-----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, S2RuFCXr580MFifJRbqLmDzAr5PAL/D+M1tdfopKXDqtbxYDNNwJdJCpJQvQHuMI AR6PX7gXl8eMKV7meQ3DuQ== 0000950124-00-001655.txt : 20000329 0000950124-00-001655.hdr.sgml : 20000329 ACCESSION NUMBER: 0000950124-00-001655 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 24 CONFORMED PERIOD OF REPORT: 20000102 FILED AS OF DATE: 20000328 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: 10-K SEC ACT: SEC FILE NUMBER: 000-24993 FILM NUMBER: 580629 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 10-K 1 FORM 10-K 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 2, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NO. 0-24993 LAKES GAMING, INC. (Exact name of registrant as specified in its charter) MINNESOTA 41-1913991 (State or other jurisdiction (I.R.S., Employer of incorporation or organization) Identification No.)
130 CHESHIRE LANE, MINNETONKA, MINNESOTA 55305 (Address of principal executive offices) (952) 449-9092 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: NONE. Securities registered pursuant to Section 12(g) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Stock, $0.01 par value NASDAQ National Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of March 20, 2000 shares of the Registrant's Common Stock were outstanding. The aggregate market value of the Common Stock held by nonaffiliates of the Registrant on such date, based upon the last sale price of the Common Stock as reported on the NASDAQ National Market March 20, 2000 was $75,203,971. For purposes of this computation, affiliates of the Registrant are deemed only to be the Registrant's executive officers and directors. DOCUMENTS INCORPORATED BY REFERENCE Part III. Portions of the Registrant's definitive Proxy Statement in connection with the Annual Meeting of Shareholders to be held on May 3, 2000 are incorporated by reference into Items 10 through 13, inclusive. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS The following discussion contains trend information and other forward-looking statements that involve a number of risks and uncertainties. The actual results of Lakes Gaming, Inc., a Minnesota corporation (the "Company"), could differ materially from the Company's historical results of operations and those discussed in the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, those identified in "Risk Factors." Lakes Gaming, Inc., a Minnesota corporation ("Lakes" or the "Company") was established as a public corporation on December 31, 1998, via a distribution (the "Distribution") of its common stock, par value $.01 per share (the "Common Stock") to the shareholders of Grand Casinos, Inc. ("Grand"). Pursuant to the terms of a Distribution Agreement entered into between Grand and Lakes and dated as of December 31, 1998 (the "Distribution Agreement"), Grand shareholders received .25 shares of Lakes Common Stock for each share held in Grand. Immediately following the Distribution, Grand merged with a subsidiary of Park Place Entertainment Corporation, a Delaware corporation ("Park Place"), pursuant to which Grand became a wholly owned subsidiary of Park Place (the "Merger"). Grand shareholders received one share of Park Place common stock in the Merger for each share they held in Grand. Lakes operates an Indian casino management business and holds various other assets previously owned by Grand. The Company's revenues are derived almost exclusively from management fees. Lakes currently manages two land-based, Indian-owned casinos in Louisiana: Grand Casino Avoyelles, in Marksville, Louisiana ("Grand Casino Avoyelles"), owned by the Tunica-Biloxi Tribe of Louisiana (the "Tunica-Biloxi Tribe") and Grand Casino Coushatta, in Kinder, Louisiana ("Grand Casino Coushatta"), owned by the Coushatta Tribe of Louisiana (the "Coushatta Tribe"). Other assets previously owned by Grand that Lakes now owns through a subsidiary, include certain interests in four contiguous parcels of land in Las Vegas, Nevada, including the Polo Plaza Shopping Center. All or any combination of these interests may be sold, held for sale or held for future development. Lakes is currently evaluating the potential sale of these interests and in connection therewith has entered into a listing agreement with a real estate broker for the active marketing of these parcels. For a portion of fiscal 1998, and prior to the Distribution, Grand also had management contracts for Indian-owned casinos located at Grand Casino Hinckley and Grand Casino Mille Lacs, both located in Minnesota. The management contract at Grand Casino Mille Lacs expired at the end of the first quarter of 1998, and the management contract at Grand Casino Hinckley ended November 30, 1998. BUSINESS STRATEGY Lakes' vision is to create a company with predictable long-term profitable growth that will be highly valued by its investors. The Company will implement three business strategies to accomplish its vision. The first of the three strategies is to grow the Company's assets. The more assets the Company has, the greater its potential for diversification and growth. The Company plans to increase its asset base by continuing to provide high quality comprehensive management services to Grand Casino Avoyelles and Grand Casino Coushatta. Lakes is dedicated to developing superior facilities and providing guest service that exceeds expectations. The facilities managed by Lakes are staffed with well-trained local casino employees and offer a casual environment designed to appeal to the family-oriented, middle income customer. Lakes strives to offer its casino customers creative gaming selections in a pleasant, festive, smoke and climate-controlled setting. Lakes' managed casinos also offer reasonably priced, high-quality food, first class hotel rooms, video arcades and Grand Casinos Kids Quest (SM), a professionally supervised entertainment and child care center. Lakes is prohibited by the Indian Gaming Regulatory Act ("IGRA") from having an ownership interest in any casino it manages for Indian tribes. The management contracts for Grand Casino Avoyelles and Grand Casino Coushatta expire June 3, 2001 and January 16, 2002, respectively. The Coushatta Tribe and Lakes have agreed on a five-year contract renewal beginning January 17, 2002, subject to National Indian Gaming Commission ("NIGC") approval. Net distributable profits, if any, under the new agreement will be determined in accordance with IGRA and distributed each month 90% to the Coushatta Tribe and 10% to Lakes. There can be no assurance that the Grand Casino Avoyelles management contract will be renewed upon expiration or the Grand Casino Coushatta extension will be approved by NIGC. The failure to renew 2 3 Lakes' management contracts would result in the loss of revenues to Lakes derived from such contracts, which would have a material, adverse effect on Lakes' results of operations. The Coushatta Tribe and the Tunica-Biloxi Tribe each entered into tribal-state compacts with the State of Louisiana on September 29, 1992. These compacts were approved in November 1992 by the Secretary of the Interior. The compact for the Coushatta Tribe expired November 4, 1999, and the compact for the Tunica-Biloxi Tribe expired November 18, 1999, and the State of Louisiana has delivered a written notice of non-renewal. The Governor and each Tribe have agreed on a six-month extension which has been submitted to the Department of the Interior for approval. The Coushatta Tribe and the Tunica-Biloxi Tribe are actively negotiating with the State of Louisiana terms for a new compact. Lakes' management agreements with the Tunica-Biloxi Tribe and the Coushatta Tribe expire after November 1999. In the event the compacts are not renewed, gaming may not be permitted at Grand Casino Avoyelles or Grand Casino Coushatta. There can be no assurance that these compacts will be renewed on terms and conditions acceptable to either of the Tribes. Another way the Company plans to grow its assets is to grow the Indian casino management business. Lakes enjoys a reputation as an experienced and successful casino management company for Native American owned casinos with available capital and experienced management. Lakes develops, constructs and manages Indian-owned casino properties that offer the opportunity for long-term development of related entertainment facilities, including hotels, theaters, recreational vehicle parks and other complimentary amenities designed to enhance the customers' total entertainment experience and to differentiate facilities managed by Lakes from its competitors. Lakes provides experienced corporate and casino management and develops and implements a wide scale of marketing programs. In conjunction with this part of Lakes' business strategy, Lakes entered into three new agreements in 1999, for the development, construction and management of three new Indian-owned casinos. On May 12, 1999, the Company announced that it would form a partnership for the purpose of developing a gaming facility on Indian-owned land near San Diego, California. Under the agreement, Lakes has formed a limited liability company with Kean Argovitz Resorts, LLC ("KAR"), a limited liability company based in Houston, Texas. The partnership between Lakes and KAR holds a contract to develop and manage a casino resort facility with the Jamul Indian Village in California. The contract is subject to approval by NIGC. California voters recently approved an amendment to the State Constitution which allows for Nevada-style gaming on Indian land and ratifies the Tribal Compact. Development of the casino resort will begin once various regulatory approvals are received. On June 22, 1999, the Company announced that it has been selected by the Pokagon Band of Potawatomi Indians (the "Band") to serve as the exclusive developer and manager of a proposed casino gaming resort facility to be owned by the Band in the state of Michigan. In connection with its selection, Lakes and the Band have executed a development and management agreement governing their relationship during the development, construction and management of the casino. Various regulatory approvals are needed prior to commencement of development activities. Casino construction is not planned to start until land is accepted into trust status by the Secretary of the Interior and the agreements are approved by the Chairman of NIGC. On July 15, 1999, the Company announced that it would form a partnership for the purpose of developing a gaming facility on Indian-owned land near Sacramento, California. Pursuant to the agreement, Lakes has formed a limited liability company with KAR, a limited liability company based in Houston, Texas. The partnership between Lakes and KAR has been awarded a contract to develop and manage a casino resort facility with the Shingle Springs Band of Miwok Indians in California. The contract is subject to approval by NIGC and placement of the land where the gaming facility is to be located into trust with the Bureau of Indian Affairs ("BIA"). California voters recently approved an amendment to the State Constitution which allows for Nevada-style gaming on Indian land and ratifies the Tribal Compact. Development of the casino resort will begin once various regulatory approvals are received. Each of the three new agreements require Lakes to loan each tribe various amounts to be used for preliminary development and start-up costs at each casino location. Total loan commitments, by Lakes, for the three projects are approximately $100 million. The second business strategy is to remove a number of uncertainties surrounding the Company. To help accomplish this part of the Lakes strategy, the Company continues to evaluate the potential sale or development of its land in Las Vegas. The Company has the land listed for sale with a real estate broker and is currently reviewing alternative offers for the development or potential sale of the property. The Company also must win or settle the various lawsuits regarding Stratosphere. The Company is actively defending the suits and expects trial hearings to start in 2001 unless they are settled prior to that time. The other uncertainty 3 4 facing Lakes relates to the three proposed casino developments. In each such location, the Tribes need to have land accepted into trust on their behalf by the Bureau of Indian Affairs, and the National Indian Gaming Commission needs to approve the applicable Lakes management contracts. In addition, the Pokagon Band of Potawatomi Indians in Michigan needs to secure a valid contract with that state or a casino may not be built. Lakes is actively working with the Tribes to bring these issues to a successful conclusion. Diversification is the key to Lakes' long-term success and it is the third of the business strategies. Lakes currently plans to buy or create new long-term business opportunities through the use of cash, stock or debt to complement its Indian casino management business. Substantial long-term growth and low multiple values to generate high returns are just a few of the attributes in companies or start-ups that Lakes is looking for in new opportunities to help enhance shareholder value. In addition to this approach, Lakes currently has investments in unconsolidated affiliates which include a 27 percent ownership interest in Fanball.com, Inc., a start-up internet provider of fantasy sports services, and a 23 percent ownership interest in Interactive Learning Group, Inc., a consumer product company. Lakes invested $3.4 million and $3 million in Fanball.com and Interactive Learning Group, respectively, at the end of the second quarter of 1999. Additionally, as a result of its spin-off from Grand, Lakes received a 49 percent ownership interest in Trak 21 Development, LLC, a developer of player tracking systems for the casino industry, and a 27 percent ownership interest in New Horizon Kids Quest, Inc., a publicly held provider of child care facilities. MARKETING Lakes targets its marketing strategy at its managed operations to attract and retain the repeat customer. Management believes that Lakes' emphasis on enhancing the entertainment value, coupled with marketing programs, contributes to attracting the repeat customer. Lakes' operations strategy seeks to combine retail, gaming and entertainment marketing techniques. Lakes profiles its casino customers utilizing available demographic data, regularly conducted customer surveys and other sources. Based upon this data, Lakes uses a variety of initial special promotions to attract the first-time customer and, thereafter, seeks to leverage initial customer satisfaction through a mix of marketing programs dedicated to developing a repeat customer. A variety of other events, facilities and entertainment media provide the patron with a total entertainment experience. Lakes markets these programs through a variety of direct and media marketing techniques utilizing a significant customer database at each location. GRAND CASINO AVOYELLES Grand Casino Avoyelles opened in June 1994 and consists of a 218 room hotel and approximately 50,000 square feet of casino gaming space containing approximately 1,700 slot machines and 55 table games. The resort's other features include a 1,700 seat entertainment complex, three restaurants plus a night club featuring live entertainment, a full-service RV resort, a Kids Quest(SM) child care activity center, a video arcade, a gift shop and parking for approximately 2,250 vehicles. Grand Casino Avoyelles is located approximately 50 miles west of Natchez, Mississippi, and within approximately 200 miles of the Louisiana cities of Baton Rouge, Lafayette, New Orleans, and Shreveport. Lakes purchased approximately 64 acres of land adjacent to the Tunica-Biloxi reservation and donated approximately 21 acres of this land to the Tunica-Biloxi Tribe. This land has been placed in trust, has been approved for gaming, and is the site upon which Grand Casino Avoyelles was constructed. Lakes also leases land to the Tunica-Biloxi Tribe for a 220 room hotel which opened during 1996 and is located in close proximity to Grand Casino Avoyelles. The Tunica-Biloxi Tribe operates the hotel as a part of the Grand Casino Avoyelles enterprise. Lakes guaranteed $16.5 million of Tunica-Biloxi Tribal debt incurred in connection with the purchase of the hotel, and has subordinated payment of Lakes' management fee and any loan amounts owed by the Tunica-Biloxi Tribe to Lakes to the repayment of such debt. As of January 2, 2000, the amount outstanding was $2.0 million. The debt is scheduled to be fully repaid by April 2000. The term of Lakes' development and management agreement with the Tunica-Biloxi Tribe (the "Tunica-Biloxi Agreement") expires on June 3, 2001. The net distributable profits, if any, as determined on a modified cash basis, are distributed each month 60% to the Tunica-Biloxi Tribe and 40% to Lakes. Lakes loaned the Tunica-Biloxi Tribe an aggregate of approximately $23.5 million to construct and open Grand Casino Avoyelles, of which amount approximately $3.5 million was not, but may need to be, approved by the BIA and/or NIGC. Approximately $5.4 million of such loans remained outstanding at January 2, 2000. 4 5 The loans bear interest at 1% over the prime rate and are payable over the remaining term of the Tunica-Biloxi Agreement. The Tunica-Biloxi Agreement was approved by the BIA on February 27, 1992. The Tunica-Biloxi Tribe and the State of Louisiana entered into a tribal-state compact on September 29, 1992, which was approved by the Secretary of the Interior on November 18, 1992. The compact expired on November 18, 1999 and the State of Louisiana has delivered a written notice of non-renewal. The Governor and the Tribe have agreed on a six-month extension which has been approved by the Department of the Interior. In connection with the Distribution, Lakes and the appropriate subsidiaries made application to the Tribal gaming regulatory authority for a license and obtained certification and licensure by the Louisiana State Police. GRAND CASINO COUSHATTA Grand Casino Coushatta opened in January 1995 and currently consists of a 223 room hotel and approximately 98,000 square feet of casino gaming space containing approximately 3,100 slot machines and 90 table games. Three restaurants plus a food court, a full-service RV resort, a Kids Quest(SM) child care center, a video arcade, a gift shop and parking for approximately 1,600 vehicles are among the property's non-gaming amenities. On February 25, 1992, Grand, as predecessor to Lakes, entered into a construction agreement and management contract (the "Coushatta Agreement") with the Coushatta Tribe for the development, construction, and management of a casino facility in Elton, Louisiana, on Highway 165. Grand Casino Coushatta is located approximately 60 miles south of Alexandria, Louisiana, and within 200 miles of Houston, Texas. Grand purchased approximately 688 acres of land adjacent to the Coushatta reservation. Grand has donated approximately 530 acres to the Coushatta Tribe. This land has been placed in trust for the Coushatta Tribe. The remaining land was sold to the Coushatta Tribe, and Lakes holds a promissory note to secure payment of the purchase price with an outstanding balance of $1.5 million at January 2, 2000. Grand loaned the Coushatta Tribe an aggregate of approximately $38.3 million to construct and open Grand Casino Coushatta, of which amount up to approximately $20.3 million was not, but may need to be, approved by the BIA and/or NIGC. The loans bear interest at 1% over the prime rate and are payable over the remaining term of the Coushatta Agreement. Approximately $10.0 million of such loans remained outstanding as of January 2, 2000. The Coushatta Tribe constructed a hotel on trust land located adjacent to the casino. Pursuant to the Distribution, Lakes guaranteed $25.0 million of indebtedness incurred by the Tribe in connection therewith. Such indebtedness has a repayment term of approximately five years. Lakes subordinated payment of its management fee and repayment of any loans outstanding from the Coushatta Tribe to the repayment of such indebtedness. As of January 2, 2000, the amount outstanding was $19.3 million. The Coushatta Agreement was approved by the BIA on February 27, 1992. The Coushatta Tribe and the State of Louisiana entered into a tribal-state compact on September 15, 1992, which was approved by the Secretary of the Interior on November 4, 1992. The compact expired on November 4, 1999 and the State of Louisiana has delivered a written notice of non-renewal. The Governor and the Tribe have agreed on a six-month extension which has been approved by the Department of the Interior. In connection with the Distribution, Lakes was certified by the Louisiana State Police to manage the casino. The current Coushatta Agreement expires on January 16, 2002. The net distributable profits, if any, as determined on a modified cash basis, are distributed each month 60% to the Coushatta Tribe and 40% to Lakes. The Coushatta Tribe and Lakes have agreed on a five year contract renewal beginning January 17, 2002, subject to NIGC approval. Net distributable profits, if any, under the new contract will be determined in accordance with IGRA and distributed each month 90% to the Coushatta Tribe and 10% to Lakes. FUNDING AGREEMENTS Pursuant to the terms of the Distribution Agreement, Lakes assumed Grand's obligations under various agreements (the "Funding Agreements") with each of the Tunica-Biloxi and Coushatta Tribes to provide temporary funding, if necessary, for the construction of certain additional amenities on Grand Casino Avoyelles and Grand Casino Coushatta. The terms of the Funding Agreements require each party to advance 5 6 money for the payment of construction costs if and when the casino operating funds designated for such purpose are insufficient. Any funds advanced are to be repaid, together with interest at the prime rate plus 1 percent, over the remaining term of the respective management agreement. Advances of $1.2 million and $13.9 million had been made to the Tunica-Biloxi and Coushatta Tribes, respectively, as of January 2, 2000. Amounts outstanding were $0.8 million and $11.0 million to the Tunica-Biloxi and Coushatta Tribes, respectively. POLO PLAZA On October 1, 1999, the Company purchased the shopping center and land owned by the Nevada Resort Properties Polo Plaza Limited Partnership (the "Partnership") in lieu of exercising its right to purchase the remaining 51% interest in the Partnership. Prior to the purchase, the Company held a 49% ownership interest in the Partnership. In consideration for the purchase, the Company paid approximately $3.3 million and paid off the outstanding partnership mortgage of approximately $6.3 million. A $6.2 million loan to the Partnership made by the Company during January 1999 was repaid and satisfied at the closing by offsetting an appropriate amount against the purchase price as agreed by the Company and the Partnership. Pursuant to the purchase agreement relating to this transaction, the Partnership is currently being dissolved. Lakes continues to operate the site as a commercial shopping center. COMPETITION The gaming industry is highly competitive. Gaming activities include traditional land-based casinos; river boat and dockside gaming; casino gaming on Indian land; state-sponsored video lottery and video poker in restaurants, bars and hotels; pari-mutuel betting on horse racing, dog racing, and jai-alai; sports bookmaking; and card rooms. The casinos managed by Lakes compete with all these forms of gaming, and will compete with any new forms of gaming that may be legalized in additional jurisdictions, as well as with other types of entertainment. Lakes also competes with other gaming companies for opportunities to acquire legal gaming sites in emerging gaming jurisdictions and for the opportunity to manage casinos on Indian land. Some of the competitors of Lakes have more personnel and greater financial and other resources than Lakes. Further expansion of gaming could also significantly affect Lakes' business. The Louisiana markets are highly competitive and numerous Louisiana casinos, along with others in Mississippi, compete with Grand Casino Coushatta and Grand Casino Avoyelles. A single large land-based casino recently opened in downtown New Orleans and competes for customers with the casinos managed by Lakes. Louisiana has also legalized river boat gaming. There are presently 14 licensed river boats in operation in Louisiana, four of which are presently operating in the vicinity of Lake Charles, Louisiana, within approximately 50 miles of Grand Casino Coushatta, drawing players from the Houston market. The river boats compete with Louisiana casinos managed by Lakes. Moreover, the legalization of casino gaming in Texas could have a material adverse effect on the casinos managed by Lakes. Louisiana has also enacted legislation allowing racetracks in certain parishes to install slot machines, which has been approved in local referenda. The slot machine operations could also have a material effect on the casinos managed by Lakes. Video poker machines may be located in facilities that serve liquor, at truck stops, and at pari-mutuel racetracks and off-track betting facilities. REGULATION The ownership, management, and operation of gaming facilities are subject to extensive federal, state, provincial, tribal and/or local laws, regulations and ordinances, which are administered by the relevant regulatory agency or agencies in each jurisdiction (the "Regulatory Authorities"). These laws, regulations and ordinances vary from jurisdiction to jurisdiction, but generally concern the responsibility, financial stability and character of the owners and managers of gaming operations as well as persons financially interested or involved in gaming operations. Certain basic provisions that are currently applicable to Lakes are described below. Neither Lakes nor any subsidiary may own, manage or operate a gaming facility unless proper licenses, permits and approvals are obtained. An application for a license, permit or approval may be denied for any cause that the Regulatory Authorities deem reasonable. Most Regulatory Authorities also have the right to license, investigate, and determine the suitability of any person who has a material relationship with Lakes or any of its subsidiaries, including officers, directors, employees, and security holders of Lakes or its subsidiaries. In the event a Regulatory Authority were to find a security holder to be unsuitable, Lakes may be sanctioned, 6 7 and may lose its licenses and approvals if Lakes recognizes any rights in such unsuitable person in connection with such securities. Lakes may be required to repurchase its securities at fair market value from security holders that the Regulatory Authorities deem unsuitable. Lakes' Articles of Incorporation authorize Lakes to redeem securities held by persons whose status as a security holder, in the opinion of the Lakes' Board, jeopardizes gaming licenses or approvals of Lakes or its subsidiaries. Once obtained, licenses, permits, and approvals must be periodically renewed and generally are not transferable. The Regulatory Authorities may at any time revoke, suspend, condition, limit, or restrict a license for any cause they deem reasonable. Fines for violations may be levied against the holder of a license, and in certain jurisdictions, gaming operation revenues can be forfeited to the State under certain circumstances. No assurance can be given that any licenses, permits, or approvals will be obtained by Lakes or its subsidiaries, or if obtained, will be renewed or not revoked in the future. In addition, the rejection or termination of a license, permit, or approval of Lakes or any of its employees or security holders in any jurisdiction may have adverse consequences in other jurisdictions. Certain jurisdictions require gaming operators licensed therein to seek approval from the state before conducting gaming in other jurisdictions. Lakes and its subsidiaries may be required to submit detailed financial and operating reports to Regulatory Authorities. The political and regulatory environment for gaming is dynamic and rapidly changing. The laws, regulations, and procedures pertaining to gaming are subject to the interpretation of the Regulatory Authorities and may be amended. Any changes in such laws, regulations, or their interpretations could have a material adverse effect on Lakes. Certain specific provisions to which Lakes is currently subject are described below. INDIAN GAMING The terms and conditions of management contracts for the operation of Indian-owned casinos, and of all gaming on Indian land in the United States, are subject to the IGRA, which is administered by NIGC, and also are subject to the provisions of statutes relating to contracts with Indian tribes, which are administered by the Secretary of the Interior (the "Secretary") and the BIA. The regulations and guidelines under which NIGC will administer IGRA are evolving. The IGRA and those regulations and guidelines are subject to interpretation by the Secretary and NIGC and may be subject to judicial and legislative clarification or amendment. Lakes may need to provide the BIA or NIGC with background information on each of its directors and each shareholder who holds five percent or more of Lakes' stock ("5% Shareholders"), including a complete financial statement, a description of such person's gaming experience, and a list of jurisdictions in which such person holds gaming