement and the other Loan Documents, and the
                                      111
<PAGE>

Borrower,  the  Arrangers  and the  Agents  shall  continue  to deal  solely and
directly  with  such  Lender  in  connection   with  such  Lender's  rights  and
obligations under this Agreement and the other Loan Documents. In no event shall
any  Participant  under any such  participation  have any right to  approve  any
amendment or waiver of any provision of any Loan Document, or any consent to any
departure  by any Loan Party  therefrom,  except  with  respect to those  issues
addressed in clauses  (i)-(vii)  of Section  10.1.  The Borrower  agrees that if
amounts  outstanding  under this  Agreement and the Loans are due or unpaid,  or
shall  have  been  declared  or  shall  have  become  due and  payable  upon the
occurrence of an Event of Default, each Participant shall, to the maximum extent
permitted by applicable law, be deemed to have the right of setoff in respect of
its  participating  interest in amounts  owing under this  Agreement to the same
extent as if the amount of its participating  interest were owing directly to it
as  a  Lender  under  this   Agreement,   provided  that,  in  purchasing   such
participating interest, such Participant shall be deemed to have agreed to share
with the Lenders the proceeds thereof as provided in Section 10.7(a) as fully as
if it were a Lender  hereunder.  The Borrower also agrees that each  Participant
shall be entitled to the benefits of Sections  2.19,  2.20 and 2.21 with respect
to its  participation in the Commitments and the Loans  outstanding from time to
time as if it was a Lender;  provided  that, in the case of Section  2.20,  such
Participant  shall have  complied  with the  requirements  of said  Section  and
provided,  further, that no Participant shall be entitled to receive any greater
amount  pursuant to any such Section than the transferor  Lender would have been
entitled to receive in respect of the amount of the participation transferred by
such transferor Lender to such Participant had no such transfer occurred.

(c) Any Lender (an  "Assignor")  may, in accordance with applicable law and upon
written notice to the  Administrative  Agent,  at any time and from time to time
assign  to  any  Lender  or  any  Affiliate,  Control  Investment  Affiliate  or
Affiliated  Fund of the  assigning  Lender or of  another  Lender  or,  with the
consent of the Borrower and the Administrative Agent (which, in each case, shall
not be unreasonably  withheld or delayed),  to any Eligible Assignee (any of the
foregoing,  an "Assignee") all or any part of its rights and  obligations  under
this Agreement  pursuant to an Assignment and Acceptance,  substantially  in the
form of Exhibit E, executed by such Assignee and such Assignor  (and,  where the
consent of the Borrower or the Administrative  Agent is required pursuant to the
foregoing  provisions,  by the Borrower and such other Persons) and delivered to
the  Administrative  Agent for its  acceptance  and  recording in the  Register;
provided that no such  assignment  to an Assignee  (other than any Lender or any
Affiliate,  Control Investment Affiliate or Affiliated Fund thereof) shall be in
an aggregate  principal  amount of less than  $1,000,000 or, after giving effect
thereto,  result in such assigning Lender having a Commitment and/or outstanding
Loans in an aggregate amount of less than $1,000,000  (other than in the case of
an  assignment  of all of a Lender's  interests  under this  Agreement),  unless
otherwise  agreed  by the  Borrower  and  the  Administrative  Agent.  Any  such
assignment  need not be ratable as among the  Facilities.  Upon such  execution,
delivery, acceptance and recording, from and after the effective date determined
pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be
a party hereto and, to the extent  provided in such  Assignment and  Acceptance,
have the rights and obligations of a Lender  hereunder with a Commitment  and/or
Loans as set forth therein, and (y) the Assignor thereunder shall, to the extent
provided in such  Assignment and  Acceptance,  be released from its  obligations
under this Agreement (and, in the case of an Assignment and Acceptance  covering
all of an Assignor's rights and obligations under this Agreement,  such Assignor
                                      112
<PAGE>

shall  cease  to be a  party  hereto).  Notwithstanding  any  provision  of this
Section,  the consent of the Borrower  shall not be required for any  assignment
that  occurs at any time when any Event of Default  shall have  occurred  and be
continuing.

(d) The Administrative  Agent shall, on behalf of the Borrower,  maintain at its
address  referred to in Section 10.2 a copy of each  Assignment  and  Acceptance
delivered to it and a register (the "Register") for the recordation of the names
and addresses of the Lenders and the Commitment of, and principal  amount of the
Loans owing to, each Lender from time to time. The entries in the Register shall
be  conclusive,  in the  absence  of  manifest  error,  and  the  Borrower,  the
Administrative  Agent and the  Lenders  shall  treat each  Person  whose name is
recorded in the Register as the owner of the Loans and any Notes evidencing such
Loans recorded therein for all purposes of this Agreement. Any assignment of any
Loan,  whether  or not  evidenced  by a  Note,  shall  be  effective  only  upon
appropriate  entries with respect  thereto  being made in the Register (and each
Note shall expressly so provide). Any assignment or transfer of all or part of a
Loan evidenced by a Note shall be registered on the Register only upon surrender
for  registration  of assignment or transfer of the Note  evidencing  such Loan,
accompanied by a duly executed Assignment and Acceptance;  thereupon one or more
new  Notes  in the same  aggregate  principal  amount  shall  be  issued  to the
designated  Assignee,  and the old Notes shall be returned by the Administrative
Agent to the Borrower  marked  "canceled".  The Register  shall be available for
inspection by the Borrower or any Lender (with respect to any entry  relating to
such  Lender's  Loans)  at any  reasonable  time  and  from  time to  time  upon
reasonable prior notice.

(e) Upon its receipt of an Assignment and Acceptance executed by an Assignor and
an Assignee  (and, in any case where the consent of any other Person is required
by Section  10.6(c),  by each such other  Person)  together  with payment to the
Administrative Agent of a registration and processing fee of $3,500 (except that
no such  registration  and  processing  fee shall be  payable  in the case of an
Assignee  which  is an  Affiliate  of the  Assignor  or a  Person  under  common
management  with the  Assignor),  the  Administrative  Agent shall (i)  promptly
accept such  Assignment and Acceptance and (ii) on the effective date determined
pursuant thereto record the information  contained therein in the Register.  The
Administrative  Agent shall,  upon request of the  Syndication  Agent and/or the
Borrower, promptly provide the Syndication Agent or the Borrower, as applicable,
with an  updated  list of  Lenders  and their  Commitments.  On or prior to such
effective date, the Borrower,  at its own expense,  upon request,  shall execute
and deliver to the  Administrative  Agent (in exchange for the Revolving  Credit
Note and/or  applicable Term Notes, as the case may be, of the assigning Lender,
if any) a new Revolving  Credit Note and/or  applicable  Term Notes, as the case
may be, to such  Assignee or its  registered  assigns in an amount  equal to the
Revolving Credit  Commitment  and/or  applicable Term Loans, as the case may be,
assumed or acquired by it pursuant to such Assignment and Acceptance and, if the
Assignor has retained a Revolving  Credit  Commitment  and/or Term Loans, as the
case may be, upon request, a new Revolving Credit Note and/or Term Notes, as the
case may be, to the Assignor or its registered assigns in an amount equal to the
Revolving Credit  Commitment  and/or  applicable Term Loans, as the case may be,
retained by it hereunder. Such new Note or Notes shall be dated the Closing Date
and shall otherwise be in the form of the Note or Notes replaced thereby.
                                      113
<PAGE>

(f) Within  forty-five  (45) days after the effective  date of any assignment of
Loans that required the consent of the Borrower,  the Borrower shall give notice
of such assignment to the West Virginia Lottery Commission and the West Virginia
Racing Commission.

(g) For the avoidance of doubt,  the parties to this Agreement  acknowledge that
the provisions of this Section concerning  assignments of Loans and Notes relate
only  to  absolute   assignments  and  that  such  provisions  do  not  prohibit
assignments  creating security interests,  including,  without  limitation,  any
pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank
in  accordance  with  applicable  law. Any Lender that is a fund that invests in
bank loans may pledge all or any portion of its rights in  connection  with this
Agreement to the trustee for holders of obligations owed, or securities  issued,
by such fund as security for such obligations or securities,  provided, that any
foreclosure  or other  exercise of remedies by such trustee  shall be subject to
the provisions of this Section regarding  assignments in all respects. No pledge
described in the immediately preceding clause shall release such Lender from its
obligations hereunder.

10.7  Adjustments;  Set-off.(a)  (a)  Except to the extent  that this  Agreement
provides for  payments to be allocated to a particular  Lender or to the Lenders
under a particular  Facility,  if any Lender (a "Benefited Lender") shall at any
time  receive  any  payment  of all or part of the  Obligations  owing to it, or
receive any collateral in respect thereof (whether voluntarily or involuntarily,
by  set-off,  pursuant  to events or  proceedings  of the nature  referred to in
Section 8(f), or otherwise), in a greater proportion than any such payment to or
collateral  received  by any other  Lender,  if any,  in  respect  of such other
Lender's  Obligations,  such  Benefited  Lender shall purchase for cash from the
other  Lenders a  participating  interest  in such  portion  of each such  other
Lender's  Obligations,  or shall provide such other Lenders with the benefits of
any such  collateral,  as shall be necessary to cause such  Benefited  Lender to
share the excess payment or benefits of such collateral ratably with each of the
Lenders; provided, however, that if all or any portion of such excess payment or
benefits is thereafter recovered from such Benefited Lender, such purchase shall
be rescinded,  and the purchase  price and benefits  returned,  to the extent of
such recovery, but without interest.

(b) In addition to any rights and remedies of the Lenders  provided by law, each
Lender shall have the right,  upon the occurrence and during the  continuance of
any Default or Event of Default and without  prior notice to the  Borrower  (but
with the prior  consent of the  Administrative  Agent,  such  consent  not to be
unreasonably  withheld),  any such notice being expressly waived by the Borrower
to the extent  permitted by  applicable  law,  upon any amount  becoming due and
payable  by  the  Borrower  hereunder  (whether  at  the  stated  maturity,   by
acceleration  or otherwise),  to set off and  appropriate and apply against such
amount any and all deposits (general or special, time or demand,  provisional or
final), in any currency,  and any other credits,  indebtedness or claims, in any
currency,  in each case  whether  direct or  indirect,  absolute or  contingent,
matured or unmatured,  at any time held or owing by such Lender or any branch or
agency thereof to or for the credit or the account of the Borrower.  Each Lender
agrees to notify  promptly the Borrower and the  Administrative  Agent after any
such setoff and  application  made by such Lender,  provided that the failure to
give such notice shall not affect the validity of such setoff and application.
                                      114
<PAGE>

10.8 Counterparts.  This Agreement may be executed by one or more of the parties
to this  Agreement  on any  number  of  separate  counterparts,  and all of said
counterparts  taken  together  shall be  deemed to  constitute  one and the same
instrument.  Delivery  of an  executed  signature  page  of  this  Agreement  by
facsimile  transmission  shall be effective  as delivery of a manually  executed
counterpart  hereof.  A set of the  copies of this  Agreement  signed by all the
parties shall be lodged with the Borrower and the Administrative Agent.

10.9  Severability.  Any  provision  of this  Agreement  that is  prohibited  or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability  without  invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render  unenforceable such provision in any
other jurisdiction.

10.10  Integration.  This Agreement and the other Loan  Documents  represent the
agreement  of the  Borrower,  the Agents,  the  Arrangers  and the Lenders  with
respect  to the  subject  matter  hereof  (other  than with  respect  to certain
syndication  matters  which may be agreed to among the  Borrower  and any of the
Arrangers, the Administrative Agent and the Syndication Agent), and there are no
promises,  undertakings,  representations  or warranties  by any  Arranger,  any
Agent,  any Lender or any Loan Party  relative to the subject  matter hereof not
expressly set forth or referred to herein or in the other Loan Documents.

10.11  GOVERNING  LAW.  THIS  AGREEMENT  AND THE RIGHTS AND  OBLIGATIONS  OF THE
PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

10.12Submission To Jurisdiction;  Waivers.  The Borrower hereby  irrevocably and
     unconditionally:

(a)      submits for itself and its Property in any legal  action or  proceeding
         relating to this  Agreement and the other Loan Documents to which it is
         a party,  or for recognition and enforcement of any judgment in respect
         thereof, to the non-exclusive general jurisdiction of the courts of the
         State of New York,  the courts of the United  States of America for the
         Southern District of New York, and appellate courts from any thereof;

(b)      consents  that any such  action or  proceeding  may be  brought in such
         courts and waives any  objection  that it may now or hereafter  have to
         the venue of any such  action or  proceeding  in any such court or that
         such  action or  proceeding  was brought in an  inconvenient  court and
         agrees not to plead or claim the same;

(c)      agrees that service of process in any such action or proceeding  may be
         effected by mailing a copy thereof by registered or certified  mail (or
         any  substantially  similar  form of  mail),  postage  prepaid,  to the
         Borrower  at its  address  set forth in  Section  10.2 or at such other
         address of which the  Administrative  Agent  shall  have been  notified
         pursuant thereto;
                                      115
<PAGE>

(d)      agrees that nothing  herein shall affect the right to effect service of
         process in any other  manner  permitted by law or shall limit the right
         to sue in any other jurisdiction; and

(e)      waives,  to the maximum  extent not prohibited by law, any right it may
         have to claim or recover in any legal action or proceeding  referred to
         in this  Section any  special,  exemplary,  punitive  or  consequential
         damages.

10.13 [Intentionally omitted].

10.14 Acknowledgments. The Borrower hereby acknowledges that:

(a)  it has been advised by counsel in the  negotiation,  execution and delivery
     of this Agreement and the other Loan Documents;

(b)  neither  any  Arranger,   any  Agent  nor  any  Lender  has  any  fiduciary
     relationship  with or duty to the Borrower  arising out of or in connection
     with  this  Agreement  or  any  of  the  other  Loan  Documents,   and  the
     relationship  between the Arrangers,  the Agents and Lenders,  on one hand,
     and the Borrower, on the other hand, in connection herewith or therewith is
     solely that of debtor and creditor; and

(c)  no joint  venture  is  created  hereby or by the other  Loan  Documents  or
     otherwise  exists by virtue of the transactions  contemplated  hereby among
     the  Arrangers,  the Agents and the Lenders or among the  Borrower  and the
     Lenders.

10.15Confidentiality.  Each of the Arrangers,  the Agents and the Lenders agrees
     to keep confidential all non-public  information provided to it by any Loan
     Party  pursuant to this  Agreement that is designated by such Loan Party as
     confidential;  provided that nothing herein shall prevent any Arranger, any
     Agent  or any  Lender  from  disclosing  any  such  information  (a) to any
     Arranger,  any Agent, any other Lender or any affiliate of any thereof, (b)
     to any  Participant  or Assignee  (each,  a  "Transferee")  or  prospective
     Transferee  that agrees to comply with the provisions of this Section,  (c)
     to any of its employees,  directors,  agents,  attorneys,  accountants  and
     other  professional  advisors,  (d) to any financial  institution that is a
     direct or indirect  contractual  counterparty  in swap  agreements  or such
     contractual   counterparty's   professional   advisor   (so  long  as  such
     contractual  counterparty  or  professional  advisor  to  such  contractual
     counterparty  agrees to be bound by the  provisions of this  Section),  (e)
     upon  the  request  or  demand  of  any   Governmental   Authority   having
     jurisdiction  over it, (f) in  response  to any order of any court or other
     Governmental  Authority  or as may  otherwise  be required  pursuant to any
     Requirement  of Law, (g) if  requested  or required to do so in  connection
     with any  litigation  or  similar  proceeding,  (h) that has been  publicly
     disclosed  other  than in  breach  of  this  Section,  (i) to the  National
     Association of Insurance  Commissioners or any similar  organization or any
     nationally  recognized  rating agency that requires  access to  information
     about a Lender's  investment  portfolio in connection  with ratings  issued
     with respect to such Lender or (j) in  connection  with the exercise of any
     remedy hereunder or under any other Loan Document.

10.16 Release of Collateral and Guarantee  Obligations.(a)  (a)  Notwithstanding
anything to the contrary  contained  herein or in any other Loan Document,  upon
                                      116
<PAGE>

request of the Borrower in connection with any Disposition of Property permitted
by the Loan Documents, the Administrative Agent shall (without notice to or vote
or consent of any Lender,  or any affiliate of any Lender that is a party to any
Specified Hedge Agreement) take such actions as shall be required to release its
security interest in any Collateral being Disposed of in such  Disposition,  and
to release any  guarantee  obligations  of any Person being  Disposed of in such
Disposition,  to the extent necessary to permit consummation of such Disposition
in accordance  with the Loan  Documents  provided  that the Borrower  shall have
delivered to the  Administrative  Agent, at least ten Business Days prior to the
date of the proposed  release,  a written  request for release  identifying  the
relevant  Collateral being Disposed of in such Disposition and the terms of such
Disposition in reasonable detail,  including the date thereof, the price thereof
and any expenses in connection  therewith,  together with a certification by the
Borrower  stating that such transaction is in compliance with this Agreement and
the other Loan  Documents  and that the  proceeds  of such  Disposition  will be
applied in accordance with this Agreement and the other Loan Documents.

(b) Notwithstanding  anything to the contrary contained herein or any other Loan
Document,  when all  Obligations  (other  than  Obligations  in  respect  of any
Specified  Hedge  Agreement)  have  been  paid in  full,  all  Commitments  have
terminated or expired and no Letter of Credit shall be  outstanding  (unless any
such Letter of Credit is cash  collateralized at 105% of the undrawn face amount
thereof to the reasonable  satisfaction of the Issuing Lender),  upon request of
the  Borrower,  the  Administrative  Agent shall  (without  notice to or vote or
consent of any  Lender,  or any  affiliate  of any Lender that is a party to any
Specified Hedge Agreement) take such actions as shall be required to release its
security  interest in all Collateral,  and to release all guarantee  obligations
provided  for in any Loan  Document,  whether or not on the date of such release
there may be outstanding Obligations in respect of Specified Hedge Agreements.

10.17 Accounting  Changes. In the event that any "Accounting Change" (as defined
below)  shall  occur  and such  change  results  in a change  in the  method  of
calculation of financial covenants,  standards or terms in this Agreement,  then
the Borrower and the  Administrative  Agent agree to enter into  negotiations in
order to amend such provisions of this Agreement so as to equitably reflect such
Accounting  Changes with the desired result that the criteria for evaluating the
Borrower's  financial  condition shall be the same after such Accounting Changes
as if such  Accounting  Changes  had not been  made.  Until such time as such an
amendment  shall  have  been  executed  and  delivered  by  the  Borrower,   the
Administrative   Agent  and  the  Required  Lenders,  all  financial  covenants,
standards  and  terms in this  Agreement  shall  continue  to be  calculated  or
construed as if such Accounting Changes had not occurred.  "Accounting  Changes"
refers  to  changes  in  accounting  principles  required  or  permitted  by the
promulgation of any rule, regulation,  pronouncement or opinion by the Financial
Accounting  Standards  Board  of the  American  Institute  of  Certified  Public
Accountants or, if applicable, the SEC.

10.18  Delivery of Lender  Addenda.  Each initial Lender shall become a party to
this  Agreement by delivering to the  Administrative  Agent and the  Syndication
Agent a Lender  Addendum  duly  executed by such  Lender,  the Borrower and each
Agent.

10.19  Construction.  Each covenant  contained herein shall be construed (absent
express  provision to the contrary) as being  independent of each other covenant
                                      117
<PAGE>

contained  herein,  so that  compliance  with any one covenant shall not (absent
such an express  contrary  provision)  be deemed to excuse  compliance  with any
other covenant.  Where any provision  herein refers to action to be taken by any
Person, or which such Person is prohibited from taking,  such provision shall be
applicable whether such action is taken directly or indirectly by such Person.

10.20 WAIVERS OF JURY TRIAL.  THE BORROWER,  THE  ARRANGERS,  THE AGENTS AND THE
LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY  WAIVE TRIAL BY JURY IN ANY LEGAL
ACTION OR PROCEEDING  RELATING TO THIS  AGREEMENT OR ANY OTHER LOAN DOCUMENT AND
FOR ANY COUNTERCLAIM THEREIN.

                                      118
<PAGE>

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
duly executed and delivered by their proper and duly  authorized  officers as of
the day and year first above written.

PENN NATIONAL GAMING, INC.

By:  /s/ Robert S. Ippolito

     Name:  Robert S. Ippolito
     Title:  Chief Financial Officer

LEHMAN BROTHERS INC.,
as Lead Arranger

By: /s/ Jeffrey Goodwin

     Name:  Jeffrey Goodwin
     Title:  Vice President

CIBC WORLD MARKETS CORP.,
as Co-Lead Arranger

By:  /s/ Paul J. Chakmak

     Name: Paul J. Chakmak
     Title: Managing Director

                                      119
<PAGE>

LEHMAN COMMERCIAL PAPER INC.,
as Syndication Agent

By:       /s/ Jeffrey Goodwin

     Name:  Jeffrey Goodwin
     Title: Authorized Signatory

CANADIAN IMPERIAL BANK OF COMMERCE,
as Administrative Agent

By: ___/s/ Paul J. Chakmak

     Name: Paul J. Chakmak
     Title: Managing Director

     CIBC World Markets Corp., as Agent

THE CIT GROUP/EQUIPMENT FINANCING, INC.,
as Documentation Agent

By:      /s/ Barry Blailock

     Name:  Barry Blailock
     Title: Assistant Vice President/Credit

FIRST UNION NATIONAL BANK,
as Documentation Agent

By:     /s/ Frank Kulp

     Name: Frank Kulp
     Title: Vice President

WELLS FARGO BANK, N.A.,
as Documentation Agent

By:   /s/ Rochanne L. Hackett

     Name: Rochanne L. Hackett
     Title: Vice President

                                      120
<PAGE>

                                                                      Annex A

                   A. PRICING GRID FOR REVOLVING CREDIT LOANS,
                    SWING LINE LOANS AND TRANCHE A TERM LOANS

                 (PRIOR TO CONSUMMATION OF THE CRC ACQUISITION)

============ =================== ======================= ==================
                                   Applicable

                                   Applicable Margin      Margin for Base
                Consolidated      for Eurodollar Loans      Rate Loans
   Level       Leverage Ratio
------------ ------------------- ----------------------- ------------------
------------ ------------------- ----------------------- ------------------
     I            x < 1.75               2.25%                 1.25%
------------ ------------------- ----------------------- ------------------
------------ ------------------- ----------------------- ------------------
    II        1.75 <= x < 2.25           2.50%                 1.50%
------------ ------------------- ----------------------- ------------------
------------ ------------------- ----------------------- ------------------
    III       2.25 <= x < 2.75           2.75%                 1.75%
------------ ------------------- ----------------------- ------------------
------------ ------------------- ----------------------- ------------------
    IV        2.75 <= x < 3.25           3.00%                 2.00%
------------ ------------------- ----------------------- ------------------
------------ ------------------- ----------------------- ------------------
     V           3.25 <= x               3.25%                 2.25%
============ =================== ======================= ==================

                   B. PRICING GRID FOR REVOLVING CREDIT LOANS,
                    SWING LINE LOANS AND TRANCHE A TERM LOANS

             (IMMEDIATELY UPON CONSUMMATION OF THE CRC ACQUISITION)
============ =================== ======================= ==================
                                   Applicable

                                   Applicable Margin      Margin for Base
                Consolidated      for Eurodollar Loans      Rate Loans
   Level       Leverage Ratio
------------ ------------------- ----------------------- ------------------
------------ ------------------- ----------------------- ------------------
     I            x < 2.50               2.25%                 1.25%
------------ ------------------- ----------------------- ------------------
------------ ------------------- ----------------------- ------------------
    II        2.50 <= x < 3.00           2.50%                 1.50%
------------ ------------------- ----------------------- ------------------
------------ ------------------- ----------------------- ------------------
    III       3.00 <= x < 3.50           2.75%                 1.75%
------------ ------------------- ----------------------- ------------------
------------ ------------------- ----------------------- ------------------
    IV        3.50 <= x < 4.00           3.00%                 2.00%
------------ ------------------- ----------------------- ------------------
------------ ------------------- ----------------------- ------------------
     V           4.00 <= x               3.25%                 2.25%
============ =================== ======================= ==================

Changes in the Applicable Margin with respect to Tranche A Term Loans, Revolving
Credit Loans and Swing Line Loans  resulting  from  changes in the  Consolidated
Leverage  Ratio shall become  effective on the next to occur of March 1, June 1,
September 1 and December 1 of each year.

                                      A-1
<PAGE>

                    C. PRICING GRID FOR TRANCHE B TERM LOANS

============ =================== ======================= ==================
                                   Applicable

                Consolidated       Applicable Margin      Margin for Base
              Senior Leverage     for Eurodollar Loans      Rate Loans
   Level           Ratio
------------ ------------------- ----------------------- ------------------
------------ ------------------- ----------------------- ------------------
     I            x < 1.75               3.50%                 2.50%
------------ ------------------- ----------------------- ------------------
------------ ------------------- ----------------------- ------------------
    II        1.75 <= x < 2.25           3.50%                 2.50%
------------ ------------------- ----------------------- ------------------
------------ ------------------- ----------------------- ------------------
    III       2.25 <= x < 2.75           4.00%                 3.00%
------------ ------------------- ----------------------- ------------------
------------ ------------------- ----------------------- ------------------
    IV        2.75 <= x < 3.25           4.00%                 3.00%
------------ ------------------- ----------------------- ------------------
------------ ------------------- ----------------------- ------------------
     V           3.25 <= x               4.00%                 3.00%
============ =================== ======================= ==================

Changes in the Applicable  Margin with respect to Tranche B Term Loans resulting
from changes in the Consolidated Senior Leverage Ratio shall become effective on
the next to occur of March 1, June 1,  September 1 and  December 1 of each year,
provided that no changes shall be made to the Applicable  Margin with respect to
Tranche B Term Loans prior to December 31, 2001.

If any financial  statements referred to above are not delivered within the time
periods  specified above,  then, until such financial  statements are delivered,
the Pricing Level shall be Level V. In addition,  at all times while an Event of
Default shall have occurred and be continuing,  the Pricing Level shall be Level
V.

                                      A-2
<PAGE>

                                                                      EXHIBIT B

                         FORM OF COMPLIANCE CERTIFICATE

     This Compliance  Certificate is delivered to you pursuant to Section 6.2 of
the Credit  Agreement,  dated as of August __, 2000 (as  amended,  supplemented,
replaced or modified  from time to time,  the  "Credit  Agreement"),  among Penn
National Gaming, Inc., a Pennsylvania corporation (the "Borrower"),  the several
banks and other  financial  institutions  or entities  from time to time parties
thereto,  Lehman Brothers Inc., as lead arranger and book-running  manager, CIBC
World Markets Corp., as co-lead  arranger and  co-book-running  manager,  Lehman
Commercial Paper Inc., as syndication agent, Canadian Imperial Bank of Commerce,
as  administrative  agent, and The CIT  Group/Equipment  Financing,  Inc., First
Union National Bank and Wells Fargo Bank,  N.A.,  each as  documentation  agent.
Terms defined in the Credit Agreement and not otherwise  defined herein are used
herein with the meanings so defined.

1.   I am the duly elected,  qualified and acting Chief Financial Officer of the
     Borrower.

2.   I have reviewed and am familiar with the contents of this Certificate.

3.   I have reviewed the terms of the Credit  Agreement  and the Loan  Documents
     and have  made,  or caused  to be made  under my  supervision,  a review in
     reasonable detail of the transactions and condition of the Borrower and its
     Subsidiaries   during  the  accounting  period  covered  by  the  financial
     statements  attached hereto as Attachment 1 (the  "Financial  Statements").
     Such  review did not  disclose  the  existence  during or at the end of the
     accounting period covered by the Financial  Statements,  and to the best of
     my  knowledge,  no Default or Event of Default  exists[,  except  [list all
     Defaults  or  Events  of  Default  and  all  actions   taken,   planned  or
     contemplated by the Borrower and its  Subsidiaries to address and cure such
     Defaults or Events of Default]].

4.   Attached hereto as Attachment 2 are the computations showing (i) compliance
     with the  covenants  set forth in Sections 7.1, 7.2, 7.5, 7.6, 7.7, 7.8 and
     7.18 of the Credit  Agreement  and (ii)  changes in the  Applicable  Margin
     pursuant to the Pricing  Grid, in a form  previously  supplied to us by the
     Administrative Agent.

                  IN WITNESS WHEREOF,  I execute this Certificate this _____ day
of ____, 200_.

                                     PENN NATIONAL GAMING, INC.

                                     By:
                                     Title:

                                      B-1
<PAGE>

                  The information  described  herein is as of  ____________  __,
200_, and pertains to the period from  __________ __, 20__ to  ____________  __,
20__.

                        [Set forth Covenant Calculations]

                                      B-2
<PAGE>

                                                                       EXHIBIT C

                           FORM OF CLOSING CERTIFICATE

                  Pursuant to Section 5.1(r) of the Credit Agreement dated as of
August __, 2000 (the "Credit Agreement"; terms defined therein being used herein
as  therein  defined),   among  Penn  National  Gaming,   Inc.,  a  Pennsylvania
corporation (the "Borrower"), the several banks and other financial institutions
or entities from time to time parties  thereto,  Lehman  Brothers  Inc., as lead
arranger and book-running manager, CIBC World Markets Corp., as co-lead arranger
and co-book-running manager, Lehman Commercial Paper Inc., as syndication agent,
Canadian  Imperial  Bank  of  Commerce,   as   administrative   agent,  The  CIT
Group/Equipment Financing, Inc., First Union National Bank and Wells Fargo Bank,
N.A., each as documentation  agent, the undersigned [INSERT TITLE OF OFFICER] of
[LOAN PARTY] (the "Company") hereby certifies as follows:

     1. The  representations  and warranties of the Company set forth in each of
the  Loan  Documents  to  which it is a party  or  which  are  contained  in any
certificate furnished by or on behalf of the Company pursuant to any of the Loan
Documents  to which it is a party  are  true and  correct  on and as of the date
hereof with the same effect as if made on the date hereof.

     2.  ____________________  is  the  duly  elected  and  qualified  Corporate
Secretary of the Company and the  signature  set forth for such officer below is
such officer's true and genuine signature.

     3. No Default or Event of Default has occurred and is  continuing as of the
date hereof or after  giving  effect to the Loans to be made  and/or  Letters of
Credit to be issued on the date hereof.

     4.  The  conditions  precedent  set  forth  in  Section  5.1 of the  Credit
Agreement  were  satisfied as of the Closing Date except as set forth on Annex 1
hereto.

     The undersigned Corporate Secretary of the Company certifies as follows:

     1. There are no  liquidation or  dissolution  proceedings  pending or to my
knowledge  threatened  against the  Company,  nor has any other  event  occurred
adversely  affecting or  threatening  the continued  corporate  existence of the
Company.

     2. The Company is a [corporation]  duly organized,  validly existing and in
good standing under the laws of the jurisdiction of its organization.

     3.  Attached  hereto as Annex 2 is a true and correct  copy of  resolutions
which  were duly  adopted  as of  ________________,  2000 by  unanimous  written
consent of the Board of Directors of the Company,  such resolutions have been in
full force and effect since their  adoption to and including the date hereof and
are now in full force and effect and said  resolutions  have not been rescinded,
revoked,  amended  or  modified.  Except  as  attached  hereto  as  Annex  2, no
resolutions  have been adopted by the Board of  Directors  of the Company  which
deal with the execution, delivery or performance of any of the Loan Documents to
which the Company is a party.
                                      C-1
<PAGE>

     4. Attached hereto as Annex 3 is a true and complete copy of the By-Laws of
the Company as in effect on the ------- date hereof.

     5.  Attached  hereto  as  Annex  4 is a  true  and  complete  copy  of  the
Certificate  of  Incorporation  of the Company,  certified  by the  Secretary of
_____________ of the ________________ of _________________,  as in effect on the
date hereof,  and such certificate has not been amended,  repealed,  modified or
restated.

     6.  The  named  individuals  on Annex 5,  attached  hereto  and made a part
hereof, are duly elected and qualified  officers of the Company,  each presently
holds the office of the  Company set forth  opposite  his name and has held such
office since prior to August ___, 2000. The signature  written opposite the name
and title of each such officer is his genuine  signature.  Each of such officers
is duly  authorized  to execute and deliver on behalf of the Company each of the
Loan  Documents to which it is a party and any  certificate or other document to
be  delivered  by the Company  pursuant to the Loan  Documents  to which it is a
party.  Annex 5 to this Certificate may be executed in counterparts and all such
counterparts  shall  constitute  one  document  not  withstanding  that  all the
officers are not signatories to the same counterpart.:

                  IN WITNESS  WHEREOF,  the  undersigned  have  hereunto set our
names as of the date set forth below.

Name:                                                        Name:
Title:                                                       Title:
Date: ____________, 2000

                                      C-2
<PAGE>

                                                                      ANNEX 1

                          [Waived Conditions Precedent]

                  [Describe any conditions precedent waived on
                      Closing Date and terms of any waiver]

<PAGE>

                                                                      ANNEX 2

                               [Board Resolutions]

<PAGE>

                                                                      ANNEX 3

                                    [By-Laws]

<PAGE>

                                                                      ANNEX 4

                         [Certificate of Incorporation]

<PAGE>

                                                                      ANNEX 5

                                   [Officers]

Name                                  Office                       Signature

<PAGE>
EXHIBIT E

                        FORM OF ASSIGNMENT AND ACCEPTANCE

                  Reference is made to the Credit Agreement,  dated as of August
__, 2000 (as amended, supplemented,  replaced or otherwise modified from time to
time, the "Credit Agreement"),  among Penn National Gaming, Inc., a Pennsylvania
corporation (the "Borrower"), the several banks and other financial institutions
or entities from time to time parties thereto ("Lenders"), Lehman Brothers Inc.,
as lead arranger and book-running  manager, CIBC World Markets Corp., as co-lead
arranger  and  co-book-running   manager,   Lehman  Commercial  Paper  Inc.,  as
syndication agent,  Canadian Imperial Bank of Commerce, as administrative agent,
and The CIT Group/Equipment Financing, Inc., First Union National Bank and Wells
Fargo Bank, N.A., each as documentation  agent. Unless otherwise defined herein,
terms  defined in the Credit  Agreement  and used herein shall have the meanings
given to them in the Credit Agreement.

                  The Assignor  identified on Schedule 1 hereto (the "Assignor")
and the  Assignee  identified  on  Schedule 1 hereto (the  "Assignee")  agree as
follows:

                  1. The Assignor  hereby  irrevocably  sells and assigns to the
Assignee without recourse to the Assignor,  and the Assignee hereby  irrevocably
purchases and assumes from the Assignor without recourse to the Assignor,  as of
the  Effective  Date (as defined  below),  the interest  described in Schedule 1
hereto (the "Assigned Interest") in and to the Assignor's rights and obligations
under the Credit Agreement with respect to those credit facilities  contained in
the Credit  Agreement  as are set forth on Schedule 1 hereto  (individually,  an
"Assigned Facility"  collectively,  the "Assigned  Facilities"),  in a principal
amount for each Assigned Facility as set forth on Schedule 1 hereto.

                  2. The  Assignor (a) makes no  representation  or warranty and
assumes  no  responsibility  with  respect  to  any  statements,  warranties  or
representations  made in or in  connection  with the  Credit  Agreement  or with
respect  to the  execution,  legality,  validity,  enforceability,  genuineness,
sufficiency  or value of the Credit  Agreement,  any other Loan  Document or any
other instrument or document  furnished  pursuant  thereto,  other than that the
Assignor has not created any adverse claim upon the interest  being  assigned by
it hereunder  and that such interest is free and clear of any such adverse claim
created by  Assignor;  (b) makes no  representation  or warranty  and assumes no
responsibility with respect to the financial  condition of the Borrower,  any of
its  Subsidiaries  or any other obligor or the  performance or observance by the
Borrower,  any of  its  Subsidiaries  or  any  other  obligor  of  any of  their
respective  obligations under the Credit Agreement or any other Loan Document or
any other instrument or document furnished  pursuant hereto or thereto;  and (c)
attaches  any  Notes  held by it  evidencing  the  Assigned  Facilities  and (i)
requests that the Administrative  Agent, upon request by the Assignee,  exchange
the attached  Notes for a new Note or Notes  payable to the Assignee and (ii) if
the Assignor has retained any interest in the Assigned  Facility,  requests that
the  Administrative  Agent  exchange the attached  Notes for a new Note or Notes
payable to the Assignor,  in each case in amounts  which reflect the  assignment
being made hereby (and after giving effect to any other  assignments  which have
become effective on the Effective Date), provided, that Notes exchanged pursuant
to clauses (i) or (ii) above  shall be marked  "Cancelled"  and  returned to the
Borrower.

