Document:

Exhibit 10.10

 

	
  

  	
   

  	
  

  

 

SUPPLY
AGREEMENT

On the date of
signature this Supply Agreement has been entered into by

XTENT Inc.

125 Constitution Drive

Menlo Park, CA 94025

USA

hereinafter referred to as “XTENT”

and by

Fortimedix B.V.

Horselstraat 1

6361 HC Nuth

The Netherlands

hereinafter referred to as “Fortimedix”

1.              Purpose

As XTENT is a manufacturer of medical devices and
wishes to purchase certain products manufactured by Fortimedix pursuant to XTENT’s
designs and specifications (“Products”) for use in or with XTENT’s devices,
this Agreement describes all contractual aspects of the specification,
ordering, manufacturing, pricing and payment of the Products as the parties
deem necessary in association with Fortimedix’s supply of Products to XTENT.

2.              Products

The Products supplied by Fortimedix to XTENT are
listed and specified in Appendix 1, which forms an integral part of this Agreement.

3.              Validity

This Agreement is valid for an initial period of three
(3) years from the date of March 18, 2007 (Validity Period), subject to Section
5 hereof. The Agreement can be cancelled with effect at the end of the Validity
Period by either party through written notice at least six (6) months prior to
the end of the Validity Period. If no such notice has been given by either
party, the Validity Period will be automatically extended by one year. The
Validity Period will be automatically extended for an additional one-year
period at the end of such one year extension and each year thereafter as long
as neither party gives the aforementioned six-month cancellation notice.

XTENT may terminate this
Agreement by written notice prior to the end of the Validity Period if
Fortimedix fails to deliver, pursuant to XTENT’s specifications (as set forth
in Section 14) and delivery schedules, at least 90% of XTENT’s ordered quantity
of Products specified in any three orders (consecutive or not consecutive)
within any six-month period, Fortimedix fails to cure such failure within fourteen
(14) days of receiving written notice from XTENT, and such failure is not
attributable to any action or inaction of XTENT in violation of this Agreement.

Both parties are entitled
to terminate this Agreement by written notice prior to the end of the Validity
Period with immediate effect:

a)              In
the event of a material default on the part of the other party, provided that notice
of default is given in writing, including specific charges of default and
requirements to cure, and the party receiving the notice of default fails to
cure within ninety (90) days from its receipt of such notice.

b)             In
the event of bankruptcy or liquidation on the part of the other party.

c)              In the event of
dissolution on the part of the other party.

4.              Quantities

Fortimedix will build production capacity for a monthly
volume of [*] units of the Products by the end of 2007 and will keep this
capacity available for supply to XTENT. No later than January

Fortimedix initials ____

 

XTENT initials ____

Certain Confidential Information contained in this
document, marked by “[*],” has been omitted and filed separately with the
securities and exchange commission pursuant to rule 406 of the securities act
of 1933, as amended.

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31, 2008, the parties shall agree upon any further
production capacity to be added by Fortimedix by the end of 2008, which shall
be no less than that capacity needed to deliver any Minimum Quantity agreed to
for the year 2009 as set forth below.

5.              Minimum Orders

XTENT shall order from Fortimedix a minimum of [*]
units in 2007, [*] units in 2008 and a minimum quantity of units in 2009 to be
agreed upon as set forth below (“Minimum Quantity”), unless this Agreement is
terminated prior to the relevant year. On or after December 1, 2007, the
parties shall negotiate in good faith to agree upon the Minimum Quantity for
2009. The parties presently intend to agree upon a Minimum Quantity for 2009
which is no less than that for 2008, provided the parties are satisfied with
the relationship and XTENT remains on schedule to receive regulatory approvals
in the US and Europe; however, notwithstanding the foregoing, the parties
understand that nothing in this Agreement binds either party to any Minimum
Quantity for 2009 unless agreed to in writing by both parties on or after
December 1, 2007. If the parties cannot reach agreement for such Minimum
Quantity by January 31, 2008, Fortimedix may (i) give written notice of its
intent to terminate the Agreement at the end of 2008; or (ii) continue with the
Agreement with no Minimum Quantity requirement for 2009.

In the event that XTENT fails to receive approval for
an Interventional Device Exemption (IDE) by the US Food and Drug Administration
by December 31, 2007, the Minimum Quantity for 2008 shall not apply until such
time as XTENT receives IDE approval, and the Minimum Quantity for 2008 will
then apply to the year beginning on the date of such approval, and any Minimum
Quantity agreed-to for 2009 will apply to the year beginning one year and one
day from such approval.  The Validity Period
set forth in Section 3 shall be extended as necessary to carry out the
foregoing.

No later than January 31st of each of 2008, 2009 and 2010,
Fortimedix will supply XTENT with an accounting of quantities of Products
ordered and delivered during the preceding calendar year. If both the quantity ordered
by XTENT and the quantity delivered by Fortimedix are lower than the Minimum
Quantity for the applicable year, Fortimedix shall notify XTENT in writing of
the difference. Within thirty (30) days of receiving such notice, XTENT shall
issue a purchase order for the difference between the quantity ordered for the
calendar year and the applicable Minimum Quantity. Upon delivery of the quantity
ordered, Fortimedix will invoice XTENT for such quantity, and payment of the invoiced
amount would become due within 30 days from the date of invoicing.

After the first three years of the Validity Period, if
the Validity Period is extended, no minimum order will be required.

6.              Collaborative
Planning

XTENT will provide Fortimedix with a three-month
rolling forecast of Product volumes to be delivered. The forecast will be
issued before the end of the first week of each month and the volumes indicated
for that month are to be considered as a firm order, whereas the quantities
indicated for the second month are a forecast within a band of 10% more or less
and the quantities indicated for the third month are a forecast within a band
of 20% more or less. XTENT will inform Fortimedix promptly about any forecast
changes and Fortimedix will inform XTENT promptly about any possible capacity
constraints.

7.              Specifications,
Protocols, and Processes and Change of Specifications, Protocols, and Processes

Fortimedix shall
manufacture Products in accordance with the Specifications set forth in
Appendix 1. If Fortimedix finds it necessary or desirable to change any
specifications, protocols, or processes, Fortimedix shall give XTENT notice and
not implement any such change without XTENT’s consent. Such consent, as well as
the scope of the changes, shall be documented and obtained prior to
implementation of identified changes. If XTENT similarly finds it necessary or
desirable to change any Specification or protocols, then it will so notify
Fortimedix and Fortimedix will use reasonable efforts to effect such change. If
any change requested by XTENT will increase or decrease Fortimedix’s cost of
the Product, before effectuating such change, XTENT and Fortimedix shall agree
to change the price on Appendix 2 hereto pursuant to good faith

Certain
Confidential Information contained in this document, marked by “[*],” has been
omitted and filed separately with the securities and exchange commission
pursuant to rule 406 of the securities act of 1933, as amended.

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negotiations it being the
intent hereof that the revised price change be proportionate to the change in
Fortimedix’s costs associated with the change requested in the Specification.
To facilitate effectuation of this section, Fortimedix will provide to XTENT
such information as is necessary for XTENT to evaluate and confirm all cost changes.

8.              Exclusivity

Fortimedix shall not
develop, manufacture, sell, advise or supply any other form of assistance
concerning products in the XTENT Field as hereinafter defined for third parties
other than those agreed upon by XTENT. The “XTENT Field” shall mean [*].

9.              Manufacturing Lead
Times

Fortimedix guarantees the ex-works delivery of Products
in 21 days from the date of receipt of XTENT’s purchase order. Fortimedix will
make all reasonable efforts to facilitate less than standard lead time orders and
will promptly confirm XTENT all delivery dates of less than the standard lead
time.

Fortimedix’s obligations hereunder, shall be excused
by strikes, riots, war, invasion, acts of God, fire, explosion, floods, delay
of common carrier, acts of government agencies or instrumentalities, or judicial
action to the extent such government or judicial action is not resulting from
Fortimedix’s negligence, wilful wrongdoing or other action in breach of this
Agreement.

10.       Traceability, Audits, and
Quality System

Fortimedix will provide XTENT with traceability
records of the Products in accordance with XTENT’s quality procedures. XTENT or
any regulatory body associated with approval of XTENT’s products shall have the
right to audit Fortimedix facility with thirty (30) days advance written
notice. Fortimedix agrees to respond to any audit observations within thirty
(30) days after written notification of the audit observation.

Fortimedix agrees to maintain a Quality System
sufficient to manufacture Products meeting XTENT specifications as well as any
applicable regulatory requirements. Fortimedix agrees to notify XTENT in
writing of planned significant changes to the Quality System prior to
implementation of the changes.

11.       Packing

All Products shall be
suitable packed and shipped to XTENT by Fortimedix in the manner specified by XTENT.
If packing is not specified, the Product shall be packed in a commercially
reasonable manner.

12.       Delivery
Terms

Fortimedix shall deliver
the Products on an Ex-Works basis (Incoterms 2000). XTENT will instruct
Fortimedix which carriers to use for XTENT’s risk and expense. XTENT is
responsible for the insurance of the Product as of the moment that they have
been handed over to the first carrier on Fortimedix’s premises.

13.       Price
and Payment Terms

All orders for Products
hereunder shall be subject to XTENT’s standard Purchase Order Terms and
Conditions, which are attached hereto as Appendix 3 and shall form part of this
Agreement.  In the event of a conflict
between the terms of the Purchase Order Terms and Conditions and the provisions
of this Agreement, the provisions of this Agreement shall prevail. Prices of
the Product are specified in Appendix 2. These prices are valid throughout the
duration of this Supply Agreement. Fortimedix will assume full responsibility
for offsetting the effects of possible cost inflation. Fortimedix agrees that
the price charged for the Products shall be [*].

Certain
Confidential Information contained in this document, marked by “[*],” has been
omitted and filed separately with the securities and exchange commission
pursuant to rule 406 of the securities act of 1933, as amended.

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[*]. All credit notes are
immediately deductible from any outstanding payments. Fortimedix shall invoice XTENT
only upon shipment Ex-Works Fortimedix’s facility.

If XTENT is in delay of
payment for more than 30 days, Fortimedix is allowed to charge an interest fee
equal to the 3-months European Interbank Offered Rate (EURIBOR) plus
2,0%-points. If XTENT is in delay of payment for more than 60 days or if
Fortimedix in its sole discretion finds reasons to believe that XTENT’s ability
to pay is severely impaired, it may suspend deliveries until late payment has
been remedied or the ability to pay has been demonstrated, without such
suspension of delivery being a breach of contract.

14.       Right
of Return

Products found not to be
in accordance with the quality and control requirements, as set forth in the
Specifications as per Appendix 1 will be returned to Fortimedix with a notice
from XTENT identifying and specifying, in reasonable detail, the Products
rejected and the reasons for rejection. Unless Fortimedix’s inspections provide
firm evidence that the Products were in accordance with the quality and control
requirement, XTENT will be credited for the full payments related to those
non-compliant Products. In the event of disagreement between the parties as to
whether any delivered Products meet XTENT’s specifications, each party shall
designate an independent third party expert to inspect such Products and mutually
decide the issue. If such experts are unable to reach agreement, the matter
shall be referred to arbitration pursuant to Section 23.

15.       Warranties

a)              Fortimedix
represents and warrants that all of the Products delivered to XTENT under this
Agreement will comply with the Specifications as per Appendix 1 and that the Products
will be free from any defects in product and workmanship. This is the sole and
exclusive warranty given by Fortimedix with respect to the Product. Fortimedix
makes no other warranty and hereby expressly disclaims all other representation
or warranties of any kind, express or implied. No implied warranty of
merchantability, no implied warranty of fitness for any particular purpose, and
no implied warranty arising by usage of trade, course of dealing or course of
performance is made by Fortimedix.

b)             XTENT
shall not be liable for, and Fortimedix assumes responsibility for and agrees
to indemnify and hold harmless XTENT from, all personal injury and property
damages that occur during Fortimedix’s products formulation, fabrication, or
manufacturing process or for claims based on violations of federal, state or
local laws or regulations applicable to employee or environmental protection,
in connection with such manufacturing process (e.g., a claim based on
Fortimedix’s violations of environmental standards or standards dealing with
providing a safe place to work or the maintenance of hazardous products).

c)              Fortimedix
represents and warrants to XTENT that it has not entered into any agreement,
which conflicts with the terms of this Agreement, and that it will not do so
during the duration of this Agreement.

d)             XTENT shall
indemnify and hold harmless Fortimedix, and agrees to defend any action or
claim against XTENT for patent infringement or infringement of any other
intellectual property right as a result of the use of the Product except to the
extent such action or claim arises out of the alleged infringement by
Fortimedix of patents or other intellectual property rights related to
manufacturing processes or equipment used by Fortimedix for the manufacture of Products
for XTENT.

e)              XTENT
agrees to indemnify and hold harmless Fortimedix, its officers, agents,
employees and authorized representatives from and against any and all costs or
damages arising out of or related to any claim or lawsuit for personal injury
or death to any person as a result of a defect 

Certain
Confidential Information contained in this document, marked by “[*],” has been
omitted and filed separately with the securities and exchange commission
pursuant to rule 406 of the securities act of 1933, as amended.

 

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or malfunction of
any XTENT medical device in which Fortimedix’s Product is used, as long as the
Fortimedix Product was manufactured within established Specifications and was
free from defects in product and workmanship when received by XTENT. XTENT will
defend, manage and assume all costs of any lawsuit or claim related to this
indemnification. Fortimedix will notify XTENT promptly after Fortimedix becomes
aware of any claim by any third party with respect to which Fortimedix would be
entitled to indemnification hereunder. Fortimedix will not settle or offer to
settle any such claim or lawsuit without XTENT’s prior written approval.

f)                In
no event shall either party hereto be liable to the other for any
consequential, indirect, incidental, exemplary or special damages of any kind,
including loss of profit and/or revenue.

16.       Proprietary
Rights

a)              No
license under any intellectual property of Fortimedix, including patents and
trade secrets, is granted herein.

b)             XTENT
is the owner of all intellectual property rights with regard to the Products,
including patents and trade secrets. No license under any intellectual property
of XTENT, including patents and trade secrets, is granted herein.

c)              Any
inventions by a party hereto (First Party) which are derived from the Confidential
Information of the other party (Second Party) shall be owned by the Second Party,
and the First Party agrees to assign such invention to the Second Party,
execute any documents, and perform such other acts as may be necessary or
useful to perfect the Second Party’s ownership thereof.  Confidential Information shall mean all
information relating to the technology, products, services, personnel,
customers, or business of the Second Party which is received directly or
indirectly by the First Party unless such information (i) is in the public
domain not due to any act of the First Party; (ii) was received from a third
party not under any obligation to the Second Party to maintain such information
in confidence; or (iii) is developed independently by employees or agents of
the First Party who do not have access to or knowledge of the Confidential
Information of the Second Party.

d)             Any
inventions by Fortimedix in the XTENT Field (as defined in Section 8) during
the term of this Agreement shall be owned by XTENT, and Fortimedix agrees to
assign any such inventions to XTENT, execute any documents, and perform such
other acts as may be necessary or useful to perfect XTENT’s ownership
thereof.  For purposes of clarity, the XTENT
Field shall not include stent cutting or polishing methods, processes, or
machinery.

