-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I2Djqbf62ulHEFyZhtCnsqhEgl5a+tlk6JsLuEgKbA8gcuUv1HiTj/vHFT9c0T97 KGlx4zRV2uP54EtT8vZMtg== 0000950124-99-000122.txt : 19990112 0000950124-99-000122.hdr.sgml : 19990112 ACCESSION NUMBER: 0000950124-99-000122 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19990104 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAKES GAMING INC CENTRAL INDEX KEY: 0001071255 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 411913991 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-24993 FILM NUMBER: 99503596 BUSINESS ADDRESS: STREET 1: 130 CHESHIERE LANE CITY: MINNETONKA STATE: MN ZIP: 55305 BUSINESS PHONE: 6124499092 MAIL ADDRESS: STREET 1: 130 CHESHIRE LANE CITY: MINNETONKA STATE: MN ZIP: 55305 8-K 1 FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): December 31, 1998 LAKES GAMING, INC. (Exact name of registrant as specified in its charter) MINNESOTA 0-24993 41-1913991 (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification No.) 130 CHESHIRE LANE, MINNETONKA, MINNESOTA 55305 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (612) 449-9092 NOT APPLICABLE (Former name or former address, if changed since last report) Page 1 of 6 Exhibit Index Appears on Page 3 2 ITEM 5. OTHER EVENTS. On December 31, 1998, Grand Casinos, Inc. ("Grand") completed the distribution (the "Distribution") of all of the issued and outstanding shares of capital stock of Lakes Gaming, Inc. ("Lakes" or the "Registrant") to Grand shareholders of record as of December 23, 1998. Shares of Common Stock of Lakes were distributed to Grand shareholders on the basis of one share of Lakes for every four shares of Grand owned as of the record date. The Distribution was effected pursuant to the terms of a Distribution Agreement by and between Grand and Lakes, dated as of December 31, 1998, including other ancillary documents contemplated thereby and which are filed as exhibits herewith. Following the Distribution, a wholly owned subsidiary of Park Place Entertainment Corporation ("Park Place") merged with and into Grand, with Grand as the surviving corporation, and pursuant to which Grand became a wholly owned subsidiary of Park Place. The Registrant's Press Release dated January 4, 1999, which is filed as Exhibit 99.1 to this Form 8-K, is incorporated herein by reference. ITEM 7. FINANCIAL STATEMENT, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (c) Exhibits 10.1 Distribution Agreement by and between Grand Casinos, Inc. and Lakes Gaming, Inc., dated as of December 31, 1998. 10.2 Employee Benefits and Other Employment Matters Allocation Agreement by and between Grand Casinos, Inc. and Lakes Gaming, Inc., dated as of December 31, 1998. 10.3 Tax Allocation And Indemnity Agreement by and between Grand Casinos, Inc. and Lakes Gaming, Inc., dated as of December 31, 1998. 10.4 Tax Escrow Agreement by and among Grand Casinos, Inc., Lakes Gaming, Inc., and First Union National bank as Escrow Agent, dated as of December 31, 1998. 10.5 Intellectual Property License Agreement by and between Grand Casinos, Inc. and Lakes Gaming, Inc., dated as of December 31, 1998. 10.6 Insurance Receivable Agreement by and between Grand Casinos, Inc. and Lakes Gaming, Inc., dated as of December 31, 1998. 99.1 Press Release dated January 4, 1999. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LAKES GAMING, INC. (Registrant) Date: January 8, 1999 By: /s/Timothy Cope -------------------------------------- Name: Timothy Cope Title: Chief Financial Officer 3 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.1 Distribution Agreement by and between Grand Casinos, Inc. and Lakes Gaming, Inc., dated as of December 31, 1998. 10.2 Employee Benefits and Other Employment Matters Allocation Agreement by and between Grand Casinos, Inc. and Lakes Gaming, Inc., dated as of December 31, 1998. 10.3 Tax Allocation And Indemnity Agreement by and between Grand Casinos, Inc. and Lakes Gaming, Inc., dated as of December 31, 1998. 10.4 Tax Escrow Agreement by and among Grand Casinos, Inc., Lakes Gaming, Inc., and First Union National bank as Escrow Agent, dated as of December 31, 1998. 10.5 Intellectual Property License Agreement by and between Grand Casinos, Inc. and Lakes Gaming, Inc., dated as of December 31, 1998. 10.6 Insurance Receivable Agreement by and between Grand Casinos, Inc. and Lakes Gaming, Inc., dated as of December 31, 1998. 99.1 Press Release
EX-10.1 2 DISTRIBUTION AGREEMENT 1 EXHIBIT 10.1 DISTRIBUTION AGREEMENT BY AND BETWEEN GRAND CASINOS, INC. AND LAKES GAMING, INC. DATED AS OF DECEMBER 31, 1998 2
TABLE OF CONTENTS PAGE ARTICLE I. DEFINITIONS 2 Section 1.01. General 2 Section 1.02. Terms Defined Elsewhere in Agreement 13 ARTICLE II. TRANSFER OF ASSETS 14 Section 2.01. Transfer of Assets to Lakes 14 Section 2.02. Transfers of Assets from Non-Mississippi Subsidiaries to Company or Mississippi Subsidiaries 15 Section 2.03. Transfers Not Effected Prior to the Distribution 15 Section 2.04. Cooperation Re: Assets 15 Section 2.05. No Representations or Warranties; Consents 16 Section 2.06. Conveyancing and Assumption Instruments 16 Section 2.07. Cash Allocations After the Year-End 17 Section 2.08. Cash Allocation; Cash Management 17 Section 2.09. Allocation of Debt 18 ARTICLE III. ASSUMPTION AND SATISFACTION OF LIABILITIES 19 Section 3.01. Assumption and Satisfaction of Mississippi Business and Non-Mississippi Business Liabilities 19 Section 3.02. Assumption and Satisfaction of Contingent Company Liabilities and Transaction Liabilities 19 ARTICLE IV. THE DISTRIBUTION 19 Section 4.01. Cooperation Prior to the Distribution 19 Section 4.02. Company Board Action; Conditions Precedent to the Distribution 20 Section 4.03. The Distribution 21 ARTICLE V. INDEMNIFICATION 22 Section 5.01. Indemnification by Company 22 Section 5.02. Indemnification by Lakes 22 Section 5.03. Insurance Proceeds 22 Section 5.04. Procedure for Indemnification 23 Section 5.05. Remedies Cumulative 26 Section 5.06. Survival of Indemnities 26 ARTICLE VI. CERTAIN ADDITIONAL MATTERS 26 Section 6.01. Lakes Board 26 Section 6.02. Resignations; Company Board 26
i 3 Section 6.03. Lakes Certificate and Bylaws 26 Section 6.04. Certain Post-Distribution Transactions 26 Section 6.05. Sales and Transfer Taxes 27 Section 6.06. Settlement of Intercompany Accounts. 27 ARTICLE VII. ACCESS TO INFORMATION AND SERVICES 27 Section 7.01. Provision of Corporate Records 27 Section 7.02. Access to Information 28 Section 7.03. Production of Witnesses 28 Section 7.04. Corporate Services 29 Section 7.06. Retention of Records 29 Section 7.07. Confidentiality 29 Section 7.08. Privileged Matters 30 ARTICLE VIII. INSURANCE 32 Section 8.01. Policies and Rights Included Within the Non-Mississippi Group Assets 32 Section 8.02. Policies and Rights Included Within the Mississippi Group Assets 32 Section 8.03. Administration and Reserves 32 Section 8.04. Agreement for Waiver of Conflict and Shared Defense 34 ARTICLE IX. MISCELLANEOUS 34 Section 9.01. Entire Agreement; No Third Party Beneficiaries 34 Section 9.02. Tax Allocation and Indemnity Agreement; After-Tax Payments 34 Section 9.03. Expenses 35 Section 9.04. Governing Law 35 Section 9.05. Notices 35 Section 9.06. Amendments 35 Section 9.07. Assignments 35 Section 9.08. Termination 36 Section 9.09. Subsidiaries 36 Section 9.10. Specific Performance 36 Section 9.11. Headings; References 36 Section 9.12. Counterparts 36 Section 9.13. Severability; Enforcement 36 Section 9.14. Arbitration of Disputes 37 Section 9.15. Prompt Payment 38
ii 4 INDEX OF SCHEDULES Schedule 1 - Mississippi Subsidiaries Schedule 2 - Non-Mississippi Subsidiaries Schedule 3 - Retained Company Assets Schedule 4 - Retained Company Liabilities Schedule 5 - Assigned Lakes Assets Schedule 6 - Assigned Lakes Liabilities Schedule 7 - Transferred Corporate Functions Schedule 8 - Mississippi Group Cash Accounts Schedule 9 - Non-Mississippi Group Cash Accounts Schedule 10- Contingent Company Liabilities Schedule 11- Assigned Lakes Assets Proceeds INDEX OF EXHIBITS Exhibit A - Form of Employee Benefits Allocation Agreement Exhibit B - Form of Lakes Bylaws Exhibit C - Form of Lakes Articles Exhibit D - Form of Intellectual Property License Agreement Exhibit E - Form of Tax Allocation and Indemnity Agreement Exhibit F - Form of Insurance Receivable Agreement iii 5 DISTRIBUTION AGREEMENT DISTRIBUTION AGREEMENT (the "Agreement"), dated as of December 31, 1998, by and between GRAND CASINOS, INC., a Minnesota corporation ("Company") and LAKES GAMING, INC., a Minnesota corporation and wholly owned subsidiary of Company ("Lakes"). WHEREAS, Company, directly and through certain wholly-owned subsidiaries, (a) owns, operates and develops certain gaming and resort facilities located in the State of Mississippi (as more specifically described herein, the "Mississippi Business"), and (b) manages and develops certain gaming facilities located outside the State of Mississippi (as more specifically described herein, the "Non-Mississippi Business"); WHEREAS, it is necessary to separate the Mississippi Business from the Non-Mississippi Business in order to satisfy conditions precedent contained in that certain Agreement and Plan of Merger dated June 30, 1998 (the "Merger Agreement") by and among Company, Lakes, Hilton Hotels Corporation, a Delaware corporation ("Hilton"), Gaming Co., Inc. (n/k/a Park Place Entertainment Corporation), a Delaware corporation and a wholly-owned subsidiary of Hilton ("Gaming Co."), and Gaming Acquisition Corp., a Minnesota corporation and a wholly-owned subsidiary of Gaming Co. ("MergerSub"); WHEREAS, the Board of Directors of Company has determined that it is in the best interests of Company for Company to merge with MergerSub (the "Merger") pursuant to the Merger Agreement; WHEREAS, subject to Company shareholder ratification and certain other conditions, the Board of Directors of Company has determined that it is in the best interests of Company and the shareholders of Company to separate the Non-Mississippi Business from the Mississippi Business through a distribution (the "Distribution") to the holders of Company Common Stock (as defined herein) of all of the outstanding shares of Lakes Common Stock (as defined herein) to accomplish the Merger; WHEREAS, in order to effect such separation, Company will contribute to Lakes prior to the Distribution, all of the operations, assets and liabilities of Company comprising the Non-Mississippi Business and such other assets, liabilities and operations as are described below; WHEREAS, in connection with the Distribution, Company and Lakes have determined that it is necessary and desirable to set forth the principal corporate transactions required to effect the Distribution, and to set forth the agreements that will govern certain matters following the Distribution; and 1 6 WHEREAS, for federal income tax purposes, it is intended that the Distribution shall qualify as a tax-free distribution solely with respect to Company's Shareholders within the meaning of Section 355 of the Internal Revenue Code of 1986, as amended. NOW, THEREFORE, in consideration of the foregoing and the respective covenants and agreements set forth below, the parties agree as follows: ARTICLE I. DEFINITIONS Section 1.01. General . For purposes of this Agreement, the following terms shall have the meanings set forth below: Action: Any action, claim, suit, arbitration, inquiry, proceeding or investigation by or before any court, any governmental or other regulatory or administrative agency or commission or any arbitration tribunal. Affiliate: With respect to any specified Person, an affiliate of such Person within the meaning of Rule 145 promulgated under the Securities Act. Notwithstanding the foregoing (i) the Affiliates of Company shall not include Lakes, the Non-Mississippi Subsidiaries or any other Person which otherwise would be an Affiliate of Company solely by reason of Company's ownership of the capital stock of Lakes or a Non-Mississippi Subsidiary prior to the Distribution or the fact that any officer or director of Company or any of the Mississippi Subsidiaries shall also serve as an officer or director of Lakes or any of the Non-Mississippi Subsidiaries; and (ii) the Affiliates of Lakes shall not include Company, the Mississippi Subsidiaries or any other Person which otherwise would be an Affiliate of Lakes solely by reason of Company's ownership of the capital stock of Lakes or a Non-Mississippi Subsidiary prior to the Distribution or the fact that any officer or director of Lakes or any of the Non-Mississippi Subsidiaries shall also serve as an officer or director of Company or any of the Mississippi Subsidiaries. Agent: Norwest Shareholder Services as distribution agent appointed by Company to distribute the Lakes Common Stock pursuant to the Distribution. Ancillary Agreements: The License Agreement, Employee Benefits Allocation Agreement, and Tax Allocation and Indemnity Agreement. Assigned Lakes Assets: The assets indicated on Schedule 5. Assigned Lakes Assets Proceeds: The net proceeds of the sales, if any, of the Assigned Lakes Assets after the date of the Merger Agreement but prior to the Distribution Date, after deducting any costs, fees and taxes (calculated using the highest marginal Tax rate for the relevant taxable period) associated with such sales, including, but not limited to, costs and fees related to advertising, marketing and transportation and sales, transfer, income (if any) and other 2 7 taxes; provided, however, if such sale results in a capital or ordinary loss, then such loss shall also be allocated to Lakes along with the subject Assigned Lakes Assets Proceeds. Assigned Lakes Liabilities: The liabilities indicated on Schedule 6. Assumed Debt: The Debt of Company and its Subsidiaries which is assumed by Lakes and/or retained by the Non-Mississippi Group Subsidiaries in connection with the Distribution, as determined pursuant to Section 2.09. Bank of America Revolving Credit Facility: The $100 million Capital Lease Facility with BA Leasing Capital Corporation, et al. dated September 29, 1997. Code: The Internal Revenue Code of 1986, as amended, or any successor thereto as in effect for the taxable year in question. Company Board: The Board of Directors of Company as it is constituted prior to the Distribution Date. Company Common Stock: The common stock, par value $.01 per share, of Company. Company Notes: The First Mortgage Notes and the Senior Notes. Company Group: The meaning specified in the Tax Allocation and Indemnity Agreement. Contingent Company Liability: The meaning set forth in Section 3.02. Conveyancing and Assumption Instruments: Collectively, the various agreements, instruments and other documents to be entered into to effect the Preliminary Transfers and the assignment of assets and the assumption of Liabilities contemplated by this Agreement and the Related Agreements in the manner contemplated herein and therein. Debt: All (i) indebtedness for borrowed money and obligations evidenced by bonds, notes, debentures or similar instruments; (ii) obligations issued or assumed as the deferred purchase price of property or services; (iii) obligations under capital leases; and (iv) all guarantees of the obligations of other persons described in the foregoing clauses (i) - (iii). Distribution: The distribution to the holders of Company Common Stock as of the Distribution Record Date of all of the outstanding shares of Lakes Common Stock. Distribution Date: The date on which the Distribution is effected. Distribution Record Date: The date established by Company Board as the date for taking 3 8 a record of the Holders of Company Common Stock entitled to participate in the Distribution. Employee Benefits Allocation Agreement: The Employee Benefits and Other Employment Matters Allocation Agreement between Lakes and Company, which agreement shall be entered into on or prior to the Distribution Date in substantially the form attached hereto as Exhibit A. Exchange Act: The Securities Exchange Act of 1934, as amended. First Mortgage Notes: The $450 million 10.125% First Mortgage Notes of Company due December 1, 2003. Form 10: The Registration Statement on Form 10 under the Exchange Act with respect to the Lakes Common Stock. GAAP: Generally accepted accounting principles. Gaming Laws: Indian Gaming Laws, Louisiana Gaming Laws, Minnesota Gaming Laws, Mississippi Gaming Laws, and Nevada Gaming Laws. Gaming Co.: A Delaware corporation whose wholly-owned subsidiary, MergerSub, will be merged with Company pursuant to the Merger Agreement. Governmental Authority: Any court, administrative agency or commission or other governmental authority or instrumentality. Hilton: A Delaware corporation which is a party to the Merger Agreement. Holders: The holders of record of Company Common Stock as of the Distribution Record Date. Indian Debt Guarantees: Shall mean (i) the guarantees of Company and Grand Casinos of Louisiana, Inc. Tunica-Biloxi pursuant to the Guaranty Agreement, dated as of August 7, 1994 in favor of Pitney Bowes Credit Corporation, guaranteeing the debt obligations of the Tunica-Biloxi Tribe of Louisiana; (ii) the guarantees of Company and Grand Casinos of Louisiana, Inc. - Coushatta pursuant to the Guaranty Agreement, dated as of January 31, 1995 in favor of PB Funding Corporation, guaranteeing the lease obligations of the Coushatta Tribe of Louisiana; (iii) the guarantees of Company and Grand Casinos of Louisiana, Inc. - Coushatta pursuant to the Guaranty Agreement, dated as of January 31, 1995 in favor of Sentry Financial Corporation, guaranteeing the lease obligations of the Coushatta Tribe of Louisiana; (iv) the guarantees of Company and Grand Casinos of Louisiana, Inc. - Tunica-Biloxi pursuant to the Commercial Guaranty Agreement, dated as of April 7, 1997 in favor of Cottonport Bank, guaranteeing the debt obligations of the Tunica-Biloxi Tribe of Louisiana; (v) the guarantees of Company and 4 9 Grand Casinos of Louisiana, Inc. - Coushatta pursuant to the Commercial Guaranty Agreement, dated as of May 1, 1997 in favor of Hibernia National Bank, guaranteeing the debt obligations of the Coushatta Tribe of Louisiana; and (vi) any other guarantees under which Company or any of its subsidiaries has guaranteed the debt or lease obligations of any Indian Tribes. Indian Gaming Laws: Shall mean (i) the Indian Gaming Regulatory Act of 1988 and the rules and regulations promulgated thereunder; (ii) any state laws and regulations governing gaming operations and facilities on Indian land; and (iii) any tribal ordinances and regulations governing gaming on land within such tribe's jurisdiction. Indian Management Agreements: shall mean the management agreements and related collateral and other agreements of the Indian tribes, or of Company or any of its Subsidiaries, relating to (i) Grand Casino Avoyelles; (ii) Grand Casino Coushatta; (iii) Grand Casino Hinckley; and (iv) any other Indian gaming operations. Insurance Administration: With respect to each Policy (including Self Insurance Programs) shall include, but not be limited to, the accounting for premiums, retrospectively rated premiums, defense costs, adjuster's fees, indemnity payments, deductibles and retentions as appropriate under the terms and conditions of each of the Policies; and the reporting to primary and excess insurance carriers of any losses, claims and/or audit exposure in accordance with Policy provisions, and the distribution of Insurance Proceeds as contemplated by this Agreement. Insurance Proceeds: Those moneys (i) received by an insured from an insurance carrier or (ii) paid by an insurance carrier on behalf of the insured, in either case net of any applicable premium adjustment, retrospectively rated premium, deductible, retention, cost or reserve paid or held by or for the benefit of such insured. Insurance Receivable Agreement: The Insurance Receivable Agreement between the Company and Lakes which shall be entered into on or prior to the Distribution Date in substantially the form attached hereto as Exhibit E. Insured Claims: Those Liabilities that, individually or in the aggregate, are covered within the terms and conditions of any of the Policies, whether or not subject to deductibles, co-insurance, uncollectibility or retrospectively rated premium adjustments, but only to the extent that such Liabilities are within applicable Policy limits, including aggregates. IRS: The Internal Revenue Service or any successor thereto, including but not limited to its agents, representatives and attorneys. IRS Ruling: The letter ruling issued by the IRS in response to the Ruling Request. Lakes Board: The Board of Directors of Lakes. 5 10 Lakes Bylaws: The Bylaws of Lakes, substantially in the form of Exhibit B, to be in effect at the Distribution Date. Lakes Articles of Incorporation: The Articles of Incorporation of Lakes, substantially in the form of Exhibit C, to be in effect at the Distribution Date. Lakes Common Stock: The common stock, $.01 par value per share, of Lakes. Lakes Group: The meaning specified in the Tax Allocation and Indemnity Agreement. Liabilities: Any and all debts, liabilities and obligations, absolute or contingent, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising, including all costs and expenses relating thereto, and including, without limitation, those debts, liabilities and obligations arising under any law, rule, regulation, Action, threatened Action, order or consent decree of any governmental entity or any award of any arbitrator of any kind, and those arising under any contract, commitment or undertaking. License Agreement: The Intellectual Property License Agreement between Company and Lakes, which agreement shall be entered into on or prior to the Distribution Date with substantially such terms as are attached hereto as Exhibit D. Louisiana Gaming Laws: The Louisiana Riverboat Economic Development and Gaming Control Act and the rules and regulations promulgated thereunder. Louisiana Gaming License: The Company's license to manage Louisiana-based casinos issued pursuant to Louisiana Gaming Laws. MBCA: shall mean the Minnesota Business Corporation Act, as amended from time to time. Minnesota Gaming Laws: shall mean the Minnesota Lawful Gambling and Gambling Devices Act and the rules and regulations promulgated thereunder. Mississippi Business: The business conducted by Company and its Subsidiaries relating to the management, ownership, operation and development of all of Company's casinos, hotels, related facilities and all other operations located within the State of Mississippi, including the Grand Casino Tunica, Grand Casino Biloxi and Grand Casino Gulfport properties and any operations located outside the State of Mississippi which relate to the Mississippi Group Assets. Mississippi Gaming Laws: shall mean the Mississippi Gaming Control Act and the rules and regulations promulgated thereunder. 6 11 Mississippi Group: Company and the Mississippi Subsidiaries, collectively. Mississippi Group Employees: The meaning specified in the Employee Benefits Allocation Agreement. Mississippi Group Assets: (i) All outstanding capital stock of the Mississippi Subsidiaries and all assets of the Mississippi Subsidiaries other than the Non-Mississippi Group Assets; (ii) all cash or cash equivalents generated or derived from the sale or disposition of Mississippi Group Assets prior to the Distribution Date; (iii) the Mississippi Group Books and Records; (iv) the rights of Company and the Mississippi Subsidiaries insured under the Shared Policies; (v) all of the assets expressly to be retained by, or assigned or allotted to, Company or any of the Mississippi Subsidiaries under this Agreement or the Related Agreements; (vi) the Retained Company Assets ; and (vii) any other assets of Company and its Subsidiaries used principally in the Mississippi Business; except, in each case, excluding the assets listed on Schedule 5. Mississippi Group Books and Records: The books and records (including computerized records) of Company and the Mississippi Subsidiaries and any other books and records of Company's Subsidiaries which relate principally to the Mississippi Group, are necessary to conduct the Mississippi Business or are required by law to be retained by Company or a Mississippi Subsidiary, including, without limitation: (i) all such books and records relating to Company Employees; (ii) all files relating to any Action being retained by Company as part of the Mississippi Group Liabilities; and (iii) original corporate minute books, stock ledgers and certificates and corporate seals, and all licenses, leases, agreements and filings, relating to Company, the Mississippi Subsidiaries or the Mississippi Business (but not including the Non-Mississippi Group Books and Records, provided that Company shall have access to, and shall have the right to obtain duplicate copies of, the Non-Mississippi Group Books and Records in accordance with the provisions of Article VII). Mississippi Group Cash Accounts: The bank accounts of the Mississippi Group as set forth in Schedule 8 hereto. Mississippi Group Liabilities: (i) All of the Liabilities of the Mississippi Group under, or to be retained or assumed by Company or any of the Mississippi Subsidiaries pursuant to, this Agreement (including Company's portion of Contingent Company Liabilities and Transaction Liabilities as provided in Section 3.02 herein) or any of the Related Agreements; (ii) all Liabilities for payment of outstanding drafts of Company and its Subsidiaries existing as of the Distribution Date; (iii) the Retained Debt; (iv) all Liabilities of the Mississippi Subsidiaries, other than the Non-Mississippi Group Liabilities; (v) all Actions against Company or its Subsidiaries arising out of, or specifically associated with, any of the Mississippi Group Assets or the Mississippi Business; (vi) the Retained Company Liabilities indicated on Schedule 4; and (vii) all other Liabilities of Company and its Subsidiaries arising out of, or specifically associated with, any of the Mississippi Group Assets or the Mississippi Business; provided, however, that the Mississippi 7 12 Group Liabilities shall not include (1) the Assumed Debt or (2) any claims, losses, damages, demands, costs, expenses or Liabilities for any Tax (which shall be governed by Sections 6.05 and 9.02 hereof and by the Tax Allocation and Indemnity Agreement). Mississippi Subsidiaries: The Subsidiaries of Company specified in Schedule 1 and any other Subsidiaries formed after the date hereof to conduct a portion of the Mississippi Business. Nevada Gaming Laws: shall mean the Nevada Gaming Control Act and the rules and regulations promulgated thereunder, the Clark County, Nevada Code and the rules and regulations promulgated thereunder, and other applicable local regulations. Net Cash: The sum of (i) net cash (used in) or provided by financing activities; (ii) net cash (used in) or provided by operating activities; and (iii) net cash (used in) or provided by investing activities. Non-Mississippi Business: The business conducted by Company and its Subsidiaries relating to the management, ownership, operation and development of all Company's casinos, hotels, related facilities and all other operations located outside the State of Mississippi which relate to the Non-Mississippi Group Assets. Non-Mississippi Group: Lakes and the Non-Mississippi Subsidiaries, collectively. Non-Mississippi Group Assets: (i) All outstanding capital stock of the Non-Mississippi Subsidiaries; (ii) the Assigned Lakes Assets, to the extent in existence on the Distribution Date; (iii) the Non-Mississippi Group Books and Records; (iv) the rights of a Non-Mississippi Subsidiary insured under the Shared Policies; (v) all of the assets expressly to be retained by, or assigned or allocated to, Lakes or any of the Non-Mississippi Subsidiaries under this Agreement or the Related Agreements; (vi) the Assigned Lakes Assets Proceeds; and (vii) any other assets of Company and its Subsidiaries used principally in the Non-Mississippi Business ; except, in each case excluding the assets included on Schedule 3. Non-Mississippi Group Books and Records: The books and records (including computerized records) of Lakes and the Non-Mississippi Subsidiaries and any other books and records of Company and its Subsidiaries which relate principally to the Non-Mississippi Group, are necessary to conduct the Non-Mississippi Business, or are required by law to be retained by Lakes or a Non-Mississippi Subsidiary, including, without limitation: (i) all such books and records relating to Transferred Employees; (ii) all files relating to any Action being assumed by Lakes or retained by a Non-Mississippi Subsidiary as part of the Non-Mississippi Group Liabilities; and (iii) original corporate minute books, stock ledgers and certificates, and all licenses, leases, agreements and filings, relating to Lakes, the Non-Mississippi Subsidiaries or the Non-Mississippi Business (but not including the Mississippi Group Books and Records, provided that Lakes shall have access to, and have the right to obtain duplicate copies of, any of the 8 13 Mississippi Group Books and Records which pertain to the Non-Mississippi Business in accordance with the provisions of Article VII). Non-Mississippi Group Cash Accounts: The bank accounts of Non-Mississippi Group as set forth in Schedule 9 hereto. Non-Mississippi Group Liabilities: (i) All of the Liabilities of the Non-Mississippi Group under, or to be retained or assumed by Lakes or any of the Non-Mississippi Subsidiaries pursuant to, this Agreement (including Lakes' portion of Contingent Company Liabilities and Transaction Liabilities as provided in Section 3.02 herein) or any of the Related Agreements (including the Assumed Debt); (ii) the Stratosphere Liabilities; (iii) all Liabilities of Lakes and the Non-Mississippi Subsidiaries, other than the Mississippi Group Liabilities; (iv) all Actions against Company or its Subsidiaries arising out of, or specifically associated with, any of the Non-Mississippi Group Assets or the Non-Mississippi Business; (v) the Indian Debt Guarantees; (vi) all other Liabilities of Company and its Subsidiaries arising out of, or specifically associated with, any of the Non-Mississippi Group Assets or the Non-Mississippi Business (including Debt secured by the Non-Mississippi Group Assets); and (vii) the Assigned Lakes Liabilities indicated on Schedule 6; provided, however, that the Non-Mississippi Group Liabilities shall not include (x) any Retained Debt, or (y) any claims, losses, damages, demands, costs, expenses or Liabilities for any Tax (which shall be governed by Sections 6.05 and 9.02 hereof and by the Tax Allocation and Indemnity Agreement). Non-Mississippi Subsidiaries: The Subsidiaries of Company specified in Schedule 2 and any other Subsidiaries formed after the date hereof to conduct a portion of the Non-Mississippi Business. Non-Mississippi Subsidiaries Note Guarantees: The guarantees of the Non-Mississippi Subsidiaries of Company Notes and the Bank of America Revolving Credit Facility. Non-Mississippi Subsidiaries Note Pledge: The pledge of the outstanding capital stock of the Non-Mississippi Subsidiaries pursuant to Grand Casinos, Inc. Security and Pledge Agreement dated November 30, 1995 by Grand Casinos, Inc. in favor of American Bank National Association (n/k/a Firstar Bank of Minnesota, National Association) and Grand Casinos Resorts, Inc. Security and Pledge Agreement dated November 30, 1995 by Grand Casinos Resorts, Inc. in favor of American Bank National Association (n/k/a Firstar Bank of Minnesota, National Association) relating to the Notes. Person: Any individual, corporation, partnership, firm, joint venture, association, joint-stock company, trust, estate, unincorporated organization, governmental or regulatory body or other entity. Policies: Insurance policies and insurance contracts of any kind relating to the Non- 9 14 Mississippi Business or the Mississippi Business as conducted prior to the Distribution Date, including without limitation primary and excess policies, comprehensive general liability policies, automobile, aircraft, workers' compensation, property insurance, crime insurance policies and self-insurance and captive insurance company arrangements, together with the rights and benefits thereunder. Preliminary Transfers: The contribution by Company and its Subsidiaries to Lakes and the Non-Mississippi Subsidiaries, prior to the Distribution, of all of the assets and liabilities of Company and its Subsidiaries comprising the Non-Mississippi Business and such other assets, liabilities and operations as are described herein. Privileged Information: All information as to which Company, Lakes or any of their Subsidiaries are entitled to assert the protection of a Privilege. Privileges: All privileges that may be asserted under applicable law including, without limitation, privileges arising under or relating to the attorney-client relationship (including but not limited to the attorney-client and work product privileges), the accountant-client privilege, and privileges relating to internal evaluative processes. Related Agreements: All of the agreements, instruments, understandings, assignments or other arrangements set forth in writing, which are entered into in connection with the transactions contemplated hereby, including, without limitation, the Conveyancing and Assumption Instruments and the Ancillary Agreements. Restricted Payment: (i) the declaration or payment of any dividend or any distribution on account of Lakes' or any of its Subsidiaries' equity interests; or (ii) the purchase, redemption, defeasance or other acquisition or retirement for value of any equity interests of Lakes, without the written consent of Company, which consent can be given or withheld in Company's sole and absolute discretion. Retained Company Assets: The assets indicated in Schedule 3. Retained Company Liabilities: The liabilities indicated on Schedule 4. Retained Debt: The Debt of Company and its Subsidiaries which is to be retained by Company and/or the Mississippi Group Subsidiaries in connection with the Distribution, as determined pursuant to Section 2.09 and not otherwise assigned by or transferred to the Non-Mississippi Group. Ruling Request: The private letter ruling request to be filed by Company with the Internal Revenue Service as supplemented and amended from time to time, with respect to certain tax matters relating to the Distribution, the Merger and other related matters. 10 15 SEC: The Securities and Exchange Commission. Securities Act: The Securities Act of 1933, as amended. Self Insurance Programs: Those self insured programs maintained by Company and/or any of its Subsidiaries prior to the Distribution for the benefit of employees, properties and operating businesses, including without limitation such programs that utilize "fronted policies." Senior Notes: The $115 million 9% Series B Notes of Company due 2004. Shared Policies: All Policies (including Self Insurance Programs), current or past, which are owned or maintained by or on behalf of Company and/or any of its Subsidiaries or their respective predecessors which insure both the Mississippi Business and the Non-Mississippi Business. Stratosphere: Shall mean Stratosphere Corporation and any of its Subsidiaries or Affiliates, including Stratosphere Gaming Corp., and any business or operations conducted by or related to such entities, including the Stratosphere Tower, Casino & Hotel and adjoining retail-entertainment center. Stratosphere Contracts: Shall mean any and all contracts, loan agreements, leases, guaranty agreements, notes, mortgages, indentures, obligations and other agreements relating to Stratosphere, including, without limitation, (a) the Standby Equity Commitment, dated as of March 9, 1995, by and between Company and Stratosphere, (b) the Limited Guaranty, dated as of March 28, 1997, by Company for the benefit of each of the beneficiaries listed therein, (c) the Indemnification Agreement, dated as of May 1, 1997, by and between Company and Thomas G. Bell, (d) the Indemnification Agreement, dated as of May 1, 1997, by and between Company and Andrew S. Blumen, (e) the Indemnification Agreement, dated as of May 1, 1997, by and between Company and Robert A. Maheu, (f) the Indemnification Agreement, dated as of May 1, 1997, by and between Company and David R. Wirshing, and (g) the indemnification arrangement described in the Minutes of Company's Board of Directors, dated May 3, 1995, relating to the indemnification of Lyle Berman, Neil Sell and Stanley Taube in connection with their service on the Stratosphere Board of Directors. Stratosphere Liabilities: Shall mean any and all Liabilities relating to or arising from Stratosphere, Company's investment in or relationship to Stratosphere and/or the Stratosphere Litigation and/or the Stratosphere Contracts. Stratosphere Litigation: Shall mean any and all actions, suits, proceedings, claims, arbitrations or investigations relating to Stratosphere, including the Stratosphere shareholders litigation in the U.S. District Court for the District of Nevada (In re Stratosphere Corporation Securities Litigation - -- Master File No. CV-5-96-00708PMP), Grand Casinos, Inc. shareholders 11 16 litigation in the U.S. District Court for the District of Minnesota (In Re: Grand Casinos, Inc. Securities Litigation -- Master Filed No. 4-96-890), the Stratosphere shareholders litigation in the Nevada State Court (Victor M. Opitz, et. al. v. Robert E. Stupak, et. al. -- Case No. A363019), the Cohen litigation in the U.S. District Court for the District of Nevada (Henry Cohen, et al. v. Stratosphere Corporation, et. al.-- Case No. A349985), the Stratosphere vacation club litigation in the District Court in Clark County, Nevada (Richard Duncan, et al. v. Bob and Jane Doe Stupak, et al. -- Case No. A370127), the Standby Equity Commitment litigation in the U.S. District Court for the District of Nevada (IBJ Schroeder Bank & Trust Company, Inc. v. Grand Casinos, Inc. -- File No. CV-S-97-01252-DWH), the Stratosphere Noteholder Committee bankruptcy court action in the U.S. Bankruptcy Court for the District of Nevada, Stratosphere Plan of Reorganization in the U.S. Bankruptcy Court for the District of Nevada, the Las Vegas Downtown Redevelopment Agency litigations in the Nevada Supreme Court (City of Las Vegas Downtown Redevelopment Agency v. Crockett, et al. and City of Las Vegas Downtown Redevelopment Agency v. Mouldo, et. al.), a derivative litigation in Hennepin County, Minnesota District Court (Lloyd Drilling, et al. v. Lyle Berman, et al. --Court File No. MC97-002807), and a Stratosphere action for Recovery of Preferential Transfers Pursuant to Sections 547 and 550 of the Bankruptcy Court filed with the Bankruptcy Court against Company, and including any actions, suits, proceedings, claims, arbitrations or investigations relating to the Litigation LLC described in Stratosphere Corporation's Restated Second Amended Plan of Reorganization dated February 26, 1998. Subsidiary: With respect to any Person, (i) each corporation, partnership, joint venture, limited liability company or other legal entity of which such Person owns, either directly or indirectly, 50% or more of the stock or other equity interests the holders of which are generally entitled to vote for the election of the board of directors or similar governing body of such corporation, partnership, joint venture or other legal entity; and (ii) each partnership or limited liability company in which such Person or another Subsidiary of such Person is the general partner, managing partner or otherwise controls. "Tax" or "Taxes": Shall mean all actual taxes and estimated payment of taxes, charges, fees, imposts, levies and gaming or other assessments, including all income, gross receipts, capital, sales, use, ad valorem, value added, transfer, franchise, profits, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment excise, severance, stamp, occupation, property, premium, windfall profits, environmental, disability, registration, alternative or add-on minimum taxes, custom duties, fees, assessments and charges of any kind whatsoever, together with any interest and any penalties, fines, additions to tax or additional amounts imposed by any taxing authority (domestic or foreign), and including any transferee liability in respect of Taxes and any liability in respect of Taxes imposed by contract, tax sharing agreement, tax indemnity agreement or any similar agreement. Tax Allocation and Indemnity Agreement: The Tax Allocation and Indemnity Agreement between Company and Lakes pursuant to which such parties will provide for the allocation of, 12 17 and indemnification against, certain tax liabilities, the preparation and filing of certain tax returns and the payment of taxes related thereto and certain related matters, which agreement shall be entered into on or prior to the Distribution Date substantially in the form attached hereto as Exhibit E. Tax Returns: The meaning specified in the Tax Allocation and Indemnity Agreement. Transaction Liabilities: All liabilities relating to any Action or threatened Action arising out of or pertaining to the transaction contemplated by the Merger Agreement or this Distribution Agreement. " \l 2 Transferred Corporate Functions: The corporate level and support functions of Company to be contributed to Lakes in connection with the Distribution, as set forth in Schedule 7 hereto. Currently expected to include corporate treasury, accounting (including payroll), internal audit, tax, corporate affairs, legal, human resources and risk management functions (including claims administration), as well as certain purchasing and procurement functions. Transferred Employees: The meaning specified in the Employee Benefits Allocation Agreement. Section 1.02. Terms Defined Elsewhere in Agreement . Each of the following terms is defined in the Recitals or Section set forth opposite such term: Term Section ---- ------- Agreement Recitals Consents 4.01 Dispute 9.14 Company Indemnitees 5.02 Gaming Co. Recitals Hilton Recitals Indemnifiable Loss 5.01 Indemnifying Party 5.03 Indemnified Person 5.03 Information 7.02 Insurance Charges 8.03 Lakes Recitals Lakes Indemnities 5.01 Merger Recitals MergerSub Recitals Third Party Claim 5.04 Transaction Taxes 6.05 13 18 ARTICLE II. TRANSFER OF ASSETS Section 2.01. Transfer of Assets to Lakes. Prior to the Distribution Date, Company shall take or cause to be taken all actions necessary to cause the transfer, assignment, delivery and conveyance to Lakes and/or the appropriate Non-Mississippi Subsidiaries designated by Lakes of all of Company's and its Subsidiaries' right, title and interest in any Non-Mississippi Group Assets held, on or prior to the Distribution Date, by Company or any Mississippi Subsidiary including: (a) a contribution to Lakes of all of the outstanding capital stock of the Non-Mississippi Subsidiaries indicated on Schedule 2; (b) subject to the provisions of Section 2.07 and the Insurance Receivable Agreement, transfer of $24 million dollars of cash by Company or any Mississippi Subsidiary to Lakes in order to provide necessary and needed levels of working capital and appropriate reserve for business investment purposes; provided, however, that; (i) such amount will be decreased by any amount paid by the Company prior to the Distribution Date in connection with Stratosphere up to a maximum of $8 million, and (ii) such amount shall be increased by the Assigned Lakes Assets Proceeds as indicated on Schedule 11. (iii) such amount shall be increased by $9,292,339 representing the proceeds received by the Company pursuant to that certain Agreement to Terminate Management Agreement dated as of December 7, 1998 by and between Mille Lacs Gaming Corporation, a Minnesota corporation and wholly-owned subsidiary of the Company and Corporate Commission of the Mille Lacs Bank of Ojibwe relating to the termination of that certain Amended and Restated Management Construction Agreements by and between the Mille Lacs Band of Chippewa Indians and Mille Lacs Gaming Corporation Hinckley Operations dated as of September 10, 1990. (c) transfer of the Assigned Lakes Assets, as indicated on Schedule 5, which have not been sold prior to the Distribution Date; and (d) transfer of the Transferred Corporate Functions as indicated on Schedule 7; Section 2.02. Transfers of Assets from Non-Mississippi Subsidiaries to Company or Mississippi Subsidiaries . Prior to the Distribution Date, Lakes shall take or cause to be taken all actions necessary to cause the transfer, assignment, delivery and conveyance to Company and/or the applicable Mississippi Subsidiaries designated by Company of all of Lakes's and the Non-Mississippi Subsidiaries' right, title and interest in any Mississippi Group Assets held, on or prior to the Distribution Date, by Lakes or any of the Non-Mississippi Subsidiaries, if any. 14 19 Section 2.03. Transfers Not Effected Prior to the Distribution. To the extent that any transfers contemplated by this Article II shall not have been fully effected as of the Distribution Date, the parties shall cooperate to effect such transfers as promptly as shall be practicable following the Distribution Date. Nothing herein shall be deemed to require the transfer of any assets or the assumption of any Liabilities which by their terms or operation of law cannot be transferred or assumed including, without limitation, pursuant to Gaming Laws; provided, however, that Company and Lakes and their respective Subsidiaries and Affiliates shall cooperate in seeking to obtain any necessary consents or approvals for the transfer of all assets and Liabilities contemplated to be transferred pursuant to this Agreement including, without limitation, pursuant to Gaming Laws. In the event that any such transfer of assets or Liabilities has not been consummated effective as of the Distribution Date, the party retaining such asset or Liability shall thereafter hold such asset in trust for the use and benefit of the party entitled thereto (at the expense of the party entitled thereto) and retain such Liability for the account of the party by whom such Liability is to be assumed pursuant hereto, and take such other actions as may be reasonably required in order to place the parties, insofar as reasonably possible, in the same position as would have existed had such asset been transferred or such Liability been assumed as contemplated hereby. As and when any such asset or Liability becomes transferable, such transfer and assumption shall be effected forthwith. The parties agree that, except as set forth in this Section 2.03, as of the Distribution Date, each party hereto shall be deemed to have acquired complete and sole beneficial ownership over all of the assets, together with all rights, powers and privileges incidental thereto, and shall be deemed to have assumed in accordance with the terms of this Agreement all of the Liabilities, and all duties, obligations and responsibilities incidental thereto, which such party is entitled to acquire or required to assume pursuant to the terms of this Agreement. Section 2.04. Cooperation Re: Assets. In the case that at any time after the Distribution Date, Lakes reasonably determines that any of the Mississippi Group Assets (other than the assets set forth in Schedule 3) are essential for the conduct of the Non-Mississippi Business, or Company reasonably determines that any of the Non-Mississippi Group Assets (other than the assets set forth in Schedule 5) are essential for the conduct of the Mississippi Business, and the nature of such assets makes it impracticable for Lakes or Company, as the case may be, to obtain substitute assets or to make alternative arrangements on commercially reasonable terms to conduct their respective businesses, and reasonable provisions for the use thereof are not already included in the Related Agreements, then Lakes (with respect to the Non-Mississippi Group Assets) and Company (with respect to the Mississippi Group Assets) shall cooperate to make such assets available to the other party on commercially reasonable terms, as may be reasonably required for such party to maintain normal business operations. However, (a) the usage of such assets by the other party shall not materially interfere with the use of such assets by the party holding such assets; and (b) such assets shall be required to be made available only until such time as the other party can reasonably obtain substitute assets or make alternative arrangements on commercially reasonable terms to permit it to maintain normal business operations. 