                  3. The Assignee (a) represents and warrants that it is legally
authorized to enter into this  Assignment and  Acceptance;  (b) confirms that it
has  received  a copy of the  Credit  Agreement,  together  with  copies  of the
financial  statements  delivered  pursuant to Section 4.1 thereof and such other
documents and  information  as it has deemed  appropriate to make its own credit
analysis and decision to enter into this Assignment and  Acceptance;  (c) agrees
that it will,  independently and without reliance upon the Assignor,  any Agent,
any Arranger or any other Lender and based on such documents and  information as
it shall deem appropriate at the time, continue to make its own credit decisions
in taking or not  taking  action  under the  Credit  Agreement,  the other  Loan
Documents  or any other  instrument  or document  furnished  pursuant  hereto or
thereto; (d) appoints and authorizes the Agents to take such action as agents on
its  behalf  and to  exercise  such  powers  and  discretion  under  the  Credit
Agreement,  the  other  Loan  Documents  or any  other  instrument  or  document
furnished pursuant hereto or thereto as are delegated to the Agents by the terms
thereof together with such powers as are incidental thereto; and (e) agrees that
it will be bound by the  provisions of the Credit  Agreement and will perform in
accordance with its terms all the  obligations  which by the terms of the Credit
Agreement  are required to be performed  by it as a Lender  including,  if it is
organized  under the laws of a  jurisdiction  outside  the  United  States,  its
obligation pursuant to Section 2.20(f) of the Credit Agreement.
                                      K-1
<PAGE>

                  4. The effective date of this Assignment and Acceptance  shall
be the  Effective  Date of  Assignment  described  in  Schedule  1  hereto  (the
"Effective Date"). Following the execution of this Assignment and Acceptance, it
will be delivered to the Administrative Agent for acceptance by it and recording
by the  Administrative  Agent pursuant to the Credit Agreement,  effective as of
the  Effective  Date  (which  shall  not,  unless  otherwise  agreed  to by  the
Administrative  Agent, be earlier than five Business Days after the date of such
acceptance  and recording by the  Administrative  Agent)  together with a $3,500
processing  fee (to the  extent  required  under  Section  10.6(e) of the Credit
Agreement).

                  5.  Upon such  acceptance  and  recording,  from and after the
Effective Date, the  Administrative  Agent shall make all payments in respect of
the Assigned Interest (including payments of principal, interest, fees and other
amounts) [to the Assignor for amounts which have accrued to the  Effective  Date
and to the Assignee for amounts  which have accrued  subsequent to the Effective
Date] [to the Assignee  whether such amounts have accrued prior to the Effective
Date or accrue  subsequent to the Effective  Date. The Assignor and the Assignee
shall make all  appropriate  adjustments  in  payments  by the Agent for periods
prior to the  Effective  Date or with  respect to the making of this  assignment
directly between themselves.]

                  6. From and after the Effective  Date,  (a) the Assignee shall
be a  party  to the  Credit  Agreement  and,  to the  extent  provided  in  this
Assignment  and  Acceptance,  have  the  rights  and  obligations  of  a  Lender
thereunder  and  under  the  other  Loan  Documents  and  shall  be bound by the
provisions  thereof and (b) the Assignor  shall,  to the extent provided in this
Assignment  and  Acceptance,  relinquish  its  rights and be  released  from its
obligations under the Credit Agreement.

7.   This  Assignment  and  Acceptance  shall be  governed by and  construed  in
     accordance with the laws of the State of New York.

                                      K-2
<PAGE>

                  IN WITNESS  WHEREOF,  the  parties  hereto  have  caused  this
Assignment  and  Acceptance to be executed as of the date first above written by
their respective duly authorized officers on Schedule 1 hereto.

                                      K-3
<PAGE>

                                   Schedule 1

                          to Assignment and Acceptance

Name of Assignor: __________________________

Name of Assignee: __________________________

Effective Date of Assignment: _________________

Credit Facility Assigned  Principal Amount Assigned  Commitment Percentage Assig
------------------------  -------------------------  ---------
                          $--------------------      -------.------%

[Name of Assignor]                                           [Name of Assignee]

By:___________________________________                       By:________________
       Title:                                                       Title:
         Name:                                                        Name:

                                      SC-1
<PAGE>

Accepted:
CANADIAN IMPERIAL BANK OF COMMERCE, as Administrative Agent

By:___________________________________
     Title:
      Name:

Consented To (if applicable):
[PENN NATIONAL GAMING, INC.]

By:___________________________________
     Title:
      Name:
CANADIAN IMPERIAL BANK OF COMMERCE, as Administrative
Agent

By:___________________________________
     Title:
      Name:
                                 SC-2
<PAGE>
                                SCHEDULE A
                      FAIR VALUE BALANCE SHEET CALCULATIONS

------------------------------- -----------------------------------------
Loan Party                      Valuation      Asset Values Value of Liabilities
------------------------------- -----------------------------------------------
------------------------------- -----------------------------------------------
[Complete for each Loan Party]  $[____________]  $[____________] $[____________]

<PAGE>

                                                                EXHIBIT G-1

                                FORM OF TERM NOTE

THIS NOTE AND THE OBLIGATIONS  REPRESENTED  HEREBY MAY NOT BE TRANSFERRED EXCEPT
IN COMPLIANCE WITH THE TERMS AND PROVISIONS OF THE CREDIT AGREEMENT  REFERRED TO
BELOW.  TRANSFERS OF THIS NOTE AND THE  OBLIGATIONS  REPRESENTED  HEREBY MUST BE
RECORDED IN THE REGISTER MAINTAINED BY THE ADMINISTRATIVE  AGENT PURSUANT TO THE
TERMS OF SUCH CREDIT AGREEMENT.

$____________                                                 New York, New York
                                                             __________ __, 2000

                  FOR VALUE RECEIVED,  the  undersigned,  Penn National  Gaming,
Inc.,  a  Pennsylvania  corporation  (the  "Borrower"),  hereby  unconditionally
promises to pay to ________  (the  "Lender")  or its  registered  assigns at the
Payment Office  specified in the Credit  Agreement (as  hereinafter  defined) in
lawful  money of the  United  States and in  immediately  available  funds,  the
principal  amount of (a)  ____________  DOLLARS  ($_____),  or, if less, (b) the
unpaid  principal  amount of the  Tranche  [A][B]  Term Loan made by the  Lender
pursuant to Section 2.1 of the Credit  Agreement.  The principal amount shall be
paid in the  amounts  and on the dates  specified  in Section  2.3 of the Credit
Agreement.  The  Borrower  further  agrees to pay interest in like money at such
office on the unpaid  principal  amount hereof from time to time  outstanding at
the rates and on the dates specified in Section 2.15 of the Credit Agreement.

                  The  holder  of this  Note is  authorized  to  endorse  on the
schedules  annexed  hereto and made a part hereof or on a  continuation  thereof
which shall be attached  hereto and made a part hereof the date, Type and amount
of the  Tranche  [A][B]  Term Loan and the date and  amount of each  payment  or
prepayment  of  principal  with respect  thereto,  each  conversion  of all or a
portion thereof to another Type,  each  continuation of all or a portion thereof
as the same  Type  and,  in the case of  Eurodollar  Loans,  the  length of each
Interest Period with respect  thereto.  Each such  endorsement  shall constitute
prima facie evidence of the accuracy of the information endorsed. The failure to
make any such endorsement or any error in any such endorsement  shall not affect
the obligations of the Borrower in respect of the Tranche [A][B] Term Loan.

                  This  Note (a) is one of the  Term  Notes  referred  to in the
Credit Agreement dated as of August __, 2000 (as amended, supplemented, replaced
or otherwise  modified  from time to time,  the "Credit  Agreement"),  among the
Borrower,  the Lender,  the other banks and financial  institutions  or entities
from time to time parties  thereto,  Lehman  Brothers Inc., as lead arranger and
book-running  manager,  CIBC  World  Markets  Corp.,  as  co-lead  arranger  and
co-book-running  manager,  Lehman  Commercial Paper Inc., as syndication  agent,
Canadian  Imperial  Bank  of  Commerce,  as  administrative  agent,  and The CIT
Group/Equipment Financing, Inc., First Union National Bank and Wells Fargo Bank,
N.A.,  each as  documentation  agent,  (b) is subject to the  provisions  of the
Credit  Agreement  and (c) is subject to optional and  mandatory  prepayment  in
whole or in part as provided in the Credit  Agreement.  This Note is secured and
guaranteed  as provided in the Loan  Documents.  Reference is hereby made to the
Loan  Documents  for a  description  of the  properties  and  assets  in which a
security  interest has been  granted,  the nature and extent of the security and
the guarantees,  the terms and conditions upon which the security  interests and
each guarantee were granted and the rights of the holder of this Note in respect
thereof.

                  Upon the occurrence of any one or more Events of Default,  all
principal  and all accrued  interest  then  remaining  unpaid on this Note shall
become, or may be declared to be,  immediately due and payable,  all as provided
in the Credit Agreement.

                  All parties  now and  hereafter  liable  with  respect to this
Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby
waive presentment, demand, protest and all other notices of any kind.

                  Unless otherwise  defined herein,  terms defined in the Credit
Agreement  and used herein shall have the  meanings  given to them in the Credit
Agreement.

                  NOTWITHSTANDING  ANYTHING TO THE CONTRARY  CONTAINED HEREIN OR
IN THE CREDIT AGREEMENT, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AND
IN ACCORDANCE WITH THE  REGISTRATION AND OTHER PROVISIONS OF SECTION 10.6 OF THE
CREDIT AGREEMENT.

                  THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND  INTERPRETED
IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

                                     PENN NATIONAL GAMING, INC.

                                     By:
                                     Name:

                                     Title:

<PAGE>
<TABLE>
<CAPTION>

                                   Schedule A

                                  to Term Note

          LOANS, CONVERSIONS AND REPAYMENTS OF BASE RATE LOANS

---------- ------------------------ ------------------------- ------------------------ ------------------------- ------------------
<S>   <C>                   <C>               <C>                     <C>                   <C>               <C>

                            Amount                                    Amount of Base Rate
      Amount of Base Rate   Converted to      Amount of Principal of  Loans Converted to    Unpaid Principal
Date  Loans                 Base Rate Loans   Base Rate Loans Repaid  Eurodollar Loans      Balance           Notation Made By
                                                                                                              of Base Rate Loans

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                   Schedule B

                                  to Term Note

      LOANS, CONTINUATIONS, CONVERSIONS AND REPAYMENTS OF EURODOLLAR LOANS
-------------- ---------------------- --------------------- ---------------------- --------------------------------- -----------
<S>   <C>              <C>               <C>                   <C>                 <C>                  <C>                <C>
                       Amount Converted  Interest Period and   Amount of Principal Amount of Eurodollar Unpaid Principal
      Amount of        to Eurodollar     Eurodollar Rate with  of Eurodollar Loans Loans Converted to   Balance of         Notation
Date  Eurodollar Loans Loans             Respect Thereto       Repaid              Base Rate Loans      Eurodollar Loans   Made By

</TABLE>

<PAGE>

                                                                EXHIBIT G-2

                          FORM OF REVOLVING CREDIT NOTE

THIS NOTE AND THE OBLIGATIONS  REPRESENTED  HEREBY MAY NOT BE TRANSFERRED EXCEPT
IN COMPLIANCE WITH THE TERMS AND PROVISIONS OF THE CREDIT AGREEMENT  REFERRED TO
BELOW.  TRANSFERS OF THIS NOTE AND THE  OBLIGATIONS  REPRESENTED  HEREBY MUST BE
RECORDED IN THE REGISTER MAINTAINED BY THE ADMINISTRATIVE  AGENT PURSUANT TO THE
TERMS OF SUCH CREDIT AGREEMENT.

$____________                                New York, New York
                                            __________ __, 200_

                  FOR VALUE RECEIVED,  the  undersigned,  Penn National  Gaming,
Inc.,  a  Pennsylvania  corporation  (the  "Borrower"),  hereby  unconditionally
promises to pay to ___________________  (the "Lender") or its registered assigns
at the Payment Office specified in the Credit Agreement (as hereinafter defined)
in lawful money of the United States and in immediately  available funds, on the
Revolving Credit  Termination Date the principal amount of (a) _________ DOLLARS
($______),  or,  if less,  (b) the  aggregate  unpaid  principal  amount  of all
Revolving  Credit Loans made by the Lender to the  Borrower  pursuant to Section
2.4 of the Credit Agreement. The Borrower further agrees to pay interest in like
money at such Payment Office on the unpaid  principal amount hereof from time to
time  outstanding at the rates and on the dates specified in Section 2.15 of the
Credit Agreement.

                  The  holder  of this  Note is  authorized  to  endorse  on the
schedules  annexed  hereto and made a part hereof or on a  continuation  thereof
which shall be attached  hereto and made a part hereof the date, Type and amount
of each Revolving Credit Loan made pursuant to the Credit Agreement and the date
and amount of each payment or prepayment of principal thereof, each continuation
thereof, each conversion of all or a portion thereof to another Type and, in the
case of  Eurodollar  Loans,  the length of each  Interest  Period  with  respect
thereto.  Each such  endorsement  shall  constitute  prima facie evidence of the
accuracy of the information  endorsed.  The failure to make any such endorsement
or any error in any such  endorsement  shall not affect the  obligations  of the
Borrower in respect of any Revolving Credit Loan.

                  This Note (a) is one of the Revolving Credit Notes referred to
in the Credit  Agreement dated as of August __, 2000 (as amended,  supplemented,
replaced or otherwise modified from time to time, the "Credit Agreement"), among
the Borrower, the Lender, the other banks and financial institutions or entities
from time to time parties  thereto,  Lehman  Brothers Inc., as lead arranger and
book-running  manager,  CIBC  World  Markets  Corp.,  as  co-lead  arranger  and
co-book-running  manager,  Lehman  Commercial Paper Inc., as syndication  agent,
Canadian  Imperial  Bank  of  Commerce,  as  administrative  agent,  and The CIT
Group/Equipment Financing, Inc., First Union National Bank and Wells Fargo Bank,
N.A.,  each as  documentation  agent,  (b) is subject to the  provisions  of the
Credit  Agreement  and (c) is subject to optional and  mandatory  prepayment  in
whole or in part as provided in the Credit  Agreement.  This Note is secured and
guaranteed  as provided in the Loan  Documents.  Reference is hereby made to the
Loan  Documents  for a  description  of the  properties  and  assets  in which a
security  interest has been  granted,  the nature and extent of the security and
the guarantees,  the terms and conditions upon which the security  interests and
each guarantee were granted and the rights of the holder of this Note in respect
thereof.
<PAGE>

                  Upon the occurrence of any one or more Events of Default,  all
principal  and all accrued  interest  then  remaining  unpaid on this Note shall
become, or may be declared to be,  immediately due and payable,  all as provided
in the Credit Agreement.

                  All parties  now and  hereafter  liable  with  respect to this
Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby
waive presentment, demand, protest and all other notices of any kind.

                  Unless otherwise  defined herein,  terms defined in the Credit
Agreement  and used herein shall have the  meanings  given to them in the Credit
Agreement.

                  NOTWITHSTANDING  ANYTHING TO THE CONTRARY  CONTAINED HEREIN OR
IN THE CREDIT AGREEMENT, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AND
IN ACCORDANCE WITH THE  REGISTRATION AND OTHER PROVISIONS OF SECTION 10.6 OF THE
CREDIT AGREEMENT.

                  THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND  INTERPRETED
IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

                                         PENN NATIONAL GAMING, INC.

                                        By:
                                      Name:

                                     Title:

<PAGE>

                                   Schedule A

                            to Revolving Credit Note

              LOANS, CONVERSIONS AND REPAYMENTS OF BASE RATE LOANS

<TABLE>
<S>   <C>                 <C>              <C>                     <C>                  <C>               <C>

                          Amount                                   Amount of Base Rate
      Amount of Base Rate Converted to     Amount of Principal of  Loans Converted to   Unpaid Principal
Date  Loans               Base Rate Loans  Base Rate Loans Repaid  Eurodollar Loans     Balance           Notation Made By
                                                                                                          of Base Rate Loans

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                   Schedule B

                            to Revolving Credit Note

      LOANS, CONTINUATIONS, CONVERSIONS AND REPAYMENTS OF EURODOLLAR LOANS
-------------- ---------------------- --------------------- ---------------------- ---------------------- ---------------------
<S>   <C>               <C>               <C>                   <C>                  <C>                   <C>              <C>
                        Amount Converted  Interest Period and   Amount of Principal  Amount of Eurodollar  Unpaid Principal
      Amount of         to Eurodollar     Eurodollar Rate with  of Eurodollar Loans  Loans Converted to    Balance of       Notation
Date  Eurodollar Loans  Loans             Respect Thereto       Repaid               Base Rate Loans       Eurodollar Loans Made By

</TABLE>

<PAGE>

                                                                EXHIBIT G-3

                             FORM OF SWING LINE NOTE

THIS NOTE AND THE OBLIGATIONS  REPRESENTED  HEREBY MAY NOT BE TRANSFERRED EXCEPT
IN COMPLIANCE WITH THE TERMS AND PROVISIONS OF THE CREDIT AGREEMENT  REFERRED TO
BELOW.  TRANSFERS OF THIS NOTE AND THE  OBLIGATIONS  REPRESENTED  HEREBY MUST BE
RECORDED IN THE REGISTER MAINTAINED BY THE ADMINISTRATIVE  AGENT PURSUANT TO THE
TERMS OF SUCH CREDIT AGREEMENT.

$_____________                            New York, New York
                                    _______________ __, 200_

                  FOR VALUE RECEIVED,  the  undersigned,  Penn National  Gaming,
Inc.,  a  Pennsylvania  corporation  (the  "Borrower"),  hereby  unconditionally
promises to pay ___________ (the "Swing Line Lender") or its registered  assigns
at the payment office  specified in the Credit  Agreement (as herein defined) in
lawful money of the United States and in  immediately  available  funds,  on the
Revolving  Credit  Termination Date the principal amount of (a) ________ dollars
($___________),  or, if less, (b) the aggregate  unpaid  principal amount of all
Swing  Line  Loans made by the Swing Line  Lender to the  Borrower  pursuant  to
Section  2.6 of the Credit  Agreement,  as  hereinafter  defined.  The  Borrower
further  agrees to pay  interest  in like  money at such  office  on the  unpaid
principal  amount hereof from time to time  outstanding  at the rates and on the
dates specified in Section 2.15 of such Credit Agreement.

                  The  holder  of this  Note is  authorized  to  endorse  on the
schedules  annexed  hereto and made a part hereto or on a  continuation  thereof
which  shall be  attached  hereto and made a part  hereof the date and amount of
each Swing Line Loan made  pursuant  to the  Credit  Agreement  and the date and
amount of each payment or prepayment of principal thereof. Each such endorsement
shall  constitute  prima  facie  evidence  of the  accuracy  of the  information
endorsed.  The  failure  to make any such  endorsement  or any error in any such
endorsement  shall not affect the  obligations of the Borrower in respect of any
Swing Line Loan.

                  This Note (a) is [one of] the Swing Line Notes[s]  referred to
in the Credit  Agreement dated as of August __, 2000 (as amended,  supplemented,
replaced or otherwise modified from time to time, the "Credit Agreement"), among
the Borrower,  the Swing Line Lender, the other banks and financial institutions
or entities from time to time parties  thereto,  Lehman  Brothers  Inc., as lead
arranger and book-running manager, CIBC World Markets Corp., as co-lead arranger
and co-book-running manager, Lehman Commercial Paper Inc., as syndication agent,
Canadian  Imperial  Bank  of  Commerce,  as  administrative  agent,  and The CIT
Group/Equipment Financing, Inc., First Union National Bank and Wells Fargo Bank,
N.A.,  each as  documentation  agent,  (b) is subject to the  provisions  of the
Credit  Agreement  and (c) is subject to optional and  mandatory  prepayment  in
whole or in part as provided in the Credit  Agreement.  This Note is secured and
guaranteed  as provided in the Loan  Documents.  Reference is hereby made to the
Loan  Documents  for a  description  of the  properties  and  assets  in which a
security  interest has been  granted,  the nature and extent of the security and
the guarantees,  the terms and conditions upon which the security  interests and
each guarantee were granted and the rights of the holder of this Note in respect
thereof.

                  Upon the occurrence of any one or more Events of Default,  all
principal  and all accrued  interest  then  remaining  unpaid on this note shall
become, or may be declared to be,  immediately due and payable,  all as provided
in the Credit Agreement.
<PAGE>

                  All parties  now and  hereafter  liable  with  respect to this
Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby
waive presentment, demand, protest and all other notices of any kind.

                  Unless otherwise  defined herein,  terms defined in the Credit
Agreement  and used herein shall have the  meanings  given to them in the Credit
Agreement.

                  NOTWITHSTANDING  ANYTHING TO THE CONTRARY  CONTAINED HEREIN OR
IN THE CREDIT AGREEMENT, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AND
IN ACCORDANCE WITH THE  REGISTRATION AND OTHER PROVISIONS OF SECTION 10.6 OF THE
CREDIT AGREEMENT.

                  THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND  INTERPRETED
IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

                                     PENN NATIONAL GAMING, INC.

                                        BY:
                                      Name:

                                     Title:

<PAGE>

                                   Schedule A

                               to Swing Line Note

                    LOANS AND REPAYMENTS OF SWING LINE LOANS
<TABLE>
<S>   <C>                    <C>                                <C>                                 <C>
      Amount of              Amount of Principal of Swing Line  Unpaid Principal Balance of Swing
Date  Swing Line Loans       Loans Repaid                        Line Loans                         Notation Made By
</TABLE>

<PAGE>

EXHIBIT H

                        FORM OF PREPAYMENT OPTION NOTICE

Canadian Imperial Bank of Commerce
Attention: Agency Services Group
Telecopy No. (212) 856-3763

[Date]

Ladies and Gentlemen:

                  The  undersigned,  Canadian  Imperial  Bank  of  Commerce,  as
administrative  agent (in such  capacity,  the  "Administrative  Agent") for the
Lenders,  refers  to the  Credit  Agreement,  dated as of August  ___,  2000 (as
amended,  supplemented,  replaced or otherwise  modified from time to time,  the
"Credit   Agreement"),   among  Penn  National  Gaming,   Inc.,  a  Pennsylvania
corporation (the "Borrower"), the several banks and other financial institutions
or entities from time to time parties  thereto,  Lehman  Brothers  Inc., as lead
arranger and book-running manager, CIBC World Markets Corp., as co-lead arranger
and co-book-running manager, Lehman Commercial Paper Inc., as syndication agent,
the Administrative  Agent, and The CIT  Group/Equipment  Financing,  Inc., First
Union National Bank and Wells Fargo Bank,  N.A.,  each as  documentation  agent.
Capitalized  terms used herein and not otherwise  defined  herein shall have the
meanings assigned to such terms in the Credit Agreement.

                  The  Administrative  Agent  hereby gives notice of an offer of
prepayment  made by the  Borrower  pursuant  to  Section  2.18(d)  of the Credit
Agreement  of the Tranche B  Prepayment  Amount.  Amounts  applied to prepay the
Tranche B Term Loans shall be applied, pursuant to your instructions, either (i)
pro rata to the  Tranche  B Term  Loan  held by you (the  "Pro  Rata  Prepayment
Amount"),  or (ii) in an amount larger than your pro rata portion of the Tranche
B Term  Loan,  based on your  proportionate  share of the  portion  of Tranche B
Prepayment   Amount   declined  by  other  Tranche  B  Term  Loan  Lenders  (the
"Supplemental  Prepayment  Amount").  The portion of the prepayment amount to be
allocated  to the  Tranche B Term  Loan  held by you and the date on which  such
prepayment will be made to you (should you elect to receive such prepayment) are
set forth below:

(A)    Total Tranche B Prepayment Amount                           $___________
(B)    Portion of Tranche B Prepayment Amount to be received by
       you (Pro Rata Prepayment Amount):                           $___________
(C)    Prepayment Date (10 Business Days after the date of this     ___________
       Prepayment Option Notice)

<PAGE>

                  Please  sign  this  notice  in the  space  provided  below and
indicate if you:

(a)  WISH to receive the Pro Rata Prepayment  Amount  indicated in paragraph (B)
     above;

(b)  WISH to  receive  A  PROPORTIONATE  SHARE  OF the  SUPPLEMENTAL  Prepayment
     Amount;

                  (C) DO NOT WISH to  receive  ANY (OR  PART) of the  TrancHe  B
Prepayment Amount otherwise payable.

If you elect  option (B),  you will be  notified  shortly  regarding  what exact
amount  will be  allocated  to the Tranche B Term Loan held by you. If you elect
option (C),  please  indicate  below the  percentage  of the Tranche B Term Loan
Prepayment Amount otherwise payable which you do not wish to receive.

                  Please  return this notice as so completed via telecopy to the
attention of [___________] at Canadian Imperial Bank of Commerce,  425 Lexington
Avenue,  New York,  New York 10017,  no later than [11:00]  a.m.,  New York City
time,  no less than five (5)  Business  Days prior to the  Prepayment  Date,  at
Telecopy No. (212) 856-3763.  IF YOU DO NOT RETURN THIS NOTICE, YOU WILL RECEIVE
100%  OF THE  PRO  RATA  PREPAYMENT  AMOUNT  ALLOCATED  TO YOU ON THE  MANDATORY
PREPAYMENT DATE AND NO PORTION OF ANY SUPPLEMENTAL PREPAYMENT AMOUNT.

        CANADIAN IMPERIAL BANK OF COMMERCE,
        as Administrative Agent

        By:
        Name:
        Title:

        Tranche B Lender, as Lender

        By:
        Name:
        Title:

Election of Prepayment Amount:

_____    Pro Rata Prepayment Amount
_____    Supplemental Prepayment Amount
_____    Percentage of Tranche B Prepayment

         Amount Declined (0-100%): _______%

<PAGE>

EXHIBIT I

                          FORM OF EXEMPTION CERTIFICATE

                  Reference is made to the Credit Agreement,  dated as of August
__, 2000 (as amended, supplemented,  replaced or otherwise modified from time to
time, the "Credit  Agreement") among Penn National Gaming,  Inc., a Pennsylvania
corporation (the "Borrower"), the several banks and other financial institutions
or entities from time to time parties  thereto,  Lehman  Brothers  Inc., as lead
arranger and book-running manager, CIBC World Markets Corp., as co-lead arranger
and co-book-running manager, Lehman Commercial Paper Inc., as syndication agent,
Canadian  Imperial  Bank  of  Commerce,  as  administrative  agent,  and The CIT
Group/Equipment Financing, Inc., First Union National Bank and Wells Fargo Bank,
N.A., each as documentation  agent.  Capitalized  terms used herein that are not
defined herein shall have the meanings ascribed to them in the Credit Agreement.
_______________________  (the "Non-U.S.  Lender") is providing this  certificate
pursuant to Section 2.20 (f) of the Credit Agreement. The Non-U.S. Lender hereby
represents and warrants that:

1.   The Non-U.S. Lender is the sole record and beneficial owner of the Loans or
     the  obligations  evidenced  by Note(s) in respect of which it is providing
     this certificate.

2.   The Non-U.S. Lender is not a "bank" for purposes of Section 881(c)(3)(A) of
     the Internal Revenue Code of 1986, as amended (the "Code"). In this regard,
     the Non-U.S. Lender further represents and warrants that: ----

(a)  the  Non-U.S.   Lender  is  not  subject  to   regulatory  or  other  legal
     requirements as a bank in any jurisdiction; and

                  (b) the  Non-U.S.  Lender  has not been  treated as a bank for
purposes of any tax,  securities  law or other filing or submission  made to any
Governmental Authority, any application made to a rating agency or qualification
for any exemption from tax, securities law or other legal requirements;

3.   The Non-U.S.  Lender is not a 10-percent shareholder of the Borrower within
     the meaning of Section 881(c)(3)(B) of the Code; and

4.   The  Non-U.S.  Lender is not a  controlled  foreign  corporation  receiving
     interest from a related  person within the meaning of Section  881(c)(3)(C)
     of the Code.

                  IN WITNESS  WHEREOF,  the  undersigned  has duly executed this
certificate.

                            [NAME OF NON-U.S. LENDER]

                                                          By:
                                      Name:

                                     Title:

Date:

<PAGE>

EXHIBIT J

                             FORM OF LENDER ADDENDUM

                  Reference is made to the Credit Agreement,  dated as of August
__, 2000 (as amended, supplemented,  replaced or otherwise modified from time to
time, the "Credit Agreement"),  among Penn National Gaming, Inc., a Pennsylvania
corporation, the banks and other financial institutions or entities from time to
time parties  thereto,  Lehman Brothers Inc., as lead arranger and  book-running
manager,  CIBC World  Markets  Corp.,  as co-lead  arranger and  co-book-running
manager,  Lehman Commercial Paper Inc., as syndication agent,  Canadian Imperial
Bank  of  Commerce,   as  administrative  agent,  and  The  CIT  Group/Equipment
Financing,  Inc.,  First Union National Bank and Wells Fargo Bank, N.A., each as
documentation  agent.  Unless  otherwise  defined  herein,  terms defined in the
Credit  Agreement  and used herein shall have the meanings  given to them in the
Credit Agreement.

                  Upon  execution  and  delivery of this Lender  Addendum by the
parties  hereto as  provided  in  Section  10.18 of the  Credit  Agreement,  the
undersigned  hereby becomes a Lender thereunder having the Commitments set forth
in Schedule 1 hereto, effective as of the Closing Date.

                  THIS LENDER  ADDENDUM  SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

                  This  Lender  Addendum  may be  executed by one or more of the
parties  hereto  on any  number  of  separate  counterparts,  and  all  of  said
counterparts  taken  together  shall be  deemed to  constitute  one and the same
instrument.   Delivery  of  an  executed  signature  page  hereof  by  facsimile
transmission  shall be effective as delivery of a manually executed  counterpart
hereof.

                           [Signature page to follow]

<PAGE>

                  IN WITNESS WHEREOF, the parties hereto have caused this Lender
Addendum to be duly executed and  delivered by their proper and duly  authorized
officers as of this ____ day of ______________, 200_.

                                 Name of Lender

                                                          By:
                                      Name:

                                     Title:

Accepted and agreed:

PENN NATIONAL GAMING, INC.

By:
Name:
Title:

CANADIAN IMPERIAL BANK OF COMMERCE, as
Administrative Agent

By:
Name:
Title:

<PAGE>

                         COMMITMENTS AND NOTICE ADDRESS

1.                               Name of Lender:     _________________________
         Notice Address:         ___________________________________
                                 ===================================
         Attention:              ___________________________________
         Telephone:              ___________________________________
         Facsimile:              ___________________________________

2.       Revolving Credit Commitment:

3.       Tranche A Term Loan Commitment:

4.       Tranche B Term Loan Commitment:

<PAGE>

EXHIBIT K

                          FORM OF SOLVENCY CERTIFICATE

                  This Solvency Certificate (this "Certificate") is delivered in
connection with that certain Credit  Agreement,  dated as of August __, 2000 (as
amended,  supplemented,  replaced or otherwise  modified from time to time,  the
"Credit   Agreement"),   among  Penn  National  Gaming,   Inc.,  a  Pennsylvania
corporation  (the  "Borrower"),  each bank and other  financial  institution  or
entity from time to time party thereto,  Lehman  Brothers Inc., as lead arranger
and  book-running  manager,  CIBC World Markets Corp.,  as co-lead  arranger and
co-book-running  manager, Lehman Brothers Commercial Inc., as syndication agent,
Canadian  Imperial  Bank  of  Commerce,  as  administrative  agent,  and The CIT
Group/Equipment Financing, Inc., First Union National Bank and Wells Fargo Bank,
N.A., each as documentation agent. Capitalized terms used but not defined herein
have the meanings given such terms in the Credit Agreement.

                  For purposes of this Certificate, "Transactions" means (i) the
fulfillment of all conditions to the making of Loans and the issuance of Letters
of Credit under the Credit  Agreement  and the funding of such Loans and Letters
of Credit, if any, on the Closing Date and the use of the proceeds thereof, (ii)
the  execution  and  delivery  of the Loan  Documents,  (iii) the  repayment  of
outstanding Indebtedness on the Closing Date, (iv) the Acquisition,  and (v) the
payment of all fees, costs and expenses associated with the foregoing.

                  I hereby certify on behalf of the Loan Parties as follows:

                  1. I am the duly qualified and acting Chief Financial  Officer
of the  Borrower  and a duly  authorized  officer of each other Loan Party (such
officer to be familiar with the financial  condition and operations of such Loan
Party),  and in such capacity am a senior financial officer with  responsibility
for  the  management  of the  financial  affairs  of  such  Loan  Party  and the
preparation of financial  statements of such Loan Party.  I, together with other
officers of the Loan  Parties,  acted on behalf of each Loan Party in connection
with the  negotiation  and execution of the Credit  Agreement and the other Loan
Documents  and the  Acquisition  Documentation,  in each case, to which any Loan
Party is a  party.  In  connection  with the  following  certifications,  I have
reviewed the financial statements of the Loan Parties.

                  2. I have carefully reviewed the contents of this Certificate,
and I have  conferred  with  counsel  for the Loan  Parties  for the  purpose of
discussing  the  meaning of its  contents  and the purpose for which it is to be
used.  I have made such  investigations  and  inquiries  as I have  deemed to be
necessary and prudent, and have reviewed the Credit Agreement, the Notes and the
other Loan Documents and the Acquisition  Documentation,  in each case, to which
any Loan Party is a party. I am providing this certificate solely in my capacity
as an officer of each Loan Party.

                  3. The audited consolidated [and consolidating] balance sheets
of the  Borrower and its  consolidated  Subsidiaries  as at [last three  audited
balance  sheet  dates],  and  the  related   consolidated  [and   consolidating]
statements of income and of cash flows for the fiscal years ended on such dates,
reported on by and  accompanied by an unqualified  report from  [_____________],
present fairly the consolidated [and  consolidating]  financial condition of the
Borrower and its consolidated Subsidiaries as at such date, and the consolidated

<PAGE>

[and  consolidating]  results  of  its  operations  and  its  consolidated  [and
consolidating]  cash flows for the respective  fiscal years then ended. All such
financial  statements,  including the related schedules and notes thereto,  have
been  prepared in  accordance  with GAAP  applied  consistently  throughout  the
periods involved (except as approved by the  aforementioned  firm of accountants
and disclosed  therein).  After due inquiry,  I have concluded that the Borrower
and its Subsidiaries do not have any material Guarantee Obligations,  contingent
liabilities  and  liabilities  for  taxes,  or any  long-term  leases or unusual
forward or long-term commitments,  including,  without limitation,  any interest
rate or foreign  currency swap or exchange  transaction  or other  obligation in
respect of  derivatives,  that are not  reflected  in the most recent  financial
statements  referred to in this paragraph.  After due inquiry,  I have concluded
that  during  the  period  from  [date of last  audited  balance  sheet]  to and
including the date hereof there has been no  Disposition  by the Borrower or any
of its  Subsidiaries  of any material  part of their  respective  businesses  or
Properties.

                  4. In  connection  with the  negotiation  and execution of the
Credit Agreement and the other Loan Documents and the Acquisition  Documentation
to which any Loan Party is a party, I have caused the preparation of, and I have
reviewed,  forecasted  consolidated [and consolidating]  balance sheets,  income
statements,  cash flow  statements  and  capitalization  statements  prepared by
management of the Borrower on a basis  consistent with its historical  financial
statements,  for the period  commencing  on the  Closing  Date and ending on the
seventh anniversary thereof (the "Projections"). The Projections attached hereto
as  Exhibit  A  give  effect  to  the  consummation  of  the  Transactions.  The
Projections were prepared on the basis of information available at [date of last
audited  balance sheet].  Supporting  details and a statement of the assumptions
underlying the Projections and including,  without limitation,  a calculation of
compliance with the covenants contained in Sections 7.1, 7.2, 7.5, 7.6, 7.7, 7.8
and 7.18 of the Credit  Agreement are attached to the  Projections  as Annexes 1
and 2,  respectively.  In my opinion,  after diligent  inquiry,  the Projections
represent a good faith estimate by the Borrower's  senior management of the Loan
Parties'  financial  condition  and the most probable  course of their  business
after  consummation of the Transactions.  I know of no facts which have occurred
since [date of last audited  balance  sheet] which would lead me to believe that
the Projections are inaccurate in any material respect.