17.       Replacement
of Prior Agreements

This Agreement contains
the entire understanding of the parties with respect to the supply of the Products
during the term of this Agreement and voids and supersedes all prior
negotiations, contracts, agreements, undertakings and understandings, whether
written or oral, if any, between the parties. This Agreement may from time to
time be changed but only by an instrument in writing, signed by both parties,
which specifically states that it is an amendment hereto.

18.       Non-Compliance
of Other Documents with Supply Agreement

Sales of Products
hereafter shall be governed by this Agreement and such other documents normally
used by the parties for such transactions including, but not limited to,
purchase orders, confirmations, shipping documents and invoices provided,
however, that if the terms and provisions of any such document or other
communication from one party to the other respecting this Agreement or the Products
hereunder are in conflict with this Agreement, this Agreement shall be deemed
controlling.

19.       Independence
of Parties

Nothing contained in this
Agreement shall be deemed to create a joint venture, partnership, agency or
similar endeavour between the parties hereto. Each party shall act solely as an
independent contractor and neither part shall have any power or authority to
directly or indirectly bind or act on behalf of the other.

20.       Assignment

This Agreement may not be
assigned by any party, without the prior written consent of the other

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party, except to (1) a
direct or indirect wholly-owned subsidiary, (2) any third party who shall
acquire, by sale of assets or otherwise (including merger), all or
substantially all of the assets or a controlling share of the stock of such
party or (3) any entity 50.5% or more of the equity interest in which are owned
by shareholders of such party. No such assignment shall relieve the assigning
party of its obligations hereunder. This Agreement shall be binding upon any
permitted assignee or successor in interest of either party; provided, however,
that any successor in interest of XTENT, whether by acquisition, merger or
otherwise, may terminate this Agreement by providing written notice to
Fortimedix and payment of the amount which would be due for delivery of the
greater of the undelivered quantity of any then-current 3-month forecast or the
undelivered portion of the total of any Minimum Quantities agreed to for such
year and any subsequent years of the Validity Period, if any.

21.       Partial
Invalidity of Agreement

If any provision of this
Agreement is held by any competent authority to be invalid or unenforceable in
whole or in part, the validity of the other provisions of this Agreement and
the remainder of the provisions in question shall not be affected thereby.

22.       Changes

Change proposals or
changes subjected to the Agreement have to be studied before changes can be
executed. All changes requested by XTENT or Fortimedix must be mutually agreed
upon before such changes are implemented by one of the parties. All notices,
requests, proposals or other communication required or permitted to be given
under this Agreement shall be in writing. Any notice given as aforesaid shall
be deemed given and effective upon actual delivery. Any party may change its
address by notice given in accordance herewith.

23.       Dispute
Resolution

The Parties agree that
any dispute arising under this Agreement, or in connection with any breach
thereof, shall be finally resolved through binding arbitration conducted in
accordance with the arbitration rules and procedures of the International
Chamber of Commerce by one (1) arbitrator appointed in accordance with said
rules.  Any such arbitration shall be
held in London, United Kindom. The arbitrator shall determine what discovery
will be permitted, consistent with the goal of limiting the cost and time which
the Parties must expend for discovery; provided the arbitrator shall permit
such discovery as the arbitrator deems necessary to permit an equitable
resolution of the dispute.  Any written
evidence originally in a language other than English shall be submitted in
English translation accompanied by the original or a true copy thereof.  The costs of the arbitration, including
administrative and arbitrators’ fees, shall be shared equally by the Parties,
and each Party shall bear its own costs and attorneys’ and witness’ fees
incurred in connection with the arbitration. 
Any award may be entered in a court of competent jurisdiction for a
judicial recognition of the decision and applicable orders of enforcement.

24.       Counterpart
copies

This Agreement may be
signed in one or more counterpart copies all of which together shall constitute
one Agreement and each of which may equally evidence this Agreement.

25.       Governing
Law, Language

This Agreement shall be
construed and interpreted under and in accordance with the laws of The
Netherlands. The official text of this Agreement shall be in English. Should
the parties sign or execute a version of this Agreement in another language,
any interpretation or construction thereof shall be based solely on the English
language text.

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In
witness of all the above, parties hereto have caused this Agreement to be
executed as of the day and year first written above.

	
  For and on behalf of Fortimedix
  B.V.

  	
   

  	
  For and on behalf of XTENT
  Inc.

  
	
  For and on behalf of Fortimedix B.V.

  	
   

  	
  For and on behalf of XTENT Inc.

  
	
  Name:

  	
   

  	
  MARC VAN DE GRAAF

  	
   

  	
  Name:

  	
   

  	
  HENRY A. PLAIN, JR.

  
	
  Title:

  	
   

  	
  CEO

  	
   

  	
  Title:

  	
   

  	
  Chairman

  
	
  Date:

  	
   

  	
  03 April 2007

  	
   

  	
  Date:

  	
   

  	
  3/27/07

  
	
  Signature: 

  	
   

  	
  /s/ MARC VAN DE GRAAF

  	
   

  	
  Signature: 

  	
   

  	
  /s/ HENRY A. PLAIN, JR.
  

  

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APPENDIX 1: PRODUCT SPECIFICATIONS

	
  Position

  	
   

  	
  Fortimedix

  Partnumber

  	
   

  	
  XTENT Partnumber

  	
   

  	
  Description

  	
   

  	
  Specification numbers

  
	
  1

  	
   

  	
  100052

  	
   

  	
  MS02703

  	
   

  	
  XTENT coronary
  stent 3.5mm MP35N

  	
   

  	
  118001 &
  199014

  
	
  2

  	
   

  	
  100061

  	
   

  	
  MS03481

  	
   

  	
  XTENT coronary
  stent 3.0mm MP35N

  	
   

  	
  131001 &
  199014

  

 

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APPENDIX
2: PRICES

	
   

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  ∞

  	
   

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  

 

Prices are
Ex-Works (Incoterms 2000), excluding taxes and excluding duties.

Prices for the Products are [*].

The above-mentioned prices are for stents, which are:

[*].

·                  In compliance with XTENT’s specifications as set forth in Appendix 1 and
any other specifications agreed-to in writing during the term of this Agreement
(including those set forth in any Purchase Order accepted by Fortimedix).

The above-mentioned prices include [*].

Certain Confidential Information contained in this document, marked by
“[*],” has been omitted and filed separately with the securities and exchange
commission pursuant to rule 406 of the securities act of 1933, as amended.

 

 9
 

APPENDIX 3: XTENT PURCHASE ORDER
TERMS AND CONDITIONS

SHIPPING INSTRUCTIONS

1.            Tariff Provisions: All shipments shall be made in strict
conformity with governing tariff rules and regulations and packaging
specifications, except where otherwise specifically required by provisions of
this Order.

2.            Routing
Instructions:

(a) Freight shipments are to be routed via
Order instructions or as authorized by Buyer. 
Seller will request prior routing instructions for delicate equipment or
emergency shipments.

(b) Freight Charges: Shipments are to be
made “Freight Collect” on FOB source shipments, unless otherwise specified
herein. AIRBORNE shipments are to have freight charges prepaid and added to the
goods invoice. Attach copies of paid freight bills to any invoice that includes
transportation charges.

(c)  Insurance: Do not declare any value for
carriage or insurance.  Shipments shall
be released to minimum value of governing classification or tariff, or insured
for minimum value for traceability.

(d) Consolidation: Except where limited by
Clause 2(c), above, consolidate all shipments to the delivery point specified
herein, for any one day, on one bill of lading.

(e) Purchase Order Number(s) must appear on all correspondence; shipping
labels; invoices; and shipping documents, including packing sheets, bills of
lading, and air bills.

3.            Hazardous
Material Packaging, Labeling, and Shipping: Seller shall comply with provision 10
below.

PURCHASE ORDER GENERAL PROVISIONS

1.            Warranties: Seller expressly warrants that all items
furnished to Buyer hereunder will be fit and safe for the purpose for which
manufactured and for any particular purpose recommended to Buyer by Seller,
will be free from defects in material and workmanship, will conform to
applicable specifications, drawings, samples and descriptions and, if of Seller’s
design, will be free of design defects. These warranties are in addition to any
other express or implied warranties of Seller with respect to the items, and
shall survive acceptance by Buyer of items and any payment by Buyer with
respect to items. Neither Seller’s shipment of any items ordered hereby nor
payment by Buyer of any invoice from Seller to Buyer therefore shall constitute
Buyer’s acceptance of items ordered hereby or waiver of Seller’s warranties
hereunder.  If in Buyer’s reasonable
opinion any item delivered by Seller hereunder is unmerchantable, unfit for its
intended use, or for any particular purpose recommended to Buyer by Seller, or
otherwise defective; then, at any time within ninety (90) days from the date
when such items are received by Buyer, Seller shall at the Seller’s cost,
including, without limitation reasonable field and shutdown costs and any and
all packing, shipment, delivery, and installation costs, promptly repair,
modify, or replace any items.

2.            Changes: By written order, Buyer may from time
to time order work suspension or make changes in drawings, designs,
specifications, quantity, place of delivery, methods of shipment and packaging,
property and services furnished by Buyer. If such change causes an increase or
decrease in the price of this Order or in the time required for its
performance, Seller shall promptly notify Buyer thereof and assert its claim
for adjustment within 10 days after the change is ordered, and an equitable adjustment
shall be made. However, nothing in this provision shall excuse Seller from
proceeding immediately with the Order as changed.  Whether made pursuant to this provision or by
mutual agreement changes shall not be binding upon Buyer except when specifically
confirmed in writing by a member of Buyer’s Purchasing Department. Information,
advice, approvals, or instructions given by Buyer’s technical personnel or
other representatives shall be deemed expressions of personal opinions only and
shall not affect Buyer’s and Seller’s right and obligations hereunder unless
set forth in a writing which is signed by a member of Buyer’s Purchasing
Department and which expressly states that is constitutes an amendment to this
Order. Seller is required to notify Buyer immediately upon making any changes
to the Sellers manufacturing process, materials, or handling that could
possibly affect the quality of the material or service when incorporated into a
finished device.

3.            Infringement Indemnity: Seller warrants that items furnished hereunder
will not and do not infringe any third party patent, copyright, trademark, or
trade secret. If any claim, action, suit or other proceeding is brought against
Buyer based upon copyright, trademark, patent or proprietary rights of a third
party under the laws of any governmental authority relating to the items, Buyer
will give timely written notice to such claim, action, suit or other proceeding
to Seller.  Seller will defend any such
claim, action, suit or other proceeding on behalf of and without expense to
Buyer or Buyer may conduct its own defense which shall be at Seller’s expense
and Seller will indemnify and save Buyer harmless from all losses, costs or
damages, including without limitations reasonable fees for attorneys suffered by
Buyer as a result of any such claim, action, suit or other proceeding. Seller
will, at Seller’s expense (a) use Seller’s best efforts to procure for Buyer or
Buyer’s customers the right to continue selling or using any items or parts
thereof that may be affected by such claim of infringement, or (b) replace the
allegedly infringing items or parts thereof with non-infringing items or modify
such items or parts thereof so that they become non-infringing; provided
however, that such modification shall not materially alter the characteristics,
or affect or increase the cost of use, operation or maintenance of such items.

4.            Proprietary Information, Duplication
and Disclosure:

(a) Seller shall not use for any purpose,
other than fulfilling Buyer’s Orders, or disclose, without Buyer’s prior
written consent, any tools or other items or any drawings, specifications,
technical information or other data which have been specifically designed for
Buyer in connection with this Order or furnished by Buyer.

(b) Seller agrees that it will not
publicize this Order or disclose, confirm, or deny any details thereof to third
parties, or use Buyer’s name in connection with Seller’s sales promotion or
publicity without prior written approval from Buyer.

5.            Default:
Buyer may terminate this Order for Seller’s default, if Seller becomes
insolvent, fails to pay it’s debts as they become due, or makes or proposes an
assignment for the benefit of creditors.

6.            Force Majeure: Neither Buyer nor Seller shall be liable
in damages for, nor shall this Purchase Order be terminable or cancelable by
reason of, any delay or default in either party’s performance hereunder if such
default or delay is caused by events beyond such party’s reasonable control
including but not limited to, acts of God, action of any government or agency
thereof, war or insurrection, civil commotion, destruction of facilities or
materials by earthquake, fire, flood or storm, labor disturbances, epidemic, or
failure of suppliers, public utilities or common carriers. The party so
affected shall give prompt notice to the other party of such cause and shall
take whatever reasonable steps are necessary to relieve the effect of such
cause as rapidly as possible. Both parties agree to endeavor to resume
performance of all obligations under this Purchase Order as soon as practical
if such performance is delayed or interrupted by reason of force majeure.

7.            Assignments and Subcontracting:

(a) Neither this Order nor any interest
herein nor claim hereunder may be assigned or delegated by Seller; nor may all
or substantially all of this Order be further subcontracted by Seller without
the prior written consent of Buyer. Buyer’s consent shall not be deemed to
relieve Seller of its obligations to comply fully with the requirements hereof.

(b) Notwithstanding the above, Seller may
without Buyer’s consent assign monies due and to become due hereunder provided
Buyer shall continue to have the right to exercise and all of its rights under,
settle any and all claims arising out of and enter into amendments to this
Order, without notice to or consent of the assignee. Buyer shall be given
notice of the assignment; all invoices shall refer to the assignment.

8.            Invoices:

(a) Invoices in duplicate shall be mailed
to Buyer’s Accounts Payable Department when items are shipped. The time for
payment shall not commence before Buyer’s actual or scheduled receipt,
whichever is later of items at their destination or before performance by
Seller in accordance with the requirements of this Order. Without limiting
Buyer’s other remedies, if data is deficient or is not furnished when
scheduled. Buyer may withhold remaining payments (or such portion thereof as
Buyer may deem equitable) until such deficiency or delinquency is cured. All
shipping costs and all federal

 10
 

manufacturers’
and retailers’ excise and state or local sales or use taxes, when applicable,
must be billed as separate items on Seller’s invoices. And all tax exemption
certificates shall be accepted by Seller.

(b) In addition to any other remedies that
may be available in law or in equity, Buyer shall have the right to recover
from Seller by offset or otherwise the price of any items returned to Seller
under the terms of this Order.

9.            Buyer’s Representatives: Buyer’s employees are functioning in a representative
capacity for Buyer with respect to any actions taken in connection with this
Purchase Order and may not be held personally liable by Seller for such
actions.

10.          Hazardous Material Packaging,
Labeling, and Shipping: Seller shall package label, transport, and ship hazardous materials or
items containing hazardous materials in accordance with all applicable Federal,
State and Local laws and regulations, including but not limited to current
published issues of tariffs and regulations reflecting 49 Code of Federal
Regulation Articles 100-199, the Explosive Safety Manual AFM 127-100 and
Federal Aviation Regulation 103, as amended (e.g., the current Hazardous
materials Regulations of the Department of Transportation; the Official Air
Transport Restricted Articles Tariff; and subsequent reissues thereof) and
furnish appropriate Material Safety Data Sheets in accordance with California
Hazardous Substances Information and Training Act. Seller prior to each
hazardous material shipment, shall notify Buyer of its nature and shipment data
by such means of communication as will allow for proper preparation for
acceptance of delivery by the carrier of the material and shall identify same
on all shipping documents.