licenses. Background investigations of key employees also may be required. Lakes' Articles of Incorporation contain provisions requiring directors and 5% Shareholders to provide such information. IGRA currently requires NIGC to approve management contracts and certain collateral agreements for Indian-owned casinos. Prior to NIGC assuming its management contract approval responsibility, management contracts and other agreements were approved by the BIA. All of Lakes' current management contracts and collateral agreements were approved by the BIA; however, the NIGC may review such management contracts and collateral agreements for compliance with IGRA at any time in the future. The NIGC will not approve a management contract if a director or a 5% Shareholder of the management company (i) is an elected member of the Indian tribal government that owns the facility purchasing or leasing the games; (ii) has been or is convicted of a felony gaming offense; (iii) has knowingly and willfully provided materially false information to the NIGC or the tribe; (iv) has refused to respond to questions from the NIGC; or (v) is a person whose prior history, reputation and associations pose a threat to the public interest or to effective gaming regulation and control, or create or enhance the chance of unsuitable activities in gaming or the business and financial arrangements incidental thereto. In addition, the NIGC will not approve a management contract if the management company or any of its agents have attempted to unduly influence any decision or process of tribal government relating to gaming, or if the management company has materially breached the terms of the management contract or the tribe's gaming ordinance, or a trustee, exercising due diligence, would not approve such management contract. A management contract can be approved only after NIGC determines that the contract provides, among other things, for (i) adequate accounting procedures and verifiable financial reports, which must be furnished to the tribe; (ii) tribal access to the daily operations of the gaming enterprise, including the right to verify daily 7 8 gross revenues and income; (iii) minimum guaranteed payments to the tribe, which must have priority over the retirement of development and construction costs; (iv) a ceiling on the repayment of such development and construction costs; and (v) a contract term not exceeding five years and a management fee not exceeding 30% of profits; provided that the NIGC may approve up to a seven year term and a management fee not to exceed 40% of profits if NIGC is satisfied that the capital investment required, and the income projections for the particular gaming activity justify the larger profit allocation and longer term. While Lakes believes that its management contracts meet all requirements of IGRA, there is a risk that the NIGC may reduce the term or the management fee provided for in any such contracts. Currently, the management contracts (i) have not been reviewed or approved by NIGC, and (ii) NIGC could call them for review at any time and may not approve the contracts at all or may require modification prior to granting approval. Grand and Lakes have requested that the NIGC either approve the Grand Distribution, the Merger and the assignment of Grand's management contracts to Lakes or acknowledge that their approval is not required. While Lakes believes that the assignment is valid and has received the consent and support of both the Tunica-Biloxi Tribe and the Coushatta Tribe, there can be no assurance that the NIGC will respond favorably or will respond in a timely manner. IGRA established three separate classes of tribal gaming -- Class I, Class II, and Class III. Class I includes all traditional or social games played by a tribe in connection with celebrations or ceremonies. Class II gaming includes games such as bingo, pulltabs, punch boards, instant bingo and card games that are not played against the house. Class III gaming includes casino-style gaming and includes table games such as blackjack, craps and roulette, as well as gaming machines such as slots, video poker, lotteries, and pari-mutuel wagering. IGRA prohibits substantially all forms of Class III gaming unless the tribe has entered into a written agreement with the state in which the casino is located that specifically authorizes the types of commercial gaming the tribe may offer (a "tribal-state compact"). IGRA requires states to negotiate in good faith with tribes that seek tribal-state compacts, and grants Indian tribes the right to seek a federal court order to compel such negotiations. Many states have refused to enter into such negotiations. Tribes in several states have sought federal court orders to compel such negotiations under IGRA; however, the Supreme Court of the United States held in 1996 that the Eleventh Amendment to the United States Constitution immunizes states from suit by Indian tribes in federal court without the states' consent. Because Indian tribes are currently unable to compel states to negotiate tribal-state compacts, Lakes may not be able to develop and manage casinos in states that refuse to enter into, or renew, tribal-state compacts. The State of Louisiana has entered into tribal-state compacts with the Coushatta Tribe and the Tunica-Biloxi Tribe. Each of the Louisiana compacts expired in November 1999. The State of Louisiana has delivered a written notice of non-renewal. The Governor and each Tribe have agreed on a six-month extension which has been approved by the Department of the Interior. In the event either of the Louisiana compacts is not renewed, legal gaming possibly may not be permitted at the applicable casino location. There can be no assurance that either of the Louisiana compacts will be renewed. In addition to IGRA, tribal-owned gaming facilities on Indian land are subject to a number of other federal statutes. The operation of gaming on Indian land is dependent upon whether the law of the state in which the casino is located permits gaming by non-Indian entities, which may change over time. Any such changes in state law may have a material adverse effect on the casinos managed by Lakes. Title 25, Section 81 of the United States Code states that "no agreement shall be made by any person with any tribe of Indians, or individual Indians not citizens of the United States, for the payment or delivery of any money or other thing of value...in consideration of services for said Indians relative to their lands...unless such contract or agreement be executed and approved" by the Secretary or his or her designee. An agreement or contract for services relative to Indian lands that fails to conform with the requirements of Section 81 will be void and unenforceable. Any money or other thing of value paid to any person by any Indian or tribe for or on his or their behalf, on account of such services, in excess of any amount approved by the Secretary or his or her authorized representative will be subject to forfeiture. Lakes believes that it has complied with the requirements of Section 81 with respect to its management contracts for Grand Casino Avoyelles and Grand Casino Coushatta. The Indian Trader Licensing Act, Title 25, Section 261-64 of the United States Code ("ITLA") states that "any person other than an Indian of the full blood who shall attempt to reside in the Indian country, or on any Indian reservation, as a trader, or to introduce goods, or to trade therein, without such license, shall forfeit 8 9 all merchandise offered for sale to the Indians or found in his possession, and shall moreover be liable to a penalty of $500..." No such licenses have been issued to Lakes to date. The applicability of ITLA to Indian gaming management contracts is unclear. Lakes believes that ITLA is not applicable to its management contracts, under which Lakes provides services rather than goods to Indian tribes. Lakes further believes that ITLA has been superseded by IGRA. Indian tribes are sovereign nations with their own governmental systems, which have primary regulatory authority over gaming on land within the tribe's jurisdiction. Because of their sovereign status, Indian tribes possess immunity from lawsuits to which the tribes have not otherwise consented or otherwise waived their sovereign immunity defense. Therefore, no contractual obligations undertaken by tribes to Lakes would be enforceable by Lakes unless the tribe has expressly waived its sovereign immunity as to such obligations. Courts strictly construe such waivers. Lakes has obtained immunity waivers from each of the tribes to enforce the terms of its management agreements, however, the scope of those waivers has never been tested in court, and may be subject to dispute. Additionally, persons engaged in gaming activities, including Lakes, are subject to the provisions of tribal ordinances and regulations on gaming. These ordinances are subject to review by NIGC under certain standards established by IGRA. The possession of valid licenses from the Coushatta Tribe and Tunica-Biloxi Tribe are conditions of the Coushatta Agreement and the Tunica-Biloxi Agreement, respectively. NON-GAMING REGULATIONS The Company and its subsidiaries are subject to certain federal, state and local, safety and health laws, regulations pertaining to operation of barges and other marine laws, and regulations and ordinances that apply to non-gaming businesses generally, such as the Clean Air Act, Clean Water Act, Occupational Safety and Health Act, Resource Conservation Recovery Act and the Comprehensive Environmental Response, Compensation and Liability Act. The Company believes that it is currently in material compliance with such regulations. The coverage and attendant compliance costs associated with such laws, regulations and ordinances may result in future additional cost to the Company's operations. EMPLOYEES At March 20, 2000, Lakes had approximately 25 employees. Lakes believes its relations with employees are positive. RISK FACTORS In addition to factors discussed elsewhere in this Annual Report on Form 10-K, the following are important factors that could cause actual results or events to differ materially from those contained in any forward-looking statement made by or on behalf of the Company. INDEMNIFICATION OBLIGATIONS. Under the Distribution Agreement, Lakes and Grand agreed to indemnify each other for liabilities retained by them in the Distribution. Additionally, under the Agreement and Plan of Merger, dated as of June 30, 1998 (the "Merger Agreement") by and among Hilton Hotels Corporation, Park Place, Gaming Acquisition Corporation, Lakes and Grand, Lakes agreed to indemnify Grand for (i) Grand's ongoing indemnification obligations to current and former directors and officers of Grand and (ii) contingent liabilities related to Stratosphere Corporation ("Stratosphere"). The availability of such indemnities will be dependent upon the financial strength and creditworthiness of Grand and Lakes, respectively. No assurance can be given that such entities will be in a position to fund such indemnities should they be obligated to do so in the future. LAKES' FUNDING OBLIGATION. As security to support Lakes' indemnification obligations to Grand under each of the Distribution Agreement and the Merger Agreement, Lakes agreed to deposit, in trust for the benefit of Grand, as a wholly owned subsidiary of Park Place, an aggregate of $30 million to cover various commitments and contingencies related to, or arising out of, Grand's Non-Mississippi business and assets (as defined in the Merger Agreement) (including by way of example, but not limitation, tribal loan guarantees, real property lease guarantees for Lakes' subsidiaries and director and executive officer indemnity obligations) consisting of four annual installments of $7.5 million, payable at the end of each year for a four year period subsequent to the effective date of the Merger if the indemnification obligation still exists. Lakes made the first deposit of $7.5 million on December 31, 1999 and such amount is included as restricted cash on the accompanying balance sheet as of January 2, 2000. Lakes' ability to satisfy this funding obligation is materially 9 10 dependent upon the continued success of its operations and the general risks inherent in its business. In the event Lakes is unable to satisfy its funding obligation, it would be in breach of its agreement with Grand, possibly subjecting itself to additional liability for contract damages, which could have a material adverse effect on Lakes' business and results of operations. HIGHLY REGULATED INDUSTRY. The ownership, management and operation of gaming facilities are subject to extensive federal, state, provincial, tribal and/or local laws, regulations, and ordinances, which are administered by the relevant regulatory agency or agencies in each jurisdiction. These laws, regulations and ordinances vary from jurisdiction to jurisdiction, but generally concern the responsibility, financial stability and character of the owners and managers of gaming operations as well as persons financially interested or involved in gaming operations. Grand and Lakes have requested that the NIGC either approve the Distribution or acknowledge that their approval is not required. There can be no assurance the NIGC approval or any other required approvals will be secured on a timely basis, if at all. See "Regulation." STRATOSPHERE CORPORATION; PENDING LITIGATION. Grand and certain of its current and former directors and officers are defendants in several lawsuits related to Grand's former investment in Stratosphere. Stratosphere owns and operates the Stratosphere Tower, Casino & Hotel, a casino/hotel and entertainment complex in Las Vegas which filed for reorganization under Chapter 11 of the Bankruptcy Code on January 27, 1997. On November 7, 1997, Stratosphere filed a second amended proposed plan of reorganization with the Bankruptcy Court which became effective on October 14, 1998 (the "Second Amended Plan"). Under the Second Amended Plan, the secured portion of Stratosphere's outstanding first mortgage notes were converted into 100% of the equity of the reorganized Stratosphere and all of the common stock of Stratosphere outstanding prior to the effective date of the Second Amended Plan was canceled. Grand beneficially owned approximately 37% of the issued and outstanding common stock of Stratosphere prior to its cancellation as a result of the Second Amended Plan becoming effective. Pursuant to the terms of the Distribution Agreement, any future liabilities arising out of the various Stratosphere-related lawsuits were assumed by Lakes. In addition other contingent liabilities related to or arising out of Grand's Non-Mississippi business (such as tribal loan guarantees, real property lease guarantees for Lakes' subsidiaries, and director and officer indemnity obligations (see below)) were also assumed by Lakes. Although potential costs associated with these various commitments and contingencies did not increase solely as a result of the Distribution, given the numerous uncertainties associated with litigation and the contingent nature of Lakes' various financial commitments, Lakes is unable to quantify, within any reasonable range, its total exposure if all or any of the pending litigation were to be resolved adversely to Lakes' interests. Nor is Lakes able to assess the likelihood that it will be required to perform on some or all of its contingent financial obligations. Under Minnesota corporate law, Lakes is required, subject to certain limitations and exclusions, to indemnify its current and former officers and directors. Although Lakes has agreed to assume the liabilities related to Stratosphere and the Stratosphere lawsuits, Lakes agreed under the Merger Agreement to indemnify Grand for such liabilities and certain other pending litigation. Accordingly, Lakes will bear the cost of defending itself, its current and former directors and officers, and Grand and its current and former officers and directors for any settlement or judgment of such matters. Although these lawsuits are in their early stages and Lakes plans to defend itself vigorously, there can be no assurance that the costs of defense and any settlement or judgment will not have a material adverse effect on Lakes or, if Lakes does not satisfy its indemnification obligations to Grand, on Grand. OPERATING COVENANTS; DIVIDEND RESTRICTIONS. So long as Lakes is required to indemnify Grand for certain specified liabilities, including (i) contingent liabilities assumed by Lakes under the Distribution Agreement, (ii) ongoing director and officer indemnification obligations and (iii) contingent liabilities related to Stratosphere, Lakes has agreed that it will not declare or pay any dividends, make any distribution on account of Lakes' equity interests, or otherwise purchase, redeem, defease or retire for value any equity interest in Lakes, without the written consent of Park Place, which consent can be given or withheld in Park Place's sole and absolute discretion. FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING. Lakes anticipates that the cash it received in the Distribution, interest expected to be earned thereon and its anticipated revenues will be sufficient to finance its operations. There can be no assurance, however, that Lakes will not seek or require additional capital at some point in the future through either public or private financings. Such financings may not be available when needed on terms acceptable to Lakes or at all. Moreover, any additional equity financings may be dilutive to Lakes shareholders, and any debt financing may involve additional restrictive covenants. An 10 11 inability to raise such funds when needed might require Lakes to delay, scale back or eliminate some of its expansion and development goals, and might require Lakes to cease its operations entirely. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Lakes -- Capital Resources, Capital Spending and Liquidity." COMPETITION. The gaming industry is highly competitive. Gaming activities include traditional land-based casinos; river boat and dockside gaming; casino gaming on Indian land; state-sponsored lotteries and video poker in restaurants, bars and hotels; pari-mutuel betting on horse racing, dog racing and jai alai; sports bookmaking; and card rooms. The Indian-owned casinos managed by Lakes compete, and will in the future compete, with all these forms of gaming, and will compete with any new forms of gaming that may be legalized in additional jurisdictions, as well as with other types of entertainment. In Louisiana, there are presently 14 licensed river boats in operation that compete with Grand Casino Coushatta and Grand Casino Avoyelles, including "Casino America" and "Players Lake Charles" and, to a lesser extent, "Binion's Horseshoe Casino," "Casino Magic" and "Harrah's Shreveport." Lakes also competes with other gaming companies for opportunities to acquire legal gaming sites in emerging and established gaming jurisdictions and for the opportunity to manage casinos on Indian land. Because the Distribution resulted in the unavailability of historical cash flows and assets represented by Grand's Mississippi business, Lakes' ability to compete for and develop future gaming or other business opportunities will be restricted, both in the size and number of development projects it can pursue. Many of Lakes' competitors have more personnel and most have greater financial and other resources than Lakes. Such competition in the gaming industry could adversely affect Lakes' ability to attract customers and thus, adversely affect its operating results. In addition, further expansion of gaming into new jurisdictions could also adversely affect Lakes' business by diverting customers from its managed casinos to competitors in such jurisdictions. MANAGEMENT CONTRACTS OF LIMITED DURATION. Lakes is prohibited under the IGRA from having an ownership interest in any casino it manages for Indian tribes. The current management contracts for Grand Casino Avoyelles and Grand Casino Coushatta expire June 3, 2001 and January 16, 2002, respectively. The Coushatta Tribe and Lakes have agreed on a five year contract renewal beginning January 17, 2002, subject to NIGC approval. Net distributable profits, if any, under the new agreement will be determined in accordance with IGRA and distributed each month 90% to the Coushatta Tribe and 10% to Lakes. There can be no assurance that any of these management contracts will be renewed upon expiration or approved by the NIGC upon any such renewal. Lakes anticipates that any renewal of the Grand Casino Coushatta and Grand Casino Avoyelles management contracts will be upon terms less favorable to Lakes. The failure to renew Lakes' management contracts would result in the loss of revenues to Lakes derived from such contracts, which would have a material adverse effect on Lakes' results of operations. The Coushatta Tribe and the Tunica-Biloxi Tribe each entered into tribal-state compacts with the State of Louisiana on September 29, 1992. These compacts were approved in November, 1992 by the Secretary of the Interior. Each compact expired in November, 1999 and the State of Louisiana has delivered a written notice of non-renewal. The Governor and each Tribe have agreed on a six-month extension which has been approved by the Department of the Interior. In the event the compacts are not renewed, legal gaming may possibly not be permitted at Grand Casino Avoyelles or Grand Casino Coushatta. In the event that the compacts are renewed, but Lakes' management contracts are not, Lakes will not operate the casinos at those locations. The non-renewal of the management contracts would result in the loss of revenues to Lakes derived from such contracts, which would have a material adverse effect on Lakes' results of operations. Currently, the management contracts for Grand Casino Coushatta and Grand Casino Avoyelles generate all of Lakes' operating revenues. Without the renewal of either or both of the existing management contracts or the realization of new business opportunities or new management contracts, the non-renewal of the Louisiana management contracts would have a material adverse impact on Lakes' results of operations and financial condition. There can be no assurance that these compacts will be renewed on terms and conditions acceptable to either of the tribes. MANAGEMENT CONTRACTS SUBJECT TO GOVERNMENTAL MODIFICATION. The NIGC has the power to require modifications to Indian management contracts under certain circumstances or to void such contracts or ancillary agreements including loan agreements if the management company fails to obtain requisite approvals or to comply with applicable laws and regulations. While Lakes believes that its management contracts meet the requirements of the IGRA, NIGC has the right to review each contract and has the authority to reduce the term of a management contract or the management fee or otherwise require modification of the contract, 11 12 which could have an adverse effect on Lakes. Currently, the management contracts (i) have not been reviewed or approved by NIGC and (ii) NIGC could call them for review at any time, in which case NIGC may not approve the contracts at all or may require modification prior to granting approval. In addition, Lakes has made loans to Indian tribes in excess of the loan ceilings set forth in each of the Indian management contracts. Under certain circumstances, these loans may not be enforceable by Lakes. As of January 2, 2000, loan balances outstanding to such tribes were approximately $33.1 million. LIMITED RECOURSE AGAINST TRIBAL ASSETS. Lakes has made, and will make substantial loans to tribes for the construction, development, equipment and operations of casinos managed by Lakes. Lakes' only recourse for collection of indebtedness from a tribe or money damages for breach or wrongful termination of a management contract is from revenues, if any, from casino operations. Lakes has subordinated, and may in the future subordinate, the repayment of these loans to a tribe and other distributions due from a tribe (including management fees) in favor of other obligations of the tribe to other parties related to the casino operations. Accordingly, in the event of a default by a tribe under such obligations, Lakes' loans and other claims against the tribe will not be repaid until such default has been cured or the tribe's senior casino-related creditors have been repaid in full. DEPENDENCE ON KEY PERSONNEL. Lakes' success will depend largely on the efforts and abilities of its senior corporate management, particularly Lyle Berman, its Chairman and Chief Executive Officer. The loss of the services of Mr. Berman or other members of senior corporate management could have a material adverse effect on Lakes. Lakes does not have an employment agreement with Mr. Berman. LIMITED BASE OF OPERATIONS. Lakes' principal operations currently consist of the management of two Indian-owned casinos. The management contracts for Grand Casino Avoyelles and Grand Casino Coushatta expire June 3, 2001 and January 16, 2002, respectively. The Coushatta Tribe and Lakes have agreed on a five-year contract renewal beginning January 17, 2002, subject to NIGC approval. The combination of the relatively small number of managed casinos and the potentially significant investment associated with any new managed casino may cause the operating results of Lakes to fluctuate significantly and adversely affect the profitability of Lakes. Due to this relatively small number of current locations, poor operating results at any one casino or a delay in the opening or non-opening of any future casinos could materially affect the profitability of Lakes. Future growth in revenues and profits will depend to a large extent on Lakes' ability to continue to increase the number of its managed casinos or develop new business opportunities. RISKS ASSOCIATED WITH NEW DEVELOPMENT ACTIVITIES. Although Lakes and certain members of its management team have experience developing, operating and managing casinos owned by Indian tribes and located on Indian land, neither the Company nor any of these individuals has developed or operated a casino in either the State of California or the State of Michigan. In addition, the gaming industry in each of the three locations where Lakes plans to develop and operate casinos has no operating history as yet and faces several legal and procedural challenges which will need to be resolved prior to the commencement of Lakes' development activities and the opening and operation of the respective casinos. The opening of each of the proposed Lakes' facilities, near San Diego, CA, Sacramento, CA, and in the State of Michigan, respectively, will be contingent upon, among other things, the completion of construction, hiring and training of sufficient personnel and receipt of all regulatory licenses, permits, allocations and authorizations. The scope of the approvals required to construct and open these facilities will be extensive, and the failure to obtain such approvals could prevent or delay the completion of construction or opening of all or part of such facilities or otherwise affect the design and features of the proposed casinos. At this time, Lakes does not have a target date for the start of development and construction of these three projects, and no assurances can be given that even once a schedule for such construction and development activities has been established, such development activities will begin or will be completed on time, or any other time, or that the budget for these projects will not be exceeded. Major construction projects entail significant risks, including shortages of materials or skilled labor, unforeseen engineering, environmental and/or geological problems, work stoppages, weather interference, unanticipated cost increases and non-availability of construction equipment. Construction, equipment or stalling problems or difficulties in obtaining any of the requisite licenses, permits, allocations and authorizations from regulatory authorities could increase the total cost, delay or prevent the construction or opening or any of these planned casino developments or otherwise affect their design. In addition, once developed, no assurances can be given that the Company will be able to manage these casinos on a profitable basis or to attract a sufficient number of guests, gaming customers and other visitors to make the various operations profitable independently. 