                  5. In connection  with the preparation of the  Projections,  I
have made such  investigations  and  inquiries as I deem  necessary  and prudent
therefor and specifically have relied on historical  information,  sales,  costs
and  other  data  supplied  by the  supervisory  personnel  of the Loan  Parties
directly  responsible  for their  operations.  The  assumptions  upon  which the
Projections  are based are  stated  therein,  which  assumptions  I believe  are
reasonable. Based thereon, I believe that the Projections, taken as a whole over
the periods reflected in the Projections, provide reasonable estimates of future
performance of the Loan Parties.
<PAGE>

                  6. In  connection  with the  negotiation  and execution of the
Credit Agreement and the other Loan Documents and the Acquisition Documentation,
in each case, to which any Loan Party is a party, I have also prepared or caused
to be prepared under my supervision  the unaudited pro forma  consolidated  [and
consolidating]  balance sheet of the Borrower and its consolidated  Subsidiaries
as at  [___________]  (including  the notes  thereto)  (the "Pro  Forma  Balance
Sheet") attached hereto as Exhibit B, which Pro Forma Balance Sheet gives effect
to the  Transactions.  After  diligent  inquiry,  I  believe  that the Pro Forma
Balance Sheet has been prepared based on the best  information  available to the
Loan Parties as of the date of delivery  thereof,  and presents  fairly on a pro
forma  basis  the  estimated   financial   position  of  the  Borrower  and  its
consolidated  Subsidiaries as at  [___________],  assuming that the Transactions
had actually  occurred on the Closing Date.  After diligent  inquiry,  I believe
that the Pro Forma  Balance  Sheet is  accurate  and  complete  in all  material
respects. I know of no facts which have occurred since [___________] which would
lead me to  believe  that  the Pro  Forma  Balance  Sheet  includes  any  untrue
statement of a material  fact or omits to state a material  fact  required to be
stated therein pursuant to the Loan Documents or otherwise necessary to make the
statements  therein,  in light of the  circumstances  under  which the Pro Forma
Balance Sheet is to be used, not misleading.

                  7.  Attached as Annex 1 to the Pro Forma Balance Sheet are the
estimated accounting adjustments to the consolidated [and consolidating] balance
sheet of the Borrower and its  consolidated  Subsidiaries as at [___________] as
required by GAAP to reflect and give effect to such Transactions.

                  8.  I  have  also  prepared  a  pro  forma  consolidated  [and
consolidating]  summary  balance sheet  attached  hereto as Exhibit C (the "Fair
Value  Balance  Sheet"),  as of  the  Closing  Date  and  giving  effect  to the
Transactions.  Such Fair Value Balance Sheet was not prepared in accordance with
GAAP, but has been prepared to show what I believe,  after diligent inquiry,  to
be the fair market value of the assets of the Loan Parties and their  respective
liabilities, contingent or otherwise, after giving effect to the Transactions.

                  9. For purposes of delivering this Certificate,  including the
preparation of the  Projections,  the Pro Forma Balance Sheet and the Fair Value
Balance Sheet delivered herewith, I have:
<PAGE>

                  (a) reviewed the  appraisals,  solvency  opinions and fairness
opinions,  if any,  delivered  or required to be delivered on or before the date
hereof  pursuant to the Loan  Documents and the  Acquisition  Documentation  and
attached hereto as Exhibit D;

                  (b)  consulted  with counsel for the Loan Parties  concerning,
among  other  matters,  pending  and  threatened  litigation,  uninsured  risks,
guaranties of obligations of other Persons and other contingent  obligations and
have  included  as a  liability  in my  conclusions  my best  judgment as to the
maximum realistic  exposure of each Loan Party to liabilities which would not be
included in reserves otherwise reflected on the consolidated [and consolidating]
balance  sheet of the Borrower  and its  consolidated  Subsidiaries  as of [last
audited balance sheet date];

(c)  consulted  with the chief  executive  officer and  controller  of each Loan
     Party and reviewed the financial statements of each Loan Party;

                  (d)  consulted  with,  and  reviewed  reports  prepared by the
accountants  referred  to in  paragraph  3 above with  respect to the  financial
statements of the Loan Parties and their respective assets and liabilities; and

                  (e) made such other  investigations  and  inquiries  as I have
deemed  appropriate  and have taken into  account  the nature of the  particular
business  anticipated to be conducted by the Loan Parties after  consummation of
the Transactions.

                  Based  upon  the  foregoing,  I  have  reached  the  following
conclusions:

                  (A)  No  Loan  Party  is  now,  and  the  consummation  of the
Transactions  will not render any Loan Party,  "insolvent"  as defined  below. I
understand that in this context, "insolvent" means that the present fair salable
value of assets of each Loan Party is less than the amount that will be required
to pay its probable  liability on its existing debts as they become absolute and
matured.  I have  assumed that in this context  "fair  salable  value" means the
price  available  upon the sale of such assets by a willing  seller to a willing
buyer, where material  information as to the asset and the market for such asset
is known to both,  and where the sale is executed with  commercially  reasonable
promptness.  I also understand that (i) the term "debts"  includes any liability
on a "claim",  and (ii) "claim"  means any (x) right to payment,  whether or not
such  a  right  is  reduced  to  judgment,  liquidated,   unliquidated,   fixed,
contingent,  matured, unmatured, disputed, undisputed, legal, equitable, secured
or unsecured or (y) right to an equitable  remedy for breach of  performance  if
such breach  gives rise to a right to  payment,  whether or not such right to an
equitable  remedy  is  reduced  to  judgment,  fixed,  contingent,   matured  or
unmatured, disputed, undisputed, secured or unsecured.
<PAGE>

                  My  conclusion  is  supported by an analysis of the Fair Value
Balance Sheet. A valuation of each Loan Party on the basis thereof would reflect
the positive value for such Loan Party set forth on Schedule A attached  hereto,
representing  the  difference  between the asset values and  liabilities of such
Loan Party as set forth on such Schedule.

                  (B) No Loan Party will  incur,  and no Loan Party  intended to
incur or believed  that it would incur,  debts beyond its ability to pay as they
mature as a result of the  consummation  of the  Transactions.  I have  based my
conclusion in part on the  Projections  which  demonstrate  that each Loan Party
will  have  sufficient  cash flow and cash  resources  after  paying  all of its
scheduled anticipated indebtedness (including,  without limitation,  in the case
of the Borrower,  scheduled  payments by the Borrower under the Credit Agreement
and the Notes and on any outstanding  Letters of Credit) and other  indebtedness
and liabilities permitted under the Credit Agreement.  I have concluded that the
realization  of the current  assets in the  ordinary  course of business of each
Loan Party will be sufficient to pay recurring current debt, short-term debt and
long-term debt service of such Loan Party as such debts mature and that the cash
flow and cash resources  (including  earnings plus non-cash  charges to earnings
and, to the extent  permitted  under the Credit  Agreement,  the  disposition of
assets  held for sale) of such Loan Party  will be  sufficient  to provide  cash
necessary to repay  indebtedness and liabilities of such Loan Party  (including,
in the case of the Borrower,  the  indebtedness  and liabilities of the Borrower
under the Credit Agreement,  the Notes and any outstanding  Letters of Credit as
such debts and liabilities mature.

                  (C) The  consummation of the  Transactions  will not leave any
Loan Party with property remaining in its hands constituting "unreasonably small
capital."  I  have  assumed  for  purposes  of  reaching  this  conclusion  that
"unreasonably  small capital" depends upon the nature of the particular business
or  businesses  conducted or to be  conducted,  and I have reached my conclusion
based on the needs and anticipated needs for capital of the businesses conducted
or  anticipated  to be conducted by each Loan Party in light of the  Projections
and available credit capacity.

                  (D) No Loan  Party has  executed  the  Credit  Agreement,  the
Notes,  any  Letters of  Credit,  any other Loan  Documents  or any  Acquisition
Documentation,  in each  case,  to which  such Loan Party is a party or made any
transfer or incurred any obligations in connection with the  Transactions,  with
actual intent to hinder, delay or defraud either present or future creditors.

                  I understand that the Secured Parties are relying on the truth
and accuracy of the foregoing in connection with each extension of credit to the
Borrower pursuant to the Credit Agreement and the other Loan Documents.
<PAGE>

                  I represent the foregoing information to be, to the best of my
knowledge and belief,  after diligent  inquiry,  true,  correct and complete and
execute this Solvency  Certificate as the Chief  Financial  Officer of each Loan
Party as of [____________ __,] 200_.

                            [SIGNATURE PAGE FOLLOWS]

<PAGE>

                 IN WITNESS  WHEREOF,  each of the  undersigned  has caused this
Solvency  Certificate  to be duly  executed  and  delivered as of the date first
above written.

BACKSIDE, INC.                                    BSL, INC.

By: _________________________________             By: __________________________
         Name:                                             Name:
         Title:                                            Title:
BTN, INC.                                         CASINO HOLDING, INC.

By: _________________________________             By: __________________________
         Name:                                             Name:
         Title:                                            Title:
EBET USA.COM, INC.                                MILL CREEK LAND, INC.

By: _________________________________             By: __________________________
         Name:                                             Name:
         Title:                                            Title:
MOUNTAINVIEW THOROUGHBRED RACING ASSOCIATION      NORTHEAST CONCESSIONS, INC.

By: _________________________________
         Name:                                    By: __________________________
         Title:                                            Name:
                                                           Title:
PENN NATIONAL GAMING, INC.                        PENN NATIONAL GSFR, INC.

By: _________________________________             By: __________________________
         Name:                                             Name:
         Title:                                                       Title:
                                                     [continued]

PENN NATIONAL GAMING OF WEST VIRGINIA, INC.  PNGI CHARLES TOWN GAMING LIMITED
                                                LIABILITY COMPANY

By: _________________________________       By: _______________________________
         Name:                                       Name:
         Title:                                      Title:
PNGI CHARLES TOWN FOOD & BEVERAGE LLC       PNGI POCONO, INC.

By: _________________________________
         Name:                              By: _______________________________
         Title:                                      Name:
                                                     Title:
PENN NATIONAL HOLDING COMPANY               PENN NATIONAL SPEEDWAY, INC.

By: _________________________________       By: _______________________________
         Name:                                       Name:
         Title:                                      Title:
PENNSYLVANIA NATIONAL TURF CLUB, INC.       STERLING AVIATION INC.

By: _________________________________
         Name:                              By: _______________________________
         Title:                                      Name:
                                                     Title:
TENNESSEE DOWNS, INC.                       THE DOWNS RACING, INC.

By: _________________________________       By: _______________________________
         Name:                                       Name:
         Title:                                      Title:
                                                     [continued]
WILKES-BARRE DOWNS, INC.

By: _________________________________
         Name:
         Title:

<PAGE>

EXHIBIT A

                                   PROJECTIONS

                               See following pages

<PAGE>

ANNEX 1 TO EXHIBIT A

                       SUPPORTING DETAILS FOR PROJECTIONS

                               See following pages

<PAGE>

ANNEX 2 TO EXHIBIT A

              CALCULATIONS DEMONSTRATING COMPLIANCE WITH COVENANTS

                               See following pages

<PAGE>

EXHIBIT B

                             PRO FORMA BALANCE SHEET

                               See following pages

<PAGE>

ANNEX 1 TO EXHIBIT B

                        ESTIMATED ACCOUNTING ADJUSTMENTS

                               See following pages

<PAGE>

     EXHIBIT C

                            FAIR VALUE BALANCE SHEET

                               See following pages

<PAGE>

     EXHIBIT D

                             APPRAISALS AND OPINIONS

<PAGE>

     EXHIBIT L

            FORM OF INTERCOMPANY SUBORDINATED DEMAND PROMISSORY NOTE

Note Number: 1                                        Dated:  [__________], 200_

                  FOR VALUE RECEIVED,  the Borrower and each of its Subsidiaries
(collectively,  the "Group Members" and each, a "Group Member") which is a party
to this intercompany subordinated demand promissory note (the "Promissory Note")
promises to pay to the order of such other  Group  Member as makes loans to such
Group Member (each Group Member which borrows money pursuant to this  Promissory
Note is  referred  to herein as a "Payor"  and each Group  Member r which  makes
loans and advances  pursuant to this  Promissory Note is referred to herein as a
"Payee"),  on  demand,  in lawful  money of the  United  States of  America,  in
immediately  available  funds and at the  appropriate  office of the Payee,  the
aggregate  unpaid  principal  amount of all loans and  advances  heretofore  and
hereafter  made by such  Payee to such Payor and any other  indebtedness  now or
hereafter  owing by such  Payor to such  Payee as shown  either  on  Schedule  A
attached  hereto (and any  continuation  thereof) or in the books and records of
such Payee.  The failure to show any such  Indebtedness  or any error in showing
such  Indebtedness  shall not affect  the  obligations  of any Payor  hereunder.
Capitalized  terms used herein but not otherwise  defined  herein shall have the
meanings given such terms in the Credit  Agreement,  dated as of August __, 2000
(as amended, supplemented, replaced or otherwise modified from time to time, the
"Credit   Agreement"),   among  Penn  National  Gaming,   Inc.,  a  Pennsylvania
corporation  (the  "Borrower"),  each bank and other  financial  institution  or
entity from time to time party thereto,  Lehman  Brothers Inc., as lead arranger
and  book-running  manager,  CIBC World Market  Corp.,  as co-lead  arranger and
co-book-running  manager,  Lehman  Commercial Paper Inc., as syndication  agent,
Canadian Imperial Bank of Commerce,  as  administrative  agent (in such capacity
and including its successors and assigns,  the "Administrative  Agent"), and The
CIT Group/Equipment  Financing,  Inc., First Union National Bank and Wells Fargo
Bank, N.A., each as documentation agent.

                  The  unpaid   principal   amount  hereof  from  time  to  time
outstanding  shall  bear  interest  at a rate equal to the rate as may be agreed
upon in  writing  from time to time by the  relevant  Payor and Payee or, at the
Administrative   Agent's   option   following  the  occurrence  and  during  the
continuation  of an Event of Default,  at the rate per annum then  applicable to
Base Rate Loans under the Revolving Credit Facility or, following  expiration or
termination of the Revolving  Credit  Commitments,  the rate  applicable to Base
Rate Loans thereunder  immediately  prior to such expiration or termination,  in
each case,  plus 2.0% per annum.  Interest  shall be due and payable on the last
day of each month commencing after the date hereof or at such other times as may
be agreed  upon in writing  from time to time by the  relevant  Payor and Payee.
Upon  demand for  payment of any  principal  amount  hereof,  accrued but unpaid
interest on such principal amount shall also be due and payable.  Interest shall
be paid in lawful  money of the  United  States of  America  and in  immediately
available  funds.  Interest  shall be  computed  for the  actual  number of days
elapsed on the basis of a year consisting of 365 days.
<PAGE>

                  Each Payor and any  endorser  of this  Promissory  Note hereby
waives  presentment,  demand,  protest  and  notice of any kind.  No  failure to
exercise,  and no delay in exercising,  any rights  hereunder on the part of the
holder hereof shall operate as a waiver of such rights.

                  This  Promissory  Note has been  pledged  by each Payee to the
Administrative  Agent, for the benefit of the Secured  Parties,  as security for
such Payee's Obligations,  if any, under the Credit Agreement, the Guarantee and
Collateral  Agreement  and the other  Loan  Documents  to which  such Payee is a
party. Each Payor acknowledges and agrees that the Administrative  Agent and the
other  Secured  Parties  may  exercise  all the rights of the Payees  under this
Promissory Note and will not be subject to any abatement, reduction, recoupment,
defense, setoff or counterclaim available to such Payor.

                  Each  Payee  agrees  that  any and all  claims  of such  Payee
against any Payor or any  endorser of this  Promissory  Note,  or against any of
their  respective  properties,  shall be  subordinate  and  subject  in right of
payment to the Obligations  until all of the Obligations have been performed and
paid  in  full  in  immediately  available  funds,  no  Letters  of  Credit  are
outstanding and the Commitments have been terminated;  provided, that each Payor
may make  payments  to the  applicable  Payee so long as no  Default or Event of
Default shall have occurred and be continuing;  and provided,  further, that all
loans and advances  made by a Payee  pursuant to this  Promissory  Note shall be
received  by the  applicable  Payor  subject  to the  provisions  of the  Credit
Agreement  including,  without  limitation,  the provisions  thereof relating to
mandatory prepayment. Notwithstanding any right of any Payee to ask, demand, sue
for, take or receive any payment from any Payor, all rights,  Liens and security
interests  of  such  Payee,  whether  now or  hereafter  arising  and  howsoever
existing,  in any assets of any Payor (whether constituting part of the security
or collateral given to the  Administrative  Agent or any Secured Party to secure
payment of all or any part of the Obligations or otherwise)  shall be and hereby
are subordinated to the rights of the Administrative  Agent or any other Secured
Party in such assets. Except as expressly permitted by the Credit Agreement, the
Payees shall have no right to possession of any such asset or to foreclose upon,
or exercise any other remedy in respect of, any such asset,  whether by judicial
action or  otherwise,  unless and until all of the  Obligations  shall have been
performed and paid in full in immediately  available funds, no Letters of Credit
are  outstanding  and the  Commitments  under  the  Credit  Agreement  have been
terminated.
<PAGE>

                  If all or any part of the assets of any Payor, or the proceeds
thereof,  are  subject  to any  distribution,  division  or  application  to the
creditors of any Payor,  whether partial or complete,  voluntary or involuntary,
and whether by reason of  liquidation,  bankruptcy,  arrangement,  receivership,
assignment for the benefit of creditors or any other action or proceeding, or if
the business of any Payor is  dissolved or if (except as expressly  permitted by
the Credit  Agreement) all or  substantially  all of the assets of any Payor are
sold,  then, and in any such event,  any payment or  distribution of any kind or
character,  whether  in  cash,  securities  or  other  investment  property,  or
otherwise,  which shall be payable or  deliverable  upon or with  respect to any
indebtedness of such Payor to any Payee ("Payor  Indebtedness") shall be paid or
delivered  directly to the  Administrative  Agent for  application to any of the
Obligations, due or to become due, until the date on which the Obligations shall
have been performed and paid in full in immediately  available funds, no Letters
of Credit shall be outstanding and the Commitments  shall have been  terminated.
Each Payee  irrevocably  authorizes,  empowers and  appoints the  Administrative
Agent as such Payee's  attorney-in-fact  (which  appointment  is coupled with an
interest and is irrevocable) to demand,  sue for, collect and receive every such
payment or distribution  and give  acquittance  therefor and to make and present
for and on behalf of such Payee such proofs of claim and take such other action,
in the  Administrative  Agent's  own  name  or in the  name  of  such  Payee  or
otherwise,  as the Administrative  Agent may deem necessary or advisable for the
enforcement of this Promissory Note. Each Payee also agrees to execute,  verify,
deliver and file any such  proofs of claim in respect of the Payor  Indebtedness
requested by the Administrative  Agent. The  Administrative  Agent may vote such
proofs of claim in any such  proceeding  (and the applicable  Payee shall not be
entitled to withdraw  such vote),  receive and collect any and all  dividends or
other payments or disbursements  made on Payor Indebtedness in whatever form the
same  may be paid  or  issued  and  apply  the  same  on  account  of any of the
Obligations. Except as otherwise expressly permitted under the Credit Agreement,
should any  payment,  distribution,  security  or other  investment  property or
instrument or any proceeds thereof be received by any Payee upon or with respect
to Payor  Indebtedness owing to such Payee prior to such time as the Obligations
have been performed and paid in full in immediately  available funds, no Letters
of Credit are outstanding and the Commitments have been  terminated,  such Payee
shall  receive and hold the same in trust,  as  trustee,  for the benefit of the
Administrative  Agent and the Secured Parties,  and shall forthwith  deliver the
same to the  Administrative  Agent, for the benefit of the Secured  Parties,  in
precisely the form received  (except for the  endorsement  or assignment of such
Payee where necessary or advisable in the Administrative Agent's judgment),  for
application to any of the Obligations,  due or not due, and, until so delivered,
the same  shall be  segregated  from the other  assets of such Payee and held in
trust by such Payee as the property of the Administrative Agent, for the benefit
of the  Secured  Parties.  If such Payee fails to make any such  endorsement  or
assignment to the Administrative  Agent, the Administrative  Agent or any of its
officers, employees or representatives are hereby irrevocably authorized to make
the same. Each Payee agrees that until the  Obligations  have been performed and
paid  in  full  in  immediately  available  funds,  no  Letters  of  Credit  are
outstanding and the Commitments  have been  terminated,  such Payee will not (i)
assign or transfer, or agree to assign or transfer, to any Person (other than in

<PAGE>

favor  of the  Administrative  Agent  for the  benefit  of the  Secured  Parties
pursuant to the Guarantee and Collateral  Agreement or otherwise) any claim such
Payee has or may have  against any Payor,  (ii)  discount or extend the time for
payment of any Payor Indebtedness, or (iii) otherwise amend, modify, supplement,
waive or fail to enforce any provision of this Promissory Note.

                  Notwithstanding  anything to the contrary contained herein, in
any other Loan Document or in any such promissory note or other instrument, this
Promissory  Note (i) replaces and  supersedes  any and all  promissory  notes or
other  instruments  which  create or evidence  any loans or advances  made on or
before the date hereof by any Group Member to any other Group  Member,  and (ii)
shall  not  be  deemed  replaced,  superseded  or in  any  way  modified  by any
promissory  note or other  instrument  entered  into on or after the date hereof
which  purports to create or evidence any loan or advance by any Group Member to
any other Group Member.

                  THIS  PROMISSORY  NOTE AND THE RIGHTS AND  OBLIGATIONS  OF THE
PARTIES  UNDER THIS  PROMISSORY  NOTE SHALL BE GOVERNED  BY, AND  CONSTRUED  AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

                  From  time  to  time   after  the  date   hereof,   additional
Subsidiaries  of the Group  Members  may become  parties  hereto by  executing a
counterpart signature page to this Promissory Note (each additional  Subsidiary,
an "Additional Payor").  Upon delivery of such counterpart signature page to the
Payees,  notice of which is hereby waived by the other Payors,  each  Additional
Payor  shall  be a  Payor  and  shall  be as  fully a  party  hereto  as if such
Additional Payor were an original signatory hereof.  Each Payor expressly agrees
that its  obligations  arising  hereunder shall not be affected or diminished by
the addition or release of any other Payor hereunder. This Promissory Note shall
be fully effective as to any Payor that is or becomes a party hereto  regardless
of whether any other  Person  becomes or fails to become or ceases to be a Payor
hereunder.

                  This  Promissory  Note  may  be  executed  in  any  number  of
counterparts and by different parties hereto in separate  counterparts,  each of
which when so executed  shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

                            [Signature page follows]

<PAGE>

                  IN WITNESS  WHEREOF,  each Payor has caused this  Intercompany
Subordinated  Demand  Promissory Note to be executed and delivered by its proper
and duly authorized officer as of the date set forth above.

BACKSIDE, INC.                                  BSL, INC.

By: _________________________________           By: __________________________
         Name:                                           Name:
         Title:                                          Title:
BTN, INC.                                       CASINO HOLDING, INC.

By: _________________________________           By: __________________________
         Name:                                           Name:
         Title:                                          Title:
EBET USA.COM, INC.                              MILL CREEK LAND, INC.

By: _________________________________           By: __________________________
         Name:                                           Name:
         Title:                                          Title:
MOUNTAINVIEW THOROUGHBRED RACING ASSOCIATION    NORTHEAST CONCESSIONS, INC.

By: _________________________________
         Name:                                  By: __________________________
         Title:                                          Name:
                                                         Title:
PENN NATIONAL GAMING, INC.                      PENN NATIONAL GSFR, INC.

By: _________________________________           By: __________________________
         Name:                                           Name:
         Title:                                          Title:
                                                     [continued]

PENN NATIONAL GAMING OF WEST VIRGINIA, INC.     PNGI CHARLES TOWN GAMING LIMITED
                                                 LIABILITY COMPANY

By: _________________________________       By: _______________________________
         Name:                                       Name:
         Title:                                      Title:
PNGI CHARLES TOWN FOOD & BEVERAGE LLC       PNGI POCONO, INC.

By: _________________________________
         Name:                              By: _______________________________
         Title:                                      Name:
                                                     Title:
PENN NATIONAL HOLDING COMPANY               PENN NATIONAL SPEEDWAY, INC.

By: _________________________________       By: _______________________________
         Name:                                       Name:
         Title:                                      Title:
PENNSYLVANIA NATIONAL TURF CLUB, INC.       STERLING AVIATION INC.

By: _________________________________
         Name:                              By: _______________________________
         Title:                                      Name:
                                                     Title:
TENNESSEE DOWNS, INC.                       THE DOWNS RACING, INC.

By: _________________________________       By: _______________________________
         Name:                                       Name:
         Title:                                      Title:
                                                     [continued]
WILKES-BARRE DOWNS, INC.

By: _________________________________
         Name:
         Title:

<PAGE>

     SCHEDULE A

                                  TRANSACTIONS

                                       ON

                INTERCOMPANY SUBORDINATED DEMAND PROMISSORY NOTE

                                                                Outstanding
                                                                Principal

                                                                Balance from

                              Amount of        Amount of        Payor to
                              Advance This   Principal Paid     Payee This

Date  Name of Payor   Name of Payee   Date   This Date   Date   Notation Made By

<PAGE>

                                   ENDORSEMENT

     FOR VALUE RECEIVED,  each of the undersigned  does hereby sell,  assign and
transfer to ___________________________________________  all of its right, title
and interest in and to the  Intercompany  Subordinated  Demand  Promissory Note,
dated  [__________],  200_ (as  amended,  supplemented,  replaced  or  otherwise
modified  from  time to time,  the  "Promissory  Note"),  made by Penn  National
Gaming,  Inc.,  a  Pennsylvania  corporation  (the  "Borrower"),  and each other
Subsidiary of the Borrower or any other Person that becomes a party thereto, and
payable to the  undersigned.  This endorsement is intended to be attached to the
Promissory Note and, when so attached, shall constitute an endorsement thereof.

                  The initial undersigned shall be the Group Members (as defined
in the  Promissory  Note)  party  to the  Loan  Documents  on  the  date  of the
Promissory  Note.  From  time  to  time  after  the  date  thereof,   additional
Subsidiaries  of the Group Members shall become parties to the  Promissory  Note
(each, an "Additional Payee") and a signatory to this endorsement by executing a
counterpart signature page to the Promissory Note and to this endorsement.  Upon
delivery of such  counterpart  signature page to the Payors,  notice of which is
hereby waived by the other Payees,  each  Additional  Payee shall be a Payee and
shall be as fully a Payee  under the  Promissory  Note and a  signatory  to this
endorsement  as if such  Additional  Payee  were an  original  Payee  under  the
Promissory Note and an original  signatory  hereof.  Each Payee expressly agrees
that its  obligations  arising under the Promissory Note and hereunder shall not
be affected or  diminished  by the  addition or release of any other Payee under
the Promissory Note or hereunder.  This endorsement  shall be fully effective as
to any Payee that is or becomes a  signatory  hereto  regardless  of whether any
other  Person  becomes  or  fails  to  become  or  ceases  to be a Payee  to the
Promissory Note or hereunder.

                  Dated:  ________________

                            [Signature page follows]

<PAGE>

BACKSIDE, INC.                                 BSL, INC.

By: _________________________________          By: ___________________________
         Name:                                          Name:
         Title:                                         Title:
BTN, INC.                                      CASINO HOLDING, INC.

By: _________________________________          By: ___________________________
         Name:                                          Name:
         Title:                                         Title:
EBET USA.COM, INC.                             MILL CREEK LAND, INC.

By: _________________________________          By: ___________________________
         Name:                                          Name:
         Title:                                         Title:
MOUNTAINVIEW THOROUGHBRED RACING ASSOCIATION   NORTHEAST CONCESSIONS, INC.

By: _________________________________
         Name:                                 By: ___________________________
         Title:                                         Name:
                                                        Title:
PENN NATIONAL GAMING, INC.                     PENN NATIONAL GSFR, INC.

By: _________________________________          By: ___________________________
         Name:                                          Name:
         Title:                                         Title:
                                                     [continued]

PENN NATIONAL GAMING OF WEST VIRGINIA, INC.    PNGI CHARLES TOWN GAMING LIMITED
                                               LIABILITY COMPANY

By: _________________________________          By: ____________________________
         Name:                                          Name:
         Title:                                         Title:
PNGI CHARLES TOWN FOOD & BEVERAGE LLC          PNGI POCONO, INC.

By: _________________________________
         Name:                                 By: ____________________________
         Title:                                         Name:
                                                        Title:
PENN NATIONAL HOLDING COMPANY                  PENN NATIONAL SPEEDWAY, INC.

By: _________________________________          By: ____________________________
         Name:                                          Name:
         Title:                                         Title:
PENNSYLVANIA NATIONAL TURF CLUB, INC.          STERLING AVIATION INC.

By: _________________________________
         Name:                                 By: ____________________________
         Title:                                         Name:
                                                        Title:
TENNESSEE DOWNS, INC.                          THE DOWNS RACING, INC.

By: _________________________________          By: ____________________________
         Name:                                          Name:
         Title:                                         Title:
                                                     [continued]
WILKES-BARRE DOWNS, INC.

By: _________________________________
         Name:
         Title:

<PAGE>

     EXHIBIT M

                               NOTICE OF BORROWING

                                 August 7, 2000

Canadian Imperial Bank of Commerce,
   as Administrative Agent
425 Lexington Avenue
New York, New York  10017

Attention:  Agency Services Group

                           Penn National Gaming, Inc.

Ladies and Gentlemen:

                  Pursuant  to Section  2.2 of that  certain  Credit  Agreement,
dated as of August 8, 2000 (as  amended,  supplemented,  replaced  or  otherwise
modified from time to time, the "Credit  Agreement";  capitalized terms used but
not  defined  herein  having  the  meanings  given  such  terms  in  the  Credit
Agreement),  among Penn National Gaming,  Inc., a Pennsylvania  corporation (the
"Borrower"),  , each bank and other financial institution or entity from time to
time party  thereto,  Lehman  Brothers  Inc., as lead arranger and  book-running
manager,  CIBC World  Markets  Corp.,  as co-lead  arranger and  co-book-running
manager,  Lehman Commercial Paper Inc., as syndication agent,  Canadian Imperial
Bank of Commerce, as administrative agent (the "Administrative  Agent"), and The
CIT Group/Equipment  Financing,  Inc., First Union National Bank and Wells Fargo
Bank,  N.A.,  each  as  documentation  agent,  the  Borrower  hereby  gives  the
Administrative  Agent  irrevocable  notice that the Borrower hereby requests the
Term Loans under the Credit  Agreement,  and in that connection sets forth below
the information relating to such Term Loans:

  1.       The Business Day of the proposed Term Loans is August 8, 2000.

  2.       The Type of the proposed Term Loans are Base Rate Loans.

  3.       The aggregate amount of the proposed Term Loans is $275,000,000.

                  The Borrower  hereby  certifies that the following  statements
are true and  correct on the date  hereof,  and will be true and  correct on the
date of the proposed Term Loans:

                  (a) Each of the  representations  and  warranties  made by any
Loan Party in or pursuant to the Loan Documents is true and correct on and as of
the  date  hereof  as if  made  on  and  as  of  the  date  hereof,  except  for
representations and warranties  expressly stated to relate to a specific earlier
date, in which case such  representations and warranties are true and correct as
of such earlier date.

                  (b) No  Default  or  Event  of  Default  has  occurred  and is
continuing  on the date hereof,  or would result from the proposed Term Loans or
the application of the proceeds thereof.

                  The Borrower agrees that, if prior to the time of the proposed
Term  Loans  any of the  foregoing  certifications  shall  cease  to be true and
correct, the Borrower shall forthwith notify the Administrative Agent thereof in
writing (any such notice, a "Non-Compliance  Notice").  Except to the extent, if
any,  that prior to the time of the  proposed  Term Loans,  the  Borrower  shall
deliver  a  Non-Compliance  Notice  to the  Administrative  Agent,  each  of the
foregoing  certifications shall be deemed to be made additionally on the date of
the proposed Term Loans as if made on such date.

                                Very truly yours,

                                                    PENN NATIONAL GAMING, INC.

                                                    By:
                                      Name:

                                     Title:

<PAGE>

     EXHIBIT O

                     LESSOR CONSENT AND ESTELLE CERTIFICATE

                     LESSOR CONSENT AND ESTELLE CERTIFICATE

--------------------------------------------------------------------------------

                     LESSOR CONSENT AND ESTOPPEL CERTIFICATE

                                       by:

                      _________________________, as Lessor

                               for the benefit of

           Canadian Imperial Bank of Commerce, as Administrative Agent

                   and the Secured Parties (as defined below)

                                                        -----------------------

                              __________ ___, 2000

-------------------------------------------------------------------------------
This instrument affects real and personal property situated,  lying and being in
the City of _________________, County of __________, State of Mississippi, known
as follows:

     See Exhibit A to this Lessor Consent and Estoppel Certificate. ---------

RECORD AND RETURN TO:

Latham & Watkins
885 Third Avenue, Suite 1000
New York, New York  10022-4802

Attn:    David Stewart, Esq.

<PAGE>

                     LESSOR CONSENT AND ESTOPPEL CERTIFICATE

                  THIS   LESSOR   CONSENT   AND   ESTOPPEL   CERTIFICATE   (this
"Certificate")  is  made  as  of  __________  ___,  2000  by   _________________
("Lessor")  to and for the benefit of Canadian  Imperial  Bank of  Commerce,  as
administrative  agent ("Agent") for the Secured Parties  (capitalized  terms not
otherwise  defined in this Certificate  shall have the meanings assigned them in
the Mortgage, as defined below).

                                    RECITALS

A.       Lessor owns the property described on Exhibit A and commonly known as
                            in              ,

---------------------------    -------------
Mississippi (the "Site").
                  ----

B. ______________  ("Lessee"),  is the holder of the leasehold estate granted by
the lease  described in Schedule 1 attached hereto and made a part hereof (as it
may be amended,  restated,  renewed, modified or supplemented from time to time,
collectively, the "Lease").

C.   Agent and the Secured Parties have agreed to make extensions of credit (the
     "Loan") to Penn National Gaming, Inc. ---- ("Borrower").

D. Borrower is a member of a group of affiliated  companies that includes Lessee
and the  proceeds  of the Loan will be used in part to enable  Borrower  to make
valuable transfers to Lessee in connection with the operation of its business.

E. The Loan is guaranteed by Lessee and certain affiliates of Lessee pursuant to
a Guarantee and Collateral  Agreement (the "Guarantee"),  and in order to secure
its obligations  under the Guarantee,  Lessee has agreed to enter into a Deed of
Trust,  Assignment of Leases and Rents, Security Agreement and Fixture Filing in
favor of Agent and the Secured Parties, dated on or about the date hereof (as it
may be amended,  restated,  renewed, modified or supplemented from time to time,
the "Mortgage"), encumbering Lessee's leasehold interest in the Site.

         NOW, THEREFORE, Lessor, knowing that Agent and the Secured Parties will
rely on this  Certificate  in  accepting  the  Mortgage  and in making the Loan,
hereby  states,  certifies,  confirms,   acknowledges,   represents,   warrants,
acknowledges and agrees as follows.

     1.  Consent to Mortgage.  To the extent  required  under the Lease,  Lessor
consents to Lessee's  execution  and  delivery of the  Mortgage to Agent and the
Secured Parties.

                  2.    Validity   of   Lease.    The   Lease    commenced    on
_________________,  _____  and is  valid  and  in  full  force  and  effect,  in
accordance  with its terms.  The term of the lease expires on  ________________,
_____  and  has  the  following   renewal   options,   exercisable   by  Lessee:
___________________. The Lease has not been surrendered, canceled, terminated or
abandoned,  whether  in writing  or  pursuant  to a  purported  oral  surrender,
cancellation, termination or abandonment.

                  3.  Lease  Amendment  and  Assignment.  The Lease has not been
supplemented,  modified or amended (orally or in writing) except as indicated on
Schedule  1.  Attached  hereto as Exhibit B is a true and  complete  copy of the
Lease and all modifications,  amendments and supplements thereto. The Lease will
not be  supplemented,  modified or amended (orally or in writing) while the Loan
is outstanding without Agent's prior written consent.  Lessor agrees that Lessee
may freely assign,  sublet or further mortgage its interest in the Lease without
first obtaining Lessor's consent.
<PAGE>

4.   No  Termination.  Lessor has not commenced  any pending  action or sent any
     presently  effective notice to Lessee (or received any presently  effective
     notice from Lessee) for the purpose of terminating the Lease. Lessor is not
     presently entitled to terminate the Lease.

5.   No  Defaults.  Lessor has not given any notice of default to Lessee,  other
     than as to any  default(s)  that have been cured.  Lessor is not  presently
     aware of any fact or  circumstance  that,  with the  passage of time or the
     giving of notice, or both, would constitute a default under the Lease.

6.   Rent. All rent has been paid under the Lease through and including the rent
     payable for each rent payment  period through July 31, 2000. As of the date
     hereof, no rent or any other payments are presently due under the Lease.