11.          Cancellation: Buyer may cancel this Purchase Order with
30 days written notice to Seller. Buyer and Seller will negotiate a reasonable
cancellation fee to be paid by Buyer, such fee including such Seller expenses
as costs for specialty raw materials procured in advance by Seller for Buyer
for this Purchase Order, goods in progress and finished goods on hand. Such
cancellation fee will not include any penalty for cancellations.

12.          Disputes: Irrespective of the place of performance,
this Order will be construed and interpreted according to the laws of the state
of California without resort to California’s Conflicts of Laws rules. Pending
final resolution of a dispute hereunder, the seller shall proceed diligently
with the performance of this Order and in accordance with the Buyer’s decision.
Venue for any legal proceedings between Buyer and Seller shall be in the state
or federal judicial district closest to Menlo Park, California.

13.          General: This order and the attachments and
documents incorporated herein constitute the complete and exclusive statements
of the terms of this agreement between Buyer and Seller and supersede all prior
representations, understandings, and communications relating hereto. The
invalidity in whole or in part of any provision of this Order shall not affect
the validity of other provisions. Buyer’s failure to insist, in any one or more
instances, upon the performance of any term of Order shall not be construed as
a waiver or relinquishment of Buyer’s right to such performance or to future
performance of such a term or terms and Seller’s obligation in respect thereto
shall continue in full force and effect. Time shall be of the essence
hereunder. Seller shall perform work and make deliveries no earlier than and
only to the minimum extent consistent with delivery schedules and other
requirements.

14.          Precedence: Conflicting provisions hereof, if any shall prevail in the following
descending order of precedence: (1) typed provision set forth on this Order,
(2) Buyer’s Purchase Order Attachments, (3) the preprinted portion of this Order,
including these Purchase Order General Provisions, 4) statement of work, and
(5) specifications attached or incorporated by reference.

                                                                                                                   
                 Rev. 6/06-SF

 

 11Exhibit
10.1

RESTATED
ASSIGNMENT AGREEMENT

Agreement No. 06-0102

This Restated Assignment
Agreement (“Agreement”) is made and entered into in Sacramento, California,
between Premier Waterworld Sacramento, Inc. (“Premier”), a California
corporation and wholly-owned subsidiary of Premier Parks Operations, Inc., the
assignor; Palace Entertainment Holdings, Inc. (“Palace Entertainment”), a Delaware
corporation, the assignee; and California Exposition & State Fair (“Cal
Expo”), an independent entity of state government.  As a matter of convenience, Palace
Entertainment and Cal Expo may be referred to herein as “the Parties.”

Recitals

A.                Whereas, Premier and Cal Expo, on or about December 30,
1999, entered into an Amended and Restated Lease Agreement (“Premier Agreement”)
for the purpose of operating, maintaining, and improving a water park,
consisting of water slides, wave pools, water rides, and other attractions, on
the property of Cal Expo.

B.                  Whereas, on or about January 26, 2006, pursuant to Section
21.1 of the Premier Agreement, Premier notified Cal Expo that it was exercising
its option to terminate the lease effective at the end of the 2006 Operating
Season.  Premier further notified Cal
Expo that it would be removing its personal property, including water slides
and other rides, at termination in accordance with Section 8.8.2 of the Premier
Agreement.

C.                  Whereas, in February 2006, Cal Expo
notified Premier that prior to termination, Cal Expo would consider either a
buy out under Section 20 or an assignment of Premier’s rights and interests to
a qualified third party under Section 24 of the Premier Agreement.

D.                 Whereas, in November 2006, after extensive negotiations with interested third
parties, Premier and Cal Expo have reached agreement that Palace Entertainment
would be assigned Premier’s rights and interests in the Premier Agreement on
the following terms and conditions: 
Palace Entertainment shall pay Premier the sum of $950,000.00 for the
ownership rights to all the remaining personal property belonging to Premier,
including water slides and other rides; Cal Expo shall pay to Premier the
final balance (estimated at $240,000.00) for the purchase of the FRC Premises
as full accord and satisfaction of the “Acquisition Agreement” between Cal Expo
and Premier dated June 9, 1999 (a copy of the Acquisition Agreement is attached
as Exhibit 1); Palace Entertainment enters into an agreement with Cal Expo,
whereby Palace Entertainment accepts the assignment from Premier on the terms
and conditions as amended and restated in this Agreement; and by accepting such
assignment pursuant to Section 20 of the Premier Agreement, Cal Expo and
Premier forever release and discharge the other from any and all claims which
may in any way be connected or based on the Premier Agreement and Acquisition
Agreement.

E.                   Whereas, in connection with the Restated Assignment Agreement, due to many changed
circumstances and to clarify amended terms and conditions, Palace Entertainment
and Cal Expo desire to amend and restate the Premier Agreement such that
the Restated Assignment Agreement supersedes the Premier Agreement and will be
a new and separate agreement.

Now,
therefore, the Parties agree as follows:

Terms
and Conditions

1.                    Based on and
in accordance with the foregoing recitals, Premier hereby assigns all of its
rights and interests in the Premier Agreement to Palace Entertainment; Cal Expo
hereby consents to the assignment, and Palace Entertainment hereby accepts the
assignment from Premier on the terms and conditions set forth below.

2.                    Premises

A.                Grant of
Rights, Definition of Terms:  Cal
Expo grants to Palace Entertainment the exclusive right to equip, improve,
operate and maintain an aquatic park consisting of water slides, wave pools,
water rides and attractions, and other related developments and facilities on
its premises as described and set forth in Exhibit A hereto.  Although the rights conveyed under this
Agreement, except as stated otherwise, are exclusive year-round, the parties
anticipate that the primary commercial use of the Water Park will be May
through September of each year.  Subject
to Cal Expo’s approval, Palace Entertainment may provide programs and
events at other times during the year which do not conflict or compete with
other events and programs held at Cal Expo.  Palace Entertainment shall pay the same rent
as described in this Agreement from revenues from these programs and
events.  All such property and rights,
together with the Water Park Premises, shall be referred to in this Agreement
as the “Premises.”

B.                  Warranties:  Cal Expo warrants that it has the power to
consummate the transactions and take the actions contemplated under this
Agreement, including the transfer (or ratification thereof) of the rights under
this Agreement, and warrants the quiet enjoyment of the Water Park to Palace
Entertainment for the purposes set forth in this Agreement, subject only to
those encumbrances and limitations set forth in this Agreement.  Palace Entertainment warrants that it has the
power to consummate the transactions and take the actions contemplated under
this Agreement.

C.                  Premises
Taken “As Is”:  Palace Entertainment
accepts the Premises in its presently existing condition “as is.”  Except as otherwise described in this
Agreement, Cal Expo shall not be obligated to make any alterations, additions
or betterments thereto.

D.                 Consent to
Jurisdiction and Venue:  This
Agreement is to be performed in the County of Sacramento, State of
California.  Palace Entertainment hereby
expressly agrees and consents to the personal jurisdiction of the Courts of the
State of California in the 

 2
 

County of Sacramento for any purpose or matter
whatsoever alleged by any petition, complaint, or other pleading by Cal Expo
relating to this Agreement.  Palace
Entertainment further consents and agrees that service of any process necessary
in connection with any proceeding alleged to arise out of this Agreement may be
made by Cal Expo on Palace Entertainment by registered mail, postage prepaid,
to Palace Entertainment at its main offices in Sacramento, which service of
process shall be fully effective in all respects as personal service lawfully
made on Palace Entertainment in the State of California.

3.                    Term:  The term of this Agreement shall commence on
December 15, 2006, and shall terminate on December 31, 2015, unless it is
either extended or sooner terminated in accordance with the provisions of this Agreement.

A.                Option 1:  Palace Entertainment shall have an option to
extend this Agreement for an additional ten (10) years, that is, until December
31, 2025, provided that Palace Entertainment meets and satisfies the following
investment and performance criteria:  (1)
on or before May 30, 2009, Palace Entertainment shall invest $2.5 million
in capital improvements and deferred maintenance as approved by Cal Expo; (2) in
addition to the requirement set forth in (1) above, on or before May 30, 2010,
Palace Entertainment shall invest a minimum of $350,000.00 on capital improvements
as approved by Cal Expo; and (3) in addition to the requirements set forth
in (1) and (2) above, Palace Entertainment 
shall invest a minimum of $400,000.00 on capital improvements, on or
before May 30, 2013, as approved by Cal Expo.  In the event Palace Entertainment opts to
invest more than the $2.5 million minimum requirement set forth in (1) above,
any overage shall be applied to the requirements set forth in (2) and (3).  In addition to the investment criteria set
forth above in (1), (2) and (3), Palace Entertainment must attain an average
annual gross revenue for 2007 through 2013 (adjusted for inflation based on the
wholesale price index) that is greater than $2.8 million.

In order to exercise this option, Palace Entertainment must provide
written notice to Cal Expo no later than May 1, 2014, of its intent to
exercise the option; satisfy the investment and performance criteria as set
forth in the foregoing paragraph; shall reach agreement with Cal Expo on a
schedule of capital improvements and deferred maintenance which must be
completed during this ten-year extension; and not be in default under the terms
of this Agreement.  In the event this
Agreement is extended for an additional ten years, it is agreed that this ten-year
extension shall be subject to all the terms and conditions of this Agreement,
unless otherwise agreed to in writing by the Parties.

B.                  Option 2:  In the event this Agreement is extended
pursuant to Option 1, Cal Expo, in the exercise of its sole discretion, shall
have an option to extend this Agreement for an additional five (5) years, that
is, until December 31, 2030.  In order to
exercise this option, Cal Expo must provide written notice to Palace
Entertainment no later than May 1, 2024, of its intent to exercise this
option.  In the event this Agreement is
extended for an additional five years, it is agreed that this five-year
extension shall be 

 3
 

subject to all the terms and conditions of this
Agreement, unless otherwise agreed to in writing by the Parties.  In the event the option is not exercised by
Cal Expo, the Agreement will expire December 31, 2025.

4.                    Payment by
Palace Entertainment to Cal Expo:

A.                Annual Payment:  Palace Entertainment shall pay Cal Expo an
amount equal to eight percent (8%) of the total Gross Revenues generated for
each year of this Agreement commencing January 1, 2007, and each year
thereafter.

B.                  Monthly Installments:  In making the Annual Payment set forth in (A)
above, Palace Entertainment shall make equal monthly payments calculated from
the Gross Revenues received from the preceding year of this Agreement.  Palace Entertainment shall make such payments
on or before the tenth day of each month.

C.                  Annual Report
and Reconciliation:  Within ninety
(90) days after December 31 of each year of this Agreement, Palace
Entertainment shall furnish to Cal Expo a statement of the Gross Revenues
audited for the preceding calendar year, certified by a Public Accountant.  In the event that such audit statement shows
that Palace Entertainment’s total monthly payments is less than the required
Annual Payment, then Palace Entertainment shall pay to Cal Expo the balance due
within thirty (30) days after the audit statement is certified by the Public
Accountant.  Alternatively, in the event
that such audit shows that Palace Entertainment’s total monthly payments exceed
the Annual Payment, then Cal Expo shall refund the excess balance to Palace
Entertainment within thirty (30) days of receipt of the audit statement
certified by the Public Accountant or, if not so refunded, at Palace
Entertainment’s option, shall be offset against the monthly payment(s) next due
and payable by Palace Entertainment.

D.                 Notwithstanding
sub-paragraph 4B, for the 2007 calendar year only, Palace Entertainment shall
make monthly payments in the amount of $25,000.00 on the tenth day of each
month of 2007.

E.                   Notwithstanding
sub-paragraph 4A, for calendar years 2007 and 2008, Cal Expo shall grant Palace
Entertainment a total Annual Payment credit of $200,000.00 to be applied as
follows:  $100,000.00 for calendar year
2007 and $100,000.00 for calendar year 2008. 
This payment credit may be made, at Cal Expo’s option, either in the
form of a rent credit or a payment to Palace Entertainment.  In either event, Palace Entertainment shall
deem the two payments as marketing contributions.

F.                   Place of
Payment: All payments shall be made by Palace Entertainment to Cal Expo at
1600 Exposition Boulevard, Sacramento, California, or at such other location as
shall be designated in writing by Cal Expo.

G.                  Late Payments:  In the event a payment is not made on or
before the due date herein provided, Palace Entertainment shall pay to Cal Expo
a late charge on said unpaid 

 4
 

payment at the rate of one and one-half (1 1/2)
percent per month from and after the due date thereof until the date of
payment.  Should there be unusual or
extenuating circumstances for not paying said payment on or before the due date
herein provided, Cal Expo in its sole discretion may waive the late charge on
the unpaid payment.

H.                 Computation of
Gross Revenues and Definition of Terms: 
For all purposes under this Agreement, the term “Gross Revenues” shall
mean all monies or money equivalents paid or payable to Palace Entertainment
for sales made or services rendered at or from the Water Park Premises
described on Exhibit A hereto, or from any other source including parking
revenue received from Cal Expo related directly or indirectly to the Water Park
through the implementation of the Agreement, without any deductions, provided
that “Gross Revenues” shall not include any sales taxes or other admissions
and/or amusement taxes imposed by any governmental entities and collected by
Palace Entertainment.  “Gross Revenues”
shall not include “trade-outs” or other arrangements whereby Palace
Entertainment engages in advertising or promotion of the Water Park in exchange
for non-cash benefits.

5.                    Capital
Improvements:  Palace Entertainment
shall make the following capital improvements:

A.                Prior to May 30,
2009, Palace Entertainment shall invest not less than $2.5 million in capital
improvements and deferred maintenance, adjusted by the Wholesale Price Index,
of which $650,000.00 shall be spent, not later than May 30, 2007, on a new attraction.

B.                  In addition to
the requirements of paragraph 5(A) above, Palace Entertainment shall invest a
minimum of $350,000.00 in capital improvements prior to May 30, 2010.

C.                  In addition to
the requirements of paragraphs 5(A) and 5(B) above, Palace Entertainment shall
invest a minimum of $400,000.00 in capital improvements prior to May 30, 2013.

D.                 The foregoing
capital improvements shall carry forward if Palace Entertainment invests more
than the required amount in capital improvements prior to December 31, 2009
(i.e., the overage will apply toward the 2010 and 2013 target date requirements).

E.                   Should the
Agreement be extended in accordance with paragraph 3 of this Agreement, the
Parties shall agree to a schedule of capital improvements and deferred
maintenance investment during the extension period (2016 through 2025, and 2025
through 2030).

F.                   All capital
improvements purchased by Palace Entertainment from Six Flags, and all capital
improvements provided under this Agreement, shall become the property of
Cal Expo at Cal Expo’s sole and exclusive option upon termination of
the Agreement for any reason other than Cal Expo’s exercise of its buy-out
option pursuant to paragraph 23 of this Agreement.  Cal Expo, if not exercising its buy-out
option pursuant to paragraph 23, may also require that one or more or all capital
improvements be removed at Palace Entertainment’s sole expense.

 5
 

G.                  For the purposes
of this Agreement, the definition of a “capital improvement” shall be any of
the following:

1)                  A structure
and/or a fixture permanently attached to the structure and structural or
nonstructural improvements of a permanent nature.