12 13 ITEM 2. PROPERTIES CORPORATE OFFICE FACILITY Pursuant to the terms of the Distribution Agreement, Grand has assigned to Lakes, and Lakes has assumed a lease agreement dated February 1, 1996 covering Lakes' current corporate office space of approximately 65,000 square feet with a lease term of fifteen years. The lease commenced on October 14, 1996 and the annual base rent is $768,300 plus building operating costs. LAS VEGAS LAND SHARK CLUB PARCEL A subsidiary of Lakes is the tenant under a ground lease (the "Shark Club Lease") which has a term through July 31, 2046 unless sooner terminated in accordance with the provisions thereof. The Shark Club Lease provides for base rent in the initial amount of $65,000 per month, subject to adjustment each lease year based on a cost of living formula and additional rent in the amount of $6,500 per month if the parcel is used for a casino/hotel. In addition to the base rent, Lakes must pay all taxes on and bear all costs of maintaining the property. Grand Casinos also executed a guarantee in connection with the execution of the Shark Club Lease by its former subsidiary. In connection with the Merger, Lakes agreed with Park Place that Lakes will either exercise, or cause one of its subsidiaries to exercise, the Shark Club Lease purchase option of approximately $10.1 million prior to the earliest time when the landlord could require Lakes (or Grand as the guarantor) to purchase the subject real estate. Lakes is anticipating that date to be April 2000. Under the Shark Club Lease, Lakes is required to maintain the leased property. Lakes executed an amendment to the Shark Club Lease that permitted it to raze the property without increasing its security deposit. In exchange. Lakes agreed to waive the payment and accrual of interest on such security deposit. TRAVELODGE PARCEL A Lakes subsidiary is tenant under a ground lease (the "Travelodge Lease") which commenced on June 17, 1996, and will (unless sooner terminated in accordance with the provisions thereof) remain in effect until June 16, 2095. The Travelodge Lease provides for a base rent (in the initial amount of $166,667 per month) that is adjusted each lease year based on a cost of living formula. In addition to the base rent, the tenant must pay all taxes on and costs of maintaining the leased property. Lakes has the option to purchase the leased property during the 20th lease year for the purchase price of $30 million. Lakes manages the hotel building located on the leased property. A third party had a sublease interest in the leased property. That claimed interest was terminated pursuant to an agreement between the third party and Lakes that provides for payments by Lakes in the amount of $150,000 per quarter for a period of ten years after such party surrendered possession of the property to Lakes. A portion of the building located on the leased property is subleased, which Lakes currently has the right to terminate by making certain prescribed payments, and complying with certain other conditions stated, in the sublease. POLO PLAZA SHOPPING CENTER PARCEL On October 1, 1999, the Company purchased the shopping center and land owned by the Nevada Resort Properties Polo Plaza Limited Partnership (the "Partnership") in lieu of exercising its right to purchase the remaining 51% interest in the Partnership. Prior to the purchase, the Company held a 49% ownership interest in the Partnership. In consideration for the purchase, the Company paid approximately $3.3 million and paid off the outstanding partnership mortgage of approximately $6.3 million. A $6.2 million loan to the Partnership made by the Company during January 1999 was repaid and satisfied at the closing by offsetting an appropriate amount against the purchase price as agreed by the Company and the Partnership. Pursuant to the purchase agreement relating to this transaction, the Partnership is currently being dissolved. Lakes continues to operate the site as a commercial shopping center. CABLE PARCEL Pursuant to a November 1, 1997 Option Agreement, Grand acquired an option to purchase approximately 4.5 acres of land located near the Polo Plaza Shopping Center anytime prior to October 31, 2000. As 13 14 consideration for the option, Lakes pays the landowner a non-refundable monthly option payment of $80,000. The option agreement states that the purchase price for the land is $18 million. ITEM 3. LEGAL PROCEEDINGS The following summaries describe certain known legal proceedings to which Grand is a party which Lakes has assumed, or with respect to which Lakes has agreed to indemnify Grand, in connection with the Distribution. STRATOSPHERE SHAREHOLDERS LITIGATION -- FEDERAL COURT In August 1996, a complaint was filed in the U.S. District Court for the District of Nevada -- Michael Ceasar, et al v. Stratosphere Corporation, et al -- against Stratosphere and others, including Grand. The complaint was filed as a class action, and sought relief on behalf of Stratosphere shareholders who purchased their stock between December 19, 1995 and July 22, 1996. The complaint included allegations of misrepresentations, federal securities law violations and various state law claims. In August through October 1996, several other nearly identical complaints were filed by various plaintiffs in the U.S. District Court for the District of Nevada. The defendants in the actions submitted motions requesting that all of the actions be consolidated. Those motions were granted in January 1997, and the consolidated action is entitled In re: Stratosphere Corporation Securities Litigation -- Master File No. CV-S-96-00708 PMP (RLH). In February 1997, the plaintiffs filed a consolidated and amended complaint naming various defendants, including Grand and certain current and former officers and directors of Grand. The amended complaint includes claims under federal securities laws and Nevada laws based on acts alleged to have occurred between December 19, 1995 and July 22, 1996. The Court has recently signed a scheduling order, which cuts off fact discovery as of April 30, 2000 and expert discovery as of September 30, 2000. The parties have submitted preliminary pretrial statements, which may be amended after the completion of discovery. In February 1997, various defendants, including Grand and Grand's officers and directors named as defendants, submitted motions to dismiss the amended complaint. Those motions were made on various grounds, including Grand's claim that the amended complaint failed to state a valid cause of action against Grand and Grand's officers and directors. In May 1997, the court dismissed the amended complaint. The dismissal order did not allow the plaintiffs to further amend their complaint in an attempt to state a valid cause of action. In June 1997, the plaintiffs asked the court to reconsider its dismissal order, and to allow the plaintiffs to submit a second amended complaint in an attempt to state a valid cause of action. In July 1997, the court allowed the plaintiffs to submit a second amended complaint. In August 1997, the plaintiffs filed a second amended complaint. In September 1997, certain of the defendants, including Grand and Grand's officers and directors named as defendants, submitted a motion to dismiss the second amended complaint. The motion was based on various grounds, including Grand's claim that the second amended complaint failed to state a valid cause of action against Grand and Grand's officers and directors. In April 1998, the Court granted Grand's motion to dismiss, in part, and denied the motion in part. Thus, the plaintiffs are pursuing the claims in the second amended complaint that survived the motion to dismiss. In June 1998, certain of the defendants, including Grand and Grand's officers and directors named as defendants, submitted a motion for summary judgment seeking an order that such defendants are entitled to judgment as a matter of law. In December 1998, the plaintiffs completed fact discovery related to the issues raised by the summary judgment motion. Expert discovery was completed in March of 1999. All papers relating to this matter were filed on June 1, 1999. On October 6, 1999, the District Court entered its Order, granting in part and denying in part, defendants' Motion for Summary Judgment and Summary Adjudication. The Court dismissed all allegations in reference to (1) Phase II funding levels; (2) "over-allotments uses", as stated in the December 19, 1995 Prospectus; (3) the purpose and use of the Grand Casino Completion Guaranty, as stated in the June 6, 1996 Press 14 15 Statement; (4) the vague expressions of general optimism (issued within the December 19, 1995 Prospectus, the 10-Q and 10-K Filings, press releases and other public statements) referred to in this Order; (5) the adoption of statements in securities analysts reports; (6) the alleged utterance of misleading statements before the Nevada Gaming Commission; and (7) the temporary diversion of Phase II proceeds to fund Phase I. The remaining claims relate to the accuracy of defendants' budgetary estimates issued in Stratosphere's December 1995 Prospectus and SEC 10-Q and 10-K Reports. The Court concluded that there were triable issues as to whether defendants misstated anticipated construction costs or omitted to disclose material cost overruns. The court recently added the Company as an additional defendant because of its indemnity obligation and stipulation. Park Place has opposed being added to the litigation and plaintiffs' motion to add Park Place as a defendant is pending. STRATOSPHERE SHAREHOLDERS LITIGATION -- NEVADA STATE COURT In August 1996, a complaint was filed in the District Court for Clark County, Nevada -- Victor M. Opitz, et al v. Robert E. Stupak, et al -- Case No. A363019 -- against various defendants, including Grand. The complaint seeks relief on behalf of Stratosphere Corporation shareholders who purchased stock between December 19, 1995 and July 22, 1996. The complaint alleges misrepresentations, state securities law violations and other state claims. Grand and certain defendants submitted motions to dismiss or stay the state court action pending resolution of the federal court action described above. The court has stayed further proceedings pending the resolution of In re: Stratosphere Securities Litigation. GRAND CASINOS, INC. SHAREHOLDERS LITIGATION In September and October 1996, two actions were filed by Grand shareholders in the U.S. District Court for the District of Minnesota against Grand and certain of Grand's current and former directors and officers. The complaints allege misrepresentations, federal securities law violations and other claims in connection with the Stratosphere project. The actions have been consolidated as In re: Grand Casinos, Inc. Securities Litigation -- Master File No. 4-96-890 -- and the plaintiffs filed a consolidated complaint. The defendants submitted a motion to dismiss the consolidated complaint, based in part on Grand's claim that the consolidated complaint failed to properly state a cause of action. In December 1997, the court granted Grand's motion to dismiss in part, and denied the motion in part. Thus, the plaintiffs are pursuing the claims in the consolidated complaint that survived Grand's motion to dismiss. Discovery in the action has begun. The defendants have submitted a motion for summary judgment seeking an order that the defendants are entitled to judgment as a matter of law. In December 1998, the plaintiffs completed fact discovery related to the issues raised by the summary judgement motion. Expert discovery was completed in March of 1999. The parties have completed follow-up discovery pertaining to the summary judgment motion. The court heard the motion on September 2, 1999. The court has not yet ruled on the motion. In early February 1999, the plaintiffs filed a motion for leave to amend the complaint in this action to include, as defendants in the case, both the Company and Park Place. The motion for leave to amend the complaint has been granted and Lakes has filed its answer. Lakes will defend this action vigorously. SLOT MACHINE LITIGATION In April 1994, William H. Poulos brought an action in the U.S. District Court for the Middle District of Florida, Orlando Division -- William H. Poulos, et al v. Caesars World, Inc. et al -- Case No. 39-478-CIV-ORL-22 -- in which various parties (including Grand) alleged to operate casinos or be slot machine manufacturers were named as defendants. The plaintiff sought to have the action certified as a class action. A subsequently filed Action -- William Ahearn, et al v. Caesars World, Inc. et al -- Case No. 94-532-CIV-ORL-22 -- made similar allegations and was consolidated with the Poulos action. Both actions included claims under the federal Racketeering-Influenced and Corrupt Organizations Act and under state law, and sought compensatory and punitive damages. The plaintiffs claimed that the 15 16 defendants are involved in a scheme to induce people to play electronic video poker and slot machines based on false beliefs regarding how such machines operate and the extent to which a player is likely to win on any given play. In December 1994, the consolidated actions were transferred to the U.S. District Court for the District of Nevada. In September 1995, Larry Schreier brought an action in the U.S. District Court for the District of Nevada -- Larry Schreier, et al v. Caesars World, Inc. et al -- Case No. CV-95-00923-DWH(RJJ). The plaintiffs' allegations in the Schreier action were similar to those made by the plaintiffs in the Poulos and Ahearn actions, except that Schreier claimed to represent a more precisely defined class of plaintiffs than Poulos or Ahearn. In December 1996, the court ordered the Poulos, Ahearn and Schreier actions consolidated under the title William H. Poulos, et al v. Caesars World, Inc., et al -- Case No. CV-S-94-11236-DAE(RJJ) -- (Base File), and required the plaintiffs to file a consolidated and amended complaint. In February 1997, the plaintiffs filed a consolidated and amended complaint. In March 1997, various defendants (including Grand) filed motions to dismiss or stay the consolidated action until the plaintiffs submitted their claims to gaming authorities and those authorities considered the claims submitted by the plaintiffs. In December 1997, the court denied all of the motions submitted by the defendants, and ordered the plaintiffs to file a new consolidated and amended complaint. That complaint has been filed. Grand has filed its answer to the new complaint. The plaintiffs have filed a motion seeking an order certifying the action as a class action. Grand and certain of the defendants have opposed the motion. The Court has not ruled on the motion. STANDBY EQUITY COMMITMENT LITIGATION In September 1997, the Stratosphere Trustee under the indenture pursuant to which Stratosphere issued its first mortgage notes filed a complaint 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 (RJJ) -- naming Grand as defendant. The complaint alleges that Grand failed to perform under the Standby Equity Commitment entered into between Stratosphere and Grand in connection with Stratosphere's issuance of such first mortgage notes in March 1995. The complaint seeks an order compelling specific performance of what the Trustee claims are Grand's obligations under the Standby Equity Commitment. The Stratosphere Trustee filed the complaint in its alleged capacity as a third party beneficiary under the Standby Equity Commitment. Pursuant to the Second Amended Plan, a new limited liability company (the "Stratosphere LLC") was formed to pursue certain alleged claims and causes of action that Stratosphere and other parties may have against numerous third parties, including Grand and/or officers and/or directors of Grand. The Stratosphere LLC has been substituted for IBJ Schroeder Bank & Trust Company, Inc. in this proceeding. In October of 1999, Motions for Summary Judgment by both parties were denied. Grand's request for appellate court review of the denial as to its motion for summary judgment was denied. The trial court is expected to hold a pretrial conference to address discovery and scheduling issues. Lakes will continue to defend the lawsuit diligently. STRATOSPHERE PREFERENCE ACTION In April 1998, Stratosphere served on Grand and Grand Media & Electronics Distributing, Inc., a wholly owned subsidiary of Grand ("Grand Media"), a complaint in the Stratosphere bankruptcy case seeking recovery of certain amounts paid by Stratosphere to (i) Grand as management fees and for costs and expenses under a management agreement between Stratosphere and Grand, and (ii) Grand Media for electronic equipment purchased by Stratosphere from Grand Media. Stratosphere claims in its complaint that such amounts are recoverable by Stratosphere as preferential payments under bankruptcy law. 16 17 In May 1998, Grand responded to Stratosphere's complaint. That response denies that Stratosphere is entitled to recover the amounts described in the complaint. The matter is pending. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 17 18 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Lakes became a stand-alone, publicly held and publicly traded company as a result of the Grand Distribution which was effected on December 31, 1998. The fourth quarter of Lakes' fiscal year ended on Sunday, January 3, 1999 and the Common Stock did not begin trading on the Nasdaq National Market under the symbol LACO until Monday, January 4, 1999. For the period from January 4, 1999 through January 2, 2000, the high and low sales prices per share of the Company's Common Stock are indicated below, as reported on the Nasdaq National Market:
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- Year Ended January, 2, 2000: High................................................ $12.38 $11.88 $13.25 $10.31 Low................................................. 7.88 8.00 9.31 6.84
On March 20, 2000, the last reported sale price for the Common Stock was $7.9375 per share. As of March 20, 2000, the Company had approximately 10,630,453 shareholders of record. The Company has never paid any cash dividends with respect to its Common Stock and the current policy of the Board of Directors is to retain any earnings to provide for the growth of the Company. So long as Lakes is required to indemnify Grand, as a subsidiary of Park Place, for certain specified liabilities, Lakes has agreed that it will not declare or pay any dividends, make any distribution on account of Lakes' equity interests or otherwise purchase, redeem, defease or retire for value any equity interest in Lakes without the written consent of Park Place which consent can be given or withheld in Park Place's sole and absolute discretion. Subject to the foregoing dividend restrictions, the payment of cash dividends in the future, if any, will be at the discretion of the Board of Directors and will depend upon such factors as earnings levels, capital requirements, the Company's overall financial condition and any other factors deemed relevant by the Board of Directors. See "Risk Factors -- Operating Covenants -- Dividend Restrictions." ITEM 6. SELECTED FINANCIAL DATA The Selected Financial Data presented below should be read in conjunction with the Financial Statements and notes thereto included elsewhere in this Form 10-K, and in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Form 10-K.
FISCAL YEARS ENDED OR AS OF: -------------------------------------------------------------------- JANUARY 2, JANUARY 3, DECEMBER 28, DECEMBER 29, DECEMBER 31, 2000 1999 1997 1996 1995 ---------- ---------- ------------ ------------ ------------ (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) LAKES HISTORICAL RESULTS OF OPERATIONS: Total revenue................... $ 55 $ 92 $ 79 $ 77 $ 69 Total operating income.......... 45 76 70 60 58 Net Earnings (loss)............. 29 61 45 (109)(2) 41 Net Earnings (loss) per share -- basic........................ 2.72 5.80 4.32 (10.46)(2) 4.81 Net Earnings (loss) per share -- diluted...................... 2.67 5.71 4.20 (10.46)(2) 4.65 OTHER OPERATING DATA: EBITDA(1)....................... 47 78 71 61 60 BALANCE SHEET: Unrestricted Cash and cash equivalents.................. $ 24 $ 57 $ 33 $ 34 $ 33 Total assets.................... 185 161 132 114 233 Total debt...................... 2 1 1 1 1 Shareholders' equity............ 160 132 119 104 229
18 19 - --------------- (1) 1998 results include $36.8 million in revenues from the management contracts for Grand Casino Mille Lacs and Grand Casino Hinckley that concluded during 1998. The Company's revenues and earnings will not include contributions from these operations going forward. EBITDA is earnings before interest, taxes, depreciation and amortization, which can be computed by adding depreciation and amortization to operating income. EBITDA also excludes the $161 million write off of Grand's investment in Stratosphere Corporation. EBITDA is presented supplementally because management believes it allows for a more complete analysis of results of operations. This information should not be considered as an alternative to any measure of performance as promulgated under generally accepted accounting principles (such as operating income or income from continuing operations) nor should it be considered as an indicator of the overall financial performance of Lakes. The calculations of EBITDA may be different from the calculations used by other companies and therefore comparability may be limited. Historical depreciation and amortization for Lakes for the fiscal years ended January 2, 2000, January 3, 1999, December 28, 1997, December 29, 1996 and December 31, 1995 totaled $2 million, $2 million, $1 million, $1 million and $2 million, respectively. (2) Includes a non-recurring, non-cash $161 million charge related to the write-off of Lakes' investment in Stratosphere Corporation. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Lakes was established as a public corporation on December 31, 1998, via a distribution of its Common Stock, to the shareholders of Grand. Pursuant to the terms of the Distribution Agreement entered into between Grand and Lakes and dated as of December 31, 1998, Grand shareholders received .25 shares of Lakes Common Stock for each share held in Grand. Historical references to the Company, which preclude the distribution give pro forma effect to the distribution as if it had already occurred. Immediately following the Distribution, Grand merged with a subsidiary of Park Place, pursuant to which Grand became a wholly owned subsidiary of Park Place. Grand shareholders received one share of Park Place common stock in the Merger for each share they held in Grand. As a result of the Distribution, Lakes operates the Indian casino management business and holds various other assets previously owned by Grand. The Company's revenues are derived almost exclusively from management fees. Lakes manages two land-based, Indian-owned casinos in Louisiana: Grand Casino Avoyelles, in Marksville, Louisiana, owned by the Tunica-Biloxi Tribe and Grand Casino Coushatta, in Kinder, Louisiana, owned by the Coushatta Tribe. Both management contracts expire seven years from the dates the casinos opened. For a portion of fiscal 1998, and prior to the Distribution, Grand also had management contracts for Indian-owned casinos located at Grand Casino Hinckley and Grand Casino Mille Lacs in Minnesota. The management contract at Grand Casino Mille Lacs expired at the end of the first quarter of 1998, and the management of Grand Casino Hinckley ended November 30, 1998, with the buyout of the remaining contract term. Lakes develops, constructs and manages casinos and related hotel and entertainment facilities in emerging and established gaming jurisdictions. Lakes' revenues are derived from management fee income from Grand Casino Avoyelles and Grand Casino Coushatta. Grand commenced operations in September 1990, and opened its first casino, Grand Casino Mille Lacs, in April 1991. Grand Casino Hinckley commenced operations in May 1992, Grand Casino Avoyelles commenced operations in June 1994 and Grand Casino Coushatta commenced operations in January 1995. Pursuant to the Avoyelles and Coushatta management contracts, Lakes receives a fee based on the net distributable profits (as defined in the contracts) generated by Grand Casino Avoyelles and Grand Casino Coushatta. On May 12, 1999, the Company announced that it would form a partnership for the purpose of developing a gaming facility on Indian-owned land near San Diego, California. Under the agreement, Lakes has formed a limited liability company with KAR, a limited liability company based in Houston, Texas. The partnership between Lakes and KAR holds a contract to develop and manage a casino resort facility with the 19 20 Jamul Indian Village in California. The contract is subject to approval by NIGC. California voters recently approved an amendment to the State Constitution which allows for Nevada-style gaming on Indian land and ratifies the Tribal Compact. Development of the casino resort will begin once various regulatory approvals are received. On June 22, 1999, the Company announced that it has been selected by the Pokagon Band to serve as the exclusive developer and manager of a proposed casino gaming resort facility to be owned by the Pokagon Band in the State of Michigan. In connection with its selection, Lakes and the Band have executed a development and management agreement governing their relationship during the development, construction and management of the casino. Various regulatory approvals are needed prior to commencement of development activities. Casino construction is not planned to start until land is accepted into trust status by the Secretary of the Interior and the agreements are approved by the Chairman of NIGC. On July 15, 1999, the Company announced that it would form a partnership for the purpose of developing a gaming facility on Indian-owned land near Sacramento, California. Pursuant to the agreement, Lakes has formed a limited liability company with KAR, a limited liability company based in Houston, Texas. The partnership between Lakes and KAR has been awarded a contract to develop and manage a casino resort facility with the Shingle Springs Band of Miwok Indians in California. The contract is subject to approval by NIGC and placement of the land where the gaming facility is to be located into trust with the BIA. California voters recently approved an amendment to the State Constitution which allows for Nevada-style gaming on Indian land and ratifies the Tribal Compact. Development of the casino resort will begin once various regulatory approvals are received. On October 1, 1999, the Company purchased the shopping center and land owned by the Nevada Resort Properties Polo Plaza Limited Partnership in lieu of exercising its right to purchase the remaining 51% interest in the Partnership. Prior to the purchase, the Company held a 49% ownership interest in the Partnership. In consideration for the purchase, the Company paid approximately $3.3 million and paid off the outstanding partnership mortgage of approximately $6.3 million. A $6.2 million loan to the Partnership made by the Company during January 1999 was repaid and satisfied at the closing by offsetting an appropriate amount against the purchase price as agreed by the Company and the Partnership. Pursuant to the purchase agreement relating to this transaction, the Partnership is currently being dissolved. On December 22, 1999, the Company and Rainforest Cafe, Inc. announced plans to merge. Under the terms of the agreement, Rainforest Cafe shareholders would have received .55 of one share of Lakes Common Stock for every share owned in Rainforest Cafe. The transaction was terminated by mutual agreement on January 24, 2000 after Rainforest Cafe, Inc. received an unsolicited offer to purchase Rainforest Cafe, Inc. Lakes will be entitled to a $2 million termination fee in the event Rainforest Cafe, Inc. consummates a competing proposal prior to July 24, 2000. Lakes' investments in unconsolidated affiliates include a 27 percent ownership interest in Fanball.com, Inc., a start-up internet provider of fantasy sports services, and a 23 percent ownership interest in Interactive Learning Group, Inc., a consumer product company. Lakes invested $3.4 million and $3 million in Fanball.com and Interactive Learning Group, respectively, at the end of the second quarter of 1999. Additionally, as a result of its spin-off from Grand, Lakes received a 49 percent ownership interest in Trak 21 Development, LLC, a developer of player tracking systems for the casino industry, and a 27 percent ownership interest in New Horizon Kids Quest, Inc., a publicly held provider of child care facilities. The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto for the years ended January 2, 2000, January 3, 1999, and December 28, 1997. RESULTS OF OPERATIONS Revenues are calculated in accordance with generally accepted accounting principles and are presented in a manner consistent with industry practice. Net distributable profits from Grand Casino Avoyelles and Grand Casino Coushatta are computed using a modified cash basis of accounting in accordance with the management contracts. The effect of the use of the modified cash basis of accounting is to accelerate the write-off of capital equipment and leased assets, which thereby impacts the timing of net distributable profits. Lakes is prohibited by IGRA from having an ownership interest in any casino it manages for Indian tribes. The management contracts for Grand Casino Avoyelles and Grand Casino Coushatta expire June 3, 2001 and January 16, 2002, respectively. The Coushatta Tribe and Lakes have agreed on a five-year contract renewal beginning January 17, 2002, subject to NIGC approval. Net distributable profits, if any, under the 20 21 new agreement will be determined in accordance with IGRA and distributed each month 90% to the Coushatta Tribe and 10% to Lakes. There can be no assurance that any of these management contracts will be renewed upon expiration or approved by NIGC upon any such renewal. The failure to renew the Lakes' management contracts would result in the loss of revenues to Lakes derived from such contracts, which would have a material adverse effect on Lakes' results of operations. The Coushatta Tribe and the Tunica-Biloxi Tribe each entered into tribal-state compacts with the State of Louisiana on September 29, 1992. These compacts were approved in November 1992 by the Secretary of the