7.   Mortgage  Holder.  This  Certificate is notice to Lessor that Agent and the
     Secured Parties are leasehold mortgagees. Lender is entitled to all rights,
     privileges,  and protections that apply to a holder of a mortgage under the
     Lease,  if any, and Lessor agrees that Agent, as  administrative  agent for
     the  Secured  Parties,  shall  be  made  an  additional  insured  and  loss
     payee/mortgagee  under all  insurance  policies  required to be  maintained
     under the Lease.

8.   No Other  Leasehold  Lender or Other Party with Rights to the Site.  Lessor
     has not received  notice of any mortgage  encumbering  the Lease other than
     the Mortgage,  and no notice of any leasehold  lenders other than Agent and
     the Secured Parties.  There are no leases,  licenses,  outstanding options,
     rights  of first  refusal  or other  similar  rights  relating  to the Site
     benefiting any party other than Lessee.

9.   No Fee Lender.  As of the date  hereof,  there is no  mortgage  executed by
     Lessor  encumbering  Lessor's  interest in the Site and no such mortgage is
     permitted under the terms of the Lease.

10.  New Lease. If the Lease,  without the consent of Agent,  as  administrative
     agent for the Secured  Parties,  is terminated  for any reason,  including,
     without limitation, as a result of the rejection of the Lease in bankruptcy
     by  Lessee,  prior  to its  stated  term,  as such  term  may  include  any
     applicable  renewal or extension  periods,  then Lessor shall, upon written
     request from Agent and/or the Secured Parties,  made within sixty (60) days
     after such  termination,  enter into a new lease of the Site with Agent, as
     administrative agent for the Secured Parties. The new lease shall be on the
     same terms and conditions as the Lease (including,  without limitation, any
     rights or options to extend the terms of the Lease or acquire the Site) and
     shall have the same  priority as the Lease.  Lessor's  obligation  to enter
     into the new  lease  shall be  conditioned  upon the  following:  (a) Agent
     and/or the  Secured  Parties  shall have cured all  monetary  defaults  and
     commenced,  and diligently  prosecuted,  the cure of all reasonably curable
     non-monetary  defaults;  and (b) Agent  and/or the  Secured  Parties  shall
     reimburse Lessor for all reasonable costs and expenses incurred in entering
     into the new lease.
<PAGE>

                  11.  Right to  Terminate,  Abandon or Renew  Lease or Purchase
Site.  No  surrender  or  termination  of the  Lease by Lessee  pursuant  to any
provision of the Lease or  otherwise  shall be valid or shall bind Agent and the
Secured Parties without Agent's  consent.  If Lessee fails to exercise any right
or option  under the Lease to renew the term of the Lease or to purchase  all or
any portion of the Site,  Lessor shall provide  notice of such failure to Agent,
as  administrative  agent for the Secured  Parties,  and shall grant  Agent,  as
administrative  agent for the Secured  Parties,  an  additional  thirty (30) day
period in which to  exercise  such right or option on behalf of  Lessee.  Lessor
agrees that it shall not exercise any  termination  rights in may have under the
Lease as a result of a  condemnation  or  casualty  without  the  prior  written
consent of the Agent, as administrative agent for the Secured Parties.

     12. Inconsistency with Lease. To the extent that this Certificate conflicts
in any way with the Lease,  this Certificate is intended to modify and supersede
the Lease. Any such conflict shall be resolved in favor of this Certificate.

                  13.  Reliance on  Certificate;  Successors  and Assigns.  This
Certificate may be relied upon by Agent,  the Secured  Parties,  any assignee of
the Lease,  and any title insurance  company,  and shall bind the successors and
assigns of the parties.  This Certificate is not intended to limit any rights of
Agent or the Secured Parties under the Lease.

                  14. Due Authorization,  Execution and Delivery. Lessor is duly
authorized  to execute  this  Certificate,  and this  Certificate  has been duly
executed and delivered by Lessor.  No consent by any court,  agency,  bureau, or
other third party, governmental or nongovernmental (other than any such consents
that have been actually obtained), is required for Lessor to execute and deliver
this Certificate.

                  15.  Right to Cure.  Agent,  as  administrative  agent for the
Secured  Parties,  is  entitled  to  duplicate  copies of any notices of default
provided  to Lessee as long as Agent,  as  administrative  agent for the Secured
Parties,  is the holder of the Mortgage.  Lessor acknowledges that Lender shall,
in the event of such a default  under the Lease by Lessee,  have the same rights
to dispute  such  default or to cure or cause to be cured such default as Lessee
would have under the Lease,  provided that if Agent, as administrative agent for
the Secured  Parties,  has diligently  commenced to cure such default,  but such
default cannot  reasonably be cured with the cure period  provided in the Lease,
Agent shall have up to an additional thirty (30) days to cure such default.
<PAGE>

16.  No Merger.  In the event that Lessee  acquires title to the fee interest in
     the Site, there will not be a merger of the fee and leasehold estates.

                  17.  Notices.  All notices  required  to be sent to Agent,  as
administrative  agent for the Secured  Parties,  pursuant to this Certificate or
the Lease shall be effective only if in writing and given by hand  delivery,  by
registered  or  certified  United  States  Mail,  or  by  nationally  recognized
overnight  courier  addressed  to the  following  address  or to such  different
address as Agent may specify:

                           Canadian Imperial Bank of Commerce
                           425 Lexington Avenue
                           New York, NY 10017
                           Attn: Legal - Penn National

                           with a copy to:

Morgan Lewis and Bocks LPL
                           1701 Market Street

                           Philadelphia, Pennsylvania 19103
                           Attn: ___________

                           and a copy to:

                           Lehman Brothers Inc.
                           3 World Financial Center
                           New York 10285
                           Attn:  Thomas Gurney

                           and a copy to:

                           Lithium & Watkins
                           885 Third Avenue, Suite 1000
                           New York, NY 10022
                           Attn: Chris Platt, Esq.

18.  Counterparts.   This   Certificate   may  be  executed  in  any  number  of
     counterparts,  each of which when so  executed  and  delivered  shall be an
     original, but all of which together shall constitute one document.

<PAGE>

                  IN WITNESS  WHEREOF,  Lessor has executed and  delivered  this
Certificate as of the Effective Date.

                 LESSOR:

                  --------------------------------

                  Name:___________________________

                                                      [Insert Notary]

<PAGE>

                                   Schedule 1

                                 Lease Documents

<PAGE>

                                    Exhibit A

                                Legal Description

                                   (attached)

<PAGE>

                                    Exhibit B

                                  Copy of Lease

<PAGE>

     EXHIBIT P

                          SUBORDINATION, ATTORNMENT AND

                            NONDISTURBANCE AGREEMENT

                                     between

                                  ("Mortgagee")

                                       and

                                   ("Tenant")

                        Dated as of ______________, 200_

                              Record and Return to:

                                Latham & Watkins

                          885 Third Avenue, Suite 1000

                          New York, New York 10022-4802

                          Attention: Chris Plaut, Esq.

                            L&W File No. 023299-0129

<PAGE>

             SUBORDINATION, ATTORNMENT AND NONDISTURBANCE AGREEMENT

     THIS   SUBORDINATION,   ATTORNMENT  AND   NONDISTURBANCE   AGREEMENT  (this
"Agreement"),  made as of  __________________,  200_ ---------  (the  "Effective
Date"),   by   and   between   ,   a   ,   having   an   office   --------------
-----------------------------------------   -------------------------------   at
("Mortgagee"),  and  ,  a  ,  having   -----------------------------------------
--------- ------------------------  ------------------------------- an office at
("Tenant"). ------------------------------- ------

                              W I T N E S S E T H :

                  WHEREAS,  Mortgagee  is the owner and holder of the  mortgages
between Mortgagee, as mortgagee,  and , as mortgagor ("Landlord"),  set forth on
Exhibit "B" annexed hereto and made a part hereof (said  mortgages,  as the same
have been or may hereafter be amended, increased, renewed, refinanced, modified,
consolidated, replaced, combined, supplemented, substituted, spread and extended
being hereinafter  collectively referred to as the "Mortgage"),  encumbering the
land located in the [Town or City of __________,  County of __________ and State
of _________],  which land is more particularly described on Exhibit "A" annexed
hereto and made a part hereof, and the buildings,  improvements, and other items
of  property  more  fully  described  in the  Mortgage  (such  land,  buildings,
improvements  and other property being  hereinafter  referred to collectively as
the "Mortgaged Premises");

                  WHEREAS,  Tenant has entered  into a lease with  Landlord,  as
landlord,  dated as of  ______________,  200_ (the  "Lease"),  by which Landlord
demised  to Tenant  all or a portion  of the  Mortgaged  Premises  (the  "Leased
Premises");

                  WHEREAS,  a true  and  complete  copy of the  Lease  has  been
delivered to Mortgagee by Tenant, the receipt of which is hereby acknowledged;

                  WHEREAS,  Mortgagee,  as a  condition  to making  the  loan(s)
secured by the  Mortgage,  required  that all  leases  affecting  the  Mortgaged
Premises be and continue to be subordinate in every respect to the Mortgage; and

                  WHEREAS,   Mortgagee   and  Tenant   desire  to  confirm   the
subordination of the Lease to the Mortgage and to provide for the nondisturbance
of Tenant by Mortgagee as set forth herein.

                  NOW,   THEREFORE,   in  consideration  of  the  covenants  and
agreements  contained herein,  and intending to be legally bound,  Mortgagee and
Tenant agree as follows:

1. The Lease,  its terms and  conditions,  and the lien thereof (if any) now are
and shall at all times continue to be subject and  subordinate in each and every
respect to the Mortgage,  its terms and the lien thereof. The provisions of this
Agreement shall be self-operative,  and no further instrument shall be necessary
to  effectuate  the terms hereof.  Nevertheless,  Tenant,  upon  request,  shall
execute and deliver any  certificate  or other  instrument  that  Mortgagee  may
reasonably request to confirm the subordination by Tenant referred to above.
<PAGE>

2. In the  event of any  default  on the  part of  Landlord,  arising  out of or
accruing under the Mortgage,  whereby Mortgagee might have the right to take any
action in Foreclosure (as defined below) with respect to the Mortgaged Premises,
Mortgagee shall not pursue any of its rights with respect to such default unless
and until  Mortgagee has given written notices of such default to Tenant and any
leasehold  mortgagee  whose  address  shall have been  previously  furnished  to
Mortgagee in writing (but not later than the time that Tenant notifies  Landlord
of such default or claim) at the address or addresses set forth  herein,  or the
successor or assign of either, whose name and address previously shall have been
furnished to Tenant in writing (but not later than the time that Tenant notifies
Landlord  of such  default  or  claim)  and has  granted  to Tenant  and/or  its
leasehold  mortgagee a reasonable time, which shall be not less than the greater
of (i) the period of time granted to Landlord under the Mortgage, or (ii) thirty
(30)  days,  after the  giving of such  notice by  Mortgagee  to Tenant  and its
leasehold  mortgagee,  if any, to cure or to undertake  the  elimination  of the
basis for such default,  after the time when Landlord shall have become entitled
under  the  Mortgage  to cure the  cause  of such  default;  it being  expressly
understood  that (a) if such default or claim cannot  reasonably be cured within
such  cure  period,  Tenant  and/or  its  leasehold  mortgagee  shall  have such
additional period of time to cure same as it reasonably determines is necessary,
so long as it continues to pursue such cure with reasonable  diligence,  and (b)
Tenant's and its leasehold  mortgagee's right to cure any such default shall not
be deemed to create any  obligation  for Tenant or such  leasehold  mortgagee to
cure or to undertake the elimination of any such default.

3. As long as Tenant shall be in  possession of the Leased  Premises,  the Lease
shall be in full force and effect, and Tenant is in compliance with the terms of
this  Agreement  and no default  exists under the Lease beyond  applicable  cure
periods,  nor has any  event  occurred  that  with the  giving  of notice or the
passage of time or both would  entitle  Landlord to terminate the Lease or would
cause,  without any further action by Landlord,  the termination of the Lease or
would entitle Landlord to dispossess Tenant under the Lease  (collectively,  the
"Nondisturbance  Conditions"),  Mortgagee  shall  not  name  Tenant  as a  party
defendant in any action for  foreclosure  of the  Mortgage or other  enforcement
thereof (unless required by law), nor shall the Lease be terminated by Mortgagee
in connection  with or by reason of  foreclosure  or other  proceedings  for the
enforcement  of the Mortgage or by reason of a transfer of Landlord's  interest,
if any, in the Mortgaged Premises or under the Lease pursuant to a conveyance in
lieu of foreclosure (or similar device) (any of the foregoing, a "Foreclosure"),
nor shall Tenant's use or possession of the Leased  Premises be interfered  with
by Mortgagee, unless Landlord would have had such right.
<PAGE>

4. If Landlord's interest in the Mortgaged Premises is terminated by reason of a
Foreclosure  (the  party  succeeding  to  Landlord's  interest,  if any,  in the
Mortgaged Premises or under the Lease, by Foreclosure or any other method, being
hereinafter  referred to, together with such party's successors and assigns,  as
"Successor"),  then upon Successor's  succeeding to Landlord's interest, if any,
in the Mortgaged  Premises,  Tenant shall be bound to Successor,  and, except as
provided in this Agreement,  Successor  shall be bound to Tenant,  under all the
terms, covenants and conditions of the Lease for the balance of the term thereof
remaining,  with the same force and effect as if Successor  were  Landlord,  and
Tenant does hereby agree to attorn to  Successor,  including  Mortgagee if it be
the Successor,  as Tenant's  landlord;  affirm  Tenant's  obligations  under the
Lease;  and make  payments  of all sums due under the Lease to  Successor.  Such
attornment,  affirmation  and agreement  shall be effective  and  self-operative
without the execution of any further  instruments.  Tenant waives the provisions
of any  statute  or rule of law now or  hereafter  in  effect  that  may give or
purport to give Tenant any right or election to terminate or otherwise adversely
affect  the  Lease or the  obligations  of  Tenant  thereunder  by reason of any
Foreclosure.

5. If and to the extent  that the Lease or any  provision  of law shall  entitle
Tenant to notice of any fee mortgagee,  Tenant acknowledges and agrees that this
Agreement  shall  constitute  said  notice  to Tenant  of the  existence  of the
Mortgage.

6. This  Agreement may not be modified  except by an agreement in writing signed
by the parties hereto or their respective successors in interest. This Agreement
shall inure to the benefit of and be binding upon the parties  hereto (and shall
benefit  any  Successor),  and the  successors  and  assigns  of the  foregoing,
provided,  however,  this  Agreement  shall not be binding  upon any assignee of
Mortgagee  acquiring  the loan  secured by the  Mortgage  in  connection  with a
refinancing thereof.

7.  Nothing  contained in this  Agreement  shall in any way impair or affect the
lien  created by the  Mortgage or modify the terms  thereof.  By  executing  and
delivering this Agreement,  Mortgagee shall not be deemed to have (i) waived any
default under the Mortgage,  (ii) modified the Mortgage in any manner,  or (iii)
waived any rights or remedies it possesses  under the Mortgage or otherwise.  In
the event any conflict,  inconsistency  or ambiguity  exists  between the terms,
covenants and conditions of the Lease and the terms, covenants and conditions of
the Mortgage, the terms, covenants and conditions of the Mortgage shall control,
except as specifically and expressly set forth herein.

8. Tenant  further agrees that if there is any  inconsistency  between the terms
and  provisions  hereof and the terms and  provisions  of the Lease  relating to
nondisturbance   by  Mortgagee,   the  terms  and  provisions  hereof  shall  be
controlling.

9. All notices,  demands or requests made  pursuant to,  under,  or by virtue of
this  Agreement  must be in writing  and mailed to the party to whom the notice,
demand or request is being made by certified or registered mail,  return receipt
requested,  at its address set forth  above.  A copy of all notices to Mortgagee
shall also be sent to Latham & Watkins,  885 Third Avenue, Suite 1000, New York,
New York  10022-4802,  Attention:  Chris  Plaut,  Esq. A copy of all  notices to
Tenant shall also be sent to: Canadian Imperial Bank of Commerce,  425 Lexington
Avenue,  New York, New York 10017,  Attn:  Agency Services Group.  Any party may
change the place  that  notices  and  demands  are to be sent by written  notice
delivered in accordance with this Agreement.

10. This  Agreement  shall be governed by the laws of the State of New York.  If
any  term  of  this  Agreement  or the  application  thereof  to any  person  or
circumstances shall to any extent be invalid or unenforceable,  the remainder of
this Agreement or the  application  of such term to any person or  circumstances
other  than  those as to which  it is  invalid  or  unenforceable  shall  not be
affected thereby, and each term of this Agreement shall be valid and enforceable
to the fullest extent permitted by law.
<PAGE>

11. Each party shall  execute and deliver,  upon the request of the other,  such
documents and instruments (in recordable form, if requested) as may be necessary
or appropriate to fully implement or to further evidence the  understandings and
agreements  contained in this  Agreement.  This Agreement may be executed in any
number of counterparts.

     IN WITNESS WHEREOF,  the parties hereto have hereunto caused this Agreement
to be duly executed as of the Effective Date.

Tenant:                                                            Mortgagee:
------                                                             ---------

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

<PAGE>

                                 ACKNOWLEDGMENTS

-----------------------------------------------
                                   EXHIBIT "A"

                        Description of Mortgaged Premises

-----------------------------------------------
                                   EXHIBIT "B"

                             Description of Mortgage
<PAGE>

                                                        EXECUTION COPY

-------------------------------------------------------------

                       GUARANTEE AND COLLATERAL AGREEMENT

                                     made by

                           PENN NATIONAL GAMING, INC.

             and certain Subsidiaries of Penn National Gaming , Inc.

                                   in favor of

                       CANADIAN IMPERIAL BANK OF COMMERCE,
                             as Administrative Agent

                           Dated as of August 8, 2000

---------------------------------------------------------------

<PAGE>

                                TABLE OF CONTENTS

Page

SECTION 1.        DEFINED TERMS                                         2
1.1      Definitions                                                    2
1.2      Other Definitional Provisions.                                 8
SECTION 2.        GUARANTEE                                             9
2.1      Guarantee.                                                     9
2.2      Right of Contribution.                                         10
2.3      No Subrogation.                                                10
2.4      Amendments, etc. with respect to the Borrower Obligations.     10
2.5      Guarantee Absolute and Unconditional.                          11
2.6      Reinstatement.                                                 12
2.7      Payments.                                                      12
SECTION 3.        GRANT OF SECURITY INTEREST                            12
SECTION 4.        REPRESENTATIONS AND WARRANTIES                        14
4.1      Representations in Credit Agreement.                           14
4.2      Title; No Other Liens.                                         14
4.3      Perfected First Priority Liens.                                14
4.4      Exact Legal Names, Chief Executive Office and Jurisdiction
         of Formation.                                                  15
4.5      Inventory, Equipment and Books and Records.                    15
4.6      Farm Products.                                                 15
4.7      Investment Property.                                           15
4.8      Receivables.                                                   16
4.9      Contracts.                                                     16
4.10     Intellectual Property.                                         17
4.11     Vehicles.                                                      19
4.12     Excluded Funds.                                                19
SECTION 5.        COVENANTS                                             19
5.1      Covenants in Credit Agreement.                                 19
5.2      Delivery and Control of Instruments, Chattel Paper and
         Investment Property.                                           19
5.3      Maintenance of Insurance.                                      20
5.4      Payment of Obligations.                                        21
5.5      Maintenance of Perfected Security Interest; Further
         Documentation.                                                 21
5.6      Changes in Locations, Name, etc.                               22
5.7      Notices.                                                       22
                                       i
<PAGE>

5.8      Investment Property.                                           23
5.9      Receivables.                                                   24
5.10     Contracts.                                                     24
5.11     Intellectual Property.                                         24
5.12     Excluded Funds and Outstanding Winnings.                       27
SECTION 6.        REMEDIAL PROVISIONS                                   27
6.1      Certain Matters Relating to Receivables.                       27
6.2      Communications with Obligors; Grantors Remain Liable.          28
6.3      Pledged Securities.                                            28
6.4      Proceeds to be Turned Over To Administrative Agent.            29
6.5      Application of Proceeds.                                       29
6.6      Code and Other Remedies.                                       30
6.7      Registration Rights.                                           31
6.8      Waiver; Deficiency.                                            32
SECTION 7.        THE ADMINISTRATIVE AGENT                              32
7.1      Administrative Agent's Appointment as Attorney-in-Fact, etc.   32
7.2      Duty of Administrative Agent.                                  34
7.3      Execution of Financing Statements.                             34
7.4      Authority of Administrative Agent.                             35
SECTION 8.        MISCELLANEOUS                                         35
8.1      Amendments in Writing.                                         35
8.2      Notices.                                                       35
8.3      No Waiver by Course of Conduct; Cumulative Remedies.           35
8.4      Enforcement Expenses; Indemnification.                         36
8.5      Successors and Assigns.                                        36
8.6      Set-Off.                                                       36
8.7      Counterparts.                                                  37
8.8      Severability                                                   37
8.9      Section Headings                                               37
8.10     Integration.                                                   37
8.11     GOVERNING LAW.                                                 37
8.12     Submission To Jurisdiction; Waivers.                           37
8.13     Acknowledgments.                                               38
8.14     Additional Grantors.                                           38
8.15     Releases.                                                      38
8.16     WAIVER OF JURY TRIAL.                                          39
8.17     Further Assurances.                                            39

                                       ii
<PAGE>

                       GUARANTEE AND COLLATERAL AGREEMENT

                  GUARANTEE  AND  COLLATERAL  AGREEMENT,  dated as of  August 8,
2000,  made by each of the  signatories  hereto  (together with any other entity
that may become a party hereto as provided herein, the "Grantors"),  in favor of
CANADIAN IMPERIAL BANK OF COMMERCE  ("CIBC"),  as Administrative  Agent (in such
capacity,  the  "Administrative  Agent")  for (i) the banks and other  financial
institutions or entities (the "Lenders") from time to time parties to the Credit
Agreement,  dated as of August 8, 2000 (as  amended,  supplemented  or otherwise
modified from time to time, the "Credit Agreement"), among PENN NATIONAL GAMING,
INC., a Pennsylvania  corporation (the "Borrower"),  the several banks and other
financial  institutions  or  entities  from time to time  parties  thereto  (the
"Lenders"),  LEHMAN  BROTHERS INC., as advisor,  lead arranger and  book-running
manager (in such capacity,  the "Lead  Arranger"),  CIBC WORLD MARKETS CORP., as
co-lead  arranger and  co-book-running  manager (in such capacity,  the "Co-Lead
Arranger"; together with the Lead Arranger, the "Arrangers"),  LEHMAN COMMERCIAL
PAPER INC., as syndication  agent (in such capacity,  the "Syndication  Agent"),
the Administrative  Agent, and The CIT  Group/Equipment  Financing,  Inc., First
Union National Bank and Wells Fargo Bank, N.A., each as documentation  agent (in
such capacity,  the  "Documentation  Agents";  together with the  Administrative
Agent and the  Syndication  Agent,  the  "Agents"),  and (ii) the other  Secured
Parties (as hereinafter defined).

                              W I T N E S S E T H:
                                                         - - - - - - - - - -

                  WHEREAS,  pursuant to the Credit  Agreement,  the Lenders have
severally agreed to make extensions of credit to the Borrower upon the terms and
subject to the conditions set forth therein;

     WHEREAS,  the Borrower is a member of an affiliated group of companies that
includes each other Grantor;

                  WHEREAS,  the proceeds of the  extensions  of credit under the
Credit  Agreement  will be used in part to enable the Borrower to make  valuable
transfers to one or more of the other Grantors in connection  with the operation
of their respective businesses;

                  WHEREAS,  the Borrower  and the other  Grantors are engaged in
related businesses, and each Grantor will derive substantial direct and indirect
benefit from the making of the extensions of credit under the Credit  Agreement;
and

                  WHEREAS,  it is a condition precedent to the obligation of the
Lenders to make their respective  extensions of credit to the Borrower under the
Credit  Agreement  that the  Grantors  shall have  executed and  delivered  this
Agreement  to the  Administrative  Agent for the ratable  benefit of the Secured
Parties;
<PAGE>

                  NOW, THEREFORE, in consideration of the premises and to induce
the Arrangers, the Agents and the Lenders to enter into the Credit Agreement and
to induce  the  Lenders  to make their  respective  extensions  of credit to the
Borrower thereunder,  each Grantor hereby agrees with the Administrative  Agent,
for the ratable benefit of the Secured Parties, as follows:

SECTION 11.               DEFINED TERMS

11.1     Definitions

(a) Unless otherwise  defined herein,  terms defined in the Credit Agreement and
used herein shall have the meanings given to them in the Credit  Agreement,  and
the following  terms which are defined in the Uniform  Commercial Code in effect
in the State of New York on the date hereof are used  herein as so defined  and,
to the extent any such future  definition is no less expansive or inclusive,  in
any future version of the New York UCC: Accounts, Certificated Security, Chattel
Paper, Commodity Account, Commodity Contract, Commodity Intermediary, Documents,
Entitlement   Order,   Equipment,   Farm  Products,   Financial  Asset,   Goods,
Instruments,  Inventory, Securities Account, Securities Intermediary,  Security,
Security Entitlement and Uncertificated Security.

(b)      The following terms shall have the following meanings:

     "Agreement":  this Guarantee and Collateral  Agreement,  as the same may be
amended, supplemented, replaced or otherwise modified from time to time.

     "Borrower  Obligations":  the collective  reference to the  Obligations (as
defined in the Credit Agreement).

     "Collateral": as defined in Section 3.

     "Collateral  Account":  (i)  any  collateral  account  established  by  the
Administrative  Agent as provided in Section  6.1    or 6.4 or
(ii) any cash collateral  account  established as provided in Sections  2.12(e),
2.18(d) or 8 of the Credit Agreement.

     "Contracts":  the contracts and agreements listed in Schedule 7 as the same
may be amended, supplemented,  replaced or otherwise modified from time to time,
including,  without limitation,  (i) all rights of any Grantor to receive moneys
due and to become due to it  thereunder  or in  connection  therewith,  (ii) all
rights of any Grantor to receive proceeds of any insurance,  indemnity, warranty
or guaranty  with  respect  thereto,  (iii) all rights of any Grantor to damages
arising  thereunder  and (iv) all  rights of any  Grantor to  terminate,  and to
perform and compel  performance  of, such Contracts and to exercise all remedies
thereunder.

     "Copyright Licenses":  any written agreement naming any Grantor as licensor
or  licensee  (including,  without  limitation,  those  listed in  Schedule  6),
                                       2
<PAGE>

granting any right under any Copyright, including, without limitation, the grant
of rights to manufacture,  distribute,  exploit and sell materials  derived from
any Copyright.

     "Copyrights":  (i) all copyrights,  whether or not the underlying  works of
authorship  have  been  published,   and  all  works  of  authorship  and  other
intellectual  property  rights  therein,  all  copyrights  of  works  based  on,
incorporated  in, derived from or relating to works covered by such  copyrights,
all right,  title and interest to make and exploit all derivative works based on
or  adopted  from  works   covered  by  such   copyrights,   and  all  copyright
registrations  and  copyright  applications,  and  any  renewals  or  extensions
thereof,  including,  without  limitation,  each  registration  and  application
identified in Schedule 6, (ii) the rights to print,  publish and  distribute any
of the  foregoing,  (iii) the right to sue or otherwise  recover for any and all
past, present and future infringements and  misappropriations  thereof, (iv) all
income,  royalties,  damages and other  payments  now and  hereafter  due and/or
payable with respect thereto (including, without limitation,  payments under all
Copyright  Licenses  entered  into in  connection  therewith,  and  damages  and
payments for past, present or future infringements  thereof),  and (v) all other
rights of any kind whatsoever accruing thereunder or pertaining thereto.

     "Deposit  Account":  as now or hereafter defined in the Uniform  Commercial
Code of any  applicable  jurisdiction  and,  in any  event,  including,  without
limitation,  any demand, time, savings, passbook or like account maintained with
a depositary institution.

     "Excluded Assets": (i) collectively, Copyright Licenses, Trademark Licenses
or Patent Licenses as to which any Grantor is the licensee,  sub-licensee or the
equivalent  to the  extent  the grant by such  Grantor  of a  security  interest
therein pursuant to this Agreement in its right,  title and interest therein (A)
is prohibited by the terms of any contract,  agreement,  instrument,  license or
permit governing the terms of such Intellectual  Property without the consent of
any other party  thereto  (other than the Borrower or any of its  Subsidiaries),
(B)  would  give  any  other  party  (other  than  the  Borrower  or  any of its
Subsidiaries)  to such contract,  agreement,  instrument,  license or permit the
right to terminate its  obligations  thereunder,  or (C) is permitted  only upon
obtaining  consents from the other parties  thereto  (other than the Borrower or
any of its  Subsidiaries)  which  have not  been  obtained;  provided,  that the
foregoing  limitation shall not affect,  limit,  restrict or impair the grant by
such Grantor of a security interest pursuant to this Agreement in any Receivable
or any  money or other  amounts  due or to become  due under any such  contract,
agreement,   instrument,  license  or  permit,  or  in  the  Proceeds  from  the
Disposition of any such contract, agreement, instrument, license or permit, (ii)
to the extent so required by West  Virginia  law and with respect to the Charles
Town Gaming  Facility only, (x) all monies and other funds on account of purses,
taxes and breeders funds distributable from pari-mutual  commissions as a result
of wagering on live racing or  simulcast or export  signals,  (y) all monies and
other  funds on account  of pension  contributions,  host  fees,  and  simulcast
transmission fees and transmission  costs ((x) and (y)  collectively,  "Excluded
Funds") and (z) all monies  payable to  customers  with  respect to  outstanding
winning tickets ("Outstanding Winnings"), (iii) the West Virginia Racing License
                                       3
<PAGE>

and (iv) (1) any  limited  partnership  interest  as to which any  Grantor  is a
partner or the  equivalent,  (2) the FR Park Note and (3) the Pennwood Stock, in
each case to the extent the grant by such Grantor of a security interest therein
pursuant  to this  Agreement  in its right,  title and  interest  therein (A) is
prohibited  by the terms of any  contract,  agreement,  instrument,  license  or
permit in effect on the Closing Date  governing  the terms  thereof  without the
consent  of any other  party  thereto  (other  than the  Borrower  or any of its
Subsidiaries), (B) would give any other party (other than the Borrower or any of
its Subsidiaries) to such contract, agreement, instrument, license or permit the
right to terminate its  obligations  thereunder,  or (C) is permitted  only upon
obtaining  consents from the other parties  thereto  (other than the Borrower or
any of its Subsidiaries) which have not been obtained.

     "Excluded Foreign  Subsidiary":  any Foreign Subsidiary in respect of which
either  (i)  the  pledge  of all of the  Capital  Stock  of such  Subsidiary  as
Collateral  or (ii) the  guaranteeing  by such  Subsidiary  of the  Obligations,
would,  in the good faith judgment of the Borrower,  result in material  adverse
tax consequences to the Borrower;  provided,  however, that a Foreign Subsidiary
that is treated as a  pass-through  entity for United States  federal income tax
purposes shall not be an Excluded Foreign Subsidiary while so treated.

     "Excluded Foreign Subsidiary Voting Stock": the voting Capital Stock of any
Excluded Foreign Subsidiary.

     "Foreign  Subsidiary":  any  Subsidiary  organized  under  the  laws of any
jurisdiction outside the United States of America

     "FR Park Note": that certain  Registered  Subordinated  Secured  Promissory
Note, dated January 28, 1999, as amended  (Registered Note Number 102), which is
evidence of a loan made by Penn National Gaming, Inc., to FR Park Racing, L.P.

     "General Intangibles": all "general intangibles" as such term is defined in
the  Uniform  Commercial  Code in  effect  in the  State of New York on the date
hereof and, to the extent any such future  definition  is no less  expansive  or
inclusive,  in any  future  version  of the New York  UCC,  and,  in any  event,
including,  without  limitation,  with  respect to any Grantor,  all  contracts,
agreements,  instruments  and  indentures and all licenses and permits issued by
any Gaming  Authorities  and other  Governmental  Authorities  in any form,  and
portions  thereof,  to which such Grantor is a party or under which such Grantor
has any right,  title or  interest or to which such  Grantor or any  property of
such  Grantor  is  subject,  as the  same  may  from  time to  time be  amended,
supplemented, replaced or otherwise modified, including, without limitation, (i)
all  rights of such  Grantor  to  receive  moneys  due and to  become  due to it
thereunder  or in  connection  therewith,  (ii) all  rights of such  Grantor  to
receive proceeds of any insurance,  indemnity, warranty or guaranty with respect
thereto,  (iii) all rights of such Grantor to damages arising  thereunder,  (iv)
all rights of such  Grantor to receive  any tax  refunds,  and (v) all rights of
such Grantor to terminate and to perform, compel performance and to exercise all
                                       4
<PAGE>

remedies  thereunder,  in each case to the extent the grant by such Grantor of a
security interest pursuant to this Agreement in its right, title and interest in
such contract,  agreement,  instrument,  indenture, license or permit (A) is not
prohibited by applicable law  (including  any Gaming Law),  would not permit the
issuing Governmental Authority thereof to terminate, suspend, revoke or restrict
such license or permit,  or is permitted by applicable law only with the consent
of the applicable  Governmental Authority and such consent has been obtained and
(B) is not  prohibited  by  such  contract,  agreement,  instrument,  indenture,
license or permit without the consent of any other party thereto (other than the
Borrower or any of its Subsidiaries), would not give any other party (other than
the  Borrower  or  any  of  its  Subsidiaries)  to  such  contract,   agreement,
instrument,  indenture, license or permit the right to terminate its obligations
thereunder, or is permitted with consent if all necessary consents to such grant
of a security  interest have been obtained from the other parties thereto (other
than the  Borrower or any of its  Subsidiaries);  provided,  that the  foregoing
limitation shall not affect, limit, restrict or impair the grant by such Grantor
of a security interest pursuant to this Agreement in any Receivable or any money
or other  amounts  due or to  become  due under  any such  contract,  agreement,
instrument,   indenture,  license  or  permit,  or  in  the  Proceeds  from  the
Disposition of any such contract, agreement,  instrument,  indenture, license or
permit.

     "Guarantor Obligations": with respect to any Guarantor, all obligations and
liabilities of such Guarantor  which may arise under or in connection  with this
Agreement (including,  without limitation, Section 2) or any other Loan Document
to which such Guarantor is a party, in each case whether on account of guarantee
obligations,  reimbursement obligations,  fees, indemnities,  costs, expenses or
otherwise (including,  without limitation, all fees and disbursements of counsel
to any Secured Party that are required to be paid by such Guarantor  pursuant to
the terms of this Agreement or any other Loan Document).

     "Guarantors":  the  collective  reference  to each  Grantor  other than the
Borrower.

     "Hedge  Agreements":  as to any Person,  all interest  rate swaps,  caps or
collar agreements or similar  arrangements entered into by such Person providing
for protection against fluctuations in interest rates or currency exchange rates
or the  exchange of nominal  interest  obligations,  either  generally  or under
specific contingencies.

     "Intellectual Property": the collective reference to all rights, priorities
and privileges relating to intellectual  property,  whether arising under United
States,   multinational  or  foreign  laws  or  otherwise,   including,  without
limitation,  the Copyrights,  the Copyright  Licenses,  the Patents,  the Patent
Licenses,  the  Trademarks,  the Trademark  Licenses,  the Trade Secrets and the
Trade  Secret  Licenses,  and  all  rights  to sue at law or in  equity  for any
infringement  or other  impairment  thereof,  including the right to receive all
proceeds and damages therefrom.

     "Intercompany  Note":  any  promissory  note  evidencing  loans made by any
Grantor  to  the  Borrower  or  any  of  its  Subsidiaries,  including,  without
limitation, the Subordinated Intercompany Note.
                                       5
<PAGE>

     "Investment  Property":  the  collective  reference to (i) all  "investment
property"  as such term is defined in the Uniform  Commercial  Code in effect in
the State of New York on the date  hereof  and,  to the extent  any such  future
definition is no less  expansive or inclusive,  in any future version of the New
York UCC, and, in any event,  including,  without  limitation,  all Certificated
Securities  and  Uncertificated  Securities,  all  Security  Entitlements,   all
Securities  Accounts,  all Commodity Contracts and all Commodity Accounts (other
than any Excluded Foreign  Subsidiary  Voting Stock excluded from the definition
of  "Pledged  Stock"),  (ii)  security  entitlements,  in the case of any United
States Treasury book-entry  securities,  as defined in 31 C.F.R.  section 357.2,
or, in the case of any United States federal agency  book-entry  securities,  as
defined in the corresponding  United States federal  regulations  governing such
book-entry  securities,  and  (iii)  whether  or  not  constituting  "investment
property"  as so defined,  all Pledged  Notes,  all Pledged  Stock,  all Pledged
Security Entitlements and all Pledged Commodity Contracts.