15 20 Section 2.05. No Representations or Warranties; Consents. Each of the parties hereto understands and agrees that no party hereto is, in this Agreement, in any Related Agreement, or otherwise, representing or warranting in any way (a) as to the value or freedom from encumbrance of, or any other matter concerning, any assets of such party; or (b) as to the legal sufficiency to convey title to any asset transferred pursuant to this Agreement or any Related Agreement. IT IS ALSO AGREED AND UNDERSTOOD THAT THERE ARE NO WARRANTIES, EXPRESS OR IMPLIED, AS TO THE MERCHANTABILITY OR FITNESS OF ANY OF THE ASSETS EITHER TRANSFERRED TO OR RETAINED BY THE PARTIES, AS THE CASE MAY BE, AND ALL SUCH ASSETS SHALL BE "AS IS, WHERE IS" AND "WITH ALL FAULTS"; provided, however, that the absence of warranties shall have no effect upon the allocation of Liabilities under this Agreement. Each party hereto understands and agrees that no party hereto is, in this Agreement, in any Related Agreement or otherwise, representing or warranting in any way that the obtaining of any consents or approvals, the execution and delivery of any amendatory agreements and the making of any filings or applications contemplated by this Agreement, any Related Agreement or otherwise will satisfy the provisions of any or all applicable laws or judgments or other instruments or agreements relating to such assets, including without limitation, the Gaming Laws. Notwithstanding the foregoing, the parties shall use their good faith efforts to obtain all consents and approvals, including, without limitation, pursuant to the Gaming Laws, to enter into all reasonable amendatory agreements and to make all filings and applications which may be reasonably required for the consummation of the transactions contemplated by this Agreement and the Related Agreements, and shall take all such further reasonable actions as shall be necessary to preserve for each of the Non-Mississippi Group and the Mississippi Group, to the greatest extent feasible, the economic and operational benefits of the allocation of assets and liabilities provided for in this Agreement. In case at any time after the Distribution Date any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers and directors of each party to this Agreement shall take all such necessary or desirable action. Section 2.06. Conveyancing and Assumption Instruments. In connection with the Preliminary Transfers described in Article II and Article III hereof, and the assignment of assets and the assumption of Liabilities contemplated by any Related Agreements, the parties shall execute, or cause to be executed by the appropriate entities, the Conveyancing and Assumption Instruments in such forms as the parties shall reasonably agree. The transfer of capital stock and other equity interests shall be effected by means of delivery of stock certificates and executed stock powers and notation on the stock record books of the corporation or other legal entity involved and, to the extent required by applicable law, by notation on public registries. Section 2.07. Cash Allocations After the Year-End. Notwithstanding anything to the contrary herein, (i) Net Cash generated after December 31, 1998 from operations of the 16 21 Mississippi Business (regardless of whether the Distribution has occurred) shall be retained by Company; (ii) Net Cash generated after December 31, 1998 from operations of the Non-Mississippi Business (regardless of whether the Distribution has occurred) shall be retained by Lakes; and (iii) the allocations of cash set forth in Section 2.08 (a) shall be made as of December 31, 1998. Section 2.08. Cash Allocation; Cash Management. (a) Cash Allocation on the Distribution Date. Subject to the provisions of Section 2.01(b) hereof, the allocation between Company and Lakes of all cash bank balances, short-term investments and outstanding checks and drafts of Company and its Subsidiaries recorded per the books of Company and its Subsidiaries shall be in accordance with the following: (i) all deposits of cash, checks, drafts or short-term investments made to accounts, other than the Non-Mississippi Group Cash Accounts, after the close of business on the Distribution Date shall be remitted to Company; provided, however, that any such deposits that are erroneously made to such accounts shall be redeposited to the correct accounts as promptly as possible; (ii) all deposits of cash, checks, drafts or short-term investments made to the Non-Mississippi Group Cash Accounts after the close of business on the Distribution Date shall be remitted to Lakes and/or the appropriate Non-Mississippi Subsidiary; provided, however, that any such deposits that are erroneously made to such accounts shall be redeposited to the correct accounts as promptly as possible; (iii) all cash, other than cash allocated pursuant to Sections 2.01(b), 2.07, 2.08(i) and 2.08(ii), shall be retained by or remitted to Company and/or the appropriate Mississippi Subsidiaries. (b) Cash Management After the Distribution Date. All petty cash, depository and disbursement accounts of Company (other than the Non-Mississippi Group Cash Accounts) shall be retained by Company. The Non-Mississippi Group Cash Accounts shall be transferred to Lakes, and Lakes shall establish and maintain a separate cash management system and separate accounting records with respect to the Non-Mississippi Group Business effective as of 12:01 a.m. Minneapolis time on the day following the Distribution Date. (c) Ordinary Course Operations. The parties contemplate and agree that the Non-Mississippi Business and the Mississippi Business, including, but not limited to, the administration, payment and collection of accounts payable and accounts receivable, will be conducted in the ordinary course of business and consistent with past practice prior the Distribution Date. 17 22 Section 2.09. Allocation of Debt. Debt will be allocated as follows: (a) Debt secured by Mississippi Group Assets, or otherwise specifically associated with the Mississippi Business, will be retained by Company and/or the appropriate Mississippi Subsidiaries. As of the date of this Agreement, such Debt consists of the First Mortgage Notes. (b) The Senior Notes will be retained by Company and/or the appropriate Mississippi Subsidiary. (c) Debt relating to the Bank of America Revolving Credit Facility will be retained by Company and/or the appropriate Mississippi Subsidiary. (d) Any other of Company's unsecured Debt will be Retained Debt. (e) Debt secured by any Non-Mississippi Group Assets will be assumed by Lakes and/or the appropriate Non-Mississippi Subsidiaries. (f) Notwithstanding anything to the contrary herein, (i) increases (decreases) in Debt incurred (repaid) after December 31, 1998 arising out of operations of the Mississippi Business (regardless of whether the Distribution has occurred) shall be allocated to Company and (ii) increases (decreases) in Debt incurred (repaid) after December 31, 1998 arising out of operations of the Non-Mississippi Business (regardless of whether the Distribution has occurred) shall be allocated to Lakes; and, to the extent such increases (decreases) are not already given effect in the definition of Net Cash, such increases (decreases) shall increase or decrease (as applicable) the Debt allocated to Company or Lakes (as applicable). Section 2.10. Ancillary Agreements Between Company and Lakes. On or prior to the Distribution Date, Company and Lakes shall enter into the Ancillary Agreements. ARTICLE III. ASSUMPTION AND SATISFACTION OF LIABILITIES Section 3.01. Assumption and Satisfaction of Mississippi Business and Non-Mississippi Business Liabilities. From and after the Distribution Date, (a) Lakes shall, and/or shall cause the Non-Mississippi Subsidiaries to, assume, pay, perform and discharge in due course all of the Non-Mississippi Group Liabilities (including the Indian Guarantees and the Stratosphere Liabilities); and; (b) Company shall, and/or shall cause the Mississippi Subsidiaries to, assume, pay, perform and discharge in due course all of the Mississippi Group Liabilities (including the Non-Mississippi Subsidiaries Note Guarantees). Section 3.02. Assumption and Satisfaction of Contingent Company Liabilities and 18 23 Transaction Liabilities. From and after the Distribution Date, to the extent that there is a Company liability occurring prior to the Distribution Date that is neither a Mississippi Group Liability nor a Non-Mississippi Group Liability and cannot in good faith be allocated by the parties hereto as either a Mississippi Group Liability or a Non-Mississippi Group Liability, including, but not limited to the Liabilities set forth on Schedule 10 attached hereto (all such Liabilities, "Contingent Company Liabilities"), then such Contingent Company Liabilities and all Transaction Liabilities shall be allocated between Company and Lakes on a pro rata basis as provided in Section 3.1(c)(1) of the Merger Agreement and shall be assumed, paid, performed and discharged by each such party based upon such allocation. ARTICLE IV. THE DISTRIBUTION Section 4.01. Cooperation Prior to the Distribution. (a) Lakes and Company shall cooperate in preparing, filing with the SEC and causing to become effective any registration statements or amendments thereof which are appropriate to reflect the establishment of, or amendments to, any employee benefit plans, and other plans contemplated by the Employee Benefits Allocation Agreement. (b) Lakes and Company shall take all such action as may be necessary or appropriate under the securities or blue sky laws of states or other political subdivisions of the United States in connection with the transactions contemplated by this Agreement and the Related Agreements. (c) Lakes and Company shall use all reasonable best efforts to obtain any governmental or third-party consents or approvals necessary or desirable in connection with the transactions contemplated hereby, including, without limitation, pursuant to the Gaming Laws ("Consents"). (d) Lakes and Company will use all reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary or desirable under applicable law, to consummate the transactions contemplated under this Agreement and the Related Agreements including, but not limited to, actions relating to the satisfaction of the conditions indicated in Section 4.02 hereof. Section 4.02. Company Board Action; Conditions Precedent to the Distribution . Company Board shall, in its sole discretion, establish the Record Date and the Distribution Date and any appropriate procedures in connection with the Distribution. In no event shall the Distribution occur unless the following conditions shall have been satisfied: 19 24 (a) the transactions contemplated in Article II and Article III shall have been consummated in all material respects; (b) the Lakes Board, comprised as contemplated by Section 6.01, shall have been elected by Company, as sole shareholder of Lakes, and the Lakes Articles and Lakes Bylaws shall have been adopted and shall be in effect; (c) Company shall have received shareholder ratification of the Distribution at a meeting of shareholders. (d) the Merger Agreement shall be in full force and effect and no material breach shall exist thereunder; (e) each condition to the consummation of the Merger, other than the condition set forth in Section 8.1(g) of the Merger Agreement relating to the consummation of the Distribution, shall have been fulfilled or waived by the party for whose benefit such condition exists; (f) with respect to the Louisiana Gaming License: (i) the Louisiana Gaming License is transferred to Lakes or a Non-Mississippi Subsidiary; (ii) the Non-Mississippi Subsidiaries are licensed pursuant to Louisiana Gaming Laws; or (iii) Lakes is licensed pursuant to Louisiana Gaming Laws. (g) the IRS Ruling shall have been granted in form and substance satisfactory to Company Board, the IRS Ruling shall not have been withdrawn by the IRS and the representations made to the IRS therein shall be true in all material respects; (h) the Form 10 shall have been declared effective by the SEC; (i) the Lakes Common Stock shall have been approved for trading on the NASDAQ National Market (or such other securities exchange comprising the principal securities exchange or market on which the Lakes Common Stock is listed or traded), subject to official notice of issuance; (j) each of Lakes and Company shall have executed and delivered the Related Agreements to which it is a party and each of the transactions contemplated by the Related Agreements to be consummated on or prior to the Distribution Date shall have been consummated; 20 25 (k) all necessary regulatory approvals and consents of third parties shall have been received, including, without limitation, pursuant to the Gaming Laws, except for any such approvals or consents the failure of which to obtain would not have a material adverse effect on the business, operations or condition (financial or otherwise) of either Company or Lakes; (l) the Board of Directors of Company shall be satisfied that (i) at the time of the Distribution and after giving effect to the Distribution and the transactions contemplated under the Related Agreements, Company will not be insolvent (in that, both before and immediately following the Distribution, (1) the fair market value of Company's assets would exceed Company's liabilities, (2) Company would be able to pay its liabilities as they mature and become absolute and (3) Company would not have unreasonably small capital with which to engage in its business); and (ii) the Distribution would be permitted under the MBCA; and at the Board of Directors' discretion, Company shall have received the opinion of a financial advisor or other appraisal or valuation expert selected by Company, in form and substance satisfactory to Company, as to the matters set forth in clauses (1) through (3) above, and such opinion shall not have been withdrawn; provided, however, that (x) any such condition may be waived by Company Board in its sole discretion, and (y) the satisfaction of such conditions shall not create any obligation on the part of Company or any other party hereto to effect the Distribution or in any way limit Company's power of termination set forth in Section 9.08 or alter the consequences of any such termination from those specified in such Section. Section 4.03. The Distribution. On the Distribution Date, or as soon thereafter as practicable, subject to the conditions and rights of termination set forth in this Agreement, Company shall deliver to the Agent, for the benefit of the Holders, a share certificate representing all of the then outstanding shares of Lakes Common Stock owned by Company, endorsed in blank, and shall instruct the Agent to distribute to each Holder, on or as soon as practicable following the Distribution Date, a certification, or if requested by such Holder, a certificate, representing one share of Lakes Common Stock for every four shares of Company Common Stock so held or, such number of shares that may be issued pursuant to a stock split, stock or dividend, of the Lakes Common Stock prior to, or simultaneously with, the Distribution Date. Lakes agrees to provide all share certificates that the Agent shall require in order to effect the Distribution. 21 26 ARTICLE V. INDEMNIFICATION Section 5.01. Indemnification by Company. Company shall indemnify, defend and hold harmless Lakes and each of the Non-Mississippi Subsidiaries, and each of their respective past or present directors, officers, employees, agents and Affiliates and each of the heirs, executors, successors and assigns of any of the foregoing (the "Lakes Indemnitees") from and against any and all losses, Liabilities, damages and expenses (including, without limitation, the reasonable costs and expenses, including reasonable attorneys' fees in connection with any such investigations, Actions, or threatened Actions) (collectively, "Indemnifiable Losses" and, individually, an "Indemnifiable Loss") incurred or suffered by any of the Lakes Indemnitees and arising out of or due to the failure or alleged failure of Company, any Mississippi Subsidiary, or any of their respective Affiliates to (a) pay, perform or otherwise discharge in due course any of the Mississippi Group Liabilities, or (b) comply with the provisions of Section 6.04 hereof. Section 5.02. Indemnification by Lakes. Lakes shall indemnify, defend and hold harmless Company and each of the Mississippi Subsidiaries, and each of their respective past or present directors, officers, employees, agents and Affiliates and each of the heirs, executors, successors and assigns of any of the foregoing (the "Company Indemnitees") from and against any and all Indemnifiable Losses incurred or suffered by any of Company Indemnitees and arising out of or due to the failure or alleged failure of Lakes, any Non-Mississippi Subsidiaries, or any of their respective Affiliates to (a) pay, perform or otherwise discharge in due course any of the Non-Mississippi Group Liabilities; or (b) comply with the provisions of Section 6.04 hereof. Section 5.03. Insurance Proceeds. The amount which any party (an "Indemnifying Party") is or may be required to pay to any other Person (an "Indemnified Person") pursuant to Section 5.01 or Section 5.02 shall be reduced (including, without limitation, retroactively) by any Insurance Proceeds or other amounts actually recovered by or on behalf of such Indemnified Person in reduction of the related Indemnifiable Loss. If an Indemnified Person shall have received the payment required by this Agreement from an Indemnifying Party in respect of an Indemnifiable Loss and shall subsequently actually receive Insurance Proceeds, or other amounts in respect of such Indemnifiable Loss as specified above, then such Indemnified Person shall pay to such Indemnifying Party a sum equal to the amount of such Insurance Proceeds or other amounts actually received. 22 27 Section 5.04. Procedure for Indemnification. (a) If an Indemnified Person shall receive written notice of the assertion by a Person (including, without limitation, any Governmental Authority) who is not a party to this Agreement or to any of the Related Agreements of any claim or of the commencement by any such Person of any Action with respect to which an Indemnifying Party may be obligated to provide indemnification pursuant to this Agreement (a "Third-Party Claim"), such Indemnified Person shall give the Indemnifying Party written notice thereof promptly after becoming aware of such Third-Party Claim; provided, that the failure of any Indemnified Person to give notice as required by this Section 5.04 shall not relieve the Indemnifying Party of its obligations under this Article V, except to the extent that such Indemnifying Party is materially prejudiced by such failure to give notice. Such notice shall describe the Third-Party Claim in reasonable detail, and shall indicate the amount (estimated if necessary) of the Indemnifiable Loss that has been claimed against or may be sustained by such Indemnified Person. (b) Within 15 days of the receipt of notice from an Indemnified Person in accordance with Section 5.04(a) (or sooner, if the nature of such Third-Party Claim so requires), the Indemnifying Party shall notify the Indemnified Person of its election whether to assume responsibility for such Third-Party Claim (provided that if the Indemnifying Party does not so notify the Indemnified Person of its election within 15 days after receipt of such notice from the Indemnified Person, the Indemnifying Party shall be deemed to have elected not to assume responsibility for such Third-Party Claim). An election not to assume responsibility for such Third-Party Claim may only be made in the event of a good faith dispute that a Third-Party Claim is not covered as an Indemnifiable Loss under the grounds specified in Section 5.01 or 5.02, as the case may be. Subject to Section 5.04(e) hereof, an Indemnifying Party may elect to defend or to seek to settle or compromise, at such Indemnifying Party's own expense and by counsel reasonably satisfactory to the Indemnified Person, any Third-Party Claim, provided that (i) the Indemnifying Party must confirm in writing that it agrees that the Indemnified Person is entitled to indemnification hereunder in respect of such Third-Party Claim; and (ii) no compromise or settlement shall be made without the prior written consent of the Indemnified Person, which consent shall not be reasonably withheld. (c) In the event that the Indemnifying Party elects to assume responsibility for the Third-Party Claim, pursuant to Section 5.04(b) above, (i) the Indemnified Person shall cooperate in the defense or settlement or compromise of such Third-Party Claim, including making available to the Indemnifying Party any personnel and any books, records or other documents within the Indemnified Person's control or which it otherwise has the ability to make available that are necessary or appropriate for the defense of the Third-Party Claim; (ii) the Indemnifying Party shall keep the Indemnified Person reasonably informed regarding the strategy, status and progress of the defense of the Third-Party claim; and (iii) the Indemnifying Party shall consider, in good faith, the opinions and suggestions of the Indemnified Person with respect to the 23 28 Third-Party Claim. After notice from an Indemnifying Party to an Indemnified Person of its election to assume responsibility for a Third-Party Claim, such Indemnifying Party shall not be liable to such Indemnified Person under this Article V for any legal or other costs or expenses (except costs or expenses approved in advance by the Indemnifying Party) subsequently incurred by such Indemnified Person in connection with the defense thereof; provided, that if the defendants in any such claim include both the Indemnifying Party and one or more Indemnified Persons and in such Indemnified Persons' reasonable judgment a conflict of interest between such Indemnified Persons and such Indemnifying Party exists in respect of such claim, such Indemnified Persons shall have the right to employ separate counsel and in that event the reasonable fees and expenses of such separate counsel (but not more than one separate counsel reasonably satisfactory to the Indemnifying Party) shall be paid by such Indemnifying Party. (d) If an Indemnifying Party elects not to assume responsibility for a Third-Party Claim the Indemnified Person may defend or (subject to the following sentence) seek to compromise or settle such Third-Party Claim. Notwithstanding the foregoing, an Indemnified Person may not settle or compromise any claim without prior written notice to the Indemnifying Party, which shall have the option within ten days following the receipt of such notice (i) to disapprove the settlement, and to then assume all past and future responsibility for the claim, including immediately reimbursing the Indemnified Person for prior expenditures in connection with the claim; (ii) to disapprove the settlement and continue to refrain from participation in the defense of the claim, in which event the Indemnified Person may, in its sole discretion, proceed with the settlement and the Indemnifying Party shall have no further right to contest the amount or reasonableness of the settlement; (iii) to approve and pay the amount of the settlement, reserving the Indemnifying Party's right to contest the Indemnified Person's right to indemnity; or (iv) to approve and pay the settlement. In the event the Indemnifying Party makes no response to such written notice, the Indemnifying Party shall be deemed to have elected option (ii). When the Indemnifying Party chooses or is deemed to have chosen option (ii) or (iii), the issue of whether the Indemnified Person has a right to indemnity under this Article V shall be resolved by arbitration pursuant to the provisions of Section 9.14 hereof. If the Indemnifying Party does not prevail at such arbitration, the Indemnifying Party shall promptly reimburse the Indemnified Person for all Indemnifiable Losses, plus interest on such amounts at the lower of (i) 10% or (ii) the highest legal interest rate, accruing from the date of payment by the Indemnified Person. (e) Notwithstanding the foregoing, if an Indemnified Person reasonably and in good faith determines that (i) the Indemnifying Party is not financially capable to defend a Third-Party Claim and to provide full indemnification with respect to any settlement thereof or (ii) the Indemnifying Party or such Indemnifying Party's attorney is not adequately representing the Indemnified Person's interests with respect to such Third-Party Claim, the Indemnified Person may, by notice to the Indemnifying Party, assume the exclusive right to defend, compromise or settle such Third-Party Claim and the Indemnifying Party shall remain responsible for, and be 24 29 bound by the resolution of, such Third-Party Claim. (f) Any claim on account of an Indemnifiable Loss which does not result from a Third-Party Claim shall be asserted by written notice given by the Indemnified Person to the applicable Indemnifying Party. Such Indemnifying Party shall have a period of 15 days after the receipt of such notice within which to respond thereto. If such Indemnifying Party does not respond within such 15-day period, such Indemnifying Party shall be deemed to have refused to accept responsibility to make payment. If such Indemnifying Party does not respond within such 15-day period or rejects such claim in whole or in part, such Indemnified Person shall be free to pursue such remedies as may be available to such party under applicable law or under this Agreement. (g) In addition to any adjustments required pursuant to Section 5.03, if the amount of any Indemnifiable Loss shall, at any time subsequent to the payment required by this Agreement, be reduced by recovery, settlement or otherwise, the amount of such reduction, less any expenses incurred in connection therewith, shall promptly be repaid by the Indemnified Person to the Indemnifying Party. (h) In the event of payment by an Indemnifying Party to any Indemnified Person in connection with any Third-Party Claim, such Indemnifying Party shall be subrogated to and shall stand in the place of such Indemnified Person as to any events or circumstances in respect of which such Indemnified Person may have any right or claim relating to such Third-Party Claim against any claimant or plaintiff asserting such Third-Party Claim or against any other party that may be liable. Such Indemnified Person shall cooperate with such Indemnifying Party in a reasonable manner, and at the cost and expense of such Indemnifying Party, in prosecuting any subrogated right or claim. (i) For so long as Surviving Corporation (as defined in the Merger Agreement) is required to provide indemnification to any of the Indemnified Persons (as defined in the Merger Agreement), Lakes shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, make any Restricted Payment. If Lakes is unable, within 15 days of request, to repay in full any claim made for indemnification by Company or any of its Affiliates pursuant to this Agreement or the Merger Agreement, then for so long as any such claim or any other claim for indemnification made by Company or any of its Affiliates remains unpaid, Lakes shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guaranty or otherwise become directly or indirectly liable with respect to any indebtedness. (j) Prior to the Distribution Date, Company and Lakes shall enter into a Collateral Trust Agreement and a Pledge and Security Agreement. Company is hereby entitled to all the rights and benefits under those agreements in order to secure Lakes' indemnification obligations under this Agreement, the Related Agreements and the Merger Agreement. 25 30 Section 5.05. Remedies Cumulative. The remedies provided in this Article V shall be cumulative and shall not preclude assertion by any Indemnified Person of any other rights or the seeking of any and all other remedies against any Indemnifying Party. Section 5.06. Survival of Indemnities. The obligations of each of Lakes and Company under this Article V shall survive the sale or other transfer by it of any assets or businesses or the assignment by it of any Liabilities, with respect to any Indemnifiable Loss of the other related to such assets, businesses or Liabilities. ARTICLE VI. CERTAIN ADDITIONAL MATTERS Section 6.01. Lakes Board. Lakes and Company shall take all actions which may be required to appoint as officers and directors of Lakes those persons named in the Form 10 (as may be altered or supplemented prior to the date hereof by Company Board and the Lakes Board) to constitute, effective as of the Distribution Date, the officers and the directors of Lakes. Section 6.02. Resignations; Company Board. Lakes shall cause all of its directors and the Transferred Employees to resign, effective as of the Distribution Date, from all boards of directors or similar governing bodies of Company or any of the Mississippi Subsidiaries on which they serve, and from all positions as officers or employees of Company or any of the Mississippi Subsidiaries in which they serve. Company shall cause all of its directors and the Mississippi Group Employees to resign from all boards of directors or similar governing bodies of Lakes or any of the Non-Mississippi Subsidiaries on which they serve, and from all positions as officers or employees of Lakes or any of the Non-Mississippi Subsidiaries in which they serve. Section 6.03. Lakes Certificate and Bylaws. On or prior to the Distribution Date, Lakes shall adopt the Lakes Articles and the Lakes Bylaws, and shall file the Lakes Articles with the Secretary of State of the State of Minnesota. Company shall provide all necessary shareholder approvals for the Lakes Articles prior to the filing of the Lakes Articles with the Secretary of State of the State of Minnesota. Section 6.04. Certain Post-Distribution Transactions. Each of Company and Lakes shall, and shall cause each of their respective Subsidiaries to, comply in all material respects with each representation, covenant and statement made, or to be made, to any taxing authority in connection with the IRS Ruling or any other ruling obtained, or to be obtained, by Company and Lakes acting together, from any such taxing authority with respect to any transaction contemplated by this Agreement. Section 6.05. Sales and Transfer Taxes. Company and Lakes agree to cooperate to determine the amount of sales, transfer or other Taxes (including, without limitation, all real estate, patent, trademark and transfer taxes and recording fees, but excluding any Income Taxes, 26 31 as defined in the Tax Allocation and Indemnity Agreement) incurred in connection with the Distribution and other transactions contemplated by the Agreement (the "Transaction Taxes"). Company agrees to file promptly and timely the Tax Returns for such Transaction Taxes and Lakes will join in the execution of any such Tax Returns or other documentation. Financial responsibility for payment of all such Transaction Taxes shall be allocated between Company and Lakes on a pro rata basis as provided in Section 3.1(c)(1) of the Merger Agreement. Section 6.06. Settlement of Intercompany Accounts. All accounts between the Company and the Non-Mississippi Subsidiaries and accounts between Mississippi Subsidiaries and the Non-Mississippi Subsidiaries shall be paid in full and settled prior to the Distribution Date and to the extent that such accounts exist prior to the Distribution Date, shall be deemed to be a capital contribution or dividend to such entity, provided, however, that nothing contained in this Section 6.06 shall affect the (i) transfer of assets pursuant to Article II, (ii) the assumption and satisfaction of Liabilities pursuant to Article III or (iii) the indemnification provisions related to the parties pursuant to this Agreement and the Merger Agreement. ARTICLE VII. ACCESS TO INFORMATION AND SERVICES Section 7.01. Provision of Corporate Records. (a) Except as may otherwise be provided in a Related Agreement, Company shall arrange as soon as practicable following the Distribution Date, to the extent not previously delivered in connection with the transactions contemplated in Article II, for the transportation (at Lake's cost) to Lakes of the Non-Mississippi Group Books and Records in its possession, except to the extent such items are already in the possession of Lakes or a Non-Mississippi Subsidiary. The Non-Mississippi Group Books and Records shall be the property of Lakes, but the Non-Mississippi Group Books and Records that reasonably relate to Company or the Mississippi Business shall be available to Company for review and duplication until Company shall notify Lakes in writing that such records are no longer of use to Company. (b) Except as may otherwise be provided in a Related Agreement, Lakes shall arrange as soon as practicable following the Distribution Date, to the extent not previously delivered in connection with the transactions contemplated in Article II, for the transportation (at Company's cost) to Company of the Mississippi Group Books and Records in its possession, except to the extent such items are already in the possession of Company or a Mississippi Subsidiary. The Mississippi Group Books and Records shall be the property of Company, but the Mississippi Group Books and Records that reasonably relate to Lakes or the Non-Mississippi Business shall be available to Lakes for review and duplication until Lakes shall notify Company in writing that such records are no longer of use to Lakes. Section 7.02. Access to Information. Except as otherwise provided in a Related 27 32 Agreement, from and after the Distribution Date, Company shall afford to Lakes and its authorized accountants, counsel and other designated representatives reasonable access (including using reasonable efforts to give access to persons or firms possessing information) and duplicating rights during normal business hours to all records, books, contracts, instruments, computer data and other data and information relating to pre-Distribution operations (collectively, "Information") within Company's possession or control, insofar as such access is reasonably required by Lakes for the conduct of its business, subject to appropriate restrictions for classified or Privileged Information. Similarly, except as otherwise provided in a Related Agreement, Lakes shall afford to Company and its authorized accountants, counsel and other designated representatives reasonable access (including using reasonable efforts to give access to persons or firms possessing information) and duplicating rights during normal business hours to Information within Lakes's possession or control, insofar as such access is reasonably required by Company for the conduct of its business, subject to appropriate restrictions for classified or Privileged Information. Information may be requested under this Article VII for the legitimate business purposes of either party, including without limitation, audit, accounting, claims (including claims for indemnification hereunder), litigation and tax purposes, as well as for purposes of fulfilling disclosure and reporting obligations and for performing this Agreement and the transactions contemplated hereby. Section 7.03. Production of Witnesses. At all times from and after the Distribution Date, each of Lakes and Company shall use reasonable efforts to make available to the other, upon written request, its and its Subsidiaries' present and past officers, directors, employees and agents as witnesses to the extent that such persons may reasonably be required in connection with any Action. 