Interior. The compact for the Coushatta Tribe expired November 4, 1999, and the compact for the Tunica-Biloxi Tribe expired November 18, 1999, and the State of Louisiana has delivered a written notice of non-renewal. The Governor and each Tribe have agreed on a six-month extension which has been approved by the Department of the Interior. The Coushatta Tribe and the Tunica-Biloxi Tribe are actively negotiating with the State of Louisiana terms for a new compact. In the event the compacts are not renewed, gaming may not be permitted at Grand Casino Avoyelles or Grand Casino Coushatta. There can be no assurance that these compacts will be renewed on terms and conditions acceptable to either of the Tribes. FISCAL YEAR ENDED JANUARY 2, 2000 COMPARED TO FISCAL YEAR ENDED JANUARY 3, 1999 Revenues. Grand Casino Avoyelles and Grand Casino Coushatta generated $54.7 million in management fee income during the fiscal year ended January 2, 2000. Grand Casino Mille Lacs, Grand Casino Hinckley, Grand Casino Avoyelles and Grand Casino Coushatta generated $92.3 million in management fee income during the fiscal year ended January 3, 1999. Gross revenue increases at Grand Casino Avoyelles and Grand Casino Coushatta partially offset the fact that the management contracts for Grand Casino Mille Lacs and Grand Casino Hinckley ended during 1998. Contributing to the increases were a 223-room hotel at Grand Casino Coushatta, which opened in November of 1998 along with a 28,000 square foot casino expansion at Coushatta which opened in December of 1998. Also contributing to the increases were a special events center and RV resort at Grand Casino Avoyelles, which opened during the first quarter of 1998, and the addition of approximately 180 slot machines at Avoyelles from January 3, 1999 to January 2, 2000. Costs and Expenses. Total costs and expenses decreased $6.7 million from $16.4 million for the fiscal year ended January 3, 1999 to $9.7 million for the fiscal year ended January 2, 2000. Selling, general, and administrative expenses decreased $6.8 million from $14.6 million for the fiscal year ended January 3, 1999 to $7.8 million for the fiscal year ended January 2, 2000 due primarily to legal, professional and other costs associated with separating Lakes from Grand incurred during 1998. Other. Interest income increased $2 million to $7.6 million for the fiscal year ended January 2, 2000 from $5.6 million for the fiscal year ended January 3, 1999 due primarily to interest earned on increased cash balances and additional notes receivable. Interest expense was $0.1 million for both periods. Equity in loss of unconsolidated affiliates increased from $.4 million for the fiscal year ended January 3, 1999 to $2.9 million for the fiscal year ended January 2, 2000 due primarily to investments in Interactive Learning Group, Inc. and Fanball.com. Taxes. A deferred tax asset was recorded in 1996 when the Company set up a reserve allowance due to uncertainty related to the collectibility of the note receivable from Stratosphere. However, a full valuation allowance was created for the deferred tax asset and no income tax benefit was recognized at that time. Upon writing off the receivable and realizing the tax deduction in 1998, the Company reversed the deferred tax asset valuation allowance, resulting in the recognition of a $17.3 million income tax benefit. Under the terms of its tax sharing agreement with Grand, any further tax benefits relating to capital losses resulting from the Company's write-off of its investment in Stratosphere will be shared equally by Lakes and Park Place, up to a benefit of approximately $12 million to Lakes. Earnings per Common Share and Net Earnings. For the fiscal year ended January 2, 2000 basic and diluted earnings per common share were $2.72 and $2.67, respectively. This compares to basic and diluted earnings per common share of $5.80 and $5.71, respectively, for the fiscal year ended January 3, 1999. Earnings decreased $32.3 million to $28.8 million for the fiscal year ended January 2, 2000 compared to the same period in the prior year. FISCAL YEAR ENDED JANUARY 3, 1999 COMPARED TO FISCAL YEAR ENDED DECEMBER 28, 1997 Revenues. Grand Casino Mille Lacs, Grand Casino Hinckley, Grand Casino Avoyelles and Grand Casino Coushatta generated $92.3 million in management fee income during the fiscal year ended January 3, 21 22 1999 as compared to $78.5 million for the prior year's comparable period. Gross revenue increases at Grand Casino Hinckley, Grand Casino Avoyelles and Grand Casino Coushatta offset the fact that the management contract for Grand Casino Mille Lacs expired at the end of the first quarter. Contributing to the increases was the early buyout of the Management Agreement for Grand Casino Hinckley by the Mille Lacs Band of Ojibwe in December, 1998. Under the early buyout agreement, the Company was compensated for the management fees it would have received had it managed Grand Casino Hinckley through the original contract expiration date which was May, 1999. Also contributing to the increases were a 378-room hotel at Grand Casino Hinckley, which opened in November of 1997, and a special events center and RV resort at Grand Casino Avoyelles, which opened during the first quarter of 1998. 1998 results include $36.8 million in revenues from the management contracts for Grand Casino Mille Lacs and Grand Casino Hinckley that concluded during 1998. The Company's revenues and earnings will not include contributions from these operations going forward. Costs and Expenses. Total costs and expenses were $16.4 million for the fiscal year ended January 3, 1999 compared to $8.8 million for the same period in the prior year. Selling, general, and administrative expenses increased in the amount of $6.7 million from $7.9 million for the fiscal year ended December 28, 1997 to $14.6 million for the fiscal year ended January 3, 1999 due to legal, professional and other costs associated with separating Lakes from Grand. Other. Interest income was $5.6 million and $5.9 million for the fiscal years ended January 3, 1999 and December 28, 1997, respectively. Interest expense was $0.1 million for both periods. Taxes. A deferred tax asset was recorded in 1996, when the Company set up a reserve allowance due to uncertainty related to the collectibility of the note receivable from Stratosphere. However, a full valuation allowance was created for the deferred tax asset and no income tax benefit was recognized at that time. Upon writing off the receivable and realizing the tax deduction in 1998, the Company reversed the deferred tax asset valuation allowance, resulting in the recognition of a $17.3 million income tax benefit. Under the terms of its tax sharing agreement with Grand, any further tax benefits relating to capital losses resulting from the Company's write-off of its investment in Stratosphere will be shared equally by Lakes and Park Place, up to a benefit of approximately $12 million to Lakes. Earnings per Common Share and Net Earnings. For the fiscal year ended January 3, 1999 basic and diluted earnings per common share were $5.80 and $5.71, respectively. This compares to basic and diluted earnings of $4.32 and $4.20 per share for the fiscal year ended December 28, 1997. Earnings increased $16 million to $61.2 million for the fiscal year ended January 3, 1999 compared to the same period in the prior year, primarily due to increased management fee income from each of the casino operations. CAPITAL RESOURCES, CAPITAL SPENDING, AND LIQUIDITY At January 2, 2000 Lakes had $36.5 million in restricted and unrestricted cash and cash equivalents. At January 2, 2000, the Company also had $27.4 million in short-term, available-for-sale investments, consisting primarily of a fixed income portfolio made up of various types of bonds which are rated A1 or better. The cash and short-term investment balances are planned to be used for loans to current tribal partners to help develop existing operations, the pursuit of additional gaming and non-gaming opportunities, and settlement of pending litigation matters. For the years ended January 2, 2000, January 3, 1999, and December 28, 1997, net cash provided by operating activities totaled $8.1 million, $85.8 million, and $35.8 million, respectively. During 1999, $27.4 million of cash and cash equivalents were reclassified as short-term investments. For the years ended January 2, 2000, January 3, 1999, and December 28, 1997, proceeds from repayment of notes receivable amounted to $12.0 million, $6.6 million, and $6.1 million, respectively. Also during these periods, payments for land held for development amounted to $22.9 million, $11.2 million, and $13.2 million, respectively. As security to support Lakes' indemnification obligations to Grand under each of the Distribution Agreement and the Merger Agreement, and as a condition to the consummation of the Merger, Lakes agreed to deposit, in trust for the benefit of Grand, as a wholly owned subsidiary of Park Place, an aggregate of $30 million, consisting of four annual installments of $7.5 million, on each annual anniversary of the Distribution and Merger. Lakes' ability to satisfy this funding obligation is materially dependent upon the continued success of its operations and the general risks inherent in its business. In the event Lakes is unable to satisfy its funding obligation, it would be in breach of its agreement with Grand, possibly subjecting itself to additional liability for contract damages, which could have a material adverse effect on Lakes' business and 22 23 results of operations. The Company made the first deposit of $7.5 million on December 31, 1999, and such amount is included as restricted cash on the accompanying consolidated balance sheet as of January 2, 2000. THE YEAR 2000 ISSUE The Year 2000 issue was the result of computer programs being written using two digits rather than four digits to define the applicable year. Any programs that have time-sensitive software may have recognized a date using "00" as the year 1900 rather than the year 2000. If not remedied, this could have resulted in system failure or miscalculations. The Company assessed the impact of the Year 2000 on its computer systems, both hardware and software, and developed a plan to timely address the Year 2000 issue. The Company and its currently managed properties spent approximately $1.1 million in the execution of the Year 2000 plan. These expenditures were charged to expense or capitalized in accordance with appropriate accounting policies. To date there have been no material adverse consequences, nor does the Company believe that there will be any future material adverse consequences to the Company's business, operations, or financial condition from the Year 2000 issue. However, there can be no assurances that failure to address the Year 2000 issue by a third party on whom the Company's systems rely, will not have a material adverse effect on the Company. SEASONALITY The Company believes that the operations of all casinos managed by the Company are affected by seasonal factors, including holidays, weather and travel conditions. REGULATION AND TAXES The Company is subject to extensive regulation by state gaming authorities. The Company will also be subject to regulation, which may or may not be similar to current state regulations, by the appropriate authorities in any other jurisdiction where it may conduct gaming activities in the future. Changes in applicable laws or regulations could have an adverse effect on the Company. The gaming industry represents a significant source of tax revenues. From time to time, various federal legislators and officials have proposed changes in tax law, or in the administration of such law, affecting the gaming industry. It is not possible to determine the likelihood of possible changes in tax law or in the administration of such law. Such changes, if adopted, could have a material adverse effect on the Company's results of operations and financial results. PRIVATE SECURITIES LITIGATION REFORM ACT The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this integrated Form 10-K/Annual Report and other materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Company) contain statements that are forward-looking, such as plans for future expansion and other business development activities as well as other statements regarding 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 the anticipated results in the future and, accordingly, actual results may differ materially 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 upon existing management, pending litigation, domestic or global economic conditions and changes in federal or state tax laws or the administration of such laws and changes in gaming laws or regulations (including the legalization of gaming in certain jurisdictions). For further information regarding the risks and uncertainties, see the "Business -- Risk Factors" section of this Annual Report on Form 10-K for the fiscal year ended January 2, 2000. 23 24 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA LAKES GAMING, INC. INDEX TO FINANCIAL STATEMENTS
PAGE ---- LAKES GAMING, INC. AND SUBSIDIARIES Report of Independent Public Accountants.................... 25 Consolidated Balance Sheets as of January 2, 2000 and January 3, 1999........................................... 26 Consolidated Statements of Earnings for the fiscal years ended January 2, 2000, January 3, 1999, and December 28, 1997...................................................... 27 Consolidated Comprehensive Statements of Earnings for the fiscal years ended January 2, 2000, January 3, 1999, and December 28, 1997......................................... 28 Consolidated Statements of Shareholders' Equity for the fiscal years ended January 2, 2000, January 3, 1999, and December 28, 1997......................................... 29 Consolidated Statements of Cash Flows for the fiscal years ended January 2, 2000, January 3, 1999, and December 28, 1997...................................................... 30 Notes to Consolidated Financial Statements.................. 31
24 25 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Lakes Gaming, Inc. We have audited the accompanying consolidated balance sheets of Lakes Gaming, Inc. (a Minnesota corporation) and Subsidiaries as of January 2, 2000 and January 3, 1999 and the related consolidated statements of earnings, comprehensive earnings, shareholders' equity and cash flows for each of the three years in the period ended January 2, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Lakes Gaming, Inc. and Subsidiaries as of January 2, 2000 and January 3, 1999, and the results of their operations and their cash flows for each of the three years in the period ended January 2, 2000, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Minneapolis, Minnesota January 28, 2000 25 26 LAKES GAMING, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
1999 1998 -------- -------- ASSETS Current Assets: Cash and cash equivalents................................. $ 24,392 $ 56,774 Short-term investments.................................... 27,433 -- Current installments of notes receivable.................. 15,406 8,561 Accounts receivable....................................... 5,613 15,217 Other current assets...................................... 7,380 8,126 -------- -------- Total Current Assets........................................ 80,224 88,678 -------- -------- Property and Equipment-Net.................................. 1,888 1,265 -------- -------- Other Assets: Land held for development................................. 54,812 26,647 Notes receivable-less current installments................ 20,022 25,118 Cash and cash equivalents-restricted...................... 12,149 4,992 Investments in and notes from unconsolidated affiliates... 8,446 8,590 Other long-term assets.................................... 5,997 6,079 -------- -------- Total Other Assets.......................................... 101,426 71,426 -------- -------- TOTAL ASSETS................................................ $183,538 $161,369 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable.......................................... $ 488 $ -- Income taxes payable...................................... 6,385 10,811 Litigation and claims accrual............................. 8,419 10,554 Other accrued expenses.................................... 6,099 4,625 -------- -------- Total Current Liabilities................................... 21,391 25,990 -------- -------- Long-term Liabilities: Long-term debt-less current installments.................. 1,500 975 Deferred income taxes..................................... 786 2,733 -------- -------- Total Long-Term Liabilities................................. 2,286 3,708 -------- -------- TOTAL LIABILITIES........................................... 23,677 29,698 -------- -------- COMMITMENTS AND CONTINGENCIES (NOTE 8) Shareholders' Equity: Capital stock, $.01 par value; authorized 100,000 shares; 10,629 and 10,576 common shares issued and outstanding at January 2, 2000, and January 3, 1999, respectively........................................... 106 106 Additional paid-in-capital................................ 131,406 130,929 Accumulated other comprehensive earnings (loss)........... (478) 636 Retained earnings......................................... 28,827 -- -------- -------- Total Shareholders' Equity.................................. 159,861 131,671 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $183,538 $161,369 ======== ========
The accompanying notes are an integral part of these consolidated balance sheets. 26 27 LAKES GAMING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS YEARS ENDED JANUARY 2, 2000, JANUARY 3, 1999 AND DECEMBER 28, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
1999 1998 1997 ------- ------- ------- REVENUES: Management fee income..................................... $54,716 $92,347 $78,515 COSTS AND EXPENSES: Selling, general and administrative....................... 7,750 14,557 7,916 Depreciation and amortization............................. 1,916 1,838 890 ------- ------- ------- Total Costs and Expenses.................................... 9,666 16,395 8,806 ------- ------- ------- EARNINGS FROM OPERATIONS.................................... 45,050 75,952 69,709 ------- ------- ------- OTHER INCOME (EXPENSE): Interest income........................................... 7,580 5,601 5,940 Interest expense.......................................... (98) (98) (98) Equity in loss of unconsolidated affiliates............... (2,925) (359) (942) Gain (loss) on sale of securities......................... 1,264 (4,473) -- Other..................................................... 21 368 117 ------- ------- ------- Total other income, net................................ 5,842 1,039 5,017 ------- ------- ------- Earnings before income taxes................................ 50,892 76,991 74,726 Provision for income taxes.................................. 22,065 15,811 29,523 ------- ------- ------- NET EARNINGS................................................ $28,827 $61,180 $45,203 ======= ======= ======= BASIC EARNINGS PER SHARE.................................... $ 2.72 $ 5.80 $ 4.32 ======= ======= ======= DILUTED EARNINGS PER SHARE.................................. $ 2.67 $ 5.71 $ 4.20 ======= ======= ======= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING.................. 10,600 10,550 10,475 DILUTIVE EFFECT OF STOCK COMPENSATION PROGRAMS.............. 186 162 284 ======= ======= ======= WEIGHTED AVERAGE COMMON AND DILUTED SHARES OUTSTANDING...... 10,786 10,712 10,759 ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 27 28 LAKES GAMING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS YEARS ENDED JANUARY 2, 2000, JANUARY 3, 1999, AND DECEMBER 28, 1997 (IN THOUSANDS)
1999 1998 1997 ------- ------- ------- NET EARNINGS................................................ $28,827 $61,180 $45,203 OTHER COMPREHENSIVE INCOME, NET OF TAX: Unrealized gains (losses) on securities: Unrealized holding gains (losses) during the period.... (1,114) 3,583 (4,307) Less: reclassification adjustment for gains (losses) included in net earnings............................. 796 (2,818) -- ------- ------- ------- COMPREHENSIVE EARNINGS...................................... $28,509 $61,945 $40,896 ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 28 29 LAKES GAMING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED JANUARY 2, 2000, JANUARY 3, 1999, AND DECEMBER 28, 1997 (IN THOUSANDS)
ACCUMULATED COMMON STOCK OTHER TOTAL --------------- ADDITIONAL DIVISION RETAINED COMPREHENSIVE SHAREHOLDERS' SHARES AMOUNT PAID-IN-CAPITAL EQUITY EARNINGS EARNINGS(LOSS) EQUITY ------ ------ --------------- -------- -------- --------------- ------------- Balance, December 29, 1996........ -- -- -- $102,224 -- $1,360 $103,584 Distribution to Grand Casinos, Inc........................... -- -- -- (25,682) -- -- (25,682) Other comprehensive earnings.... -- -- -- -- -- (4,307) (4,307) Net earnings.................... -- -- -- 45,203 -- -- 45,203 ------ ---- -------- -------- ------- ------ -------- Balance, December 28, 1997........ -- -- -- 121,745 -- (2,947) 118,798 Distribution to Grand Casinos, Inc........................... -- -- -- (51,890) -- -- (51,890) Other comprehensive earnings.... -- -- -- -- -- 3,583 3,583 Net earnings.................... -- -- -- 61,180 -- -- 61,180 Distribution from Grand Casinos, Inc........................... 10,576 106 130,929 (131,035) -- -- -- ------ ---- -------- -------- ------- ------ -------- Balance, January 3, 1999.......... 10,576 106 130,929 -- -- 636 131,671 Issuance of stock on options exercised -- net.............. 53 -- 477 -- -- -- 477 Other comprehensive earnings.... -- -- -- -- -- (1,114) (1,114) Net earnings.................... -- -- -- -- 28,827 -- 28,827 ------ ---- -------- -------- ------- ------ -------- Balance, January 2, 2000.......... 10,629 $106 $131,406 $ -- $28,827 ($ 478) $159,861 ====== ==== ======== ======== ======= ====== ========
The accompanying notes are an integral part of these consolidated financial statements. 29 30 LAKES GAMING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JANUARY 2, 2000, JANUARY 3, 1999 AND DECEMBER 28, 1997 (IN THOUSANDS)
1999 1998 1997 ------- ------- ------- OPERATING ACTIVITIES: Net earnings.............................................. $28,827 $61,180 $45,203 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization............................. 1,916 1,838 890 (Gain) loss on sale of securities......................... (1,264) 4,473 -- Equity in loss of unconsolidated affiliates............... 2,925 359 942 Deferred income taxes..................................... (276) (1,040) (2,930) Changes in operating assets and liabilities: Accounts receivable.................................... 9,604 (8,792) 1,571 Income taxes........................................... (4,638) 23,596 (9,357) Accounts payable....................................... 488 -- 45 Accrued expenses....................................... (661) 6,193 1,037 Other.................................................. (465) (2,040) (1,650) ------- ------- ------- Net Cash Provided by Operating Activities................... 36,456 85,767 35,751 ------- ------- ------- INVESTING ACTIVITIES: Short-term investments, purchases......................... (28,829) -- -- Short-term investments, sales/maturities.................. 500 -- -- Payments for land held for development.................... (22,949) (11,229) (13,153) Payments for notes receivable............................. (12,406) (7,115) (1,825) Proceeds from repayment of notes receivable............... 11,950 6,567 6,144 Investment in and notes receivable from unconsolidated affiliates............................................. (8,035) (807) (336) Increase in restricted cash, net.......................... (7,157) (3,767) -- Decrease (increase) in other long-term assets............. (2,539) 1,216 (1,435) Proceeds from sale of securities.......................... 389 4,824 -- Payments for property and equipment, net.................. (239) -- (99) ------- ------- ------- Net Cash Used in Investing Activities....................... (69,315) (10,311) (10,704) ------- ------- ------- FINANCING ACTIVITIES: Distribution to Grand..................................... -- (51,890) (25,682) Proceeds from issuance of common stock.................... 477 -- -- Payments on long-term debt................................ -- -- (9) ------- ------- ------- Net Cash Provided by (Used in) Financing Activities......... 477 (51,890) (25,691) ------- ------- ------- Net increase (decrease) in cash and cash equivalents........ (32,382) 23,566 (644) Cash and cash equivalents -- beginning of period............ 56,774 33,208 33,852 ------- ------- ------- Cash and cash equivalents -- end of period.................. $24,392 $56,774 $33,208 ======= ======= ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest.................................................. $ 98 $ 98 $ 98 Income taxes.............................................. 23,676 5,420 41,504