     "Issuers":  the collective  reference to each issuer of a Pledged Security.

     "New York UCC": the Uniform  Commercial Code as from time to time in effect
in the State of New York.

     "Obligations":  (i) in the case of the Borrower,  the Borrower Obligations,
and (ii) in the case of each Guarantor, its Guarantor Obligations.

     "Patent License":  all agreements,  whether written or oral,  providing for
the  grant by or to any  Grantor  of any right to  manufacture,  use or sell any
invention  covered  in  whole  or  in  part  by  a  Patent,  including,  without
limitation, any of the foregoing referred to in Schedule 6.

     "Patents":  (i) all patents, patent applications and patentable inventions,
including,  without limitation, each patent and patent application identified in
Schedule 6, (ii) all inventions and improvements  described and claimed therein,
(iii) the right to sue or  otherwise  recover for any and all past,  present and
future infringements and misappropriations  thereof, (iv) all income, royalties,
damages and other  payments now and  hereafter  due and/or  payable with respect
thereto  (including,  without  limitation,  payments  under all Patent  Licenses
entered into in connection therewith, and damages and payments for past, present
or future infringement thereof), and (v) all reissues, divisions, continuations,
continuations-in-art,   substitutes,   renewals,  and  extensions  thereof,  all
improvements  thereon  and all  other  rights  of any kind  whatsoever  accruing
thereunder or pertaining thereto.

     "Pennwood Stock":  those shares of Capital Stock of Pennwood Racing,  Inc.,
owned by Penn National Holding Company.

     "Pledged Commodity Contracts": all commodity contracts listed on Schedule 2
and all other  commodity  contracts  to which any  Grantor is party from time to
time.
                                       6
<PAGE>

     "Pledged  Debt  Securities":  the debt  securities  listed on  Schedule  2,
together with any other certificates,  options,  rights or security entitlements
of any nature  whatsoever  in respect of the debt  securities of any Person that
may be issued or granted to, or held by, any Grantor while this  Agreement is in
effect.

     "Pledged   Notes":   all  promissory   notes  listed  on  Schedule  2,  all
Intercompany  Notes at any time issued to any  Grantor and all other  promissory
notes issued to or held by any Grantor (other than any Excluded Assets and other
than promissory notes in an aggregate principal amount not to exceed $250,000 at
any time outstanding issued in connection with extensions of trade credit by any
Grantor in the ordinary course of business).

     "Pledged  Securities":   the  collective  reference  to  the  Pledged  Debt
Securities, the Pledged Notes and the Pledged Stock.

     "Pledged Security Entitlements":  all security entitlements with respect to
the financial assets listed on Schedule 2 and all other security entitlements of
any Grantor.

     "Pledged Stock": the shares of Capital Stock listed on Schedule 2, together
with  any  other  shares,  stock  certificates,   options,  rights  or  security
entitlements  of any nature  whatsoever  in respect of the Capital  Stock of any
Person  that may be issued or  granted  to, or held by, any  Grantor  while this
Agreement is in effect  (other than any Excluded  Assets);  provided  that in no
event shall more than 66% of the total outstanding  Excluded Foreign  Subsidiary
Voting  Stock of any  Excluded  Foreign  Subsidiary  be  required  to be pledged
hereunder.

     "Proceeds":  all  "proceeds"  as  such  term  is  defined  in  the  Uniform
Commercial  Code in effect in the State of New York on the date  hereof,  and to
the extent any such future definition is no less expansive or inclusive,  in any
future  version  of the New York UCC,  and,  in any  event,  including,  without
limitation,   all  dividends  or  other  income  from  the  Pledged  Securities,
collections thereon or distributions or payments with respect thereto.

     "Receivable": any right to payment for goods sold or leased or for services
rendered,  whether or not such right is  evidenced by an  Instrument  or Chattel
Paper and whether or not it has been earned by performance  (including,  without
limitation, any Account).

     "Secured  Parties":  collectively,  the Arrangers,  the Agents, the Lenders
and, with respect to any Specified Hedge Agreement,  any affiliate of any Lender
party  thereto  that has agreed to be bound by the  provisions  of  Section  7.2
hereof as if it were a party  hereto and by the  provisions  of Section 9 of the
Credit Agreement as if it were a Lender party thereto.

     "Securities Act": the Securities Act of 1933, as amended.
                                       7

<PAGE>

     "Trademark License": any agreement,  whether written or oral, providing for
the grant by or to any  Grantor  of any right to use any  Trademark,  including,
without limitation, any of the foregoing referred to in Schedule 6.

     "Trademarks":  (i) all trademarks,  service marks,  trade names,  corporate
names, company names, business names, trade dress, trade styles, logos, or other
indicia  of  origin  or  source  identification,   trademark  and  service  mark
registrations,  and applications for trademark or service mark registrations and
any renewals  thereof,  including,  without  limitation,  each  registration and
application identified in Schedule 6, (ii) the right to sue or otherwise recover
for any and all past,  present and future  infringements  and  misappropriations
thereof,  (iii)  all  income,  royalties,  damages  and other  payments  now and
hereafter  due  and/or  payable  with  respect   thereto   (including,   without
limitation,  payments  under all Trademark  Licenses  entered into in connection
therewith,  and damages and payments for past,  present or future  infringements
thereof),  and (iv) all other rights of any kind whatsoever  accruing thereunder
or pertaining  thereto,  together in each case with the goodwill of the business
connected with the use of, and symbolized by, each of the above.

     "Trade Secret License":  any agreement,  whether written or oral, providing
for the  grant  by or to any  Grantor  of any  right  to use any  Trade  Secret,
including, without limitation, any of the foregoing referred to in Schedule 6.

     "Trade Secrets": (i) all trade secrets and all confidential and proprietary
information,  including  know-how,  manufacturing  and production  processes and
techniques,  inventions,  research and development information,  technical data,
financial,  marketing and business data, pricing and cost information,  business
and marketing plans, and customer and supplier lists and information, including,
without  limitation,  any of the  foregoing  referred to in Schedule 6, (ii) the
right to sue or  otherwise  recover  for any and all past,  present  and  future
infringements  and  misappropriations  thereof,  (iii)  all  income,  royalties,
damages and other  payments now and  hereafter  due and/or  payable with respect
thereto (including, without limitation, payments under all licenses entered into
in connection  therewith,  and damages and payments for past,  present or future
infringements  thereof), and (iv) all other rights of any kind whatsoever of any
Grantor accruing thereunder or pertaining thereto.

     "Vehicles":  all cars,  trucks,  trailers,  construction  and earth  moving
equipment  and  other  vehicles  covered  by a  certificate  of title law of any
jurisdiction  and, in any event  including,  without  limitation,  the  vehicles
listed  on  Schedule  8 and all  tires  and  other  appurtenances  to any of the
foregoing.

1.2  Other  Definitional  Provisions.(a)  (a)  The  words  "hereof",   "herein",
     "hereto"  and  "hereunder"  and words of similar  import  when used in this
     Agreement  shall  refer  to  this  Agreement  as a  whole  and  not  to any
     particular provision of this Agreement, and Section and Schedule references
     are to this Agreement unless otherwise specified.
                                       8
<PAGE>

(b) The meanings  given to terms defined  herein shall be equally  applicable to
both the singular and plural forms of such terms.

(c) Where the context  requires,  terms  relating to the  Collateral or any part
thereof,  when used in  relation  to a Grantor,  shall  refer to such  Grantor's
Collateral or the relevant part thereof.

(d) The  expressions  "payment  in full,"  "paid in full" and any other  similar
terms or phrases when used herein with respect to the  Borrower  Obligations  or
the  Guarantor  Obligations  shall  mean the  payment  in full,  in  immediately
available   funds,  of  all  of  the  Borrower   Obligations  or  the  Guarantor
Obligations, as the case may be.

SECTION 12.                                GUARANTEE

12.1  Guarantee.(a)  (a) Each of the Guarantors  hereby,  jointly and severally,
unconditionally and irrevocably, guarantees to the Administrative Agent, for the
ratable  benefit  of  the  Secured  Parties  and  their  respective  successors,
endorsees,  transferees  and  assigns,  the  prompt  and  complete  payment  and
performance  by the  Borrower  when due  (whether  at the  stated  maturity,  by
acceleration or otherwise) of the Borrower Obligations.

(b)   Anything   herein  or  in  any  other  Loan   Document  to  the   contrary
notwithstanding, the maximum liability of each Guarantor hereunder and under the
other Loan Documents shall in no event exceed the amount which can be guaranteed
by such Guarantor under applicable federal, state and other laws relating to the
insolvency  of  debtors  (after  giving  effect  to the  right  of  contribution
established in Section 2.2).

(c) Each Guarantor agrees that the Borrower Obligations may at any time and from
time to time  exceed the amount of the  liability  of such  Guarantor  hereunder
without  impairing  the  guarantee  contained in this Section 2 or affecting the
rights and remedies of any Secured Party hereunder.

(d) The  guarantee  contained  in this  Section 2 shall remain in full force and
effect until all the Borrower  Obligations and Guarantor  Obligations shall have
been satisfied by payment in full, no Letter of Credit shall be outstanding  and
the Commitments shall be terminated or have expired,  notwithstanding  that from
time to time during the term of the Credit  Agreement  the  Borrower may be free
from any Borrower Obligations.

(e) No payment made by the Borrower, any of the Guarantors,  any other guarantor
or any other  Person or received  or  collected  by any  Secured  Party from the
Borrower,  any of the  Guarantors,  any other  guarantor  or any other Person by
virtue  of  any  action  or  proceeding  or  any  set-off  or  appropriation  or
application  at any time or from time to time in  reduction  of or in payment of
the Borrower Obligations shall be deemed to modify, reduce, release or otherwise
affect the liability of any Guarantor hereunder which shall, notwithstanding any
such payment  (other than any payment  made by such  Guarantor in respect of the
Borrower Obligations or any payment received or collected from such Guarantor in
                                       9
<PAGE>

respect of the Borrower Obligations), remain liable for the Borrower Obligations
up to the maximum  liability  of such  Guarantor  hereunder  until the  Borrower
Obligations (other than Obligations in respect of any Specified Hedge Agreement)
are paid in full, no Letter of Credit shall be outstanding  and the  Commitments
are terminated or have expired.

12.2 Right of Contribution. Each Guarantor hereby agrees that to the extent that
a  Guarantor  shall have paid more than its  proportionate  share of any payment
made   hereunder,   such  Guarantor  shall  be  entitled  to  seek  and  receive
contribution  from and against any other Guarantor  hereunder which has not paid
its proportionate share of such payment.  Each Guarantor's right of contribution
shall be subject to the terms and  conditions of Section 2.3. The  provisions of
this Section 2.2 shall in no respect limit the  obligations  and  liabilities of
any Guarantor to the Secured  Parties and each Guarantor  shall remain liable to
the Secured Parties for the full amount guaranteed by such Guarantor hereunder.

12.3 No Subrogation. Notwithstanding any payment made by any Guarantor hereunder
or any set-off or application of funds of any Guarantor by any Secured Party, no
Guarantor shall be entitled to be subrogated to any of the rights of any Secured
Party against the Borrower or any other  Guarantor or Grantor or any  collateral
security  or  guarantee  or right of offset  held by any  Secured  Party for the
payment of the Borrower Obligations, nor shall any Guarantor seek or be entitled
to seek any  contribution  or  reimbursement  from  the  Borrower  or any  other
Guarantor or Grantor in respect of payments  made by such  Guarantor  hereunder,
until all amounts owing to the Secured Parties by the Borrower on account of the
Borrower  Obligations  (other than Obligations in respect of any Specified Hedge
Agreement)  are paid in full, no Letter of Credit shall be  outstanding  and the
Commitments  are terminated or have expired.  If any amount shall be paid to any
Guarantor  on  account  of such  subrogation  rights at any time when all of the
Borrower  Obligations  (other than Obligations in respect of any Specified Hedge
Agreement) shall not have been paid in full, any Letter of Credit is outstanding
or the Commitments remain in effect, such amount shall be held by such Guarantor
in trust for the Secured Parties, segregated from other funds of such Guarantor,
and shall,  forthwith  upon  receipt by such  Guarantor,  be turned  over to the
Administrative Agent in the exact form received by such Guarantor (duly endorsed
by such  Guarantor to the  Administrative  Agent,  if  required),  to be applied
against the Borrower Obligations, whether matured or unmatured, in such order as
the Administrative Agent may determine.

2.4 Amendments,  etc. with respect to the Borrower Obligations.  Each Guarantor
shall remain obligated hereunder  notwithstanding  that, without any reservation
of rights  against any Guarantor and without  notice to or further assent by any
Guarantor, any demand for payment of any of the Borrower Obligations made by any
Secured  Party may be rescinded  by such  Secured  Party and any of the Borrower
Obligations  continued,  and the Borrower  Obligations,  or the liability of any
other  Person  upon or for any  part  thereof,  or any  collateral  security  or
guarantee  therefor or right of offset with respect  thereto,  may, from time to
time, in whole or in part, be renewed, extended, amended, modified, accelerated,
compromised,  waived,  surrendered  or released by any  Secured  Party,  and the
Credit  Agreement and the other Loan Documents and any other documents  executed
and delivered in connection therewith may be amended, modified,  supplemented or
terminated,  in whole or in part, as the Administrative  Agent (or the requisite
                                       10
<PAGE>

Lenders under the Credit Agreement or all Lenders,  as the case may be) may deem
advisable from time to time, and any collateral security,  guarantee or right of
offset at any time held by any  Secured  Party for the  payment of the  Borrower
Obligations may be sold, exchanged,  waived, surrendered or released. No Secured
Party shall have any obligation to protect,  secure,  perfect or insure any Lien
at any time  held by it as  security  for the  Borrower  Obligations  or for the
guarantee contained in this Section 2 or any property subject thereto.

12.5 Guarantee  Absolute and  Unconditional.  Each Guarantor  waives any and all
notice of the  creation,  renewal,  extension  or accrual of any of the Borrower
Obligations  and notice of or proof of reliance  by any  Secured  Party upon the
guarantee  contained in this Section 2 or acceptance of the guarantee  contained
in this Section 2; the Borrower Obligations, and any of them, shall conclusively
be deemed to have been created,  contracted or incurred,  or renewed,  extended,
amended or waived,  in reliance upon the guarantee  contained in this Section 2;
and all  dealings  between the Borrower  and any of the  Guarantors,  on the one
hand, and the Secured Parties, on the other hand, likewise shall be conclusively
presumed  to have  been  had or  consummated  in  reliance  upon  the  guarantee
contained  in this  Section 2. Each  Guarantor  waives  diligence,  presentment,
protest,  demand for payment and notice of default or  nonpayment to or upon the
Borrower or any of the Guarantors with respect to the Borrower Obligations. Each
Guarantor  understands and agrees that the guarantee contained in this Section 2
shall be construed as a  continuing,  absolute  and  unconditional  guarantee of
payment and performance  without regard to (a) the validity or enforceability of
the Credit Agreement or any other Loan Document, any of the Borrower Obligations
or any other collateral  security  therefor or guarantee or right of offset with
respect thereto at any time or from time to time held by any Secured Party,  (b)
any  defense,  set-off  or  counterclaim  (other  than a defense  of  payment or
performance  hereunder)  which may at any time be available to or be asserted by
the Borrower or any other  Person  against any Secured  Party,  or (c) any other
circumstance  whatsoever (with or without notice to or knowledge of the Borrower
or such Guarantor) which  constitutes,  or might be construed to constitute,  an
equitable or legal discharge of the Borrower for the Borrower Obligations, or of
such Guarantor under the guarantee contained in this Section 2, in bankruptcy or
in any other instance.  When making any demand  hereunder or otherwise  pursuing
its rights and remedies hereunder against any Guarantor,  any Secured Party may,
but  shall be under no  obligation  to,  make a similar  demand on or  otherwise
pursue such rights and remedies as it may have against the  Borrower,  any other
Guarantor  or any other Person or against any  collateral  security or guarantee
for the Borrower  Obligations or any right of offset with respect  thereto,  and
any failure by any Secured  Party to make any such demand,  to pursue such other
rights or remedies  or to collect  any  payments  from the  Borrower,  any other
Guarantor or any other Person or to realize upon any such collateral security or
guarantee  or to  exercise  any such  right of  offset,  or any  release  of the
Borrower,  any  other  Guarantor  or any  other  Person  or any such  collateral
security,  guarantee or right of offset,  shall not relieve any Guarantor of any
obligation or liability hereunder, and shall not impair or affect the rights and
remedies,  whether  express,  implied or  available  as a matter of law,  of any
Secured Party against any  Guarantor.  For the purposes  hereof  "demand"  shall
include the commencement and continuance of any legal proceedings.
                                       11
<PAGE>

12.6 Reinstatement.  The guarantee contained in this Section 2 shall continue to
be effective,  or be reinstated,  as the case may be, if at any time payment, or
any part  thereof,  of any of the  Borrower  Obligations  is  rescinded  or must
otherwise  be restored or  returned  by any Secured  Party upon the  insolvency,
bankruptcy,  dissolution,  liquidation or  reorganization of the Borrower or any
Guarantor,  or upon or as a result of the appointment of a receiver,  intervenor
or  conservator  of, or trustee or similar  officer  for,  the  Borrower  or any
Guarantor or any substantial part of its property,  or otherwise,  all as though
such payments had not been made.

12.7 Payments.  Each Guarantor hereby guarantees that payments hereunder will be
paid to the  Administrative  Agent without set-off or counterclaim in Dollars in
immediately available funds at the office of the Administrative Agent located at
the Payment Office specified in the Credit Agreement.

SECTION 13.                 GRANT OF SECURITY INTEREST

     Each Grantor hereby assigns and transfers to the Administrative  Agent, and
hereby  grants to the  Administrative  Agent,  for the  ratable  benefit  of the
Secured Parties, a security interest in, all of the following property now owned
or at any time  hereafter  acquired by such Grantor or in which such Grantor now
has or at any time in the  future  may  acquire  any  right,  title or  interest
(collectively,  the  "Collateral"),  as  collateral  security for the prompt and
complete payment and performance  when due (whether at the stated  maturity,  by
acceleration or otherwise) of such Grantor's Obligations:

(a)      all Accounts (including, without limitation, "markers");

(b)      all Chattel Paper;

(c)      all Contracts;

(d)      all Deposit Accounts;

(e)      all Documents;

(f)  all Equipment (including,  without limitation, gaming tables, casino chips,
     slot  machines,  video  lottery  terminals  and other  gaming  devices  and
     equipment and any centralized or supporting devices or equipment);

(g)      all General Intangibles;

(h)      all Instruments;

(i)      all Intellectual Property;

(j)      all Inventory;

(k)      all Investment Property;
                                       12
<PAGE>

(l)      all Vehicles;

(m)  all  Goods  and other  personal  property  not  otherwise  described  above
     including,  without limitation,  all vessels,  ships, barges or other craft
     (collectively,  "Vessels"),  as the same may be redocumented,  recertified,
     rebuilt ------- and/or  reconstructed,  together with all of their boilers,
     engines,  machinery,  masts, spars, boats, cables,  motors, tools, anchors,
     chains,   booms,  cranes,  rigs,  pumps,  pipe,  tanks,  tackle,   apparel,
     furniture,  fixtures,  rigging,  supplies,  fittings and gaming  machinery,
     equipment and accessories relating to gaming operations, including, but not
     limited  to,  communication  systems,  visual and  electronic  surveillance
     systems and transportation  systems,  tools,  utensils,  food and beverage,
     liquor, uniforms, linens,  housekeeping and maintenance supplies, fuel, all
     gaming  equipment  and devices,  gaming and financial  equipment,  computer
     equipment,  calculators, adding machines, video game and slot machines, and
     any other electronic  equipment of every nature used in connection with the
     operation of the Vessels, all machinery, equipment, engines, appliances and
     fixtures for generating or  distributing  air,  water,  heat,  electricity,
     light, fuel or refrigeration,  or for ventilating or sanitary purposes,  or
     for the exclusion of vermin or insects,  or for the removal of dust, refuse
     or  garbage,   all   wall-beds,   wall  safes,   built-in   furniture   and
     installations,  shelving, lockers,  partitions,  doorstops, vaults, motors,
     elevators,  dumbwaiters,  awnings,  window shades,  venetian blinds,  light
     fixtures,  fire hoses and brackets and boxes for the same, fire sprinklers,
     alarm, surveillance and security systems,  computers,  drapes, drapery rods
     and brackets,  mirrors, mantels, screens,  linoleum, carpets and carpeting,
     plumbing,  bathtubs,  sinks, basins, pipes, faucets, water closets, laundry
     equipment,  washers,  dryers,  ice-boxes and heating units, all kitchen and
     restaurant equipment,  including,  but not limited to, silverware,  dishes,
     menus, cooking utensils, stoves, refrigerators, ovens, ranges, dishwashers,
     disposals,   water   heaters,   incinerators,   furniture,   fixtures   and
     furnishings,  all cocktail lounge  supplies,  including but not limited to,
     bars,  glassware,  bottles and tables used in connection  with the Vessels,
     all chaise lounges, hot tubs, swimming pool heaters and equipment,  and all
     other  recreational  equipment  (computerized  and  otherwise),  beauty and
     barber  equipment,  and  maintenance  supplies used in connection  with the
     Vessels, all specifically designed  installations and furnishings,  and all
                                       13
<PAGE>

     furniture, furnishings and personal property of every nature whatsoever now
     or hereafter  owned or leased by Grantor or in which Grantor has any rights
     or interest and located in or on, or attached to, or used or intended to be
     used or which are now or may  hereafter  be  appropriated  for use on or in
     connection  with the operation of the Vessels,  or in  connection  with any
     construction  being  conducted or which may be conducted  thereon,  and all
     extensions,  additions, accessions,  improvements,  betterments,  renewals,
     substitutions,  and replacements to any of the foregoing,  all of which (to
     the  fullest  extent  permitted  by  law)  shall  be  conclusively   deemed
     appurtenances  to the Vessels,  and all other  appurtenances to the Vessels
     appertaining or belonging, whether now owned or hereafter acquired, whether
     on board or not, and all additions, improvements and replacements hereafter
     made in or to the Vessels;

(n)  all  bank  accounts,  all  funds  held  therein  and all  certificates  and
     instruments, if any, from time to time representing or evidencing such bank
     accounts;

(o)  all money;

(p)  all letter of credit rights;

(q)  all books and records pertaining to the Collateral; and

(r)  to the extent not otherwise  included  above,  all Proceeds and products of
     any and all of the foregoing  and all  collateral  security and  guarantees
     given by any Person with respect to any of the foregoing.

                  Provided,  however,  that none of the  Excluded  Assets  shall
constitute Collateral.

SECTION 14.                                    REPRESENTATIONS AND WARRANTIES

                  To induce the  Arrangers,  the Agents and the Lenders to enter
into the Credit  Agreement  and to induce the  Lenders to make their  respective
extensions of credit to the Borrower thereunder,  each Grantor hereby represents
and warrants to the Secured Parties that:

14.1  Representations  in Credit Agreement.  In the case of each Guarantor,  the
representations and warranties set forth in Section 4 of the Credit Agreement as
they relate to such  Guarantor or to the Loan  Documents to which such Guarantor
is a party, each of which is hereby incorporated  herein by reference,  are true
and correct,  and the Secured  Parties shall be entitled to rely on each of them
as if they were fully set forth  herein,  provided  that each  reference in each
such  representation  and warranty to the Borrower's  knowledge  shall,  for the
purposes of this Section  4.l, be deemed to be a reference  to such  Guarantor's
knowledge.

14.2 Title;  No Other Liens.  Such Grantor owns each item of the Collateral free
and  clear of any and all  Liens or  claims,  except  for  Permitted  Liens.  No
financing  statement or other  public  notice with respect to all or any part of
the Collateral is on file or of record in any public office, except such as have
been filed in favor of the Administrative  Agent, for the ratable benefit of the
Secured  Parties,  pursuant to this  Agreement or as are permitted by the Credit
Agreement or as are to be terminated as contemplated by the Credit Agreement.

14.3 Perfected First Priority Liens. The security  interests granted pursuant to
this Agreement (a) upon completion of the filings and other actions specified on
Schedule 3 (which, in the case of all filings and other documents referred to on
                                       14
<PAGE>

said Schedule,  have been delivered to the Administrative Agent in completed and
duly executed form) will constitute valid perfected security interests in all of
the Collateral in favor of the Administrative  Agent, for the ratable benefit of
the Secured  Parties,  as collateral  security for such  Grantor's  Obligations,
enforceable  in accordance  with the terms hereof  against all creditors of such
Grantor and any Persons  purporting to purchase any Collateral from such Grantor
and (b) are prior to all other  Liens on the  Collateral  except  for  Permitted
Liens.

14.4 Exact Legal Names, Chief Executive Office and Jurisdiction of Formation. On
the date hereof,  such Grantor's exact legal name,  jurisdiction of formation or
organization  and the location of such Grantor's chief executive  office or sole
place of business  are  specified on Schedule 4. The  jurisdiction  of each such
Grantor's  organization  or  formation  is required to maintain a public  record
showing the Grantor to have been organized or formed.

14.5  Inventory,  Equipment  and  Books and  Records.  On the date  hereof,  the
Inventory and the Equipment  (other than mobile goods) and the books and records
pertaining to the Collateral are kept at the locations listed on Schedule 5.

14.6 Farm Products. None of the Collateral  constitutes,  or is the Proceeds of,
     Farm Products.

14.7  Investment  Property.(a)  (a) The shares of Pledged  Stock pledged by such
Grantor  hereunder  constitute all of the issued and  outstanding  shares of all
classes of the Capital Stock of each Issuer owned by such Grantor and 65% of the
Capital Stock of certain of its first-tier foreign  subsidiaries or, in the case
of Excluded  Foreign  Subsidiary  Voting Stock,  if less, 66% of the outstanding
Excluded Foreign Subsidiary Voting Stock of each relevant Issuer.

(b)  All the shares of Pledged  Stock have been duly and validly  issued and are
     fully paid and nonassessable.

(c) The ownership interests held by Penn National Gaming of West Virginia, Inc.,
in PNGI Charles Town Gaming,  LLC, and held by PNGI Charles Town Gaming, LLC, in
PNGI Charles Town Food & Beverage,  LLC, are not represented by certificates and
constitute  General  Intangibles  hereunder  and  under the  applicable  Uniform
Commercial Code.

(d)  Each  of the  Pledged  Notes  constitutes  the  legal,  valid  and  binding
obligation of the obligor with respect  thereto,  enforceable in accordance with
its  terms,  subject  to  the  effects  of  bankruptcy,  insolvency,  fraudulent
conveyance,  reorganization,  moratorium  and other  similar laws relating to or
affecting  creditors' rights generally,  general equitable  principles  (whether
considered in a proceeding in equity or at law) and an implied  covenant of good
faith and fair dealing.

(e) Such  Grantor  is the  record  and  beneficial  owner  of,  and has good and
marketable title to, the Investment  Property  pledged by it hereunder,  free of
any and all Liens or options in favor of, or claims of, any other Person, except
Permitted Liens.
                                       15
<PAGE>

(f) Each Issuer that is a  Subsidiary  of the Borrower but that is not a Grantor
hereunder   has  executed  and   delivered  to  the   Administrative   Agent  an
Acknowledgment  and Agreement,  in  substantially  the form of Exhibit A, to the
pledge of the Pledged Securities pursuant to this Agreement.

14.8  Receivables.(a)  (a)  No  amount  payable  to  such  Grantor  under  or in
connection  with any  Receivable is evidenced by any Instrument or Chattel Paper
which has not been delivered to the Administrative Agent.

(b)  None of the obligors on any Receivables is a Governmental Authority.

(c) The amounts  represented by such Grantor to the Secured Parties from time to
time as owing to such Grantor in respect of the  Receivables  will at such times
be accurate.

14.9  Contracts.(a) (a) No consent of any party (other than such Grantor) to any
Contract is  required,  or  purports  to be  required,  in  connection  with the
execution, delivery and performance of this Agreement.

(b) Each  Contract  is in full  force and  effect  and  constitutes  a valid and
legally enforceable obligation of the parties thereto, subject to the effects of
bankruptcy,  insolvency, fraudulent conveyance,  reorganization,  moratorium and
other similar laws relating to or affecting creditors' rights generally, general
equitable  principles  (whether  considered in a proceeding in equity or at law)
and an implied covenant of good faith and fair dealing.

(c) No consent or authorization of, filing with or other act by or in respect of
any  Governmental  Authority  is  required  in  connection  with the  execution,
delivery, performance, validity or enforceability of any of the Contracts by any
party thereto other than those which have been duly obtained, made or performed,
are in full force and effect and do not subject  the scope of any such  Contract
to any material adverse limitation, either specific or general in nature.

(d) Neither such Grantor nor (to the best of such  Grantor's  knowledge)  any of
the  other  parties  to  the  Contracts  is in  default  in the  performance  or
observance of any of the terms thereof.

(e) The right, title and interest of such Grantor in, to and under the Contracts
are not subject to any defenses,  offsets,  counterclaims  or claims (other than
claims of the Secured Parties created hereunder).

(f) Such  Grantor  has  delivered  to the  Administrative  Agent a complete  and
correct copy of each Contract,  including all amendments,  supplements and other
modifications thereto.

(g) No amount  payable to such Grantor under or in connection  with any Contract
is evidenced by any  Instrument or Chattel Paper which has not been delivered to
the Administrative Agent.
                                       16
<PAGE>

(h)  None of the parties to any Contract is a Governmental Authority.

(i)  Each party  (other  than such  Grantor)  to each  Contract  selected by the
     Administrative Agent has executed and delivered to the Administrative Agent
     a consent, in substantially the form of Exhibit B (with such changes as may
     be agreed by the Administrative  Agent), to the assignment of the Contracts
     to the Administrative Agent pursuant to this Agreement.

(j)  The Contracts  are all of the material  contracts of the Loan Parties as of
     the Closing Date.

14.10 Intellectual  Property.(a) (a) Schedule 6 lists all Intellectual  Property
registered with the United State Patent and Trademark Office,  the United States
Copyright Office or any other similar office and all other material Intellectual
Property owned by such Grantor in its own name on the date hereof. Except as set
forth in  Schedule  6, such  Grantor  is the  exclusive  owner of the entire and
unencumbered right, title and interest in and to such Intellectual  Property and
is otherwise entitled to use all such Intellectual Property, without limitation,
subject  only to the license  terms of the  licensing  or  franchise  agreements
referred to in paragraph (c) below.

(b)  On the  date  hereof,  all  Intellectual  Property  is  valid,  subsisting,
unexpired  and  enforceable,  has not been  abandoned  and does not infringe the
intellectual property rights of any other Person.

(c)  Except  as set  forth in  Schedule  6, on the date  hereof  (i) none of the
Intellectual  Property is the subject of any  licensing or  franchise  agreement
pursuant to which such Grantor is the licensor or franchisor, and (ii) there are
no other  agreements,  obligations,  orders or judgments which affect the use of
any Intellectual Property.

(d) The  rights  of  such  Grantor  in or to the  Intellectual  Property  do not
conflict with or infringe  upon the rights of any third party,  and no claim has
been  asserted that the use of such  Intellectual  Property does or may infringe
upon the  rights of any third  party.  There is  currently  no  infringement  or
unauthorized use of any item of Intellectual Property.

(e) No  holding,  decision  or judgment  has been  rendered by any  Governmental
Authority which would limit,  cancel or question the validity or  enforceability
of, or such Grantor's rights in, any  Intellectual  Property in any respect that
could reasonably be expected to have a Material Adverse Effect.  Such Grantor is
not aware of any uses of any item of Intellectual Property that could reasonably
be expected to lead to such item becoming  invalid or  unenforceable  including,
without  limitation,  unauthorized uses by third parties and uses which were not
supported  by the  goodwill  of  the  business  connected  with  Trademarks  and
Trademark Licenses.

(f) No action or  proceeding  is pending,  or, to the knowledge of such Grantor,
threatened,  on the date  hereof (i) seeking to limit,  cancel or  question  the
validity of any  Intellectual  Property  or such  Grantor's  ownership  interest
therein,  (ii) alleging  that any services  provided by,  processes  used by, or
                                       17
<PAGE>

products  manufactured or sold by such Grantor  infringe any patent,  trademark,
copyright,  or any  other  right of any third  party,  (iii)  alleging  that any
material  Intellectual  Property  is  being  licensed,  sublicensed  or  used in
violation  of any patent,  trademark,  copyright or any other right of any third
party, or (iv) which,  if adversely  determined,  would have a material  adverse
effect on the  value of any  Intellectual  Property.  To the  knowledge  of such
Grantor,  no  Person  is  engaging  in any  activity  that  infringes  upon  the
Intellectual Property or upon the rights of such Grantor therein.  Except as set
forth in Schedule 6 hereto,  such Grantor has not granted any license,  release,
covenant not to sue, non-assertion  assurance, or other right to any person with
respect  to any  part of the  Intellectual  Property.  The  consummation  of the
transactions  contemplated  by this Agreement will not result in the termination
or impairment of any of the Intellectual Property

(g) With  respect  to each  Copyright  License,  Trademark  License  and  Patent
License:  (i) such license is valid and binding and in full force and effect and
represents the entire  agreement  between the  respective  licensor and licensee
with respect to the subject  matter of such license;  (ii) such license will not
cease to be valid and binding and in full force and effect on terms identical to
those  currently  in effect  as a result of the  rights  and  interests  granted
herein,  nor will the grant of such rights and interests  constitute a breach or
default under such license or otherwise give the licensor or licensee a right to
terminate  such  license;  (iii) such  Grantor  has not  received  any notice of
termination  or  cancellation  under such  license;  (iv) such  Grantor  has not
received any notice of a breach or default under such  license,  which breach or
default has not been cured;  (v) such Grantor has not granted to any other third
party any  rights,  adverse  or  otherwise,  under such  license;  and (vi) such
Grantor is not in breach or default in any  material  respect,  and no event has
occurred that, with notice and/or lapse of time,  would constitute such a breach
or  default  or permit  termination,  modification  or  acceleration  under such
license.

(h) Except as set forth in Schedule 6, such Grantor has  performed  all acts and
has paid  all  required  fees  and  taxes to  maintain  each and  every  item of
Intellectual  Property in full force and effect and to protect and  maintain its
interest  therein.  Such Grantor has used proper  statutory notice in connection
with  its  use  of  each  Patent,   Trademark  and  Copyright  included  in  the
Intellectual Property.

(i) To the best of such Grantor's  knowledge,  none of the Trade Secrets of such
Grantor has been used,  divulged,  disclosed or appropriated to the detriment of
such  Grantor  for the  benefit  of any other  Person;  (ii) to the best of such
Grantor's  knowledge,  no  employee,  independent  contractor  or  agent of such
Grantor has  misappropriated any trade secrets of any other Person in the course
of the performance of his or her duties as an employee,  independent  contractor
or agent of such Grantor; and (iii) to the best of such Grantor's knowledge,  no
employee,  independent  contractor  or agent of such  Grantor  is in  default or
breach  of any  term  of any  employment  agreement,  non-disclosure  agreement,
assignment of inventions  agreement or similar agreement or contract relating in
any way to the  protection,  ownership,  development,  use or  transfer  of such
Grantor's Intellectual Property.

(j) Such Grantor has made all filings and  recordations  necessary to adequately
protect its interest in its Intellectual Property including, without limitation,
                                       18
<PAGE>

recordation  of its  interests  in the  Patents and  Trademarks  with the United
States  Patent  and  Trademark   Office  and  in   corresponding   national  and
international  patent  offices,  and  recordation of any of its interests in the
Copyrights with the United States Copyright Office and in corresponding national
and international copyright offices.

(k) Such Grantor has taken all steps to use  consistent  standards of quality in
the manufacture, distribution and sale of all products sold and provision of all
services provided under or in connection with any item of Intellectual  Property
and has  taken  all  steps  to  ensure  that all  licensed  users of any kind of
Intellectual Property use such consistent standards of quality.

14.11 Vehicles.  Schedule 8 is a complete and correct list of all Vehicles owned
by such Grantor on the date hereof. The aggregate net book value of all Vehicles
owned by all Grantors is less than $700,000.

14.12  Excluded  Funds.  The  Borrower  estimates in good faith that the average
monthly amount of Excluded Funds generated during the first 6 months of 2000 did
not exceed $1,000,000.

SECTION 15.                                             COVENANTS

                  Each  Grantor  covenants  and agrees with the Secured  Parties
that,  from and after the date of this Agreement  until the  Obligations  (other
than  Obligations in respect of any Specified Hedge  Agreement)  shall have been
paid in full, no Letter of Credit shall be outstanding and the Commitments shall
have terminated or expired:

15.1 Covenants in Credit Agreement.  Each Guarantor shall take, or shall refrain
from  taking,  as the case may be, each action that is  necessary to be taken or
not taken,  as the case may be, so that no Default or Event of Default is caused
by the failure to take such action or to refrain from taking such action by such
Guarantor or any of its Subsidiaries.