28 33 Section 7.04. Corporate Services. The parties hereto shall enter into a corporate services agreement to the extent Lakes requires corporate services to be provided to it following the Distribution Date. The services shall be provided for up to one year following the Distribution Date at a fee equal to the fair value for such services. The corporate services agreement shall be negotiated on an arms-length basis. The final cost, types and scope of services to be provided shall be subject to the approval of Company, such approval not to be unreasonably withheld. Section 7.05. Reimbursement. Except to the extent otherwise contemplated in any Related Agreement, a party providing Information or witnesses to the other party under this Article VII shall be entitled to receive from the recipient, upon the presentation of invoices therefor, payments of such amounts, relating to supplies, disbursements and other out-of-pocket expenses (at cost) of employees who are witnesses or otherwise furnish assistance (at cost), as may be reasonably incurred in providing such Information or witnesses. Notwithstanding the foregoing, the parties acknowledge that a party providing Information or witnesses shall not be entitled to receive reimbursement of salary or other compensation expenses relating to any employees providing such Information or acting as such witnesses. Section 7.06. Retention of Records. Except as otherwise required by law or agreed to in a Related Agreement or otherwise in writing, each of Lakes and Company may destroy or otherwise dispose of any of the Information which is material Information and is not contained in other Information retained by the other, only after the later to occur of (a) all applicable statutes of limitations (including any waivers or extensions thereof) with respect to Tax Returns which Company or Lakes, as the case may be, may be obligated to file on behalf of any member of the Lakes Group or any member of Company Group, as the case may be; and (b) any retention period required by law or pursuant to any record retention agreement, provided, however, that prior to such destruction or disposal, (x) it shall provide no less than 90 or more than 120 days advance written notice to the other, specifying in reasonable detail the Information proposed to be destroyed or disposed of and (y) if a recipient of such notice shall request in writing prior to the scheduled date for such destruction or disposal that any of the Information proposed to be destroyed or disposed of be delivered to such requesting party, the party proposing the destruction or disposal shall promptly arrange for the delivery of such of the Information as was requested at the expense of the party requesting such Information. Section 7.07. Confidentiality. Each of Company and its Subsidiaries on the one hand, and Lakes and its Subsidiaries on the other hand, shall hold, and shall cause its consultants and advisors to hold, in strict confidence, all Information concerning the other in its possession or furnished by the other or the other's representatives pursuant to this Agreement (except to the extent that such Information has been (i) in the public domain through no fault of such party; or (ii) later lawfully acquired from other sources by such party), and each party shall not release or disclose such Information to any other person, except its auditors, attorneys, financial advisors, rating agencies, bankers and other consultants and advisors, unless compelled to disclose by judicial or administrative process or, as reasonably advised by its counsel, by other requirements 29 34 of law, or unless such Information is reasonably required to be disclosed in connection with (x) any litigation with any third-parties or litigation between the Mississippi Group and the Non-Mississippi Group, (y) any contractual agreement to which members of the Mississippi Group or the Non-Mississippi Group are currently parties, or (z) in exercise of either party's rights hereunder. Section 7.08. Privileged Matters. Lakes and Company recognize that certain legal and other professional services that have been and will be provided prior to the Distribution Date have been and will be rendered for the benefit of both the Mississippi Group and the Non-Mississippi Group and that both the Mississippi Group and the Non-Mississippi Group should be deemed to be the client for the purposes of asserting all Privileges. To allocate the interests of each party in the Privileged Information, the parties agree as follows: (a) Company shall be entitled, in perpetuity, to control the assertion or waiver of all Privileges in connection with Privileged Information which relates solely to the Mississippi Group, whether or not the Privileged Information is in the possession of or under the control of Company or Lakes. Company shall also be entitled, in perpetuity, to control the assertion or waiver of all Privileges in connection with Privileged Information that relates solely to the subject matter of any claims constituting Mississippi Group Liabilities, now pending or which may be asserted in the future, in any lawsuits or other proceedings initiated against or by Company or a Mississippi Subsidiary, whether or not the Privileged Information is in the possession of or under the control of Company or Lakes. (b) Lakes shall be entitled, in perpetuity, to control the assertion or waiver of all Privileges in connection with Privileged Information which relates solely to the Non-Mississippi Group, whether or not the Privileged Information is in the possession of or under the control of Company or Lakes. Lakes shall also be entitled, in perpetuity, to control the assertion or waiver of all Privileges in connection with Privileged Information which relates solely to the subject matter of any claims constituting Non-Mississippi Group Liabilities, now pending or which may be asserted in the future, in any lawsuits or other proceedings initiated against or by Lakes or a Non-Mississippi Subsidiary, whether or not the Privileged Information is in the possession of or under the control of Company or Lakes. (c) Lakes and Company agree that they shall have a shared Privilege, with equal right to assert or waive, subject to the restrictions in this Section 7.07, with respect to all Privileges not allocated pursuant to the terms of Sections 7.07(a) and (b). All Privileges relating to any claims, proceedings, litigation, disputes, or other matters which involve both Lakes and Company, or in respect of which both Lakes and Company retain any responsibility or liability under this Agreement, shall be subject to a shared Privilege. (d) No party may waive any Privilege which could be asserted under any applicable law, and in which the other party has a shared Privilege, without the consent of the 30 35 other party, except to the extent reasonably required in connection with any litigation with third-parties or as provided in subsection (e) below. Consent shall be in writing, or shall be deemed to be granted unless written objection is made within twenty (20) days after written notice upon the other party requesting such consent. (e) In the event of any litigation or dispute between a member of the Mississippi Group and a member of the Non-Mississippi Group, either party may waive a Privilege in which the other party has a shared Privilege, without obtaining the consent of the other party, provided that such waiver of a shared Privilege shall be effective only as to the use of Information with respect to the litigation or dispute between the Mississippi Group and the Non-Mississippi Group, and shall not operate as a waiver of the shared Privilege with respect to third-parties. (f) If a dispute arises between the parties regarding whether a Privilege should be waived to protect or advance the interest of either party, each party agrees that it shall negotiate in good faith, shall endeavor to minimize any prejudice to the rights of the other party, and shall not unreasonably withhold consent to any request for waiver by the other party. Each party specifically agrees that it will not withhold consent to waiver for any purpose except to protect its own legitimate interests. (g) Upon receipt by any party of any subpoena, discovery or other request which arguably calls for the production or disclosure of Information subject to a shared Privilege or as to which the other party has the sole right hereunder to assert a Privilege, or if any party obtains knowledge that any of its current or former directors, officers, agents or employees have received any subpoena, discovery or other requests which arguably calls for the production or disclosure of such Privileged Information, such party shall promptly notify the other party of the existence of the request and shall provide the other party a reasonable opportunity to review the Information and to assert any rights it may have under this Section 7.07 or otherwise to prevent the production or disclosure of such Privileged Information. (h) The transfer of the Non-Mississippi Group Books and Records and the Mississippi Group Books and Records and other Information between Company and its Subsidiaries and Lakes and its Subsidiaries is made in reliance on the agreement of Lakes and Company, as set forth in Sections 7.06 and 7.07, to maintain the confidentiality of Privileged Information and to assert and maintain all applicable Privileges. The access to Information being granted pursuant to Sections 7.01 and 7.02 hereof, the agreement to provide witnesses and individuals pursuant to Section 7.03 hereof and the transfer of Privileged Information between Company and its Subsidiaries and Lakes and its Subsidiaries pursuant to this Agreement shall not be deemed a waiver of any Privilege that has been or may be asserted under this Agreement or otherwise. 31 36 ARTICLE VIII. INSURANCE Section 8.01. Policies and Rights Included Within the Non-Mississippi Group Assets. Without limiting the generality of the definition of the Non-Mississippi Group Assets or the effect of Section 2.01, the Non-Mississippi Group Assets shall include any and all rights of an insured party under each of the Shared Policies, specifically including rights of indemnity and the right to be defended by or at the expense of the insurer, where applicable, with respect to all injuries, losses, liabilities, damages and expenses incurred or claimed to have been incurred on or prior to the Distribution Date by any party in or in connection with the conduct of the Non-Mississippi Business or, to the extent any claim is made against Lakes or any of its Subsidiaries, the Mississippi Businesses, and which injuries, losses, liabilities, damages and expenses may arise out of insured or insurable occurrences or events under one or more of the Shared Policies. Section 8.02. Policies and Rights Included Within the Mississippi Group Assets. Without limiting the generality of the definition of the Mississippi Group Assets or the effect of Section 2.01 and except as provided in the Insurance Receivable Agreement, the Mississippi Group Assets shall include any and all rights of an insured party under each of the Shared Policies, specifically including rights of indemnity and the right to be defended by or at the expense of the insurer, where applicable, with respect to all injuries, losses, liabilities, damages and expenses incurred or claimed to have been incurred on or prior to the Distribution Date by any party in or in connection with the conduct of the Mississippi Business or, to the extent any claim is made against Company or any of the Mississippi Subsidiaries, the Non-Mississippi Business, and which injuries, losses, liabilities, damages and expenses may arise out of insured or insurable occurrences or events under one or more of the Shared Policies. Section 8.03. Administration and Reserves. (a) General. Notwithstanding the provisions of Article III, but subject to any contrary provisions of any Related Agreement, from and after the Distribution Date: (i) Company shall be responsible for the Insurance Administration of the Shared Policies; provided, however, that the administration of the Shared Policies by Company is in no way intended to limit, inhibit, or preclude any right to insurance coverage for any Insured Claim of a named insured under the Shared Policies including, but not limited to, Lakes or any of its Subsidiaries or Affiliates; (ii) Lakes shall be entitled to any reserves established by Company or any of its Subsidiaries, or the benefit of reserves held by any insurance carrier, with respect to the Non-Mississippi Group Liabilities; and (iii) Company shall be entitled to any reserves established by Company 32 37 or any of its Subsidiaries, or the benefit of reserves held by any insurance carrier, with respect to the Mississippi Group Liabilities. (b) Insurance Premiums. (i) Lakes shall have the right but not the obligation to pay the premiums, to the extent that Company does not pay premiums with respect to Mississippi Group Liabilities (retrospectively-rated or otherwise), with respect to Shared Policies as required under the terms and conditions of the respective Policies, whereupon Company shall forthwith reimburse Lakes for that portion of such premiums paid by Lakes as are attributable to the Mississippi Group Liabilities. (ii) Company shall have the right but not the obligation to pay the premiums, to the extent that Lakes does not pay premiums with respect to Non-Mississippi Group Liabilities (retrospectively-rated or otherwise), with respect to Shared Policies as required under the terms and conditions of the respective Policies, whereupon Lakes shall forthwith reimburse Company for that portion of such premiums paid by Company as are attributable to the Non-Mississippi Group Liabilities. (c) Allocation of Insurance Proceeds. Except as provided in the Insurance Receivable Agreement, Insurance Proceeds received with respect to claims, costs and expenses under the Policies shall be paid to Lakes with respect to the Non-Mississippi Group Liabilities and to Company with respect to the Mississippi Group Liabilities. Payment of the allocable portions of indemnity costs of Insurance Proceeds resulting from the liability policies will be made to the appropriate party upon receipt from the insurance carrier. In the event that the aggregate limits on any Policies are exceeded, the parties agree to provide an equitable allocation of Insurance Proceeds received after the Distribution Date based upon their respective bona fide claims taking into account their relative contributions towards premiums and the Insurance Proceeds used by each party to satisfy Insured Claims. The parties agree to use their reasonable best efforts to cooperate with respect to insurance matters. 33 38 (d) Insurance Charges. (i) Notwithstanding anything to the contrary contained herein, Lakes or an appropriate Non-Mississippi Subsidiary assumes responsibility for and shall pay to the appropriate insurance carriers or otherwise any premiums, retrospectively rated premiums, defense costs, indemnity payments, deductibles, retentions or other charges as appropriate (collectively "Insurance Charges"), whenever arising, which become due and payable upon the terms and conditions of any applicable Policy in respect of any Insured Claims against Lakes or a Non-Mississippi Subsidiary for charges which relate to the period before the Distribution Date. In the event that Lakes or a Non-Mississippi Subsidiary fails to pay any insurance charges when due and payable, whether at the request of the party entitled to payment or upon demand by Company or a Mississippi Subsidiary, Company or a Mississippi Subsidiary may (but shall not be required to) pay such Insurance Charges for and on behalf of Lakes or a Non-Mississippi Subsidiary and thereafter Lakes shall forthwith reimburse Company or such Mississippi Subsidiary for such payment. (ii) Notwithstanding anything to the contrary contained herein, Company or an appropriate Mississippi Subsidiary assumes responsibility for and shall pay to the appropriate insurance carriers or otherwise any Insurance Charges, whenever arising, which become due and payable upon the terms and conditions of any applicable Policy in respect of any Insured Claims against Company or a Mississippi Subsidiary for charges which relate to the period before the Distribution Date. In the event that Company or a Mississippi Subsidiary fails to pay any Insurance Charges when due and payable, whether at the request of the party entitled to payment or upon demand by Lakes or a Non-Mississippi Subsidiary, Lakes or a Non-Mississippi Subsidiary may (but shall not be required to) pay such Insurance Charges for and on behalf of Company or a Mississippi Subsidiary and thereafter Company shall forthwith reimburse Lakes or such Non-Mississippi Subsidiary for such payment. Section 8.04. Agreement for Waiver of Conflict and Shared Defense . In the event that Insured Claims of both Lakes and Company exist relating to the same occurrence, Lakes and Company agree to jointly defend and to waive any conflict of interest necessary to the conduct of that joint defense. Nothing in this paragraph shall be construed to limit or otherwise alter in any way the indemnity obligations of the parties to this Agreement, including those created by this Agreement, by operation of law or otherwise. 34 39 ARTICLE IX. MISCELLANEOUS Section 9.01. Entire Agreement; No Third Party Beneficiaries. This Agreement and all documents and instruments referred to herein constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, and are not intended to confer upon any Person other than the parties hereto any rights or remedies hereunder. Section 9.02. Tax Allocation and Indemnity Agreement; After-Tax Payments. (a) Other than as provided in this Section 9.02 and Section 6.05, this Agreement shall not govern any Tax matter, and any and all claims, losses, damages, demands, costs, expenses, liabilities, refunds, deductions, write-offs, or benefits relating to Taxes shall be exclusively governed by the Tax Allocation and Indemnity Agreement. (b) If, at the time Lakes is required to make any payment to Company under this Agreement, Company owes Lakes any amount under the Tax Allocation and Indemnity Agreement, then such amounts shall be offset and the excess shall be paid by the party liable for such excess. Similarly, if, at the time Company is required to make any payment to Lakes under this Agreement, Lakes owes Company any amount under the Tax Allocation and Indemnity Agreement, then such amounts shall be offset and the excess shall be paid by the party liable for such excess. Section 9.03. Expenses. Except as specifically provided in this Agreement or in a Related Agreement, all fees and expenses incurred in connection with this Agreement and the consummation of the transactions contemplated hereby shall be paid by the party incurring such expenses. In addition, it is understood and agreed that Lakes shall pay the legal, filing, accounting, printing and other accountable and out-of-pocket expenditures in connection with the preparation, printing and filing of the Form 10. Section 9.04. Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of New York, without regard to any applicable conflicts of laws. Section 9.05. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, telecopied (which is confirmed) or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): 35 40 if to Company, to Gaming Co., Inc. 3930 Howard Hughes Parkway, 4th Floor Las Vegas, Nevada 89109 Attn: General Counsel Facsimile: (702) 699-5179 if to Lakes, to Lakes 130 Cheshire Lane Minnetonka, MN 55305 Attn: Chief Executive Officer Facsimile: (612) 449-7003 Section 9.06. Amendments. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. Section 9.07. Assignments. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by either of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other party. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. Section 9.08. Termination. This Agreement may be terminated and the Distribution abandoned at any time prior to the Distribution Date by and in the sole discretion of Company Board without the approval of Lakes's or of Company's stockholders. In the event of such termination, no party shall have any liability to any other party pursuant to this Agreement. Section 9.09. Subsidiaries. Each of the parties hereto shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be performed by any Subsidiary of such party which is contemplated to be a Subsidiary of such party on and after the Distribution Date. Section 9.10. Specific Performance. The parties hereto agree that the remedy at law for any breach of this Agreement will be inadequate and that any party by whom this Agreement is enforceable shall be entitled to specific performance in addition to any other appropriate relief or remedy. Such party may, in its sole discretion, apply to a court of competent jurisdiction for specific performance or injunctive or such other relief as such court may deem just and proper in order to enforce this Agreement or prevent any violation hereof and, to the extent permitted by applicable laws, each party waives any objection to the imposition of such relief. Section 9.11. Headings; References. The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the 41 meaning or interpretation of this Agreement. All references herein to "Article", "Sections" or "Exhibits" shall be deemed to be references to Articles or Sections hereof or Exhibits hereto unless otherwise indicated. Section 9.12. Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when two or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. Section 9.13. Severability; Enforcement. The invalidity of any portion hereof shall not affect the validity, force or effect of the remaining portions hereof. If it is ever held that any restriction hereunder is too broad to permit enforcement of such restriction to its fullest extent, each party agrees that a court of competent jurisdiction may enforce such restriction to the maximum extent permitted by law, and each party hereby consents and agrees that such scope may be judicially modified accordingly in any proceeding brought to enforce such restriction. Section 9.14. Arbitration of Disputes. (a) Any dispute, controversy or disagreement ("Dispute") between the Parties related to the obligations of the parties under this Agreement in respect of which an amicable resolution cannot be reached shall be submitted for mediation to a committee made up of an equal number of non-common members of each company's Board of Directors ("Committee"). If the parties are unable to reach an amicable resolution of a Dispute within thirty days after submission to the Committee, then, to the maximum extent allowed by law, the Dispute shall be submitted and resolved by final and binding arbitration in Minnesota or Mississippi or as the parties may agree upon; provided, however, that any party may seek injunctive relief and enforcement of any award rendered pursuant to the arbitration provisions of this Section 9.14 by bringing a suit in any court of competent jurisdiction. Any award issued as a result of such arbitration shall be final and binding between the parties thereto and shall be enforceable by any court having jurisdiction over the party against whom enforcement was sought and application may be made to such court for judicial acceptance of the award and order of enforcement. The fees and expenses of arbitration (including reasonable attorneys' fees) shall be paid by the party that does not prevail in such arbitration. (b) Attorneys' Fees. If any party to this Agreement brings an action to enforce its rights under this Agreement, the prevailing party shall be entitled to recover its costs and expenses, including without limitation reasonable attorneys' fees, incurred in connection with such action, including any appeal of such action. (c) Specific Performance. Nothing contained in this Section 9.14 shall limit or restrict in any way the right or power of a party at any time to seek injunctive relief in any court and to litigate the issues relevant to such request for injunctive relief before such court (i) to 42 restrain the other party from breaching this Agreement or (ii) for specific enforcement of this Section 9.14. The parties agree that any legal remedy available to a party with respect to a breach of this Section 9.14 will not be adequate and that, in addition to all other legal remedies, each party is entitled to an order specifically enforcing this Section 9.14. (d) Consent to Jurisdiction. The Parties hereby consent to the jurisdiction of the federal and state courts located in the State of Minnesota for all purposes under this Agreement. (e) Confidentiality. Neither party nor the arbitrators may disclose the existence or results of any arbitration under this Agreement or any evidence presented during the course of the arbitration without the prior written consent of both parties, except as required to fulfill applicable disclosure and reporting obligations, or as otherwise required by law. 43 Section 9.15. Prompt Payment. Where the terms of this Agreement require payment of an amount "as promptly as possible," "as soon as practicable," or "as soon as possible," following a specified event, occurrences or date, such payment shall be made no later than five (5) business days after such event, occurrence or date. [SIGNATURE PAGE TO FOLLOW] 44 IN WITNESS WHEREOF, Company and Lakes have caused this Agreement to be signed by their respective duly authorized officers as of the date first above written. GRAND CASINOS, INC. By: /s/ Thomas J. Brosig Its: President and Chief Executive Officer LAKES GAMING, INC. By: /s/ Timothy J. Cope Its: Chief Financial Officer 45 SCHEDULE 1 MISSISSIPPI SUBSIDIARIES - Grand Casinos Resorts, Inc. - Grand Casinos of Mississippi, L.L.C. - Gulfport - Grand Casinos of Mississippi, Inc. - Biloxi - Grand Casinos Biloxi Theater, Inc. - Grand Casinos Mississippi Development, Inc. - GCG Resorts I, LLC - BL Resorts I, LLC - BL Development Corp. - BL Utility Corp - Grand Media Buying, Inc. - GCA Acquisition Subsidiary, Inc. Subsidiaries of GCA Acquisition Subsidiary, Inc. (i) Riverfront Renaissance Corp. (ii) Dells Development Corp. (iii) Gulf Coast Vehicle Services, Inc. (iv) Mississippi Delta Gaming Company (v) Gaming Corporation of America - Bay St. Louis, Inc. (vi) Golden Nickel Casinos, Inc. 46 SCHEDULE 2 NON-MISSISSIPPI SUBSIDIARIES - Grand Resorts de Mexico, S.A. de C.V. - Grand Casinos Ontario, Inc. - Grand Casinos & Resorts of Canada, Inc. - Grand Casinos Nevada I, Inc. - Mille Lacs Gaming Corporation - Grand Casinos Louisiana, L.L.C. - Tunica-Biloxi - Grand Casinos of Louisiana, L.L.C. - Coushatta Subsidiaries of Grand Casinos of Louisiana, Inc. - Coushatta (i) Magnum Investments of Lake Charles, Inc. (1) R&W Investments of Lake Charles, Inc. - Grand Casinos Pechanga, Inc. - Grand Casinos Washington, Inc. - Grand Media & Electronics Distributing, Inc. - Grand Casinos & Resorts of Canada, Inc. - Riverside Entertainment Corporation 47 SCHEDULE 3 RETAINED COMPANY ASSETS 1. Grand Electronics accounts receivable - amounts due from Mississippi entities and corresponding reserves if any 2. Employee loan receivable - loans due from associates 3. Miscellaneous accounts receivable relating to ordinary course of business matters 4. Mississippi Business related deferred taxes 5. Interest receivable on cash and investments held in financial institutions on behalf of Mississippi Business 6. Interest receivable from Mississippi subsidiaries, as listed on Schedule 1, on intercompany receivables/notes receivable 7. Interest receivable on Lady Luck note receivable 8. Retail sample inventory relating to the Mississippi Business 9. Prepaid aviation and workers' compensation insurance 10. Prepaid rent relating to the aircraft 11. Prepaid expenses relating to Mississippi Business 12. Furniture and equipment, and related accumulated depreciation, retained at the Mississippi corporate office 13. Intercompany notes receivable from Mississippi Subsidiaries, as listed on Schedule 1 14. Notes receivable relating to Mississippi Business 15. Debt issuance costs and related accumulated amortization relating to $100 million Bank of America Capital lease Financing, $450 million First Mortgage Notes, and $115 million Senior Unsecured Notes 48 16. Investment in subsidiaries - Grand Casino Resorts, Inc. 17. Investment in corporate bonds. 18. Intercompany receivables due from Mississippi Subsidiaries 19. All real property as set forth on Schedule 4.14 to the Merger Agreement, listed under the captions "Gulfport Properties Owned by Grand Casinos, Inc. or Subsidiaries," "Biloxi Properties Owned by Grand Casinos, Inc. or Subsidiaries," "Tunica Properties Owned by BL Development Corp.," "Gulfport Properties Leased by Grand Casinos, Inc. or Subsidiaries," "Biloxi Properties Leased by Grand Casinos, Inc. or Subsidiaries" and "Tunica Properties Leased by BL Development Corp.," and, including, with respect to the caption "Miscellaneous Properties Owned by Grand Casinos, Inc. or Subsidiaries," the Bay St. Louis, Mississippi property. 49 SCHEDULE 4 RETAINED COMPANY LIABILITIES 1. Accounts payable specific to operation of Mississippi Business 2. Accrued payroll and related items relating to Mississippi Business 3. Accrued interest on $450 million First Mortgage Notes, $115 million Senior Unsecured Notes, and $100 million Bank of America Capital Lease Financing 4. State income taxes payable relating to Mississippi Business 5. Accrued expenses for general items, directors fees, health insurance and contributions 6. Deferred income taxes relating to Mississippi Business 7. $450 million First Mortgage Notes 8. $115 million Senior Unsecured Notes 9. Any outstanding balance on $100 million Bank of America Capital Lease Financing 10. Accrued accounting and legal expenses relating to Mississippi Business 50 SCHEDULE 5 ASSIGNED LAKES ASSETS 1. Investment securities beneficially owned by Company of the following companies: a) New Horizon Kids Quest, Inc. - 875,000 Shares of Common Stock b) Innovative Gaming Corporation of America - Includes 1,026,000 Shares of Common Stock and Warrant to purchase 102,500 Shares of Common Stock 2. Forty Nine (49%) percent LLC Interest in TRAK 21 Development, LLC 3. The Company's leasehold improvements, furniture, fixtures and equipment retained at the Company's Minnetonka corporate headquarters 4. Accounts receivable relating to leases located at 13705 and 13805 First Avenue North, Plymouth, Minnesota. 5. The Mortgage, Security Agreement and Fixture Financing Statement by Hinckley Holding Co., as Mortgagor, to Grand Casinos, Inc., as Mortgagee, to Secure Guaranty dated October 1, 1996 as such Agreement may be amended from time to time. 6. That certain Term Promissory Note given by the Corporate Commission of the Mille Lacs Bank of Ojibwe Indians in favor of Grand Casinos, Inc. and dated October 16, 1996 issued pursuant to that certain Master Trust Indenture dated as of October 1, 1996 between the Corporate Commission of the Mille Lacs Bank of Ojibwe Indians and First Trust National Association dated as of October 1, 1996. 7. That certain Pledge Agreement by and between the Corporate Commission of the Mille Lacs Band of Ojibwe Indians and Grand Casinos, Inc. entered into pursuant to that certain Stock Purchase Agreement between the same parties whereby the Corporate Commission of the Mille Lacs Band of Ojibwe Indians purchased, from Grand Casinos, Inc., all of the outstanding shares of Hinckley Holding Co. 8. $50,000,000 Stratosphere Note Receivable and Related Allowances. 9. Prepaid rent, insurance and expenses relating to the Company's existing office facilities at 130 Cheshire Lane, Minnetonka, Minnesota 10. Prepaid Directors' and Officers' Insurance 51 11. Grand planning and development accounts receivable from Grand Casino - Coushatta, Grand Casino - Avoyelles, Grand Casino - Hinckley and Grand Casino Mille Lacs 12. Stratosphere accounts receivable 13. Deferred taxes relating to Non-Mississippi Business. 14. Investment in Grand Casino & Resorts of Canada, Inc. 15. Partnership interest in Grand National Golf Limited Partnership which will be transferred after the Distribution Date 16. Company stock of those companies indicated in Schedule 4.2 of the Merger Agreement other than Subsidiaries of Grand Casinos, Inc. 17. Casino development relating to Delta Downs in Louisiana 18. Checking account relating to Grand Casinos and Resorts of Canada, Inc. 19. All real property set forth on Schedule 4.14 to the Merger Agreement, listed under the caption "Miscellaneous Properties Owned by Grand Casinos, Inc. or Subsidiaries," except for the Bay St. Louis, Mississippi property, and under the caption "Miscellaneous Properties Leased by Grand Casinos, Inc. or Subsidiaries." 20. Prepaid expense relating to Nevada gaming license 21. Interest receivable on cash and investments held in financial institutions on behalf of Non-Mississippi Business 22. Inventory relating to Non-Mississippi Business consisting primarily of retail samples 23. That certain Promissory Note dated November 16, 1993 in the principal amount of $100,000 payable by Kenneth Cuthbertsun to the order of Gaming Corporation of America, as amended. 52 SCHEDULE 6 ASSIGNED LAKES LIABILITIES 1. Office building leases relating to: a) Company's existing office facilities at 130 Cheshire Lane, Minnetonka, Minnesota 55305 b) Lease relating to 13805 First Avenue North, Suite 100, Plymouth, Minnesota 55441 2. Accrued accounting and legal expenses relating to Non-Mississippi Business 3. Accrued real estate tax relating to Non-Mississippi Business 4. Stratosphere accounts payable 5. Deferred income tax payable relating to Lakes 6. State income taxes payable relating to Non-Mississippi Business. 7. Accounts payable relating to Non-Mississippi Business 8. All of Grand's rights and obligations with respect to that certain Commercial Guaranty Agreement made and entered into effective as of April 7, 1997 by Grand and Grand Casinos of Louisiana, Inc. -- Tunica-Biloxi ("Tunica-Biloxi" or a "Guarantor") in favor of The Cottonport Bank ("Cottonport") guaranteeing the indebtedness of the Tunica-Biloxi Tribe of Louisiana. 9. All of Grand's rights and obligations with respect to that certain Subordination Agreement granted by Grand in favor of Cottonport and entered into as of April 7, 1997. 10. All of Grand's rights and obligations with respect to that certain Agreement made and entered into effective as of May 1, 1997 by Grand and Grand Casinos of Louisiana, Inc. - Coushatta ("Coushatta") guaranteeing the indebtedness of the Coushatta Tribe of Louisiana and the Coushatta Tribe of Louisiana Building Authority. 11. All of Grand's rights and obligations with respect to that certain Subordination Agreement granted by Grand in favor of Hibernia and entered into as of May 1, 1997. 53 12. All of Grand's rights and obligations with respect to that certain Subordination Agreement granted by Grand in favor of Hibernia and entered into as of December 17, 1997. 13. All of Grand's rights and obligations with respect to that certain Second Equipment Loan Subordination Agreements entered into as of December 18, 1998 by Grand and Coushatta in favor of Hibernia. 14. All of Grand's rights and obligations with respect to that certain Intercreditor Agreement dated as of December 18, 1998 between Hibernia, Grad and Coushatta and the Equipment Loan Collateral Documents, the Hotel Loan Collateral Documents and the Indemnity Collateral Documents (all as defined in Schedule 1 to the Intercreditor Agreement). 54 SCHEDULE 7 TRANSFERRED CORPORATE FUNCTIONS None 55 SCHEDULE 8 MISSISSIPPI GROUP CASH ACCOUNTS
GRAND CASINO BILOXI PEOPLES BANK, BILOXI, MS US BANK, HAVRE, MT Casino Depository 1480938 Accounts Payable 150080649349 Credit Card Depository 1504158 Payroll 1495506 Jackpot Disbursement 1480946 GRAND CASINO GULFPORT HANCOCK BANK, GULFPORT, MS US BANK, HAVRE, MT Casino Depository 10178608 Accounts Payable 150080649356 Credit Card Depository 10622532 Payroll 10178659 Jackpot Disbursement 10178632 GRAND CASINO TUNICA TRUSTMARK BANK, JACKSON, MS US BANK, HAVRE, MT Casino Depository 8606996284 Accounts Payable 150080649372 Credit Card Depository 8606996334 Payroll 8606996268 Jackpot Disbursement 8606996292 Medical Claims Disbursement 1006965305 GRAND IMAGE US BANK, HAVRE, MT Accounts Payable 150080649364
56 SCHEDULE 9 NON-MISSISSIPPI GROUP CASH ACCOUNTS US BANK, HAVRE, MT Grand Media Accounts Payable 150080649331 57 SCHEDULE 10 CONTINGENT COMPANY LIABILITIES 1. William H. Poulos v. Grand Casinos, Inc. et. al. (Slot Machine Class Action). 2. William H. Poulos, et. al. v. Caesars World, Inc. et. al. (Case No.C.V-S-94-11236-DAE). 3. Potential action by Richard Verlaque, a former Executive Vice President of Company, to compel Company to enter into a Settlement and Release Agreement with him regarding his employment with Company as a full and final resolution of all disputes arising therefrom. 58 SCHEDULE 11 ASSIGNED LAKES ASSETS PROCEEDS 1. $6,389,344 representing proceeds from Casino Magic Corp. Merger with Hollywood Park. EX-10.2 3 EMP. BENEFIT AND OTHER EMP. MATTER ALLOCATION AGR 1 EXHIBIT 10.2 ---------------------------------------------- EMPLOYEE BENEFITS AND OTHER EMPLOYMENT MATTERS ALLOCATION AGREEMENT BY AND BETWEEN GRAND CASINOS, INC. AND LAKES GAMING, INC. DATED AS OF DECEMBER 31, 1998 ---------------------------------------------- 2 TABLE OF CONTENTS
Page ---- ARTICLE 1 - DEFINITIONS...........................................................................................2 Section 1.1 Definitions............................................................................2 ARTICLE 2 - TRANSFER OF EMPLOYEES; EMPLOYMENT ALLOCATION; AND TERMINATION BENEFITS.................................................................................6 Section 2.1 Transfer of Employees..................................................................6 Section 2.2 Allocations between Company and Lakes..................................................8 Section 2.3 Change of Control Benefits; Termination Benefits.......................................9 ARTICLE 3 - EMPLOYER STOCK AND COMPENSATION PLANS................................................................10 Section 3.1 Stock Option Plans....................................................................10 Section 3.2 Stock Purchase Plans..................................................................11 Section 3.3 Compensation Plans....................................................................11 ARTICLE 4 - SAVINGS PLANS........................................................................................12 Section 4.1 401(k)Plans...........................................................................12 ARTICLE 5 - WELFARE AND OTHER BENEFITS...........................................................................15 Section 5.1 Company Medical/Dental Plans..........................................................15 Section 5.2 Lakes Medical/Dental Plan.............................................................16 Section 5.3 Vacation and Sick Pay Liabilities.....................................................17 Section 5.4 Payroll Reporting and Withholding.....................................................18 Section 5.5 Post-Retirement Welfare Benefits......................................................20 Section 5.6 Other Welfare Plans...................................................................20 ARTICLE 6 - LABOR AND EMPLOYMENT MATTERS.........................................................................20 Section 6.1 Separate Employers....................................................................21 Section 6.2 Employment Policies and Practices.....................................................21 Section 6.3 Collective Bargaining Agreements......................................................21 Section 6.4 Notice of Claims......................................................................21 Section 6.5 Assumption of Unemployment Tax-Rates..................................................21 Section 6.6 Employees on Leave of Absence.........................................................21 Section 6.7 Release and Separation Agreements.....................................................22 ARTICLE 7 - MISCELLANEOUS........................................................................................22 Section 7.1 Relationship of Parties...............................................................22 Section 7.2 Access to Information; Cooperation....................................................22 Section 7.3 Assignment............................................................................22 Section 7.4 Headings..............................................................................22 Section 7.5 Severability..........................................................................22 Section 7.6 Parties in Interest; No Third Party Beneficial Rights.................................22
3 Section 7.7 Notices...............................................................................23 Section 7.8 Further Assurances....................................................................24 Section 7.9 Waiver of Conditions..................................................................24 Section 7.10 Governing Law.........................................................................24 Section 7.11 Preservation of Right To Amend or Terminate Plans.....................................24 Section 7.12 Entire Agreement......................................................................25 Section 7.13 Counterparts..........................................................................25 Section 7.14 Survival..............................................................................25 Section 7.15 Dispute Resolution....................................................................25 Section 7.16 Reimbursement.........................................................................25 Section 7.17 Default...............................................................................25 Section 7.18 Force Majeure.........................................................................25 Section 7.19 Attorney/Client Privilege.............................................................26 Section 7.20 Specific Performance..................................................................26