The accompanying notes are an integral part of these consolidated financial statements. 30 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 2, 2000, JANUARY 3, 1999, AND DECEMBER 28, 1997 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Lakes Gaming, Inc., a Minnesota corporation ("Lakes" or the "Company") was established as a public corporation on December 31, 1998, via a distribution (the "Distribution") of its common stock, par value $.01 per share (the "Common Stock") to the shareholders of Grand Casinos, Inc. ("Grand"). Pursuant to the terms of a Distribution Agreement entered into between Grand and Lakes and dated as of December 31, 1998 (the "Distribution Agreement"), Grand shareholders received .25 shares of Lakes Common Stock for each share held in Grand. Historical references to the Company which predate the Distribution give pro forma effect to the Distribution as if it had already occurred. Immediately following the Distribution, Grand merged with a subsidiary of Park Place Entertainment Corporation, a Delaware corporation ("Park Place"), pursuant to which Grand became a wholly owned subsidiary of Park Place (the "Merger"), Grand shareholders received one share of Park Place common stock in the Merger for each share they held in Grand. Both transactions are hereinafter referred to as the Transaction. The Transaction received shareholder and regulatory approvals and was completed on December 31, 1998. Grand obtained a ruling from the Internal Revenue Service (IRS) that the Distribution qualified as a tax-free transaction, solely with respect to Grand shareholders except to the extent that Grand shareholders received cash in lieu of fractional shares. Lakes manages Indian-owned casinos and owns certain other assets related to potential gaming-related development. The Company manages two Indian-owned casinos in Louisiana and previously managed two Minnesota casinos through April 4, 1998 and November 30, 1998. The Company had written off or reserved for its investments and other related costs in Stratosphere Corporation (Stratosphere), which owns the Stratosphere Tower, Casino and Hotel in Las Vegas, Nevada, as of December 29, 1996 in the amount of $161 million. The Company has not recorded any results of Stratosphere's operations in 1997, 1998 or 1999. Stratosphere is the subject of Chapter 11 bankruptcy proceedings. See Note 8 for further discussion. The Second Amended Plan has been approved by the Bankruptcy Court and was declared effective on October 14, 1998. As such, all Stratosphere stock owned by Lakes has been canceled. MANAGEMENT CONTRACTS OF LIMITED DURATION The ownership, management and operation of gaming facilities are subject to extensive federal, state, provincial, tribal and/or local laws, regulation, and ordinances, which are administered by the relevant regulatory agency or agencies in each jurisdiction. These laws, regulations and ordinances vary from jurisdiction to jurisdiction, but generally concern the responsibility, financial stability and character of the owners and managers of gaming operations as well as persons financially interested or involved in gaming operations. The Company is prohibited by the Indian Gaming Regulatory Act from having an ownership interest in any casino it manages for Indian tribes. Management contracts for the two previously managed Minnesota casinos, Grand Casino Mille Lacs and Grand Casino Hinckley concluded during 1998. The current management contracts for Grand Casino Avoyelles and Grand Casino Coushatta expire June 3, 2001 and January 16, 2002, respectively. The Coushatta Tribe and Lakes have agreed on a five-year contract renewal beginning January 17, 2002, subject to NIGC approval. Net distributable profits, if any, under the new agreement will be determined in accordance with IGRA and distributed each month 90% to the Coushatta Tribe and 10% to Lakes. There can be no assurance that the Louisiana management contracts will be renewed upon expiration or approved by NIGC upon any such renewal. The failure to renew the Company's management contracts would result in the loss of revenues to the Company derived from such contracts, which would have a material adverse effect on the Company's results of operations. The Coushatta Tribe and the Tunica-Biloxi Tribe each entered into tribal-state compacts with the State of Louisiana on September 29, 1992. These compacts were approved in November 1992 by the Secretary of the Interior. The compact for the Coushatta Tribe expired November 4, 1999, and the compact for the Tunica-Biloxi Tribe expired November 18, 1999, and the State of Louisiana has delivered a written notice of non-renewal. The Governor and each Tribe have agreed on a six-month extension which has been approved by the Department of the Interior. The Coushatta Tribe and the Tunica-Biloxi Tribe are actively negotiating with the State of Louisiana terms for a new compact. In the event the compacts are not renewed, gaming may not be permitted at Grand 31 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 2, 2000, JANUARY 3, 1999, AND DECEMBER 28, 1997 -- (CONTINUED) Casino Avoyelles or Grand Casino Coushatta. There can be no assurance that these compacts will be renewed on acceptable terms and conditions. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Ultimate results could differ from those estimates. YEAR END The Company has a 52- or 53-week accounting period ending on the Sunday closest to December 31 of each year. The Company's fiscal years for the periods shown on the accompanying consolidated statements of earnings ended on January 2, 2000 (1999), January 3, 1999 (1998), and December 28, 1997 (1997). The activity from the date of the Transaction to January 3, 1999 was not segregated from the full year's results as it was not material. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Lakes and its wholly-owned and majority-owned subsidiaries. Investments in unconsolidated affiliates representing between 20% and 50% of voting interests are accounted for on the equity method. All material intercompany balances and transactions have been eliminated in consolidation. Lakes' investments in unconsolidated affiliates include a 27 percent ownership interest in Fanball.com, Inc., a start-up internet provider of fantasy sports services, and a 23 percent ownership interest in Interactive Learning Group, Inc., a consumer product company. Lakes invested $3.4 million and $3 million in Fanball.com and Interactive Learning Group, respectively, at the end of the second quarter of 1999. Additionally, as a result of its spin-off from Grand, Lakes received a 49 percent ownership interest in Trak 21 Development, LLC, a developer of player tracking systems for the casino industry, and a 27 percent ownership interest in New Horizon Kids Quest, Inc., a publicly held provider of child care facilities. REVENUE AND EXPENSES Revenue from the management of Indian-owned casino gaming facilities is recognized when earned according to the terms of the management contracts. The operating expenses of the Company include the costs associated with the management of all gaming operations for which the Company has a management contract. Such amounts represent the direct cost of providing assistance in the areas of casino operations, marketing and promotion, customer service, accounting, legal and other functions. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash on hand and in banks, interest-bearing deposits, money market funds and other instruments with original maturities of three months or less. Restricted cash and cash equivalents consist primarily of funds deposited as security to support Lakes' indemnification obligations to Grand under each of the Distribution Agreement and the Merger Agreement, and funds designated as collateral relating to land held for development. Cash and cash equivalents are stated at cost which approximates fair value. SHORT-TERM INVESTMENTS Investment securities are classified as available-for-sale and stated at market value. Unrealized gains and losses, net of income tax effects, are excluded from income and reported as a component of accumulated other comprehensive income. Market value is determined by the most recently traded price of the security at the balance sheet date. Net realized gains or losses are determined on the specific identification cost method. 32 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 2, 2000, JANUARY 3, 1999, AND DECEMBER 28, 1997 -- (CONTINUED) PROPERTY AND EQUIPMENT Property and equipment are stated at cost less accumulated depreciation. Expenditures for additions, renewals, and improvements are capitalized. Costs of repairs and maintenance are expensed when incurred. Depreciation and amortization of property and equipment is computed using the straight-line method over the following estimated useful lives: Leasehold improvements...................................... 15 years Furniture and equipment..................................... 3-10 years
Property and Equipment consist of the following (in thousands):
1999 1998 ------ ------ Land.................................................. 1,234 709 Leasehold improvements................................ 376 376 Furniture and equipment............................... 1,466 1,227 ------ ------ 3,076 2,312 Less: Accumulated depreciation........................ (1,188) (1,047) ------ ------ Property and equipment, net........................... 1,888 1,265 ====== ======
The Company periodically evaluates whether events and circumstances have occurred that may affect the recoverability of the net book value of its long-lived assets. If such events or circumstances indicate that the carrying amount of an asset may not be recoverable, the Company estimates the future cash flows expected to result from the use of the asset. If the sum of the expected future undiscounted cash flows does not exceed the carrying value of the asset, the Company will recognize an impairment loss. LAND HELD FOR DEVELOPMENT Land held for development consists of amounts related to an approximately 15-acre site in Las Vegas, Nevada, which the Company controls. All or any portion of this site may be sold, held for sale or held for future development. The Company is currently evaluating the potential sale of all or any portion of this site and in connection therewith has entered into a listing agreement with a real estate broker for the active marketing of this site. SECURITIES AVAILABLE FOR SALE The Company follows the provisions of Statement on Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities" and has classified all of its investments (except restricted cash reserves) as available for sale, whereby investments are reported at fair value, with unrealized gains and losses reported as accumulated other comprehensive earnings (loss), net of income taxes, in the accompanying consolidated statements of shareholders' equity. On October 15, 1998, Hollywood Park and Casino Magic completed a merger agreement under which Hollywood Park purchased each outstanding share of Casino Magic common stock for $2.27 of cash per share. As a result of this transaction, the Company realized a loss of approximately $2.9 million, net of tax, on the 2,126,000 shares of Casino Magic common stock it owned at the time of the Merger. INCOME TAXES Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company classifies deferred tax liabilities and assets into current and non-current amounts based on the classification of the related assets and liabilities. 33 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 2, 2000, JANUARY 3, 1999, AND DECEMBER 28, 1997 -- (CONTINUED) INTEREST INCOME Interest income represents interest on the notes receivable from Indian tribes and interest on cash, cash equivalents and short-term investments. Interest on the notes receivable is recorded as earned based on contractual rates of interest. Interest on cash, cash equivalents and short-term investments reflects interest income realized from investments in savings and money market accounts and other short-term liquid investments. EARNINGS PER SHARE Earnings per share (EPS) is calculated for the periods ended January 3, 1999 and December 28, 1997 based on the exchange of one Lakes share for every four owned Grand shares. For all periods, basic EPS is calculated by dividing earnings by the weighted average common shares outstanding. Diluted EPS reflects the potential dilutive effect of all common stock equivalents outstanding by dividing net income by the weighted average of all common and dilutive shares outstanding. CONCENTRATIONS OF CREDIT RISK The financial instruments that subject the Company to concentrations of credit risk consist principally of accounts and notes receivable. Notes receivable are due primarily from the Tunica-Biloxi Tribe of Louisiana and the Coushatta Tribe of Louisiana. ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement on Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 137 deferred the effective date of SFAS No. 133 to fiscal quarters of all fiscal years beginning after June 15, 2000. The Company believes that the adoption of SFAS No. 133 will not have a material impact on the Company financial statements. 2. MANAGEMENT CONTRACTS FOR INDIAN-OWNED CASINOS: The Company had contracts with the Mille Lacs Band for the management of two gaming facilities in Onamia and Hinckley, Minnesota. The management contract for the gaming facility in Onamia expired on April 2, 1998. The Company reached an agreement with the Mille Lacs Band of Ojibwe, effective December 1, 1998, for the early buyout of the management contract for the facility in Hinckley. The Mille Lacs Band elected to exercise its option for the early buyout of the contract that was scheduled to expire on May 15, 1999. The early buyout of the contract was provided in the original seven-year management agreement and the Company received full value for all contracted obligations by the Mille Lacs Band. Under the early buyout agreement, the Company was compensated for the management fees the company would have received had it managed Grand Casino Hinckley through the original contract expiration date. 1998 results include $36.8 million in revenues from the management contracts for Grand Casino Mille Lacs and Grand Casino Hinckley that concluded during 1998. The Company's revenues and earnings will not include contributions from these operations going forward. In addition, the Company holds a management contract with the Tunica-Biloxi Tribe of Louisiana for a gaming facility in Marksville, Louisiana, that expires on June 3, 2001 and a management contract with the Coushatta Tribe of Louisiana for a gaming facility in Kinder, Louisiana, that expires on January 16, 2002. The Coushatta Tribe and Lakes have agreed on a five-year contract renewal beginning January 17, 2002, subject to NIGC approval. Net distributable profits, if any, under the new agreement will be determined in accordance with IGRA and distributed each month 90% to the Coushatta Tribe and 10% to Lakes. The management contracts govern the relationship between the Company and the tribes with respect to the construction and management of the casinos. The construction or remodeling portion of the agreements commenced with the signing of the respective contracts and continued until the casinos opened for business; thereafter, the management portion of the respective management contracts continues for a period of seven years. 34 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 2, 2000, JANUARY 3, 1999, AND DECEMBER 28, 1997 -- (CONTINUED) Under the terms of the contracts, the Company, as manager of the casino, receives a percentage of the distributable profits (as defined in the contract) of the operations as a management fee after payment of certain priority distributions, a cash contingency reserve, and guaranteed minimum payments to the Tribes. In the event the management contracts are not renewed upon expiration of their initial term, the Company will be entitled to payments equal to a percentage of the fair value of certain leased gaming equipment. The management contracts for the Tunica-Biloxi Tribe of Louisiana and the Coushatta Tribe of Louisiana have been approved by the Bureau of Indian Affairs (BIA). While the Company believes that all of its management contracts meet all requirements of the Indian Gaming Regulatory Act of 1988, the BIA or the NIGC may attempt to reduce the terms or the management fees payable under the management contracts or require other changes to the contracts. 3. NOTES RECEIVABLE: Notes receivable consist of the following (in thousands):
JANUARY 2, 2000 JANUARY 3, 1999 --------------- --------------- Notes from the Coushatta Tribe with interest at a defined reference rate plus 1% (not to exceed 16%) (9.5% at January 2, 2000), receivable in 84 monthly installments through January 2002...................................... $ 22,484 $24,392 Notes from the Tunica-Biloxi Tribe with interest at a defined reference rate plus 1% (not to exceed 16%) (9.5% at January 2, 2000), receivable in 84 monthly installments through June 2001......................................... 6,196 9,287 Other....................................................... 6,748 -- -------- ------- Total notes receivable.................................... 35,428 33,679 Less -- current installments of notes receivable............ (15,406) (8,561) -------- ------- Notes receivable, less current installments............... $ 20,022 $25,118 ======== =======
The notes receivable are generally advances made to Indian Tribes for the development of gaming properties managed by the Company. The repayment terms are specific to each tribe and are largely dependent upon the operating performance of each gaming property. Repayments of the aforementioned notes receivable from the Coushatta Tribe and the Tunica-Biloxi Tribe is required to be made only if distributable profits are available from the operation of the related casinos. Repayments are also the subject of certain distribution priorities specified in the management contracts. In addition, repayment of the notes receivable and the manager's fees under the management contracts are subordinated to certain other financial obligations of the respective tribes. Through January 2, 2000, no amounts have been withheld under these provisions. Management periodically evaluates the recoverability of such notes receivable based on the current and projected operating results of the underlying facility and historical collection experience. No impairment losses on such notes receivable have been recognized through January 2, 2000. The Company believes the costs and complexities of assembling the relevant facts and comparables needed to appraise the fair market values of these notes based on estimates of net present value of discounted cash flows or using other valuation techniques are excessive and the process exceedingly time consuming. It further believes that the determined results would not reasonably differ from the carrying values, which are believed to be reasonable estimates of fair market value based on past experience with similar receivables. 35 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 2, 2000, JANUARY 3, 1999, AND DECEMBER 28, 1997 -- (CONTINUED) 4. INCOME TAXES: The provisions for income taxes attributable to earnings for 1999, 1998, and 1997 consisted of the following (in thousands):
YEARS ENDED ----------------------------- 1999 1998 1997 ------- ------- ------- Current: Federal................................................... $17,649 $14,482 $30,307 State..................................................... 4,692 2,369 2,146 ------- ------- ------- 22,341 16,851 32,453 Deferred.................................................... (276) (1,040) (2,930) ------- ------- ------- $22,065 $15,811 $29,523 ======= ======= =======
Reconciliations of the statutory federal income tax rate to the Company's actual rate based on earnings before income taxes for 1999, 1998, and 1997 are summarized as follows:
YEARS ENDED --------------------- 1999 1998 1997 ---- ----- ---- Statutory federal tax rate.................................. 35.0% 35.0% 35.0% State income taxes, net of federal income tax benefit....... 6.0 2.0 1.9 Valuation allowance increases (decreases) on Stratosphere losses and write-down..................................... -- (22.5) -- Other, net.................................................. 2.4 6.0 2.6 ---- ----- ---- 43.4% 20.5% 39.5% ==== ===== ====
The Company's deferred income tax liabilities and assets are as follows (in thousands):
1999 1998 ------- ------- Current deferred tax asset: Accruals, reserves and other.............................. $ 6,301 $ 7,370 ======= ======= Non-current deferred taxes: Unrealized investment losses (gains)...................... 1,815 (114) Capitalized interest...................................... (1,737) (1,483) Development cost amortization............................. (784) (960) Other..................................................... (80) (176) ------- ------- Net non-current deferred tax liability...................... $ (786) $(2,733) ======= =======
A deferred tax asset was recorded in 1996 when the Company set up a reserve allowance due to uncertainty related to the collectability of a note receivable from Stratosphere. However, a full valuation allowance was created for the deferred tax asset and no income tax benefit was recognized at that time. Upon writing off the receivable and realizing the tax deduction in 1998, the Company reversed the deferred tax asset valuation allowance resulting in the recognition of a $17.3 million income tax benefit. Under the terms of its tax sharing agreement with Grand, any further tax benefits relating to capital losses resulting from the Company's write-off of its investment in Stratosphere will be shared equally by Lakes and Park Place up to a benefit of approximately $12.0 million to Lakes. 5. LONG-TERM DEBT: The Company has two notes payable with third parties. The first is collateralized by certificates of deposit, with $1.0 million outstanding at January 2, 2000 and January 3, 1999. Interest is compounded and paid on a quarterly basis at 10%. The principal and any unpaid interest are due December 22, 2002. The 36 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 2, 2000, JANUARY 3, 1999, AND DECEMBER 28, 1997 -- (CONTINUED) second is collateralized by property with $0.5 million outstanding at January 2, 2000. Interest is compounded and paid on a quarterly basis at 8.5%. The principal and any unpaid interest are due November 5, 2001. 6. STOCK OPTIONS: Grand had a Stock Option and Compensation Plan and a Director Stock Option Plan whereby incentive and nonqualified stock options and other awards to acquire shares of Grand's common stock were granted to officers, directors, and employees. Upon the consummation of the Transaction, the holders of outstanding Grand stock options received one new option to purchase one share of Lakes common stock for each four options previously held, and one new option to purchase one share of Park Place common stock for each option previously held. The exercise price of the new options was apportioned between Lakes and Park Place to preserve option value as it existed on December 31, 1998 as measured by the difference between the option exercise price and the fair market value of Grand on that date. This value was calculated by reference to the closing price of Lakes on January 4, 1999 and the closing price of Grand on December 31, 1998. Additionally, Lakes has a 1998 Stock Option and Compensation Plan and a 1998 Director Stock Option Plan which are approved to grant up to an aggregate of 2.5 million shares and .2 million shares, respectively, of incentive and non-qualified stock options to officers, directors, and employees. Information with respect to the stock option plans is summarized as follows:
NUMBER OF COMMON SHARES ------------------------------------------ LAKES OPTIONS AVAILABLE OPTION PRICE OUTSTANDING FOR GRANT RANGE PER SHARE ----------- ---------- --------------- Balance at January 3, 1999............................ 1,054,846 -- $(3.13 - 33.11) Additional Shares Authorized.......................... -- 2,700,000 -- Granted............................................... 1,845,000 (1,845,000) (8.38 - 10.81) Canceled.............................................. (527,526) 527,526 (7.42 - 33.11) Exercised............................................. (52,467) -- (3.13 - 11.34) --------- ---------- -------------- Balance at January 2, 2000............................ 2,319,853 1,382,526 $(7.42 - 17.72) ========= ========== ============== Exercisable at January 2, 2000........................ 789,353 =========
The Company accounts for these plans under APB Opinion No. 25, under which no compensation cost has been recognized. Had compensation cost for these plans been determined consistent with SFAS No. 123, the Company's net earnings (loss) would have been as follows (in thousands):
1999 1998 1997 ------- ------- ------- Net earnings (loss): As reported............................................... $28,827 $61,180 $45,203 Pro forma................................................. 28,431 59,694 44,570 Net earnings (loss) per share: As reported -- Basic...................................... $ 2.72 $ 5.80 $ 4.32 Pro forma -- Basic........................................ 2.68 5.66 4.25 As reported -- Diluted.................................... 2.67 5.71 4.20 Pro forma -- Diluted...................................... 2.64 5.57 4.14
37 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 2, 2000, JANUARY 3, 1999, AND DECEMBER 28, 1997 -- (CONTINUED) The SFAS No. 123 method of accounting has not been applied to options granted prior to January 1, 1995, thus the resulting pro forma compensation cost may not be representative of that to be expected in future years. The fair value of each award under the option plans is estimated on the date of grant using the Black-Scholes option-pricing model. The fair value of the options issued in 1999 range from $8.38 per share to $10.81 per share. The following assumptions were used to estimate the fair value of options:
1999 1998 1997 ---------- ---------- ----------- Risk-free interest rate........................... 5.20-6.50% 4.83-5.85% 6.04%-6.98% Expected life..................................... 10 years 10 years 10 years Expected volatility............................... .452-.485 .487-.509 .563-.629 Expected dividend yield........................... -- -- --
7. EMPLOYEE RETIREMENT PLAN: Grand had a section 401(k) employee savings plan for all full-time employees which upon consummation of the Transaction became Lakes' Plan. The savings plan allows participants to defer, on a pretax basis, a portion of their salary and accumulate tax-deferred earnings as a retirement fund. Eligibility is based on years of service and minimum age requirements. Contributions are invested, at the direction of the employee, in one or more available funds. Lakes matches employee contributions up to a maximum of 4% of participating employees' gross wages. The Company contributed $.03 million, $.03 million, and $.02 million during 1999, 1998, and 1997, respectively. Company contributions are vested over a period of five years. 8. COMMITMENTS AND CONTINGENCIES: LEASES The Company leases certain property and equipment under non-cancelable operating leases. Rent expense, under non-cancelable operating leases, exclusive of real estate taxes, insurance, and maintenance expense was $1.3 million, $0.2 million, and $0.2 million for 1999, 1998, and 1997, respectively. Future minimum lease payments, excluding contingent rentals, due under non-cancelable operating leases as of January 2, 2000 are as follows (in thousands):
OPERATING LEASES 2000....................................................... 3,178 2001....................................................... 2,981 2002....................................................... 3,109 2003....................................................... 3,176 2004....................................................... 3,246 Thereafter................................................. 44,303 ------- $59,993 =======
PURCHASE OPTIONS As a condition to the Merger, the Company has agreed to exercise its call option to purchase the Shark Club property in Las Vegas, Nevada, not prior to April 9, 2000 and not later than January 10, 2001. The option purchase price would be approximately $10.1 million. The Company also has an option to purchase the Travelodge property in Las Vegas, Nevada for the purchase price of $30 million on October 31, 2017 and an option to purchase the Cable property in Las Vegas, Nevada for the purchase price of $18 million anytime prior to October 31, 2000. LOAN GUARANTY AGREEMENTS The Company has guaranteed a loan and security agreement entered into by the Tunica-Biloxi Tribe of Louisiana for $16.5 million for the purpose of purchasing a hotel and additional casino equipment. The agreement extends through 2000, and as of January 2, 2000 and January 3, 1999, the amounts outstanding were $2.0 million and $7.3 million, respectively. 38 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 2, 2000, JANUARY 3, 1999, AND DECEMBER 28, 1997 -- (CONTINUED) On May 1, 1997, the Company entered into a guaranty agreement related to a loan agreement entered into by the Coushatta Tribe of Louisiana in the amount of $25.0 million, for the purpose of constructing a hotel and acquiring additional casino equipment. The guaranty will remain in effect until the loan is paid. The loan term is approximately five years. As of January 2, 2000 and January 3, 1999, the amounts outstanding were $19.3 million and $19.6 million, respectively. INDEMNIFICATION AGREEMENT As a part of the Transaction, the Company has agreed to indemnify Grand against all costs, expenses and liabilities incurred in connection with or arising out of certain pending and threatened claims and legal proceedings to which Grand and certain of its subsidiaries are likely to be parties. The Company's indemnification obligations include the obligation to provide the defense of all claims made in proceedings against Grand and to pay all related settlements and judgments. As security to support Lakes' indemnification obligations to Grand under each of the Grand Distribution Agreement and the Park Place Merger Agreement, and as a condition to the consummation of the Merger, Lakes has agreed to deposit, in trust for the benefit of Grand, as a wholly owned subsidiary of Park Place, an aggregate of $30 million, to cover various commitments and contingencies related to or arising out of, Grand's non-Mississippi business and assets (including by way of example, but not limitation, tribal loan guarantees, real property lease guarantees for Lakes' subsidiaries and director and executive officer indemnity obligations) consisting of four annual installments of $7.5 million, during the four-year period subsequent to the Effective Date of the Transaction. Any surplus proceeds remaining after all the secured obligations are indefeasibly paid in full and discharged shall be paid over to Lakes. Lakes made the first deposit of $7.5 million on December 31, 1999 and such amount is included as restricted cash on the accompanying balance sheet as of January 2, 2000. As part of the indemnification agreement, Lakes has agreed that it will not declare or pay any dividends, make any distribution of Lakes' equity interests, or otherwise purchase, redeem, defease or retire for value any equity interests in Lakes without the written consent of Park Place. The following summaries describe certain known legal proceedings to which Grand is a party which Lakes has assumed, or with respect to which Lakes has agreed to indemnify Grand, in connection with the Distribution. STRATOSPHERE SHAREHOLDERS LITIGATION -- FEDERAL COURT In August 1996, a complaint was filed in the U.S. District Court for the District of Nevada -- Michael Ceasar, et al v. Stratosphere Corporation, et al -- against Stratosphere and others, including Grand. The complaint was filed as a class action, and sought relief on behalf of Stratosphere shareholders who purchased their stock between December 19, 1995 and July 22, 1996. The complaint included allegations of misrepresentations, federal securities law violations and various state law claims. In August through October 1996, several other nearly identical complaints were filed by various plaintiffs in the U.S. District Court for the District of Nevada. The defendants in the actions submitted motions requesting that all of the actions be consolidated. Those motions were granted in January 1997, and the consolidated action is entitled In re: Stratosphere Corporation Securities Litigation -- Master File No. CV-S-96-00708 PMP (RLH). In February 1997, the plaintiffs filed a consolidated and amended complaint naming various defendants, including Grand and certain current and former officers and directors of Grand. The amended complaint includes claims under federal securities laws and Nevada laws based on acts alleged to have occurred between December 19, 1995 and July 22, 1996. The Court has recently signed a scheduling order, which cuts off fact discovery as of April 30, 2000 and expert discovery as of September 30, 2000. The parties have submitted preliminary pretrial statements, which may be amended after the completion of discovery. In February 1997, various defendants, including Grand and Grand's officers and directors named as defendants, submitted motions to dismiss the amended complaint. Those motions were made on various 39 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 2, 2000, JANUARY 3, 1999, AND DECEMBER 28, 1997 -- (CONTINUED) grounds, including Grand's claim that the amended complaint failed to state a valid cause of action against Grand and Grand's officers and directors. In May 1997, the court dismissed the amended complaint. The dismissal order did not allow the plaintiffs to further amend their complaint in an attempt to state a valid cause of action. In June 1997, the plaintiffs asked the court to reconsider its dismissal order, and to allow the plaintiffs to submit a second amended complaint in an attempt to state a valid cause of action. In July 1997, the court allowed the plaintiffs to submit a second amended complaint. In August 1997, the plaintiffs filed a second amended complaint. In September 1997, certain of the defendants, including Grand and Grand's officers and directors named as defendants, submitted a motion to dismiss the second amended complaint. The motion was based on various grounds, including Grand's claim that the second amended complaint failed to state a valid cause of action against Grand and Grand's officers and directors. In April 1998, the Court granted Grand's motion to dismiss, in part, and denied the motion in part. Thus, the plaintiffs are pursuing the claims in the second amended complaint that survived the motion to dismiss. In June 1998, certain of the defendants, including Grand and Grand's officers and directors named as defendants, submitted a motion for summary judgment seeking an order that such defendants are entitled to judgment as a matter of law. In December 1998, the plaintiffs completed fact discovery related to the issues raised by the summary judgment motion. Expert discovery was completed in March of 1999. All papers relating to this matter were filed on June 1, 1999. On October 6, 1999, the District Court entered its Order, granting in part and denying in part, defendants' Motion for Summary Judgment and Summary Adjudication. The Court dismissed all allegations in reference to (1) Phase II funding levels; (2) "over-allotments uses", as stated in the December 19, 1995 Prospectus; (3) the purpose and use of the Grand Casino Completion Guaranty, as stated in the June 6, 1996 Press Statement; (4) the vague expressions of general optimism (issued within the December 19, 1995 Prospectus, the 10-Q and 10-K Filings, press releases and other public statements) referred to in this Order; (5) the adoption of statements in securities analysts reports; (6) the alleged utterance of misleading statements before the Nevada Gaming Commission; and (7) the temporary diversion of Phase II proceeds to fund Phase I. The remaining claims relate to the accuracy of defendants' budgetary estimates issued in Stratosphere's December 1995 Prospectus and SEC 10-Q and 10-K Reports. The Court concluded that there were triable issues as to whether defendants misstated anticipated construction costs or omitted to disclose material cost overruns. The Court recently added the Company as an additional defendant because of its indemnity obligation and stipulation. Park Place has opposed being added to the litigation and plaintiffs' motion to add Park Place as a defendant is pending. STRATOSPHERE SHAREHOLDERS LITIGATION -- NEVADA STATE COURT In August 1996, a complaint was filed in the District Court for Clark County, Nevada -- Victor M. Opitz, et al v. Robert E. Stupak, et al -- Case No. A363019 -- against various defendants, including Grand. The complaint seeks relief on behalf of Stratosphere Corporation shareholders who purchased stock between December 19, 1995 and July 22, 1996. The complaint alleges misrepresentations, state securities law violations and other state claims. Grand and certain defendants submitted motions to dismiss or stay the state court action pending resolution of the federal court action described above. The court has stayed further proceedings pending the resolution of In re: Stratosphere Securities Litigation. GRAND CASINOS, INC. SHAREHOLDERS LITIGATION In September and October 1996, two actions were filed by Grand shareholders in the U.S. District Court for the District of Minnesota against Grand and certain of Grand's current and former directors and officers. The complaints allege misrepresentations, federal securities law violations and other claims in connection with the Stratosphere project. 