2)                  A structure is
an improvement of a permanent nature which is constructed or built.

3)                  A fixture is a
permanent attachment to a permanent structure (of a permanent nature structure
or fixture) which augments the intended use of the structure.

4)                  Permanent nature
means that the intent is of an enduring or fixed nature not temporary or
transient.

5)                  Extensive
remodeling and replacement of an existing facility may qualify as a capital
improvement if the useful life of the facility is extended or its usefulness
increased.

6.                    Quitclaim Deed:  Upon the termination or sooner cancellation
of this Agreement in accordance with the terms hereof, including the
cancellation of this Agreement by Cal Expo by virtue of an Event of Default
described in paragraph 22 below by Palace Entertainment, Palace Entertainment shall
execute and deliver to Cal Expo, within thirty (30) days after such termination
or sooner cancellation (but in no event until Cal Expo has paid the required
buy-out price if terminated under paragraph 23 hereof), a Quitclaim Deed assigning,
transferring and conveying any rights of Palace Entertainment to the Premises
(other than Palace Entertainment’s personal property (including, but not
limited to, water slides and other rides)) arising hereunder, which Quitclaim
Deed shall be recorded at the sole cost and expense (including payment of all
real property transfer taxes arising therefrom) of: (a) Cal Expo, if
the expiration or sooner termination of this Agreement is for any reason other
than an Event of Default (as defined in paragraph 22) by Palace Entertainment,
including but not limited to the exercise by Cal Expo of the its buy-out option
with respect to the Water Park, set forth in paragraph 23 herein, and assuming Cal Expo
has paid the required buy-out price thereunder; or (b) Palace Entertainment, if
the termination occurs by reason of any Event of Default (defined under
paragraph 22) by Palace Entertainment.  The granting of said Quitclaim Deed pursuant
to this Section, however, shall not constitute an admission by Palace Entertainment
of any breach or acquiescence in any termination, and shall not prevent or
estop Palace Entertainment from pursuing all available remedies at law or in
equity.  Should Palace Entertainment fail
or refuse to deliver said Quitclaim Deed, a written notice by Cal Expo reciting
said failure shall after ten (10) days from the date of recordation of said notice
be conclusive evidence of such termination against Palace Entertainment and all
persons claiming an interest in the Water Park Premises under this Agreement.

 6
 

7.                    Parking and
Access to Premises

A.                Parking:  Cal Expo shall provide convenient and adequate
parking areas for customers of Palace Entertainment at all times that Palace
Entertainment is conducting activities at the Water Park in accordance with
this Agreement.  Cal Expo may charge for
such parking in accordance with the terms of this Agreement.  Cal Expo is not required to provide an
exclusive parking area for Palace Entertainment’s customers, but Cal Expo shall
not provide to any other party parking rights that would exclude Palace
Entertainment’s customers from parking areas convenient to the Water Park.  Cal Expo shall provide, at no charge,
reasonably convenient parking for employees and service personnel of Palace
Entertainment (which parking need not be as convenient as customer parking) at
such areas as Cal Expo shall designate and redesignate.  Such parking areas may be changed, at Cal
Expo’s discretion, during the annual California State Fair (“State Fair”).  Cal Expo shall further provide at no charge
convenient access to the Water Park for construction equipment, service and
supply vehicles related to Palace Entertainment’s activities pursuant to this Agreement.

1)                  Subject to the
terms hereof, parking shall be under control of Cal Expo.  Cal Expo expressly reserves the right to
charge for parking provided to customers of the Water Park.  Any fees charged by Cal Expo to Palace
Entertainment’s customers shall not exceed stated public parking fees during
the State Fair (excluding for this purpose Cal Expo’s car pooling rates or any
other parking promotions).

2)                  Except during
the period of the annual State Fair, Cal Expo shall pay to Palace Entertainment
one-half (1/2) of the net proceeds of any parking fees charged to Palace
Entertainment’s customers. Such payments shall be made to Palace Entertainment
no later than twenty (20) days following the end of each month.

3)                  For purposes of
this paragraph 7, “net proceeds” shall be determined by deducting from gross
parking revenues paid by Palace Entertainment’s customers, the expenses of Cal
Expo reasonably incurred for traffic control and fee collection related to
those customers.  In the event that Cal
Expo should conclude it cannot practically determine actual gross parking
revenues from Palace Entertainment’s customers, Cal Expo, upon written
notification to and consultation with Palace Entertainment, shall establish a
reasonable formula for estimating such gross parking revenues based upon other
ascertainable indicia.  In the event that
such expenses exceed the total gross parking revenues Cal Expo has collected
from Palace Entertainment’s customers, Palace Entertainment shall reimburse
Cal Expo for such excess expenses upon Palace Entertainment’s receipt of
written verification thereof.

B.                  “Drop Off”
Area:  Except during the period of
the State Fair, Cal Expo shall exercise its best efforts to provide a separate
automobile “drop-off” area at points convenient to the pedestrian access
through the State Fair site to the Water Park, and shall permit customers of
Palace Entertainment access to these areas at no charge.  The initial automobile drop-off area for the Water
Park Premises shall be at the point closest to the Water Park Premises entrance
on the turnaround at Cal Expo’s Main Gate.

 7
 

C.                  Pedestrian
Access:  Cal Expo shall continue to
provide: (1) pedestrian access through the Cal Expo grounds to the Premises for
customers, employees, service personnel, and agents of Palace Entertainment, and
(2) access to the Premises over the back service road for Palace Entertainment and
its agents, employees, vendors and contractors, all of which shall be related
to Palace Entertainment’s activities pursuant to this Agreement.  The initial pedestrian access for customers of
the Water Park shall be through Cal Expo’s Main Gate and along Palm Avenue
to the Water Park.  Should Cal Expo make
changes in the physical layout of the State Fair site, it may redesignate
customer pedestrian access for Palace Entertainment, provided Cal Expo shall exercise
best efforts to insure that such redesignated access shall be equivalent in
convenience and quality of appearance to the initial access.

D.                 Gates and
Parking Lots:  All references to
particular gates and parking lots in this Agreement shall refer to the
particular gates and parking lots as they are designated on the date of this
Agreement.

8.                    Reserved
Rights of Cal Expo

A.                Cal Expo’s
Control Over Balance of Grounds: 
Except as limited in this Agreement, Cal Expo expressly reserves
the right to grant, during the term hereof or any extension, the right to
operate concessions on the State Fair site other than the Premises including,
but not limited to, concessions for food and beverage, souvenirs, novelties,
crafts, commercial items and other items and services provided at fairs,
expositions, or other interim events on the Cal Expo grounds.

B.                  Cal Expo’s
Right to Levy Charges

1)                  During the
period of the State Fair, Cal Expo may levy a charge for admission to the State
Fair site, and, notwithstanding any other provision of this Agreement, such
charge shall be applicable to all of Palace Entertainment’s customers.

2)                  During periods
other than the State Fair, Cal Expo may, from time to time, in addition to any
charge for parking, levy a separate charge for admission to portions of the Cal Expo
grounds, other than the Premises pedestrian access areas, drop off areas and
parking areas provided under this Agreement, and such charge may apply to Palace
Entertainment’s customers, employees and service personnel, provided that such
charge shall not be levied for the sole privilege of access to the Premises.

C.                  Review of
Items Sold:  Except as limited in
this Agreement, Cal Expo reserves the right to prohibit the sale or rental of
any item which it reasonably deems objectionable from the standpoint of taste,
quality, or compatibility with Cal Expo’s activities, but shall not 

 8
 

exercise this right for the purpose of controlling the
economic return to Palace Entertainment or to protect exclusive licensing or
similar arrangements between Cal Expo and others.  Palace Entertainment, upon written request of Cal Expo,
shall submit items for approval within a reasonable time prior to proposed sale
or rental.  Cal Expo shall respond
to requests for approval within five (5) days of receipt of written request for
approval.

D.                 Cal Expo’s
Right to Make Improvements:  Cal Expo
expressly reserves the right to inspect, investigate, survey, construct,
reconstruct, replace, repair, maintain, and operate water lines, sewer lines,
telephone lines, electrical power lines together with appurtenant facilities
along the route of such lines and facilities existing throughout the Premises,
and to authorize others to do so as necessary as determined by Cal Expo, for
the administrative management and development of the Cal Expo grounds.  Palace Entertainment will be given reasonable
notice when such work may become necessary and shall adjust its operations in
such manner that Cal Expo may proceed expeditiously.  Cal Expo shall not exercise this right in
such a way as to unreasonably interfere substantially with Palace Entertainment’s
operations or customer access to the Water Park or in such a way as to
unreasonably detract from the appearance of the Water Park or unreasonably
deter or discourage patronage of the Water Park.

E.                   Security:  Palace Entertainment will be allowed to
provide limited security staff to work with the Cal Expo Police Department
to ensure the safety of the park and the guests.  Nothing contained in this Agreement shall be
construed to limit Cal Expo’s authority to determine minimum levels of security
reasonably necessary to protect public health and safety, including assigning a
police officer(s) and security guards during operating hours as determined by
the Cal Expo Chief of Police.  Palace
Entertainment agrees to pay Cal Expo its reimbursable rate for such security
provided by Cal Expo at the Water Park Premises in accordance with Palace
Entertainment’s request, including the costs and expenses actually incurred by Cal
Expo in connection with any lawful arrests made in furtherance of providing
such security, including requisite time spent at bookings and court
appearances.  Cal Expo assumes no
responsibility for any loss or damage to the property of Palace Entertainment
as a result of  Palace Entertainment’s
decisions regarding security at the Water Park.

9.                    Special
Duties of Cal Expo

A.                Quality of
Support Services, Documentation of Costs: 
Parking services, security services and any other support service now or
later required of Cal Expo under this Agreement shall be of a reasonable
commercial standard as measured by the standards of other facilities and
operations comparable to those of Palace Entertainment under this Agreement.  Cal Expo shall provide to Palace
Entertainment, at reasonable times and upon reasonable notice, records of costs
and receipts of parking operations and reasonable documentation supporting
actual costs of security operations or other reimbursable items which support
the cost reimbursement claims and profit share determinations made by Cal Expo.

 9
 

B.                  Restriction
on Commercial Activities in Certain Areas:

1)                  Cal Expo shall
not permit or conduct any sales, concessions, promotions or other commercial
use of the parking areas which are directed toward or substantially affect Palace
Entertainment’s customers, nor adversely affect the attractiveness of Palace
Entertainment’s goods or services to such customers.

2)                  Except during the
period of the State Fair, Cal Expo shall not permit or conduct any sales,
concessions, promotions or other commercial use of the pedestrian access areas provided
for Palace Entertainment’s customers except during periods that other
contractors are sharing that pedestrian access for other activities on the Cal Expo
grounds, and during these periods such activities shall be limited to those
directly related to such other use, and shall not be directed primarily at Palace
Entertainment’s customers or interfere with their access to the Premises.

10.              Rights of Palace
Entertainment

A.                Palace
Entertainment Activities

1)                  Permitted
Activities:  Unless otherwise authorized
by Cal Expo, Palace Entertainment may use the Water Park Premises for
commercial purposes only as follows: all activities normally associated with
aquatic park and family oriented entertainment facilities, including, without
limitation, various water-oriented entertainments and rides, games, competitions,
promotions, concessions, musical, dramatic or other stage shows or similar presentations,
and may use the remainder of the Premises for purposes ancillary or incidental thereto
(including but not limited to ingress and egress) and otherwise as permitted in
this Agreement.

2)                  In addition to
the obligation set forth in paragraph 15, Palace Entertainment agrees that in
the event of any litigation or claim of damages for copyright infringement or
violation by Palace Entertainment, its agents or licensees, arising from its
conducting or licensing musical, cinematic, dramatic or other similar shows at
the Water Park, Palace Entertainment will hold Cal Expo harmless and Palace
Entertainment will indemnify and defend Cal Expo in the event of any such
action for or claim of infringement or violation of copyright by Palace
Entertainment, its agents and licensees.

3)                  Exclusive
Commercial Rights on Designated Premises:

a)                   The rights
conveyed under this Agreement include the exclusive right to commercial use of
the Water Park Premises, except as limited by this Agreement.

 10
 

b)                  Palace
Entertainment shall have the sole and exclusive right to enter into concession,
licensing, promotion or sponsorship agreements or exclusive use arrangements relating
to the Water Park (or any portion thereof), provided that any privileges
granted to others by these agreements, including but not limited to signage,
public address announcements, distribution of any material (including but not
limited to coupons, fliers and product samples) and access to the Premises for
hospitality purposes shall be directed to Palace Entertainment’s customers and
shall not be visible to, audible to, or designed to impact any persons other
than Palace Entertainment’s customers, and shall not be directed toward any
other persons on the Cal Expo grounds or the general public without prior
written approval of Cal Expo.

c)                   Cal Expo recognizes
that Palace Entertainment does not have complete control over ambient noise or
incidental visibility; while the volume of public address announcements will be
modulated to the level necessary to be audible to Water Park patrons, it is
possible that these announcements may be audible outside the Water Park.  Palace Entertainment agrees to abide by the City
of Sacramento noise control ordinance, Chapter 66 (commencing with Section
66.101) of the Sacramento City Code, adopted by the City of Sacramento and in
effect on December 1, 1983.  Amendments
to the ordinance made after December 1, 1983, are not directly applicable to
the California Exposition and State Fair.

4)                  Palace
Entertainment’s Right to Levy Charges:

a)                   Palace
Entertainment may charge fees, rates or prices as follows:  (1) for the initial admission to the
Water Park (except as may be limited by this Agreement for the period of the
State Fair); (2) for rides on amusement facilities; (3) for use of
all other facilities operated by Palace Entertainment upon the Premises which are
authorized by Cal Expo in accordance with this Agreement; (4) for sales of
food and beverages, goods, services and other concession items on the Premises;
and (5) for use of the Premises by concessionaires, licensees, and other
third parties otherwise authorized by this Agreement.

b)                  Palace Entertainment’s
fees, rates or prices shall be at a competitive level with similar items
throughout the Cal Expo grounds.  Palace
Entertainment agrees to submit price lists to Cal Expo for review.  If Cal Expo expresses concern over prices
charged, the parties will cooperate to mutually agree on appropriate fees.  If no resolution can be reached, the parties
will proceed with dispute resolution as described in paragraph 18 of this
Agreement.

B.                  Control of
Ticket Sales:  Except during the period
of the State Fair, Palace Entertainment shall operate ticket sales for its
operations.  Cal Expo and Palace
Entertainment shall, from time to time, agree upon appropriate locations for
ticket sale 

 11
 

outlets on the Cal Expo grounds.  Palace Entertainment will follow reasonable
revenue control procedures approved by Cal Expo to monitor revenues.  Cal Expo shall have reasonable access to the
ticket sale operations to review records of receipts and verify accuracy of the
operations themselves.  Cal Expo may, at
Palace Entertainment’s expense, retain personnel to conduct such review and
verification, provided that Palace Entertainment’s obligations to compensate Cal
Expo for the costs of such activities shall not exceed One Thousand Dollars
($1,000.00) in any one year.