SCHEDULES Schedule A Change of Control Agreements Schedule B Release and Separation Agreements Schedule C Stock Option Pricing Example 4 EMPLOYEE BENEFITS AND OTHER EMPLOYMENT MATTERS ALLOCATION AGREEMENT THIS EMPLOYEE BENEFITS AND OTHER EMPLOYMENT MATTERS ALLOCATION AGREEMENT (this "Agreement") is made and entered into as of December 31, 1998, by and between GRAND CASINOS, INC., a Minnesota corporation ("Company"); and LAKES GAMING, INC., a Minnesota corporation and wholly owned subsidiary of Company ("Lakes"); and shall be effective as of the Distribution Date (as hereinafter defined). RECITALS WHEREAS, Company, through certain wholly-owned subsidiaries, (a) owns, operates and develops certain gaining and resort facilities located in the State of Mississippi (as more specifically described herein, the "Mississippi Business"), and (b) manages and develops certain gaming facilities located outside the State of Mississippi (as more specifically described herein, the "Non Mississippi Business"); WHEREAS, it is necessary to separate the Mississippi Business from the Non-Mississippi Business in order to satisfy conditions precedent contained in that certain Agreement and Plan of Merger dated June 30, 1998 (the "Merger Agreement"), by and among Company; Lakes; Hilton Hotels Corporation, a Delaware corporation ("Hilton"); Park Place Entertainment Corporation, a Delaware corporation and a wholly-owned subsidiary of Hilton ("Park Place"); and Gaming Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of Park Place ("Merger Sub"), providing for the merger of Merger Sub with and into Company (the "Merger"); WHEREAS, subject to Company shareholder ratification and certain other conditions, the Board of Directors of Company has determined that the separation of the Non-Mississippi Business from the Mississippi Business shall be accomplished by distributing all of the issued and outstanding shares of common stock, par value $.01 per share, of Lakes (the "Lakes Common Stock") to the holders as of the Record Date (as hereinafter defined) of common stock, par value $.01 per share, of Company (the "Company Common Stock") on a pro rata basis immediately before the Merger, in the ratio of one (1) share of Lakes Common Stock for each four (4) shares of Company Common Stock held by such holders (the "Distribution"); WHEREAS, as set forth in the written Distribution Agreement between the parties, of even date herewith (the "Distribution Agreement"), and subject to the terms and conditions thereof, Company will contribute to Lakes, prior to the Distribution, all of the operations, assets and liabilities of the Non-Mississippi Business and such other assets, liabilities and operations as are described in the Distribution Agreement; and WHEREAS, pursuant to, and as contemplated by, the Distribution Agreement, Company and Lakes have agreed to enter into an agreement allocating responsibilities with respect to certain matters relating to employees and employee compensation, benefits, labor and certain other employment matters pursuant to the terms and conditions set forth herein. 5 AGREEMENT NOW, THEREFORE, in consideration of the premises and mutual covenants, agreements, undertakings and obligations set forth herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS Section 1.1 Definitions. As used in this Agreement, the following terms shall have the meanings set forth or as referenced below. Capitalized terms used and not otherwise defined in this Agreement shall have the meaning ascribed to them in the Distribution Agreement. All references herein to "Articles," "Sections" or "Schedules" shall be deemed to be references to Articles or Sections hereof or Schedules hereto unless otherwise indicated. "Ancillary Agreement" shall mean any agreement contemplated by the Distribution Agreement, and such other documents as the parties thereto shall mutually agree are required to effect the Distribution. "Change of Control Agreements" shall mean those Change of Control Agreements of Company identified on Schedule A attached hereto and any and all other employment or severance agreements of Company that provide severance or termination benefits to any Employee subsequent to a change of control of Company. "COBRA" shall mean the federal statutes designated as Code Section 4980B and ERISA Sections 601 through 608; and any applicable state law that also establishes employer requirements for continuation of health care, life insurance or other Welfare Plan benefits for the benefit of certain current and former employees or dependents thereof and any successor legislation to any of such laws. "Code" shall mean the Internal Revenue Code of 1986, as amended, or any successor legislation. "Collective Bargaining Agreement" shall mean any collective bargaining agreement or other labor agreement to which Company or any of its subsidiaries or affiliates was a party on or before the Distribution Date. "Company" shall have the meaning set forth in the Preamble. "Company Common Stock" shall have the meaning set forth in the Recitals. "Company Director Option Plan" shall mean the 1995 Director Stock Option Plan of Company. 2 6 "Company Employee Stock Option Plan" shall mean the 1991 Grand Casinos, Inc. Stock Option and Compensation Plan, and amendments thereto, of Company. "Company 401(k) Plan" shall mean, until the Distribution Date, the Grand Casinos 401(k) Savings Plan sponsored by Company and dated as of September 1, 1995, as amended through the Distribution Date. "Company Incentive Compensation Plan" shall mean the management incentive bonus plan of Company, as amended; and any other incentive or bonus compensation plans of Company. "Company Individual" shall mean any individual who (a) is a Retained Employee, (b) is, as of the Distribution Date, a Company Terminee whose last employment with Company or any of its subsidiaries was with a Company Retained Business or (c) is a dependent or beneficiary of any individual specified in clause (a) or (b). "Company Medical/Dental Plan" shall mean any Medical/Dental Plan maintained for or providing benefits to Company Individuals. "Company Qualified Beneficiary" shall mean a Qualified Beneficiary who, immediately following the Distribution, is not a Lakes Qualified Beneficiary and who, immediately prior to the Distribution, was a Qualified Beneficiary under any Company Medical/Dental Plan. "Company Retained Business" shall mean the Mississippi Business described in the Recitals and any other business or operation of Company or its subsidiaries which is, pursuant to the Distribution Agreement, to be conducted by Company following the Distribution. "Company Stock Option" shall mean an option to purchase Company Common Stock pursuant to any of the Company Stock Option Plans or any other option to purchase Company Common Stock that has been disclosed to Hilton pursuant to the Merger Agreement. "Company Stock Option Plans" shall mean collectively, the Company Employee Stock Option Plan and the Company Director Option Plan. "Company Stock Purchase Plan" shall mean the Grand Casinos, Inc. Associate Stock Purchase Plan established by Company as of March 1, 1997. "Company Terminee" shall mean any individual who was formerly employed by Company or any of its subsidiaries and terminated such employment prior to the Distribution Date. "Distribution" shall have the meaning set forth in the Recitals. "Distribution Agreement" shall have the meaning set forth in the Recitals. 3 7 "Distribution Date" shall mean the date on which the Distribution occurs. "Employee" shall mean with respect to any entity, an individual who is considered, according to the payroll and other records of such entity, to be employed by such entity, regardless of whether such individual is, at the relevant time, actively at work or on leave of absence (including vacation, holiday, sick leave, family and medical leave, disability leave, military leave, jury duty, layoff with rights of recall, and any other leave of absence or similar interruption of active employment that is not considered, according to the policies or practices of such entity, to have resulted in a permanent termination of such individual's employment), but excluding any individual who is, as of the relevant time, on long-term disability leave. An employee includes, without limitation, any individual who is in one of the following categories: a Retained Employee, a Company Terminee, a Lakes Employee or a Transferred Employee. "Employer" shall mean Company or Lakes, as the context so indicates. "Employer Common Stock" shall mean Company Common Stock with respect to Company Individuals and Lakes Common Stock with respect to Lakes Individuals. "Employer Stock Option Plan" shall mean a plan that provides for awards of additional compensation to eligible Employees in the form of non-qualified or incentive options to purchase Employer Common Stock, including without limitation, the Company Stock Option Plans and the Lakes Stock Option Plan. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, or any successor legislation. "Exercise Date" shall have the meaning set forth in Section 3.2(a). "HMO" shall mean any health maintenance organization organized under 42 U.S.C. Section 300e-9, or a state health maintenance organization statute that provides medical services for Company Individuals or Lakes Individuals under any Plan. "IRS" shall mean the Internal Revenue Service. "Lakes" shall have the meaning set forth in the Preamble. "Lakes Business" shall mean the Non-Mississippi Business described in the Recitals and any other business or operation of Company or any of its subsidiaries that is, pursuant to the Distribution Agreement, to be conducted by Lakes immediately following the Distribution. "Lakes Common Stock" shall have the meaning set forth in the Recitals. "Lakes Compensation Plans" shall have the meaning set forth in Section 3.3(b). 4 8 "Lakes Employee" shall mean any individual who is (a) a Transferred Employee; or (b) not a Transferred Employee, but becomes an employee of Lakes or any of its subsidiaries on or after the Distribution Date. "Lakes Employment Agreements" shall have the meaning set forth in Section 2.1(d). "Lakes 401(k) Plan" shall have the meaning set forth in Section 4.1 (a). "Lakes Individual" shall mean any individual who (a) is a Transferred Employee; (b) is otherwise a Lakes Employee; (c) is, as of the Distribution Date, a Company Terminee whose last employment with Company or a subsidiary of Company was with a Lakes Business; or (d) is a dependent or beneficiary of any individual described in clause (a), (b) or (c). "Lakes Medical/Dental Plans" shall mean the Medical/Dental Plans established by Lakes in accordance with Section 5.2(a). "Lakes Option" shall have the meaning set forth in Section 3.1 (a). "Lakes Qualified Beneficiary" shall mean any Lakes Individual (or dependent thereof) who, on or before the Distribution Date, was a Qualified Beneficiary under any Company Medica/Dental Plan. "Lakes Stock Option Plan" shall mean the Stock Option Plan of Lakes, as established by Lakes pursuant to Section 3.1 (b) hereof. "Medical/Dental Plan" shall mean a Welfare Plan providing health benefits to Employees and their dependents; and also includes a "cafeteria" Plan intended to qualify under Code Section 125. "Merger" shall have the meaning set forth in the Recitals. "Park Place 401(k) Plan" shall mean the defined contribution deferred profit sharing plan that is intended to qualify under Code Sections 401(a) and 401(k) and is sponsored by Park Place and/or Merger Sub as of the date of consummation of the Merger. "Plan" shall mean any plan, policy, arrangement, contract or agreement providing compensation benefits for any group of Employees or individual Employees (including former Employees), or the dependents or beneficiaries of any such Employee, whether formal or informal or written or unwritten, and including, without limitation, any means, whether or not legally required, pursuant to which any benefit is provided by an Employer to any such Employee or the beneficiaries of any such Employee, existing as of the Distribution Date or prior thereto. "Qualified Beneficiary" shall mean an individual (or dependent thereof) who either (a) experiences a "qualifying event" (as that term is defined in Code Section 4980B(f)(3) and ERISA 5 9 Section 603) while a participant in any Medical/Dental Plan, or (b) becomes a "qualified beneficiary" (as that term is defined in Code Section 4980B(g)(1) and ERISA 607(3)) under any Medical/Dental Plan. "Record Date" shall mean December 23, 1998. "Release and Separation Agreements" shall mean those Release and/or Separation Agreements identified on Schedule B hereto, and any other similar agreements entered into by Company or any of its subsidiaries, and a Company Terminee whose last employment with Company or such subsidiary was with either a Lakes Business or a Company Retained Business. "Retained Employee" shall mean any individual who, immediately prior to the Distribution, was an Employee of Company or any of its subsidiaries and who is an employee of Company or any of its subsidiaries immediately following the Distribution. "Rev. Proc. 84-77" shall have the meaning set forth in Section 5.4(a). "SEC" shall mean the Securities and Exchange Commission. "Service Credit" shall mean the period taken into account under any Plan for purposes of determining length of service or plan participation to satisfy eligibility, vesting, benefit accrual and similar requirements under such Plan. "Termination Benefits" shall have the meaning set forth in Section 2.3(a). "Transferred Employee" shall mean any individual who was an Employee of Company or any of its subsidiaries immediately prior to the Distribution and who is or becomes, immediately after the Distribution, an Employee of Lakes or any of its subsidiaries. "Welfare Plan" shall mean any Plan that provides medical, health, disability, accident, life insurance, death, dental or any other welfare benefit, including, without limitation, any postemployment benefit, but excluding vacation benefits covered under Section 5.3. ARTICLE 2 TRANSFER OF EMPLOYEES; EMPLOYMENT ALLOCATION; AND TERMINATION BENEFITS Section 2.1 Transfer of Employees. (a) Company and Lakes shall take all steps necessary or appropriate so that all of the Employees of Company and its subsidiaries are allocated between the Company Retained Business and the Lakes Business in accordance with the principles set forth in Section 2.1 (b) below; and so that (i) each individual who is so allocated to the Lakes Business is, as of the Distribution 6 10 Date and immediately following the Distribution, an Employee of Lakes or any of its subsidiaries in the Lakes Business; and (ii) each individual who is so allocated to the Company Retained Business is, as of the Distribution Date and immediately following the Distribution, an Employee of Company or any of its subsidiaries in the Company Retained Business. (b) In making the allocation provided for in this Section , Company and Lakes shall allocate each Employee who is primarily engaged in the Company Retained Business to Company and/or its subsidiaries (other than Lakes and its subsidiaries) and each Employee who is primarily engaged in the Lakes Business to Lakes and/or its subsidiaries. All other Employees shall be allocated in a mutually agreeable manner that, to the extent possible, takes into account (i) the Employees' expertise, experience and existing positions and duties, (ii) the likelihood of unreasonably disrupting either the Company Retained Business or the Lakes Business and (iii) maximizing the ability of each of Company and Lakes, and their respective subsidiaries to manage and operate their respective businesses after the Distribution Date, taking into account the respective needs of such businesses as established by past practice, and with a view towards maximizing the value and effectiveness of both the Company Retained Business and the Lakes Business. (c) Company and Lakes each agree that, between the date hereof and the Distribution Date, Employees will not be transferred between the Company Retained Business or Lakes Business except as (i) necessary to effect the transfer pursuant to this Section 2.1 or (ii) in the ordinary course of business consistent with past practice. Notwithstanding the foregoing allocation, Company and Lakes acknowledge that (x) Company may need the services of certain Transferred Employees for a transitional period following the Distribution and (y) Lakes may need the services of certain Retained Employees for a transitional period following the Distribution. Company and Lakes agree to enter into an Ancillary Agreement to this effect and to cooperate to make such services available on a transitional basis. (d) Effective as of the Distribution Date, Company shall assume all obligations and liabilities for, and arising under, all written and oral employment agreements, if any, in each case with respect to Retained Employees; and Lakes shall have no liability or obligation with respect thereto. Effective as of the Distribution Date, Lakes shall assume all obligations and liabilities for, and arising under, all written and oral employment agreements, if any, in each case with respect to Transferred Employees (the "Lakes Employment Agreements"); and Company shall have no liability or obligation with respect thereto. Lakes shall take, or cause to be taken, all action necessary and appropriate to assume, as of the Distribution Date, all Lakes Employment Agreements, with such changes as may be necessary to reflect the change in the employer thereunder and such other changes as Lakes shall determine. Such Lakes Employment Agreements shall otherwise have the same terms and conditions as in effect immediately prior to the Distribution Date, except that references to employment by or termination of employment with Company and its affiliates shall be changed to refer to employment by or termination of employment with Lakes and its affiliates. 7 11 Section 2.2 Allocations between Company and Lakes. (a) Allocation of Responsibilities as Employer on Distribution Date. On the Distribution Date, except to the extent assumed by Company under this Agreement or any Ancillary Agreement, Lakes and/or its subsidiaries shall retain or assume, as the case may be, responsibility as employer for all Transferred Employees. On the Distribution Date, except to the extent assumed by Lakes under this Agreement or any Ancillary Agreement, Company and/or its subsidiaries shall retain responsibility as employer for all Retained Employees. (b) Assumption of Liabilities on Distribution Date. Except as specifically provided in this Agreement, or as otherwise agreed by the parties hereto: (i) Except as provided in Section 2.2(c), immediately following the Distribution, Lakes shall assume all benefit obligations and all related rights in connection with any Plan with respect to the Transferred Employees and other Lakes Individuals; and Company shall have no further liability with respect thereto. (ii) Company shall retain all benefit obligations and all related rights that accrue after the Distribution Date in connection with any Plan and with respect to Retained Employees; and Lakes shall have no further liability with respect thereto; provided, however, that with respect to any such Retained Employees who become employed by Lakes after the Distribution, any benefit obligations and all related rights that accrue after such employment in connection with any Plan with respect to such employment with Lakes shall be assumed by Lakes. (c) Service Credits. (i) Distribution Date Transfers. In connection with the Distribution and for purposes of determining Service Credits under any Plan, Company shall credit each Retained Employee and Lakes shall credit each Transferred Employee with such Employee's Service Credits and original hire date as reflected in the records of Company or any of its subsidiaries as of the Distribution Date. Such Service Credits and hire date shall continue to be maintained as described herein for as long as the Employee does not terminate such employment or as otherwise may be required by applicable law or any applicable Plan. (ii) Service Credits Following the Distribution Date. Subject to the provisions of applicable law, (x) Lakes may, in the case of Transferred Employees, in its sole discretion, make such decisions as it deems appropriate with respect to determining Service Credits accrued after the Distribution Date; and (y) Company may, in the case of Retained Employees, in its sole discretion, make such decisions as it deems appropriate with respect to determining Service Credits accrued after the Distribution Date. 8 12 Section 2.3 Change of Control Benefits; Termination Benefits. (a) No Transferred Employee shall be deemed, as a result of any actions taken pursuant to this Article 11 or otherwise as a result of the consummation of the transactions contemplated by the Distribution Agreement, to have become entitled to any benefits under any Plan, contract, agreement, statute, regulation or other arrangement that provides for the payment of severance pay, salary continuation, pay in lieu of notice, unused vacation pay, or similar benefits in connection with actual or constructive termination or alleged actual or constructive termination of employment (collectively, "Termination Benefits"). (b) Notwithstanding Section 2.3(a), effective as of the Distribution Date, Company shall retain all liabilities relating to or arising out of claims made by or on behalf of Retained Employees (including the beneficiary, dependent or alternate payee of such individual) for, or with respect to, Termination Benefits relating to the actual or constructive termination or alleged actual or constructive termination of employment of any Retained Employee with any member of the Lakes Business or the Company Retained Business, whether before, on or after the Distribution Date. In addition, Company shall retain all liabilities and obligations pursuant to any Change of Control Agreements with respect to Retained Employees. (c) Notwithstanding Section 2.3(a), and except as provided otherwise in Section 2.3(b) above, effective as of the Distribution Date, Lakes shall assume all liabilities relating to or arising out of claims made by or on behalf of Transferred Employees (including the beneficiary, dependent or alternative payee of such individual) for, or with respect to, Termination Benefits relating to the actual or constructive termination or alleged actual or constructive termination of employment of any Transferred Employee with Lakes or any of its subsidiaries in the Lakes Business or Company or any of its subsidiaries in the Company Retained Business, whether before, on or after the Distribution Date. In addition, Lakes shall assume all liabilities and obligations pursuant to any Change of Control Agreements with respect to Transferred Employees. ARTICLE 3 EMPLOYER STOCK AND COMPENSATION PLANS Section 3.1 Stock Option Plans. (a) Company Stock Option Plans. Company shall continue the Company Stock Option Plans and shall remain obligated under any Company Stock Options it has granted. Effective as of the Distribution Date, all outstanding Company Stock Options shall be adjusted to represent options to purchase (i) an equivalent number of shares of Company Common Stock and (ii) one (1) share of Lakes Common Stock for each four (4) such shares of Company Common Stock, as required by the terms of the Distribution (each such option to purchase Lakes Common Stock, a "Lakes Option"). Pursuant to such adjustment, the intrinsic value of the Company Stock Options prior to the Distribution shall be preserved after the 9 13 Distribution, and the respective exercise prices of the Company Stock Options shall be allocated between the Company Stock Options (as so adjusted) and the Lakes Options based upon the relative values of Company Common Stock and Lakes Common Stock following the Distribution, equitably taking into account the one-for-four ratio of Lakes Common Stock to Company Common Stock under the terms of the Distribution, pursuant to the example set forth in Schedule C attached hereto, all as mutually agreed by Company and Lakes. To the extent necessary, Company shall amend the Company Stock Option Plans or other agreements evidencing Company Stock Options to provide that, with respect to Lakes Individuals and any members of the board of directors of Lakes holding Company Stock Options, all references to service or termination of service with Company and its affiliates shall be changed to references to service or termination of service with Lakes and its affiliates. (b) Lakes Stock Option Plans. Lakes shall take, or cause to be taken, all action necessary and appropriate to adopt, effective as of the Distribution Date, its own stock option plans, generally in the form of the Company Stock Option Plans, with such changes as may be necessary to reflect the change in the issuer of awards thereunder and such other changes as Lakes shall determine (such plans as adopted, the "Lakes Stock Option Plans"). All awards under the Lakes Stock Option Plans will be options with respect to Lakes Common Stock. Lakes Options that are issued pursuant to the adjustment of the Company Stock Options under subsection (a) above shall otherwise have the same terms and conditions as the Company Stock Options with respect to which they are issued, except that with respect to Company Individuals or any members of the board of directors of Company receiving any such Lakes Options, references to service or termination of service with Lakes and its affiliates shall be changed to references to service or termination of service with Company and its affiliates. From and after the Distribution Date, Lakes shall assume all obligations with respect to such Lakes Options, and shall administer the Lakes Stock Option Plans under terms governing such awards. Section 3.2 Stock Purchase Plans. (a) Company Stock Purchase Plan. The Company Stock Purchase Plan shall be administered and, if necessary, amended to provide that all contributions withheld from the compensation of participants through the day before the Distribution Date (the "Purchase Date") shall be used on the Purchase Date to purchase Company Common Stock under the terms and conditions set forth in such Plan. From and after the Distribution Date, Company shall continue the Company Stock Purchase Plan with respect to Retained Employees. Company shall assume all obligations with respect to, and shall administer the Company Stock Purchase Plan under its terms with respect to Retained Employees. (b) Lakes Stock Purchase Plan. At any time after the Distribution Date, Lakes may or may not elect to adopt, effective as of any date on or after the Distribution Date, a Plan similar to the Company Stock Purchase Plan with respect to Transferred Employees. 10 14 Section 3.3 Compensation Plans. (a) Company Compensation Plans. Company shall pay, or cause to be paid, all compensation and bonuses earned by each Company Individual who, on the Distribution Date, is a participant under any of the Company Compensation Plans for the period prior to the Distribution Date, in accordance with the terms of the applicable Company Compensation Plan. From and after the Distribution Date, Company shall retain all liabilities relating to or arising under the Company Compensation Plans with respect to any Company Individuals. (b) Lakes Compensation Plans. Lakes shall assume and shall be solely responsible for, all obligations to pay all compensation and bonuses earned by each Lakes Individual who, on the Distribution Date, is a participant under the Company Compensation Plans. Lakes shall take, or cause to be taken, all action necessary and appropriate to adopt, effective as of the Distribution Date, compensation plans in substantially the same form as the Company Compensation Plans that cover Lakes Individuals, with such changes as may be necessary to reflect the change in the issuer of awards thereunder and such other changes as Lakes shall determine (such plan as adopted, the "Lakes Compensation Plans"). From and after the Distribution Date, the Lakes Compensation Plans shall provide future compensation benefits thereunder to Lakes Individuals pursuant to the terms therein. The terms and conditions of the Lakes Compensation Plans shall be substantially similar to the terms and conditions of the Company Compensation Plans, until such time as Lakes may determine that any amendment or termination of any Plan is necessary or desirable. ARTICLE 4 SAVINGS PLANS Section 4.1 401(k)Plans. (a) Transfer and Lakes Assumption of Company 401(k) Plan. Effective as of the Distribution Date, each of the Company and Lakes shall take, or cause to be taken, all action necessary and appropriate to allow Lakes to assume all of the future responsibilities and rights as sponsor of the Company 401(k) Plan, in lieu of Company; and from and after the Distribution Date, such Plan shall provide additional benefits only for eligible Lakes Individuals, subject to the terms and provisions of such Plan; and the Retained Employees shall not be eligible to participate in such Plan, except that such Plan shall continue to hold the benefits of Company Individuals that had accrued before the Distribution until such time as the transaction described in the following paragraph (b) is completed. For all periods after the Distribution Date, the Company 401(k) Plan shall be referred to herein as the "Lakes 401(k) Plan." Lakes shall provide benefits under the Lakes 401(k) Plan after the Distribution Date for all Lakes Individuals subject to the terms and provisions of such Plan. 11 15 (b) Possible Spin-off and Merger with Park Place 401(k) Plan. As soon as practical after the completion of the Distribution and the Merger, Lakes shall take, or cause to be taken, all action necessary and appropriate to split up and spin off that portion of the Lakes 401(k) Plan that is attributable to Company Individuals and transfer that portion to the Park Place 401(k) Plan pursuant to Section 4.1(d). To the extent that the Park Place 401(k) Plan does not accept such transfer, the accrued benefits of the Company Individuals under the Lakes 401(k) Plan shall become fully vested and nonforfeitable as of the Distribution Date and Lakes shall cause such accrued benefits to be payable to the Company Individuals pursuant to the terms of such Plan and applicable law. (c) Matching and Profit Sharing Contributions. For periods on or before the Distribution Date, any matching and discretionary contributions under the Company 401(k) Plan with respect to Company Individuals will be made solely by Company pursuant to the terms of the Company 401(k) Plan. For periods after the Distribution Date, any matching and discretionary contributions under the Lakes 401(k) Plan with respect to Lakes Individuals will be made solely by Lakes pursuant to the terms of the Lakes 401(k) Plan. (d) Transfer and Acceptance of Account Balances. As soon as practicable after the Distribution Date, subject to the consent of Park Place and the trustee of the Park Place 401(k) Plan, Lakes shall cause the trustees of the Lakes 401(k) Plan to transfer to the trustee or other funding agent of the Park Place 401(k) Plan, the amounts (in cash, securities, other property or a combination thereof representing the account balances of all Company Individuals, said amounts to be established as account balances or accrued benefits of such individuals under the Lakes 401(k) Plan. Each such transfer shall comply with Section 414(l) of the Code and the requirements of ERISA and the regulations promulgated thereunder. Lakes shall not cause the trustees or other funding agent of the Lakes 401(k) Plan to complete the plan-to- plan transfer from the Lakes 401(k) Plan trustees, unless and until Park Place and the plan administrator of the Park Place 401(k) Plan agree in writing to credit the accounts of such Company Individuals under the Park Place 401(k) Plan with any amounts transferred on their behalf. (e) Information. Lakes shall (with the cooperation of Company to the extent that relevant information is in the possession of Company) provide Park Place, as soon as practicable after the plan-to-plan transfer described in this Section 4.1, with a list of Company Individuals who, to the best knowledge of Lakes, were participants in or otherwise entitled to benefits under the Lakes 401(k) Plan on the date of such transfer, together with a listing of each participant's Service Credits under such Plan and a listing of each such Company Individual's account balance thereunder, and each Company Individual's investment election. Lakes shall, as soon as practicable after the date of such transfer, provide Park Place with such additional information in the possession of Lakes (and not already in the possession of Park Place) as may be reasonably requested by Park Place and necessary for Park Place to administer effectively the Park Place 401(k) Plan. 12 16 (f) Regulatory Filings. Company and Lakes shall, in connection with the plan-to-plan transfer described in this Section 4.1, cooperate with each other and Park Place in making any and all appropriate filings required by the SEC or the IRS, or required under the Code or ERISA or any applicable securities laws and the regulations thereunder, and take all such action as may be necessary and appropriate to cause such plan-to-plan transfer to take place as soon as practicable after the Distribution and Merger or otherwise when required by law. Further, Lakes shall seek a favorable IRS determination letter that the Lakes 401(k) Plan as in effect after the Distribution, satisfies all qualification requirements under Section 401(a) of the Code. Notwithstanding the foregoing, such change in plan sponsor and plan-to-plan transfers may take place pending issuance of such favorable determination letter. Lakes shall make any necessary amendments on a retroactive basis to the Lakes 401(k) Plan, respectively, as required by the IRS to issue the favorable determination letter described above. (g) Account Balances of Participants. Except as otherwise provided herein, on the Distribution Date, Lakes shall assume sole responsibility for all liabilities and obligations accruing after the Distribution Date under the Lakes 401(k) Plan; and Company shall have no liability or obligation with respect to the Lakes 401(k) Plan, except for any liabilities and obligations accruing on or before the Distribution Date, when it will have been the Company 401(k) Plan. (h) Qualification of Plans and Other Liabilities. Company shall be responsible for all liabilities incurred by Company or Lakes as a result of any failure of the Company 401(k) Plan to be qualified under Section 401(a) of the Code, or any other liability that might be incurred with respect to such Plan, with respect to Company Individuals. Lakes shall be responsible for all liabilities incurred by Company or Lakes as a result of any failure of the Company 401(k)Plan to be qualified under Section 401(k) of the Code, or any such other liability might be incurred with respect to such Plan, with respect to Lakes Individuals. Notwithstanding the foregoing, to the extent that any such liabilities incurred by Company or Lakes as a result of any failure of the Company 401(k) Plan to be qualified under Section 401(a) of the Code, or any other liability that might be incurred with respect to such Plan, are not clearly attributable to either Company Individuals or Lakes Individuals then each of Company and Lakes shall be responsible for such liabilities in a proportion based on the ratios of the accrued benefits of Company Individuals and the accrued benefits of Lakes Individuals to the total accrued benefits under such Plan as of December 31, 1997. The parties hereto agree that, to the extent either of them becomes aware that such Plan fails or may fail to be so qualified, it shall notify the other party and the parties shall cooperate and use best efforts to avoid such disqualification, including using the Internal Revenue Service's Employee Plans Compliance Resolution System or similar programs, and taking any steps available pursuant to such program to avoid disqualification, as determined by the party who is made responsible under this Section 4.2(h) for the liabilities that would result from such disqualification (and the liabilities for which such party is responsible shall 13 17 include all costs and expenses resulting from such steps, including fines, penalties, contributions, attorneys' fees and expenses and administrative expenses). ARTICLE 5 WELFARE AND OTHER BENEFITS Section 5.1 Company Medical/Dental Plans. (a) Liability for Claims. (i) Except as otherwise provided herein, as of the Distribution Date, Company shall assume or retain and shall be responsible for, or cause its insurance carriers or HMOs to be responsible for, all liabilities and obligations related to claims asserted or incurred or premiums owed as of and after the Distribution Date in respect of any Company Individual under any Company Medical/Dental Plan and claims asserted or incurred or premiums due after the Distribution Date in respect of any Company Individual under any Company Medical/Dental Plan, and Lakes shall have no liability or obligation with respect thereto. (ii) Except as otherwise provided herein, as of the Distribution Date, Lakes shall assume or retain and shall be responsible for, or cause its insurance carriers or HMOs to be responsible for, all liabilities and obligations related to claims asserted or incurred or premiums owed as of and after the Distribution Date in respect of any Lakes Individual under any Company Medical/Dental Plan and claims asserted or incur-red or premiums due after the Distribution Date in respect of any such Lakes Individual under any Company Medical/Dental Plan, and Company shall have no liability or obligation with respect thereto. (b) Continuation Coverage Administration. As of the Distribution Date, Company shall retain and shall be solely responsible for, or cause its insurance carriers or HMOs to be responsible for, providing and administering the continuation coverage required by COBRA as it relates to any Company Qualified Beneficiary, and Lakes shall have no liability or obligation with respect thereto. As of the Distribution Date, Lakes shall retain and shall be solely responsible for, or cause its insurance carriers or HMOs to be responsible for, providing and administering the continuation coverage required by COBRA as it relates to any Lakes Qualified Beneficiary, and Company shall have no liability or obligation with respect thereto. (c) Continuation Coverage Claims. As of the Distribution Date, Company shall assume or retain and shall be responsible for, or cause its insurance carriers or HMOs to be responsible for, all liabilities and obligations in connection with claims asserted or incurred or premiums owed through the Distribution Date under any Company Medical/Dental Plan in respect of any Company Qualified Beneficiary and claims asserted or incurred or premiums owed after the Distribution Date under any Company Medical/Dental Plan in respect of any Company Qualified Beneficiary, and Lakes shall have no liability or obligation with respect thereto. As of the Distribution Date, Lakes shall assume or retain and shall be responsible for, or 14 18 cause its insurance carriers or HMOs to be responsible for, all liabilities and obligations in connection with claims asserted or incurred or premiums owed through the Distribution Date under any Company Medica/Dental Plan in respect of any Lakes Qualified Beneficiary and claims asserted or incurred or premiums owed after the Distribution Date under any Company Medical/Dental Plan in respect of any Lakes Qualified Beneficiary, and Company shall have no liability or obligation with respect thereto. Section 5.2 Lakes Medical/Dental Plan. (a) Establishment of Lakes Medical/Dental Plans. On or prior to the Distribution Date, Lakes shall take, or cause to be taken, all action necessary and appropriate to establish and administer the Lakes Medical/Dental Plans and to provide benefits thereunder for all Lakes Individuals and Lakes Qualified Beneficiaries (with respect to continuation coverage under COBRA only) who, immediately prior to the Distribution Date, were participants in or otherwise entitled to benefits under the Company Medica/Dental Plans. Each such individual shall, to the extent applicable, for all purposes under the new Lakes Medical/Dental Plans (i) have coverage that is substantially comparable to that provided immediately prior to the Distribution Date, (ii) have no preexisting condition limitation imposed other than that which is or was already imposed under the applicable existing Plan and (iii) be credited with or otherwise have taken into account, to the extent applicable, Service Credits, any expenses incurred towards deductibles, out-of-pocket limits, maximum benefit payments, and any benefit usage towards plan limits credited to such individual as of the Distribution Date under the terms of the applicable existing Plan as if such service had been rendered to Lakes and as if such expenses and usage had originally been credited to such individual under the Lakes Medical/Dental Plans. (b) Company to Provide Information. As soon as practicable after the Distribution Date, Company shall provide Lakes (with the cooperation of Lakes to the extent that relevant information is in the possession of Lakes, and in accordance with Section 8.2), with a list of Lakes Individuals who were, to the best knowledge of Company, participants in or otherwise entitled to benefits under the Company Medica/Dental Plans immediately prior to the Distribution Date, together with a listing of each such individual's Service Credit under such Plans and a listing of each such individual's expenses incurred towards deductibles, out-of- pocket limits, maximum benefit payments, and any benefit usage towards plan limits thereunder. Company shall, as soon as practicable after the Distribution Date, in accordance with Section 7.2, provide Lakes with such additional information in the possession of Company (and not already in the possession of Lakes) as may be reasonably requested by Lakes and necessary for Lakes to establish and administer effectively any Lakes Medical/Dental Plan. 15 19 Section 5.3 Vacation and Sick Pay Liabilities. (a) Division of Liabilities. Effective on the Distribution Date, (i) Company shall retain and shall be responsible for all accrued liabilities (whether vested or unvested, and whether funded or unfunded) for vacation and sick leave in respect of all Company Individuals as of the Distribution Date, and (ii) Lakes shall assume and shall be responsible for all accrued liabilities (whether vested or unvested, and whether funded or unfunded) for vacation and sick leave in respect of all Lakes Individuals as of the Distribution Date. From and after the Distribution Date, (x) Company shall be solely responsible for the payment to Company Individuals of vacation or sick leave accrued after the Distribution Date and (y) Lakes shall be solely responsible for the payment to Lakes Individuals of vacation or sick leave accrued after the Distribution Date. (b) Post-Distribution Transfers. For a period of 90 days after the Distribution Date, an Employee who leaves the service of one party to immediately begin employment with the other party (i.e., leaving Company employment to work for Lakes or any its subsidiaries, or leaving Lakes employment to work for Company or any its subsidiaries) shall be provided by the successor employer with the same balance of vested and unvested vacation and sick leave hours as had been accrued by the former Employer through such termination date. The former Employer shall promptly notify the successor Employer in writing of the occurrence of any termination subject to the provisions of this Section 5.3(b); and the former Employer shall make a payment to the successor Employer within thirty (30) days of the aforesaid termination date in an amount equal to the value of the terminating Employee's vested balance of vacation leave and sick leave accrued by the former Employer through such termination date, based on the Employee's final rate of pay with the former Employer. No payment shall be made by the former Employer to the successor Employer for any unvested sick leave or vacation leave balance relating to any post-Distribution transfer, whether within or after the 90-day period referred to above. Section 5.4 Payroll Reporting and Withholding. (a) Form W-2 Reporting. Company and Lakes may adopt the "alternative procedure" for preparing and filing IRS Forms W-2 (Wage and Tax Statements), as described in Section 5 of Revenue Procedure 84-77, 1984-2 IRS Cumulative Bulletin 753 ("Rev. Proc. 84-77"). Under this procedure Lakes as the successor employer shall provide all required Forms W-2 to all Lakes Individuals reflecting all wages paid and taxes withheld by both Company as the predecessor and Lakes as the successor employer for the entire year during which the Distribution takes place. Company shall provide all required Forms W-2 to all Company Individuals reflecting all wages and taxes paid and withheld by Company before and after the Distribution Date. In connection with the aforesaid agreement under Rev. Proc. 84-77, each business unit or business operation of Company shall be assigned to either Company or Lakes, depending 16 20 upon whether it is a Company Retained Business or a Lakes Business, and each Company Individual or Lakes Individual associated with such business unit or business operation shall be assigned for payroll reporting purposes to Company or Lakes, as the case may be. Company and Lakes shall be responsible for filing IRS Forms 941 for their respective Employees. (b) Forms W-4 and W-5. Company and Lakes may adopt the alternative procedure of Rev. Proc. 84-77 for purposes of filing IRS Forms W-4 (Employee's Withholding Allowance Certificate) and W-5 (Earned Income Credit Advance Payment Certificate). Under this procedure, (a) Company shall provide to Lakes all IRS Forms W-4 and W-5 on file with Company or any of its subsidiaries in the Company Retained Business and relating to a Lakes Individual, and Lakes and its subsidiaries in the will honor these forms until such time, if any, that such Lakes Individual submits a revised form; and (b) Lakes shall provide to Company all IRS Forms W-4 and W-5 on file with Lakes or any of its subsidiaries in the Lakes Business and relating to each Company Individual, and Company and its subsidiaries will honor these forms until such time, if any, that such Company Individual submits a revised form. (c) Garnishments, Tax Levies, Child Support Orders, and Wage Assignment. With respect to garnishments, tax levies, child support orders, and wage assignments in effect with Company and its subsidiaries on the Distribution Date, Company and its subsidiaries in the Company Retained Business shall honor such payroll deduction authorizations with respect to Company Individuals, and Lakes and its subsidiaries in the Lakes Business shall honor such payroll deduction authorizations with respect to Lakes Individuals; and each such party will continue to make payroll deductions and payments to the authorized payee, as specified by the court or governmental order which was filed with Company or any of its subsidiaries on or before the Distribution Date. Company shall, as soon as practicable after the Distribution Date, in accordance with Section 7.2, provide Lakes with such information in the possession of Company (and not already in the possession of Lakes) as may be reasonably requested by Lakes and necessary for Lakes to make the payroll deductions and payments to the authorized payee as required by this subsection (c). (d) Authorizations for Payroll Deductions. Unless otherwise prohibited by this or another agreement entered into in connection with the Distribution, or by a Plan document, with respect to Lakes Individuals with authorizations for payroll deductions in effect with Company or any of its subsidiaries on the Distribution Date, Company and its subsidiaries in the Company Retained Business will honor such payroll deduction authorizations relating to each Company Individual, and Lakes and its subsidiaries in the Lakes Business will honor such payroll deduction authorizations relating to each Lakes Individual, and no such party shall require that any such individual submit a new authorization to the extent that the type of deduction by the employer after the Distribution Date does not differ from that made by Company or its applicable subsidiary on or before the Distribution Date. Such deduction types include, without limitation: contributions to any Plan; scheduled loan repayments to any Plan or to an employee credit union; and direct deposit of payroll, bonus advances, union 17 21 dues, employee relocation loans, and other types of authorized company receivables usually collectible through payroll deductions. Company shall, as soon as practicable after the Distribution Date, in accordance with Section 7.2, provide Lakes with such information in the possession of Company (and not already in the possession of Lakes) as may be reasonably requested by Lakes and necessary for Lakes to honor the payroll deduction authorizations contemplated by this subsection (d). Section 5.5 Post-Retirement Welfare Benefits. As of the Distribution Date, Company shall assume or retain and shall be responsible for, or cause its insurance carriers or HMOs to be responsible for, all liabilities and obligations related to claims asserted or incurred or premiums owed as of and after the Distribution Date for post-retirement medical or life benefits in respect of any Company Individual under any Plan and claims asserted or incurred or premiums due after the Distribution Date in respect of any Company Individual under any such Plan; and Lakes shall have no liability or obligation with respect thereto. As of the Distribution Date, Lakes shall assume or retain and shall be responsible for, or cause its insurance carriers or HMOs to be responsible for, all liabilities and obligations related to claims asserted or incurred or premiums owed as of and after the Distribution Date for post-retirement medical or life benefits in respect of any Lakes Individual under any Plan and claims asserted or incurred or premiums due after the Distribution Date in respect of any Lakes Individual under any such Plan; and Company shall have no liability