40 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 2, 2000, JANUARY 3, 1999, AND DECEMBER 28, 1997 -- (CONTINUED) The actions have been consolidated as In re: Grand Casinos, Inc. Securities Litigation -- Master File No. 4-96-890 -- and the plaintiffs filed a consolidated complaint. The defendants submitted a motion to dismiss the consolidated complaint, based in part on Grand's claim that the consolidated complaint failed to properly state a cause of action. In December 1997, the court granted Grand's motion to dismiss in part, and denied the motion in part. Thus, the plaintiffs are pursuing the claims in the consolidated complaint that survived Grand's motion to dismiss. Discovery in the action has begun. The defendants have submitted a motion for summary judgment seeking an order that the defendants are entitled to judgment as a matter of law. In December 1998, the plaintiffs completed fact discovery related to the issues raised by the summary judgement motion. Expert discovery was completed in March of 1999. The parties have completed follow-up discovery pertaining to the summary judgment motion. The court heard the motion on September 2, 1999. The court has not yet ruled on the motion. In early February 1999, the plaintiffs filed a motion for leave to amend the complaint in this action to include, as defendants in the case, both the Company and Park Place. The motion for leave to amend the complaint has been granted and Lakes has filed its answer. Lakes will defend this action vigorously. SLOT MACHINE LITIGATION In April 1994, William H. Poulos brought an action in the U.S. District Court for the Middle District of Florida, Orlando Division -- William H. Poulos, et al v. Caesars World, Inc. et al -- Case No. 39-478-CIV-ORL-22 -- in which various parties (including Grand) alleged to operate casinos or be slot machine manufacturers were named as defendants. The plaintiff sought to have the action certified as a class action. A subsequently filed Action - William Ahearn, et al v. Caesars World, Inc. et al -- Case No. 94-532-CIV-ORL-22 -- made similar allegations and was consolidated with the Poulos action. Both actions included claims under the federal Racketeering-Influenced and Corrupt Organizations Act and under state law, and sought compensatory and punitive damages. The plaintiffs claimed that the defendants are involved in a scheme to induce people to play electronic video poker and slot machines based on false beliefs regarding how such machines operate and the extent to which a player is likely to win on any given play. In December 1994, the consolidated actions were transferred to the U.S. District Court for the District of Nevada. In September 1995, Larry Schreier brought an action in the U.S. District Court for the District of Nevada -- Larry Schreier, et al v. Caesars World, Inc. et al -- Case No. CV-95-00923-DWH(RJJ). The plaintiffs' allegations in the Schreier action were similar to those made by the plaintiffs in the Poulos and Ahearn actions, except that Schreier claimed to represent a more precisely defined class of plaintiffs than Poulos or Ahearn. In December 1996, the court ordered the Poulos, Ahearn and Schreier actions consolidated under the title William H. Poulos, et al v. Caesars World, Inc., et al -- Case No. CV-S-94-11236-DAE(RJJ) -- (Base File), and required the plaintiffs to file a consolidated and amended complaint. In February 1997, the plaintiffs filed a consolidated and amended complaint. In March 1997, various defendants (including Grand) filed motions to dismiss or stay the consolidated action until the plaintiffs submitted their claims to gaming authorities and those authorities considered the claims submitted by the plaintiffs. In December 1997, the court denied all of the motions submitted by the defendants, and ordered the plaintiffs to file a new consolidated and amended complaint. That complaint has been filed. Grand has filed its answer to the new complaint. The plaintiffs have filed a motion seeking an order certifying the action as a class action. Grand and certain of the defendants have opposed the motion. The Court has not ruled on the motion. 41 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 2, 2000, JANUARY 3, 1999, AND DECEMBER 28, 1997 -- (CONTINUED) STANDBY EQUITY COMMITMENT LITIGATION In September 1997, the Stratosphere Trustee under the indenture pursuant to which Stratosphere issued its first mortgage notes filed a complaint 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 (RJJ) -- naming Grand as defendant. The complaint alleges that Grand failed to perform under the Standby Equity Commitment entered into between Stratosphere and Grand in connection with Stratosphere's issuance of such first mortgage notes in March 1995. The complaint seeks an order compelling specific performance of what the Trustee claims are Grand's obligations under the Standby Equity Commitment. The Stratosphere Trustee filed the complaint in its alleged capacity as a third party beneficiary under the Standby Equity Commitment. Pursuant to the Second Amended Plan, a new limited liability company (the "Stratosphere LLC") was formed to pursue certain alleged claims and causes of action that Stratosphere and other parties may have against numerous third parties, including Grand and/or officers and/or directors of Grand. The Stratosphere LLC has been substituted for IBJ Schroeder Bank & Trust Company, Inc. in this proceeding. In October of 1999, Motions for Summary Judgment by both parties were denied. Grand's request for expedited appellate court review of the denial as to its motion for summary judgment was denied. The trial court is expected to hold a pretrial conference to address discovery and scheduling issues. Lakes will continue to defend the lawsuit diligently. STRATOSPHERE PREFERENCE ACTION In April 1998, Stratosphere served on Grand and Grand Media & Electronics Distributing, Inc., a wholly owned subsidiary of Grand ("Grand Media"), a complaint in the Stratosphere bankruptcy case seeking recovery of certain amounts paid by Stratosphere to (i) Grand as management fees and for costs and expenses under a management agreement between Stratosphere and Grand, and (ii) Grand Media for electronic equipment purchased by Stratosphere from Grand Media. Stratosphere claims in its complaint that such amounts are recoverable by Stratosphere as preferential payments under bankruptcy law. In May 1998, Grand responded to Stratosphere's complaint. That response denies that Stratosphere is entitled to recover the amounts described in the complaint. The matter is pending. OTHER LITIGATION The Company has recorded a reserve assessment related to various of the above items. The reserve is reflected as a litigation and claims accrual on the accompanying consolidated balance sheet as of January 2, 2000. Grand and Lakes are involved in various other inquiries, administrative proceedings, and litigation relating to contracts and other matters arising in the normal course of business. While any proceeding or litigation has an element of uncertainty, management currently believes that the final outcome of these matters is not likely to have a material adverse effect upon Grand's or the Company's consolidated financial position or results of operations. 9. SUBSEQUENT EVENTS: On January 18, 2000, a Michigan Ingham County Circuit Judge ruled that the Michigan State Legislature acted improperly in 1998 when it approved casino compacts by joint resolution. The Governor of the State of Michigan has indicated that he will appeal the ruling. The ruling directly affects four tribes in Michigan, one of which is the Pokagon Band of Potawatomi Indians with whom Lakes has development and management contracts. Lakes is continuing to work with the Band to have land accepted into Trust by the Secretary of Interior and to have the management agreement approved by the NIGC. 42 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 2, 2000, JANUARY 3, 1999, AND DECEMBER 28, 1997 -- (CONTINUED) On February 7, 2000, Lakes announced that it reached an agreement with the Coushatta Tribe of Louisiana for a five year renewal of its management agreement. The new contract is subject to NIGC approval. Net distributable profits, if any, under the new agreement will be determined in accordance with IGRA and distributed each month 90% to the Coushatta Tribe and 10% to Lakes. 10. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Year ended January 2, 2000 (in thousands, except per share amounts):
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- Net revenues...................................... $15,109 $14,892 $14,440 $10,275 Earnings from operations.......................... 12,923 11,521 13,111 7,495 Net earnings...................................... 8,562 8,622 7,440 4,203 Earnings per share: Basic........................................... $ .81 $ .81 $ .70 $ .40 Diluted......................................... .80 .80 .68 .39
Year ended January 3, 1999 (in thousands, except per share amounts):
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- Net revenues...................................... $23,030 $19,718 $21,582 $28,017 Earnings from operations.......................... 17,783 18,328 19,603 20,238 Net Earnings...................................... 11,703 12,319 25,283 11,875 Earnings per share: Basic........................................... $ 1.11 $ 1.17 $ 2.39 $ 1.13 Diluted......................................... 1.08 1.14 2.37 1.12
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 43 44 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information beginning immediately following the caption "Election of Directors" to, but not including, the caption "Compensation Committee Interlocks and Insider Participation" in the Company's 1999 Proxy Statement, to be filed with the Securities and Exchange Commission within 120 days after the close of the Company's year ended January 2, 2000 and forwarded to shareholders prior to the Company's 1999 Annual Meeting of Shareholders (the "1999 Proxy Statement"), is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information in the 1999 Proxy Statement beginning immediately following the caption "Executive Compensation" to, but not including, the caption "Director Compensation", is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information in the 1999 Proxy Statement beginning immediately following the caption "Voting Securities and Principal Holders Thereof" to, but not including, the caption "Election of Directors", is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information in the 1999 Proxy Statement under the caption "Certain Transactions" is incorporated herein by reference. 44 45 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) Consolidated Financial Statements:
PAGE ---- LAKES GAMING, INC. AND SUBSIDIARIES Report of Independent Public Accountants.................... 25 Consolidated Balance Sheets as of January 2, 2000 and January 3, 1999........................................... 26 Consolidated Statements of Earnings for the fiscal years ended January 2, 2000, January 3, 1999 and December 28, 1997...................................................... 27 Consolidated Comprehensive Statements of Earnings for the fiscal years ended January 2, 2000, January 3, 1999 and December 28, 1997......................................... 28 Consolidated Statements of Shareholders' Equity for the fiscal years ended January 2, 2000, January 3, 1999 and December 28, 1997......................................... 29 Consolidated Statements of Cash Flows for the fiscal years ended January 2, 2000, January 3, 1999 and December 28, 1997...................................................... 30 Notes to Consolidated Financial Statements.................. 31
(a)(2) None. (a)(3)
EXHIBITS DESCRIPTION - -------- ----------- 2.1 Agreement and Plan of Merger by and among Hilton, Park Place Entertainment Corporation, Gaming Acquisition Corporation, Lakes Gaming, Inc. and Grand dated as of June 30, 1998. (Incorporated herein by reference to Exhibit 2.2 to Lakes' Form 10 Registration Statement as filed with the Securities and Exchange Commission (the "Commission") on October 23, 1998.) (the "Lakes Form 10") 3.1 Articles of Incorporation of Lakes Gaming, Inc. (Incorporated herein by reference to Exhibit 3.1 to the Lakes Form 10.) 3.2 By-laws of Lakes Gaming, Inc. (Incorporated herein by reference to Exhibit 3.2 to the Lakes Form 10.) 10.1 Distribution Agreement by and between Grand Casinos, Inc. and Lakes Gaming, Inc., dated as of December 31, 1998. (Incorporated herein by reference to Exhibit 10.1 to Lakes' Form 8-K dated January 8, 1999.) 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. (Incorporated herein by reference to Exhibit 10.2 to Lakes' Form 8-K dated January 8, 1999.) 10.3 Intellectual Property License Agreement by and between Grand Casinos, Inc. and Lakes Gaming, Inc., dated as of December 31, 1998. (Incorporated herein by reference to Exhibit 10.5 to Lakes' Form 8-K dated January 8, 1999.) 10.4 Tax Allocation and Indemnity Agreement by and between Grand Casinos, Inc. and Lakes Gaming, Inc., dated as of December 31, 1998. (Incorporated herein by reference to Exhibit 10.3 to Lakes' Form 8-K dated January 8, 1999.) 10.5 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. (Incorporated herein by reference to Exhibit 10.4 to Lakes' Form 8-K dated January 8, 1999.)
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EXHIBITS DESCRIPTION - -------- ----------- 10.6 Insurance Receivable Agreement by and between Grand Casinos, Inc. and Lakes Gaming, Inc., dated as of December 31, 1998. (Incorporated herein by reference to Exhibit 10.6 to Lakes' Form 8-K dated January 8, 1999.) 10.7 Trust Agreement dated as of December 31, 1998 entered into by and among Lakes Gaming, Inc., Grand Casinos, Inc. and First Union National Bank, as Trustee. (Incorporated herein by reference to Exhibit 10.7 to Lakes' Form 10-K dated March 26, 1999.) 10.8 Pledge and Security Agreement dated as of December 31, 1998 entered into by and among Lakes Gaming, Inc., as Debtor and First Union National Bank (the "Trustee") pursuant to the Trust Agreement executed in favor of Grand Casinos, Inc. (the "Secured Party"). (Incorporated herein by reference to Exhibit 10.8 to Lakes' Form 10-K dated March 26, 1999.) 10.9 Lakes Gaming, Inc. 1998 Stock Option and Compensation Plan. (Incorporated herein by reference to Annex G to the Joint Proxy Statement/Prospectus of Hilton Hotels Corporation and Grand dated and filed with the Commission on October 14, 1998 (the "Joint Proxy Statement") which is attached to the Lakes Form 10 as Annex A.)* 10.10 Lakes Gaming, Inc. 1998 Director Stock Option Plan. (Incorporated herein by reference to Annex H to the Joint Proxy Statement/Prospectus of Hilton Hotels Corporation and Grand dated and filed with the Commission on October 14, 1998 (the "Joint Proxy Statement") which is attached to the Lakes Form 10 as Annex A.)* 10.11 Amended and Restated Management & Construction Agreement, Loan Agreement, Promissory Note, and Security Agreement between the Tunica-Biloxi Tribe of Louisiana and Grand Casinos of Louisiana, Inc. -- Tunica-Biloxi, dated November 1, 1991. (Incorporated herein by reference to Exhibit 10BB to Grand's Registration Statement on Form S-1, as amended, File No. 33-46798.) 10.12 Amended and Restated Management & Construction Agreement, Loan Agreement, Promissory Note, and Security Agreement between the Coushatta Tribe of Louisiana and Grand Casinos of Louisiana, Inc. -- Coushatta, dated February 25, 1992. (Incorporated herein by reference to Exhibit 10CC to Grand's Registration Statement on Form S-1, as amended, File No. 33-42281.) 10.13 Agreement among Grand, Bob Stupak, Bob Stupak Enterprises, Inc. and Grand Casinos Resorts, Inc. dated November 15, 1993 and First and Second Amendments thereto dated December 22, 1993 and January 25, 1994. (Incorporated herein by reference to Exhibit 10.46 to Grand's Report on Form 10-K for the fiscal year ended January 1, 1995 (File No. 0-195650).) 10.14 Letter Agreement dated as of June 1, 1994 between Stratosphere Corporation, Grand Casinos, Inc., Grand Casinos Resorts, Inc., Bob Stupak Enterprises, Inc. and Bob Stupak. (Incorporated herein by reference to Exhibit 10.80 to Grand's Report on Form 10-Q for the quarter ended July 3, 1994 (File No. 0-19565).) 10.15 Amendment to June 1, 1994 Letter Agreement dated November 16, 1994 between Stratosphere Corporation, Grand Casinos Resorts, Inc., Grand Casinos, Inc. Bob Stupak Enterprises, Inc. and Bob Stupak. (Incorporated herein by reference to Exhibit 10.48 to Grand's Report on Form 10-K for the fiscal year ended January 1, 1995 (File No. 0-19565).) 10.16 Management and Development Agreement dated July 1, 1994, by and between Stratosphere Corporation and Grand Casinos, Inc. (Incorporated herein by reference to Exhibit 10.49 to Grand's Report on Form 10-K for the fiscal year ended January 1, 1995 (File No. 0-19565).) 10.17 Memorandum of Agreement dated as of February 16, 1995 by and among Stratosphere Corporation and Grand Casinos, Inc. (Incorporated herein by reference to Exhibit 10.50 to Grand's Report on Form 10-K for the fiscal year ended January 1, 1995 (File No. 0-19565).) 10.18 Standby Equity Commitment dated March 9, 1995 by and between Grand Casinos, Inc. and Stratosphere Corporation. (Incorporated herein by reference to Exhibit 10.51 to Grand's Report on Form 10-K for the fiscal year ended January 1, 1995 (File No. 0-19565).)
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EXHIBITS DESCRIPTION - -------- ----------- 10.19 Notes Completion Guarantee dated March 9, 1995 by and between Grand Casinos, Inc. and American Bank National Association. (Incorporated herein by reference to Exhibit 10.52 to Grand's Report on Form 10-K for the fiscal year ended January 1, 1995 (File No. 0-19565).) 10.20 Completion Guarantor Subordination Agreement dated March 9, 1995 between Grand Casinos, Inc. and American Bank National Association. (Incorporated herein by reference to Exhibit 10.53 to Grand's Report on Form 10-K for the fiscal year ended January 1, 1995 (File No. 0-19565).) 10.21 Funding Agreement dated as of September 27, 1996 by and among Grand Casinos, Inc., and Stratosphere Corporation. (Incorporated herein by reference to Exhibit 10.1 to Grand's Report on Form 10-Q for the quarter ended September 30, 1996.) 10.22 Letter Agreement dated as of September 27, 1996 by and among Grand Casinos, Inc., Stratosphere Corporation and Stratosphere Gaming Corp. (Incorporated herein by reference to Exhibit 10.2 to Grand's Report on Form 10-Q for the quarter ended September 30, 1996.) 10.23 Restructuring Agreement Regarding Pre-Negotiated Plan of Reorganization by and among Stratosphere Corporation, Stratosphere Gaming Corp. and Grand Casinos, Inc. and Member of AD Hoc Committee of holders of $203,000,000 of 14 1/4% First Mortgage Notes Due 2002. (Incorporated herein by reference to Exhibit 99.2 to Stratosphere Corporation's Form 8-K dated January 6, 1997.) 10.24 Lease Agreement, dated as of June 17, 1996, by and between Brooks Family Trust and Nevada Brooks Cook as Landlord and Cloobeck Enterprises and Grand Casinos Nevada I, Inc. as Tenants. (Incorporated herein by reference to Exhibit 10.76 to Grand's Report on Form 10-K for the fiscal year ended December 28, 1997.) 10.25 First Amendment to Ground Lease, dated November 25, 1997, by and between MacGregor Income Properties West I, Inc. and Grand Casinos Nevada I, Inc. (Incorporated herein by reference to Exhibit 10.77 to Grand's Report on Form 10-K for the fiscal year ended December 28, 1997.) 10.26 Ground Lease, dated July 31, 1996, by and between MacGregor Income Properties West I, Inc. and Cloobeck Enterprises. (Incorporated herein by reference to Exhibit 10.78 to Grand's Report on form 10-K or the fiscal year ended December 28, 1997.) 10.27 Indemnification Agreement, dated as of December 31, 1997, by and between Grand Casinos, Inc. and Lyle Berman. (Incorporated herein by reference to Exhibit 10.79 to Grand's Report on Form 10-K for the fiscal year ended December 28, 1997.) 10.28 Carlson Center Office Lease by and between Carlson Real Estate Company, a Minnesota Limited Partnership, as Landlord and Grand Casinos, Inc. as Tenant, dated February 1, 1996, as Amended by that First Amendment to Lease dated August 23, 1996. (Incorporated herein by reference to Exhibit 10.32 to the Lakes Form 10.) 10.29 Sublease entered into effective as of the 30th day of December 1998, between Grand Casinos, Inc., a Minnesota Corporation ("Sublessor"), and Lakes Gaming, Inc., a Minnesota Corporation ("Sublessee"). (Incorporated herein by reference to Exhibit 10.29 to Lakes' Form 10-K dated March 26, 1999.) 10.30 Release and Assumption Agreement dated as of December 31, 1998, among Hibernia National Bank, the Coushatta Tribe of Louisiana, the Coushatta Tribe of Louisiana Building Authority, Grand Casinos of Louisiana, Inc. -- Coushatta, Grand Casinos, Inc., Lakes Gaming, Inc., a Minnesota corporation and a subsidiary of Grand and Grand Casinos of Louisiana, LLC -- Coushatta, a Minnesota limited liability company and a subsidiary of Lakes. (Incorporated herein by reference to Exhibit 10.1 to Lakes' Report on Form 10-Q for the quarter ended April 4, 1999.)
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EXHIBITS DESCRIPTION - -------- ----------- 10.31 Commercial Guaranty Agreement made and entered into effective as of February 15, 1999, by Lakes Gaming, Inc., a Minnesota corporation and Grand Casinos of Louisiana, LLC -- Coushatta, a Minnesota limited liability company in favor of Hibernia National Bank, guaranteeing the Indebtedness (as defined) of the Coushatta Tribe of Louisiana and the Coushatta Tribe of Louisiana Building Authority. (Incorporated herein by reference to Exhibit 10.2 to Lakes' Report on Form 10-Q for the quarter ended April 4, 1999.) 10.32 Subordination Agreement Granted by Lakes Gaming, Inc., a Minnesota corporation, in favor of Hibernia National Bank entered into as of February 15, 1999. (Incorporated herein by reference to Exhibit 10.3 to Lakes' Report on Form 10-Q for the quarter ended April 4, 1999.) 10.33 Subordination Agreement Granted by Grand Casinos of Louisiana, LLC, a Minnesota limited liability company in favor of Hibernia National Bank entered into as of February 15, 1999. (Incorporated herein by reference to Exhibit 10.4 to Lakes' Report on Form 10-Q for the quarter ended April 4, 1999.) 10.34 Dominion Account Agreement dated as of May 1, 1997 between the Coushatta Tribe of Louisiana, a federally recognized Indian tribe, the Coushatta Tribe of Louisiana Building Authority, an instrumentality of the Coushatta Tribe, Grand Casinos of Louisiana, Inc. -- Coushatta, a Minnesota corporation, Grand Casinos, Inc., a Minnesota corporation, the Cottonport Bank, a bank chartered under the laws of the State of Louisiana, and Hibernia National Bank, a national banking association. (Incorporated herein by reference to Exhibit 10.5 to Lakes' Report on Form 10-Q for the quarter ended April 4, 1999.) 10.35 Subordination Agreement Granted by Lakes Gaming, Inc., a Minnesota corporation, in favor of Hibernia National Bank entered into as of February 15, 1999. (Incorporated herein by reference to Exhibit 10.6 to Lakes' Report on Form 10-Q for the quarter ended April 4, 1999.) 10.36 Subordination Agreement granted by Grand Casinos of Louisiana, LLC - Coushatta, a Minnesota limited liability company, in favor of Hibernia National Bank entered into as of February 15, 1999. (Incorporated herein by reference to Exhibit 10.7 to Lakes' Report on Form 10-Q for the quarter ended April 4, 1999.) 10.37 Dominion Account Agreement, dated effective as of December 17, 1997, between the Coushatta Tribe of Louisiana, a federally recognized Indian Tribe, Grand Casinos of Louisiana, Inc. -- Coushatta, a Minnesota corporation, Grand Casinos, Inc. a Minnesota corporation, the Cottonport Bank, a bank chartered under the laws of the State of Louisiana, and Hibernia National Bank, a national banking association. (Incorporated herein by reference to Exhibit 10.8 to Lakes' Report on Form 10-Q for the quarter ended April 4, 1999.) 10.38 Intercreditor Agreement dated as of February 4, 1998, between Hibernia National Bank and Grand Casinos of Louisiana, Inc. -- Coushatta and Grand Casinos, Inc. (Incorporated herein by reference to Exhibit 10.9 to Lakes' Report on Form 10-Q for the quarter ended April 4, 1999.) 10.39 Counterpart Signature Page, dated as of February 15, 1999, to that certain Intercreditor Agreement dated as of February 4, 1998 (the First Intercreditor Agreement), by and among Hibernia National Bank, Grand Casinos, Inc. and Grand Casinos of Louisiana, Inc. -- Coushatta; entered into pursuant to Section 2 of that certain Release and Assumption Agreement dated as of December 31, 1998, by and among the Hibernia National Bank, Grand Casinos, Inc., Grand Casinos of Louisiana, Inc. -Coushatta, the Coushatta Tribe of Louisiana, the Coushatta Tribe of Louisiana Building Authority, Lakes Gaming, Inc. and Grand Casinos of Louisiana, LLC -- Coushatta. (Incorporated herein by reference to Exhibit 10.10 to Lakes' Report on Form 10-Q for the quarter ended April 4, 1999.) 10.40 Subordination Agreement granted by Lakes Gaming, Inc., a Minnesota Corporation, in favor of Hibernia National Bank entered into as of February 15, 1999. (Incorporated herein by reference to Exhibit 10.11 to Lakes' Report on Form 10-Q for the quarter ended April 4, 1999.)