C.                  Identifying
Signs:

1)                  Water Park
Sign:  Palace Entertainment has an
identifying sign on the existing pylon at the main entrance to Cal Expo,
identifying the Water Park.  Cal Expo
shall have the right to review and approve any replacements to this sign
desired to be made by Palace Entertainment, at its own cost and discretion,
including but not limited to location, size, design, content, method of
attachment (if any), and materials used to manufacture the sign; provided, however,
Cal Expo hereby acknowledges and consents to any signs existing as of the date
hereof..

2)                  Other Signs:  Palace Entertainment, subject to the sole
discretion of Cal Expo, and on terms mutually agreed upon by the parties,
including reasonable charges levied by Cal Expo for such rights, may
locate other identifying or directional signs at other points on the Cal Expo
grounds.

3)                  Approval:  Cal Expo shall not unreasonably withhold
approval of any signs proposed by Palace Entertainment pursuant to this paragraph
10(C).  In evaluating any signs proposed
by Palace Entertainment, Cal Expo shall use the same standards applied by Cal Expo
to its own signs in the area for which the sign is proposed, or, if Cal Expo
has no signs in such area, in comparable areas of the Cal Expo grounds.  Palace Entertainment shall have the right to
maintain the current entry signage at the pedestrian entrance of the Water Park,
or replacement signage of equivalent quality, size, readability and visibility.

D.                 Promotion and
Advertising:  Palace Entertainment shall
have sole control over advertising and promotion of its facilities and
attractions, provided that, without further consent of Cal Expo, Palace
Entertainment shall have the right to use the names “Cal Expo”, “State
Fair” or similar terms only for purposes of identifying the location of its
facilities.  Cal Expo, in its sole discretion,
may provide to Palace Entertainment the right to advertise or promote, on other
portions of the Cal Expo grounds, its facilities and activities on the
Premises, and Cal Expo may levy a separate charge for such right.

 12
 

11.              Duties of Palace
Entertainment

A.                Quality of
Operation

1)                  Palace
Entertainment shall operate the Water Park for a commercially reasonable period
each year, including during the State Fair.  The operations shall be of first class quality
in all respects which is comparable to similar operations of Palace
Entertainment.  Palace Entertainment shall
diligently pursue a promotional program to increase the use of its services and
facilities.

2)                  Palace
Entertainment shall contract continuously for the personal services of an
expert resident manager of the Water Park (the “Manager”).

3)                  Palace
Entertainment shall establish and schedule hours of operation pursuant to
operating plans that will maximize economic return from operations in Palace
Entertainment’s sole business judgment.  Palace
Entertainment shall prepare and submit to Cal Expo a proposed schedule of
operating hours.

B.                  Palace
Entertainment’s Employees:

1)                  Palace
Entertainment agrees that at all times its employees shall be clean in
appearance and courteous in manner and shall be fully instructed and trained so
that the public and patrons at Cal Expo shall be treated and served with every
reasonable consideration and courtesy.  If,
in the reasonable opinion of Cal Expo, any of Palace Entertainment’s employees
fail to meet reasonably such standards then upon written request of Cal Expo setting
forth in detail the reasons for such request, Palace Entertainment shall
forthwith cause such employee to meet such standards or discontinue the
employment of any such employee or employees at the Water Park.

2)                  Palace
Entertainment’s employees engaged where food and beverage is sold shall comply
with all applicable federal, state, city and county sanitary regulations.

C.                  Expenditures
on Advertising and Promotion:

1)                  Palace
Entertainment will expend annually on advertising and promotion of the Water
Park, as a minimum, eight percent (8%) of annual gross revenues.

a)                   For purposes of
this requirement, monies expended by or on behalf of Palace Entertainment for
advertising and other forms of promotion may be taken into account, so long as
the expenditures are made for the primary purpose of promoting the Water Park
and activities conducted thereat by Palace Entertainment, but there shall not
be taken into account the discounting of tickets or in-kind promotions.

 13
 

b)                  If Palace
Entertainment fails to make the required expenditures on advertising and
promotion in any year, Palace Entertainment shall pay Cal Expo the amount of
the shortfall.

2)                  Nothing in this
paragraph 11(C) shall limit the discretion of Palace Entertainment to determine
the method and amount of advertising and promotion expenditures so long as
Palace Entertainment complies with the minimum expenditure requirements set
forth above.

D.                 Expenditures
on Capital Improvements:  Palace
Entertainment shall make new capital improvements on the Water Park Premises as
outlined in paragraph 5 of this Agreement.

1)                  Palace
Entertainment shall annually prepare or revise and submit to Cal Expo a current
Capital Improvements Plan (sometimes referred to herein as the “Plan”) that
identifies contemplated capital improvements, including any substantial changes
or alterations in any existing improvements, during the next following five
years.  Except as provided in this
Agreement, Palace Entertainment shall not be required to carry out such
improvements, but Palace Entertainment shall not carry out any improvements
unless those improvements are set forth in the Plan.

2)                  Cal Expo may
object to the inclusion of any contemplated capital improvement in the Plan if
the improvement is materially inconsistent with appropriate standards of
appearance or safety, as measured by the standards applied in other similar
facilities or on the balance of the Cal Expo grounds.  Cal Expo shall, within forty-five (45) days
of receipt of the Plan, notify Palace Entertainment in writing of such
objections.  Failure of Cal Expo to make
such objection shall be deemed a waiver of Cal Expo’s right to object to the
proposed capital improvement in concept, but shall not waive its right to final
review and approval of the plans and specifications for such improvement as set
forth in this Agreement.  Cal Expo’s
refusal to accept a designated capital improvement as part of the Plan shall
not reduce Palace Entertainment’s obligations to provide capital improvements
as set forth in this Agreement.  Cal Expo’s
right to withhold consent on the basis of incompatibility with the balance of
the Cal Expo grounds is intended to insure reasonable compatibility taking into
account not only the interests of Cal Expo in the rest of the Cal Expo
grounds, but the purposes of this Agreement to establish a commercially
successful Water Park for the duration of this Agreement.  Nothing contained in this provision
authorizes Cal Expo to reject improvements that are reasonably
functionally appropriate for the uses permitted to Palace Entertainment under
this Agreement, although the provision does authorize Cal Expo to impose
reasonable requirements with respect to the design and appearance of such
improvements based upon the need for compatibility with the balance of the Cal Expo
grounds.

 14
 

3)                  If Palace
Entertainment fails to make the required expenditures on capital improvements
in any year, Palace Entertainment shall notify Cal Expo of said failure within
30 days after the completion of that year and submit a written plan to Cal
Expo, for Cal Expo’s written approval, showing increased expenditures for the
Water Park in the following year of 110 percent of the amount of the shortfall.
 Cal Expo may, in its sole
discretion, agree in writing to alternative methods to resolve any such
shortfalls.

4)                  Within ninety
(90) days of submission of a Capital Improvements Plan first containing a
planned improvement, Cal Expo shall notify Palace Entertainment in writing if
Cal Expo concludes that any contemplated improvement is not a true capital
improvement that can be credited toward Palace Entertainment’s expenditure
obligations under this provision.

5)                  Except as set
forth in this paragraph 11(D), the timing of any capital improvements shall be
entirely within the discretion of Palace Entertainment.

E.                   Charges
During State Fair Period:  Palace
Entertainment and Cal Expo will agree during the period of the State Fair to a
schedule of attractions, entertainment, and admission pricing that will be
offered on the Water Park Premises during that period.

F.                   Non-Discrimination
Clause:  During the performance of
this Agreement, Palace Entertainment and its subcontractors
shall not unlawfully discriminate, harass, or allow harassment against any
employee or applicant for employment because of sex, race, color, ancestry,
religious creed, national origin, physical disability (including HIV and AIDS),
mental disability, medical condition (cancer), age (over 40),
marital status, and  denial of
family care leave.  Palace Entertainment
and subcontractors shall insure that the
evaluation and treatment of their employees and applicants for employment are
free from such discrimination and harassment. 
Palace Entertainment and subcontractors shall comply with the provisions of the Fair Employment and Housing Act (Gov. Code §12990
(a-f) et seq.) and the applicable regulations promulgated thereunder (California  Code of Regulations, Title 2, Section 7285 et seq.).  The applicable regulations of the Fair
Employment and Housing Commission implementing Government Code Section  12990 (a-f), set forth in Chapter 5 of Division 4 of Title
2 of the California Code of  Regulations,  are incorporated into this Agreement by reference and made
a part hereof as if set forth in full. 
Palace Entertainment and its subcontractors
shall give written notice of their obligations under this clause to labor
organizations with which they have a collective bargaining or other agreement.  Palace Entertainment shall include the
nondiscrimination and compliance provisions of this clause in all subcontracts
to perform work under this Agreement.

G.                  Americans
With Disabilities Act:  Palace
Entertainment, by signing this Agreement, assures Cal Expo that it, Palace
Entertainment, and each of its subcontractors, vendors, exhibitors, promoters,
agents, and employees, if any, comply with the Americans With Disabilities Act
(“ADA”) of 1990 (42 U.S.C. 12101 et. seq.) and California Disability

 15

Access statutes including, but not limited to, the
Unruh Civil Rights Act (Cal. Civ. Code §51 et. seq.), the California
Disabled Persons Act (Cal. Civ. Code §54 et. seq.), and all relevant provisions
of the Health and Safety and Business and Professions Codes, as well as all
applicable regulations and guidelines issued pursuant to the ADA, namely the
Americans With Disabilities Act Accessibility Guidelines (“ADAAAG”) and all
applicable regulations and guidelines issued pursuant to California law
including Title 24 of California’s Building Code.  Failure to comply may subject Palace
Entertainment to civil liability and damages. 
Palace Entertainment further agrees that this covenant to comply with
state and federal disability access requirements continues for the duration of
the Agreement.

H.                 Acknowledgement
of Cal Expo’s Title, Acquiescence in Reversion to Cal Expo:

1)                  Palace
Entertainment hereby acknowledges the fee title of Cal Expo in and to the Water
Park Premises, including real property improvements existing thereon but excluding
Palace Entertainment’s personal property (including, but not limited to,
waters1ides and other rides), and hereby covenants and agrees never to contest
said title.

2)                  At the termination
of this Agreement or in the event of an Event of Default by Palace
Entertainment and cancellation of the Agreement by Cal Expo as a result
thereof, other than if Cal Expo exercises its buy-out provision under paragraph
23 of this Agreement, title to the facilities and improvements constructed by the
Palace Entertainment and those purchased by Palace Entertainment from Six Flags
in accordance with the terms of this Agreement and any fixtures or
appurtenances in connection therewith reverts to Cal Expo.  Within thirty (30) days of such termination, Palace
Entertainment shall remove any of its moveable personal property located on the
Water Park Premises.

I.                      No Liens:

1)                  During the term provided
for in this Agreement, subject to the terms hereof, Palace Entertainment (including
any of its contractors or concessionaires), will not in any way encumber or
cloud its title to all or any portion of the Water Park Premises real property,
or any improvements to it, and will promptly pay and discharge any and all
debts contracted by it in reference thereto for labor, material, or services,
or anything connected with or used by it upon the Premises to the end that no
such liens shall attach unless being contested by or on behalf of Palace
Entertainment in accordance with paragraph 11(I)(2).

2)                  Cal Expo shall
have the right to post such notices as it may desire in order to protect its
interest in the Water Park Premises, and any portions thereof, against liens.  If, nevertheless, any such lien shall be
recorded and Palace Entertainment, within sixty (60) days after notice from Cal
Expo shall fail to pay, settle, or otherwise release such lien, Cal Expo may
pay or otherwise dispose of said lien, or 

 16
 

defend, settle, or compromise any suit brought to
foreclose the same, in its sole discretion, and all amounts so paid by it or
any loss sustained by Cal Expo on that account, including a reasonable amount
for its reasonable attorneys’ fees, shall be repaid to Cal Expo by Palace
Entertainment and shall be in addition to any other payments by way of rental,
or otherwise, required under the terms of this Agreement, provided that, if Palace
Entertainment elects to contest the lien, Palace Entertainment may postpone Cal Expo’s
payment of the lien by (a) making a deposit in escrow with a California bank or
trust company of a sum sufficient to satisfy such lien in full, or (b) posting
a performance bond with a reputable California licensed surety assuring payment
of the claims secured by the lien in the event that such claim proves valid.  In the event Cal Expo does pay such a lien in
accordance with its rights under this Paragraph, Palace Entertainment’s failure
to repay any such sum to Cal Expo within thirty (30) days of when Cal Expo has mailed
a bill therefor to Palace Entertainment shall constitute a breach of this
Agreement.

J.                     Permits:  Palace Entertainment shall at all times abide
by and comply with all applicable federal, state, and local laws and at all
times shall have in good standing necessary licenses or permits to conduct its
operation on the Cal Expo grounds.

12.              Conduct of
Capital Improvements:

A.                Submission of
Plans and Specifications:  At least forty-five
(45) days prior to undertaking any planned capital improvement, Palace
Entertainment shall submit to Cal Expo plans and specifications for such
improvement, prepared or approved by professional engineer or architect
licensed by the State of California, together with a proposed construction and
inspection schedule.  Palace
Entertainment shall also submit an equipment schedule, including catalog cuts,
for approval.  Cal Expo may examine the
submitted materials to ascertain:

1)                  That the
proposed improvement is consistent with the improvement described in the
Capital Improvement Plan or otherwise consistent with the standards by which Cal Expo
has reviewed and approved the Plan.

2)                  That the
proposed construction activities and schedule are consistent with Cal Expo’s
planned activities on the balance of the Cal Expo grounds

B.                  Cal Expo
Comment on Plans and Specifications: 
If Cal Expo disapproves any drawings, plans or specifications, Palace
Entertainment shall submit necessary modifications and revisions.  Cal Expo shall give approval or specify
changes within fifteen (15) days of receipt of such working drawings, plans and
specifications, and if Cal Expo fails to so approve or specify change, then
approval is deemed to be given at the end of the I5-day period.

 17
 

C.                  Scheduling of
Capital Improvements:  Cal Expo, in
its reasonable discretion, may require phasing or rescheduling construction of
capital improvements to prevent conflict with the annual State Fair and other
uses of the Cal Expo grounds.

D.                 Construction
in Conformance with Plans:  The design
and construction of each capital improvement will conform to the working
drawings, plans, specifications and inspection schedule approved by Cal Expo.
No substantial changes or alterations shall be made without prior written
approval of Cal Expo.  Time for
completion may be extended for a reasonable period due to factors beyond the
reasonable control of Palace Entertainment, such as fires, riots, floods,
earthquakes, wars, civil disturbances, major labor disturbances, acts of God or
laws.  Upon completion, Palace
Entertainment shall file a Notice of Completion of Construction with Cal Expo.

E.                   Professional
Review:  Palace Entertainment shall
utilize the services of an architect or engineer and contractor all licensed by
the State of California, for the construction of said capital improvements.  Copies of the agreement between Palace
Entertainment and its architect or engineer and its contractor, and all
inspection reports, shall be furnished to and consented to in writing by Cal
Expo.  The architect or engineer’s
services shall include the preparation or approval of working drawings,
detailed specifications, estimates of cost of construction, supervision, stage inspection.
 Upon completion of construction, Palace
Entertainment shall provide certification by its architect or engineer that the
project to be in substantial accordance with the original plans and
specifications.  Cal Expo shall designate
a member of its engineering staff to monitor and inspect the progress of the
construction at no cost to Palace Entertainment.