or obligation with respect thereto. Section 5.6 Other Welfare Plans. As of the Distribution Date, Company shall assume or retain and shall be responsible for, or cause its insurance carriers to be responsible for, all liabilities and obligations related to claims asserted or incurred or premiums owed as of and after the Distribution Date for its Welfare Plans other than Medical/Dental Plans or post-retirement medical or life benefit Plans ("Other Welfare Plans") in respect of any Company Individual under any such Other Welfare Plan and claims asserted or incurred or premiums due after the Distribution Date in respect of any Company Individual under any such Other Welfare Plan; and Lakes shall have no liability or obligation with respect thereto. As of the Distribution Date, Lakes shall assume or retain and shall be responsible for, or cause its insurance carriers to be responsible for, all liabilities and obligations related to claims asserted or incurred or premiums owed as of and after the Distribution Date for any Other Welfare Plans in respect of any Lakes Individual under any such Other Welfare Plan and claims asserted or incurred or premiums due after the Distribution Date in respect of any Lakes Individual under any such Other Welfare Plan; and Company shall have no liability or obligation with respect thereto. ARTICLE 6 LABOR AND EMPLOYMENT MATTERS Notwithstanding any other provision of this Agreement or any other agreement between Company and Lakes to the contrary, Company and Lakes understand and agree that: 18 22 Section 6.1 Separate Employers. On and after the Distribution Date and the separation of Employees into their respective companies, Company and Lakes will be separate and independent employers. Section 6.2 Employment Policies and Practices. Subject to the provisions of ERISA and the provisions herein governing post-Distribution transfers, and except as limited by applicable law or agreement, Company and Lakes may adopt, continue, modify or terminate such employment policies, compensation practices, retirement plans, welfare benefit plans, and other employee benefit plans of any kind or description, as each may determine, in its sole discretion, are necessary or appropriate. Section 6.3 Collective Bargaining Agreements. With regard to any Employees covered by a Collective Bargaining Agreement on the Distribution Date who are or become Retained Employees or are or become Lakes Employees, Company and Lakes promise and covenant to each other not to take any action that disrupts or otherwise negatively impacts the labor relations of the other. Company and, to the extent applicable, Lakes will diligently work to substitute the appropriate employer for Company in any Collective Bargaining Agreements with respect to Transferred Employees. Section 6.4 Notice of Claims. Without limitation to the scope and application to each party in the performance-Nace of its duties herein, each party hereto will notify in writing and consult with the other party prior to making any settlement of an employee claim, for the purpose of avoiding any prejudice to such other party arising from the settlement. Section 6.5 Assumption of Unemployment Tax-Rates. Changes in state unemployment tax experience from that of Company and its subsidiaries as of the Distribution Date shall be handled as follows. In the event an option exists to allocate any state unemployment tax experience of Company or any of its subsidiaries, such experience shall be transferred to Lakes or one or more of its subsidiaries in the Lakes Business if this results in the lowest aggregate unemployment tax costs for both Company and Lakes combined; and such experience shall be retained by Company or one or more of its subsidiaries in the Company Retained Business if this results in the lowest aggregate unemployment tax costs for Company, Lakes and their respective subsidiaries combined. Section 6.6 Employees on Leave of Absence. After the Distribution Date, Lakes shall assume responsibility, if any, as employer for all Employees returning from an approved leave of absence who prior to the Distribution Date were employed in a Lakes Business. After the Distribution Date, Company shall assume responsibility, if any, as employer for all Employees returning from an approved leave of absence who prior to the Distribution Date were employed in a Company Retained Business or otherwise were not employed in a Lakes Business. Section 6.7 Release and Separation Agreements. Effective as of the Distribution Date, Company shall assume all obligations and liabilities for, and arising under those Release and Separation Agreements with respect to Company Individuals, and Lakes shall have no liability or 19 23 obligation with respect thereto. Effective as of the Distribution Date, Lakes shall assume all obligations and liabilities for and arising under those Release and Separation Agreements with respect to Lakes Individuals, and Company shall have no liability or obligation with respect thereto. ARTICLE 7 MISCELLANEOUS Section 7.1 Relationship of Parties. Nothing in this Agreement shall be deemed or construed by the parties hereto or any third party as creating the relationship of principal and agent, partnership or joint venture between the parties hereto, it being understood and agreed that no provision contained herein, and no act of the parties hereto, shall be deemed to create any relationship between such parties other than the relationship set forth herein. Section 7.2 Access to Information; Cooperation. Company and Lakes and their authorized agents shall be given reasonable access to and may take copies of all information relating to the subjects of this Agreement (to the extent permitted by federal and state confidentiality laws) in the custody of the other party, including any agent, contractor, subcontractor, agent or any other person or entity under the contract of such party. The parties hereto shall provide one another with such information within the scope of this Agreement as is reasonably necessary to administer each party's Plans. The parties hereto shall cooperate with each other to minimize the disruption caused by any such access and providing of information. Section 7.3 Assignment. Except as part of the Merger, neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other party hereto and any purported transfer without such consent shall be void. Section 7.4 Headings. The section and paragraph headings and table of contents contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. Section 7.5 Severability. If any provision set forth in this Agreement is determined by any court of competent jurisdiction to be unenforceable by reason of its being too extensive in any respect, such provision shall be interpreted to have the broadest application as shall be enforceable. The invalidity or unenforceability of any particular provision of this Agreement shall not affect the validity of the other provisions hereof, which shall continue in full force and effect. Section 7.6 Parties in Interest; No Third Party Beneficial Rights. (a) This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. Except as specifically provided herein, this Agreement is for the sole and exclusive benefit of the parties hereto and nothing herein is 20 24 intended to give or shall be construed to give to any person or entity other than the parties hereto any rights or remedies hereunder. (b) No provision of this Agreement shall create any third party beneficiary rights in any Employee, any beneficiary or dependent thereof, or any collective bargaining representative thereof, with respect to the compensation, terms and conditions of employment and benefits that may be provided to any Employee by either party hereto or under any Plan which a party may maintain. (c) Nothing contained in this Agreement shall confer upon any Employee any right with respect to continuance of employment by either party hereto, nor shall anything herein interfere with the right of either party hereto to terminate the employment of any Employee at any time, with or without cause, or restrict a party in the exercise of its independent business judgment in modifying any of the terms and conditions of the employment of an Employee, except as provided by applicable law. Section 7.7 Notices. Unless otherwise provided herein, any notice, request, instruction or other document to be given hereunder by any party (or other person referred to herein) shall be in writing and shall be deemed to be given and effective (a) upon delivery if delivered in person or by courier, (b) when sent by electronic transmission (telegraph, telex, telecopy or facsimile transmission), receipt confirmed, (c) five days after being sent by airmail, postage prepaid or (d) when receipt is acknowledged if mailed by certified mail, postage prepaid, return receipt requested. The notice shall be delivered to the addresses of each party hereto as follows, or to such other persons or addresses as may be designated in writing by the party to receive such notice: (a) if to Company: Grand Casinos, Inc. 11975 Seaway Road Gulfport, MS 39503 Attn: Mr. Thomas Brosig Fax: (228) 604-5050 with a copy to: Latham & Watkins 633 West Fifth Street Suite 4000 Los Angeles, CA 90071-2007 Attn: Michael Sturrock, Esq. Fax: (213) 891-8763 21 25 (b) if to Lakes: Lakes Gaming, Inc. 130 Cheshire Lane Minnetonka, MN 55305 Attn: Mr. Lyle Berman Fax: (612) 449-7003 with a copy to: Maslon Edelman Borman & Brand, LLP 3300 Norwest Center 90 South Seventh Street Minneapolis, MN 55402-4140 Attn: Neil I. Sell, Esq. Fax: (612) 672-8397 Section 7.8 Further Assurances. Each of the parties hereto promptly shall execute such documents and other instruments and take such further actions as may be reasonably required or desirable to carry out the provisions hereof and to consummate the transactions contemplated hereby. Section 7.9 Waiver of Conditions. The conditions to each of the parties' obligations to effect the transactions contemplated herein are for the sole benefit of such party. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. Section 7.10 Governing Law. This Agreement shall be deemed to be made in and in all respects shall be interpreted, construed and governed by and in accordance with the laws of the State of Minnesota, without giving effect to principles of conflicts of laws thereof. Section 7.11 Preservation of Right To Amend or Terminate Plans. Except as otherwise expressly provided herein, no provisions of this Agreement, including, without limitation, the agreement of Company or Lakes to make a contribution or payment to or under any Plan referred to herein for any period, shall be construed as a limitation on the right of Company or Lakes to amend such Plan or terminate its participation therein which Company or Lakes would otherwise have under the terms of such Plan or otherwise; and no provision of this Agreement shall be construed to create a right in any employee or former employee, or dependent or beneficiary of such employee or former employee under a Plan which such person would not otherwise have under the terms of the Plan itself; provided, however, that neither party shall amend any Plan to the extent that such amendment would have the effect of increasing the liabilities of the other party under any Plan of the other party, without such other party's consent. 22 26 Section 7.12 Entire Agreement. This Agreement, the Distribution Agreement and all other Ancillary Agreements constitute the entire understanding between the parties hereto, and supersede all prior written or oral communications, relating to the subject matter covered by said agreements. To the extent that the terms of this Agreement and similar terms of the Distribution Agreement are in conflict, the interpretation given to the conflicting terms of the Distribution Agreement shall govern the interpretation and performance of this Agreement. No amendment, modification, extension or failure to enforce any condition of this Agreement by either party shall be deemed a waiver of any of its rights herein. Section 7.13 Counterparts. This Agreement and any amendments hereto may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when two or more counterparts have been signed by each of the parties and delivered to the other party, it being understood that all parties need not sign the same counterpart. Section 7.14 Survival. Obligations described in this Agreement shall remain in full force and effect and shall survive the Distribution Date and the Merger. Section 7.15 Dispute Resolution. Any dispute arising under this Agreement shall be resolved by binding arbitration in the manner contemplated by Section 9.14 of the Distribution Agreement, including without limitation Section 9.14(c) thereof, and including the attorneys' fees provisions referred to therein Section 7.16 Reimbursement. Company and Lakes acknowledge that Company, on the one hand, and Lakes, on the other hand, may incur costs and expenses, including, but not limited to, contributions to Plans and the payment of insurance premiums arising from or related to any of the Plans which are, as set forth in this Agreement, the responsibility of the other party hereto. Accordingly, Company and Lakes shall reimburse each other, as soon as practicable, but in any event within thirty (30) days of receipt from the other party hereto of appropriate verification, for all such costs and expenses. Section 7.17 Default. In the event of a material default by either party hereunder, the non-defaulting party shall be entitled to all remedies provided by law or equity (including reasonable attorneys' fees and costs of suit incurred). Section 7.18 Force Majeure. Company and Lakes shall incur no liability to each other due to a default under the terms and conditions of this Agreement resulting from fire, flood, war, strike, lock-out, work stoppage or slow-down, labor disturbances, power failure, major equipment breakdowns, construction delays, accident, riots, acts of God, acts of United States' enemies, laws, orders or at the insistence or result of any governmental authority or any other delay beyond each other's reasonable control. 23 27 Section 7.19 Attorney/Client Privilege. The provisions herein requiring either party hereto to cooperate shall not be deemed to be a waiver of the attorney/client privilege for either party hereto nor shall it require either party to waive its attorney/client privilege. Section 7.20 Specific Performance. The parties hereto agree that the remedy at law for any breach of this Agreement will be inadequate and that any party by whom this Agreement is enforceable shall be entitled to specific performance in addition to any other appropriate relief or remedy. Such party may, in its sole discretion, apply to a court of competent jurisdiction for specific performance or injunctive or such other relief as such court may deem just and proper in order to enforce this Agreement or prevent any violation hereof and, to the extent permitted by applicable laws, each party waives any objection to the imposition of such relief. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. GRAND CASINOS, INC., a Minnesota corporation By: /s/ Timothy J. Cope ----------------------------- Name: Timothy J. Cope --------------------------- Title: Chief Financial Officer ---------------------------- LAKES GAMING, INC., a Minnesota corporation By: /s/ Timothy J. Cope ----------------------------- Name: Timothy J. Cope --------------------------- Title: Chief Financial Officer ---------------------------- 24 28 SCHEDULE A CHANGE OF CONTROL AGREEMENTS The Change of Control Agreements of Company are identified in Schedule 4.8 of the Merger Agreement, as those agreements and plans providing for any additional payments or benefits to specified employees upon a change of control of Company, as defined in such agreement or plan. 25 29 SCHEDULE B RELEASE AND SEPARATION AGREEMENTS The Change of Control Agreements of Company are identified in Schedule 4.8 of the Merger Agreement, as those agreements providing for any additional payments or benefits to specified employees upon termination of employment under specified conditions. 26 30 SCHEDULE C EXAMPLE OF COMPANY STOCK OPTION ADJUSTMENT The following example illustrates the agreed method for adjusting the Company Stock Options to ensuring that their intrinsic value prior to the Distribution will be preserved thereafter pursuant to Section 3.1(a) of this Agreement. For this example, assume the following: (a) $9.00 is the closing price of a share of Company Common Stock on December 31, 1998. Because the Record Date for the Distribution was December 23, 1998, that $9.00 price would represent both (i) the right of the Company shareholder to receive one (1) share of Lakes Common Stock as of that date for each four (4) shares of Company Common Stock held by the shareholder (due to the "one for four" ratio provided for in the Distribution); and (ii) the right to receive proceeds of the Merger as of that date with respect to each share of Company Common Stock held by the shareholder. (b) A Retained Employee holds a Company Stock Option to purchase 100 shares of Company Common Stock for $6.00. Therefore, if the Retained Employee exercised the Company Stock Option on December 31, 1998, its intrinsic value would be $300.00, which is 100 times the difference between the $6.00 option exercise price and the $9.00 market price assumed above. That $3.00 intrinsic value per share would be one-third of the market price ($3.00/$9.00) and the option exercise price would be two-thirds of the market price ($6.00/$9.00). (c) $12.00 is the closing price of a share of Lakes Common Stock on its first day of trading, which will be January 4, 1999. (d) Therefore, on December 31, 1998, the value of a Company shareholder's right to receive a share of Lakes Common Stock would have been about $3.00, which is 25% of $12.00, due to the "one for four" Distribution ratio for Lakes Common Stock. (e) If the right to receive a share of Lakes Common Stock was worth $3.00 on December 31, 1998, and a share of Company Common Stock, including that same right, was worth $9.00 on that date, as assumed above, then a share of Company Common Stock without that right would be worth about $6.00 (or two-thirds of the combined value); and the value of a share of Lakes Common Stock, if one then existed, would be worth about $3.00, or one-third of the $9.00 combined share value. (f) As a result, on December 31, 1998, the Company Individual's option to buy 100 shares of Company Common Stock for $6.00 would be adjusted (or "split") into an option to buy 100 shares of Company Common Stock for $4.00 per share (two-thirds of the original $6.00 option exercise price) and an option to buy 100 shares of Lakes Common Stock (before the distribution) 27 31 for $2.00 (one-third of the original $6.00 option price). However, due to the "one for four" Distribution ratio for Lakes Common Stock, the option to purchase 100 shares of Lakes Common Stock would be converted into an option to purchase 25 shares of Lakes Common Stock for $8.00 each. The new Company Stock Option would next be converted into an option to purchase common stock of Park Place pursuant to the Merger Agreement. (g) If the Company Individual exercised both of the new options on January 4, 1998 (assuming the Company Stock Option had not been converted into an option to buy common stock of Park Place), the intrinsic value of the new separate options would be the same $300.00 they had on December 31, 1998, before the old Company Stock Option was adjusted (or "split"). The new $300.00 intrinsic value would be preserved and determined as follows: (1) The exercise of the new Company Stock Option would result in 100 shares of post-Distribution Company Common Stock (worth $6.00 per share) being bought for $4.00 per share, for an aggregate economic gain of $200.00; and (2) The exercise of the Lakes Stock Option would result in 25 shares of Lakes Common Stock (worth $12.00 per share) being bought for $8.00 per share, for an aggregate economic gain of $100.00. 28 EX-10.3 4 TAX ALLOCATION AND INDEMNITY AGREEMENT 1 EXHIBIT 10.3 TAX ALLOCATION AND INDEMNITY AGREEMENT THIS TAX ALLOCATION AND INDEMNITY AGREEMENT (the "Agreement"), dated as of December 31, 1998, is by and between GRAND CASINOS, INC., a Minnesota corporation ("Company"); and LAKES GAMING, INC., a Minnesota corporation and wholly owned subsidiary of Company ("Lakes"). RECITALS AND CERTAIN DEFINITIONS WHEREAS, Company and its subsidiaries currently are members of an Affiliated Group (as defined below), of which Company is the common parent corporation; and such Affiliated Group includes without limitation three subsidiary corporations incorporated outside the United States; WHEREAS, Company, directly and through certain wholly-owned subsidiaries, (a) owns, operates and develops certain gaming and resort facilities located in the State of Mississippi (as more specifically defined in the Distribution Agreement referred to below, as the "Mississippi Business"); and (b) manages and develops certain gaming and resort facilities located outside the State of Mississippi (as more specifically defined in the same Distribution Agreement, as the "Non-Mississippi Business"); WHEREAS, subject to Company shareholder ratification and certain other conditions, the Board of Directors of Company has determined that it is in the best interests of Company and the shareholders of Company to separate the Non-Mississippi Business from the Mississippi Business through a pro rata distribution (the "Distribution") to the holders of the common stock of the Company of all of the outstanding shares of the common stock, par value $.01 per share, of Lakes; WHEREAS, as set forth in the written Distribution Agreement between the parties, dated as of December 31, 1998 (the "Distribution Agreement"), and subject to the terms and conditions thereof, Company will contribute to Lakes, prior to the Distribution, all the operations, assets and liabilities of the Non-Mississippi Business and such other assets, liabilities and operations as are described in the Distribution Agreement (the "Lakes Business and Assets"); WHEREAS, as set forth in the Distribution Agreement, and subject to the terms and conditions thereof, Company will retain, immediately after the Distribution, all the operations, assets and liabilities of the Mississippi Business other than certain of such assets, liabilities and operations contributed to Lakes prior to the Distribution as described in the Distribution Agreement (the "Mississippi Business and Assets"); and WHEREAS, in contemplation of the Distribution, pursuant to which Lakes and its subsidiaries will cease to be members of the Affiliated Group (as defined below) now including Company, the parties hereto have determined to enter into this Agreement setting forth their agreement with respect to certain tax matters; 2 NOW THEREFORE, in consideration of the foregoing premises, which are an integral part of this Agreement, and the respective covenants, terms and conditions set forth below, the parties hereto agree as follows: AGREEMENT Section 1. General Definitions. For purposes of this Agreement, the following terms shall have meanings set forth below: "Affiliated Group" shall mean either (a) an affiliated group of corporations within the meaning of Code section 1504(a) (but without regard to the exclusions contained in Code section 1504(b)) for the Taxable Period; or (b) for purposes of any state, province, local or foreign Income Tax matters, any consolidated, combined or unitary group of corporations within the meaning of the corresponding provisions of Tax law for the applicable jurisdiction. "Base Stratosphere Loss" shall have the meaning set forth in Section 3(d)(ii). "Code" shall mean the Internal Revenue Code of 1986, as amended. "Distribution" shall mean the Distribution described in the Recitals. "Distribution Date" shall mean the effective date of the Distribution. "Final Determination" shall mean the final resolution of any Tax matter. A Final Determination shall result from the first to occur of: (i) either (A) the expiration of 30 days after the IRS' acceptance of a waiver of restrictions on assessment and collection of deficiency in a federal Tax and acceptance of overassessment on Treasury Form 870, 870-AD or any successor comparable form (the "Waiver"), except as to reserved matters specified therein; or (B) the expiration of 30 days after acceptance by any other taxing authority of a comparable agreement or form under the laws of any other jurisdiction, including state, province, local or foreign jurisdictions; unless, within such 30-day period, the taxpayer gives notice to the other party to this Agreement of the taxpayer's intention to attempt to recover all or part of any amount paid pursuant to the Waiver by the filing of a timely claim for refund; (ii) a decision, judgment, decree or other order by a court of competent jurisdiction that is not subject to further judicial review (by appeal or otherwise) and has become final; (iii) the execution of (A) a closing agreement under Code section 7121, or the acceptance by the IRS of an offer in compromise under Code section 7122; or (B) any comparable agreement under the laws of any other jurisdiction, including state, province, local or foreign jurisdictions, except as to reserved matters specified therein; -2- 3 (iv) the expiration of the time for filing a claim for refund or for instituting suit in respect of a claim for refund that was disallowed in whole or part by the IRS or any other taxing authority; (v) the expiration of the applicable statute of limitations; or (vi) an agreement by the parties hereto that a Final Determination has been made. "Income Tax Benefit" shall mean a reduction in the Income Tax Liability of a taxpayer (or of the Affiliated Group of which it is a member) for any Taxable Period. Except as otherwise provided in this Agreement, an Income Tax Benefit shall be deemed to have been realized or received from an Income Tax Item in a Taxable Period, only if and to the extent that the Income Tax Liability of the taxpayer (or the Affiliated Group of which it is a member) for such Taxable Period, after taking into account the effect of the Income Tax Item on the Income Tax Liability of such taxpayer in all prior Taxable Periods, is less than it would have been if such Income Tax Liability were determined without regard to such Income Tax Item. If any Income Tax Benefit of an Income Tax Item is limited for a Taxable Period in a way that creates an Income Tax Benefit in any other Taxable Period, the latter Income Tax Benefit shall be treated as caused by the original Income Tax Item. "Income Tax Detriment" shall mean an increase in the Income Tax Liability of a taxpayer (or of the Affiliated Group of which it is a member) for any Taxable Period. Except as otherwise provided in this Agreement, an Income Tax Detriment shall be deemed to have been realized or suffered from an Income Tax Item in a Taxable Period, only if and to the extent that the Income Tax Liability of the taxpayer (or the Affiliated Group of which it is a member) for such Taxable Period, after taking into account the effect of the Income Tax Item on the Income Tax Liability of such taxpayer in all prior Taxable Periods, is greater than it would have been if such Income Tax Liability were determined without regard to such Income Tax Item. If any Income Tax Detriment of an Income Tax Item is limited for a Taxable Period in a way that creates an Income Tax Detriment in any other Taxable Period, the latter Income Tax Detriment shall be treated as caused by the original Income Tax Item. "Income Tax Item" shall mean any item of income, gain, loss, deduction, credit, recapture of credit, or any other item that may have the effect of increasing or decreasing Income Taxes paid or payable. "Income Tax Liability" shall mean the net amount of Income Taxes due and paid or payable for any Taxable Period, determined after applying all income tax credits and all applicable carrybacks or carryovers permitted hereunder for net operating losses, net capital losses, unused general business tax credits, or any other Income Tax Items arising from a prior or subsequent Taxable Period, and all other relevant adjustments; and shall include without limitation the net amount due and paid or payable for alternative minimum tax imposed under Code section 55 or similar alternative or add-on minimum taxes. -3- 4 "Income Taxes" shall mean all federal, state, province, local and foreign Taxes imposed upon, or measured by, net income, including without limitation, alternative or add-on minimum taxes (including the alternative minimum tax imposed under Code section 55); together with all related interest, penalties and additions to tax. "Indemnifying Party" shall mean any party that is required to pay or reimburse any other party pursuant to the terms and conditions of this Agreement. "Indemnified Party" shall mean any party that is entitled to receive payment or reimbursement from an Indemnifying Party pursuant to the terms and conditions of this Agreement. "IRS" shall mean the United States Internal Revenue Service or any successor thereto, including but not limited to its agents, representatives and attorneys. "Lakes Business and Assets" shall have the meaning set forth in the Recitals. "Lakes Group" shall mean Lakes and each other corporation that was a Pre-Distribution Member and, immediately after the Distribution, will be a member of the Affiliated Group in which Lakes is the common parent. "Lakes Business and Assets" shall have the meaning set forth in the Recitals. "Lakes Member" shall mean a corporation that is a member of the Lakes Group. "Mississippi Business and Assets" shall have the meaning set forth in the Recitals. "Other Taxes" shall mean any and all Taxes other than Income Taxes, together with all related interest, penalties and additions to tax. "Other Tax Item" shall mean any item of sales, other revenues, purchases, services, other transactions, property valuation, assets, liabilities, securities, payroll, other compensation, income, gain, loss, deduction, credit, recapture of credit, or any other item that may have the effect of increasing or decreasing Other Taxes paid or payable. "Post-Distribution Company Group" shall mean Company and each other corporation that was a Pre-Distribution Member and, immediately after the Distribution, will be a member of the Affiliated Group in which Company is the common parent. To the extent applicable to any state Income Tax matters, the Post-Distribution Company Group shall include all such corporations joining in the filing of a consolidated, unitary or combined Tax Return for the state in question. "Post-Distribution Company Member" shall mean any corporation that is a member of the Post-Distribution Company Group. -4- 5 "Post-Distribution Straddle Period" shall mean, with respect to any Straddle Period, the portion thereof beginning on the day after the Distribution Date and ending on the last day of such Straddle Period. "Post-Distribution Taxable Period" shall mean a Taxable Year that begins after the Distribution Date. "Pre-Distribution Group" shall mean Company, Lakes and each other corporation that was a member of the Affiliated Group in which Company was the common parent during any Pre-Distribution Taxable Period or Pre-Distribution Straddle Period. For purposes of this Agreement, the Pre-Distribution Group shall terminate on the Distribution Date. To the extent applicable to any state Income Tax matters, the Pre-Distribution Group shall include all such corporations joining in the filing of a consolidated, combined or unitary Income Tax Return for the state in question. "Pre-Distribution Member" shall mean a corporation that was a member of the Pre-Distribution Group. "Pre-Distribution Straddle Period" shall mean, with respect to any Straddle Period, the portion beginning on the first day of such Straddle Period and ending on the Distribution Date. "Pre-Distribution Taxable Period" shall mean a Taxable Year that ends on or before the Distribution Date. "Representative" means, with respect to any person or entity, any of such person's or entity's directors, officers, employees, agents, consultants, accountants, attorneys and other advisors. "Section 355 Tax Liability" means any Income Tax Liability that is incurred by Company or any other Post-Distribution Company Member solely because the Distribution is not tax-free with respect to Company under Code section 355. "Straddle Period" shall mean any Taxable Year beginning before and ending after the close of business on the Distribution Date. "Stratosphere Losses" shall mean any losses or Income Tax deductions occurring at any time and attributable to the ownership (at any time before the Distribution) by any Pre-Distribution Member of any asset that is a form of investment in Stratosphere Corporation, a Delaware corporation, Stratosphere Gaming Corp., a Nevada corporation, or any of their respective subsidiaries ("Stratosphere") or any amount receivable from Stratosphere; including without limitation any capital stock, notes receivable, cash advances and other debts such as accounts receivable arising from the delivery of goods or services to Stratosphere or from intercompany expense allocations to Stratosphere; and also including any expenses relating thereto and incurred by a Pre-Distribution Member before the Distribution, but excluding any such asset that did not exist before the Distribution. -5- 6 "Stratosphere Tax Benefits" shall mean all Income Tax Benefits that are realized or received at any time by the Pre-Distribution Group, the Lakes Group or the Post-Distribution Company Group from Stratosphere Losses. "Tax" (or "Taxes") shall mean all actual (and estimated payments of) taxes, charges, fees, imposts, levies, gaming or other governmental assessments, including, all net income, gross receipts, gross income, capital, sales, use, value added, transfer, franchise, profits, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation, premium, property, ad valorem, custom duties, fees, assessments and charges of any kind whatsoever; together with any interest and any penalties, fines, additions to tax or additional amounts imposed by any taxing authority (domestic or foreign) with respect to Taxes; and including any transferee liability in respect of Taxes. "Tax Item" shall mean, generically, any item that is either an Income Tax Item or an Other Tax Item, or both. "Tax Practices" shall mean the most recently applied policies, procedures and practices employed by the Pre-Distribution Group in the preparation and filing of, and positions taken on, any Tax Returns of Company or any Pre-Distribution Member for any Pre-Distribution Taxable Period. "Tax Returns" shall mean all reports, estimates, declarations of estimated Tax, information statements, and returns (including without limitation any amendments thereto) relating to, or required to be filed in connection with any Taxes, including information returns or reports with respect to backup withholding and other payments to third parties. "Taxable Period" shall mean a Pre-Distribution Taxable Period, a Straddle Period or a Post-Distribution Taxable Period. "Taxable Year" shall mean a taxable year (which may be shorter than a full calendar or fiscal year), year of assessment or similar period with respect to which any Tax may be imposed. "Transaction Taxes" shall include only those Taxes described in Section 6.05 of the Distribution Agreement. Section 2. Filing of Tax Returns. Tax Returns shall be filed by the parties as follows: (a) By Company. Company shall prepare and timely file, or cause to be prepared and timely filed: (i) all Tax Returns with respect to Taxes (other than Transaction Taxes) of, or with respect to, the Pre-Distribution Group and each Pre-Distribution Member for all Pre-Distribution Taxable Periods, except for Tax Returns that relate solely to any Lakes Member or group of Lakes Members and are not required to be filed on or before the Distribution -6- 7 Date; (ii) all Tax Returns with respect to Taxes (other than Transaction Taxes) of, or with respect to, the Post-Distribution Company Group and each Post-Distribution Company Member for all Straddle Periods and Post-Distribution Taxable Periods, including without limitation any Tax Returns that are required to be filed on a consolidated, combined or unitary basis that includes any Lakes Member and any Post-Distribution Company Member for a Straddle Period. (b) By Lakes. Lakes shall prepare and timely file, or cause to be prepared and timely filed: (i) all Tax Returns with respect to Taxes (other than Transaction Taxes) that relate solely to any Lakes Member or group of Lakes Members for all Pre-Distribution Taxable Periods that are not required to be filed on or before the Distribution Date; and (ii) all Tax Returns with respect to Taxes (other than Transaction Taxes) of the Lakes Group or any Lakes Member for all Straddle Periods and Post-Distribution Taxable Periods, other than any Tax Returns that are required to be filed on a consolidated, combined or unitary basis that includes any Lakes Member and any Post-Distribution Company Member for a Straddle Period. (c) Transaction Taxes. The provisions of Section 6.05 of the Distribution Agreement and Section 3(e) of this Agreement shall govern (i) the preparation and filing of all Tax Returns with respect to any Transaction Taxes and (ii) the payment of such Transaction Taxes. (d) Taxable Year. Lakes and Company agree that, to the extent permitted by applicable law, (i) the Taxable Year of each Lakes Member included in the Tax Return filed for consolidated federal Income Tax purposes of the Pre-Distribution Group for the Pre-Distribution Taxable Period (or, if applicable, the Straddle Period) that includes the Distribution Date (and all Tax Returns for the corresponding consolidated, combined or unitary state, province, local or foreign Income Taxes of the Pre-Distribution Group) shall end on the Distribution Date; and (ii) the Lakes Group and each Lakes Member shall begin a new Taxable Year for purposes of such federal, state, province, local and foreign Income Taxes on the day after the Distribution Date. The parties further agree that, to the extent permitted by applicable law, all federal, state, province, local and foreign Tax Returns shall be filed consistently with this position. (e) Past Tax Practices. Each of Company (including its Representatives) and Lakes (including its Representatives) shall prepare all Tax Returns required to be filed by it pursuant to this Section 2 (i) for all Taxable Years ended on or before December 31, 1999, in a manner consistent with Company's past Tax Practices, except as otherwise expressly required hereunder, by changes in applicable law or material underlying facts or as the parties hereto may otherwise agree in writing; and (ii) in a manner consistent with the IRS Ruling required by the -7- 8 Distribution Agreement. (f) Cooperation and Provision of Filing Information. Lakes (or Company, as the case may be) shall cooperate (as provided in Section 9) and assist Company (or Lakes) in the preparation and filing of all Tax Returns subject to this Section 2 and submit to Company (or Lakes): (i) all necessary filing information in a manner consistent with past Tax Practices and (ii) all other information reasonably requested by Company (or Lakes) in connection with the preparation of such Tax Returns promptly after such request. It is expressly understood and agreed that Company's (or Lakes') ability to discharge its Tax Return preparation and filing responsibilities is contingent upon Lakes (or Company) providing Company (or Lakes) with all such cooperation, assistance and information reasonably necessary or requested for the filing of such Income Tax Returns and that Lakes (or Company) shall indemnify Company (or Lakes), if, and to the extent that, Taxes are increased as a result of material inaccuracies in such information or failures to provide such cooperation, information and assistance on a timely basis. (g) Advance Review and Approval of Tax Returns. To facilitate the rights and obligations of the parties under this Section 2, at least forty-five (45) days prior to the filing of any Tax Return including Tax Items to be reported under the following paragraph, and at least thirty (30) days prior to the filing of any other Tax Return that includes one or more Lakes Members, Company shall provide Lakes with a copy of such Tax Return. Lakes, its Representatives and any accountant appointed under the following provisions of this Section 2(g) shall have the right to review all related work papers at any reasonable time after such copy is furnished. Promptly following the receipt by Lakes of an advance copy of a Tax Return to be filed by Company, Company and Lakes shall first consult with each other regarding the comments of Lakes and its Representatives with respect to such Tax Returns and each of them shall in good faith (i) attempt to resolve any differences with respect to the preparation and accuracy of such Tax Returns and their consistency with past Tax Practices and (ii) consider the other's recommendations for alternative positions having a "reasonable basis" (as defined in Code section 6662) with respect to Income Tax Items or other information to be reflected on such Tax Return, and alternative positions for reporting Other Tax Items having reasonable basis under the Tax law governing Other Taxes. Notwithstanding the preceding sentence, to the extent any such Tax Items are reasonably anticipated to affect (i) any Tax liability allocated to the Lakes Group or one or more Lakes Members under Section 3, (ii) any Section 355 Tax Liability, (iii) any Stratosphere Tax Benefits or (iv) any utilization of Stratosphere Losses by Company or any other Post-Distribution Company Member or by Lakes or any Lakes Member (except to the extent any Stratosphere Tax Benefits derived from the Stratosphere Losses are to be allocated equally under Section 3(d)(iii), which Tax Item shall remain under the control of Company), and following such consultation, Company (and its Representatives) shall in good faith accept the recommendation of Lakes and its Representatives with respect to the Tax Return reporting of such Tax Items to be reported on such Tax Return; provided, however, that to the extent such recommendations relate to the Base Stratosphere Loss defined in Section 3(d)(ii), such recommendations shall have a reasonable basis (as described above) and, to the extent such recommendations relate to any other Income Tax Items, such recommendations are supported by "substantial authority" as defined in Code section 6662. -8- 9 If the parties are unable to agree whether any recommended position on a Tax Item to be determined under the preceding sentence has such a reasonable basis or is supported. by substantial authority, as the case may be, each of them shall (no later than thirty (30) days before the affected Tax Return is due, including all allowable extensions of time to file such Tax Return) appoint a certified public accountant who is a tax partner of one of the six largest public accounting firms in the United States (other than any firm used by either of the parties as its primary public accounting firm for Tax consulting matters) as its representative to determine such matter and, if such accountants are unable to agree on the matter within ten (10) business days following such appointments, such accountants shall mutually appoint a third certified public accountant, who is a tax partner of a neutral accounting firm from among such remaining firms, who shall finally determine such matter. Such appointed accountants shall diligently attempt resolve such matter. The fees and expenses of such accountants shall be allocated between the parties in the same manner as Transaction Taxes, unless such amounts are otherwise equitably allocated between the parties by the accountants or accountant making the final determination, taking into account the relative benefits and detriments of such determination. Any Tax Return reporting position determined under this Section 2(g) shall be supported in good faith by Company and Lakes until the position is affirmed or modified by a Final Determination in