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EXHIBITS DESCRIPTION - -------- ----------- 10.41 Subordination Agreement granted by Grand Casinos of Louisiana, LLC -Coushatta, a Minnesota Limited Liability Company, in favor of Hibernia National Bank entered into as of February 15, 1999. (Incorporated herein by reference to Exhibit 10.12 to Lakes' Report on Form 10-Q for the quarter ended April 4, 1999.) 10.42 Dominion Account Agreement, dated effective as of December 18, 1998, between the Coushatta Tribe of Louisiana, a federally recognized Indian tribe, Grand Casinos of Louisiana, LLC -- Coushatta, a Minnesota limited liability company, Lakes Gaming, Inc., a Minnesota corporation, the Cottonport Bank, a bank chartered under the laws of the State of Louisiana, and Hibernia National Bank, a national banking association. (Incorporated herein by reference to Exhibit 10.13 to Lakes' Report on Form 10-Q for the quarter ended April 4, 1999.) 10.43 Second Intercreditor Agreement dated as of December 18, 1998, between Hibernia National Bank, Grand Casinos of Louisiana, Inc. -- Coushatta and Grand Casinos, Inc. (Incorporated herein by reference to Exhibit 10.14 to Lakes' Report on Form 10-Q for the quarter ended April 4, 1999.) 10.44 Counterpart Signature Page, dated as of February 15, 1999, to that certain Second Intercreditor Agreement dated as of December 18, 1998 (the Second Intercreditor Agreement), by and among Hibernia National Bank, Grand Casinos, Inc. and Grand Casinos of Louisiana, Inc. -- Coushatta; entered into pursuant to Section 2 of that certain Release and Assumption Agreement dated as of December 31, 1998, by and among the Hibernia National Bank, Grand Casinos, Inc., Grand Casinos of Louisiana, Inc. -- Coushatta, the Coushatta Tribe of Louisiana, the Coushatta Tribe of Louisiana Building Authority, Lakes Gaming, Inc. and Grand Casinos of Louisiana, LLC -- Coushatta. (Incorporated herein by reference to Exhibit 10.15 to Lakes' Report on Form 10-Q for the quarter ended April 4, 1999.) 10.45 Release and Assumption Agreement dated as of December 31, 1998, among Cottonport Bank, the Tunica-Biloxi Tribe of Louisiana, Grand Casinos of Louisiana, Inc. -- Tunica-Biloxi, Grand Casinos, Inc., Lakes Gaming, Inc., a Minnesota corporation and a subsidiary of Grand and Grand Casinos of Louisiana, LLC -- Tunica-Biloxi, a Minnesota limited company and a subsidiary of Lakes Gaming, Inc. (Incorporated herein by reference to Exhibit 10.16 to Lakes' Report on Form 10-Q for the quarter ended April 4, 1999.) 10.46 Commercial Guaranty Agreement made and entered into effective as of February 15, 1999, by Lakes Gaming, Inc., a Minnesota corporation and Grand Casinos of Louisiana, LLC -- Tunica-Biloxi, a Minnesota limited liability company in favor of the Cottonport Bank, guaranteeing the Indebtedness (as defined) of the Tunica-Biloxi Tribe of Louisiana. (Incorporated herein by reference to Exhibit 10.17 to Lakes' Report on Form 10-Q for the quarter ended April 4, 1999.) 10.47 Subordination Agreement granted by Lakes Gaming, Inc., a Minnesota corporation, in favor of the Cottonport Bank entered into as of February 15, 1999. (Incorporated herein by reference to Exhibit 10.18 to Lakes' Report on Form 10-Q for the quarter ended April 4, 1999.) 10.48 Subordination Agreement granted by Grand Casinos of Louisiana, LLC -- Tunica-Biloxi, a Minnesota limited liability company, in favor of the Cottonport Bank entered as of February 15, 1999. (Incorporated herein by reference to Exhibit 10.19 to Lakes' Report on Form 10-Q for the quarter ended April 4, 1999.) 10.49 Non-competition Agreement made and entered into as of December 31, 1998, by and between Lyle Berman and Park Place Entertainment Corporation (f/k/a Gaming Co., Inc.) a Delaware corporation. (Incorporated herein by reference to Exhibit 10.21 to Lakes' Report on Form 10-Q for the quarter ended April 4, 1999.) 10.50 Equipment Loan Promissory Note in the principal amount of $6,000,000 by and among the Tunica-Biloxi Tribe of Louisiana, as Borrower and Hibernia National Bank, as Lender executed as of May 28, 1999. (Incorporated herein by reference to Exhibit 10.1 to Lakes' Report on Form 10-Q for the quarter ended July 4, 1999.)
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EXHIBITS DESCRIPTION - -------- ----------- 10.51 Dominion Account Agreement, dated effective as of May 28, 1999, between the Tunica-Biloxi Tribe of Louisiana, a federally recognized Indian tribe, Grand Casinos of Louisiana, LLC -- Tunica-Biloxi, a Minnesota limited liability company, Lakes Gaming, Inc., a Minnesota corpora- tion, the Cottonport Bank, a bank chartered under the laws of the State of Louisiana, and Hibernia National Bank, a national banking association. (Incorporated herein by reference to Exhibit 10.2 to Lakes' Report on Form 10-Q for the quarter ended July 4, 1999.) 10.52 Subordination Agreement Granted by Lakes Gaming, Inc., in Favor of Hibernia National Bank entered into as of May 28, 1999. (Incorporated herein by reference to Exhibit 10.3 to Lakes' Report on Form 10-Q for the quarter ended July 4, 1999.) 10.53 Intercreditor Agreement dated as of May 28, 1999, between The Cottonport Bank, Hibernia National Bank and Grand Casinos of Louisiana, LLC -- Tunica-Biloxi and Lakes Gaming, Inc. (Incorporated herein by reference to Exhibit 10.4 to Lakes' Report on Form 10-Q for the quarter ended July 4, 1999.) 10.54 Commercial Security Agreement entered into between the Tunica-Biloxi Tribe of Louisiana (as Grantor) and Hibernia National Bank (as Lender). (Incorporated herein by reference to Exhibit 10.5 to Lakes' Report on Form 10-Q for the quarter ended July 4, 1999.) 10.55 Subordination Agreement Granted by Grand Casinos of Louisiana, LLC -- Tunica-Biloxi in Favor of Hibernia National Bank entered into as of May 28, 1999. (Incorporated herein by reference to Exhibit 10.6 to Lakes' Report on Form 10-Q for the quarter ended July 4, 1999.) 10.56 Equipment Loan Agreement dated effective as of May 28, 1999 made by and between the Tunica-Biloxi Tribe of Louisiana and Hibernia National Bank, a national banking association. (Incorporated herein by reference to Exhibit 10.7 to Lakes' Report on Form 10-Q for the quarter ended July 4, 1999.) 10.57 Subscription Agreement and Investment Letter by and among Lakes Gaming, Inc., a Minnesota corporation (the "Subscriber") and Fanball.com, Inc., a Minnesota corporation (the "Company") dated as of June 15, 1999. (Incorporated herein by reference to Exhibit 10.1 to Lakes' Report on Form 10-Q for the quarter ended October 3, 1999.) 10.58 Stock Purchase Agreement dated as of June 15, 1999 between Lakes Gaming, Inc. (the "Buyer") and Richard Kallio (the "Seller"). (Incorporated herein by reference to Exhibit 10.2 to Lakes' Report on Form 10-Q for the quarter ended October 3, 1999.) 10.59 Subscription Agreement and Investment Letter by and among Lakes Gaming, Inc. a Minnesota corporation (the "Subscriber") and Interactive Learning Group, Inc., a Minnesota corporation (the "Company") dated as of June 25, 1999. (Incorporated herein by reference to Exhibit 10.3 to Lakes' Report on Form 10-Q for the quarter ended October 3, 1999.) 10.60 Mutual Termination Agreement by and Among the Registrant, Rainforest Cafe, Inc. and RFC Acquisition Co. dated as of January 24, 2000. (Incorporated herein by reference to Exhibit 10.1 to Lakes' Report on Form 8-K dated as of January 25, 2000.) 10.61 Development Agreement dated as of the 8th day of July, 1999 by and between the Pokagon Band of Potawatomi Indians and Lakes Gaming, Inc., a Minnesota corporation. 10.62 Management Agreement dated as of July 8, 1999, by and between the Pokagon Band of Potawatomi Indians and Lakes Gaming, Inc., a Minnesota corporation. 10.63 Promissory Note (the "Lakes Note") dated as of July 8, 1999 by and among the Pokagon Band of Potawatomi Indians and Lakes Gaming, Inc., a Minnesota corporation. 10.64 Non-Gaming Land Acquisition Line of Credit Agreement dated as of the 8th day of July, 1999, by and between the Pokagon Band of Potawatomi Indians and Lakes Gaming, Inc., a Minnesota corporation. 10.65 Promissory Note (the "Transition Loan Note") dated as of July 8, 1999 by and among the Pokagon Band of Potawatomi Indians and Lakes Gaming, Inc., a Minnesota corporation.
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EXHIBITS DESCRIPTION - -------- ----------- 10.66 Account Control Agreement dated as of July 8, 1999 by and among the Pokagon Band of Potawatomi Indians and Lakes Gaming, Inc., a Minnesota corporation. 10.67 Pledge and Security Agreement dated as of July 8, 1999 by and among the Pokagon Band of Potawatomi Indians and Lakes Gaming, Inc., a Minnesota corporation. 10.68 Memorandum of Agreement Regarding Gaming Development and Management Agreements dated as of the 15th day of February, 2000 by and between the Jamul Indian Village and Lakes KAR -- California, LLC, a Delaware limited liability company. 10.69 Operating Agreement of Lakes Kean Argovitz Resorts -- California, LLC dated as of the 25th day of May, 1999 by and between Lakes Jamul, Inc. and Kean Argovitz Resorts -- Jamul, LLC. 10.70 Promissory Note dated as of 15th day of February, 2000 by and among the Jamul Indian Village and Lakes KAR -- California, LLC, a Delaware limited liability company. 10.71 Security Agreement dated as of the 25th day of May, 1999 by and between Lakes Jamul, Inc., a Minnesota corporation and Lakes Kean Argovitz Resorts -- California, LLC, a Delaware limited liability company. 10.72 Management Agreement between the Shingle Springs Band of Miwok Indians and Kean Argovitz Resorts -- Shingle Springs, LLC, dated as of the 11th day of June, 1999. 10.73 Development Agreement between the Shingle Springs Band of Miwok Indians and Kean Argovitz Resorts -- Shingle Springs, LLC, dated as of the 11th day of June, 1999. 10.74 Management Agreement dated as of the 29th day of July, 1999 by and among Lakes Shingle Springs, Inc., a Minnesota Corporation and Lakes KAR -- Shingle Springs, LLC, a Delaware limited liability company. 10.75 Operating Agreement of Lakes KARSS -- Shingle Springs, LLC, dated as of the 29th day of July, 1999 by Lakes Shingle Springs, Inc. and Kean Argovitz Resorts -- Shingle Springs, LLC. 10.76 Assignment and Assumption Agreement between Kean Argovitz Resorts -- Shingle Springs, LLC, a Nevada limited liability company, and Lakes KAR -- Shingle Springs, LLC, a Delaware limited liability company, dated as of the 11th day of June, 1999. 10.77 Assignment and Assumption Agreement and Consent to Assignment and Assumption, by and between Lakes Gaming, Inc., a Minnesota corporation, and Kean Argovitz Resorts -- Shingle Springs, LLC, a Nevada limited liability company, dated as of the 11th day of June, 1999. 10.78 Security Agreement dated as of the 29th day of July, 1999, by and between Lakes Shingle Springs, Inc., a Minnesota corporation, and Lakes KAR -- Shingle Springs, LLC, a Delaware limited liability company. 10.79 Promissory Note dated as of the 29th day of July, 1999, by and among Kean Argovitz Resorts -- Shingle Springs, LLC, a Nevada limited liability company, and Lakes Shingle Springs, Inc., a Minnesota corporation. 10.80 Pledge Agreement dated as of the 29th day of July, 1999, by and between Kean Argovitz Resorts -- Shingle Springs, LLC, a Nevada limited liability company, and Lakes Shingle Springs, Inc., a Minnesota corporation. 21 Subsidiaries of the Company. 23 Consent of Independent Public Accountants Dated March 24, 2000. 27 Financial Data Schedule.
- --------------- * Management Compensatory Plan or Arrangement. (b) Reports on Form 8-K. (i) A Form 8-K, Item 5. Other Events; and Item 7. Financial Statements, Pro Forma Financial Information and Exhibits, was filed on December 23, 1999. (c) See Part IV, Item 14 (a)(3) and the exhibit list immediately above. (d) None. 51 52 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LAKES GAMING, INC. Registrant By: /s/ LYLE BERMAN ------------------------------------ Name: Lyle Berman Title: Chairman of the Board and Chief Executive Officer Dated as of March 28, 2000 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated as of March 28, 2000.
NAME TITLE ---- ----- /s/ LYLE BERMAN Chairman of the Board and Chief Executive Officer - --------------------------------------------- (Principal Executive Officer) Lyle Berman /s/ TIMOTHY J. COPE Chief Financial Officer and Director - --------------------------------------------- (Principal Financial and Accounting Officer) Timothy J. Cope /s/ MORRIS GOLDFARB Director - --------------------------------------------- Morris Goldfarb /s/ RONALD KRAMER Director - --------------------------------------------- Ronald Kramer /s/ DAVID L. ROGERS Director - --------------------------------------------- David L. Rogers /s/ NEIL I. SELL Director - --------------------------------------------- Neil I. Sell /s/ JOEL N. WALLER Director - --------------------------------------------- Joel N. Waller
52 EX-10.61 2 DEVELOPMENT AGREEMENT WITH POKAGON BAND 1 EXHIBIT 10.61 DEVELOPMENT AGREEMENT BETWEEN THE POKAGON BAND OF POTAWATOMI INDIANS AND LAKES GAMING, INC. DATED AS OF JULY 8, 1999 2 TABLE OF CONTENTS RECITALS ..........................................................................1 ARTICLE 1 - DEFINITIONS AND OBJECTIVES.............................................2 Definitions...............................................................2 Disbursement Accounts.....................................................5 Enterprise................................................................5 Enterprise Accounts.......................................................5 Gaming Regulatory Authority...............................................7 GRA ......................................................................7 Lakes's Internal Expenses.................................................8 Independent Agreement....................................................11 ARTICLE 2 - ACQUISITION OF GAMING SITE AND NON-GAMING LANDS....................................................................12 Selection of Gaming Site.................................................12 Option .......................................................12 Purchase Agreement..............................................12 Closing on Gaming Site; Funding..........................................12 Confidentiality..........................................................13 Assignment of Other Options..............................................13 Selection of Non-Gaming Lands............................................13 Closing on Non-Gaming Lands; Funding.....................................13 Mortgages Prior to Transfer into Trust...................................14 ARTICLE 3 - FEASIBILITY STUDY.....................................................14 Temporary Gaming Facility Feasibility Study..............................14 ARTICLE 4 - DESIGN PHASE..........................................................14 Employment of Architect..................................................14 Design and Construction Budgets..........................................15 Gaming Regulatory Authority Expenses.....................................15 Modification of Initial Scope of Work....................................16 Concept Design and Engineering...........................................16 Preliminary Program Evaluation...........................................16 Design Development.......................................................17 Plans and Specifications.................................................17 Compliance with Construction Standards, Environmental Laws and Regulations..........................................................17
i 3 Advance of Funds for Design Work.........................................18 ARTICLE 5 - CONSTRUCTION PHASE....................................................18 Selection of Contractor or Construction Lakes............................18 Vendor Preferences.......................................................18 Proposal Review..........................................................19 Contracts................................................................19 Construction Document Provisions.........................................19 Construction Administration..............................................20 Construction Commencement and Completion.................................20 Determination of Approved Construction Costs; Cost Overruns..............20 ARTICLE 6 - FURNISHINGS AND EQUIPMENT.............................................21 Selection of Furnishings and Equipment...................................21 ARTICLE 7 - TERM..................................................................21 Term.....................................................................21 ARTICLE 8 - PAYMENTS AND COMMITMENTS BY LAKES BEFORE APPROVAL OF MANAGEMENT AGREEMENT..................................21 Fees Payable By Lakes to the Band........................................21 Initial Fee.....................................................21 Signing Fee.....................................................22 Monthly Payments................................................22 Escrow Account...........................................................22 Transition Loan..........................................................23 Advances on Lakes Development Loan.......................................24 Gaming Site Acquisition Funds...................................24 Site Planning and Design Development............................24 Advances to the Band for Gaming Ordinance.......................24 Non-Gaming Land Acquisition Line of Credit...............................24 ARTICLE 9 - PAYMENTS AND COMMITMENTS BY LAKES AFTER APPROVAL OF MANAGEMENT AGREEMENT...................................24 Scholarship Program Fee..................................................24 Development and Equipment Loans..........................................25 Lakes Development Loan..........................................25 Bank Development Loan...........................................26 Equipment Loan..................................................27 ARTICLE 10 - EXCLUSIVITY; NON-COMPETITION.........................................31
ii 4 Exclusivity Regarding Facility...........................................31 Exclusivity in Michigan..................................................31 Indiana Casino...........................................................31 Non-Competition..........................................................31 Assignment; Change of Control............................................32 Restrictions on Collateral Development...................................34 ARTICLE 11 - REPRESENTATIONS, WARRANTIES, AND COVENANTS...........................34 Representations and Warranties of the Band...............................34 Band Covenants...........................................................35 Representations and Warranties of Lakes..................................36 Lakes Covenants..........................................................36 ARTICLE 12 - EVENTS OF DEFAULT....................................................37 Events of Default by the Band............................................37 Events of Default by Lakes...............................................38 Material Breach; Right to Cure...........................................39 ARTICLE 13 - TERMINATION..........................................................39 Voluntary Termination....................................................39 Termination if No NIGC Approval..........................................40 Lakes Right to Terminate on Band Event of Default........................40 Band Right to Terminate on Lakes Event of Default........................40 Band Right to Terminate for Material Adverse Change......................40 Termination on Buyout....................................................41 Involuntary Termination Due to Changes in Legal Requirements.............41 Repair or Replacement....................................................42 ARTICLE 14 - DISPUTE RESOLUTION; LIQUIDATED DAMAGES...............................43 Band's Waiver of Sovereign Immunity and Consent to Suit..................43 Arbitration..............................................................43 Choice of Law...................................................44 Place of Hearing................................................44 Confidentiality.................................................44 Limitation of Actions....................................................44 Damages .......................................................44 Consents and Approvals..........................................44 Injunctive Relief and Specific Performance......................44 Action to Compel Arbitration....................................45 Damages on Termination for Failure to Obtain NIGC Approval...............45 Liquidated Damages and Limitations on Remedies...........................45
iii 5 Liquidated Damages Payable by Lakes.............................45 Liquidated Damages Payable by the Band..........................46 Lakes Continuing Obligations.............................................46 Termination of Exclusivity...............................................46 Remedies ................................................................46 Fees not Damages.........................................................47 ARTICLE 15 - GENERAL..............................................................47 Nature of Agreement......................................................47 Lakes's Interest.........................................................47 Situs of the Agreement...................................................47 Notice ................................................................47 Relationship.............................................................48 Further Actions..........................................................48 Waivers ................................................................49 Captions ................................................................49 Third Party Beneficiary..................................................49 Survival of Covenants....................................................49 Estoppel Certificate.....................................................49 Periods of Time; Time of the ............................................49 Confidential and Proprietary Information.................................49 Government Savings Clause................................................50 Successors and Assigns...................................................50 Severability.............................................................50 Entire Agreement.........................................................50 Manager ................................................................51
iv 6 EXHIBIT LIST EXHIBIT A Control Agreement EXHIBIT B Lakes Note EXHIBIT C Non-Gaming Land Acquisition Line of Credit Agreement EXHIBIT D Transition Loan Note EXHIBIT E Band Litigation EXHIBIT F Conditional Release and Termination Agreement between Lakes and CRC dated May 20, 1999, as amended by Amendment dated on or about July 7, 1999 EXHIBIT G General Release from CRC to the Band and its members EXHIBIT H Security Agreement v 7 DEVELOPMENT AGREEMENT This Development Agreement is made as of the 8th day of July, 1999 by and between the POKAGON BAND OF POTAWATOMI INDIANS (the "Band"), and LAKES GAMING, INC., a Minnesota corporation (the "Lakes"). RECITALS A. The Band, pursuant to 25 U.S.C. ss. ss. 1300j et seq. (the "Restoration Act"), is a federally recognized Indian tribe recognized as eligible by the Secretary of the Interior for the special programs and services provided by the United States to Indians because of their status as Indians and is recognized as possessing powers of self-government. B. As authorized by the Restoration Act, the Band intends to acquire the Gaming Site in the State of Michigan, to be held by the federal government in trust for the Band, on which the Band intends to construct and operate a permanent Class III gaming facility (the "Facility"); and the Band will possess sovereign governmental powers over the Gaming Site pursuant to the Band's recognized powers of self government, and the Band desires to use the Gaming Site to improve the economic conditions of its members. C. The Band, on the same date as the date of this Agreement, has entered into a management agreement with Lakes, whereby Lakes, subject to receipt of regulatory approvals, will manage the Facility (the "Management Agreement"); and Lakes and the Band want to take all steps reasonably possible prior to the receipt of the regulatory approvals (i) to select the site for, contract for and if necessary purchase the site for the Facility, (ii) to design the Facility, and (iii) to enter into contracts to construct and equip the Facility to be effective when all regulatory approvals have been obtained or as soon thereafter as feasible, so that the Facility can be opened to the public as soon as possible thereafter. D. The Band has selected Lakes to assist the Band by obtaining commitments for financing the Facility and by furnishing technical experience and expertise for the development and design, and for contracting for the construction, furnishing and equipping of the Facility. E. The Band and Lakes intend that their relationship with regard to the preliminary development of the Facility shall be an exclusive arrangement. F. The Band and Lakes desire to enter into an agreement whereby preliminary Facility design and development work (but not Facility construction or operation) may 1 8 proceed prior to receipt of regulatory approvals and whereby the exclusive nature of the relationship between Lakes and the Band shall be preserved. G. Lakes has agreed to lend certain funds and to assist the Band in obtaining certain loans in amounts sufficient to finance acquisition of tribal lands and to develop, finance the construction of, and operate the Facility, and has agreed to make certain other loans and pay certain other fees to the Band as consideration for the exclusive right to develop the Facility and manage the Facility pursuant to the Management Agreement, and for other development rights described in this Agreement. NOW, THEREFORE, in consideration of the mutual covenants, conditions and promises herein contained, the receipt and sufficiency of which are expressly acknowledged, the Band and Lakes hereby agree as follows: ARTICLE 1 DEFINITIONS AND OBJECTIVES Section 1.1 Definitions. Capitalized terms not otherwise defined herein shall have the meanings set forth in the Management Agreement. In addition to other terms which are defined elsewhere in this Agreement, the following terms, for purposes of this Agreement, shall have the meanings set forth in this Section. "Account" means the account at Firstar established pursuant to ss. 8.2 that is subject to the Control Agreement. "Accrued Expenses" shall mean the accrued unpaid development costs and expenses relating to the Gaming Site and the Enterprise. "Agreement" shall mean this Development Agreement. "Agreements" shall mean this Agreement and the Management Agreement. "Approved Construction Costs" shall mean the Architect's estimate of Construction Costs approved by the Band and Lakes pursuant to ss. 5.8. "Approved Development Budget" has the meaning set out in ss. 4.2. "Architect" shall have the meaning described in ss. 4.1. "Band Event of Default" has the meaning described in ss. 12.1. 