F.                   Verification
of Costs:

1)                  Within ten (10)
days of filing such Notice of Completion with Cal Expo, Palace Entertainment will
submit a verified cost statement accompanied by substantiating invoices and
bills for all direct out-of-pocket expenses incurred in the construction of a
capital improvement that it wishes to include in partial satisfaction of its
capital improvement obligations under this Agreement.  These costs shall include the following:  costs of all permits, fees, and licenses; the
aggregate amount for the furnishing of labor, materials and tools, financing
and related costs; and the cost of any and all professional fees, such as
architectural and engineering services, directly related to the project
described in such Notice of Completion.

2)                  After examination
by Cal Expo of both construction and equipment cost statements, Cal Expo will
establish the cost of the constructed capital improvements and the equipment in
connection therewith.

3)                  In the event the
cost statements are not filed by Palace Entertainment within the ten (10) day
period above stated, Cal Expo shall thereupon estimate the cost of either or
both cost statements, if necessary, and such estimate or estimates will become
final within ten (10) days after notice thereof to Palace Entertainment.

 18
 

4)                  In the event of
a discrepancy or dispute between Cal Expo and Palace Entertainment as to the statement
of construction costs or the statement of equipment costs, which discrepancy or
dispute cannot be reconciled between Cal Expo and Palace Entertainment, the
cost statement or statements shall be submitted to an independent auditor
selected by mutual agreement of the parties.  It is agreed that the decision of the
independent auditor shall be final and that the costs of said audit shall be
borne equally by Cal Expo and Palace Entertainment.

13.              Records, Reports
and Audits:

A.                Maintenance and
Disclosure of Records:  Palace
Entertainment shall keep true and accurate books and records showing all of its
business transactions concerning its operations on the Premises in separate
records of account in a manner acceptable to Cal Expo and Cal Expo shall
have the right through its representative, and at all reasonable times, to
inspect such books and records including State of California sales tax return
and other amusement and/or admissions tax records.  Palace Entertainment hereby agrees that all
such records and instruments are available to Cal Expo.

B.                  Statement
Upon Termination:  In the event this
Agreement is terminated, Palace Entertainment shall submit to Cal Expo, within
ninety (90) days after such termination, a gross receipts statement for the
period of operations not previously reported, certified by a Public Accountant
or Certified Public Accountant.  Cal Expo
further reserves the right to examine all such books and records at any time
during the one (1) year period following the termination of this Agreement.

C.                  Cash Register
Equipment:  Palace Entertainment agrees
that as part of its record-keeping activity it shall, at its own cost and
expense, install and maintain such cash register equipment as may be deemed
necessary by Cal Expo.  Such cash
register equipment shall contain a continuous registering tape or other vehicle
for providing an audit trail acceptable to Cal Expo for the accurate
recording of gross receipts.

14.              Security, Letter
of Credit and Bonds:

A.                Security
Requirement:  Pursuant to that
certain Agreement for Deposit of Funds to Secure Performance by Premier
Waterworld Sacramento Inc. between Cal Expo and Palace Entertainment (the “Escrow
Agreement”), Palace Entertainment shall have deposited with Cal Expo the
amount of Two Hundred Thousand Dollars ($200,000) (the “Security Deposit” or “Escrow
Funds”) as security for the faithful and continuing performance by Palace
Entertainment of all the terms and conditions of this Agreement during the
entire term of this Agreement, including but not restricted to the operation
and maintenance of the facilities constituting the Water Park as well as any
additional future developments by Palace Entertainment, and the payment of all
rent, fees, taxes or other charges.  In
the event that Palace Entertainment fails to remedy any Event of Default in the
terms of this Agreement ninety (90) days from the receipt by Palace 

 19
 

Entertainment of written notice by Cal Expo,
Cal Expo may terminate the Agreement and take possession of the Water Park
Premises and seek redress from the Escrow Funds, and, whether or not it does so
may pursue other remedies for such breach available at law or equity.

B.                  Bonding
Requirement:  Prior to the
commencement of construction of any capital improvement or deferred maintenance
item with a cost in excess of One Hundred Thousand Dollars ($100,000), Palace
Entertainment shall furnish to Cal Expo a Payment Bond of a surety
corporation licensed to transact business by the State of California and in a
form satisfactory to Cal Expo, with the persons selected by Palace
Entertainment to construct such capital improvements in accordance with this
Agreement to be named as principals, in a sum not less than fifty percent (50%)
of the total contract cost of the construction of the said improvement,
guaranteeing the payment for all materials, provisions, provender, supplies and
equipment used in, upon, for or about the performances of said construction
work or labor done thereon of any kind whatsoever and protecting Cal Expo from
any and all liability, losses or damages, arising therefrom.

15.              Hold Harmless
Agreement:

A.                Waiver of
Contribution Right:  Palace
Entertainment hereby waives all claims and recourse against Cal Expo including
the right to contribution for loss or damage to person or property resulting
from any activities on the Water Park Premises, except for claims arising from the
sole negligence of Cal Expo, its officers, agents or employees, and claims
arising out of conditions or occurrences with respect to adjacent areas
existing or occurring on or prior to the date of the Premier Agreement, which
conditions or occurrences do not comply with or may give rise to liability
under regulations of any governmental authority, and claims arising under or by
virtue of the Premier Agreement.

B.                  Indemnification
and Hold Harmless:

1)                  Palace
Entertainment shall indemnify, hold harmless and defend Cal Expo and the State
of California, its officers, agents and employees against any and all claims,
suits, actions of every name, kind and description, brought forth from, or on
account of, damage to property or injuries to or death of any person, including
but not limited to workers or the public, resulting from any activities on the
Premises, except for (1) claims arising out of the sole negligence of Cal Expo
and the State of California, its officers, agents or employees, and (2) claims
arising out of conditions or occurrences with respect to the Premises and
adjacent areas occurring or existing prior to the date of this Agreement, which
conditions or occurrences do not comply with, or may result in liability under
the environmental laws or regulations of any governmental authority.

 20
 

2)                  Cal Expo shall
indemnify, hold harmless, and defend Palace Entertainment, its officers, agents
and employees against any and all claims, suits, actions of every name, kind
and description, brought forth from, or on account of, damage to property or
injuries to or death of any person, including but not limited to workers and
the public, arising out of (1) the sole negligence of Cal Expo, its officers,
agents or employees, or (2) any conditions or occurrences with respect to the
Premises and adjacent areas existing or occurring prior to the date of this
Agreement, which conditions or occurrences do not comply with, or may result in
liability under the environmental laws or regulations of any governmental
authority.

3)                  Palace
Entertainment hereby waives all claims and recourse against Cal Expo and the
State of California including the right to contribution for loss or damage to
persons or property arising from, growing out of, or in any way connected with
or incident to this Agreement.  The duty
of Palace Entertainment to indemnify and save harmless includes the duties to
defend as set forth in section 2778 of the Civil Code.

4)                  Palace
Entertainment waives any and all rights to any type of express or implied
indemnity against Cal Expo and the State of California, its officers or
employees.

5)                  In the event Cal
Expo is named as co-defendant, Palace Entertainment shall notify Cal Expo of
such fact and shall represent Cal Expo in such legal action unless
Cal Expo undertakes to represent itself as co-defendant in such legal
action, in which event Palace Entertainment shall bear Cal Expo’s litigation
costs, expenses, and attorney’s fees.

6)                  Notwithstanding
paragraph 15(B), Cal Expo shall not be liable for loss or damage to the
property owned, leased, or operated by Palace Entertainment.

16.              Insurance:

A.                Liability
Insurance:  Palace Entertainment shall
provide a general liability insurance policy in the minimum sum of Ten Million
Dollars ($10,000,000) per occurrence and annual aggregate, or its equivalent
providing coverage for, but not limited to, the following: Bodily Injury and
Property Damage, Premises/Operations, Products/Completed Operations,
Independent Contractors, Automobiles owned, hired and leased, and be in
accordance with all of the limits, terms and conditions set forth herein. The
limits may be satisfied by a combination of primary and excess liability policies.
 Palace Entertainment agrees that this
coverage shall be provided on a primary basis to any other coverage(s) provided
or available to Cal Expo.  The policy
shall contain the following special endorsements: (1) State of California,
California Exposition and State Fair, its Board of Directors, officers, agents,
employees, and servants are included as additional insureds; (2) the insurer
will not cancel or reduce the insured’s coverage without thirty (30) days prior
written notice to Cal Expo; (3) 

 21
 

Cal Expo will not be responsible for the payment
of any premiums or assessments on the policy; and (4) the policy shall include
coverage (“Access Area Coverage”) for all claims, suits, actions of any name,
kind and description, brought forth from, or on account of, damaged property or
injuries to or death of any person, including but not limited to workers and
the public, arising out of the use of the Cal Expo grounds’ roadways,
pedestrian walkways, and parking lots, by Palace Entertainment’s customers for
ingress or egress to and from the Water Park, excluding from coverage the
period of the State Fair each year.

Notwithstanding the foregoing, if at any time from and after the date
of this Agreement, the percentage increase (from the date of this Agreement) in
Palace Entertainment’s annual liability insurance premiums solely attributable
to Access Area Coverage exceeds the percentage increase (from the date of this
Agreement) in Palace Entertainment’s total annual liability insurance premiums
for the Water Park (excluding Access Area Coverage), and the dollar amount of such
excess is greater than $15,000, then Palace Entertainment shall have the right,
90 days following written notice of such event to Cal Expo, to terminate
the Access Area Coverage; provided, however, that following such notice to Cal Expo,
Palace Entertainment and Cal Expo shall use all reasonable efforts to
negotiate in good faith an alternative approach for obtaining Access Area Coverage.

For example, assume the annual liability insurance premiums for Access
Area Coverage increase from $10,000 to $30,000, and the total annual liability
insurance premiums for the Water Park (excluding Access Area Coverage) increase
from $40,000 to $80,000 during the same period.  In this example, the percentage increase in
premiums attributable to Access Area Coverage (200%) exceeds the percentage
increase in total non-Access Area Coverage premiums (100%), but the dollar
amount of such excess, $10,000 (100% of $10,000), is less than $15,000.  Therefore, under this example, Palace Entertainment
would not have the right to terminate Access Area Coverage pursuant to this
paragraph.

By way of additional example, assume the annual liability insurance
premiums for Access Area Coverage increase from $10,000 to $40,000 and the
total annual liability insurance premiums for the Water Park (excluding Access
Area Coverage) increase from $40,000 to $80,000 during the same period.  In this example, the percentage increase in
premiums attributable to Access Area Coverage (300%) exceeds the percentage
increase in total non-Access Area Coverage premiums (100%) , and the dollar
amount of such excess, $20,000 (200% of $10,000), is greater than $15,000.  Therefore, under this example, Palace
Entertainment would have the right to terminate Access Area Coverage pursuant
to this paragraph.

Notwithstanding anything in this Agreement to the contrary, if Palace
Entertainment is unable to obtain Access Area Coverage (conforming to the other
requirements of this paragraph) because insurance companies refuse to provide
Access Area Coverage for the Water Park due to factors beyond Palace
Entertainment’s control, then after Palace 

 22
 

Entertainment and Cal Expo have exhausted all reasonable efforts
to provide some alternative approach for obtaining Access Area Coverage, Palace
Entertainment shall not be required by this paragraph to obtain such Access
Area Coverage.

The policy with the endorsements shall be submitted to Cal Expo for
approval by California Fair Services Authority (“CFSA”).

Palace Entertainment agrees that the policy herein provided for shall
be in effect at all times during the term of this Agreement.  In the event said insurance expires at any
time or times during the term of this Agreement, Palace Entertainment agrees to
provide at least thirty (30) days prior to said expiration date, a new
certificate of insurance evidencing insurance coverage as provided for herein
for not less than one (1) year.  New
certificates of insurance are subject to the approval of CFSA, and Palace
Entertainment agrees that no work or services shall be performed prior to the
giving of such approval.  Said
certificate of insurance for all areas affected by this Agreement, shall be
issued by an insurance company that is acceptable to CFSA, and Cal Expo shall
have the right to reconsider insurance requirements during the term of the Agreement.  The failure of Palace Entertainment to keep
in effect at all times insurance coverage as herein provided will constitute a
breach of this Agreement.

B.                  Additional
Insurance Provisions:  Palace
Entertainment agrees to procure and continuously maintain and carry throughout
the term hereof at its own cost and expense the following:

1)                  Workers’
Compensation Insurance:  All
employees of Palace Entertainment shall be covered by workers’ compensation insurance
as required by law.  Palace Entertainment
shall have the right to act as a self-insurer after qualifying under the laws
of the State of California and submitting a copy of their Certificate of
Consent to Self-Insure to Cal Expo.

a)                   Evidence of workers’
compensation insurance shall be submitted prior to commencement of term; or

b)                  Palace
Entertainment has no paid or volunteer employees and Palace Entertainment
executes and submits an “Exemption from Workers’ Compensation” form.  This certification does not alter or affect
compliance with the workers’ compensation requirements in the Labor Code of the
State of California.

2)                  Palace Entertainment
shall carry all risk insurance for fire, storms, wind and other possible
casualties in an amount and type satisfactory to Cal Expo.  Such insurance on the improvements, fixtures,
furnishings, equipment, and all other personal property, including supplies of Palace
Entertainment on the premises, shall be in an amount adequate to insure the
replacement of said property in the event of loss.

 23
 

3)                  All insurance
required hereunder shall be for the protection of Cal Expo and the State of
California, as well as Palace Entertainment, shall be written by such company
or companies as Cal Expo shall approve and, in the absence of agreement as
to amount, shall be in the amounts customarily carried in each category by
operators of comparable facilities as a minimum.  All losses under any such policies of
insurance shall be so written as to be payable to “Palace Entertainment, a Delaware
corporation” and/or Cal Expo, State of California as their interests may
appear.

4)                  Palace
Entertainment shall submit copies of insurance policies to Cal Expo for
approval by CFSA prior to the commencement of operation on the Water Park
Premises.  At least thirty (30) days
prior to the expiration of any policy, a renewal policy of insurance showing
that such insurance coverage has been renewed, shall be filed with Cal Expo.

5)                  In the event Cal
Expo reasonably determines, based upon practices of comparable facilities, that
other insurance than those types specifically listed is believed by
Cal Expo to be necessary for the protection of the joint interest of the
parties hereunder, Palace Entertainment likewise agrees to procure, pay for and
carry such other additional insurance.

C.                  Palace
Entertainment’s Self Insurance:  At any
time, Palace Entertainment may submit to Cal Expo a plan whereby Palace
Entertainment would “self-insure” to the limits required under this paragraph 16.
 Cal Expo shall promptly review such
proposed plan and shall not unreasonably refuse to approve it as a means of
satisfying Palace Entertainment’s insurance obligations under this Paragraph.