which Company (and, if applicable, Lakes) exerted its reasonable best efforts to support the position. Section 3. Payment and Allocation of Tax Liabilities. (a) Tax Liabilities of Company. Company shall, except as otherwise expressly allocated under the subsequent provisions of this Section 3 or otherwise under this Agreement: (i) be liable for and pay, or cause to be paid, and shall indemnify and hold harmless Lakes and each other Lakes Member against all Taxes (other than Transaction Taxes) that relate to all Tax Returns that Company is required to prepare and file, or cause to be prepared and filed, pursuant to Section 2 of this Agreement; and (ii) be entitled to all refunds of Taxes related thereto. (b) Tax Liabilities of Lakes. Lakes shall, except as otherwise expressly allocated under the subsequent provisions of this Section 3 or otherwise under this Agreement: (i) be liable for and pay, or cause to be paid, and shall indemnify and hold harmless Company and each other Post-Distribution Company Member against all Taxes (other than Transaction Taxes) that relate to all Tax Returns that Lakes is required to prepare and file, or cause to be prepared and filed, pursuant to Section 2 of this Agreement; and (ii) be entitled to all refunds of Taxes related thereto. (c) Special Allocation of Company Tax Liabilities for Certain Taxable Periods. -9- 10 The economic cost of the following Taxes (other than Transaction Taxes) related to any Tax Returns required to be filed by Company under Section 2(a) and otherwise payable under Section 3(a) shall be allocated among the parties and their respective subsidiaries in the following manner: (i) Pre-Distribution Taxable Periods. If any Tax Return of any Pre-Distribution Member for any Pre-Distribution Taxable Period has not been filed on or before the Distribution Date, the economic cost of all liabilities for Taxes related to such Tax Return shall be allocated in the manner set forth in Section 3(c)(ii); and any refunds of Taxes related thereto shall be allocated in the same manner. To the extent that any Tax liabilities related to any Tax Return filed by any Pre-Distribution Member on or before the Distribution Date for any Pre-Distribution Taxable Period are changed by a Final Determination or as a result of an amended Tax Return filed after the Distribution Date, and (A) any portion of such change is derived solely from any Tax Items reasonably and equitably related to any of the Lakes Business and Assets, determined by computing such change with and without such Tax Items, then the economic cost of such portion shall be allocated to the Lakes Group and Lakes shall indemnify and hold harmless Company and each other Post-Distribution Company Member against such cost; or (B) any portion of such change is derived solely from any Tax Item reasonably and equitably related to any of the Mississippi Business and Assets, determined by computing such change with and without such Tax Items, then the economic cost of such portion shall be allocated to the Post-Distribution Company Group and Company shall indemnify and hold harmless Lakes and each other Lakes Member against such cost. To the extent that any such Tax allocation cannot be made because the Tax liability is not reasonably and equitably traceable in such manner to either the Mississippi Business and Assets or the Lakes Business and Assets, the economic cost of such liabilities shall be allocated between Lakes and Company in the manner for allocating Transaction Taxes. (ii) Straddle Periods. (A) Initial Allocation of Straddle Period Taxes on Separate Corporation Tax Returns. Subject to re-allocation under paragraph (C) below, all liability for Taxes (other than Transaction Taxes or any Section 355 Tax Liability) for each Straddle Period that relate to Tax Returns required to be filed by only one corporation subject to this Agreement shall be allocated to the corporation named on each such Tax Return. To the extent that any Tax liabilities allocated under this Section 3(c)(ii)(A) are changed by a Final Determination or as a result of an amended Tax Return filed after the Distribution Date, and (A) any portion of such change is derived solely from any Tax Items reasonably and equitably related to any of the Lakes Business and Assets, determined by computing such change with and without such Tax Items, then the economic cost of such portion shall be allocated to the Lakes Group and Lakes shall indemnify and hold harmless Company and each other Post-Distribution Company Member against such cost; or (B) any portion of such change is derived solely from any Tax Item reasonably and equitably related to any of the Mississippi Business and Assets, determined by computing such change with and without such Tax Items, then the economic cost of such portion shall be allocated to the Post-Distribution -10- 11 Company Group and Company shall indemnify and hold harmless Lakes and each other Lakes Member against such cost. To the extent that any such Tax allocation cannot be made because the Tax liability is not reasonably and equitably traceable in such manner to either the Mississippi Business and Assets or the Lakes Business and Assets, the economic cost of such liabilities shall be allocated between Lakes and Company in the manner for allocating Transaction Taxes. (B) Initial Allocation of Certain Straddle Period Taxes Related to Combined, Consolidated or Unitary Tax Returns. All liability for Income Taxes (other than Transaction Taxes or any Section 355 Tax Liability) for each Straddle Period that relate to any combined, consolidated or unitary Tax Return shall be allocated as follows: (1) all federal, state, province, local and foreign Income Tax Liabilities shall be proportionately allocated among the corporations with positive taxable income included in each such Tax Return, based on the ratio in which the taxable income of each corporation with positive taxable income included in such Tax Return bears to the total positive taxable income of all corporations with positive taxable income included in such Tax Return; any refunds of Income Taxes related thereto shall be allocated in the same manner; and (2) to the extent that any Income Tax Liabilities allocated under this Section 3(c)(ii)(B) are changed by a Final Determination or as a result of an amended Tax Return filed after the Distribution Date; and (I) any portion of such change is derived solely from any Tax Items reasonably and equitably related to any of the Lakes Business and Assets, determined by computing such change to the combined, consolidated or unitary Income Tax Liability with and without such Tax Items, then the economic cost of such portion shall be allocated to the Lakes Group and Lakes shall indemnify and hold harmless Company and each other Post-Distribution Company Member against such cost; or (II) any portion of such change is derived solely from any Tax Item reasonably and equitably related to any of the Mississippi Business and Assets, determined by computing such change to the combined, consolidated or unitary Income Tax Liability with and without such Tax Items, then the economic cost of such portion shall be allocated to the Post-Distribution Company Group and Company shall indemnify and hold harmless Lakes and each other Lakes Member against such cost. To the extent that any such Tax allocation cannot be made because the Income Tax liability is not reasonably and equitably traceable in such manner to either the Mississippi Business and Assets or the Lakes Business and Assets, the economic cost of such liabilities shall be allocated between Lakes and Company in the manner for allocating Transaction Taxes. All liability for Other Taxes (other than Transaction Taxes) for each Straddle Period that relate to any combined, consolidated or unitary Tax Return shall be allocated between Company and Lakes in a reasonable and equitable manner by first re-computing such Other Taxes on such other Tax Returns, taking into account only such other Tax Items that relate to the Mississippi Business and Assets and allocating such re-computed Other Taxes to Company; and secondly re-computing such Other Taxes on such other Tax Returns, taking into account only such Other Tax Items that relate to the Lakes Business and Assets and allocating such re-computed Other Taxes to Lakes. Any refunds of such Other Taxes related thereto shall be allocated in the same manner; and any change in such Other Tax liabilities pursuant to a Final Determination shall be allocated in the same manner. (C) Re-allocation of Certain Straddle Period Tax Liabilities. -11- 12 Any liability for Taxes allocated in each Straddle Period under Section 3(c)(ii)(A) above, and any Income Tax Liabilities allocated under Section 3(c)(ii)(B) above, but excluding any Tax liabilities allocated under Section 3(c)(ii)(A) or Section 3(c)(ii)(B) above pursuant to either a Final Determination or as a result of an amended Tax Return filed after the Distribution Date, shall be re-allocated between Lakes and Company in a reasonable and equitable manner by first re-computing such Taxes on such Tax Returns, taking into account only such Tax Items that relate to the Mississippi Business and Assets and allocating such re-computed Taxes to Company; and secondly re-computing such Taxes on such Tax Returns, taking into account only such Tax Items that relate to the Lakes Business and Assets and allocating such re-computed Taxes to Lakes; and any refunds related thereto shall be allocated in the same manner. To the extent that any such Tax allocation cannot be made because the Tax liability is not reasonably and equitably traceable to either the Mississippi Business and Assets or the Lakes Business and Assets, the economic cost of such liabilities shall be allocated between Lakes and Company in the manner for allocating Transaction Taxes. (D) Property and Ad Valorem Taxes. Notwithstanding the foregoing, any property or ad valorem Taxes that are due and payable on of the Lakes Business and Assets shall be paid by Lakes or another Lakes Member; and all other property or ad valorem Taxes shall be paid by Company or another Post-Distribution Company Member and any refunds of such Taxes shall be allocated in the same manner. (d) Allocations of Stratosphere Tax Benefits. Notwithstanding any contrary provisions of this Section 3, the economic costs and benefits of the Section 355 Tax Liability, the Stratosphere Losses and any Stratosphere Tax Benefits shall be allocated as follows: (i) Section 355 Tax Liability. Notwithstanding any contrary provisions of this Agreement, (1) after the Distribution, Company shall be entitled to deduct any Stratosphere Losses allowable under the Code to Company or any other Post-Distribution Company in its Affiliated Group in a manner that realizes a Stratosphere Tax Benefit in an amount not to exceed the Section 355 Tax Liability and shall do so at the earliest time permitted under the Code; and (2) the economic cost of any Section 355 Tax Liability remaining after taking into account all Stratosphere Tax Benefits that can be utilized under the Code to reduce such Section 355 Tax Liability shall be allocated to Lakes or any other appropriate Lakes Member and Lakes shall indemnify and hold harmless Company and each other Post-Distribution Company Member against any such remaining Section 355 Tax Liability, whether included on a Tax Return filed hereunder by Company or determined or changed by a Final Determination. (ii) Initial Allocation of Stratosphere Tax Benefits to Lakes. Lakes shall be entitled to the economic benefit of any and all Stratosphere Tax Benefits derived from that portion of the Stratosphere Losses (not to exceed $50,000,000) resulting from the worthlessness of debts owed by Stratosphere Corporation to any Pre-Distribution Member (the "Base Stratosphere Loss"), except to the extent any amount of the Base Stratosphere Loss remaining unused after the Distribution is necessary to reduce the Section 355 Tax Liability (after all other available Stratosphere Losses are used for such purpose). To the extent that Company or any other Pre-Distribution Member realizes or receives any Stratosphere Tax Benefits from the -12- 13 Base Stratosphere Loss, in excess of any amount required to reduce any Section 355 Tax Liability remaining after all other available Stratosphere Losses are used for such purpose, then such excess amount shall be deposited in the Escrow established pursuant to Section 4 for the benefit of Lakes as security for its obligation to indemnify Company pursuant to the preceding paragraph; provided, however, that such Escrow has not already been terminated under Section 4. (iii) Sharing of Any Remaining Stratosphere Tax Benefits. If Company, any other Post-Distribution Company or any Lakes Member realizes or receives any Stratosphere Tax Benefits derived from any remaining portion of the Stratosphere Losses that has not been allocated to Lakes under the preceding paragraph or utilized to reduce the Section 355 Tax Liability, the economic benefit of such remaining portion shall be allocated equally between Lakes and Company as and when it is so realized or received. (iv) Payments to Satisfy Allocations. To the extent that any portion of the Stratosphere Tax Benefits allocated to the Lakes Group is realized or received at any time by Company or any other Post-Distribution Company Member that is not entitled to the economic benefit of such portion, then Company shall pay to Lakes the amount of such portion; provided, however, that if the Escrow under Section 4 has not been funded to the full extent provided in Section 4, such payment shall be paid into such Escrow. (v) Actions required by Certain Final Determinations. If, pursuant to any Final Determination, all or any portion of the Stratosphere Tax Benefits is disallowed to the Post-Distribution Company Group because any portion of the Stratosphere Losses is found or agreed by IRS to have been incurred by a Lakes Member, then Company shall give Lakes written notice of the particulars of such disallowance and, to the extent permitted by applicable law, the appropriate Lakes Member shall claim any deductions or losses that would result in realization of the Stratosphere Tax Benefits and (a) Lakes (or, if applicable, the Escrow Agent described in Section 4) shall promptly repay to Company any amount of such portion that Company has previously paid to Lakes or such Escrow Agent, and (B) if and when any Lakes Member thereafter realizes any portion of the Stratosphere Tax Benefits in any Taxable Period as a result of such a deduction or loss, Lakes shall pay Company any amount of such portion necessary to reduce any remaining Section 355 Tax Liability, except to the extent of any amount of Stratosphere Tax Benefits that have already been realized or received by Company for that purpose pursuant to this Agreement or otherwise. (e) Transaction Taxes. Each of Company and Lakes shall pay, or cause to be paid, and indemnify and hold harmless the other against all Transaction Taxes that each of Company and Lakes, respectively, have agreed to pay pursuant to Section 6.05 of the Distribution Agreement. (f) Carrybacks. If the Lakes Group or one or more Lakes Members generates a Carryback Item (as defined below) that can be carried back to a Straddle Period or Pre-Distribution Taxable Period, then Company shall, upon receiving written notice thereof and at Lakes' expense, promptly prepare and file (or cause to be filed) all Income Tax refund claims and Tax Returns necessary to obtain the full amount of the Income Tax Benefits resulting from such -13- 14 Carryback Item, and shall pay to Lakes any resulting Income Tax Benefits realized or received by Company or any other Post-Distribution Company Member. Otherwise, any Income Tax Benefit resulting from a Carryback Item shall belong to the party to which it would be assigned under applicable Income Tax law. Each party hereto that is in an Affiliated Group generating a Carryback Item that may create an Income Tax Benefit in the other Affiliated Group containing a party to this Agreement shall promptly provide the common parent of the Affiliated Group that may be entitled to the Income Tax Benefit with a written notice concerning the particulars thereof. For purposes of this subsection (f), "Carryback Item" shall mean any net operating loss, net capital loss, unused general business tax credit, or any other Income Tax Item of the Lakes Group that, under the Code or any other applicable Income Tax law, may be carried back to a Taxable Period, the Tax Return of which is required to be filed by Company under Section 2. (g) Lakes Payroll and Unemployment Compensation Tax Experience. Company shall make available to Lakes sufficient data to facilitate a determination of the desirability of the transfer to the Lakes Group of any payroll Tax experience and/or any favorable unemployment compensation Tax experience rating of Company. At the election of Lakes, Company shall cooperate to effect a transfer of such payroll Tax experience and/or any favorable experience rating to the Lakes Group within one hundred and twenty (120) days of Lakes's written request therefor, to extent that any such experience transfer is usable in a favorable manner within the Lakes Group for any Post-Distribution Periods or Straddle Periods; provided, however, that unemployment compensation Tax experience shall be allocated pursuant to the Employee Benefits and Other Employment Matters Allocation Agreement between Lakes and Company, of even date herewith. (h) Allocation of Taxes for Purposes of Pro Forma Statements. For purposes of the pro forma financial statements described in Section 4.19 of the Merger Agreement (as defined in the Distribution Agreement) the parties agree that nothing in this Agreement shall change the allocation of Taxes between Company (including its subsidiaries) and Lakes (including its subsidiaries), as set forth in such statements. (i) Tax Benefits Relating to Tender Offer and Defeasance of Company Debt. Notwithstanding anything to the contrary contained herein, with respect to any Income Tax benefit arising from Company's defeasance and subsequent redemption of its 9% Senior Notes due 2004 (the "Senior Notes") or the tender offer and consent solicitation by Park Place Entertainment Corporation, a Delaware corporation ("Park Place"), for Company's 10-1/8% First Mortgage Notes due 2003 (the "Mortgage Notes"), including without limitation any Income Tax benefit arising as a result of Company's acquisition by Park Place, but excluding any Income Tax Benefit resulting from the unamortized costs associated with the original issuance of the Senior Notes or the Mortgage Notes (collectively, the "Company Debt Repayment Income tax Benefits"), (x) Company shall be entitled to any and all Company Debt Repayment Income Tax Benefits, and (y) in no event shall any Lakes Member be entitled to any portion of the Company Debt Repayment Income Tax Benefits. -14- 15 (j) Treatment of Insurance Arrangement. With respect to the obligation owed by Company to Lakes and described in the Insurance Receivable Agreement between Company and Lakes, relating to casualty insurance proceeds and dated on the date hereof, the parties agree that (x) unless otherwise required by applicable law or as the result of a Final Determination, the parties shall treat the payment of such obligation as nondeductible by Company and not includible in income by any Lakes Member, and (y) Company shall indemnify and hold each Lakes Member harmless against any Taxes (subject to Section 8 below) that arise from the receipt of any payments with respect to such obligation, including without limitation any Taxes that arise because the treatment required by clause (x) is not permitted by applicable law or as a result of a Final Determination. Section 4. Escrow of Certain Stratosphere Tax Benefits. (a) Creation and Purpose of Escrow. As provided in Section 3(d)(ii), to the extent that Company or any other Pre-Distribution Member realizes or receives any Stratosphere Tax Benefits from the Base Stratosphere Loss, the parties shall cause such amount to be deposited for the benefit of Lakes, as security for its obligation to indemnify Company pursuant to Section 3(d)(i), into an escrow account established by Lakes and Company (the "Escrow") with a bank having trust powers and reasonably acceptable to them (the "Escrow Agent"), pursuant to a written escrow agreement intended to carry out the purposes of this Section 4 and to be entered into (immediately before any such deposit) by and among Lakes, Company, the Escrow Agent and Park Place Entertainment Corporation, a Delaware corporation (the "Escrow Agreement"), in a form to be mutually agreed upon in good faith by them within thirty (30) days after the date on which the Merger Agreement (as defined in the Distribution Agreement) is executed and delivered, and such form of escrow agreement shall thereupon be attached hereto as Exhibit A. The Escrow shall serve as collateral security solely for any remaining obligation of Lakes to indemnify Company pursuant to Section 3(d)(i). Lakes will be entitled to periodically receive any investment income earned by any assets invested under the Escrow Agreement. (b) Termination of Escrow. The Escrow shall terminate upon the earliest of the following events: (i) Company (and its Representatives) and Lakes (and its Representatives) shall have mutually agreed, in the manner provided in Section 2(g), that the amount of the Section 355 Tax Liability is reasonably ascertainable, that the amount of Stratosphere Losses remaining after any pre-Distribution realization of Stratosphere Tax Benefits under Section 3(d) is sufficient for the realization of Stratosphere Tax Benefits that will reduce the Section 355 Tax Liability to zero and that Company will have a "reasonable basis" (as defined in Code section 6662) for doing so in the applicable Tax Return to be filed by Company for federal Income Tax purposes. The parties shall diligently attempt in good faith to reach such agreement as soon as practicable after the Distribution, but in no event later than sixty (60) days after the Distribution Date and, if the parties are unable to agree on such matter within that period, they shall use the dispute resolution procedures in Section 2(g) to determine such issues. If the determination described in this paragraph is not made because the facts and/or applicable Tax law prevents such a determination, the Escrow shall terminate upon the earliest of the events -15- 16 described in the following two paragraphs. (ii) The indemnification obligation of Lakes under Section 3(d)(i) shall have expired as a result of a Final Determination or the expiration of the latest applicable Income Tax statute of limitation; and the date of such any such expiration shall have been either agreed upon by Company and Lakes in writing or otherwise determined in the manner provided in Section 2(g). (iii) Lakes shall have satisfied its indemnification obligation under Section 3(d)(i), from the Escrow or otherwise; and Company and Lakes shall have either agreed that such obligation has been satisfied or such issue shall have been determined in the manner provided in Section 2(g). Upon termination of the Escrow, Company and Lakes shall promptly and jointly notify the Escrow Agent in writing concerning such termination and the amount (if any) to be paid to Company to satisfy the indemnification obligation of Lakes under Section 3(d)(i). To the extent that any assets remain in the Escrow after such indemnification obligation expires or is satisfied, any assets remaining in the Escrow shall be disbursed to Lakes after the Escrow Agent has been paid, from the Escrow or otherwise, any fees and expenses due the Escrow Agent under the Escrow Agreement. If the parties do not agree on any such matter and the Escrow Agent does not receive a written determination under Section 2(g) with respect to any such matter, the Escrow Agent shall disburse the assets of the Escrow pursuant to the final, non-appealable order of a court of competent jurisdiction. Section 5. Taxability and Reporting of Stock Options. Each of Company and Lakes shall be responsible for making all reports required to be made to any relevant taxing authority with respect to any grants or exercises of stock options with respect to such party's capital stock in any Post-Distribution Straddle Periods or Post-Distribution Taxable Periods. The appropriate Post-Distribution Company Member shall be entitled to the economic benefit of, and to the extent permitted by applicable law shall take, any Income Tax deductions arising by reason of exercises of options to purchase shares of Company stock or dispositions of such stock. The appropriate Lakes Member shall be entitled to the economic benefit of, and to the extent permitted by applicable law, shall take any Income Tax deductions arising by reason of exercises of options to purchase shares of Lakes stock or dispositions of such stock. If, pursuant to a Final Determination, all or any part of a Income Tax deduction required to be taken pursuant to this Section 5 is either not permitted by applicable law, or is disallowed to a Post-Distribution Company Member (or a Lakes Member), then, to the extent permitted by applicable law, the party first aware of such condition shall notify the other in writing of the particulars; and the appropriate Lakes Member (or Post-Distribution Company Member) shall take such Income Tax deduction and shall pay, to the party entitled to economic benefit of such Income Tax deduction under this Agreement, the amount of any Income Tax Benefit resulting from such deduction. -16- 17 Section 6. Severance Pay. Payments made for and as severance pay shall be deducted for Income Tax purposes, to the extent permitted by applicable Tax law, by the corporation that makes the severance payment. If, pursuant to a Final Determination, all or any part of an Income Tax deduction for severance pay is disallowed to any Post-Distribution Company Member, then, to the extent permitted by applicable law, the appropriate member of the Lakes Group shall claim such deduction. If any Lakes Member receives an Income Tax Benefit in any Taxable Period as a result of such an Income Tax deduction, Lakes shall pay to Company the amount of such Income Tax Benefit. If, pursuant to a Final Determination, all or any part of an Income Tax deduction for severance pay is disallowed to any Lakes Member, then, to the extent permitted by applicable law, the appropriate Post-Distribution Company Member shall claim such deduction. If any Post-Distribution Company Member receives an Income Tax Benefit in any Taxable Period as a result of such an Income Tax deduction, Company shall pay to Lakes the amount of such Income Tax Benefit. Section 7. Cancellation of Other Tax Allocation or Tax-Sharing Agreements. Effective upon the Distribution, Company and Lakes hereby agree to cancel or cause to be canceled all agreements (other than this Agreement and the Distribution Agreement) providing for the allocation or sharing of Taxes to which any Lakes Member would otherwise be bound following the Distribution. Such cancellation shall be retroactive to the extent any such agreement is inconsistent with any provision of this Agreement that affects any Straddle Period or Pre-Distribution Taxable Period. Section 8. Indemnification Procedures. (a) Unless otherwise specified in this Agreement, all indemnification and reimbursement payments to be made pursuant to this Agreement shall be made within thirty (30) days of written notice of a request for indemnification or reimbursement by the Indemnified Party, which notice shall be accompanied by a computation of the amount due. (b) If an indemnification or reimbursement is required to be made under this Agreement only upon the realization or receipt by the Indemnifying Party of an Income Tax Benefit, such payment shall be made no later than thirty (30) days after the earlier of (i) the filing or (ii) the due date (including extensions) of the Tax Return with respect to which such Income Tax Benefit is realized; or, if the Income Tax Benefit was realized or received on a Tax Return that was due or filed prior to the time the indemnification or reimbursement obligation arose, no later than thirty (30) days after such obligation arose. The parties shall cooperate in good faith in enforcing the provisions of this paragraph (b), which cooperation shall include the provision of reasonable access to the Tax Returns of the Indemnifying Party by the Indemnified Party pursuant to Section 9 in order to determine the amount of any indemnification or reimbursement payment to be made pursuant to this paragraph (b). -17- 18 (c) If an Indemnified Party realizes or receives an Income Tax Benefit in any Taxable Period as a result of making a payment or suffering a loss with respect to which an indemnification or reimbursement payment is required to be made to it by an Indemnifying Party (including any payment due under the next paragraph), after taking into account any Income Tax Detriment the Indemnified Party would incur upon receipt of such payment, the Indemnified Party shall pay the amount of such Income Tax Benefit to the Indemnifying Party or, if the Indemnifying Party has not yet satisfied such obligation, the Indemnified Party may notify the Indemnifying Party in writing that the amount of such Income Tax Benefit shall be set off against any such indemnification or reimbursement payment then due. (d) If an Indemnifying Party realizes or receives an Income Tax Benefit in any Taxable Period as a result of making an indemnification or reimbursement payment to an Indemnified Party, after taking into account any Income Tax Detriment that would result from any related payment due the Indemnifying Party under the preceding paragraph, the Indemnifying Party shall also pay to the Indemnifying Party the amount of any such Income Tax Benefit. (e) Any payment (other than interest) made hereunder by any Indemnifying Party to any Indemnified Party shall be treated by all parties for all purposes, to the extent permitted by applicable law, as a non-taxable dividend distribution or a capital contribution made on the Distribution Date. (f) If any indemnification or reimbursement payment required to be made pursuant to this Agreement is not made when due, such payment shall bear interest at a rate equal to the prevailing federal short-term interest rate as determined from time to time under Code section 6621. Section 9. Procedures for Sharing of Information and Settlement of Tax Disputes. (a) Tax Return Information. Company and Lakes agree to fully cooperate with each other in connection with preparation of all Tax Returns required to be filed by them, any audits thereof and any determination of the amount of an indemnification or reimbursement payment requested hereunder. Such cooperation shall include making personnel and records available promptly and within twenty (20) days (or such other period as may be reasonable under the circumstances) after a request for such personnel or records is made by the taxing authority or the other party. If any member of the Post-Distribution Company Group or the Lakes Group, as the case may be, unreasonably fails to provide any information requested pursuant to Section 2, Section 8 or this Section 9, then the requesting party shall have the right to engage an independent certified public accountant of its choice to gather such information. Company or Lakes, as the case may be, agrees to permit any such independent certified public accountant full access to the Tax Return information in the possession of any Post-Distribution Company Member or any Lakes Member, as the case may be, during reasonable business hours; and to reimburse or pay directly all costs and expenses in connection with the engagement of such independent certified public accountant. -18- 19 (b) Accuracy of Information. If any Post-Distribution Company Member or Lakes Member, as the case may be, supplies information to a member of the other group in connection with the preparation of any Tax Return and an officer of the requesting party is required by applicable law to sign a statement or other document under penalties of perjury in reliance upon the accuracy of such information, then a duly authorized officer of the party supplying such information shall certify, under penalties of perjury, the accuracy and completeness of the information so supplied within twenty (20) days of supplying such information. Company shall indemnify and hold harmless each member of the Lakes Group and its Representatives; and Lakes shall indemnify and hold harmless each Post-Distribution Company Member and its Representatives, against any cost, fine, penalty or other expenses of any kind attributable to the negligence (other than intentional misconduct) of a Post-Distribution Company Member or a Lakes Member, as the case may be, in supplying a member of the other group with inaccurate or incomplete information, in connection with the preparation any Tax return. (c) Tax Research Credit. Within 180 days after the Distribution, Company will furnish Lakes, pursuant to Code section 41, with any base period information any Lakes Member will need to properly compute its Tax research credits, if applicable, for years beginning after the Distribution Date. (d) Tax Audits. Except as otherwise provided below in subsection 9(e), Company shall have sole responsibility for and control over all audits with respect to any Tax Return it is required to file under Section 2; and Lakes shall have sole responsibility and control over all audits with respect to any Tax Return it is required to file under Section 2. (e) Tax Dispute and Settlement Procedures. The parties shall follow the procedures set forth below: (i) For purposes of this subsection (e), "Adjustment" shall mean any proposed or final change in the Tax liability of a taxpayer. (ii) To the extent any Tax authority (a) reviews, formally or informally in any examination; or (B) proposes an Adjustment to, any Tax Item or Tax liability properly allocable to any Lakes Member under this Agreement, Lakes and Company shall mutually agree with respect to all issues raised in any such examination and the negotiation and settlement or litigation concerning such Tax Item or Tax liability; and any disputes with respect to such matters shall be resolved as provided in Section 2(g), except that the standard for determining such dispute shall be the result that a reasonable and well-advised investor owning both parties would determine, taking into account the minimization of Taxes of both parties taken as a whole. If any such review or proposed Adjustment involves a Tax Return required to be filed by Company under Section 2, Company shall notify Lakes in writing of the particulars as soon as possible, so that Lakes and its Representatives may diligently exercise its rights hereunder with respect to such Tax Item or Tax Liability, but in no case less than ten (10) days before either party is required to respond to the IRS or other applicable taxing authority. (iii) To the extent any Tax authority (a) reviews, formally or informally -19- 20 in any examination; or (B) proposes an Adjustment to, any Tax Item or Tax liability properly allocable to any Post-Distribution Company Member under this Agreement, Company shall control the examination, negotiation and settlement or litigation concerning such Tax Item or Tax liability, except as provided otherwise in paragraph (iv) below. If any such review or proposed Adjustment involves a Tax Return required to be filed by Lakes under Section 2, Lakes shall notify Company in writing of the particulars as soon as possible, so that Company and its Representatives may diligently respond and take such control with respect to such Tax Item or Tax Liability, but in no case less than ten (10) days before either party is required to respond to the IRS or other applicable taxing authority. (iv) Notwithstanding paragraphs (ii) and (iii) above, to the extent any Tax authority (a) reviews, formally or informally in any examination; or (B) proposes an Adjustment to, any Income Tax Item that affects the Section 355 Tax Liability, any Stratosphere Tax Benefits or is related to any Stratosphere Losses, Lakes and Company shall mutually agree with respect to all issues raised in any such examination and the negotiation and settlement or litigation concerning such Income Tax Item or related Tax liability; and any disputes with respect to such matters shall be resolved as provided in Section 2(g), except that the standard for determining such dispute shall be the result that a reasonable and well-advised investor owning both parties would determine, taking into account the minimization of Taxes of both parties taken as a whole. If such dispute or proposed Adjustment involves a Tax Return required to be filed by Company under Section 2, Company shall notify Lakes in writing of the particulars as soon as possible so that Lakes and its Representatives may diligently exercise its rights hereunder, but in no case less than ten (10) days before either party is required to respond to the IRS or other applicable taxing authority. (v) Notwithstanding the foregoing, any party (and its Representatives) that is not in partial or complete control of any such matter shall be entitled, at such party's expense, to participate in all conferences, meetings and proceedings with respect thereto and shall be entitled to consult with the controlling party with respect to all such matters. Notwithstanding the foregoing, if the IRS or any other taxing authority proposes an Adjustment that would disallow any of the deductions required to be taken by a Post-Distribution Company Member (or a Lakes Member) pursuant to this Agreement, Company (or Lakes) shall diligently contest such proposed disallowance, or shall cause such disallowance to be contested, to the extent reasonable. (vi) Company may consult with Lakes, and Lakes agrees to fully cooperate with Company, in the negotiation, Adjustment, settlement or litigation of any Tax Item or Tax liability allocated under this Agreement to any Post-Distribution Company Member regardless of the effect (or lack of effect) of any such matter upon any Tax Item or Tax liability allocated under this Agreement to any Lakes Member; provided, however, that such Tax Item or Tax liability relates to a Pre-Distribution Taxable Period or Straddle Period. (vii) Lakes may consult with Company, and Company agrees to fully cooperate with Lakes, in the negotiation, Adjustment, settlement or litigation of Tax Item or Tax liability allocated under this Agreement to any Lakes Member, regardless of the effect (or lack of effect) of any such matter upon any Tax Item or Tax liability allocated under this Agreement to -20- 21 any Post-Distribution Company Member; provided, however, that such Tax Item or Tax liability relates to a Pre-Distribution Taxable Period or Straddle Period. (viii) Company will notify Lakes in writing of any Adjustment (and any Final Determination thereof) to the Income Tax basis of any item included in the Lakes Business and Assets, specifying the nature of the Adjustment, such that the appropriate Lakes Member will be able to reflect the revised basis in its Income Tax books and records for Post-Distribution Taxable Periods. (f) Except as otherwise provided in this Agreement, if as a result of a Final Determination after the Distribution Date with respect to any Income Tax Item (including, without limitation, any Income Tax Item relating to depreciation or amortization) of one party or any member of its Affiliated Group (the "First Party") that results in an Income Tax Detriment to the First Party in any Taxable Period, any other party to this Agreement or any member of its Affiliated Group that is not then in the First Party's Affiliated Group (the "Second Party") becomes entitled to take a reporting position with respect to the same Income Tax Item that is consistent with the Final Determination and would result in an Income Tax Benefit to the Second Party, then (i) the Second Party shall take such position on an appropriate Tax Return, including an amended Tax Return, unless the Second Party has already taken a reporting position consistent with such Final Determination; and (ii) if the Second Party does realize or has realized an Income Tax Benefit in any Taxable Period as a result of taking or having taken such position, then the Second Party shall pay to the First Party the amount of such Income Tax Benefit (net of any Income Tax Detriment suffered by the Second Party as a result of taking or having taken such position) within six months after the Tax year in which such realization occurs or, if later, within sixty days after the Second Party receives written notice from the First Party that it has suffered such an Income Tax Detriment in any past Tax year. Section 10. Retention of Records. (a) Company and Lakes agree to retain all the appropriate records that may affect the determination of the liability for Taxes of any Post-Distribution Company Member or Lakes Member, respectively, until such time as there has been a Final Determination with respect to such liability for Taxes. (b) Any party intending to destroy any materials, records, or documents shall provide the other party with ninety (90) days advance notice of such destruction and shall offer the other party the opportunity to copy or take possession of such records and documents. (c) Company and Lakes will notify each other in writing of any waivers or extensions of the applicable statute of limitations for any Tax that may affect the period of time for which any materials, records, or documents must be retained for purposes of such Tax. Section 11. Miscellaneous. -21- 22 (a) Term of the Agreement. This Agreement shall become effective as of the date of its execution and, except as otherwise expressly provided herein, shall continue in full force and effect indefinitely. (b) Injunctions. The parties acknowledge that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with its specific terms or were otherwise breached. The parties hereto shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any court having competent jurisdiction, such remedy being in addition to any other remedy to which they may be entitled at law or in equity. (c) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect, and shall in no way be affected, impaired, or invalidated. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, void or unenforceable. In the event that any such term, provision, covenant or restriction is held to be invalid, void or unenforceable, the parties hereto shall use their best efforts to find and employ an alternate means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. (d) Assignment. Except by operation of law or in connection with the sale of all or substantially all the assets of a party hereto, this Agreement shall not be assignable, in whole or in part, directly or indirectly, by any party hereto without the advance written consent of the other party; and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be void; provided, however, that the provisions of this Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the parties hereto and their respective successors and permitted assigns. (e) Further Assurances. Subject to the provisions hereof, the parties hereto shall make, execute, acknowledge, and deliver such other instruments and documents; and take all such other actions as may be reasonably required in order to effectuate the purposes of this Agreement and to consummate the transactions contemplated hereby. Subject to the provisions hereof, each of the parties shall, in connection with entering into this Agreement, performing its obligations hereunder and taking any and all actions relating hereto, comply with all applicable laws, regulations, orders, and decrees, obtain all required consents and approvals and make all required filings with any governmental agency, other regulatory or administrative agency, commission or similar authority, and promptly provide the other party with all such information as it may reasonably request in order to be able to comply with the provisions of this paragraph. (f) Parties in Interest. Except as herein otherwise specifically provided, nothing in this Agreement expressed or implied is intended to confer any right or benefit upon any person, firm, corporation or other entity, other than the parties and their respective successors and permitted assigns. -22- 23 (g) Waivers, Etc. No failure or delay on the part of the parties in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such right or power, preclude any other or further exercise thereof or the exercise of any other right or power. No modification or waiver of any provision of this Agreement, nor consent to any departure by the parties therefrom, shall in any event be effective unless the same shall be in writing, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. (h) Set Off. Except as otherwise expressly provided in this Agreement, all payments to be made by any party under this Agreement shall be made without set off, counterclaim, or withholding, all of which are expressly waived. (i) Change of Law. If, due to any change in applicable law or regulations or their interpretation by any court of law or other governing body having competent jurisdiction subsequent to the date of this Agreement, performance of any provision of this Agreement or any transaction contemplated thereby shall become impracticable or impossible, the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such provision. (j) Confidentiality. Subject to any contrary requirement of applicable law and the right of each party to enforce its rights hereunder in any legal action, each party agrees that it shall keep strictly confidential, and shall cause its employees and agents to keep strictly confidential, any information that it or any of its employees or agents may require pursuant to, or in the course of performing its obligations under, any provision of this Agreement. (k) Headings. The descriptive headings in this Agreement are intended for convenience only and shall not control or affect the meaning or construction of any provision of this Agreement. (l) Counterparts. For the convenience of the parties, any number of counterparts of this Agreement may be executed by the parties hereto; and each such executed counterpart shall be, and shall be deemed to be, an original instrument. (m) Notices. All notices, consents, requests, instructions, approvals and other communications provided for herein shall be validly given, made, or served, if in writing and delivered personally, by telegram or sent by certified mail, postage prepaid, or by facsimile transmission to: -23- 24 If to Company at: GRAND CASINOS, INC. 3930 Howard Hughes Pkwy. 4th Floor Las Vegas, Nevada 89109 Attention: General Counsel Telecopy: (702) 699-5179 If to Lakes at: LAKES GAMING, INC. 130 Cheshire Lane Minneapolis, Minnesota 55305 Attn: Chief Financial Officer Telecopy: (612) 449-8509 or to such other address as either party may, from time to time, designate in a written notice given in a like manner. Notice given by telegram shall be deemed delivered when received by the recipient. Notice given by mail as set out above shall be deemed delivered five (5) calendar days after the date the same is mailed. Notice given by facsimile transmission shall be deemed delivered on the day of transmission; provided, however, that telephone confirmation of receipt is obtained promptly after completion of the transmission. (n) Costs and Expenses. Unless otherwise specifically provided herein, each party agrees to pay its own costs and expenses resulting from the fulfillment of its respective obligations hereunder. Section 12. Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the domestic substantive laws of the State of Minnesota without regard to any choice or conflict of laws, rules, or provisions that would cause the application of the domestic substantive laws of any other jurisdiction. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective duly authorized officers as of the date first written above. GRAND CASINOS, INC. By: /s/ Timothy Cope ---------------------------- Its: CFO --------------------------- LAKES GAMING, INC. By: /s/ Timothy Cope ---------------------------- Its: CFO --------------------------- -24- 25 EXHIBIT A Attached As Exhibit A to this Tax Allocation and Indemnity Agreement is a copy of the Tax Escrow Agreement (See Exhibit 10.4) -25- EX-10.4 5 TAX ESCROW AGREEMENT 1 EXHIBIT 10.4 TAX ESCROW AGREEMENT THIS TAX ESCROW AGREEMENT (this "Agreement") is made and entered into as of December 31, 1998, by and between GRAND CASINOS, INC., a Minnesota corporation ("Company"); LAKES GAMING, INC., a Minnesota corporation and wholly owned subsidiary of Company ("Lakes"); PARK PLACE ENTERTAINMENT CORPORATION, a Delaware corporation ("Park Place"); and FIRST UNION NATIONAL BANK, a bank organized under the laws of the United States of America with offices at 230 S. Tryon Street, Charlotte, North Carolina 28288, as Escrow Agent (the "Escrow Agent"). RECITALS AND CERTAIN DEFINITIONS WHEREAS, Company and Lakes have entered into a Tax Allocation and Indemnity Agreement dated as of December 31, 1998, and attached hereto as Exhibit A (the "Tax Allocation Agreement"), which provides for, among other things, the allocation of, and indemnification against, certain Tax liabilities, the preparation and filing of certain Tax Returns and the payment of Taxes related thereto and certain related matters; WHEREAS, all capitalized terms used herein, but which are not otherwise defined, shall have the meanings given to them in the Tax Allocation Agreement; WHEREAS, pursuant to the Distribution Agreement, the capital stock of Lakes was distributed to the holders of common stock of Company as of the effective date of the Tax Allocation Agreement, which is also the Distribution Date referred to in the Tax Allocation Agreement; and, as of the Distribution Date, but after the Distribution, Company became a wholly-owned subsidiary of Park Place pursuant to the Merger Agreement referred to in the Tax Allocation Agreement; WHEREAS, the Tax Allocation Agreement provides for the allocation of certain Stratosphere Tax Benefits, which may be realized or received as a result of losses and/or Income Tax deductions attributable to the ownership by Company and other Pre-Distribution Members of investments in and obligations of Stratosphere; WHEREAS, the Tax Allocation Agreement provides further that, to the extent Company, Lakes or any other Pre-Distribution Member realizes or receives any amount of Stratosphere Tax Benefits from the Base Stratosphere Loss, such amount shall be deposited in escrow (the "Escrow") and held by the Escrow Agent in an account established by Lakes and Company for the benefit of Lakes, as security for Lakes' obligation to indemnify Company as set forth in Section 3(d)(i) of the Tax Allocation Agreement (the "Escrow Account"); WHEREAS, a portion of such Stratosphere Tax Benefits, in the amount of $17,339,000, has been realized or received by Company and/or another Pre-Distribution Member; and the Tax Allocation Agreement requires that such amount be deposited in cash as the initial portion of the Escrow (the "Initial Deposit"); and 1 2 WHEREAS, Company, Lakes and Park Place desire that the Escrow Agent accept the Initial Deposit and hold the Initial Deposit and any subsequent deposits required to be placed in the Escrow under the Tax Allocation Agreement; and the Escrow Agent is willing to do so, all on the terms and subject to the conditions set forth in this Agreement; AGREEMENT NOW THEREFORE, in consideration of the foregoing premises, which are an integral part of this Agreement, and the respective covenants, terms and conditions set forth below, the parties hereto agree as follows: Section 1. Other Defined Terms. For purposes of this Agreement: "Appeal Notice" means a written notice signed by a Company Appointee or a Lakes Appointee and certifying on behalf of the Appointee's principal that such principal has appealed an arbitrator's award under this Agreement or accountant's determination under Section 2(g) of the Tax Allocation Agreement to a court of competent jurisdiction and that such appeal is permitted under the Tax Allocation Agreement or this Agreement (as applicable) and applicable law. "Appointee," "Company Appointee" and "Lakes Appointee" have the respective meanings set forth in Section 2. "cash" means United States Dollars in such form as may, at the time, be legal tender for the payment of debts in the United States. "Cash Equivalents" means Short-Term Treasuries or Joint Approval Cash Equivalents. "Joint Approval Cash Equivalents" means United States Dollar indebtedness in any of the following forms, if and to the extent the Escrow Agent has been directed to invest in such indebtedness in a joint written investment direction signed both by a Company Appointee and a Lakes Appointee: (i) the outstanding short-term debt Securities of any corporation so long as such debt securities are rated at least "A" by Standard & Poor's Corporation and are not "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act of 1933, as amended, (ii) marketable direct obligations guaranteed by the United States Government and backed by the full faith and credit of the United States, issued after July 18, 1984 and maturing within 90 days from the date of acquisition thereof, (iii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within 90 days from the date of acquisition thereof and, at the time of acquisition, having a rating in one of the two highest rating categories obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc. (or, if at any time, neither of such rating services shall be rating such obligations, then from such other nationally recognized rating services as may be acceptable to Company), (iv) certificates of deposit maturing within 90 days from the date of acquisition thereof and issued by any commercial bank which accepts deposits insured by the Federal Deposit Insurance Corporation and which has a combined capital and surplus greater than $500 million and a long term certificate of deposit rating in one of 2 3 the two highest rating categories obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc. (or, if at any time, neither of such rating services shall be rating such obligations, then from such other nationally recognized rating services as may be acceptable to Company) (any such commercial bank, an "Acceptable Bank"); (v) repurchase agreements, Eurodollar deposits and bankers acceptances maturing within 90 days from the date of acquisition thereof and issued by an Acceptable Bank; (vi) investments in money market funds that invest solely in (a) Short-Term Treasuries or repurchase agreements secured by Short-Term Treasuries or (b) Joint Approval Cash Equivalents of the type described in clauses (i) through (v) above or repurchase agreements secured by such Joint Approval Cash Equivalents; or (vii) any other instrument that is specifically approved in writing by Lakes and Company, if the Escrow Agent receives opinions of counsel reasonably satisfactory to it stating that such writing has been duly authorized, executed and delivered by each of them and is binding upon and enforceable against each of them. "Joint Release Notice" means a written notice signed by a Lakes Appointee and a Company Appointee acting jointly, to the effect that any specified portion of the property held by the Escrow Agent as the Escrow shall be delivered to Lakes or Company. "Lakes Tax Indemnity Obligation" shall mean any present and future indemnities, liabilities and obligations at any time arising under, pursuant to or in respect of the obligation of Lakes to indemnify Company for certain Taxes as set forth in Section 3(d)(i) of the Tax Allocation Agreement, but shall not include any other present or future indemnities, liabilities or obligations of Lakes or any of its subsidiaries under the Tax Allocation Agreement or otherwise. "Short-Term Treasuries" means United States Dollar indebtedness consisting of marketable direct obligations issued by the United States Government or any agency thereof and backed by the full faith and credit of the United States, in the form of Book-entry Securities maintained by the Escrow Agent or any nominee acting for it, solely in its name, in an account at the Federal Reserve Bank of New York under the Treasury/Reserve Automated Debt Entry System, issued after July 18, 1984 and maturing within 90 days from the date of acquisition thereof. Section 2. Appointees. Lakes and Company each hereby appoints its "Appointees" as follows, with the powers, authority and duties described below in this Section 2: (a) Lakes Appointees. Lakes hereby appoints as its Appointees hereunder (each a "Lakes Appointee") the following officers of Lakes, as in office from time to time: (i) its Chairman of the Board, its President and Chief Executive Officer and (iii) its Chief Financial Officer. (b) Appointees of Company and Park Place. Park Place and Company (for itself and each Post-Distribution Company Member) hereby appoint as their Representatives hereunder (each a "Company Appointee") the following officers of Company, as in office from time to time: (i) its Executive Vice President and Chief Financial Officer, (ii) its Senior Vice President and Treasurer, (iii) its Senior Vice President and Controller and (iv) its General Counsel. 3 4 (c) Powers and Authority of Parties' Appointees. Each of the Appointees appointed above is authorized to act alone, as the duly appointed agent and attorney-in-fact of the Appointee's principal, with full power of substitution, in any and all capacities, for all purposes of this Agreement. Actions and inactions by any such Appointee under this Agreement shall be binding and conclusive on the Appointee's principal and may be conclusively relied upon by the other parties hereto. Lakes or Company, upon 10 days' written notice to the other parties, may remove any person it has appointed as Appointee and may appoint any other person as its Appointee. No Appointee shall be liable for any action taken or omitted by such Appointee, or any action suffered by such Appointee to be taken or omitted, in good faith, and in the exercise of such Appointee's own best judgment. (d) Specimen Signatures. Each of Lakes and Company shall cause each person at any time appointed as an Appointee of such party to present a specimen signature to the Escrow Agent within a reasonable time. Section 3. Establishment and Effect of Escrow. (a) Deposits in Escrow. Whenever Section 3(d) of the Tax Allocation Agreement requires Company or any other Pre-Distribution Member to deposit an amount in the Escrow to be established pursuant to Section 4 of the Tax Allocation Agreement, including the Initial Deposit, each such amount shall be deposited in cash with the Escrow Agent and placed in the Escrow Account provided for in this Section 3; provided, however, that such Escrow has not already been funded to the full extent provided in Section 4 of the Tax Allocation Agreement or previously terminated under the Tax Allocation Agreement or this Agreement. The Escrow Agent hereby acknowledges receipt of the Initial Deposit in the Escrow. Any and all such Escrow deposits shall be held in the Escrow Account and released or distributed from the Escrow Account only as provided under this Agreement. Company, Park Place and Lakes hereby consent to the creation of the Escrow and agree that the Escrow Account is to be held and applied by the Escrow Agent as provided in this Agreement. (b) Escrow Account. The Escrow Agent shall maintain the Escrow Account as a separate account for the benefit of Lakes and as security for the Lakes Tax Indemnity Obligation, subject to the rights, benefits and privileges of Company and each other Post-Distribution Company Member hereunder. The Escrow Agent agrees to (i) accept such cash deposits in the Escrow Account, (ii) to hold and invest such cash deposits, investments and any income and other proceeds thereof in accordance with Section 4, as part of the Escrow Account in accordance with this Agreement and (iii) to release or distribute the balance of the Escrow Account from escrow from time to time only as provided in this Agreement. All cash or other property held as part of the Escrow shall at all times be clearly identified on the Escrow Agent's accounts as being held by the Escrow Agent under this Agreement. Any party hereto may at any time during the Escrow Agent's business hours (with reasonable notice) inspect any records or reports relating to the Escrow. (c) No Encumbrance. Neither the Escrow, any cash or other property in the Escrow Account, nor any beneficial interest therein may be pledged, sold, assigned or transferred 4 5 (including by operation of law) by Lakes, Park Place or Company or may be taken or reached by any legal or equitable process in satisfaction of any debt or other liability of Lakes, Park Place or Company, prior to the Escrow Agent's delivery of cash or other property from the Escrow to any such party pursuant to this Agreement. (d) Non-Exclusive Remedy. Company and Lakes agree and acknowledge that the Escrow shall not be Company's exclusive method of receiving indemnification from Lakes pursuant to the Lakes Tax Indemnity Obligation; and, except to the extent the Lakes Tax Indemnity Obligation is satisfied from the Escrow, Lakes shall be and remain in all respects personally liable for the Lakes Tax Indemnity Obligation and such liability may be enforced by any lawful means. Section 4. Investment of Escrow. The Escrow Agent shall keep all cash at any time held by it as part of the Escrow, from whatever source such cash may be derived, in an interest-bearing account in United States Dollars maintained by the Escrow Agent solely in the name of the Escrow Agent, in its capacity as Escrow Agent hereunder, except that: (a) Such cash shall be invested and reinvested by the Escrow Agent in Short-Term Treasuries, but only if: (i) the Escrow Agent is so directed in writing by a Company Appointee, who also states in such writing in good faith that an amount is due Company under the Lakes Tax Indemnity Obligation and has not been satisfied hereunder or otherwise; or (ii) the Escrow Agent has received written directions from a Lakes Appointee, stating that any and all cash held by the Escrow Agent as part of the Escrow shall be kept invested in Short-Term Treasuries. (b) Notwithstanding the foregoing, such cash shall be invested by the Escrow Agent in Joint Approval Cash Equivalents if and to the extent so directed by a Lakes Appointee and a Company Appointee acting jointly. (c) Such cash and Cash Equivalents shall be invested and reinvested solely in the name of the Escrow Agent or its nominee. (d) The Escrow Agent shall be entitled to sell or redeem any such investment as necessary to make any release or distribution required under this Agreement; and shall not be liable or responsible for any loss resulting from any such sale or redemption or from any investment or failure to invest made in accordance with this Agreement. (e) Income, if any, resulting from the investment of the Escrow and received by the Escrow Agent during any calendar quarter shall be distributed by the Escrow Agent to Lakes within fifteen days after the end of such quarter, notwithstanding any other provision of this Agreement. Section 5. Releases and Distributions From Escrow. The Escrow Agent shall release to Lakes and/or distribute to Company all property held as the Escrow, subject to prior payment of the Escrow Agent's fees and expenses hereunder, within five (5) business days after the Escrow Agent either receives a Joint Release Notice specifying the amount or amounts to be released 5 6 and/or distributed to each of Lakes and/or Company, or receives the specified form of direction or notice of the earliest of the events described in the following paragraphs (a) through (f), and such release and/or distribution shall be made in the applicable form required by paragraph (g) of this Section 5: (a) Section 355 Conclusion. If and when Company (and its Representatives) and Lakes (and its Representatives) shall have mutually agreed in writing as provided in Section 4(b)(i) of the Tax Allocation Agreement that the amount of the Section 355 Tax Liability is reasonably ascertainable, that the amount of Stratosphere Losses remaining after any pre-Distribution realization of Stratosphere Tax Benefits under Section 3(d) of the Tax Allocation Agreement is sufficient for the realization of Stratosphere Tax Benefits that will reduce the Section 355 Tax Liability to zero and that Company will have a "reasonable basis" (as defined in Code section 6662) for doing so in the applicable Tax Return to be filed by Company for federal Income Tax purposes (the "Section 355 Conclusion"); or if the Section 355 Conclusion shall have been reached in writing by an accountant under Section 2(g) of the Tax Allocation Agreement; and in either case a Joint Release Notice is not promptly signed by a Company Appointee, Lakes may elect to deliver a copy of such written agreement or accountant's determination to the Escrow Agent along with a direction to release all property held in the Escrow Account to Lakes; and the Escrow Agent shall follow such direction thirty (30) days after its receipt, as if it were a Joint Release Notice, unless the Escrow Agent has received an Appeal Notice from Company before the end of such 30-day period. If the Escrow Agent is not properly directed to release the Escrow property under this paragraph, the Escrow shall remain in effect until the earliest of the events described in the following paragraphs of this Section 5. (b) Expiration of Lakes Tax Indemnity Obligation. If the Lakes Tax Indemnity Obligation shall have expired as a result of a Final Determination or the expiration of the latest applicable Income Tax statute of limitation, and the date of such any such expiration shall have been either agreed upon by Company and Lakes in writing or otherwise determined by an accountant in the manner provided in Section 2(g) of the Tax Allocation Agreement; and in either case a Joint Release Notice is not promptly signed by a Company Appointee, Lakes may elect to deliver a copy of such written agreement or accountant's determination to the Escrow Agent along with a direction to release all property held in the Escrow Account to Lakes after such date has passed; and the Escrow Agent shall follow such direction thirty (30) days after its receipt, as if it were a Joint Release Notice, unless the Escrow Agent has received an Appeal Notice from Company before the end of such 30-day period. If the Escrow Agent is not properly directed to release the Escrow property under this paragraph, or if there is a conflict in the directions received by the Escrow Agent under this section, the Escrow shall remain in effect until the earliest of the events described in the following paragraphs of this Section 5. (c) Prior Satisfaction of Lakes Tax Indemnity Obligation. If Lakes shall have satisfied the Lakes Tax Indemnity Obligation from sources other than the Escrow, and Company and Lakes shall have agreed in writing that such obligation has been satisfied or the fact of such satisfaction shall have been determined by an accountant in the manner provided in Section 2(g) of the Tax Allocation Agreement; and in either case a Joint Release Notice is not promptly signed by a Company Appointee, Lakes may elect to deliver a copy of such written agreement or accountant's determination to the Escrow Agent along with a direction to release all property held 6 7 in the Escrow Account to Lakes; and the Escrow Agent shall follow such direction thirty (30) days after its receipt, as if it were a Joint Release Notice, unless the Escrow Agent has received an Appeal Notice from Company before the end of such 30-day period. If the Escrow Agent is not properly directed to release the Escrow property under this paragraph, the Escrow shall remain in effect until the earliest of the events described in the following paragraphs of this Section 5. (d) Settlement of Lakes Tax Indemnity Obligation. All or a specified amount of cash from the Escrow shall be distributed to Company on behalf of Lakes, on account of the Lakes Tax Indemnity Obligation, and the balance (if any) of the Escrow Account shall be released to Lakes upon the Escrow Agent's receipt of a Joint Release Notice specifying the amounts to be distributed to Company and released to Lakes. Such a notice shall be delivered to the Escrow Agent by Lakes and Company promptly after they have agreed in writing on any amount of the Lakes Tax Indemnity Obligation to be satisfied from the Escrow, or such amount shall have been determined in writing by an accountant in the manner provided in Section 2(g) of the Tax Allocation Agreement. If any such amount due Company is determined in writing by an accountant under Section 2(g) of the Tax Allocation Agreement, and a Joint Release Notice is not promptly signed by both Company Appointee and a Lakes Appointee, either Lakes or Company may elect to deliver a copy of such written accountant's determination to the Escrow Agent along with a direction to distribute such amount from the property held in the Escrow Account to Company, and release the balance of the Escrow property to Lakes; and the Escrow Agent shall follow such direction thirty (30) days after its receipt, as if it were a Joint Release Notice, unless the Escrow Agent has received from Company or Lakes an Appeal Notice before the end of such 30-day period. If no such Joint Release Notice is delivered to the Escrow Agent, the Escrow shall remain in effect until the earlier of the events described in the following paragraphs of this Section 5. (e) Arbitration Award. The Escrow Agent shall disburse any remaining property held as the Escrow in accordance with an arbitrator's written award directing that such disbursement made to Lakes and/or Company, delivered in an arbitration proceeding conducted in accordance with the provisions of Section 6; and such disbursement shall be made thirty (30) days after the Escrow Agent's receipt of a copy of such order signed by the arbitrators, unless the Escrow Agent has received an Appeal Notice from Company before the end of such 30-day period. (f) Court Order. The Escrow Agent shall disburse any remaining property held as the Escrow in accordance with a final, non-appealable order of a court of competent jurisdiction directing that such disbursement made to Lakes and/or Company, upon the Escrow Agent's receipt of a certified copy of such order. (g) Form of Release or Distribution. The Escrow Agent shall carry out any release and/or distribution from the Escrow under this Section 5, in either of the following ways, as applicable: (i) The Escrow Agent shall convert the assets of the Escrow to cash and transmit such cash by wire transfer according to the written instructions of the intended 7 8 recipient or, if no such instructions are received within two (2) business days before the payment is to be made hereunder, the Escrow Agent may make such payment by its check, which shall in that case be mailed to the recipient's address as provided in the Tax Allocation Agreement; or (ii) if a Joint Release Notice specifies that certain Escrow property shall be assigned to a specified party, such specified property shall be assigned to such party in writing (in a form reasonably satisfactory to such party's counsel); and the appropriate documents and instruments shall be delivered by the Escrow Agent to such party. (h) Sufficiency of Notices. The Escrow Agent (i) shall not be obligated to give any notice under any of the foregoing provisions in this Section 5 and (ii) shall not be entitled to object to any notice given under any such provisions. Section 6. Resolution of Escrow Disputes. (a) Arbitration. Notwithstanding any contrary provision in any other Section of this Agreement, the parties agree that any dispute, controversy or disagreement among the parties related to the obligations of the parties under this Agreement (other than any dispute required to be resolved pursuant to Section 2(g) of the Tax Allocation Agreement), which cannot be resolved by the parties, shall be submitted for mediation and final and binding arbitration in accordance with Section 9.14 of the Distribution Agreement, including Section 9.14(c) regarding the parties' ability to seek specific performance or injunctive relief thereof. (b) Limited Access to Courts. Notwithstanding any contrary provision in the preceding paragraph of this Section 6, the parties shall have the right to submit to a court, in accordance with the following provisions of this Section 6, (1) any claim asserted by the Escrow Agent, in its personal capacity, for the payment of fees, expenses, disbursements or indemnification due to the Escrow Agent under this Agreement; (2) any claim asserted against the Escrow Agent personally, seeking damages or other relief against the Escrow Agent (and not for purposes of binding the Escrow) based on or relating to any alleged breach of any duty or other actionable conduct of the Escrow Agent and (3) any claim asserted by or against the Escrow Agent personally (and not for purposes of binding the Escrow) otherwise relating in any manner to the rights, immunities and benefits granted to the Escrow Agent under this Agreement (each of the claims described in the foregoing clauses (1), (2) and (3) is an "Escrow Agent Claim"); and, with respect to solely to such Escrow Agent Claims: (i) No party shall be obligated or entitled to submit any such Escrow Agent Claim to arbitration or be bound by any arbitrator's award that might in any manner relate to any Escrow Agent Claim; (ii) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO ANY ESCROW AGENT CLAIM MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY HERETO CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE JURISDICTION OF THOSE COURTS FOR PURPOSES OF ADJUDICATION OF ANY 8 9 ESCROW AGENT CLAIM. EACH PARTY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION FOR PURPOSES OF ADJUDICATION OF ANY ESCROW AGENT CLAIM. SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS MAY BE MADE BY ANY MEANS PERMITTED BY NEW YORK LAW. (iii) EACH PARTY HERETO WAIVES ALL RIGHTS TO A TRIAL BY JURY OF ANY ESCROW AGENT CLAIM AND AGREES THAT SUCH ESCROW AGENT CLAIM SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, EACH PARTY FURTHER AGREES THAT ITS RIGHT TO A TRIAL BY JURY IS HEREBY WAIVED AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR ANY PROVISION HEREOF, INSOFAR AS IT MAY CREATE A DEFENSE TO ANY ESCROW AGENT CLAIM. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. (c) Remedies Cumulative. All rights and remedies of each party hereto are cumulative of each other and of every other right or remedy such party may otherwise have at law or in equity; and the exercise of one or more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of other rights or remedies. Section 7. Termination of Agreement. This Agreement and the Escrow created hereby shall terminate following the Escrow Agent's delivery of all remaining cash or property from the Escrow Account to Lakes and/or Company pursuant to Section 5; provided, however, that Sections 6, 9, 10 and 11 shall survive the termination of this Agreement. Section 8. Tax Matters. Each party to this Agreement shall provide a completed IRS Form W-8 or Form W-9 to the Escrow Agent upon request by the Escrow Agent. Section 9. Duties of the Escrow Agent. The Escrow Agent shall have no duties or responsibilities other than those expressly set forth in this Agreement, and no implied duties or obligations shall be read into this Agreement against the Escrow Agent. The Escrow Agent shall have no duty to enforce any obligation of any person, other than as may be expressly provided herein. The Escrow Agent shall be under no liability to anyone by reason of any breach or failure on the part of any party hereto or any maker, endorser or other signatory of any document or any other person to perform such person's obligations under any such document. Section 10. Liability of the Escrow Agent; Withdrawal. (a) The Escrow Agent shall not be liable for any action taken or omitted by it, or any action suffered by it to be taken or omitted, in good faith; and may rely conclusively and shall be protected in taking or omitting to take any action based upon any order, notice, demand, certificate, opinion or advice of counsel (including counsel chosen by the Escrow Agent), 9 10 statement, instrument, report or other paper or document (not only as to its due execution and the validity and effectiveness of its provisions, but also as to the truth and acceptability of any information therein contained) that is believed by the Escrow Agent to be genuine and to be signed or presented by the proper person(s). The Escrow Agent shall not be held liable for any error in judgment made in good faith by an officer of the Escrow Agent unless it shall be proved that the Escrow Agent was grossly negligent in ascertaining the pertinent facts or acted intentionally in bad faith. The Escrow Agent shall not be bound by any notice or demand, or any waiver, modification, termination or rescission of this Agreement or any of the terms hereof, unless evidenced by a writing delivered to the Escrow Agent signed by the proper party or parties and, if the duties or rights of the Escrow Agent are affected, unless it shall give its prior written consent thereto. (b) Without limitation of any other provision of this Agreement, the Escrow Agent shall not be responsible for and may conclusively rely upon and shall be protected, indemnified and held harmless by Lakes and Company for the sufficiency or accuracy of the form of, or the execution, validity, value or genuineness of any document or property received (from any party), held or delivered by it hereunder, or of the signature or endorsement thereon, or for any description therein; nor shall the Escrow Agent be responsible or liable in any respect on account of the identity, authority or rights of the persons executing or delivering or purporting to execute or deliver an document, property or this Agreement. (c) No provision of this Agreement shall require the Escrow Agent to expend or risk its own funds or incur any liability. The Escrow Agent may refuse to perform any duty or exercise any right or power hereunder or thereunder unless it receives indemnity reasonably satisfactory to it against any loss, liability or expense. (d) The Escrow Agent makes no statement, promise, representation or warranty whatsoever, and shall have no liability whatsoever, to Company or its successors or assigns as to the authorization, execution, delivery, legality, enforceability or sufficiency of this Agreement; as to the existence, ownership, quality, condition, value or sufficiency of any of the Escrow or as to any other matter whatsoever, except only that the Escrow Agent represents and warrants to the other parties hereto that (A) it has the right, power and authority, and all required licenses and consents, to execute, deliver and perform its duties under this Agreement; and (B) this Agreement have been duly executed and delivered by it, upon due authorization, and (without representing as to the legality, binding effect or sufficiency of any provision herein or therein) are binding upon and legally enforceable against it, subject to laws generally affecting the enforcement of creditors' rights and the effect of equitable principles, whether considered in a court of law or equity. (e) In the event that the Escrow Agent shall become involved in any arbitration or litigation relating to the Escrow, the Escrow Agent is authorized to comply with any final, binding and nonappealable decision reached through such arbitration or litigation. (f) The Escrow Agent may resign at any time and be discharged from its duties and obligations hereunder, by giving notice to the other parties. Such resignation shall not discharge or otherwise effect the Escrow or any cash or other property comprising part of the 10 11 Escrow or any beneficial interest therein or the rights and powers created by or arising under this Agreement. Such resignation shall take effect when a successor Escrow Agent has been jointly appointed by Company and has accepted the trusts herein provided. If a successor Escrow Agent does not take office within sixty (60) days after the retiring Escrow Agent resigns, the retiring Escrow Agent may petition any court of competent jurisdiction for the appointment of a successor Escrow Agent. A successor Escrow Agent shall deliver a written acceptance of its appointment to Lakes, the retiring Escrow Agent and to Company. Thereupon, the resignation of the retiring Escrow Agent shall become effective, and the successor Escrow Agent shall have all the rights, powers and duties of the Escrow Agent under this Agreement. The retiring Escrow Agent shall promptly transfer all property held by it as Escrow Agent to the successor Escrow Agent provided all sums owing to the retiring Escrow Agent have been paid. (g) Notwithstanding the replacement of the Escrow Agent pursuant to this Section 10, the resigning Escrow Agent shall continue to be entitled to the rights, immunities and benefits provided under Sections 6, 9, 10 and 11. Section 11. Escrow Agent's Fees and Indemnification. All fees (as may from time to time be agreed in writing by the Escrow Agent and Lakes) and reasonable expenses and disbursements of the Escrow Agent for its services hereunder, shall be paid by Lakes. Company, Park Place and Lakes, jointly and severally, hereby agree to indemnify the Escrow Agent for, and to hold it harmless against, any loss, liability or expense incurred without gross negligence or willful misconduct on the part of the Escrow Agent, including legal or other fees arising out of or in connection with its entering into this Agreement and carrying out its duties hereunder, including the costs and expenses of defending itself against any claim of liability in the premises or any action for interpleader. The Escrow Agent shall be under no obligation to institute or defend any action, suit, or legal proceeding in connection with this Agreement, unless first indemnified and held harmless to its satisfaction in accordance with the foregoing, except that the Escrow Agent shall not be indemnified against any loss, liability or expense arising out of its bad faith, gross negligence or willful misconduct. Such indemnity shall survive the termination or discharge of this Agreement or resignation of the Escrow Agent. Section 12. Miscellaneous Provisions. (a) Notices. All notices, requests, demands and other communications that are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when given as provided in the Tax Allocation Agreement, except that if given to the Escrow Agent it shall be addressed as follows: First Union National Bank 230 S. Tryon Street Charlotte, North Carolina 28288 Attn: Donna J. Flanagan, Corporate Trust Dept. Telecopy (704) 383-7316 11 12 (b) Modification: Waiver. Subject to applicable law, this Agreement may be amended, modified or supplemented, with respect to any of the terms contained herein, only by written agreement of the parties; and the rights, remedies, immunities and benefits created hereby or arising hereunder in favor of any person may be waived by it only by an instrument in writing signed by it. No such right, remedy, immunity or benefit shall be deemed waived by reason of such person's failure to act, oral statements or course of conduct, including any grant of a waiver on a different or prior occasion. (c) Interpretation. When a reference is made in this Agreement to Sections, such reference shall be to a Section of this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the word "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." This Agreement shall not be construed for or against any party by reason of the authorship or alleged authorship of any provision hereof or by reason of the status of the respective parties. (d) Assignment. This Agreement, and the rights, interests and obligations hereunder, shall not be assigned by Lakes (whether by operation of law or otherwise) without the prior written consent of Company. Subject to the foregoing provisions of this paragraph, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. (e) Governing Law. This Agreement shall be construed and interpreted, and the rights of the parties shall be determined, in accordance with the laws of the State of New York (without reference to the choice of law provisions). (f) Severability. Each party agrees that, should any court or other competent authority hold any provision of this Agreement or part hereof to be null, void or unenforceable, or order any party to take any action inconsistent herewith or not to take an action consistent herewith or required hereby, the validity, legality and enforceability of the remaining provisions and obligations contained or set forth herein shall not in any way be affected or impaired thereby. Upon any such holding that any provision of this Agreement is null, void or unenforceable, the parties will negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated by this Agreement are consummated to the extent possible. Except as otherwise contemplated by this Agreement, to the extent that a party hereto took an action inconsistent herewith or failed to take action consistent herewith or required hereby pursuant to an order or judgment of a court or other competent authority, such party shall incur no liability unless such party did not in good faith seek to resist or object to the imposition or entering of such order or judgment; provided, however, that nothing in this paragraph shall be deemed to limit or otherwise modify the Escrow Agent's rights under Sections 6, 10 and 11. (g) Counterparts. This Agreement may be executed in two or more counterparts, each of which will be considered one and the same instrument and shall become effective when executed and delivered by each of the parties. [signature page to follow] 12 13 IN WITNESS WHEREOF, each of the parties has executed this Agreement as of the date first set forth above. GRAND CASINOS, INC. By: /s/ Timothy J. Cope -------------------------------- Its: CFO ----------------------------- LAKES GAMING, INC. By: /s/ Timothy J. Cope -------------------------------- Its: CFO ----------------------------- PARK PLACE ENTERTAINMENT CORPORATION By: /s/ Scott A. LaPorta -------------------------------- Its: Executive Vice President ----------------------------- Chief Financial Officer FIRST UNION NATIONAL BANK By: /s/ Donna J. Flanagan -------------------------------- Its: Vice President ----------------------------- 13 14 EXHIBIT A Attached as Exhibit A to this Tax Escrow Agreement is a copy of the Tax Allocation and Indemnity Agreement between Company and Lakes (SEE EXHIBIT 10.3). A-1 EX-10.5 6 INTELLECTUAL PROPERTY LICENSE AGREEMENT 1 EXHIBIT 10.5 INTELLECTUAL PROPERTY LICENSE AGREEMENT This Trademark License Agreement (the "Agreement") is made as of this 31st day of December, 1998, by and between Grand Casinos, Inc., a Minnesota corporation ("Licensor"), and Lakes Gaming, Inc., a Minnesota corporation ("Licensee"). W I T N E S S E T H: WHEREAS, Licensor is the owner of various trademarks set forth on Schedule A attached hereto and incorporated by reference herein (the "Licensed Marks"), together with all copyrightable subject matter (the "Copyright Material"), trade dress, and other intellectual property currently used in the operation of the Facilities (as defined below) (such property, together with the Licensed Marks, is referred to herein as the "Intellectual Property"); WHEREAS, Licensor's predecessors in interest are obligated in connection with certain management agreements with the Corporate Commission of the Mille Lacs Band of Chippewa Indians (the "Minnesota Tribe"), the Coushatta Tribe of Louisiana (the "Coushatta Tribe") and the Tunica-Biloxi Tribe of Louisiana (the "Tunica Tribe" and, together with the Coushatta Tribe, the "Louisiana Tribes"), respectively (the "Tribes"), to ensure the respective Tribes' licenses to use the Intellectual Property; WHEREAS, Licensee, through its subsidiaries, on June 30, 1998 manages various hotels, restaurants, retail and gaming facilities for the Tribes (collectively, the "Facilities"); WHEREAS, Licensee desires the right to use the Intellectual Property in connection