15.2  Delivery  and  Control  of  Instruments,   Chattel  Paper  and  Investment
Property.(a)  (a) If any of the  Collateral  shall  be or  become  evidenced  or
represented by any  Instrument,  Certificated  Security or Chattel  Paper,  such
Instrument,  Certificated  Security or Chattel Paper shall be promptly delivered
to the  Administrative  Agent,  duly  endorsed in a manner  satisfactory  to the
Administrative Agent, to be held as Collateral pursuant to this Agreement.

(b) If any of the Collateral  shall be or become  evidenced or represented by an
Uncertificated  Security,  upon the request of the  Administrative  Agent,  such
Grantor shall cause the Issuer thereof either (i) to register the Administrative
Agent as the registered  owner of such  Uncertificated  Security,  upon original
issue or  registration of transfer or (ii) to agree in writing with such Grantor
and the Administrative Agent that such Issuer will comply with instructions with
respect to such Uncertificated  Security originated by the Administrative  Agent
without further consent of such Grantor,  such agreement to be in  substantially
the form of Exhibit D.
                                       19
<PAGE>

(c) If any of the  Collateral  shall be or become  evidenced or represented by a
Security Entitlement, upon the request of the Administrative Agent, such Grantor
shall  cause  the  Securities   Intermediary   with  respect  to  such  Security
Entitlement  either (i) to identify in its records the  Administrative  Agent as
having such Security Entitlement against such Securities Intermediary or (ii) to
agree in  writing  with such  Grantor  and the  Administrative  Agent  that such
Securities  intermediary  will comply with Entitlement  Orders originated by the
Administrative Agent without further consent of such Grantor,  such agreement to
be in substantially the form of Exhibit E.

(d) If any of the  Collateral  shall be or become  evidenced or represented by a
Commodity  Contract,  such Grantor shall cause the Commodity  Intermediary  with
respect to such Commodity Contract to agree in writing with such Grantor and the
Administrative  Agent  that such  Commodity  Intermediary  will  apply any value
distributed  on  account  of  such   Commodity   Contract  as  directed  by  the
Administrative Agent without further consent of such Grantor,  such agreement to
be in substantially the form of Exhibit F.

(e) If any of the Collateral  shall be or become  evidenced or represented by or
held in a Securities Account or a Commodity Account,  such Grantor shall, in the
case of a Securities  Account,  comply with  Section  5.2(c) with respect to all
Security  Entitlements  carried in such Securities Account and, in the case of a
Commodity  Account,  comply with Section  5.2(d) with  respect to all  Commodity
Contracts carried in such Commodity Account.

                  (f)  With  respect  to any  Deposit  Accounts  or  other  bank
accounts of the Loan Parties, upon the request of the Administrative Agent, such
Loan Parties will cause such Deposit  Accounts and other bank accounts to become
subject to the sole dominion and control of the Administrative Agent.

15.3  Maintenance  of  Insurance.(a)  (a)  Such  Grantor  will  maintain,   with
financially  sound  and  reputable  insurance  companies,  insurance  on all its
property (including,  without limitation, all Inventory, Equipment and Vehicles)
in at least such amounts and against at least such risks as are usually  insured
against in the same general  area by companies  engaged in the same or a similar
business;  and furnish to the Administrative  Agent with copies for each Secured
Party,  upon written  request,  full  information  as to the insurance  carried;
provided that in any event such Grantor will maintain, (i) property and casualty
insurance on all real and personal property on an all risks basis (including the
perils of flood and quake and loss by fire,  explosion and theft),  covering the
repair or replacement cost of all such property and consequential  loss coverage
for business  interruption  and extra expense (which shall include  construction
expenses  and  such  other  business  interruption  expenses  as  are  otherwise
generally available to similar businesses), and (ii) public liability insurance.
All such insurance with respect to such Grantor shall be provided by insurers or
reinsurers which (x) in the case of United States insurers and reinsurers,  have
an A.M.  Best  policyholders  rating of not less than A- with respect to primary
insurance  and B+ with  respect  to  excess  insurance  and  (y) in the  case of
                                       20
<PAGE>

non-United States insurers or reinsurers,  the providers of at least 80% of such
insurance  have either an ISI  policyholders  rating of not less than A, an A.M.
Best  policyholders  rating of not less  than A- or a  surplus  of not less than
$500,000,000 with respect to primary insurance,  and an ISI policyholders rating
of not less than BBB with  respect  to  excess  insurance,  or, if the  relevant
insurance  is not  available  from such  insurers,  such other  insurers  as the
Administrative  Agent may approve in writing.  All  insurance  shall (i) provide
that no  cancellation,  material  reduction  in  amount  or  material  change in
coverage  thereof shall be effective until at least 30 days after receipt by the
Administrative Agent of written notice thereof,  (ii) if reasonably requested by
the  Administrative  Agent,  include a breach of  warranty  clause  and (iii) be
reasonably satisfactory in all other respects to the Administrative Agent.

(b)  Pursuant  to Section  6.5(e) of the Credit  Agreement,  such  Grantor  will
deliver to the Administrative Agent on behalf of the Secured Parties, (i) on the
Closing  Date,  a  certificate  dated such date  showing the amount and types of
insurance  coverage  as of such date,  (ii) upon  request of the  Administrative
Agent from time to time,  full  information as to the insurance  carried,  (iii)
promptly  following receipt of notice from any insurer,  a copy of any notice of
cancellation  or material  change in coverage  from that existing on the Closing
Date,  (iv) forthwith,  notice of any  cancellation or nonrenewal of coverage by
such  Grantor,  and (v)  promptly  after such  information  is available to such
Grantor,  full  information  as to any claim for an amount in excess of $500,000
with respect to any property and casualty  insurance  policy  maintained by such
Grantor.  Each Secured  Party shall be named as  additional  insured on all such
liability insurance policies of such Grantor and the Administrative  Agent shall
be named as loss payee on all property and casualty  insurance  policies of such
Grantor.

(c) The  Borrower  shall  deliver  to the  Administrative  Agent a  report  of a
reputable  insurance  broker  with  respect  to  such  insurance   substantially
concurrently  with the delivery by the Borrower to the  Administrative  Agent of
its audited  financial  statements  for each  fiscal year and such  supplemental
reports with respect thereto as the  Administrative  Agent may from time to time
reasonably request.

15.4 Payment of  Obligations.  Such Grantor will pay and  discharge or otherwise
satisfy at or before maturity or before they become delinquent,  as the case may
be, all taxes,  assessments and governmental  charges or levies imposed upon the
Collateral or in respect of income or profits  therefrom,  as well as all claims
of any kind  (including,  without  limitation,  claims for labor,  materials and
supplies) against or with respect to the Collateral,  except that no such charge
need be paid if the amount or validity  thereof is currently  being contested in
good faith by  appropriate  proceedings,  reserves in conformity  with GAAP with
respect  thereto  have  been  provided  on the  books of such  Grantor  and such
proceedings  could not reasonably be expected to result in the sale,  forfeiture
or loss of any material portion of the Collateral or any interest therein.

15.5 Maintenance of Perfected Security Interest;  Further  Documentation.(a) (a)
Such Grantor shall maintain the security interest created by this Agreement as a
perfected  security  interest having at least the priority  described in Section
4.3 and shall defend such  security  interest  against the claims and demands of
all Persons whomsoever.

(b) Such  Grantor  will  furnish to the  Administrative  Agent from time to time
statements and schedules  further  identifying and describing the Collateral and
                                       21
<PAGE>

such other reports in connection with the assets and property of such Grantor as
the Administrative Agent may reasonably request, all in reasonable detail.

(c) At any  time  and  from  time to  time,  upon  the  written  request  of the
Administrative Agent, and at the sole expense of such Grantor, such Grantor will
promptly  and  duly  execute  and  deliver,  and  have  recorded,  such  further
instruments  and documents and take such further  actions as the  Administrative
Agent may reasonably request for the purpose of obtaining or preserving the full
benefits  of  this  Agreement  and of the  rights  and  powers  herein  granted,
including,  without limitation,  (i) the filing of any financing or continuation
statements  under the Uniform  Commercial Code (or other similar laws) in effect
in any jurisdiction  with respect to the security  interests  created hereby and
(ii) in the case of Investment Property, Deposit Accounts and any other relevant
Collateral,  taking any actions necessary to enable the Administrative  Agent to
obtain "control" (within the meaning of the applicable  Uniform Commercial Code)
with respect thereto (or, in the case of Deposit Accounts,  taking sole dominion
and control thereof).

15.6 Changes in  Locations,  Name,  etc.  Such Grantor will not,  except upon 10
days'  prior  written  notice to the  Administrative  Agent and  delivery to the
Administrative  Agent of (a) all additional  executed  financing  statements and
other documents reasonably requested by the Administrative Agent to maintain the
validity,  perfection and priority of the security interests provided for herein
and (b) if applicable, a written supplement to Schedule 5 showing any additional
location at which Inventory or Equipment  (other than mobile goods) or books and
records pertaining to the Collateral shall be kept:

(i)      permit any of the  Inventory or Equipment  (other than mobile goods) or
         books and records pertaining to the Collateral to be kept at a location
         other than those listed on Schedule 5;

(ii)     change its jurisdiction of organization or formation or the location of
         its chief executive office or sole place of business from that referred
         to in Section 4.4; or

(iii)    change its name (or any part thereof), identity or structure to such an
         extent that any financing  statement filed by the Administrative  Agent
         in connection with this Agreement would become misleading.

15.7 Notices.  Such Grantor will advise the  Administrative  Agent promptly,  in
     reasonable detail, of: -------

(a)  any Lien (other than any  Permitted  Lien) on any of the  Collateral  which
     would adversely affect the ability of the Administrative  Agent to exercise
     any of its remedies hereunder; and
                                       22
<PAGE>

(b) of the  occurrence of any other event which could  reasonably be expected to
have a material  adverse  effect on the aggregate  value of the Collateral or on
the security interests created hereby.

15.8  Investment  Property.(a)  (a) If such  Grantor  shall  become  entitled to
receive or shall receive any stock or other  ownership  certificate  (including,
without  limitation,   any  certificate  representing  a  stock  dividend  or  a
distribution in connection with any  reclassification,  increase or reduction of
capital or any certificate issued in connection with any reorganization), option
or rights in respect of the Capital Stock of any Issuer, whether in addition to,
in  substitution  of, as a conversion  of, or in exchange  for, any shares of or
other ownership interests in the Pledged Stock, or otherwise in respect thereof,
such Grantor shall accept the same as the agent of the Secured Parties, hold the
same in trust for the Secured  Parties and  deliver  the same  forthwith  to the
Administrative  Agent in the exact form received,  duly endorsed by such Grantor
to the Administrative  Agent, if required,  together with an undated stock power
covering  such  certificate  duly executed in blank by such Grantor and with, if
the Administrative Agent so requests,  signature  guaranteed,  to be held by the
Administrative  Agent,  subject to the terms hereof,  as  additional  collateral
security  for the  Obligations.  Any sums paid upon or in respect of the Pledged
Securities  upon the liquidation or dissolution of any Issuer shall be paid over
to the Administrative Agent to be held by it hereunder as additional  collateral
security for the  Obligations,  and in case any distribution of capital shall be
made on or in  respect  of the  Pledged  Securities  or any  property  shall  be
distributed  upon or with  respect to the  Pledged  Securities  pursuant  to the
recapitalization or reclassification of the capital of any Issuer or pursuant to
the reorganization  thereof, the property so distributed shall, unless otherwise
subject to a perfected security interest in favor of the  Administrative  Agent,
be  delivered  to  the  Administrative  Agent  to be  held  by it  hereunder  as
additional  collateral  security  for the  Obligations.  If any sums of money or
property so paid or  distributed in respect of the Pledged  Securities  shall be
received by such Grantor,  such Grantor  shall,  until such money or property is
paid or delivered to the  Administrative  Agent,  hold such money or property in
trust for the Secured Parties,  segregated from other funds of such Grantor,  as
additional collateral security for the Obligations.

(b) Without the prior written consent of the Administrative  Agent, such Grantor
will not (i) vote to enable,  or take any other action to permit,  any Issuer to
issue any stock or other equity  securities  of any nature or to issue any other
securities  convertible  into or granting  the right to purchase or exchange for
any stock or other  equity  securities  of any nature of any Issuer,  (ii) sell,
assign,  transfer,  exchange,  or otherwise dispose of, or grant any option with
respect to, any of the Investment  Property or Proceeds  thereof or any interest
therein  (except  pursuant to a  transaction  expressly  permitted by the Credit
Agreement),  (iii) create,  incur or permit to exist any Lien or option in favor
of, or any claim of any Person with respect to, any of the  Investment  Property
or Proceeds thereof, or any interest therein,  except for the security interests
created  by this  Agreement  or (iv)  enter into any  agreement  or  undertaking
restricting the right or ability of such Grantor or the Administrative  Agent to
sell,  assign or transfer any of the Investment  Property or Proceeds thereof or
any interest therein.

(c) In the case of each Grantor which is an Issuer,  such Issuer agrees that (i)
it will  be  bound  by the  terms  of this  Agreement  relating  to the  Pledged
                                       23
<PAGE>

Securities  issued by it and will comply  with such terms  insofar as such terms
are applicable to it, (ii) it will notify the  Administrative  Agent promptly in
writing of the occurrence of any of the events  described in Section 5.8(a) with
respect to the Pledged  Securities  issued by it and (iii) the terms of Sections
6.3(c) and 6.7 shall apply to it, mutatis mutandis,  with respect to all actions
that may be required of it pursuant to Section 6.3(c) or 6.7 with respect to the
Pledged Securities issued by it.

15.9  Receivables.(a)  (a)  Other  than  in  the  ordinary  course  of  business
consistent  with its past practice and so long as no Event of Default shall have
occurred and be continuing, such Grantor will not (i) grant any extension of the
time of payment of any Receivable,  (ii) compromise or settle any Receivable for
less than the full amount  thereof,  (iii)  release,  wholly or  partially,  any
Person  liable  for the  payment  of any  Receivable,  (iv)  allow any credit or
discount  whatsoever on any  Receivable  or (v) amend,  supplement or modify any
Receivable in any manner that could adversely affect the value thereof.

(b)  Such  Grantor  will  deliver  to the  Administrative  Agent  a copy of each
material demand,  notice or document received by it that questions or calls into
doubt the validity or  enforceability of more than 5% of the aggregate amount of
the then outstanding Receivables.

15.10  Contracts.(a)  (a) Such  Grantor  will perform and comply in all material
respects with all its obligations under the Contracts.

(b) Such Grantor will not amend, modify, terminate, waive or fail to enforce any
provision of any Contract in any manner  which could  reasonably  be expected to
materially  adversely  affect the value or status of such Contract as Collateral
or otherwise have a Material Adverse Effect.

(c) Such Grantor will exercise  promptly and diligently  each and every material
right  which  it  may  have  under  each  Contract  (other  than  any  right  of
termination).

(d)  Such  Grantor  will  deliver  to the  Administrative  Agent  a copy of each
material  demand,  notice or document  received by it relating in any way to any
Contract.

15.11  Intellectual  Property.(a)  (a) Such  Grantor  (either  itself or through
licensees)  will (i) continue to use each  material  Trademark on each and every
trademark  class of goods  applicable  to its current  line as  reflected in its
current catalogs,  brochures and price lists in order to maintain such Trademark
in full force free from any claim of abandonment  for non-use,  (ii) maintain as
in the past the quality of products and services  offered  under such  Trademark
and take all necessary steps to ensure that all licensed users of such Trademark
maintain  as in the  past  such  quality,  (iii)  use  such  Trademark  with the
appropriate notice of registration and all other notices and legends required by
applicable  Requirements  of Law,  (iv)  not  adopt  or use any  mark  which  is
confusingly  similar  or a  colorable  imitation  of such  Trademark  unless the
Administrative  Agent,  for the ratable  benefit of the Secured  Parties,  shall
obtain a perfected security interest in such mark pursuant to this Agreement and
the Intellectual  Property Security  Agreement,  and (v) not (and not permit any
licensee or  sublicensee  thereof to) do any act or knowingly omit to do any act
                                       24

<PAGE>

whereby such Trademark may become invalidated or impaired in any way.

(b) Such Grantor  (either itself or through  licensees)  will not do any act, or
omit to do any act, whereby any material Patent may become forfeited,  abandoned
or dedicated to the public.

(c) Such  Grantor  (either  itself or through  licensees)  (i) will  employ each
material  Copyright  and (ii)  will not (and will not  permit  any  licensee  or
sublicensee  thereof to) do any act or knowingly  omit to do any act whereby any
material portion of the Copyrights may become invalidated or otherwise impaired.
Such Grantor will not (either  itself or through  licensees)  do any act whereby
any material portion of the Copyrights may fall into the public domain.

(d) Such Grantor  (either itself or through  licensees) will not do any act that
knowingly uses any material  Intellectual  Property to infringe the intellectual
property rights of any other Person.

(e) Such Grantor (either itself or through  licensees) will use proper statutory
notice  in  connection  with  the use of each  material  Patent,  Trademark  and
Copyright included in the Intellectual Property.

(f) Such Grantor will notify the  Administrative  Agent immediately if it knows,
or has reason to know,  that any  application  or  registration  relating to any
material Intellectual  Property may become forfeited,  abandoned or dedicated to
the public, or of any adverse determination or development  (including,  without
limitation, the institution of, or any such determination or development in, any
proceeding in the United States Patent and Trademark  Office,  the United States
Copyright  Office  or any  court or  tribunal  in any  country)  regarding  such
Grantor's ownership of, or the validity of, any material  Intellectual  Property
or such Grantor's right to register the same or to own and maintain the same.

(g)  Whenever  such  Grantor,  either by itself or through any agent,  employee,
licensee or designee,  shall file an  application  for the  registration  of any
Intellectual  Property with the United States Patent and Trademark  Office,  the
United  States  Copyright  Office or any  similar  office or agency in any other
country or any  political  subdivision  thereof,  such Grantor shall report such
filing to the Administrative Agent within fifteen days after the last day of the
fiscal quarter in which such filing occurs.  Upon request of the  Administrative
Agent,  such Grantor shall execute and deliver,  and have recorded,  any and all
agreements,  instruments,  documents, and papers as the Administrative Agent may
request to evidence the Secured  Parties'  security  interest in any  Copyright,
Patent,  Trademark or other  Intellectual  Property and the goodwill and general
intangibles of such Grantor relating thereto or represented thereby.

(h) Such  Grantor  will take all  reasonable  and  necessary  steps,  including,
without  limitation,  in any  proceeding  before  the United  States  Patent and
Trademark  Office,  the United States  Copyright Office or any similar office or
                                       25
<PAGE>

agency in any other country or any political  subdivision  thereof,  to maintain
and pursue each  application  (and to obtain the relevant  registration)  and to
maintain each registration of material Intellectual Property, including, without
limitation,  the payment of required fees and taxes,  the filing of responses to
office actions  issued by the United States Patent and Trademark  Office and the
United  States  Copyright  Office,  the filing of  applications  for  renewal or
extension,  the filing of affidavits of use and affidavits of  incontestability,
the  filing of  divisional,  continuation,  continuation-in-part,  reissue,  and
renewal  applications  or extensions,  the payment of maintenance  fees, and the
participation  in   interference,   reexamination,   opposition,   cancellation,
infringement and misappropriation proceedings.

(i) Such Grantor  (either  itself or through  licensees)  will not,  without the
prior  written  consent  of  the  Administrative  Agent,  discontinue  use of or
otherwise abandon any Intellectual  Property,  or abandon any application or any
right to file an application for letters patent, trademark, or copyright, unless
such Grantor shall have  previously  determined  that such use or the pursuit or
maintenance of such Intellectual  Property is no longer desirable in the conduct
of such  Grantor's  business and that the loss thereof  could not  reasonably be
expected to have a Material  Adverse  Effect and,  in which case,  such  Grantor
shall give prompt notice of any such abandonment to the Administrative  Agent in
accordance herewith.

(j)  In  the  event  that  any  material  Intellectual  Property  is  infringed,
misappropriated  or diluted by a third party,  such Grantor  shall (i) take such
actions  as  such  Grantor  shall   reasonably   deem   appropriate   under  the
circumstances   to  protect  such   Intellectual   Property  and  (ii)  if  such
Intellectual  Property  is of  material  economic  value,  promptly  notify  the
Administrative   Agent  after  it  learns  thereof  and  sue  for  infringement,
misappropriation or dilution, to seek injunctive relief where appropriate and to
recover any and all damages for such infringement, misappropriation or dilution.

(k) Such Grantor agrees that, should it obtain an ownership interest in any item
of intellectual  property which is not now a part of the  Intellectual  Property
Collateral (the "After-Acquired  Intellectual Property"),  (i) the provisions of
Section  3 shall  automatically  apply  thereto,  (ii) any  such  After-Acquired
Intellectual  Property,  and in the  case of  trademarks,  the  goodwill  of the
business connected therewith or symbolized thereby,  shall automatically  become
part of the Intellectual  Property Collateral,  (iii) it shall give prompt (and,
in any event within 15 days after the date of such  acquisition)  written notice
thereof to the Administrative  Agent in accordance  herewith,  and (iv) it shall
provide the  Administrative  Agent  promptly  (and,  in any event within 15 days
after  the date of such  acquisition)  with an  amended  Schedule  6 hereto  and
amended schedules to the Intellectual Property Security Agreement reflecting the
acquisition  of  such  After-Acquired   Intellectual   Property.   Such  Grantor
authorizes  the  Administrative  Agent to  modify  this  Agreement  by  amending
Schedule 6 hereto  and to modify  the  schedules  to the  Intellectual  Property
Security  Agreement if such Grantor  fails to provide the  Administrative  Agent
with  satisfactory  amended  schedules  hereto or thereto within the time period
required  hereunder  (and  will  cooperate  with  the  Administrative  Agent  in
effecting  any  such  amendment)  to  include  any  After-Acquired  Intellectual
Property which becomes part of the Intellectual  Property  Collateral under this
Section, and to record any such modified agreement with the United States Patent
                                       26
<PAGE>

and  Trademark  Office,  the  United  States  Copyright  Office,  or  any  other
applicable Governmental Authority.

(l) Such Grantor agrees to execute an Intellectual  Property Security  Agreement
with respect to its Intellectual Property in substantially the form of Exhibit C
in order to record the security  interest  granted herein to the  Administrative
Agent for the ratable  benefit of the  Secured  Parties  with the United  States
Patent and Trademark Office,  the United States Copyright Office,  and any other
applicable Governmental Authority.

15.12 Excluded Funds and Outstanding Winnings. At all times keep segregated from
the Collateral all Excluded Funds and Outstanding  Winnings and remit such funds
to the appropriate  Person or Persons as and when required by law or Contractual
Obligation.

SECTION 16.                                             REMEDIAL PROVISIONS

16.1 Certain Matters Relating to Receivables.(a)  (a) The  Administrative  Agent
shall have the right to make test verifications of the Receivables in any manner
and through any medium that it reasonably considers advisable,  and each Grantor
shall furnish all such  assistance and information as the  Administrative  Agent
may require in  connection  with such test  verifications.  At any time and from
time to time (but in no event  more than two times in any  twelve  month  period
(unless  an  Event  of  Default  has  occurred  and is  continuing)),  upon  the
Administrative  Agent's request and at the expense of the relevant Grantor, such
Grantor shall cause independent public accountants or others satisfactory to the
Administrative  Agent to furnish to the  Administrative  Agent  reports  showing
reconciliations,  aging and test  verifications  of, and trial balances for, the
Receivables.

(b) The  Administrative  Agent  hereby  authorizes  each Grantor to collect such
Grantor's  Receivables,  and the  Administrative  Agent may curtail or terminate
said authority at any time after the occurrence and during the continuance of an
Event of Default. If required by the Administrative  Agent at any time after the
occurrence and during the  continuance  of an Event of Default,  any payments of
Receivables,  when collected by any Grantor, (i) shall be forthwith (and, in any
event,  within five Business  Days)  deposited by such Grantor in the exact form
received, duly endorsed by such Grantor to the Administrative Agent if required,
in a Collateral  Account  maintained  under the sole dominion and control of the
Administrative  Agent, subject to withdrawal by the Administrative Agent for the
account of the Secured  Parties  only as provided in Section 6.5, and (ii) until
so turned over,  shall be held by such Grantor in trust for the Secured Parties,
segregated  from other funds of such  Grantor.  Each such deposit of Proceeds of
Receivables  shall be accompanied by a report  identifying in reasonable  detail
the nature and source of the payments included in the deposit.

(c) At the  Administrative  Agent's  request,  each Grantor shall deliver to the
Administrative Agent all original and other documents  evidencing,  and relating
to,  the  agreements  and  transactions  which  gave  rise  to the  Receivables,
including,  without  limitation,  all  original  orders,  invoices  and shipping
receipts.
                                       27
<PAGE>

16.2   Communications   with  Obligors;   Grantors  Remain  Liable.(a)  (a)  The
Administrative  Agent in its own name or in the name of  others  may at any time
communicate  with obligors under the Receivables and parties to the Contracts to
verify  with them to the  Administrative  Agent's  satisfaction  the  existence,
amount and terms of any Receivables or Contracts.

(b)  Upon  the  request  of the  Administrative  Agent  at any  time  after  the
occurrence and during the continuance of an Event of Default, each Grantor shall
notify  obligors  on the  Receivables  and  parties  to the  Contracts  that the
Receivables and the Contracts have been assigned to the Administrative Agent for
the ratable  benefit of the Secured Parties and that payments in respect thereof
shall be made directly to the Administrative  Agent. No such Grantor shall give,
provide or deliver  alternative  instructions  unless the  Administrative  Agent
expressly  confirms in writing that the Obligations  (other than  Obligations in
respect of any  Specified  Hedge  Agreement)  have been repaid in full,  and the
Commitments  have been  terminated and all Letters of Credit have been cancelled
or cash collateralized as provided in Section 8.15.

(c) Anything herein to the contrary  notwithstanding,  each Grantor shall remain
liable under each of the  Receivables  and  Contracts to observe and perform all
the  conditions  and  obligations to be observed and performed by it thereunder,
all in  accordance  with the terms of any  agreement  giving  rise  thereto.  No
Secured Party shall have any  obligation or liability  under any  Receivable (or
any  agreement  giving rise  thereto) or Contract by reason of or arising out of
this  Agreement  or the  receipt by any Secured  Party of any  payment  relating
thereto,  nor shall any Secured  Party be obligated in any manner to perform any
of the  obligations  of any Grantor under or pursuant to any  Receivable (or any
agreement  giving rise  thereto) or Contract,  to make any payment,  to make any
inquiry as to the nature or the sufficiency of any payment  received by it or as
to the  sufficiency of any  performance by any party  thereunder,  to present or
file any claim,  to take any action to enforce any performance or to collect the
payment of any amounts  which may have been assigned to it or to which it may be
entitled at any time or times.

16.3 Pledged  Securities.(a)  (a) Unless an Event of Default shall have occurred
and be continuing  and the  Administrative  Agent shall have given notice to the
relevant  Grantor  of  the   Administrative   Agent's  intent  to  exercise  its
corresponding rights pursuant to Section 6.3(b), each Grantor shall be permitted
to receive  all cash  dividends  paid in respect  of the  Pledged  Stock and all
payments made in respect of the Pledged  Notes,  in each case paid in the normal
course of business of the relevant Issuer and consistent with past practice,  to
the extent  permitted  in the Credit  Agreement,  and to exercise all voting and
corporate rights with respect to the Pledged Securities; provided, however, that
no vote shall be cast or corporate or other  ownership  right exercised or other
action taken which, in the  Administrative  Agent's reasonable  judgment,  would
impair  the  Collateral  or which  would be  inconsistent  with or result in any
violation of any provision of the Credit Agreement,  this Agreement or any other
Loan Document.

(b) If an Event of Default shall occur and be continuing and the  Administrative
Agent shall give notice of its intent to  exercise  such rights to the  relevant
Grantor  or  Grantors,  (i) the  Administrative  Agent  shall  have the right to
receive any and all cash  dividends,  payments or other Proceeds paid in respect
                                       28
<PAGE>

of the Pledged Securities and make application thereof to the Obligations in the
order set forth in Section  6.5,  and (ii) any or all of the Pledged  Securities
shall be registered in the name of the Administrative  Agent or its nominee, and
the Administrative  Agent or its nominee may thereafter exercise (x) all voting,
corporate and other rights pertaining to such Pledged  Securities at any meeting
of  shareholders  of the relevant Issuer or Issuers or otherwise and (y) any and
all  rights of  conversion,  exchange  and  subscription  and any other  rights,
privileges or options  pertaining  to such Pledged  Securities as if it were the
absolute owner thereof (including,  without limitation, the right to exchange at
its  discretion  any  and  all  of  the  Pledged  Securities  upon  the  merger,
consolidation,  reorganization,  recapitalization or other fundamental change in
the  corporate  or other  structure  of any Issuer,  or upon the exercise by any
Grantor or the Administrative Agent of any right, privilege or option pertaining
to such Pledged Securities,  and in connection  therewith,  the right to deposit
and  deliver  any  and  all  of  the  Pledged  Securities  with  any  committee,
depositary, transfer agent, registrar or other designated agency upon such terms
and conditions as the Administrative Agent may determine), all without liability
except to account for property actually  received by it, but the  Administrative
Agent shall have no duty to any Grantor to exercise any such right, privilege or
option  and shall not be  responsible  for any  failure  to do so or delay in so
doing.

(c) Each Grantor  hereby  authorizes  and  instructs  each Issuer of any Pledged
Securities  pledged by such Grantor hereunder to (i) comply with any instruction
received by it from the Administrative  Agent in writing that (x) states that an
Event  of  Default  has  occurred  and is  continuing  and (y) is  otherwise  in
accordance  with the  terms of this  Agreement,  without  any  other or  further
instructions  from such Grantor,  and each Grantor agrees that each Issuer shall
be  fully  protected  in so  complying,  and  (ii)  unless  otherwise  expressly
permitted  hereby,  pay any  dividends  or other  payments  with  respect to the
Pledged Securities directly to the Administrative Agent.

16.4  Proceeds to be Turned  Over To  Administrative  Agent.  In addition to the
rights of the Secured Parties  specified in Section 6.1 with respect to payments
of  Receivables,  if an Event of  Default  shall  occur and be  continuing,  all
Proceeds received by any Grantor  consisting of cash, Cash  Equivalents,  checks
and other near-cash items shall be held by such Grantor in trust for the Secured
Parties,  segregated from other funds of such Grantor, and shall, forthwith upon
receipt by such Grantor, be turned over to the Administrative Agent in the exact
form  received  by  such  Grantor   (duly   endorsed  by  such  Grantor  to  the
Administrative Agent, if required).  All Proceeds received by the Administrative
Agent  hereunder  shall  be held by the  Administrative  Agent  in a  Collateral
Account maintained under its sole dominion and control.  All Proceeds while held
by the Administrative Agent in a Collateral Account (or by such Grantor in trust
for the Secured  Parties) shall  continue to be held as collateral  security for
all the  Obligations  and shall not constitute  payment thereof until applied as
provided in Section 6.5.

16.5  Application  of Proceeds.  At such  intervals as may be agreed upon by the
Borrower and the  Administrative  Agent,  or, if an Event of Default  shall have
occurred and be continuing,  at any time at the Administrative Agent's election,
the Administrative Agent may,  notwithstanding the provisions of Section 2.12 of
the Credit Agreement,  apply all or any part of Proceeds constituting Collateral
                                       29
<PAGE>

realized  through  the  exercise  by the  Administrative  Agent of its  remedies
hereunder,  whether or not held in any Collateral  Account,  and any proceeds of
the  guarantee  set forth in Section 2, in  payment  of the  Obligations  in the
following order:

First, to pay incurred and unpaid fees and expenses of the Secured Parties under
     the Loan Documents;
                  -----

                  Second,  to the  Administrative  Agent,  for application by it
         towards  payment of amounts then due and owing and remaining  unpaid in
         respect of the Obligations, pro rata among the Lenders according to the
         amounts of the Obligations  then due and owing and remaining  unpaid to
         the Lenders;

                  Third,  to the  Administrative  Agent,  for  application by it
         towards  prepayment  of the  Obligations,  pro rata  among the  Lenders
         according to the amounts of the  Obligations  then held by the Lenders;
         and

                  Fourth,  any  balance  of such  Proceeds  remaining  after the
         Obligations  (other than  Obligations in respect of any Specified Hedge
         Agreement)  shall have been paid in full, no Letters of Credit shall be
         outstanding and the Commitments  shall have terminated or expired shall
         be paid over to the Borrower or to whomsoever may be lawfully  entitled
         to receive the same.

16.6 Code and Other  Remedies.(a)  (a) If an Event of Default shall occur and be
continuing,  the  Administrative  Agent, on behalf of the Secured  Parties,  may
exercise,  in addition to all other rights and remedies  granted to them in this
Agreement  and in any other  instrument  or agreement  securing,  evidencing  or
relating to the  Obligations,  all rights and remedies of a secured  party under
the New  York UCC  (whether  or not the New York  UCC  applies  to the  affected
Collateral) or any other  applicable law. Without limiting the generality of the
foregoing,  the  Administrative  Agent,  without  demand of performance or other
demand,  presentment,  protest,  advertisement or notice of any kind (except any
notice  required  by law  referred to below) to or upon any Grantor or any other
Person (all and each of which demands, defenses,  advertisements and notices are
hereby  waived),   may  in  such  circumstances   forthwith  collect,   receive,
appropriate  and realize upon the  Collateral,  or any part thereof,  and/or may
forthwith sell, lease, assign, give option or options to purchase,  or otherwise
dispose of and deliver the Collateral or any part thereof (or contract to do any
of the foregoing), in one or more parcels at public or private sale or sales, at
any exchange,  broker's  board or office of any Secured Party or elsewhere  upon
such terms and  conditions as it may deem advisable and at such prices as it may
deem best, for cash or on credit or for future  delivery  without  assumption of
any credit risk.  Each  Secured  Party shall have the right upon any such public
sale or sales,  and, to the extent  permitted by law, upon any such private sale
or sales,  to purchase the whole or any part of the Collateral so sold,  free of
any right or equity  of  redemption  in any  Grantor,  which  right or equity is
hereby waived and released.  Each Grantor further agrees, at the  Administrative
                                       30
<PAGE>

Agent's  request,  to  assemble  the  Collateral  and make it  available  to the
Administrative  Agent at places which the Administrative  Agent shall reasonably
select,  whether at such  Grantor's  premises or elsewhere.  The  Administrative
Agent  shall apply the net  proceeds of any action  taken by it pursuant to this
Section 6.6,  after  deducting all  reasonable  costs and expenses of every kind
incurred in connection therewith or incidental to the care or safekeeping of any
of the  Collateral or in any way relating to the Collateral or the rights of the
Secured Parties hereunder, including, without limitation,  reasonable attorneys'
fees and  disbursements,  to the payment in whole or in part of the Obligations,
in such  order as the  Administrative  Agent  may  elect,  and only  after  such
application  and  after the  payment  by the  Administrative  Agent of any other
amount required by any provision of law, including,  without limitation, the New
York UCC, need the Administrative  Agent account for the surplus, if any, to any
Grantor.  To the extent  permitted by applicable  law,  each Grantor  waives all
claims, damages and demands it may acquire against any Secured Party arising out
of the  exercise  by them of any rights  hereunder.  If any notice of a proposed
sale or other  disposition  of Collateral  shall be required by law, such notice
shall be deemed reasonable and proper if given at least 10 days before such sale
or other disposition.

(b) In the event of any  Disposition of any of the  Intellectual  Property,  the
goodwill of the business connected with and symbolized by any Trademarks subject
to such Disposition shall be included,  and the applicable  Grantor shall supply
the  Administrative  Agent or its  designee  with such  Grantor's  know-how  and
expertise,  and with  documents and things  embodying the same,  relating to the
manufacture,  distribution, advertising and sale of products or the provision of
services relating to any Intellectual Property subject to such Disposition,  and
such Grantor's  customer lists and other records and documents  relating to such
Intellectual Property and to the manufacture, distribution, advertising and sale
of such products and services.