17.              Taxes:  It is acknowledged by Palace Entertainment that
this Agreement will create a possessory interest in public property which is
subject to property taxation.  Palace
Entertainment agrees to pay any property taxes lawfully levied on such
possessory interest.  Palace
Entertainment agrees to pay the above and all other lawful taxes, assessments
or charges which at any time may be levied by the State of California, County
of Sacramento, City of Sacramento, or any tax assessment levying body upon any
interest in this Agreement or any possessory right which Palace Entertainment may
have in or to the Water Park Premises covered hereby or the improvements thereon
by reason of its use or occupancy thereof or otherwise, as well as all taxes,
assessments, charges on goods, merchandise, fixtures, appliances, equipment,
and property owned by it in or about the Premises, provided that Palace
Entertainment may contest the imposition of any such tax and may withhold
payment upon provision of a bond or other financial assurance satisfactory to
Cal Expo insuring that funds are available for such payment.

 24
 

18.              Dispute
Resolution:  The parties agree to the
following dispute resolution procedure to cover any and all disputes arising
under the lease:

A.                Mediation:  In the event of a dispute, claim or
controversy arising out of or relating to the Agreement or the breach,
termination, enforcement, interpretation or validity thereof, and such dispute,
claim or controversy cannot be informally resolved by the parties, the parties
agree to formally mediate the dispute prior to initiating arbitration as set
forth in subparagraph (b) below.  The
parties agree to share equally in the costs associated with mediation.

B.                  Arbitration:  In the event mediation fails to resolve a
dispute, claim or controversy arising out of or relating to the Agreement or
the breach, termination, enforcement, interpretation or validity thereof,
including the determination of the scope of applicability of the Agreement to
arbitrate, the parties agree to submit the unresolved matter to arbitration and
shall be bound by the determination of one arbitrator in Sacramento,
California.  The arbitration shall be
administered by JAMS pursuant to its Streamlined Arbitration Rules and
Procedures.  Judgment on the award may be
entered in any court having jurisdiction. 
The arbitrator may, in the award, allocate all or part of the costs of
the arbitration, including the fees of the arbitrator and the reasonable
attorneys’ fees of the prevailing party.

C.                  Venue in
Sacramento:  The parties to this
Agreement agree that any action at law or suit in equity, relating to this
Agreement or any provision thereof, shall only be instituted and maintained in
a court of competent jurisdiction in the County of Sacramento, State of
California.  Each party hereto waives the
right to change of venue.

D.                 Notwithstanding
the foregoing, in the event litigation is instituted by one party against the
other, the parties agree that, in addition to any other remedies that this
Agreement or the law may allow, the prevailing party in such litigation shall
recover all reasonable costs, including reasonable attorney’s fees.

19.              Maintenance:

A.                Palace
Entertainment’s Responsibilities: 
Palace Entertainment agrees to maintain any and all facilities at the Water
Park in good order and repair at its own cost and expense during the entire term
of this Agreement.  At the beginning of
each year, Palace Entertainment shall provide Cal Expo with a projected
maintenance schedule for the upcoming year.

B.                  Cal Expo
Inspection:  Cal Expo’s representative,
as designated by its General Manager, may make inspections of Palace
Entertainment’s facilities to determine if the maintenance of the facilities is
in conformity with this Agreement.  Palace Entertainment shall perform at its own cost
and expense, any required maintenance and repairs including structural
maintenance and landscape maintenance, and should Palace Entertainment fail,
neglect or refuse to do so, Cal Expo shall have the right to perform such
maintenance or repairs for Palace Entertainment’s account, and Palace
Entertainment agrees to promptly reimburse Cal Expo for the cost thereof,
provided, however, that Cal Expo shall first give Palace Entertainment ten
(10) days written 

 25
 

notice of its intent to perform such maintenance or
repairs.  Cal Expo shall not be
obligated to make any repairs to or maintain any improvements on the subject
premises.  Palace Entertainment hereby
expressly waives the right to make repairs at the expense of Cal Expo and
the benefit of the provisions of Sections 1941 and 1942 of the Civil Code of
the State of California relating thereto if any.

C.                  Clean-up of
Area Surrounding Water Park:  Palace
Entertainment expressly agrees at all times during the term of this Agreement,
at its own cost and expense, to maintain and operate the Water Park and areas
adjacent to said Park, to a distance of not less than fifty (50) feet, in a
clean, safe, wholesome and sanitary condition free of trash, garbage or
obstructions of any kind and in compliance with any and all present and future
laws, general rules or regulations of any governmental authority now or at any
time during the term of this Agreement in force relating to sanitation or
public health, safety, and welfare.  Palace Entertainment shall remedy without
delay any defective, dangerous or unsanitary conditions on said Water Park or
within the area described in this subparagraph.  Notwithstanding the foregoing, Palace
Entertainment’s obligations as described in this subparagraph shall not alter,
modify or diminish Cal Expo’s indemnity obligations as set forth in
paragraph 15 above.

D.                 Other
Maintenance Services:  Palace
Entertainment further agrees to assume and pay when due all operating expenses
for pest control, garbage and waste removal, janitorial services, and any other
operating services accruing or payable in connection with its occupancy of the Water
Park and, any part thereof, including deposits, fees, required by the supplier
of any such service.

20.              Utilities and
Services:

A.                Payment of
Utility Charges:  Palace
Entertainment shall assume and pay when due all charges for gas, power,
telephone; light, and any other utility services accruing or payable in
connection with its occupancy of the premises and any part thereof, including
deposits, connection fees or charges and equipment rental required by the
supplier of any such utility service, provided Palace Entertainment agrees to
reimburse Cal Expo for utilities based upon a reasonable estimate of the
proportion of such utility services actually used by Palace Entertainment if the
utilities are not separately metered.

B.                  Refuse
Disposal:  It is understood that Cal Expo
has, and will continue to have in the future, an exclusive agreement with a
refuse company for the disposal of refuse on the Cal Expo grounds and
Palace Entertainment hereby agrees that all of its facilities located on the Water
Park Premises will be subject to the terms, conditions and unit price of said agreement
for the disposal of its refuse.

 26
 

C.                  Water:

1)                  The Water Park Premises
are currently served by a well designated as Well Number Three, which will be
maintained by Cal Expo.  No charge
shall be made by Cal Expo for water use by Palace Entertainment during the
term of this Agreement or extension thereof.  Cal Expo does not, however, guarantee an
adequate water supply to Palace Entertainment for the term of this Agreement or
extension thereof and in the event that the water supply from Well Number Three
diminishes or is insufficient to meet the needs of Palace Entertainment, it is understood
that Palace Entertainment, at its cost and expense, will seek another source of
supply from the City of Sacramento or other governmental agency.

2)                  Cal Expo represents
that it has no present information indicating that the current water supply in
Well Number Three is or will become inadequate or unsuitable, and further
covenants to cooperate in any reasonable way in assisting Palace Entertainment in
obtaining an alternate water supply should that become necessary.

21.              Labor-Management
Relations:  During the term of this
Agreement, Palace Entertainment shall take all reasonable steps (consistent
with applicable law) necessary to assure satisfactory labor-management
relations to the end that the operation of Palace Entertainment, Cal Expo or
of exhibitors, concessionaires, or others on the Cal Expo grounds shall in no
way be affected by strikes, picketing, boycotts, or other labor activities.  Palace Entertainment, however, does not
warrant or guarantee that there will be no such strikes, picketing, boycotts or
other labor activities.

22.              Termination Prior
to Expiration of Term:

A.                Events of
Default Defined:  Any of the
following acts or omissions shall constitute breach of this Agreement if not
cured within applicable notice and cure periods (each referred to herein as an “Event
of Default” or “breach” of this Agreement) which shall give Cal Expo the
right to terminate this Agreement as set forth in this paragraph if not cured
within applicable notice and cure periods and take such other actions to
enforce this Agreement as are permitted by law.  Due performance of this Agreement by Palace
Entertainment is an express condition of its continuance, as provided in this paragraph.

1)                  Cessation of
Business:  If Palace Entertainment, without
the written consent of Cal Expo, during the period Palace Entertainment is
required to operate the Water Park under this Agreement, closes the Water Park
to the public for a period of either thirty (30) consecutive days or sixty (60)
days during any one year; or

2)                  Breach of
Agreement:  If a material breach is
made by Palace Entertainment of any of the terms, conditions or covenants
contained in this Agreement or the Escrow Agreement (as defined in paragraph 14(A))
which is not cured within 30 days of receipt of written notice thereof, or if not
reasonably capable of being cured within 30 days, as soon thereafter as is commercially
practicable so long as Palace Entertainment diligently prosecutes such cure to
completion; or

 27
 

3)                  Nonpayment of
Rent:  If the required monthly rent
is delinquent in the amount of payment, or in the prescribed time of payment,
for a period in excess of fifteen (15) days (acceptance by Cal Expo of any
portion of the delinquent rent, at the option of Cal Expo shall not constitute
waiver of said breach); or

4)                  Nuisance:  If Palace Entertainment should create or
allow to be created a nuisance on the Water Park Premises.

B.                  Remedies for
Breach:  In the event of a breach of
this Agreement by Palace Entertainment, Cal Expo may send written notice
to Palace Entertainment of said breach.  If
Palace Entertainment shall fail to remedy (1) commence cure of the breach
described in such notice within 90 days of receipt or (2) diligently prosecute
such cure to completion thereafter, Cal Expo, at its option, may declare
this Agreement terminated and may thereupon take immediate possession of the
Water Park Premises.  In addition, Cal Expo
may seek redress against the Escrow Funds on deposit with Cal Expo as set
forth in this Agreement and the Escrow Agreement.

C.                  Bankruptcy:  Subject to the provisions of the United
States Bankruptcy Code, as amended, should Palace Entertainment file a
voluntary petition in bankruptcy or be adjudged a bankrupt either upon the
voluntary petition in bankruptcy of Palace Entertainment or upon the
involuntary petition of creditors of Palace Entertainment, or should Cal Expo
seek a remedy afforded by any statute of the United States relating to
bankruptcy, or should Palace Entertainment make an assignment for the benefit
of its creditors, or should a receiver be appointed over its assets, or should
an attachment be levied, and permitted to remain for a period of more than
thirty (30) days, upon any interest of Palace Entertainment under this
Agreement, then, all interest of Palace Entertainment in this Agreement, except
such interest as may have been validly assigned by Palace Entertainment pursuant
to the conditions of this Agreement, shall at the sole option of Cal Expo terminate
upon ninety (90) days written notice to Palace Entertainment and Cal Expo may
enter and take possession of the Water Park Premises.

23.              Buy-Out Provisions:  Notwithstanding any other provision in this Agreement
and in addition to any other remedy available, the parties agree to the
following buy-out provisions.

A.                Cal Expo’s
Buy-Out

1)                  The buy-out
provision cannot, at any time during the term or any extension thereof, be
utilized by Cal Expo to replace Palace Entertainment as the operator (any
termination for good cause will not be an exercise of the buy-out provision).

2)                  The buy-out
option may not be utilized by Cal Expo until the end of the 2011 water park
operating season (i.e., October 1, 2011).

3)                  Cal Expo will
have from October 1, 2011, until December 31, 2011, to notify Palace
Entertainment of its intent to exercise the buy-out clause.

 28
 

4)                  If Cal Expo
exercises the buy-out clause, Palace Entertainment is entitled to remove (at
its sole expense) whatever capital improvements have been purchased on or for
the site and will receive a lump sum payment equivalent to two (2) times one
(1) year’s gross revenue received by Palace Entertainment (taking the average
of the previous three (3) years’ gross revenue).

5)                  If Cal Expo does
not exercise the buy-out clause in 2011, it will have a similar opportunity to
do so from and between October 1, 2015, and December 31, 2015, and again from
and between October 1, 2020, and December 31, 2020, with the same buy-out
payment and rights to the assets as set forth in subparagraph 4) above,
provided the Agreement is extended in accordance with paragraph 3 of this
Agreement.

B.                  Palace
Entertainment’s Buy-Out

1)                  If Palace Entertainment
elects to terminate this Agreement prior to the expiration of the term or any
extension thereof, it shall provide Cal Expo with 12 months written notice and
shall pay Cal Expo two (2) times the annual rent (averaged over the last
three (3) years of operation).  In
addition to the payment, Palace Entertainment agrees that all capital
improvements purchased by Palace Entertainment from Six Flags, and all capital
improvements constructed or implemented under the terms of this Agreement,
shall become the property of Cal Expo at Cal Expo’s sole and
exclusive option upon early termination of the Agreement.  Cal Expo, in the exercise of its sole
discretion, may require that one or more of the capital improvements be removed
at Palace Entertainment’s sole expense.

24.              Notices:  Any notices provided for in this Agreement,
or which otherwise may be given by either party to the other, shall be deemed
to have been fully given when made in writing and deposited in the United
States mail, certified as registered, postage prepaid and addressed as follows:

	
  To Palace Entertainment at:

  	
  Palace Entertainment

  
	
   

  	
  Raging Waters Sacramento

  
	
   

  	
  1600 Exposition Boulevard

  
	
   

  	
  Sacramento, CA 95815

  
	
   

  	
  ATTN: General Manager

  
	
   

  	
   

  
	
  To Cal Expo at:

  	
  California Exposition & State Fair

  
	
   

  	
  1600 Exposition Boulevard

  
	
   

  	
  Sacramento, CA 95815

  
	
   

  	
  ATTN: General Manager

  

 

 29
 

25.              Assignments:

A.                No Transfer
Without Cal Expo Consent:  Except as
otherwise provided herein, no transfer, conveyance, pledge or assignment by Palace
Entertainment of this Agreement or of any part thereof or interest therein
directly or indirectly, voluntarily or involuntarily, shall be made unless such
transfer, conveyance, pledge or assignment is first consented to in writing by Cal Expo
as required by, and pursuant to the provisions of this paragraph.

B.                  Assignment
for Security:  Palace Entertainment’s
possessory interest in Palace Entertainment’s improvements under the terms of
this Agreement, for the purposes of affording security only, may be assigned,
transferred or encumbered when first consented to in writing by Cal Expo.  Cal Expo shall give such consent upon
verification that such assignee is a responsible commercial lender and that
such assignment is made consistent with the requirements and restrictions of
this Agreement.  No mortgage shall be
executed and no bonds or other evidence of interest in, or indebtedness upon
the assets or proposed assets of Palace Entertainment shall be issued except
for the purposes of acquiring, installing, enlarging or improving plant and
equipment and extending facilities for the accommodation of the public, and then
only upon prior consent in writing in each case obtained from Cal Expo.  In the event of breach and foreclosure on
such mortgage or such other indebtedness or of other assignment, transfer or
encumbrance, the purchaser under the foreclosure sale, shall succeed to the possessory
interest of Palace Entertainment.  Under
these circumstances, operating rights and privileges shall be as outlined in
this Agreement, however, the right of any person or persons to actually operate
the said premises is subject to the consent of Cal Expo.