with its management of the Facilities; and WHEREAS, Licensor desires to grant to Licensee a non-exclusive license to use the Intellectual Property on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: I. GRANT OF LICENSE. Licensor hereby grants to Licensee, subject to the terms and conditions contained herein, (i) a worldwide, royalty-free, and non-exclusive right and license (the "Minnesota License") to (A) reproduce, distribute, perform, and display the Copyright Material and (B) use the other Intellectual Property, in each case, solely in connection with Licensee's management of the Facilities of the Minnesota Tribe, and (ii) a worldwide, royalty-free, and non-exclusive right and license (the "Louisiana License" and, together with the Minnesota License, the "License") to (Y) reproduce, distribute, perform, and display the Copyright Material and (Z) use the other Intellectual Property, in each case, solely in connection with Licensee's management of the Facilities of the Louisiana Tribes; provided, however, that Licensee may, in accordance with this 2 Agreement, sublicense the Intellectual Property to the Minnesota Tribe after the termination of its management agreement with the Minnesota Tribe for use solely in connection with the operation of the Facilities of the Minnesota Tribe. The term of the Minnesota License shall be perpetual and the term of the Louisiana License shall expire upon the termination (after any renewals and extensions thereof) of the Amended and Restated Management and Construction Agreement, dated as of February 25, 1992, between the Coushatta Tribe and Grand Casinos of Louisiana--Coushatta, and the Amended and Restated Management & Construction Agreement, dated as of November 1, 1991, by and between the Tunica Tribe and Grand Casinos of Louisiana--Tunica-Biloxi (collectively, the "Louisiana Management Agreements"). THE INTELLECTUAL PROPERTY MAY ONLY BE USED IN A MANNER CONSISTENT WITH THE USE OF SUCH INTELLECTUAL PROPERTY DURING THE YEAR PRECEDING THIS AGREEMENT. LICENSEE SHALL NOT USE ANY OF THE INTELLECTUAL PROPERTY ON PRODUCTS OR SERVICES BEYOND THOSE PRODUCTS OR SERVICES IN USE BY LICENSOR WITH RESPECT TO THE FACILITIES AS OF THE DATE OF THIS AGREEMENT WITHOUT LICENSOR'S PRIOR WRITTEN CONSENT, WHICH CONSENT MAY BE WITHHELD AT LICENSOR'S SOLE DISCRETION. II. QUALITY CONTROL; COVENANTS OF LICENSEE Section 2.1. Standards. Licensor is familiar with the quality of the goods and services to be provided by Licensee at the Facilities and finds, at the present time, the quality of such goods and services to be acceptable. All goods and services to be provided by the Licensee under a Licensed Mark shall be provided substantially in accordance with the quality standards of Licensor now in place, or with such other quality standards as Licensor reasonably may establish from time to time. Section 2.2. Limitations on Use of the Licensed Marks. In its use of any Licensed Mark, Licensee shall faithfully reproduce such mark's design, coloration and appearance, as such design, coloration and appearance may be modified from time to time by Licensor. Licensee shall not modify the design, coloration or appearance of a Licensed Mark unless requested to do so in writing by the Licensor of such Licensed Mark. Licensor shall provide Licensee with not less than thirty (30) days advance written notice of any changes to said specifications. During such thirty (30) day period, Licensee may continue to follow prior specifications; provided, however, that Licensee shall immediately cease all use of the prior specifications if Licensor purchases all materials prepared in accordance with the prior specifications from Licensee at Licensee's cost for said materials. All displays of a Licensed Mark by Licensee shall bear such copyright, trademark, service mark and other notices as Licensor shall reasonably require, and Licensee shall adhere to any other reasonable and customary posting requirements developed by Licensor with respect to such Licensed Mark. Licensee shall not use a Licensed Mark as part of, or display such Licensed Mark in conjunction with, any other names or marks except with Licensor's prior written approval. Licensee shall not use a Licensed Mark or any confusingly similar or diluting mark, term or design, except as expressly authorized in this Agreement, and Licensee shall not attempt to register or aid any third party in using or attempting to register any such mark, term or design. Licensee shall not use a Licensed Mark in any manner that will indicate that it is using such Licensed Mark other than as a licensee. Section 2.3. Samples. Licensor shall have the right, at reasonable times and with prior notice, to inspect any Facility and any goods or services (including any advertising and 2 3 promotional materials) provided by Licensee that bear a Licensed Mark at any time for the purpose of determining whether they have met or are meeting the quality standards required under this Agreement. Licensee shall promptly produce and deliver (at its own expense) to Licensor such examples of its use of the Licensed Marks as Licensor reasonably shall request. All such sample materials shall be deemed to be confidential information of Licensee that is subject to the conditions of Section 9.1 of this Agreement. III. OWNERSHIP, MAINTENANCE, POLICING AND PROTECTION Section 3.1. Ownership; Enhancements. Licensee acknowledges that Licensor is the sole and exclusive owner of the Intellectual Property, subject to the License provided hereunder. Licensee agrees that it has no right, title or interest in or to any Intellectual Property, except as expressly set forth in Section 1. Licensee agrees that all uses of any Intellectual Property by Licensee and third parties and the goodwill associated with such uses shall inure solely to the benefit of Licensor. Upon termination of its rights to use any Intellectual Property as provided in this Agreement, all right and interest of Licensee in and to such Intellectual Property shall revert fully to Licensor. Licensee agrees, if requested by Licensor, to cooperate fully with Licensor in recording appropriate documents evidencing Licensor's ownership of any Intellectual Property. Licensee agrees to take no action inconsistent with Licensor's ownership of and interest in its Intellectual Property. Licensee shall not attack the validity of Licensor's ownership of the Intellectual Property or any of the terms of this Agreement, or assist any third party in doing any of the same. Section 3.2. Licensee Intellectual Property. Notwithstanding the foregoing, Licensee may, from time to time, develop or otherwise acquire interests in various trademarks, copyrights, trade dress and other intellectual property in connection with its operation of the Facilities. The parties agree that such intellectual property shall be the sole property of Licensee, provided, however, that, to the extent that any new works created by Licensee constitute a derivative work of authorship based upon the Intellectual Property, then the same shall become the exclusive property of Licensor and will become a part of the Intellectual Property subject to the License under this Agreement. Section 3.3. Maintenance. Licensor shall use reasonable and good faith efforts at its expense to protect the Intellectual Property such as by renewing and maintaining, where appropriate, federal trademark registration, copyright registration, and the protection of trade dress. Neither Licensee nor Licensor will undertake any action which shall in any manner reduce, diminish, eliminate or jeopardize the effect and enforceability of the Intellectual Property. IV. PAYMENT OF LICENSE FEE Licensee agrees to pay, and Licensor agrees to accept, a one-time license fee in the amount of Ten Dollars ($10.00) as full consideration for all rights granted to Licensee by this Agreement. 3 4 V. NON-COMPETITION So long as the License remains in effect with respect to any Tribe, Licensor agrees that it will not itself, and will not authorize any other individual, corporation, partnership, unincorporated association, or other entity, to use the Intellectual Property in connection with the operation of any hotel, restaurant, retail, gaming or other facility of a similar type or nature within a 20 mile radius of the Facility owned by such Tribe. VI. LIMITATION OF LIABILITY; INDEMNITY The Intellectual Property is provided to Licensee "As Is." Licensor disclaims any express or implied warranty, including non-infringement, with respect to the Intellectual Property. In no event shall Licensor be liable for any matter whatsoever relating to the use of the Intellectual Property by Licensee or any assignee or sublicensee of licenseE. Licensee shall indemnify, defend and hold harmless Licensor, its past and present affiliates, subsidiaries, other related companies, licensees and properties, and each of the foregoing entities' respective past and present employees, representatives, directors, officers, partners and agents (each, a "Licensor Indemnitee"), from and against any and all costs, liabilities and expenses, including, without limitation, interest, penalties, attorney and third party fees, and all amounts paid in the investigation, defense and/or settlement of any claim, action or proceeding (collectively, "Expenses"), that relate to the provision or promotion of goods or services by any Licensee, or assignee or sublicensee of Licensee, under any Intellectual Property, notwithstanding any approval which may have been given by Licensor with respect to the provision or promotion of such goods or services; provided, however, that Licensee shall have no obligation to indemnify, defend and hold harmless any Licensor Indemnitee from any Expenses resulting from any claim of any third party that the use of such Intellectual Property is infringing upon such third party's proprietary rights, unless such claim of infringement arises from Licensee's failure to comply with the terms of this Agreement. If any claim or action is asserted against Licensor that would entitle Licensor to indemnification, the indemnification provisions in that certain Distribution Agreement, dated as of December 31, 1998, between Licensor and Licensee (the "Distribution Agreement") shall govern. Licensee shall provide Licensor with prompt written notice of any unauthorized uses by third parties of any Intellectual Property, or of confusingly similar or diluting trademarks, service marks, trade names, terms or designs, which come to the attention of Licensee. Licensor shall have the right, in its sole discretion, to commence infringement or unfair competition actions regarding any unauthorized use by third parties of the Intellectual Property or any confusingly similar or diluting devices. Licensee shall cooperate with and assist Licensor in its investigation and prosecution of any of the foregoing. 4 5 VII. TERM AND TERMINATION Section 7.1. Term. Except as otherwise provided in Section 7.2, this Agreement shall expire upon the later to occur of the expiration (or earlier termination) of the Louisiana License and the Minnesota License. Section 7.2. Termination. This Agreement may be terminated as follows: 7.2.1. If Licensee makes an assignment of assets or business for the benefit of creditors, or if a trustee or receiver is appointed to administer or conduct Licensee's business or affairs, or if Licensee is adjudged in any legal proceeding to be either a voluntary or involuntary bankrupt without prior notice or legal action by Licensor. 7.2.2. Licensor may terminate this Agreement upon thirty (30) days' advance written notice to Licensee in the event of Licensee's material breach of any provision of this Agreement unless Licensee has cured such breach during such thirty (30) day period. 7.2.3. Licensee may terminate this Agreement upon ninety (90) days' advance written notice to Licensor. Section 7.3. Effect of Termination. Upon termination of this Agreement, Licensee shall, as soon as is reasonably possible thereafter, and in any event within sixty (60) days following the date of termination, cease and desist in Licensee's use of the Intellectual Property; provided, however, if Licensee makes no reasonable and good faith attempt to cure the breach within 30 days of Licensee's receipt of the notice of the breach such sixty (60) day period shall be deemed to have begun upon the date Licensee received notice of the breach. Licensor's and Licensee's respective obligations under Article VI and Sections 3.1, 3.2, 7.3, 9.1, 9.4, 9.5 and 9.6 shall survive termination of this Agreement. VIII. COOPERATION WITH AND COMPLIANCE WITH GAMING AUTHORITIES Section 8.1. The parties will cooperate in good faith with, and will use their best reasonable efforts to comply with the requirements of, any and all gaming authorities respecting their activities pursuant to this Agreement. Section 8.2. Notwithstanding anything to the contrary set forth herein, all rights of any party hereunder, including any right to terminate the rights of other parties hereunder, shall be applied as may be required by any applicable gaming authorities. IX. MISCELLANEOUS Section 9.1. Confidential Information. Each party agrees that all information disclosed by one party to another pursuant to this Agreement (the "Confidential Information") shall be maintained in confidence and not be released to any third party for any reason whatsoever, excluding such parties' counsel, agents, auditors, or lenders. However, a party may release the Confidential Information to a third party upon the prior approval of the other party (such approval not to be unreasonably withheld, conditioned, or delayed), upon court order, or as such party in 5 6 good faith believes, based upon the advice of counsel, is required by any rules, regulations, or laws. Notwithstanding the previous sentence, in the event that a party becomes legally compelled (by deposition, interrogatory, request for documents, subpoena, civil investigative demand, or otherwise) to disclose any information, such party shall provide the other with prompt prior written notice of such requirement so that the other party may seek a protective order or other appropriate remedy to minimize disclosure of the Confidential Information. In the event that such protective order or other remedy is not obtained, or the other party approves the disclosure, the disclosing party agrees to furnish only that portion of the Confidential Information that the disclosing party in good faith believes, based upon the advice of counsel, is legally required, and to exercise reasonable efforts to obtain assurance that confidential treatment will be accorded to such information. Each party shall cease use of all Confidential Information that any party has obtained from the other upon the expiration or earlier termination of this Agreement. Neither party shall disclose or otherwise make available any Confidential Information to any person other than employees, consultants, or auditors of such party with a need-to-know or except as required by court order or as such party in good faith believes, based upon the advice of counsel, is required by any rules, regulations, or laws. Each party shall instruct its employees who have access to the Confidential Information to keep the same confidential by using the same care and discretion that such party uses with respect to its own confidential property and trade secrets. Section 9.2. Assignment. None of the rights, benefits, or obligations under this Agreement shall be assigned or assignable or transferred or transferrable or sublicensed or sublicenseable by Licensee (in each case, by operation of law or otherwise); provided, however, that Licensee may sublicense the Intellectual Property to the Tribes for use exclusively in connection with the Facilities. Upon any transfer, assignment or sublicense entered into in accordance with this Section 9.2, such assignee or sublicensee shall enter into an assignment or sublicense agreement with Licensee, in a form reasonably satisfactory to Licensor, pursuant to which such assignee or sublicensee agrees to comply with, and be bound by, the terms of this Agreement and acknowledges the status of Licensor as an intended third party beneficiary of such assignment or sublicense agreement. If requested by Licensor, such assignee or sublicensee shall also execute an instrument or instruments pursuant to which such assignee or sublicensee shall be bound by, and become a party to, this Agreement. Any purported assignment or sublicense by Licensee not in compliance with the terms of this Agreement shall be null and void. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. Section 9.3. Relationship of Parties. Nothing in the Agreement shall be construed to create any relationship among the parties of agency, partnership, franchise, or joint venturers or render any party liable for any debts or obligation incurred by any other party hereto. No party is authorized to enter into agreements for or on behalf of any other party hereto, to collect any obligation due or owed to any such party, or to bind any other party in any manner whatsoever. Section 9.4. Arbitration. Any dispute between Licensor and Licensee under this Agreement shall be resolved by arbitration by an arbitrator selected under the rules of the American Arbitration Association (located in Minneapolis, Minnesota or Mississippi, as the parties mutually agree) and the arbitration shall be conducted in that same location under the rules of said Association. Licensor and Licensee shall each be entitled to present evidence and 6 7 argument to the arbitrator. The arbitrator shall have the right only to interpret and apply the provisions of this Agreement and may not change any of its provisions. The arbitrator shall permit reasonable pre-hearing discovery of facts, to the extent necessary to establish a claim or a defense to a claim, subject to supervision by the arbitrator. The determination of the arbitrator shall be conclusive and binding upon the parties and judgment upon the same may be entered in any court having jurisdiction thereof. The arbitrator shall give written notice to the parties stating his determination, and shall furnish to each party a signed copy of such determination. Section 9.5. Attorneys' Fees. If any party commences an action against the other with respect to this Agreement, the prevailing party in such action shall be entitled to an award of reasonable costs and expenses of mediation, arbitration, and/or litigation, including reasonable attorneys' fees, to be paid by the non-prevailing party. Section 9.6. Specific Performance. The parties hereto agree that the remedy at law for any breach of this Agreement will be inadequate, and that any party by whom this Agreement is enforceable shall be entitled to specific performance in addition to any other appropriate relief or remedy. Such party may, in its sole discretion, apply to a court of competent jurisdiction for specific performance or injunctive or such other relief as such court may deem just and proper in order to enforce this Agreement or prevent any violation hereof, and, to the extent permitted by applicable laws, each party waives any objection to the imposition of such relief. Section 9.7. Notices. Any notices required or permitted to be given under this Agreement shall be deemed sufficiently given if mailed by registered mail, postage prepaid, addressed to the party to be notified at its address shown below; or at such other address as may be furnished in writing to the notifying party: Licensor: Grand Casinos, Inc. 3930 Howard Hughes Parkway, 4th Floor Las Vegas, Nevada 89109 Attention: General Counsel Facsimile: (702) 699-5179 Licensee: Lakes Gaming, Inc. 130 Cheshire Lane Minnetonka, MN 55305 Attention: Lyle Berman Facsimile: (612) 449-7003 Section 9.8. Entirety of Agreement. This Agreement (including the schedule hereto) and the Distribution Agreement contain the entire agreement and understanding between the parties hereto, and supersedes any prior or contemporaneous agreement or understanding related to the subject matter hereof and thereof. There are no oral understandings, terms or conditions, and neither party has relied upon any representations, expressed or implied, not contained in this Agreement. This Agreement may not be changed orally, but only by agreement in writing, executed by both parties. 7 8 Section 9.9. No Third Party Beneficiaries. Notwithstanding anything to the contrary herein, this Agreement is for the sole and exclusive benefit of the parties hereto and nothing herein is intended to give or shall be construed to give to any person or entity other than the parties hereto any rights or remedies hereunder. Section 9.10. Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. Section 9.11. Counterparts. This Agreement may be executed in one or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together will constitute one and the same instrument. Section 9.12. Governing Law. The internal law, without regard to conflicts of laws principles, of the State of Minnesota will govern all questions concerning the construction, validity and interpretation of this Agreement and the performance of the obligations imposed by this Agreement. IN WITNESS WHEREOF, this Agreement has been executed as of the day and year first above written. GRAND CASINOS, INC. - LICENSOR: By: /s/ Timothy Cope ------------------------------------------ Its: CFO -------------------------------------- LAKES GAMING, INC. - LICENSEE: By: /s/ Timothy Cope ------------------------------------------ Its: CFO -------------------------------------- 8 9 SCHEDULE A GRAND CASINO/MISSISSIPPI ASSETS, INC. TRADEMARKS
MARK REG/SER. NO. GOODS/SERV. CLASS STATUS - ---- ------------ ----------- ----- ------ CAR A DAY GIVEAWAY (Minn.) MN 20,934 Gaming and gambling promotion 35, 42 Registered 6/24/93 GRAND ADVANTAGE PLAYERS 1,733,707 Providing casino entertainment 41 Registered 11/17/92 CLUB and Design services GRAND ADVANTAGE PLAYERS 1,954,157 Casino entertainment services 41 Registered 2/6/96 CLUB GRAND ADVANTAGE PLAYERS MN 19,005 Casino services. 41 Registered 3/10/92 CLUB (Minn.) GRAND CASINO KID QUEST 1,805,598 For childrens day care and 42 Registered 11/16/93 supervised activity center services GRAND CASINOS, INC. 1,735,194 Casino planning and management 35 Registered 11/24/92 services GRAND CASINOS, INC. (Minn.) MN 19,006 Casino planning and management 35, 42 Registered 3/10/92 services GRAND CASINOS, INC. and Design 2,028,123 Providing casino services 42 Registered 1/7/97 LB'S GRILL 1,943,593 Restaurant 42 Registered 12/26/95 LITTLE WINNERS T-shirts, shirts, dresses, pants, 25 New application shorts, robes and caps MARKET PLACE BUFFET 1,922,653 Restaurant 42 Registered 9/26/95 RAPID CHANGE 1,894,870 Currency change making machines as 9 Registered 5/23/95 components of electronic gambling machines RAPID CHANGE (Minn.) MN 21,406 Machines applied to gaming devices 7 Registered 10/20/93 that accept paper currency which is applied toward valid plays on the gaming devices to which the machines are attached SHOW & TELL BLACKJACK 1,740,296 Providing casino entertainment 41 Registered 12/15/92 services SIMPLY THE BEST! 1,934,446 Casino services 41 Registered 11/7/95 THERE'S MORE THAN ONE 1,857,026 Casinos 41 Registered 12/4/94 REASON TO CALL US GRAND THERE'S MORE THAN ONE MN 21,463 Casino services 42 Registered 11/2/93 REASON TO CALL US GRAND (Minn.)
EX-10.6 7 INSURANCE RECEIVABLE AGREEMENT 1 EXHIBIT 10.6 INSURANCE RECEIVABLE AGREEMENT THIS INSURANCE RECEIVABLE AGREEMENT (this "Agreement"), dated as of December 31, 1998, is entered into by and among LAKES GAMING, INC., a Minnesota corporation ("Lakes") and GRAND CASINOS, INC., a Minnesota corporation ("Company"). RECITALS A. Lakes and Company have entered into a Distribution Agreement, dated as of December 31, 1998 and certain ancillary agreements thereto (collectively, the "Distribution Agreement"), which provide for, among other things, (i) the transfer by Company to Lakes of all of the operations, assets and Liabilities of Company and its subsidiaries comprising the Non-Mississippi Business (as defined therein) and (ii) the distribution (the "Distribution") to the holders of Company's common stock of all of the outstanding shares of Lakes' common stock. B. A material condition to the consummation of the transactions contemplated by the Distribution Agreement is that the parties hereto enter into this Agreement. AGREEMENT In consideration of the foregoing and the mutual promises contained herein and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the parties, intending to be legally bound, hereby agree as follows: 1. Defined Terms. For purposes of this Agreement: "Action" means any action, claim, suit, arbitration, inquiry, proceeding or investigation by or before any court, any governmental or other regulatory or administrative agency or commission or any arbitration tribunal. "Claim" has the meaning set forth in Section 3(a). "Counter Notice" has the meaning set forth in Section 3(a). "Liabilities" means any and all debts, liabilities and obligations, absolute or contingent, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising, including all costs and expenses relating thereto, and including, without limitation, those debts, liabilities and obligations arising under any law, rule, regulation, Action, threatened Action, order or consent decree of any governmental entity or any award of any arbitrator of any kind, and those arising under any contract, commitment or undertaking. "Notice" has the meaning set forth in Section 3(a). 2. Declaration of Trust. As a non-exclusive source of payment with respect to (i) Claims made under Section 5(b) (the "Overrun Claims") and (ii) Company's receipt of cash proceeds totaling [$8.3] million (the "Class A Claims") and [$5.1] million (the "Class B Claims,") (collectively, the Class A Claims and the Class B Claims are referred to herein as the "Hurricane Claims"), respectively, relating to insurance claims for real and personal property damaged in Hurricane Georges at the Grand Casino Gulfport and Grand Casino Biloxi (including all related hotels and facilities) located in Gulfport and Biloxi, Mississippi, respectively, Lakes grants and transfers to Company to hold, and Company is hereby authorized and directed by Lakes to accept, and Company hereby accepts, in trust under this Agreement, for the benefit of Company, its affiliates, subsidiaries and all other present and future holders of any of the Hurricane Claims and each and all of their members, successors and assigns, all right, title and interest in to $9,000,000 (collectively, the "Initial Trust Estate," and together with any and all present and future 2 income, distributions, substitutions, replacements and proceeds of or from the Initial Trust Estate, the "Trust Estate"). Company shall have and hold the foregoing Trust Estate until released to Company or Lakes in accordance with the terms hereof, in trust under and subject to the terms and conditions set forth herein for the benefit of Company and as a source of funds for the enforcement of the payment, observance and performance of all the Hurricane Claims. Company and Lakes hereby consent to the foregoing declaration of trust and agree that the Trust Estate is to be held and applied by Company subject to the further covenants, conditions and trust set forth herein. 3. Appointment of the Lakes Representative and the Company Representative. (a) Lakes hereby designates its: Chairman of the Board, President and Chief Executive Officer and Chief Financial Officer each of whom is authorized to act alone, as their duly appointed agents and attorneys-in-fact, with full power of substitution, in any and all capacities, for all purposes of this Agreement (each, the "Lakes Representative"). Actions and inactions by such Lakes Representatives under this Agreement shall be binding and conclusive on Lakes and may be conclusively relied upon by the other parties hereto. Lakes, upon 10 days' written notice to the other parties, may remove any person appointed as a Lakes Representative or appoint another person as a Lakes Representative. No Lakes Representative shall be liable for any action taken or omitted by it, or any action suffered by it to be taken or omitted, in good faith, and in the exercise of its own best judgment. (b) Company hereby appoints its: Executive Vice President and Chief Financial Officer, Executive Vice President - Law and Corporate Affairs and Secretary and Vice President and Controller each of whom is authorized to act alone, as their duly appointed agents and attorneys-in-fact, with full power of substitution, in any and all capacities, for all purposes of this Agreement (each, the "Company Representative"). Actions and inactions by the Company Representatives under this Agreement shall be binding and conclusive on Company and may be conclusively relied upon by the other parties hereto. Company, upon 10 days' written notice to the other parties, may remove any person appointed as a Company Representative or appoint another person as a Company Representative. No Company Representative shall be liable for any action taken or omitted by it, or any action suffered by it to be taken or omitted, in good faith, and in the exercise of its own best judgment. 4. Payment of Claims. (a) From time to time on or before the release of the entire Trust Estate, the Company Representative may deliver a notice (a "Notice") to the Lakes Representative specifying in reasonable detail the nature and dollar amount of any claim (a "Claim") that Company has with respect to the Section 5 Claims or the Hurricane Claims; Company may make more than one Claim with respect to any underlying state of facts. If the Lakes Representative gives notice to the Company Representative disputing any Claim (a "Counter Notice") within 15 days following its receipt of the Notice, such Claim shall be resolved as provided in Section 3(b). Lakes must have a reasonable basis in giving any such Counter Notice and shall set forth in reasonable detail the basis of its 3 objection to the Claim in the Counter Notice. If no Counter Notice is received by the Company Representative within such 15-day period, then (i) the dollar amount of the Claim, as set forth in the Notice, shall be deemed established for purposes of this Agreement and the agreement(s) under which the Claim arose and (ii) at the end of such 15-day period, Company shall be entitled to pay the dollar amount claimed in the Notice. (b) If a Counter Notice is received with respect to a Claim, the parties shall promptly meet and confer and attempt in good faith to resolve the objection. If they succeed, Company shall be entitled to promptly pay the dollar amount of the Claim in accordance with such resolution. If the parties shall not succeed within 5 business days of Company's receipt of the Counter Notice, they shall, within an additional 10 business days, commence and thereafter promptly complete an arbitration proceeding in accordance with the provisions of Section 9.14 of the Distribution Agreement. Thereafter, Company shall be entitled to pay the dollar amount of the Claim in accordance with the arbitrator's award when received. 5. Release of Trust Estate. (a) Company shall transfer and release to Lakes the Trust Estate as promptly as practicable after (1) cash proceeds in an amount equal to all of the Hurricane Claims are received by Company after the date hereof and (2) either (x) Company substantially completes construction of the repairs and replacements contemplated by the existing Company capital plan relating to the Hurricane Claims (the "Capital Plan") or (y) 150 days have elapsed since the date of this Agreement; provided, however, that if Company is not diligently pursuing the collection of the Class B Claims or a portion thereof, then Company shall release the Trust Estate when Company receives cash proceeds in an amount equal to all of the Hurricane Claims, less those Class B Claims not being diligently pursued. (b) The parties agree that cost overruns associated with completion of the Capital Plan will be funded from the Trust Estate; provided that such cost overruns do not arise from a change in the scope of the repairs and/or replacements outlined in the Capital Plan. (c) Upon the final distribution of all of the Trust Estate in accordance with the terms of this Agreement, this Agreement shall terminate, except that the provisions of Sections 6 through and including 16 hereof shall survive such termination. 6. Notices. All notices, requests, demands and other communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given (i) when received if personally delivered, (ii) when receipt is automatically acknowledged if transmitted by telecopy, electronic or digital transmission method, (iii) the day after it is sent, if sent for next day delivery to an address within the United States and Puerto Rico by recognized overnight delivery service (e.g. Federal Express), (iv) the third day after it is sent, if sent for next day delivery to any other address by recognized international delivery service, and (v) upon receipt, if sent by certified or registered mail, return receipt requested. In each case notice shall be sent to: (a) If to Lakes or the Lakes Representative: Lakes Gaming, Inc. 130 Cheshire Lane Minnetonka, Minnesota 55305 4 Attn: Chairman of the Board Telecopy: (612) 449-8509 with a copy to: Maslon Edelman Borman & Brand, LLP 3300 Norwest Center 90 South Seventh Street Minneapolis, Minnesota 55402 Attn: Neil I. Sell Telecopy: (612) 672-8397 (b) If to Company or the Company Representative: Grand Casinos, Inc. 3930 Howard Hughes Parkway, 4th Floor Las Vegas, Nevada 89109 Attn: Executive Vice President and Chief Financial Officer and General Counsel Telecopy: (702) 699-5190 and (702) 699-5179 with a copy to: Sills Cummis Zuckerman Radin Tischman Epstein & Gross One Riverfront Plaza Newark, NJ 07102 Attn: Michael Tischman, Esq. Telecopy: (973) 643-6500 7. [Intentionally Omitted]. 8. Modification: Waiver. Subject to applicable law, this Agreement may be amended, modified or supplemented, with respect to any of the terms contained herein, only by written agreement of the parties and the rights, remedies, immunities and benefits created hereby or arising hereunder in favor of any person may be waived by it only by an instrument in writing signed by it. No such right, remedy, immunity or benefit shall be deemed waived by reason of such person's failure to act, oral statements or course of conduct, including any grant of a waiver on a different or prior occasion. 9. Interpretation. When a reference is made in this Agreement to Sections, such reference shall be to a Section of this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the word "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". This Agreement shall not be construed for or against either party by reason of the authorship or alleged authorship of any provision hereof or by reason of the status of the respective parties. 10. Assignment. This Agreement, and the rights, interests and obligations hereunder, shall not be assigned (whether by operation of law or otherwise) without the prior written consent of the other party. Subject to the foregoing provisions of this Section 9, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. 11. Governing Law. This Agreement shall be construed and interpreted, and the rights of the parties shall be determined, in accordance with the laws of the State of New York (without reference to the choice of 5 law provisions). 12. Interest in Trust Estate. Lakes has no right to receive any of the Trust Estate and is entitled to no payments with respect thereto, except to the extent transferred and released to Lakes as herein provided, effective upon such transfer and release. 13. Severability. Each party agrees that, should any court or other competent authority hold any provision of this Agreement or part hereof to be null, void or unenforceable, or order any party to take any action inconsistent herewith or not to take an action consistent herewith or required hereby, the validity, legality and enforceability of the remaining provisions and obligations contained or set forth herein shall not in any way be affected or impaired thereby. Upon any such holding that any provision of this Agreement is null, void or unenforceable, the parties will negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated by this Agreement are consummated to the extent possible. Except as otherwise contemplated by this Agreement, to the extent that a party hereto took an action inconsistent herewith or failed to take action consistent herewith or required hereby pursuant to an order or judgment of a court or other competent authority, such party shall incur no Liability unless such party did not in good faith seek to resist or object to the imposition or entering of such order or judgment. 14. Arbitration. The parties hereto agree that any dispute, controversy or disagreement between the parties related to the obligations of the parties under this Agreement in respect of which resolution cannot be reached shall be submitted for mediation and final and binding arbitration in accordance with Section 9.14 of the Distribution Agreement, including Section 9.14(c) thereof regarding the parties' ability to seek specific performance or injunctive relief thereof. 15. Remedies Cumulative. All rights and remedies of each party hereto are cumulative of each other and of every other right or remedy such party may otherwise have at law or in equity, and the exercise of one or more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of other rights or remedies. 16. Counterparts. This Agreement may be executed in two or more counterparts, each of which will be considered one and the same instrument and shall become effective when executed and delivered by each of the parties. [Signature page to follow] "COMPANY" GRAND CASINOS, INC., a Minnesota corporation By: /s/ Timothy J. Cope -------------------------------- Name: Timothy J. Cope Title: Chief Financial Officer "LAKES" 6 LAKES GAMING, INC, a Minnesota corporation By: /s/ Timothy J. Cope -------------------------------- Name: Timothy J. Cope Title: Chief Financial Officer EX-99.1 8 PRESS RELEASE 1 EXHIBIT 99.1 Monday January 4, 10:09 pm Eastern Time COMPANY PRESS RELEASE LAKES GAMING, INC. ANNOUNCES COMMENCEMENT OF TRADING ON NASDAQ-AMEX UNDER SYMBOL "LACO" MINNEAPOLIS--(BUSINESS WIRE)--Jan. 4, 1999--Lakes Gaming, Inc. (Nasdaq-Amex: LACO) today announced commencement of trading on the Nasdaq-Amex Stock Market. Lakes was formed on December 31, 1998, via a distribution of common shares to the shareholders of Grand Casinos, Inc. Grand Casinos shareholders received .25 shares in Lakes for each share held in Grand Casinos. Concurrent with the tax-free distribution of Lakes shares to Grand Casinos shareholders, and the merger of Grand Casinos' Mississippi assets with Park Place Entertainment, Grand Casinos shareholders also received one full share of Park Place Entertainment Corporation (NYSE: PPE - news) for each share held in Grand Casinos. There are approximately 10.5 million shares of Lakes outstanding. Lakes operates the Indian casino management business and holds various other assets previously owned by Grand Casinos, Inc. The casino resorts managed by Lakes are Grand Casino Avoyelles and Grand Casino Coushatta. The casinos are managed under separate agreements on behalf of two different Tribes. Both management contracts expire seven years from the date the casino opened. The opening balance sheet of Lakes includes assets of approximately $160 million and liabilities of approximately $25 million. Pro Forma 1998 revenue for Lakes will be between $90 million and $95 million. The related Pro Forma 1998 earnings for Lakes are expected to be between $5.70 and $5.80 per share. These Pro Forma results include approximately $37 million from Grand Casinos' management contracts for Grand Casino Mille Lacs and Grand Casino Hinckley that concluded during 1998. Lakes revenues and earnings will not include contributions from these operations going forward. Lakes anticipates reporting year-end results for 1998 before the end of January 1999. The assets of Lakes are comprised of approximately $61 million in cash (restricted and non-restricted), $50 million in notes and accounts receivable, $32 million in Las Vegas land development costs, and $17 million in other assets. Liabilities include various obligations such as accruals for start up costs, litigation reserves, deferred taxes, and taxes payable. Lyle Berman, former Chairman of Grand Casinos, is the Chairman of the Board and Chief Executive Officer of Lakes. Other senior management includes Thomas Brosig, former President of Grand Casinos, who will serve as President of Lakes, and Timothy Cope, former 2 Chief Financial Officer of Grand Casinos, who has assumed the position of Chief Financial Officer of Lakes. The Board of Directors of Lakes is comprised of the same individuals who served previously as directors of Grand Casinos, Inc. Opened on June 3, 1994, Grand Casino Avoyelles is located on Highway 1 in Marksville, Louisiana. Grand Casino Avoyelles is a land-based facility with a 218-room hotel, and a 50,000-square-foot gaming floor offering approximately 1,700 slot machines, 50 table games, and an 11-table poker room. Among the resort's other features include a 1,700-seat entertainment complex, three restaurants plus a nightclub featuring live entertainment, a full-service RV resort, and a Kids Quest child care activity center. Grand Casino Avoyelles is owned by the Tunica-Biloxi Indians of Louisiana and managed by Lakes Gaming, Inc. For more information, visit www.grandcasinos.com/avoyelles. Grand Casino Coushatta opened on January 16, 1995. Located east of Lake Charles, 25 minutes north of I-10 on US 165, approximately five miles north of Kinder, Louisiana, Grand Casino Coushatta is a land-based casino resort offering a 223-room hotel and over 3,000 slot machines and over 75 table games, plus a 12-table poker room, in 98,000 square feet of gaming space. Three restaurants, plus a food court, a full-service RV resort and a Kids Quest child care activity center are among the property's non-gaming amenities. Grand Casino Coushatta is owned by the Coushatta Tribe of Louisiana and managed by Lakes Gaming, Inc. For more information, visit www.grandcasinos.com/coushatta. Lakes Gaming, Inc. is a publicly held casino management company that was formed through a distribution to shareholders of Grand Casinos, Inc. effected in December 1998. The company currently manages the two largest casino resorts in Louisiana. Grand Casino Avoyelles is located in the central part of the state, approximately 80 miles northwest of Baton Rouge. Grand Casino Coushatta is located in southwestern Louisiana, near Interstate 10, approximately 160 miles east of Houston. Lakes Gaming, Inc. common shares are traded on the Nasdaq-Amex Stock Market under the trading symbol LACO. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this press release (as well as information included in oral statements or other written statements made or to be made by the Company) contains statements that are forward-looking, such as statements relating to plan for future expansion and other business development activities as well as other capital spending, financing sources and the effects of regulation (including gaming and tax regulation) and competition. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, those relating to development and construction activities, dependence on existing management, leverage and debt service (including sensitivity to fluctuations in the interest rates), domestic or global economic conditions, activities of competitors and the presence of new or additional competition, 3 fluctuations and changes in customer preferences and attitudes, changes in federal or state tax laws of the administration of such laws and changes in gaming laws or regulations (including the legalization of gaming in certain jurisdictions). For more information, review the Company's filings with the Securities and Exchange Commission, including the Company's annual report on Form 10-K and certain registration statements of the Company. Contact: Lakes Gaming, Inc., Minneapolis Jaye Snyder 612-449-8556 -----END PRIVACY-ENHANCED MESSAGE-----