16.7 Registration  Rights.(a) (a) If the Administrative Agent shall determine to
exercise  its right to sell any or all of the Pledged  Stock or the Pledged Debt
Securities  pursuant to Section 6.6, and if in the opinion of the Administrative
Agent it is necessary or advisable to have the Pledged Stock or the Pledged Debt
Securities,  or that portion thereof to be sold, registered under the provisions
of the Securities Act, the relevant Grantor will cause the Issuer thereof to (i)
execute and  deliver,  and cause the  directors  and  officers of such Issuer to
execute and deliver,  all such instruments and documents,  and do or cause to be
done all such other acts as may be, in the opinion of the Administrative  Agent,
necessary  or  advisable  to  register  the Pledged  Stock or the  Pledged  Debt
Securities,  or that portion  thereof to be sold,  under the  provisions  of the
Securities  Act, (ii) use its best efforts to cause the  registration  statement
relating thereto to become effective and to remain effective for a period of one
year from the date of the first  public  offering  of the  Pledged  Stock or the
Pledged Debt Securities,  or that portion thereof to be sold, and (iii) make all
amendments thereto and/or to the related prospectus which, in the opinion of the
Administrative  Agent,  are necessary or advisable,  all in conformity  with the
requirements  of the  Securities  Act and the rules and  regulations  of the SEC
applicable thereto.  Each Grantor agrees to cause such Issuer to comply with the
provisions  of the  securities  or "Blue Sky" laws of any and all  jurisdictions
which the  Administrative  Agent shall  designate  and to make  available to its
security holders, as soon as practicable,  an earnings statement (which need not
be audited) which will satisfy the provisions of Section 11(a) of the Securities
Act.

(b) Each  Grantor  recognizes  that the  Administrative  Agent  may be unable to
effect  a  public  sale of any or all the  Pledged  Stock  or the  Pledged  Debt
Securities,  by reason of certain  prohibitions  contained in the Securities Act
and  applicable  state  securities  laws or  otherwise,  and may be compelled to
resort to one or more private sales thereof to a restricted  group of purchasers
which will be obliged to agree,  among other things,  to acquire such securities
for their own account for investment and not with a view to the  distribution or
                                       31
<PAGE>

resale thereof.  Each Grantor acknowledges and agrees that any such private sale
may result in prices and other  terms  less  favorable  than if such sale were a
public  sale  and,  notwithstanding  such  circumstances,  agrees  that any such
private  sale  shall be deemed to have  been made in a  commercially  reasonable
manner. The Administrative Agent shall be under no obligation to delay a sale of
any of the Pledged Stock or the Pledged Debt  Securities  for the period of time
necessary to permit the Issuer  thereof to register such  securities  for public
sale under the Securities Act, or under  applicable  state securities laws, even
if such Issuer would agree to do so.

(c) Each  Grantor  agrees to use its best  efforts to do or cause to be done all
such  other  acts as may be  necessary  to make such sale or sales of all or any
portion of the Pledged  Stock or the Pledged  Debt  Securities  pursuant to this
Section  6.7  valid  and  binding  and in  compliance  with  any and  all  other
applicable Requirements of Law. Each Grantor further agrees that a breach of any
of the covenants  contained in this Section 6.7 will cause irreparable injury to
the Secured Parties,  that the Secured Parties have no adequate remedy at law in
respect of such  breach  and,  as a  consequence,  that each and every  covenant
contained in this  Section 6.7 shall be  specifically  enforceable  against such
Grantor,  and such Grantor  hereby  waives and agrees not to assert any defenses
against  an action  for  specific  performance  of such  covenants  except for a
defense that no Event of Default has occurred and is continuing under the Credit
Agreement or a defense of payment.

16.8  Waiver;  Deficiency.  Each  Guarantor  waives and agrees not to assert any
rights or  privileges  which it may acquire  under Section 9-112 of the New York
UCC as in effect on the date hereof.  Each Grantor  shall remain  liable for any
deficiency if the proceeds of any sale or other  disposition  of the  Collateral
are  insufficient to pay its Obligations and the fees and  disbursements  of any
attorneys employed by any Secured Party to collect such deficiency.

                      SECTION 17. THE ADMINISTRATIVE AGENT

17.1 Administrative  Agent's Appointment as  Attorney-in-Fact,  etc.(a) (a) Each
Grantor hereby irrevocably constitutes and appoints the Administrative Agent and
any officer or agent thereof,  with full power of substitution,  as its true and
lawful  attorney-in-fact  with full irrevocable power and authority in the place
and stead of such  Grantor  and in the name of such  Grantor or in its own name,
for the purpose of carrying out the terms of this Agreement, to take any and all
appropriate  action and to execute any and all documents and  instruments  which
may be necessary or desirable to accomplish the purposes of this Agreement, and,
without limiting the generality of the foregoing,  each Grantor hereby gives the
Administrative  Agent the power and right,  on behalf of such  Grantor,  without
notice to or assent by such Grantor, to do any or all of the following:

(i)      in the  name of  such  Grantor  or its own  name,  or  otherwise,  take
         possession  of and  endorse and  collect  any  checks,  drafts,  notes,
         acceptances  or other  instruments  for the payment of moneys due under
         any Receivable or Contract or with respect to any other  Collateral and
         file any claim or take any other action or  proceeding  in any court of
                                       32
<PAGE>

         law or equity or otherwise  deemed  appropriate  by the  Administrative
         Agent for the purpose of  collecting  any and all such moneys due under
         any  Receivable  or  Contract or with  respect to any other  Collateral
         whenever payable;

(ii)     in the case of any Intellectual Property, execute and deliver, and have
         recorded, any and all agreements,  instruments, documents and papers as
         the  Administrative  Agent may request to evidence the Secured Parties'
         security  interest in such  Intellectual  Property and the goodwill and
         general  intangibles  of such Grantor  relating  thereto or represented
         thereby;

(iii)    pay or  discharge  taxes  and Liens  levied or placed on or  threatened
         against the Collateral,  effect any repairs or any insurance called for
         by the terms of this  Agreement and pay all or any part of the premiums
         therefor and the costs thereof;

(iv)     execute,  in  connection  with any sale  provided for in Section 6.6 or
         6.7, any  endorsements,  assignments or other instruments of conveyance
         or transfer with respect to the Collateral; and

(v)  (1) direct any party liable for any payment under any of the  Collateral to
     make payment of any and all moneys due or to become due thereunder directly
     to the Administrative  Agent or as the  Administrative  Agent shall direct;
     (2) ask or demand for, collect, and receive payment of and receipt for, any
     and all moneys,  claims and other  amounts due or to become due at any time
     in respect of or arising  out of any  Collateral;  (3) sign and endorse any
     invoices,  freight or express bills, bills of lading,  storage or warehouse
     receipts, drafts against debtors, assignments,  verifications,  notices and
     other documents in connection with any of the Collateral;  (4) commence and
     prosecute  any  suits,  actions or  proceedings  at law or in equity in any
     court of competent  jurisdiction  to collect the  Collateral or any portion
     thereof and to enforce any other  right in respect of any  Collateral;  (5)
     defend any suit,  action or  proceeding  brought  against such Grantor with
     respect to any Collateral;  (6) settle, compromise or adjust any such suit,
     action or proceeding and, in connection therewith,  give such discharges or
     releases as the Administrative  Agent may deem appropriate;  (7) assign any
     Copyright,  Patent or Trademark (along with the goodwill of the business to
     which any such  Copyright,  Patent or Trademark  pertains),  throughout the
     world for such term or terms, on such  conditions,  and in such manner,  as
     the Administrative  Agent shall in its sole discretion  determine;  and (8)
     generally, sell, transfer, pledge and make any agreement with respect to or
     otherwise deal with any of the Collateral as fully and completely as though
     the Administrative  Agent were the absolute owner thereof for all purposes,
     and do, at the Administrative Agent's option and such Grantor's expense, at
     any  time,   or  from  time  to  time,   all  acts  and  things  which  the
     Administrative  Agent deems necessary to protect,  preserve or realize upon
     the Collateral and the Secured Parties'  security  interests therein and to
     effect the intent of this  Agreement,  all as fully and effectively as such
     Grantor might do.
                                       33
<PAGE>

                  Anything   in   this   Section   7.1   (a)  to  the   contrary
notwithstanding,  the Administrative  Agent agrees that it will not exercise any
rights under the power of attorney provided for in this Section 7.1(a) unless an
Event of Default shall have occurred and be continuing.

(b) If any  Grantor  fails to  perform  or  comply  with  any of its  agreements
contained  herein,  the  Administrative  Agent,  at its option,  but without any
obligation so to do, may perform or comply,  or otherwise  cause  performance or
compliance, with such agreement.

(c) The expenses of the Administrative Agent incurred in connection with actions
undertaken as provided in this Section 7.1,  together with interest thereon at a
rate per  annum  equal to the rate per  annum at which  interest  would  then be
payable on past due  Revolving  Credit  Loans that are Base Rate Loans under the
Credit Agreement,  from the date of payment by the  Administrative  Agent to the
date reimbursed by the relevant Grantor, shall be payable by such Grantor to the
Administrative Agent on demand

(d) Each Grantor hereby  ratifies all that said  attorneys  shall lawfully do or
cause to be done by virtue  hereof.  All  powers,  authorizations  and  agencies
contained in this  Agreement  are coupled  with an interest and are  irrevocable
until this Agreement is terminated and the security interests created hereby are
released.

17.2 Duty of  Administrative  Agent. The  Administrative  Agent's sole duty with
respect to the custody,  safekeeping and physical preservation of the Collateral
in its possession, under the New York UCC or otherwise, shall be to deal with it
in the same manner as the  Administrative  Agent deals with similar property for
its own account.  Neither the Administrative  Agent, nor any other Secured Party
nor any of their respective officers,  directors,  partners,  employees, agents,
attorneys and other advisors,  attorneys-in-fact  or affiliates  shall be liable
for failure to demand,  collect or realize upon any of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise  dispose
of any Collateral upon the request of any Grantor or any other Person or to take
any other action  whatsoever  with regard to the Collateral or any part thereof.
The powers conferred on the Secured Parties  hereunder are solely to protect the
Secured Parties'  interests in the Collateral and shall not impose any duty upon
any Secured  Party to exercise any such  powers.  The Secured  Parties  shall be
accountable  only for  amounts  that they  actually  receive  as a result of the
exercise of such powers, and neither they nor any of their officers,  directors,
partners, employees, agents, attorneys and other advisors,  attorneys-in-fact or
affiliates  shall be  responsible  to any  Grantor for any act or failure to act
hereunder,  except to the extent that any such act or failure to act is found by
a final and nonappealable  decision of a court of competent jurisdiction to have
resulted  solely  and  proximately  from their own gross  negligence  or willful
misconduct in breach of a duty owed to such Grantor.

17.3  Execution  of Financing  Statements.  Pursuant to the New York UCC and any
other applicable law, each Grantor authorizes the  Administrative  Agent to file
or record  financing  statements  and other  filing or  recording  documents  or
instruments with respect to the Collateral (including any amendments thereto, or
continuation or termination  statements  thereof)  without the signature of such
Grantor in such form and in such offices as the Administrative  Agent reasonably
determines  appropriate  to perfect or maintain the  perfection  of the security
                                       34
<PAGE>

interests of the  Administrative  Agent under this Agreement.  A photographic or
other  reproduction  of  this  Agreement  shall  be  sufficient  as a  financing
statement  or other  filing or recording  document or  instrument  for filing or
recording in any jurisdiction.  Each Grantor  acknowledges and agrees that it is
not authorized  to, and will not, file  financing  statements or other filing or
recording  documents  with respect to the  Collateral  (including any amendments
thereto, or continuation or termination  statements thereof) without the express
prior written approval by the Administrative  Agent, which approval may be given
or  withheld  in  the  Administrative  Agent's  sole  discretion.  Each  Grantor
approves, authorizes and ratifies any filings or recordings made by or on behalf
of the  Administrative  Agent in connection  with the perfection of the security
interests in favor of the Administrative Agent.

17.4  Authority of  Administrative  Agent.  Each Grantor  acknowledges  that the
rights and  responsibilities  of the  Administrative  Agent under this Agreement
with respect to any action taken by the Administrative  Agent or the exercise or
non-exercise by the Administrative Agent of any option,  voting right,  request,
judgment or other right or remedy  provided  for herein or  resulting or arising
out of this Agreement shall, as between the  Administrative  Agent and the other
Secured  Parties,  be  governed  by  the  Credit  Agreement  and by  such  other
agreements  with respect thereto as may exist from time to time among them, but,
as between the Administrative  Agent and the Grantors,  the Administrative Agent
shall be  conclusively  presumed to be acting as agent for the  Secured  Parties
with full and valid  authority so to act or refrain from acting,  and no Grantor
shall be under any obligation,  or entitlement,  to make any inquiry  respecting
such authority.

SECTION 18.                                                    MISCELLANEOUS

18.1  Amendments in Writing.  None of the terms or provisions of this  Agreement
may be waived, amended,  supplemented or otherwise modified except in accordance
with Section 10.1 of the Credit Agreement.

18.2 Notices.  All notices,  requests and demands to or upon the  Administrative
Agent or any Grantor  hereunder  shall be effected in the manner provided for in
Section 10.2 of the Credit Agreement;  provided that any such notice, request or
demand to or upon any  Guarantor  shall be  addressed  to such  Guarantor at its
notice address set forth on Schedule 1.

18.3 No Waiver by Course of Conduct; Cumulative Remedies. No Secured Party shall
by any act  (except by a written  instrument  pursuant to Section  8.1),  delay,
indulgence,  omission or  otherwise be deemed to have waived any right or remedy
hereunder or to have  acquiesced in any Default or Event of Default.  No failure
to exercise, nor any delay in exercising,  on the part of any Secured Party, any
right, power or privilege hereunder shall operate as a waiver thereof. No single
or partial  exercise of any right,  power or privilege  hereunder shall preclude
any other or further exercise thereof or the exercise of any other right,  power
or privilege.  A waiver by any Secured Party of any right or remedy hereunder on
any one  occasion  shall not be  construed as a bar to any right or remedy which
                                       35
<PAGE>

such Secured Party would otherwise have on any future  occasion.  The rights and
remedies herein provided are cumulative, may be exercised singly or concurrently
and are not exclusive of any other rights or remedies provided by law.

18.4 Enforcement Expenses; Indemnification.(a) (a) Each Grantor agrees to pay or
reimburse  each  Secured  Party  for all its  costs  and  expenses  incurred  in
collecting  against such Grantor under the  guarantee  contained in Section 2 or
otherwise  enforcing or preserving any rights under this Agreement and the other
Loan Documents to which such Grantor is a party, including,  without limitation,
the fees and disbursements of counsel (including the allocated fees and expenses
of in-house counsel) to each Secured Party and of counsel to the  Administrative
Agent.

(b) Each Grantor agrees to pay, and to save the Secured  Parties  harmless from,
any and all liabilities  with respect to, or resulting from any delay in paying,
any and all  stamp,  excise,  sales or  other  taxes  which  may be  payable  or
determined to be payable with respect to any of the  Collateral or in connection
with any of the transactions contemplated by this Agreement.

(c) Each Grantor agrees to pay, and to save the Secured  Parties  harmless from,
any and all  liabilities,  obligations,  losses,  damages,  penalties,  actions,
judgments,  suits,  costs,  expenses  or  disbursements  of any  kind or  nature
whatsoever with respect to the execution, delivery, enforcement, performance and
administration of this Agreement to the extent the Borrower would be required to
do so pursuant to Section 10.5 of the Credit Agreement.

(d) The  agreements in this Section shall survive  repayment of the  Obligations
and all other  amounts  payable  under the Credit  Agreement  and the other Loan
Documents.

(e) Each  Grantor  agrees  that the  provisions  of  Section  2.20 of the Credit
Agreement are hereby  incorporated  herein by reference,  mutatis mutandis,  and
each  Secured  Party  shall be  entitled to rely on each of them as if they were
fully set forth herein

18.5 Successors and Assigns. This Agreement shall be binding upon the successors
and  assigns of each  Grantor  and shall  inure to the  benefit  of the  Secured
Parties and their  successors and assigns;  provided that no Grantor may assign,
transfer  or  delegate  any of its rights or  obligations  under this  Agreement
without the prior written consent of the Administrative Agent.

18.6 Set-Off.  Each Grantor hereby irrevocably  authorizes each Secured Party at
any time and from time to time while an Event of Default shall have occurred and
be continuing,  without  notice to such Grantor or any other  Grantor,  any such
notice being  expressly  waived by each Grantor,  to set-off and appropriate and
apply any and all deposits (general or special,  time or demand,  provisional or
final), in any currency,  and any other credits,  indebtedness or claims, in any
currency,  in each case  whether  direct or  indirect,  absolute or  contingent,
matured or unmatured,  at any time held or owing by such Secured Party to or for
the credit or the account of such  Grantor,  or any part thereof in such amounts
as such Secured Party may elect,  against and on account of the  obligations and
liabilities of such Grantor to such Secured Party  hereunder and claims of every
                                       36
<PAGE>

nature and  description  of such  Secured  Party  against such  Grantor,  in any
currency,  whether arising hereunder, under the Credit Agreement, any other Loan
Document  or  otherwise,  as such  Secured  Party may elect,  whether or not any
Secured  Party has made any demand for payment and  although  such  obligations,
liabilities and claims may be contingent or unmatured.  Each Secured Party shall
notify such  Grantor  promptly of any such set-off and the  application  made by
such Secured  Party of the proceeds  thereof,  provided that the failure to give
such notice shall not affect the validity of such set-off and  application.  The
rights of each Secured  Party under this Section are in addition to other rights
and remedies (including, without limitation, other rights of set-off) which such
Secured Party may have.

18.7 Counterparts.  This Agreement may be executed by one or more of the parties
to  this  Agreement  on  any  number  of  separate  counterparts  (including  by
telecopy),  and all of said  counterparts  taken  together  shall be  deemed  to
constitute one and the same instrument.

18.8  Severability  Any  provision  of this  Agreement  which is  prohibited  or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability  without  invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render  unenforceable such provision in any
other jurisdiction.

18.9  Section  Headings  The Section  headings  used in this  Agreement  are for
convenience of reference only and are not to affect the  construction  hereof or
be taken into consideration in the interpretation hereof.

18.10  Integration.  This Agreement and the other Loan  Documents  represent the
agreement  of the  Grantors,  the  Administrative  Agent and the  other  Secured
Parties with respect to the subject matter hereof and thereof,  and there are no
promises,  undertakings,  representations  or  warranties  by any Secured  Party
relative to the subject  matter  hereof and thereof not  expressly  set forth or
referred to herein or in the other Loan Documents.

18.11GOVERNING  LAW.  THIS  AGREEMENT  SHALL BE GOVERNED BY, AND  CONSTRUED  AND
     INTERPRETED IN ACCORDANCE  WITH, THE LAW OF THE STATE  ------------- OF NEW
     YORK.

18.12Submission To Jurisdiction;  Waivers.  Each Grantor hereby  irrevocably and
     unconditionally: -----------------------------------

(a)      submits for itself and its property in any legal  action or  proceeding
         relating to this  Agreement and the other Loan Documents to which it is
         a party,  or for recognition and enforcement of any judgment in respect
         thereof, to the non-exclusive general jurisdiction of the Courts of the
         State of New York,  the courts of the United  States of America for the
         Southern District of New York, and appellate courts from any thereof;
                                       37
<PAGE>

(b)      consents  that any such  action or  proceeding  may be  brought in such
         courts and waives any  objection  that it may now or hereafter  have to
         the venue of any such  action or  proceeding  in any such court or that
         such  action or  proceeding  was brought in an  inconvenient  court and
         agrees not to plead or claim the same;

(c)      agrees that service of process in any such action or proceeding  may be
         effected by mailing a copy thereof by registered or certified  mail (or
         any  substantially  similar  form of mail),  postage  prepaid,  to such
         Grantor at its  address  referred  to in  Section  8.2 or at such other
         address of which the  Administrative  Agent  shall  have been  notified
         pursuant thereto;

(d)      agrees that nothing  herein shall affect the right to effect service of
         process in any other  manner  permitted by law or shall limit the right
         to sue in any other jurisdiction; and

(e)      waives,  to the maximum  extent not prohibited by law, any right it may
         have to claim or recover in any legal action or proceeding  referred to
         in this  Section any  special,  exemplary,  punitive  or  consequential
         damages.

18.13    Acknowledgments.  Each Grantor hereby acknowledges that:
         ---------------

(a)  it has been advised by counsel in the  negotiation,  execution and delivery
     of this Agreement and the other Loan Documents to which it is a party;

(b)      no Secured  Party has any  fiduciary  relationship  with or duty to any
         Grantor  arising out of or in connection  with this Agreement or any of
         the other Loan Documents, and the relationship between the Grantors, on
         the one hand, and the Secured Parties, on the other hand, in connection
         herewith or therewith is solely that of debtor and creditor; and

(c)      no joint  venture is created  hereby or by the other Loan  Documents or
         otherwise  exists  by virtue of the  transactions  contemplated  hereby
         among  the  Secured  Parties  or among  the  Grantors  and the  Secured
         Parties.

18.14 Additional  Grantors.  Each Subsidiary of the Borrower that is required to
become  a  party  to this  Agreement  pursuant  to  Section  6.10 of the  Credit
Agreement  shall  become a  Grantor  for all  purposes  of this  Agreement  upon
execution and delivery by such Subsidiary of an Assumption Agreement in the form
of Annex 1 hereto.

18.15 Releases.(a) (a) At such time as the Loans, the Reimbursement  Obligations
and the other  Obligations  (other than  Obligations in respect of any Specified
Hedge  Agreement)  shall  have  been  paid in full,  the  Commitments  have been
terminated or expired and no Letters of Credit shall be outstanding  (unless any
such Letter of Credit is cash  collateralized at 105% of the undrawn face amount
thereof to the reasonable  satisfaction of the Issuing  Lender),  the Collateral
shall be released  from the Liens  created  hereby,  and this  Agreement and all
                                       38
<PAGE>

obligations  (other than those expressly stated to survive such  termination) of
the Administrative Agent and each Grantor hereunder shall terminate, all without
delivery  of any  instrument  or  performance  of any act by any party,  and all
rights to the Collateral  shall revert to the Grantors.  At the request and sole
expense of any Grantor following any such termination,  the Administrative Agent
shall deliver to such Grantor any Collateral  held by the  Administrative  Agent
hereunder,  and execute  and  deliver to such  Grantor  such  documents  as such
Grantor shall reasonably request to evidence such termination.

(b)  If  any of  the  Collateral  shall  be  Disposed  of by  any  Grantor  in a
transaction permitted by the Credit Agreement, then the Administrative Agent, at
the request and sole expense of such Grantor,  shall execute and deliver to such
Grantor all releases or other  documents  reasonably  necessary or desirable for
the release of the Liens created hereby on such  Collateral.  At the request and
sole expense of the Borrower,  a Subsidiary Guarantor shall be released from its
obligations hereunder in the event that all the Capital Stock of such Subsidiary
Guarantor  shall  be  Disposed  of in a  transaction  permitted  by  the  Credit
Agreement; provided that the Borrower shall have delivered to the Administrative
Agent, at least ten Business Days prior to the date of the proposed  release,  a
written request for release  identifying the relevant  Subsidiary  Guarantor and
the terms of the Disposition in reasonable  detail,  including the price thereof
and any expenses in connection  therewith,  together with a certification by the
Borrower  stating  that  such  transaction  is in  compliance  with  the  Credit
Agreement and the other Loan Documents and that the Proceeds of such Disposition
will be applied in accordance therewith.

18.16  WAIVER OF JURY TRIAL.  EACH GRANTOR AND THE  ADMINISTRATIVE  AGENT HEREBY
IRREVOCABLY  AND  UNCONDITIONALLY  WAIVES  TRIAL BY JURY IN ANY LEGAL  ACTION OR
PROCEEDING  RELATING TO THIS  AGREEMENT  OR ANY OTHER LOAN  DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.

18.17  Further  Assurances.  In the event of any  change in any  applicable  law
(including,  without  limitation,  the New  York  UCC as in  effect  on the date
hereof),  the Grantors will promptly (and, in any event, within 15 Business Days
of the Administrative  Agent's request therefor) enter into any modifications or
amendments  of  this  Agreement,  execute  and  deliver  such  other  documents,
agreements and  instruments,  and take such other actions as the  Administrative
Agent may deem necessary or advisable in its sole  discretion to ensure that the
Secured Parties continue enjoy at least the same rights and priorities  afforded
to them under this  Agreement as of the date hereof  (after giving effect to any
filings or other actions specified on Schedule 3).

                            [signature pages follow]

                                       39
<PAGE>

                 IN WITNESS  WHEREOF,  each of the  undersigned  has caused this
Guarantee and  Collateral  Agreement to be duly executed and delivered as of the
date first above written.

BACKSIDE, INC.                               BSL, INC.

By: /s/ Robert S. Ippolito                By: /s/ Robert S. Ippolito
Name:  Robert S. Ippolito                 Name:  Robert S. Ippolito
Title:  Assistant Secretary               Title:  Secretary/Treasurer

BTN, INC.                                 CASINO HOLDING, INC.

By: /s/ Robert S. Ippolito                By: /s/ Robert S. Ippolito
Name:  Robert S. Ippolito                 Name:  Robert S. Ippolito
Title:  Secretary/Treasurer               Title:  Secretary/Treasurer

EBET USA.COM, INC.                        MILL CREEK LAND, INC.

By: /s/ Robert S. Ippolito                By: _/s/ Robert S. Ippolito
Name:  Robert S. Ippolito                 Name:  Robert S. Ippolito
Title:  Secretary/Treasurer               Title:  Assistant Secretary

MOUNTAINVIEW THOROUGHBRED RACING ASSOCIATION NORTHEAST CONCESSIONS, INC.

By: /s/ Robert S. Ippolito
Name:  Robert S. Ippolito                  By: /s/ Robert S. Ippolito
Title:  Secretary/Treasurer                Name:  Robert S. Ippolito
                                           Title:  Treasurer/Vice President

PENN NATIONAL GAMING, INC.                   PENN NATIONAL GSFR, INC.

By: /s/ Robert S. Ippolito                  By:/s/ Robert S. Ippolito
Name:  Robert S. Ippolito                   Name:  Robert S. Ippolito
Title:  Chief Financial Officer             Title:  Secretary/Treasurer

                                   [continued]
                                       40
<PAGE>

                         [continued from previous page]

PENN NATIONAL GAMING OF WEST VIRGINIA, INC.
                             PNGI CHARLES TOWN GAMING LIMITED LIABILITY COMPANY
                                            By: Penn National Gaming of West
                                                Virginia, Inc.,
                                                Managing Member
By: /s/ Robert S. Ippolito                By: /s/ Robert S. Ippolito
Name:  Robert S. Ippolito
Title:  Secretary/Treasurer               Name:  Robert S. Ippolito
                                          Title:  Secretary/Treasurer

PNGI CHARLES TOWN FOOD & BEVERAGE LIMITED LIABILITY COMPANY  PNGI POCONO, INC.
By:       PNGI Charles Town Gaming
            Limited Liability Company
            Member

By:  Penn National Gaming of              By: /s/ Robert S. Ippolito
West Virginia, Inc.,                      Name:  Robert S. Ippolito
     Managing Member                      Title:  Secretary/Treasurer

By: /s/ Robert S. Ippolito
Name:  Robert S. Ippolito
Title:  Secretary/Treasurer

PENN NATIONAL HOLDING COMPANY                 PENN NATIONAL SPEEDWAY, INC.

By: /s/ Robert S. Ippolito                  By: /s/ Robert S. Ippolito
Name:  Robert S. Ippolito                   Name:  Robert S. Ippolito
Title:  Secretary/Treasurer                 Title:  Secretary

PENNSYLVANIA NATIONAL TURF CLUB, INC.       STERLING AVIATION INC.

By: /s/ Robert S. Ippolito
Name:  Robert S. Ippolito                   By: /s/ Robert S. Ippolito
Title:  Secretary/Treasurer                 Name:  Robert S. Ippolito
                                            Title:  Secretary/Treasurer

                                   [continued]

                                       41
<PAGE>

                         [continued from previous page]

TENNESSEE DOWNS, INC.                               THE DOWNS RACING, INC.

By: /s/ Robert S. Ippolito               By: /s/ Joseph A. Lashinger
    Name:  Robert S. Ippolito                 Name:  Joseph A. Lashinger
    Title:  Secretary                         Title:  Secretary/Treasurer

                                   [continued]

                                       42
<PAGE>

                         [continued from previous page]

WILKES BARRE DOWNS, INC.

By: /s/ Robert E. Abraham
         Name:  Robert E. Abraham
         Title:  Secretary/Treasurer

                                   [continued]

                                       43
<PAGE>

                         [continued from previous page]

CANADIAN IMPERIAL BANK OF COMMERCE,
as Administrative Agent

By:/s/ Paul J. Chakmak
Name:  Paul J. Chakmak
Title:  Managing Director

        CIBC World Markets Corp., as Agent

                                       44
<PAGE>

Exhibit A to Guarantee and Collateral Agreement

                           ACKNOWLEDGMENT AND CONSENT

                  The undersigned hereby  acknowledges  receipt of a copy of the
Guarantee  and   Collateral   Agreement   dated  as  of  August  __,  2000  (the
"Agreement"),  made by the Grantors  parties thereto for the benefit of Canadian
Imperial Bank of Commerce,  as administrative  agent. The undersigned agrees for
the benefit of the Administrative Agent and the Lenders as follows:

                  1. The undersigned will be bound by the terms of the Agreement
and will  comply  with such terms  insofar as such terms are  applicable  to the
undersigned.

                  2.  The  undersigned  confirms  the  statements  made  in  the
Agreement with respect to the  undersigned  including,  without  limitation,  in
Section 4.7 and Schedule 2.

          3. The undersigned  will notify the  Administrative  Agent promptly in
     writing of the occurrence of any of the events  described in Section 5.8(a)
     of the Agreement.

                  4. The terms of Sections 6.3(a) and 6.7 of the Agreement shall
apply to it, mutatis mutandis,  with respect to all actions that may be required
of it pursuant to Section 6.3(a) or 6.7 of the Agreement.

                                                     [NAME OF ISSUER]

                                                     By

                                      Name:

                                     Title:

                                                     Address for Notices:

                                                     Fax:

                                      A-1
<PAGE>

Exhibit B to Guarantee and Collateral Agreement

                                 FORM OF CONSENT

                                   [To follow]

                                      B-1
<PAGE>

Exhibit C to Guarantee and Collateral Agreement

                FORM OF INTELLECTUAL PROPERTY SECURITY AGREEMENT

                  This  INTELLECTUAL  PROPERTY SECURITY  AGREEMENT,  dated as of
_______ ___, 200_ (as amended,  supplemented or otherwise  modified from time to
time, the "Intellectual Property Security Agreement"), is made by _____________,
a  _____________,  (the  "Grantor")  in favor of Canadian  Bank of Commerce,  as
administrative  agent (in such  capacity,  the  "Administrative  Agent") for the
Secured Parties (as defined in the Credit Agreement referred to below).

                  WHEREAS,   Penn   National   Gaming,   Inc.,  a   Pennsylvania
corporation has entered into a Credit Agreement, dated as of August __, 2000 (as
amended,  supplemented,  replaced or otherwise  modified from time to time,  the
"Credit  Agreement"),  with the  banks  and  other  financial  institutions  and
entities from time to time party thereto, Lehman Brothers Inc., as lead arranger
and  book-running  manager,  CIBC World Markets Corp.,  as co-lead  arranger and
co-book-running  manager,  Lehman  Commercial Paper Inc., as syndication  agent,
Canadian  Imperial  Bank  of  Commerce,  as  administrative  agent,  and The CIT
Group/Equipment Financing, Inc., First Union National Bank and Wells Fargo Bank,
N.A., each as documentation agent. Capitalized terms used and not defined herein
have the meanings given such terms in the Credit Agreement.

                  WHEREAS,  it is a condition precedent to the obligation of the
Lenders to make their respective  extensions of credit to the Borrower under the
Credit  Agreement that the Grantor and the other  Guarantors shall have executed
and delivered  that certain  Guarantee  and  Collateral  Agreement,  dated as of
August __, 2000, in favor of the Administrative Agent (as amended, supplemented,
replaced or otherwise  modified from time to time, the "Guarantee and Collateral
Agreement").

                  WHEREAS,  under  the  terms of the  Guarantee  and  Collateral
Agreement,  the  Grantor has  granted a security  interest in certain  Property,
including,  without limitation,  certain Intellectual Property of the Grantor to
the Administrative Agent for the ratable benefit of the Secured Parties, and has
agreed as a condition  thereof to execute this  Intellectual  Property  Security
Agreement for recording with the United States Patent and Trademark Office,  the
United States Copyright Office, and other applicable Governmental Authorities.

                  NOW,  THEREFORE,  for good  and  valuable  consideration,  the
receipt and sufficiency of which are hereby acknowledged,  the Grantor agrees as
follows:

SECTION 1. Grant of Security.  The Grantor  hereby grants to the  Administrative
Agent for the ratable benefit of the Secured Parties a security  interest in and
to all of the Grantor's  right,  title and interest in and to the following (the
"Intellectual Property  Collateral"),  as collateral security for the prompt and
complete payment and performance  when due (whether at the stated  maturity,  by
acceleration or otherwise) of the Grantor's Obligations:
                                      C-1
<PAGE>

(a) (i) all trademarks,  service marks,  trade names,  corporate names,  company
names,  business names,  trade dress,  trade styles,  logos, or other indicia of
origin or source identification,  trademark and service mark registrations,  and
applications  for trademark or service mark  registrations  and any new renewals
thereof,  including,  without  limitation,  each  registration  and  application
identified in Schedule 1, (ii) the right to sue or otherwise recover for any and
all past, present and future infringements and misappropriations  thereof, (iii)
all income,  royalties,  damages and other payments now and hereafter due and/or
payable with respect thereto (including, without limitation,  payments under all
licenses  entered  into in  connection  therewith,  and damages and payments for
past, present or future infringements thereof), and (iv) all other rights of any
kind  whatsoever  of the Grantor  accruing  thereunder  or  pertaining  thereto,
together in each case with the goodwill of the business  connected  with the use
of, and symbolized by, each of the above (collectively, the "Trademarks");

(b) (i) all patents,  patent applications and patentable inventions,  including,
without limitation, each patent and patent application identified in Schedule 1,
(ii) all inventions and improvements  described and claimed  therein,  (iii) the
right to sue or  otherwise  recover  for any and all past,  present  and  future
infringements and misappropriations thereof, (iv) all income, royalties, damages
and other  payments now and  hereafter due and/or  payable with respect  thereto
(including,  without  limitation,  payments  under all licenses  entered into in
connection  therewith,  and damages  and  payments  for past,  present or future
infringements  thereof),  and  (v)  all  reissues,   divisions,   continuations,
continuations-in-art,   substitutes,   renewals,  and  extensions  thereof,  all
improvements  thereon and all other rights of any kind whatsoever of the Grantor
accruing thereunder or pertaining thereto (collectively, the "Patents");

(c) (i) all copyrights,  whether or not the underlying  works of authorship have
been  published,  and all works of authorship  and other  intellectual  property
rights therein,  all copyrights of works based on, incorporated in, derived from
or relating to works covered by such copyrights,  all right,  title and interest
to make and exploit all derivative  works based on or adopted from works covered
by such copyrights,  and all copyright registrations and copyright applications,
and any renewals or extensions  thereof,  including,  without  limitation,  each
registration and application identified in Schedule 1, (ii) the rights to print,
publish and distribute any of the foregoing,  (iv) the right to sue or otherwise
recover   for  any  and  all  past,   present  and  future   infringements   and
misappropriations  thereof,  (iv)  all  income,  royalties,  damages  and  other
payments now and hereafter due and/or payable with respect  thereto  (including,
without  limitation,  payments  under all licenses  entered  into in  connection
therewith,  and damages and payments for past,  present or future  infringements
thereof),  and (v) all  other  rights  of any  kind  whatsoever  of the  Grantor
accruing thereunder or pertaining thereto ("Copyrights");

(d) (i) all trade  secrets and all  confidential  and  proprietary  information,
including  know-how,  manufacturing  and  production  processes and  techniques,
inventions,  research and development  information,  technical data,  financial,
marketing  and  business  data,  pricing  and  cost  information,  business  and
marketing  plans,  and customer and supplier lists and  information,  including,
without  limitation,  any of the  foregoing  identified  in Schedule 1, (ii) the
right to sue or  otherwise  recover  for any and all past,  present  and  future
infringements  and  misappropriations  thereof,  (iii)  all  income,  royalties,
damages and other  payments now and  hereafter  due and/or  payable with respect
thereto (including, without limitation, payments under all licenses entered into
                                      C-2
<PAGE>

in connection  therewith,  and damages and payments for past,  present or future
infringements  thereof), and (iv) all other rights of any kind whatsoever of the
Grantor  accruing  thereunder or pertaining  thereto  (collectively,  the "Trade
Secrets");

(e) (i) all licenses or agreements,  whether written or oral,  providing for the
grant by or to the  Grantor  of:  (A) any  right to use any  Trademark  or Trade
Secret, (B) any right to manufacture, use or sell any invention covered in whole
or in part by a Patent, and (C) any right under any Copyright including, without
limitation,  the grant of rights to  manufacture,  distribute,  exploit and sell
materials derived from any Copyright including,  without limitation,  any of the
foregoing  identified in Schedule 1, (ii) the right to sue or otherwise  recover
for any and all past, present and future infringements and  misappropriations of
any of the foregoing,  (iii) all income,  royalties,  damages and other payments
now and hereafter due and/or payable with respect  thereto  (including,  without
limitation,  payments under all licenses  entered into in connection  therewith,
and damages and payments for past, present or future infringements thereof), and
(iv) all other rights of any kind whatsoever of the Grantor accruing  thereunder
or pertaining thereto; and

(f)      any and all proceeds of the foregoing.