C.                  Assignment
for Other Than Security:  Except as
provided in paragraph 25(A),Palace Entertainment shall neither assign or
otherwise convey any interest of any sort granted by this Agreement, to any
person or persons, entity or entities whatsoever, without prior written consent
and approval by Cal Expo.  Before Cal Expo
considers such assignment, Palace Entertainment shall have adequately carried
out the provisions of this Agreement for a period of no less than three (3)
years.  Cal Expo’s consent to an
assignment by Palace Entertainment shall not unreasonably be withheld.  In deciding whether to consent, Cal Expo may
consider the financial capability and stability of the proposed assignee, the
experience of the management of the assignee in operating a water theme park,
and the reputation of the assignee.  Cal Expo may further review those
provisions of the transfer documents dealing with the transition from assignor
to assignee of control over operations at the Water Park to ensure a reasonably
smooth transition of such control.  All
of Cal Expo’s review hereunder will be with a view to satisfy Cal Expo
that the quality and financial capability of the operator and the operations at
the Water Park will not materially suffer due to the assignment.  Palace Entertainment’s interest here shall not
be assignable in bankruptcy, nor shall said interest be assignable by operation
of law.  Any document by which an
interest is granted, subject to the prior written consent of Cal Expo, shall
indicate that the person

 30

acquiring such interest has been advised of and takes
his interest subject to the terms and conditions of this Agreement.  However, in the event of termination of this
Agreement, Cal Expo, at its sole option, may elect to treat any assignee,
subtenant or holder of an interest conveyed by Palace Entertainment as Cal Expo’s
tenant, subject to the terms and conditions of this Agreement.

D.                 Change in
Stock Ownership:

1)                  Any single
change in stock ownership, voluntary, involuntary, by operation of law, or
otherwise (excluding a change by reason of inheritance or operation of the California
Community Property Law), which results in a transferee, who is other than
either the stockholder of Palace Entertainment at the time of executing this
Agreement, or an Affiliate thereof, such that such transferee owns a
controlling interest of the stock after the transfer, shall be deemed as an
assignment prohibited by this paragraph unless written consent of Cal Expo
be obtained as provided in this paragraph. 
Cal Expo’s consent shall not be unreasonably withheld, nor shall
any unreasonable terms and conditions in connection therewith be imposed.  Cal Expo’s consent shall be based upon consideration
of the financial responsibility, character, business ability, morality, and
reputation of such person obtaining stock by assignment covered by this
paragraph.  In the event that the stock
of Palace Entertainment goes to a public issue, this paragraph shall not apply
but the list of stockholders owning more than 5% of the stock and the amount of
stock held shall be submitted to Cal Expo. 
Notwithstanding the foregoing, this paragraph shall not be applicable as
long as at least 51% of the outstanding shares of voting stock of Palace
Entertainment are owned by the current owners of all of its voting stock or by
any persons, corporations or other entities, which directly or indirectly
control or are controlled by or under common control with any such current owners.

2)                  As a condition
of obtaining the written consent of Cal Expo, as provided above, Palace
Entertainment shall immediately upon the request of Cal Expo obtain for
and supply to Cal Expo in writing such information as Cal Expo may
reasonably request for the purpose of exercising its power of consent.  The consent of Cal Expo need not be
obtained if the person obtaining stock contrary to provisions of this paragraph
sells or transfers ownership or beneficial interest to a person who was a
stockholder at time of execution of this Agreement.  The sale or transfer shall be accomplished prior
to Cal Expo terminating the Agreement for breach of this paragraph.

26.              Period of State
Fair:  No Assurances to Continue Fair:  For purposes of this Agreement, the period of
the State Fair shall be a period during which Cal Expo conducts the State
Fair on all or a portion of the Cal Expo grounds other than the Water Park
Premises.  This period is typically a
three-week period in August and September in any year, but Cal Expo reserves
the right to schedule the State Fair or reschedule the State Fair in its sole
discretion.  By entering into this
Agreement, however, Cal Expo makes no representation or stipulation as 

 31
 

to the type, size, location or duration of public
facilities to be maintained at the Cal Expo grounds, or to the
continuation of Cal Expo ownership or operation of the Cal Expo
grounds, or the operation of the State Fair.

27.              Time of Essence:  Time shall be of the essence in the
performance of this Agreement.

28.              Conflict of
Interest:  Palace Entertainment warrants
and covenants that no official or employee of Cal Expo nor any business
entity in which an official or employee of Cal Expo’s interested, (1) has
been employed or retained to solicit or aid in the procuring of this Agreement;
(2) will be employed in the performance of this Agreement without the immediate
divulgence of such fact to Cal Expo. 
In the event Cal Expo determines that the employment of any such
official, employee or business entity is not compatible with such official’s or
employee’s duties as an official or employee of the State of California, Palace
Entertainment, upon request of Cal Expo, shall terminate such employment
immediately.  For breaches or violation
of this paragraph, Cal Expo shall have the right both to annul this
Agreement without liability and, in its discretion, recover the full amount of
any such compensation paid to such official, employee or business entity.

29.              Paragraph Titles:  The paragraph titles in this Agreement are
inserted only as a matter of convenience and for reference, and in no way
define, limit or describe the scope of intent of this Agreement or in any way
affect this Agreement.

30.              Alcoholic
Beverages:  The sale of alcoholic beverages
by Palace Entertainment at the Water Park Premises is hereby approved by Cal Expo
provided that the required permits or licenses are obtained and maintained by Palace
Entertainment.

31.              Management
Representative:

A.                Cal Expo
Representative:  For purposes of this
Agreement, the General Manager for Cal Expo, herein called “General
Manager,” is the Cal Expo representative in direct charge of the Cal Expo
grounds.  The General Manager shall
designate to staff the day-to-day administration of this agreement and to be Palace
Entertainment’s contact with Cal Expo for information, agreement
performance, and other problems that may arise.

B.                  Palace
Entertainment Representative:  Palace
Entertainment shall designate in writing a representative (which may be the
Manager) who shall be available at the Water Park or otherwise reasonably
available during the period when Palace Entertainment’s facilities are in operation
and who shall be authorized to take immediate action when necessary upon
request of Cal Expo.

C.                  Change in
Representative:  Palace Entertainment
may change its designated representative from time to time by giving written notice
thereof to Cal Expo in the manner herein provided.

 32
 

D.                 Entire
Understanding:  This Agreement
contains and embraces the entire Agreement between the parties hereto and
neither it nor any part of it may be changed, altered, modified, limited or
extended orally except by written amendment thereto signed by Cal Expo and
Palace Entertainment, or their successors in interest.

32.              Waiver of Claims:  Palace Entertainment hereby waives any claim
against the State of California, its officers, agents or employees for damage
or loss from delay or attorney’s fees caused by any suit or proceeding directly
or indirectly attacking the validity of this Agreement, or any part thereof, or
by any money judgment or award against Palace Entertainment in any suit or
proceeding declaring this Agreement null, void or voidable or delaying the same
or any part thereof from being carried out unless Cal Expo shall fail to
defend the validity of this Agreement in any such suit or proceeding.

33.              Cal Expo Approval
Shall Be Reasonably Given:  Except as
specifically provided otherwise in this Agreement, in each case in this
Agreement in which Cal Expo is given a right to consent to or approve, or
otherwise has discretion with respect to, any act, policy, or decision of Palace
Entertainment, Cal Expo shall not unreasonably withhold or delay such
consent or approval, taking into account the standards established herein for
such consent or approval or exercise of discretion. If no standards are
established, then the standards shall be those that would reasonably apply to
the prudent operation of an enterprise similar in kind and quality to the Water
Park.  The failure of Cal Expo to
respond to any requests by Palace Entertainment for its consent or approval
within the periods provided herein shall be deemed to be Cal Expo’s consent
to the matters which are the subject of such consent.

34.              Relationship of
the Parties:  The parties hereto
agree that Palace Entertainment, its officers, agents, and employees in
performance of this Agreement shall act in an independent capacity and not as
officials, employees, or agents of Cal Expo.  Nothing in this Agreement shall be construed
to create a partnership, joint venture or agency relationship between the
parties.

35.              Amendment:  No amendment or variation of the terms of
this Agreement shall be valid unless made in writing, signed by the parties and
approved as required.  No oral
understanding or Agreement not incorporated in the Agreement is binding on any
of the parties.

36.              Force Majeure:  Neither party shall be liable to the other
for any delay in or failure of performance, nor shall any such delay in or
failure of performance constitute default, if such delay or failure is caused
by “Force Majeure.”  As used in this
section, “Force Majeure” is defined as follows: Acts of war and acts of god
such as earthquakes, floods, and other natural disasters such that performance
is impossible.

37.              Miscellaneous

A.                Gender and
Headings:  As used herein, whenever
the context so requires, the neuter gender includes the masculine and the
feminine, and the singular includes the plural and 

 33
 

vice versa. Defined terms are to have their defined
meanings regardless of the grammatical form or number of tenses of such terms.
The title headings of the respective paragraphs of this Agreement are inserted
for convenience only, and shall not be deemed a part of this Agreement or
considered in construing this Agreement.

B.                  Covenants:  Whenever words or provisions imposing an
obligation or duty on either party are used herein, such word or provision
shall have the same force and effect as though phrased in the form of express
covenants.

C.                  Construction:  The language in all parts of this Agreement
shall in all cases be construed simply and according to its fair meaning and
not strictly for or against either of the parties.

D.                 Successors and
Assigns:  The terms, provisions, and
conditions hereof shall be binding upon and inure to the benefit of the
successors and assigns of the parties hereto.  All rights, options, privileges and
obligations of Cal Expo may be assumed, enforced or performed by any person
designed by it or by its successors or assigns.

E.                   Definitions
of “Person”:  “Person,” as used
herein, includes any individual, partnership, firm, association, corporation or
other entity, natural or artificial, including any instrumentality or agency of
government.

F.                   Diligence:  Palace Entertainment shall conduct the
activities authorized by this Agreement on and in connection with the Premises
with due diligence and efficiency and in like manner as comparable California
businesses are operated and by methods to produce the maximum net income which
may be produced by proper manner of operation.

G.                  Definition of
“Law”:  “Law,” as used herein,
includes all valid laws, statutes, ordinances, rules, orders and regulations
promulgated or issued by federal, state, municipal, local and administrative
authorities.

H.                 Partial
Invalidity:  In the event that any
term, covenant, provision or condition of this Agreement or any article,
section, subsection, sentence, clause or phrase of this Agreement is held to be
invalid by final judgment or any court of competent jurisdiction, such
invalidity shall not in any way affect the remainder of this Agreement.

I.                      Representations
Not Herein Contained:  This Agreement
contains all of the representations, provisions, agreements, understandings and
warranties either express or implied and it is understood that no person,
employee, agent or representative of Cal Expo or any instrumentality
thereof, has authority to make, and Palace Entertainment warrants that it is
not relying on any written or oral statement, express or implied, except as
herein set forth, leading up to or including it to execute or enter into this
Agreement.

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J.                     Approval:  This Agreement shall not be binding upon Cal
Expo until it has been duly executed by Cal Expo and, if applicable, approved
by the Department of General Services.

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EXHIBIT
A

Description
of Water Park Premises

See Exhibit A-I attached
hereto.

 36
 

EXHIBIT
AA

Description of
Non-exclusive Use Shared Area

1) Service
entrance. The area designated as “Red” and shown in red on the map attached
hereto as Exhibit AA-l depicts the service entrance. All vehicles
servicing Palace Entertainment, including, but not limited to, delivery trucks
and those Palace Entertainment personnel who have credentials issued by Cal Expo
for parking, shall, so long as not blocked, enter gate 12 and exit from gate
12, following the area marked in red.  No
authorization is given to use or be on any other portion of the Cal Expo grounds,
so long as said gate 12 remains unblocked and except as permitted in accordance
with paragraph 2 below.

“2) Public entrance.  The area designated as “Blue” shown in
blue on the map attached hereto as Exhibit AA-l depicts the entrance and
pathway which may be used by the public to gain access to the Water Park.
During normal business hours the public will have access through the main gate,
which faces Exposition Boulevard, and over the foregoing pathway to the Water
Park.  Other gates, including, but not
limited to, the “West Gate” shown on the attached in Lot B may be made
available by Cal Expo for entrance by the public to the Water Park.  The public shall follow the designated route
signs, if any, to the Water Park; otherwise shall follow the foregoing pathway.

 37
 

EXHIBIT B

PERMITTED
ENCUMBRANCES

1.                    THE LIEN OF SUPPLEMENTAL REAL ESTATE
TAXES, IF ANY, ASSESSED PURSUANT TO CHAPTER 3.5 COMMENCING WITH SECTION 75 OF
THE CALIFORNIA REVENUE AND TAXATION CODE.

2.                    ANY ASSESSMENTS
AGAINST THE LAND HEREIN DESCRIBED AND ITS PROPORTION OF ANY GENERAL OUTSTANDING
INDEBTEDNESS OF AMERICAN RIVER FLOOD CONTROL DISTRICT.

3.                    WATER RIGHTS,
CLAIMS OR TITLE TO WATER, WHETHER OR NOT SHOWN BY THE PUBLIC RECORD.

4.                    EASEMENT FOR
UNDERGROUND ELECTRIC SYSTEM AND INCIDENTAL PURPOSES THERETO, GRANTED TO
SACRAMENTO MUNICIPAL DISTRICT, A MUNICIPAL UTILITY DISTRICT IN THE INSTRUMENT
RECORDED MARCH 25, 1992, BOOK 9203-25, PAGE 844, OFFICIAL RECORDS.

5.                    EASEMENT FOR
UNDERGROUND ELECTRIC SYSTEM AND INCIDENTAL PURPOSES THERETO, GRANTED TO
SACRAMENTO MUNICIPAL DISTRICT, A MUNICIPAL UTILITY DISTRICT IN THE INSTRUMENT
RECORDED JANUARY 6, 1992, BOOK 8201-06, PAGE 471, OFFICIAL RECORDS.

6.                    ANY RIGHTS,
INTEREST OR CLAIMS WHICH MAY EXIST OR ARISE BY REASON OF THE FOLLOWING, AS
SHOWN ON ALTA SURVEY DATED OCTOBER 28, 1996, PREPARED BY WONG &
ASSOCIATES, JOB NO. 96050.

a.                    ENCROACHMENT
OF ONE STORY WOOD BUILDING ONTO THE EASEMENT RECORDED IN BOOK 8201-06, PAGE
471, OFFICIAL RECORDS.

b.                   ENCROACHMENT OF
MONORAIL ONTO THE SOUTHEAST PORTION OF SAID LAND.

c.                    THE FACT THAT
A CONCRETE PEDESTRIAL BRIDGE GOING FROM THE SOUTH PARKING AREA INTO THE WATER
PARK EXISTS ON SAID LAND.

d.                   ENCROACHMENT OF
FENCELINE, SAND VOLLEYBALL COURT AND COVERED CONCRETE PICNIC AREA ONTO
ADJOINING PROPERTY TO THE NORTH.

e.                    ENCROACHMENT
OF THE WATERSLIDE ONTO THE ADJOINING PROPERTY TO THE WEST.

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f.                      ENCROACHMENT
OF CHAIN LINK FENCE ONTO THE ADJOINING PROPERTY TO THE SOUTH.

g.                   THE FACT THAT
AN OPEN DRAINAGE CANAL EXISTS PARTIALLY ON SAID LAND IN THE SOUTHEAST CORNER.

h.                   EASEMENTS FOR
STORM DRAINS, SANITARY SEWER, WATER LINES, AND ELECTRICAL BOXES AS DISCLOSED BY
SAID SURVEY.

 39
 

EXHIBIT
C

Copy
of the Acquisition Agreement

Exhibit C-l
attached hereto

 40

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