Recordation.   The  Grantor   authorizes  and  requests  that  the  Register  of
Copyrights,  the Commissioner of Patents and Trademarks and any other applicable
government officer record this Intellectual Property Security Agreement.

Execution  in  Counterparts.  This  Agreement  may be  executed in any number of
counterparts  (including by telecopy),  each of which when so executed  shall be
deemed to be an original and all of which taken  together  shall  constitute one
and the same agreement.

     Governing Law.  This  Intellectual  Property  Security  Agreement  shall be
          governed  by,  and  construed  and  interpreted  in  accordance  with,
          ------------- the law of the State of New York.

Conflict  Provision.  This  Intellectual  Property  Security  Agreement has been
entered into in conjunction  with the provisions of the Guarantee and Collateral
Agreement and the Credit Agreement. The rights and remedies of each party hereto
with respect to the security  interest granted herein are without  prejudice to,
and are in addition to those set forth in the Guarantee and Collateral Agreement
and the Credit  Agreement,  all terms and  provisions of which are  incorporated
herein by  reference.  In the event  that any  provisions  of this  Intellectual
Property  Security  Agreement are in conflict with the Guarantee and  Collateral
Agreement  or  the  Credit  Agreement,  the  provisions  of  the  Guarantee  and
Collateral Agreement or the Credit Agreement shall govern.

                                      C-3
<PAGE>

                  IN  WITNESS   WHEREOF,   the   undersigned   has  caused  this
Intellectual Property Security Agreement to be duly executed and delivered as of
the date first above written.

                                                     [NAME OF GRANTOR]

                                                     By:
                                      Name:

                                     Title:

                                      C-4
<PAGE>

                                                        [ACKNOWLEDGEMENT PAGE]

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

                  On __________,  2000,  before me, the undersigned,  personally
appeared _________________, personally known to me (or proved to me on the basis
of  satisfactory  evidence) to be the person who  executed  this  instrument  as
__________________  of [name  of  company],  and  acknowledged  to me that  said
corporation  executed it pursuant to its by-laws or a resolution of its board of
directors.

                            Notary Public in and for

                                                     said County and State

                             My Commission Expires:

                                      C-5
<PAGE>

Schedule 1

                                   COPYRIGHTS

                                     PATENTS

                                   TRADEMARKS

                                  TRADE SECRETS

                         INTELLECTUAL PROPERTY LICENSES

<PAGE>

Exhibit D to Guarantee and Collateral Agreement

                            FORM OF CONTROL AGREEMENT

                  This CONTROL AGREEMENT (as amended,  supplemented or otherwise
modified from time to time,  the "Control  Agreement")  dated as of _______ ___,
200_,  is made by and  among  _______________,  a  __________  corporation  (the
"Grantor"), Canadian Imperial Bank of Commerce, as administrative agent (in such
capacity, the "Administrative Agent") for the Secured Parties (as defined in the
Guarantee and  Collateral  Agreement  referred to below),  and  ____________,  a
____________ corporation (the "Issuer").

                  WHEREAS,  the Grantor has granted to the Administrative  Agent
for the benefit of the Secured Parties a security interest in the uncertificated
securities  of the Issuer owned by the Grantor from time to time  (collectively,
the "Pledged  Securities"),  and all  additions  thereto and  substitutions  and
proceeds thereof (collectively,  with the Pledged Securities,  the "Collateral")
pursuant to a Guarantee and  Collateral  Agreement,  dated as of August __, 2000
(as amended, supplemented, replaced or otherwise modified from time to time, the
"Guarantee and Collateral  Agreement"),  among the Grantor and the other persons
party thereto as grantors in favor of the Administrative Agent.

                  WHEREAS,  the following  terms which are defined in Articles 8
and 9 of the New York Uniform Commercial Code in effect in the State of New York
on the date hereof  (the "New York UCC") are used herein as so defined:  Adverse
Claim, Control, Instruction, Proceeds and Uncertificated Security.

                  NOW,  THEREFORE,  for good  and  valuable  consideration,  the
receipt and  sufficiency  of which are hereby  acknowledged,  the parties hereto
agree as follows:

                  SECTION 1.  Notice of  Security  Interest.  The  Grantor,  the
Administrative  Agent and the Issuer are entering into this Control Agreement to
perfect,  and to confirm the priority of, the  Administrative  Agent's  security
interest in the Collateral.  The Issuer acknowledges that this Control Agreement
constitutes  written  notification to the Issuer of the  Administrative  Agent's
security  interest in the  Collateral.  The Issuer  agrees to promptly  make all
necessary  entries  or  notations  in its  books  and  records  to  reflect  the
Administrative  Agent's security interest in the Collateral and, upon request by
the Administrative Agent, to register the Administrative Agent as the registered
owner of any or all of the Pledged Securities.  The Issuer acknowledges that the
Administrative Agent has control over the Collateral.

                  SECTION  2.  Collateral.  The  Issuer  hereby  represents  and
warrants to, and agrees with the Grantor and the  Administrative  Agent that (i)
the terms of any limited liability  company  interests or partnership  interests
included in the Collateral from time to time shall  expressly  provide that they
are securities  governed by Article 8 of the Uniform  Commercial  Code in effect
from time to time in the State of [__________],  (ii) the Pledged Securities are
uncertificated  securities,  (iii) the issuer's  jurisdiction is, and during the
term of this Control Agreement shall remain, the State of  [____________],  (iv)
Schedule 1 contains a true and complete description of the Pledged Securities as
of the  date  hereof  and  (v)  except  for  the  claims  and  interests  of the
Administrative Agent and the Grantor in the Collateral, the Issuer does not know
of any claim to or security interest or other interest in the Collateral.
                                      D-1
<PAGE>

                  SECTION 3.  Control.  The Issuer hereby  agrees,  upon written
direction from the  Administrative  Agent and without  further  consent from the
Grantor,  (a) to  comply  with  all  instructions  and  directions  of any  kind
originated by the Administrative  Agent concerning the Collateral,  to liquidate
or  otherwise  dispose of the  Collateral  as and to the extent  directed by the
Administrative  Agent and to pay over to the  Administrative  Agent all proceeds
without any setoff or  deduction,  and (b) except as  otherwise  directed by the
Administrative  Agent,  not to comply with the instructions or directions of any
kind originated by the Grantor or any other person.

                  SECTION 4. Other Agreements.  The Issuer shall notify promptly
the  Administrative  Agent and the Grantor if any other person asserts any lien,
encumbrance,  claim  (including  any adverse  claim) or security  interest in or
against  any of the  Collateral.  In the  event  of  any  conflict  between  the
provisions  of this Control  Agreement  and any other  agreement  governing  the
Pledged  Securities or the Collateral,  the provisions of this Control Agreement
shall control.

     SECTION 5. Protection of Issuer. The Issuer may rely and shall be protected
          in acting upon any notice,  --------------------  instruction or other
          communication   that  it   reasonably   believes  to  be  genuine  and
          authorized.

SECTION 2.  Termination.  This Control  Agreement shall terminate  automatically
upon  receipt by the Issuer of written  notice  executed  by the  Administrative
Agent that (i) all of the  obligations  secured by the Collateral have been paid
in full in immediately  available  funds, or (ii) all of the Collateral has been
released,  whichever is sooner,  and the Issuer shall  thereafter be relieved of
all duties and obligations hereunder.

SECTION 3. Notices. All notices,  requests and demands to or upon the respective
parties hereto to be effective shall be in writing (including by telecopy), and,
unless otherwise  expressly  provided herein,  shall be deemed to have been duly
given or made when  delivered,  or three days after being deposited in the mail,
postage  prepaid,  or, in the case of telecopy  notice,  when  received,  to the
Grantor's and the Administrative Agent's addresses as set forth in the Guarantee
and Collateral Agreement,  and to the Issuer's address as set forth below, or to
such  other  address  as any party may give to the  others in  writing  for such
purpose:

                  [Name of Issuer]
                  [Address of Issuer]
                  Attention:
                  Telephone: (     )      -
                              -----  -----
                  Telecopy:  (     )      -
                              -----  -----
                                      D-2
<PAGE>

SECTION  4.  Amendments  in  Writing.  None of the terms or  provisions  of this
Control  Agreement may be waived,  amended,  supplemented or otherwise  modified
except by a written instrument executed by the parties hereto.

SECTION 5. Entire  Agreement.  This  Control  Agreement  and the  Guarantee  and
Collateral  Agreement  constitute  the entire  agreement and supersede all other
prior  agreements and  understandings,  both written and oral, among the parties
with respect to the subject matter hereof.

SECTION 6. Execution in Counterparts.  This Control Agreement may be executed in
any  number of  counterparts  (including  by  telecopy),  each of which  when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.

SECTION 7. Successors and Assigns.  This Control  Agreement will be binding upon
and inure to the benefit of the parties hereto and their  respective  successors
and assigns, except that the Grantor may not assign, transfer or delegate any of
its rights or obligations under this Control Agreement without the prior written
consent of the Administrative Agent.

SECTION 8.  Governing  Law and  Jurisdiction.  This Control  Agreement  has been
delivered to and accepted by the  Administrative  Agent and will be deemed to be
made in the State of New York. THIS CONTROL  AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE  WITH, THE LAW OF THE STATE OF NEW YORK.
Each of the  parties  hereto  submits  for itself and its  property in any legal
action or proceeding relating to this Control Agreement,  or for recognition and
enforcement of any judgment in respect  thereof,  to the  non-exclusive  general
jurisdiction  of the  Courts of the State of New York,  the courts of the United
States of America for the Southern  District of New York,  and appellate  courts
from any thereof.

SECTION 9. WAIVER OF JURY TRIAL.  EACH OF THE PARTIES HERETO HEREBY  IRREVOCABLY
AND  UNCONDITIONALLY  WAIVES  TRIAL BY JURY IN ANY LEGAL  ACTION  OR  PROCEEDING
RELATING TO THIS CONTROL AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN.

                                      D-3
<PAGE>

                  IN WITNESS  WHEREOF,  each of the  undersigned has caused this
Control  Agreement to be duly  executed and delivered as of the date first above
written.

                     [NAME OF GRANTOR]

                     By:
      Name:

     Title:

                     CANADIAN IMPERIAL BANK OF COMMERCE, as Administrative Agent

                     By:
      Name:

                              Title:  Managing Director
                                 CIBC World Markets Corp., as Agent

                     [NAME OF ISSUER]

                     By:
      Name:

     Title:

                                      D-4
<PAGE>

Schedule 1 to Exhibit D to Guarantee and Collateral Agreement

                                      D-5
<PAGE>

Exhibit E to Guarantee and Collateral Agreement

                            FORM OF CONTROL AGREEMENT

                  This CONTROL AGREEMENT (as amended,  supplemented or otherwise
modified from time to time,  the "Control  Agreement")  dated as of _______ ___,
200_,  is made by and  among  _______________,  a  __________  corporation  (the
"Grantor"), Canadian Imperial Bank of Commerce, as administrative agent (in such
capacity, the "Administrative Agent") for the Secured Parties (as defined in the
Guarantee and  Collateral  Agreement  referred to below),  and  ____________,  a
____________ corporation (the "Broker").

                  WHEREAS, the Broker maintains for the Grantor a securities
account, Account No. _________________ (the "Pledged

Account"), in the name of the Grantor.
-------

                  WHEREAS,  the Grantor has granted to the Administrative  Agent
for the  benefit of the  Secured  Parties a  security  interest  in the  Pledged
Account,  the financial assets and any free credit balance carried therein,  all
security  entitlements  with  respect  thereto,  and all  additions  thereto and
substitutions and proceeds thereof (collectively,  the "Collateral") pursuant to
a Guarantee and Collateral  Agreement,  dated as of August __, 2000 (as amended,
supplemented,  replaced or otherwise  modified from time to time, the "Guarantee
and  Collateral  Agreement"),  among the  Grantor  and the other  persons  party
thereto as grantors in favor of the Administrative Agent.

                  WHEREAS,  the following  terms which are defined in Articles 8
and 9 of the New York Uniform Commercial Code in effect in the State of New York
on the date hereof  (the "New York UCC") are used herein as so defined:  Adverse
Claim,  Commodity  Account,  Commodity  Contract,  Control,  Entitlement  Order,
Financial Asset, Instruction, Investment Property, Proceeds, Securities Account,
Securities  Intermediary,  Securities  Intermediary's  Jurisdiction and Security
Entitlement.

                  NOW,  THEREFORE,  for good  and  valuable  consideration,  the
receipt and  sufficiency  of which are hereby  acknowledged,  the parties hereto
agree as follows:

SECTION 1. Notice of Security Interest.  The Grantor,  the Administrative  Agent
and the Broker are  entering  into this  Control  Agreement  to perfect,  and to
confirm the priority of, the  Administrative  Agent's  security  interest in the
Collateral.  The Broker  acknowledges  that this Control  Agreement  constitutes
written  notification  to the  Broker  of the  Administrative  Agent's  security
interest in the  Collateral.  The Broker  agrees to promptly  make all necessary
entries or  notations  in its books and  records to reflect  the  Administrative
Agent's security  interest in the Collateral.  The Broker  acknowledges that the
Administrative  Agent has control over the Pledged Account, all financial assets
contained therein from time to time, and all security  entitlements with respect
thereto.
                                      E-1
<PAGE>

SECTION 2. Collateral;  Pledged Account.  (a) The Grantor hereby  represents and
warrants to, and agrees with the  Administrative  Agent and the Broker that, all
investment  property  (other than any commodity  contract or commodity  account)
held by the  Broker  for the  Grantor is and shall be  credited  to the  Pledged
Account.

(b) The Broker  hereby  represents  and warrants to, and agrees with the Grantor
and the  Administrative  Agent that (i) the Broker is a securities  intermediary
with  respect to the Grantor and the Pledged  Account is a  securities  account,
(ii) all  assets,  property  and items from time to time  carried in the Pledged
Account,  including,  without limitation, any investment property, are, and will
continue  to  be,  financial   assets,   (iii)  the  securities   intermediary's
jurisdiction is, and during the term of this Control Agreement shall remain, the
State of New York, (iv) Schedule 1 contains a true and complete statement of the
Pledged  Account and the financial  assets  carried  therein and any free credit
balance  therein as of the date hereof,  (v) no financial  asset included in the
Collateral is  registered in the name of,  payable to the order of, or specially
indorsed to, the Grantor, which has not been indorsed to the Broker or in blank,
and (vi) the Pledged Account is and shall remain a cash account,  and the Broker
will not extend,  directly  or  indirectly,  any  "purpose  credit"  (within the
meaning of such term under Regulation T of the Board of Governors of the Federal
Reserve  System of the United  States) to the  Grantor in respect of the Pledged
Account.

(c) The Administrative  Agent hereby instructs the Broker, and the Broker hereby
confirms and agrees that, unless the Administrative Agent shall otherwise direct
the  Broker in  writing,  the  investment  property  (other  than any  commodity
contract  or  commodity  account)  from time to time held by the  Broker for the
Grantor shall be credited only to, and carried only in, the Pledged Account.

SECTION 3. Control.  The Broker hereby agrees,  upon written  direction from the
Administrative Agent and without further consent from the Grantor, (a) to comply
with all instructions,  entitlement orders and directions of any kind originated
by the Administrative Agent concerning the Collateral, to liquidate or otherwise
dispose of the  Collateral as and to the extent  directed by the  Administrative
Agent and to pay over to the  Administrative  Agent  all  proceeds  without  any
setoff or deduction,  and (b) except as otherwise directed by the Administrative
Agent, not to comply with the instructions,  entitlement orders or directions of
any kind originated by the Grantor or any other person.

SECTION 4. Other Agreements;  Termination;  Successor Brokers.  The Broker shall
simultaneously send to the Administrative  Agent copies of all notices given and
statements  rendered  pursuant to the Pledged  Account.  The Broker shall notify
promptly the  Administrative  Agent and the Grantor if any other person  asserts
any lien, encumbrance,  claim (including any adverse claim) or security interest
in or against any of the  Collateral.  As long as the Guarantee  and  Collateral
Agreement remains in effect,  neither the Grantor nor the Broker shall terminate
the Pledged  Account without thirty (30) days' prior written notice to the other
party and the  Administrative  Agent.  In the event of any conflict  between the
provisions  of this Control  Agreement  and any other  agreement  governing  the
Pledged  Account or the  Collateral,  the  provisions of this Control  Agreement
shall  control.  In the event the  Broker  no  longer  serves as Broker  for the
Collateral,  the Pledged Account and the financial  assets carried therein shall
be  transferred  to  a  successor  broker  or  custodian   satisfactory  to  the
Administrative  Agent,  provided,  that prior to such  transfer,  such successor
broker or custodian shall execute an agreement that is substantially in the form
of this Control Agreement or is otherwise in form and substance  satisfactory to
the Administrative Agent.
                                      E-2
<PAGE>

SECTION 5.  Protection of Broker.  The Broker may rely and shall be protected in
acting upon any notice,  instruction or other  communication  that it reasonably
believes to be genuine and authorized.

SECTION 6.  Termination.  This Control  Agreement shall terminate  automatically
upon  receipt by the Broker of written  notice  executed  by the  Administrative
Agent that (i) all of the  obligations  secured by the Collateral have been paid
in full in immediately  available  funds, or (ii) all of the Collateral has been
released,  whichever is sooner,  and the Broker shall  thereafter be relieved of
all duties and obligations hereunder.

SECTION 7. Waiver; Priority of Administrative Agent's Interests. Other than with
respect  to its fees and  customary  commissions  with  respect  to the  Pledged
Account,  the Broker hereby waives its right to set off any  obligations  of the
Grantor to the Broker  against any or all of the  Collateral,  and hereby agrees
that any and all liens,  encumbrances,  claims or security  interests  which the
Broker  may  have  against  the  Collateral,  either  now  or in the  future  in
connection  with the Pledged  Account are and shall be subordinate and junior to
the prior payment in full in immediately  available  funds of all obligations of
the Grantor now or hereafter existing under the Credit Agreement,  the Guarantee
and Collateral Agreement,  and all other documents related thereto,  whether for
principal, interest (including, without limitation,  interest as provided in the
Credit Agreement,  whether or not such interest accrues after the filing of such
petition for purposes of the federal  Bankruptcy  Code or is an allowed claim in
such proceeding), indemnities, fees, premiums, expenses or otherwise. Except for
the  foregoing  and claims and  interests  of the  Administrative  Agent and the
Grantor in the Collateral,  the Broker does not know of any claim to or security
interest or other interest in the Collateral.

SECTION 8. Notices. All notices,  requests and demands to or upon the respective
parties hereto to be effective shall be in writing (including by telecopy), and,
unless otherwise  expressly  provided herein,  shall be deemed to have been duly
given or made when  delivered,  or three days after being deposited in the mail,
postage  prepaid,  or, in the case of telecopy  notice,  when  received,  to the
Grantor's and the Administrative Agent's addresses as set forth in the Guarantee
and Collateral Agreement,  and to the Broker's address as set forth below, or to
such  other  address  as any party may give to the  others in  writing  for such
purpose:

                  [Name of Broker]
                  [Address of Broker]
                  Attention:
                  Telephone: (     )      -
                              -----  -----
                  Telecopy:  (     )      -
                              -----  -----
                                      E-3
<PAGE>

SECTION  9.  Amendments  in  Writing.  None of the terms or  provisions  of this
Control  Agreement may be waived,  amended,  supplemented or otherwise  modified
except by a written instrument executed by the parties hereto.

SECTION 10.  Entire  Agreement.  This Control  Agreement  and the  Guarantee and
Collateral  Agreement  constitute  the entire  agreement and supersede all other
prior  agreements and  understandings,  both written and oral, among the parties
with respect to the subject matter hereof.

SECTION 11. Execution in Counterparts. This Control Agreement may be executed in
any  number of  counterparts  (including  by  telecopy),  each of which  when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.

SECTION 12. Successors and Assigns.  This Control Agreement will be binding upon
and inure to the benefit of the parties hereto and their  respective  successors
and assigns, except that the Grantor may not assign, transfer or delegate any of
its rights or obligations under this Control Agreement without the prior written
consent of the Administrative Agent.

SECTION 13.  Governing  Law and  Jurisdiction.  This Control  Agreement has been
delivered to and accepted by the  Administrative  Agent and will be deemed to be
made in the State of New York. THIS CONTROL  AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE  WITH, THE LAW OF THE STATE OF NEW YORK.
Each of the  parties  hereto  submits  for itself and its  property in any legal
action or proceeding relating to this Control Agreement,  or for recognition and
enforcement of any judgment in respect  thereof,  to the  non-exclusive  general
jurisdiction  of the  Courts of the State of New York,  the courts of the United
States of America for the Southern  District of New York,  and appellate  courts
from any thereof.

SECTION 14. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY  IRREVOCABLY
AND  UNCONDITIONALLY  WAIVES  TRIAL BY JURY IN ANY LEGAL  ACTION  OR  PROCEEDING
RELATING TO THIS CONTROL AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN.

                                      E-4
<PAGE>

                  IN WITNESS  WHEREOF,  each of the  undersigned has caused this
Control  Agreement to be duly  executed and delivered as of the date first above
written.

                   [NAME OF GRANTOR]

                   By:
    Name:

   Title:

                   CANADIAN IMPERIAL BANK OF COMMERCE, as Administrative Agent

                   By:
    Name:

                            Title:  Managing Director
                               CIBC World Markets Corp., as Agent

                   [NAME OF BROKER]

                   By:
    Name:

   Title:

                                      E-5
<PAGE>

Exhibit F to Guarantee and Collateral Agreement

                            FORM OF CONTROL AGREEMENT

                  This CONTROL AGREEMENT (as amended,  supplemented or otherwise
modified from time to time,  the "Control  Agreement")  dated as of _______ ___,
200_,  is made by and  among  _______________,  a  __________  corporation  (the
"Grantor"), Canadian Imperial Bank of Commerce, as administrative agent (in such
capacity, the "Administrative Agent") for the Secured Parties (as defined in the
Guarantee and  Collateral  Agreement  referred to below),  and  ____________,  a
____________ corporation (the "Broker").

                  WHEREAS, the Broker maintains for the Grantor a commodity
account, Account No. _________________ (the "Pledged

Account"), in the name of the Grantor.
-------

                  WHEREAS,  the Grantor has granted to the Administrative  Agent
for the  benefit of the  Secured  Parties a  security  interest  in the  Pledged
Account,  the commodity  contracts and any free credit balance carried  therein,
and all additions thereto and substitutions and proceeds thereof  (collectively,
the "Collateral") pursuant to a Guarantee and Collateral Agreement,  dated as of
August __, 2000 (as amended,  supplemented,  replaced or otherwise modified from
time to time, the "Guarantee and Collateral  Agreement"),  among the Grantor and
the other  persons  party  thereto as  grantors  in favor of the  Administrative
Agent.

                  WHEREAS,  the following  terms which are defined in Articles 8
and 9 of the New York Uniform Commercial Code in effect in the State of New York
on the date hereof (the "New York UCC") are used herein as so defined: Commodity
Account, Commodity Contract, Commodity Intermediary's Jurisdiction,  Control and
Proceeds.

                  NOW,  THEREFORE,  for good  and  valuable  consideration,  the
receipt and  sufficiency  of which are hereby  acknowledged,  the parties hereto
agree as follows:

                  SECTION 1.  Notice of  Security  Interest.  The  Grantor,  the
Administrative  Agent and the Broker are entering into this Control Agreement to
perfect,  and to confirm the priority of, the  Administrative  Agent's  security
interest in the Collateral.  The Broker acknowledges that this Control Agreement
constitutes  written  notification to the Broker of the  Administrative  Agent's
security  interest in the  Collateral.  The Broker  agrees to promptly  make all
necessary  entries  or  notations  in its  books  and  records  to  reflect  the
Administrative   Agent's  security  interest  in  the  Collateral.   The  Broker
acknowledges that the Administrative  Agent has control over the Pledged Account
and all commodity  contracts and any free credit  balance  carried  therein from
time to time.

SECTION 2. Collateral;  Pledged Account.  (a) The Grantor hereby  represents and
warrants to, and agrees with the  Administrative  Agent and the Broker that, all
commodity  contracts  carried by the Broker on its books for the Grantor are and
shall be credited to the Pledged Account.
                                      F-1
<PAGE>

(b) The Broker  hereby  represents  and warrants to, and agrees with the Grantor
and the  Administrative  Agent that (i) the Broker is a  commodity  intermediary
with respect to the Grantor and the Pledged Account is a commodity account, (ii)
the  commodity  intermediary's  jurisdiction  is,  and  during  the term of this
Control Agreement shall remain, the State of New York, (iii) Schedule 1 contains
a true and complete statement of the Pledged Account and the commodity contracts
and any free credit balance carried therein as of the date hereof,  and (iv) the
Pledged  Account is and shall  remain a cash  account,  and the Broker  will not
extend, directly or indirectly, any "purpose credit" (within the meaning of such
term under  Regulation T of the Board of Governors of the Federal Reserve System
of the United States) to the Grantor in respect of the Pledged Account.

(c) The Administrative  Agent hereby instructs the Broker, and the Broker hereby
confirms and agrees that, unless the Administrative Agent shall otherwise direct
the Broker in  writing,  all  commodity  contracts  carried by the Broker on its
books for the  Grantor  shall be  credited  only to,  and  carried  only in, the
Pledged Account.

                  SECTION 3.  Control.  The Broker hereby  agrees,  upon written
direction from the  Administrative  Agent and without  further  consent from the
Grantor,  (a) to  apply  any  value  distributed  on  account  of the  commodity
contracts  carried in the  Pledged  Account as  directed  by the  Administrative
Agent, to liquidate or otherwise  dispose of the Collateral as and to the extent
directed by the Administrative Agent and to pay over to the Administrative Agent
all proceeds and other value  therefrom  or otherwise  distributed  with respect
thereto without any setoff or deduction, and (b) except as otherwise directed by
the  Administrative  Agent, not to apply any value distributed on account of any
commodity  contract carried in the Pledged Account as directed by the Grantor or
any other person.

                  SECTION 4. Other Agreements;  Termination;  Successor Brokers.
The Broker shall  simultaneously send to the Administrative  Agent copies of all
notices  given and  statements  rendered  pursuant to the Pledged  Account.  The
Broker shall notify  promptly  the  Administrative  Agent and the Grantor if any
other person  asserts any lien,  encumbrance,  claim or security  interest in or
against any of the Collateral. As long as the Guarantee and Collateral Agreement
remains in effect,  neither  the  Grantor  nor the Broker  shall  terminate  the
Pledged  Account  without  thirty (30) days' prior  written  notice to the other
party and the  Administrative  Agent.  In the event of any conflict  between the
provisions  of this Control  Agreement  and any other  agreement  governing  the
Pledged  Account or the  Collateral,  the  provisions of this Control  Agreement
shall  control.  In the event the  Broker  no  longer  serves as Broker  for the
Collateral,  the Pledged  Account,  the commodity  contracts and any free credit
balance carried therein shall be transferred to a successor broker, custodian or
futures commission merchant satisfactory to the Administrative Agent,  provided,
that  prior to such  transfer,  such  successor  broker,  custodian  or  futures
commission merchant shall execute an agreement that is substantially in the form
of this Control Agreement or is otherwise in form and substance  satisfactory to
the Administrative Agent.
                                      F-2
<PAGE>

SECTION 5.  Protection of Broker.  The Broker may rely and shall be protected in
acting upon any notice,  instruction or other  communication  that it reasonably
believes to be genuine and authorized.

                  SECTION 6. Termination. This Control Agreement shall terminate
automatically  upon  receipt  by the Broker of written  notice  executed  by the
Administrative  Agent that (i) all of the obligations  secured by the Collateral
have  been  paid in full in  immediately  available  funds,  or (ii)  all of the
Collateral  has  been  released,  whichever  is  sooner,  and the  Broker  shall
thereafter be relieved of all duties and obligations hereunder.

                  SECTION  7.  Waiver;   Priority  of   Administrative   Agent's
Interests.  Other than with respect to its fees and customary  commissions  with
respect to the Pledged  Account,  the Broker  hereby waives its right to set off
any  obligations  of  the  Grantor  to  the  Broker  against  any  or all of the
Collateral,  and hereby agrees that any and all liens,  encumbrances,  claims or
security interests which the Broker may have against the Collateral,  either now
or in the  future  in  connection  with the  Pledged  Account  are and  shall be
subordinate  and junior to the prior  payment in full in  immediately  available
funds of all  obligations  of the Grantor now or  hereafter  existing  under the
Credit  Agreement,  the  Guarantee  and  Collateral  Agreement,  and  all  other
documents related thereto, whether for principal,  interest (including,  without
limitation,  interest as provided in the Credit  Agreement,  whether or not such
interest  accrues  after the filing of such petition for purposes of the federal
Bankruptcy Code or is an allowed claim in such proceeding),  indemnities,  fees,
premiums,  expenses  or  otherwise.  Except  for the  foregoing  and  claims and
interests of the  Administrative  Agent and the Grantor in the  Collateral,  the
Broker does not know of any claim to or security  interest or other  interest in
the Collateral.

                  SECTION 8.  Notices.  All notices,  requests and demands to or
upon  the  respective  parties  hereto  to be  effective  shall  be  in  writing
(including by telecopy),  and, unless otherwise expressly provided herein, shall
be deemed to have been duly  given or made when  delivered,  or three days after
being  deposited  in the mail,  postage  prepaid,  or,  in the case of  telecopy
notice, when received, to the Grantor's and the Administrative Agent's addresses
as set forth in the  Guarantee  and  Collateral  Agreement,  and to the Broker's
address as set forth  below,  or to such other  address as any party may give to
the others in writing for such purpose:

                  [Name of Broker]
                  [Address of Broker]
                  Attention:
                  Telephone: (     )      -
                              -----  -----
                  Telecopy:  (     )      -
                              -----  -----

SECTION  9.  Amendments  in  Writing.  None of the terms or  provisions  of this
Control  Agreement may be waived,  amended,  supplemented or otherwise  modified
except by a written instrument executed by the parties hereto.

                  SECTION 10. Entire  Agreement.  This Control Agreement and the
Guarantee and Collateral Agreement constitute the entire agreement and supersede
all other prior agreements and understandings,  both written and oral, among the
parties with respect to the subject matter hereof.
                                      F-3
<PAGE>

                  SECTION 11. Execution in Counterparts.  This Control Agreement
may be executed in any number of counterparts  (including by telecopy),  each of
which when so executed  shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

                  SECTION 12.  Successors  and Assigns.  This Control  Agreement
will be binding  upon and inure to the benefit of the  parties  hereto and their
respective  successors  and  assigns,  except  that the  Grantor may not assign,
transfer  or  delegate  any of its  rights or  obligations  under  this  Control
Agreement without the prior written consent of the Administrative Agent.

                  SECTION  13.  Governing  Law and  Jurisdiction.  This  Control
Agreement  has been  delivered to and accepted by the  Administrative  Agent and
will be deemed to be made in the State of New York. THIS CONTROL AGREEMENT SHALL
BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW  YORK.  Each of the  parties  hereto  submits  for  itself  and its
property in any legal action or proceeding  relating to this Control  Agreement,
or for recognition and  enforcement of any judgment in respect  thereof,  to the
non-exclusive  general  jurisdiction of the Courts of the State of New York, the
courts of the United  States of America for the  Southern  District of New York,
and appellate courts from any thereof.

                  SECTION 14. WAIVER OF JURY TRIAL.  EACH OF THE PARTIES  HERETO
HEREBY IRREVOCABLY AND UNCONDITIONALLY  WAIVES TRIAL BY JURY IN ANY LEGAL ACTION
OR  PROCEEDING  RELATING  TO THIS  CONTROL  AGREEMENT  AND FOR ANY  COUNTERCLAIM
THEREIN.

                                      F-4
<PAGE>

                  IN WITNESS  WHEREOF,  each of the  undersigned has caused this
Control  Agreement to be duly  executed and delivered as of the date first above
written.

                        [NAME OF GRANTOR]

                        By:
         Name:

        Title:

                   CANADIAN IMPERIAL BANK OF COMMERCE, as Administrative Agent

                        By:
         Name:

                                 Title:  Managing Director
                                    CIBC World Markets Corp., as Agent

                        [NAME OF BROKER]

                        By:
         Name:

        Title:

                                      F-5
<PAGE>

Annex 1 to Guarantee and Collateral Agreement
                          FORM OF ASSUMPTION AGREEMENT

                  ASSUMPTION AGREEMENT, dated as of ____________, 200__, made by
______________________,   a   _______________   corporation   (the   "Additional
Grantor"),  in favor of Canadian  Imperial Bank of Commerce , as  administrative
agent (in such capacity, the "Administrative Agent") for (i) the banks and other
financial  institutions  and  entities  (the  "Lenders")  parties  to the Credit
Agreement  referred to below,  and (ii) the other Secured Parties (as defined in
the  Guarantee  and  Collateral   Agreement  (as  hereinafter   defined)).   All
capitalized  terms not defined herein shall have the meaning ascribed to them in
such Credit Agreement.

                              W I T N E S S E T H:
                                                         - - - - - - - - - -

     WHEREAS, Penn National Gaming, Inc. (the "Borrower"),  the Lenders,  Lehman
Brothers  Inc., as lead arranger and  book-running  manager,  CIBC World Markets
Corp., as co-lead arranger and co-book-running  manager, Lehman Commercial Paper
Inc.,  as   syndication   agent,   the   Administrative   Agent,   and  The  CIT
Group/Equipment Financing, Inc., First Union National Bank and Wells Fargo Bank,
N.A., each as documentation  agent, have entered into a Credit Agreement,  dated
as of August __, 2000 (as amended, supplemented,  replaced or otherwise modified
from time to time, the "Credit Agreement"); ----------------

                  WHEREAS, in connection with the Credit Agreement, the Borrower
and certain of its Affiliates  (other than the Additional  Grantor) have entered
into the Guarantee  and  Collateral  Agreement,  dated as of August __, 2000 (as
amended,  supplemented  or otherwise  modified from time to time, the "Guarantee
and Collateral  Agreement") in favor of the Administrative Agent for the benefit
of the Secured Parties;

          WHEREAS,  the Credit  Agreement  requires  the  Additional  Grantor to
     become a party to the Guarantee and Collateral Agreement; and

                  WHEREAS,  the  Additional  Grantor  has agreed to execute  and
deliver this  Assumption  Agreement in order to become a party to the  Guarantee
and Collateral Agreement;

                  NOW, THEREFORE, IT IS AGREED:

1.  Guarantee  and  Collateral  Agreement.  By  executing  and  delivering  this
Assumption Agreement, the Additional Grantor, as provided in Section 8.14 of the
Guarantee and Collateral Agreement,  hereby becomes a party to the Guarantee and
Collateral  Agreement as a Grantor  thereunder with the same force and effect as
if originally named therein as a Grantor and, without limiting the generality of
the foregoing,  hereby  expressly  assumes all  obligations and liabilities of a
Grantor  thereunder.  The  information  set forth in Annex 1-A  hereto is hereby
added to the information set forth in Schedules  _____________  to the Guarantee
and Collateral Agreement.  The Additional Grantor hereby represents and warrants
that each of the  representations  and warranties  contained in Section 4 of the
Guarantee and Collateral Agreement is true and correct on and as the date hereof
(after giving effect to this Assumption  Agreement) as if made on and as of such
date.
<PAGE>

          2. GOVERNING LAW. THIS ASSUMPTION  AGREEMENT SHALL BE GOVERNED BY, AND
     CONSTRUED   AND    INTERPRETED    IN   ACCORDANCE    WITH,   THE   LAW   OF
     ---------------------- THE STATE OF NEW YORK.

                  IN WITNESS WHEREOF, the undersigned has caused this Assumption
Agreement to be duly executed and delivered as of the date first above written.

                              [ADDITIONAL GRANTOR]

                                                     By:
                                      Name:

                                     Title:

                                       2

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