2 9 "Band Interest Rate" shall mean the lesser of (i) Wall Street Journal prime rate as of the Bank Closing plus 1%, or (ii) 10%. "Bank Closing" means the closing on the Bank Loan Agreement. "Bank Lender" shall mean the financial institution or bond trustee described as the lender or bond trustee in the Bank Loan Agreement. "Bank Loan" shall mean the loan evidenced by the Bank Note. "Bank Loan Agreement" shall mean the loan agreement or bond indenture in a principal amount of up to $57,000,000 to be entered into between the Band and the Bank Lender. "Bank Note" shall mean the promissory note or bond to be executed by the Band pursuant to the Bank Loan Agreement. "BIA" shall mean the Bureau of Indian Affairs under the Department of the Interior of the United States of America. "Business Board" shall mean the decision making body created pursuant to ss. 3.4 of the Management Agreement. "Change of Control" shall have the meaning set out in ss. 10.5(c). "Class II Gaming" shall mean Class II Gaming as defined in the IGRA. "Class III Gaming" shall mean Class III Gaming as defined in the IGRA. "Commencement Date" shall mean the first date that the Facility is complete, open to the public and that Gaming is conducted in the Facility pursuant to the terms of the Management Agreement. "Commencement Date" shall not mean the opening of the Temporary Facility, if any. "Compact" shall mean the Compact between the Band and the State dated December 3, 1998 and approved in 64 Fed. Reg. No. 32, Thursday, February 18, 1999, at 8111, as the same may, from time to time, be amended; or such other compact or consent decree that may be substituted therefor. "Completion Date" shall mean the date upon which Lakes receives: 3 10 (i) an architect's certificate from the Architect chosen pursuant to this Agreement as having responsibility for the design and supervision of construction, equipping and furnishing of the Facility certifying that the Facility has been fully constructed substantially in accordance with the Plans and Specifications; (ii) certification from the division, department or designee of Lakes having responsibility to assure compliance with any operational standards stating that the Facility, as completed, is in substantial compliance with any such standards; (iii) a permanent or temporary certificate of occupancy, if required, from any government authority or authorities pursuant to whose jurisdiction the Facility is to be constructed, permitting the use and operation of all portions of the Facility in accordance with this Agreement; and (iv) certificates of such professional designers, inspectors or consultants or opinions of counsel, as Lakes may reasonably determine to be appropriate, verifying construction and furnishing of the Facility in compliance with all Legal Requirements. "Constitution" shall mean the document or documents which govern the actions of the Band and, upon enactment, the Constitution of the Pokagon Band of Potawatomi Indians as ultimately approved by the Band and approved by the Secretary of the Interior. "Construction Costs" means the costs of acquiring the Gaming Site and designing, developing, constructing, furnishing and equipping the Facility, including all related planning and professional fees, Furnishings and Equipment, and a contingency not to exceed 8% of such costs (excluding Furnishings and Equipment). "Construction Documents" shall have the meaning described in Section 5.4. "Control Agreement" shall mean the Account Control Agreement among Firstar, Lakes and the Band of near or even date perfecting the Band's lien and security interest in the Account, a true copy of which is attached as Exhibit A. "Corporate Commission" shall mean a body corporate and politic established, at the Band's discretion, by the Pokagon Council to own the Enterprise and such other businesses and assets as the Band may deem appropriate. "CRC" means Casino Resource Corporation, a Minnesota corporation and its Insiders. 4 11 "Design Agreement" shall have the meaning described in Section 4.1 "Design Packages" shall have the meaning described in Section 4.1. "Development Expenditures" shall mean all Approved Construction Costs; all other costs of equipping and opening the Facility, including but not limited to all related planning and professional fees, costs of infrastructure, equipment, furniture and fixtures (including gaming equipment), and pre-opening costs, fees and expenses; all legal, lobbying, public relations and other professional costs and expenses related to transferring Gaming Lands and Non-Gaming Lands into trust and to the Compact between the Band and the State of Michigan; and all legal, lobbying and other fees and expenses previously incurred by the Band in obtaining, or litigating with regard to, the Compact with the State of Michigan, not to exceed $20,000, as well as all other such fees and expenses subsequently incurred by the Band that the Band reasonably chooses to include in the Development Budget. "Disbursement Accounts" shall mean those accounts described in ss. 4.19.3 of the Management Agreement. "Enterprise" shall mean the enterprise of the Band created by the Band to engage in Class II and Class III Gaming at the Facility, and which shall include all gaming at the Facility and any other lawful commercial activity allowed in the Facility, including but not limited to the sale of alcohol, tobacco, gifts and souvenirs; provided, however, the Enterprise shall only include any hotel operated by the Band, ancillary non-Gaming activity within the Facility, or other commercial enterprise conducted by the Band which is not generally related to Class II or Class III Gaming if such hotel, non-Gaming activity or other commercial enterprise (a) is financed by, or through the guaranty of, Manager, (b) is specifically included within the Initial Scope of Work or is not a material expansion of the Initial Scope of Work, or (c) is specified by the Business Board and the Pokagon Council as being included in the Enterprise, in which case depreciation and other expenses relating to such hotel, non-Gaming activity or other commercial enterprise shall be an Operating Expense, all related revenues shall be included in Gross Revenues, and interest on all related financing shall be paid by the Enterprise; and provided further that the Enterprise shall not include a tribal gift/craft business which the Band may elect to operate, rent free, on an area of about 2,400 square feet at the Facility. The design and operation of such gift/craft shop shall be consistent with the theme and quality of the Facility, and the location of such gift/craft shop shall be approved by the Business Board. "Enterprise Accounts" shall mean those accounts described in ss. 4.19.1 of the Management Agreement. 5 12 "Equipment Lender" shall mean the financial institution described as the lender in the Equipment Loan Agreement. "Equipment Loan Agreement" shall mean the loan agreement or equipment lease in a principal amount of up to $35,000,000 to be entered into between the Band and the Equipment Lender to finance acquisition of the Furnishings and Equipment. "Equipment Loan" means the loan or lease under the Equipment Loan Agreement. "Equipment Note" shall mean the promissory note or bond to be executed by the Band pursuant to the Equipment Loan Agreement. "Facility" shall mean the permanent buildings, structures and improvements located on the Gaming Site and all fixtures, Furnishings and Equipment attached to, forming a part of, or necessary for the operation of the Enterprise. "Feasibility Study" means the study of the feasibility of the Temporary Facility to be conducted by Lakes pursuant to ss. 3.1 of this Agreement. "Firstar" shall mean Firstar Bank of Minnesota, N.A. "Force Majeure" shall mean acts of God, fire, flood, storm, earthquake, war, civil disorder, governmental acts, regulations, orders or restrictions, accidents not caused by a party's negligence, strikes or labor disturbances. "Furnishings and Equipment" shall mean all furniture, furnishings and equipment required for the operation of the Enterprise in accordance with the standards set forth in this Agreement, including, without limitation: (i) cashier, money sorting and money counting equipment, surveillance and communication equipment, and security equipment; (ii) slot machines, video games of chance, table games, keno equipment and other gaming equipment; (iii) office furnishings and equipment; (balance of this page intentionally left blank) 6 13 (iv) specialized equipment necessary for the operation of any portion of the Enterprise for accessory purposes, including equipment for kitchens, laundries, dry cleaning, cocktail lounges, restaurants, public rooms, commercial and parking spaces, and recreational facilities; and (v) hotel equipment (to the extent a hotel is included in the Enterprise); (vi) all other furnishings and equipment hereafter located and installed in or about the Facility which are used in the operation of the Enterprise in accordance with the standards set forth in this Agreement. "Gaming" shall mean any and all activities defined as Class II and Class III Gaming pursuant to IGRA. "Gaming Ordinance" shall have the meaning described in Section 8.4(iii). "Gaming Regulatory Authority" or "GRA" shall mean the Band body created pursuant to the Band Gaming Ordinance to regulate the Class II and Class III Gaming of the Band in accordance with the Compact, the IGRA and the Gaming Ordinance. "Gaming Site" shall mean any parcel of land in Michigan identified by the Band, after consultation with Lakes, as suitable for development of the Facility and operation of the Enterprise which meets the requirements of United States of America to be accepted in trust for the Band for Gaming purposes. "Gaming Site Acquisition Advances" shall mean funds advanced under the Lakes Development Loan in such amount or amounts as are needed to option or acquire the Gaming Site, provided that the total amount of Gaming Site Acquisition Advances shall not exceed $8,000,000. "Gaming Site Option" has the meaning provided in ss. 2.1.1. "Gaming Site Purchase Agreement" has the meaning provided in ss. 2.1.2. "Initial Scope of Work" means a facility including not less than 90,000 sq.ft. of gaming space, 75 gaming tables, 3,000 slot machines, 4,000 surface parking spaces for guests (unless a smaller number is approved by the Business Board) and parking spaces for 45 buses and 600 employees; provided that if financing beyond the aggregate amount of the Loans set forth in ss. 9.2 is available to the Band without Lakes' guarantee on terms acceptable to the Band, the Initial Scope of Work may at the Band's option be increased 7 14 to include a hotel, bingo hall and multi-purpose entertainment facility, or an indoor garage. "IGRA" shall mean the Indian Gaming Regulatory Act of 1988, P.L. 100-497, 25 U.S.C. ss. 2701 et seq. as it may from time to time be amended. "Insider" has the meaning defined in 11 U.S.C. ss. 101(31), assuming Lakes were the debtor in that definition, and shall include persons or entities that become Insiders after the date of this Agreement, whether as the result of a merger, acquisition, restructuring or otherwise. "Lakes Development Loan" shall mean the loan to the Band to be made by Lakes under the Lakes Note in a principal amount of up to $43,000,000, comprised of (A) up to $8,000,000 for Gaming Site Acquisition Advances and (B) $35,000,000 for Development Expenditures other than acquisition of the Gaming Site. "Lakes Event of Default" has the meaning described in ss. 12.2. "Lakes's Internal Expenses" shall mean Lakes's corporate overhead, including without limitation salaries or benefits of any of Lakes's officers and employees, whether or not they perform services for the Project or the Enterprise, and any travel or other expenses of Lakes's employees. "Lakes Note" shall mean the promissory note to be executed by the Band to evidence the Lakes Development Loan, which shall be in the form attached hereto as Exhibit B. "Legal Requirements" shall mean any and all present and future judicial, administrative, and tribal rulings or decisions, and any and all present and future federal, state, local and tribal laws, ordinances, rules, regulations, permits, licenses and certificates, in any way applicable to the Band, Lakes, the Gaming Site, the Facility, and the Enterprise, including without limitation, the IGRA, the Compact, and the Band Gaming Ordinance. "Limited Recourse" shall mean that all Loans and all liabilities of the Band under or related to the Agreements, the Enterprise or the Gaming Regulatory Authority, and any related awards, judgments or decrees, shall be payable solely out of undistributed or future Net Revenues of the Enterprise and shall be a limited recourse obligation of the Band, with no recourse to tribal assets other than such Net Revenues (except (i), as to the Equipment Loan, a security interest in the Furnishings and Equipment purchased with Equipment Loan proceeds, (ii), if the Commencement Date does not occur, Subsequent 8 15 Gaming Facility Revenues to the extent provided in this Agreement, and (iii) mortgages on the Gaming Site and Non-Gaming Lands prior to their transfer into trust). In no event shall Lakes or any lender or other claimant have recourse to (a) the physical property of the Facility (other than Furnishings and Equipment subject to the security interest securing the Equipment Loan), (b) Tribal Distributions, (c) assets of the Band purchased with Tribal Distributions, (d) revenues or assets of any other gaming facility owned or operated by the Band, or (e) any other asset of the Band (other than (i) as to the Transition Loan and the Non-Gaming Acquisition Line of Credit, if the Commencement Date does not occur, Subsequent Gaming Facility Revenues to the extent provided in this Agreement, (ii) as to the Non-Gaming Acquisition Line of Credit, mortgages on the Non-Gaming Lands prior to their transfer into trust, (iii) as to the Lakes Note, mortgages on the Gaming Site prior to their transfer into trust, and (iv) such Net Revenues of the Enterprise). "Loans" shall mean the Lakes Development Loan, the Bank Loan and the Equipment Loan. "Management Agreement" shall mean the agreement between the Band and Lakes dated the same date as this Agreement, pursuant to which Lakes shall manage the Enterprise. "Material Adverse Change" shall mean a material adverse change in Lakes's financial condition which materially and substantially impairs Lakes's ability to perform under the Agreements. "Material Breach" means a failure of either party to perform any material duty or obligation on its part, if such party fails to (i) cure the specified default within thirty (30) days following receipt of the notice provided under ss. 12.3, or (ii) if the default is not capable of being cured within 30 days, commences such cure within 30 days, proceeds diligently to complete the cure, and completes the cure no later than 90 days after receipt of such notice. "Memorandum of Understanding" means the Memorandum of Understanding between the Band and the Secretary of the Interior executed on behalf of the Secretary on January 11, 1999. "Monthly Payments" shall have the meaning described in Section 8.1(c). "National Indian Gaming Commission" or "NIGC" means the commission established pursuant to 25 U.S.C. ss. 2704. 9 16 "Net Revenues" shall have the meaning set forth in the Management Agreement, and shall include "Net Revenues (gaming)" and "Net Revenues (other)" as defined in the Management Agreement. "NIGC Approval" means (a) a determination by NIGC that Lakes is suitable for licensing and (b) approval by NIGC of the Agreements. "NIGC Disapproval" means a determination by NIGC that Lakes is unsuitable for licensing, if within 120 days after notification of the NIGC decision Lakes has not cured the reason for such unsuitability and obtained a statement of suitability from NIGC. "Non-Gaming Land" means any parcels of land in Michigan or Indiana (other than the Gaming Site) which are (a) identified in a writing executed by the Band as suitable for reservation homelands for the Band in accordance with the Memorandum of Understanding, and (b) meet the requirements of United States of America to be accepted in trust for the Band for Gaming or non-Gaming purposes; provided that the Gaming Site and the Non-Gaming Land shall not exceed 4,700 acres in the aggregate. "Non-Gaming Land Acquisition Line of Credit" shall mean an internal line of credit in favor of the Band established by Lakes in the amount of $10,000,000 pursuant to the Non-Gaming Land Acquisition Line of Credit Agreement in the form attached hereto as EXHIBIT C, to enable the Band to option or acquire Non-Gaming Lands. "New Pokagon Council" means the Pokagon Council elected at a Band election scheduled for on or about July 10, 1999, which shall take office in August, 1999. "Operating Expense" has the meaning provided in ss. 2 of the Management Agreement. "Plans and Specifications" shall mean the final Plans and Specifications approved for the Facility as described in ss. 4.8. "Pokagon Council" shall mean the duly elected governing legislative body of the Band described pursuant to 25 U.S.C. ss. 1300j-4(b) or, at the option of the Band, a designed committee or council created pursuant to resolution or ordinance of the Pokagon Council. "Preliminary Development Budget" shall have the meaning described in ss. 4.2. "Project" shall have the meaning described in ss. 4.1. 10 17 "Ratification" means passage on or before September 15, 1999 of a resolution by the New Pokagon Council, at a duly called meeting with a quorum present, ratifying and endorsing the execution of this Agreement by the Band. "Restoration Act" shall mean 25 U.S.C. ss. ss. 1300j et seq. "Restricted Territory" shall mean the States of Ohio, Illinois, Indiana and Michigan. "Scholarship Program Fee" shall mean the $1,000,000 non-refundable fee paid by Lakes under ss. 9.1 of this Agreement. "Security Agreement" shall mean the pledge and security agreement between Lakes and the Band granting the Band a lien and security interest in the Account. "Signing Fee" shall have the meaning described in Section 8.1(b). "State" shall refer to the State of Michigan. "Subsequent Gaming Facility Revenues" means gaming revenues from a gaming facility (other than the Facility) owned or operated by the Band in Michigan, but only to the following extent: (i) all Class III Gaming Net Revenue and (ii) Class II Gaming Net Revenue, to the extent that such Net Revenue exceeds $1,000,000 per annum. "Temporary Facility" means a temporary Gaming facility located on the Gaming Site, if the Band elects to built and operate such a temporary facility prior to the Commencement Date, after consultation with Lakes. "Term" shall mean the term of this Agreement as described in ss. 7.1. "Transition Loan" shall have the meaning described in ss. 8.3. "Transition Loan Note" shall mean the promissory note to be executed by the Band evidencing the Transition Loan, which shall be in the form attached hereto as Exhibit D. "Tribal Distributions" shall mean Monthly Distribution Payments, Minimum Guaranteed Monthly Payments and any other payments received by the Band pursuant to or in connection with the Management Agreement. 11 18 Section 1.2 Independent Agreement. The objective of the Band and Lakes in entering into and performing this Agreement is to provide a legally enforceable procedure and agreement pursuant to which Lakes will pay certain fees to the Band and make certain loans to the Band, and whereby the Band and Lakes can proceed as far as possible with development of the Facility prior to the approval of the Management Agreement by the NIGC so that the Facility can be opened to the public as soon as possible after the approval of the Management Agreement by the NIGC; and to set forth the rights and obligations of the parties if approval of the Management Agreement by the NIGC does not occur or on the occurrence or non-occurrence of certain other events. This is intended to be a legally enforceable agreement, independent of the Management Agreement, which shall enter into effect when executed and delivered by the parties and be enforceable between the parties regardless of whether or not this Agreement or the Management Agreement is approved by the Chairman of the NIGC. ARTICLE 2 ACQUISITION OF GAMING SITE AND NON-GAMING LANDS Section 2.1. Selection of Gaming Site. As soon as reasonably possible after the date of this Agreement, Lakes shall recommend one or more sites to be acquired for the Facility and shall furnish the Pokagon Council with a map and legal description of each site, with its written recommendation for purchase of each site, including advice as to the suitability of each site for the Facility and the availability and terms of options, if any, pertaining to each site. The parties agree that the proposed gaming site in New Buffalo, Michigan is preferable for economic reasons, and that the Initial Scope of Work is premised on that location. The Pokagon Council shall then select the Gaming Site, after consultation with Lakes; provided that the purchase price for the Gaming Site and the cost of any related options shall not exceed $8,000,000 in the aggregate. Section 2.1.1. Option. If Lakes holds an option on the site (the "Gaming Site Option"), the Lakes shall assign such Option to the Band when requested to do so by the Band in the Band's sole and absolute discretion, such assignment to be without warranty or other recourse. Section 2.1.2. Purchase Agreement. If Lakes does not hold a Gaming Site Option, the Lakes shall negotiate a purchase contract ("Gaming Site Purchase Agreement") for purchase of the site by Lakes or its designee or nominee. Upon the Band's approval of the form of Gaming Site Purchase Agreement proposed by Lakes, Lakes or its designee or nominee shall enter into the Gaming Site Purchase Agreement with the seller of the site. Lakes shall assign the Gaming Site Purchase 12 19 Agreement to the Band when requested to do so by the Band in the Band's sole and absolute discretion, such assignment to be without warranty or other recourse. Section 2.2. Closing on Gaming Site; Funding. The Band shall thereafter proceed to purchase the Gaming Site and to close that purchase in accordance with the terms, conditions and provisions of the assigned Gaming Site Option or Gaming Site Purchase Agreement, as the case may be, and this Agreement. Such purchase may occur on or immediately following NIGC Approval, or at such earlier time as may be (a) required to avoid expiration of the Gaming Site Option or to comply with deadlines set in the Gaming Site Purchase Agreement, as they may be extended with the consent of the owner of the proposed Gaming Site, (b) required to secure approval by appropriate officials or agencies of the Management Agreement, or (c) as may be allowed by the Secretary of the Interior or his designee. After Ratification Lakes shall advance funds in such amount or amounts as shall be needed to option and/or acquire the Gaming Site, including without limitation all related fees, real estate commissions and transfer taxes, provided that the total amount shall not exceed $8,000,000. All amounts so advanced by Lakes, together with option or acquisition payments made by Lakes prior to assignment of the Gaming Site Option or Gaming Site Purchase Agreement to the Band, shall be a Development Expenditure and shall be advanced under the Lakes Note. Section 2.3. Confidentiality. The parties agree on a reasonable efforts basis to keep the intended use of each site for Gaming confidential until the Gaming Site Option or the Gaming Site Purchase Agreement has been executed and delivered by all parties thereto. Section 2.4. Assignment of Other Options. Lakes shall at the Band's sole and absolute discretion assign to the Band any options (other than the Gaming Site Option) it may have on, or other interests in, land in Michigan, such assignments to be without warranty or other recourse. Option payments or acquisition payments made by Lakes prior to such assignment shall be advances under the Non-Gaming Land Acquisition Line of Credit and repayable in accordance with its terms. Section 2.5. Selection of Non-Gaming Lands. As soon as reasonably possible after the date of this Agreement, the Pokagon Council shall select the Non-Gaming Lands. The Band shall have sole discretion over the selection and terms of acquisition of the Non-Gaming Lands. Section 2.6. Closing on Non-Gaming Lands; Funding. The Band shall thereafter proceed to purchase the Non-Gaming Lands. Such purchase shall occur on or immediately following NIGC Approval, or at such earlier time as may be allowed by the Secretary of the Interior or his designee or may be required to avoid expiration of options 13 20 or deadlines set in purchase agreements, as they may be extended with the consent of the owners of the proposed Non-Gaming Lands. After Ratification Lakes shall advance funds in such amount or amounts as shall be needed to option and/or acquire the Non-Gaming Lands, including without limitation all related fees, real estate commissions and transfer taxes, provided that the total amount Lakes shall be required to advance shall not exceed $10,000,000. All amounts so advanced by Lakes shall be advanced under the Non-Gaming Land Acquisition Line of Credit, which shall be Limited Recourse, shall bear interest at the Band Interest Rate, and shall be repayable in 60 equal monthly instalments of principal and interest commencing on the 15th day of the month after the month in which the Commencement Date occurs. Section 2.7. Mortgages Prior to Transfer into Trust. Prior to transfer of the Gaming Site and the Non-Gaming Lands into trust, amounts advanced by Lakes under the Lakes Note (as to the Gaming Site) or under the Non-Gaming Land Acquisition Line of Credit (as to Non-Gaming Lands) may be secured by mortgages in favor of Lakes on the Gaming Site or the Non-Gaming Lands, respectively. Lakes shall release any such mortgages upon transfer of such lands into trust or as otherwise provided in this Agreement. ARTICLE 3 FEASIBILITY STUDY Section 3.1. Temporary Gaming Facility Feasibility Study. Within 120 days after execution of this Agreement, Lakes shall perform a study of the feasibility and desirability of constructing the Temporary Facility on the Gaming Site, and shall deliver a copy of the Feasibility Study to the Band along with its recommendation as to whether a Temporary Facility should be built. The Feasibility Study shall include, without limitation, an analysis of construction costs, time line, operating income and expense, financing requirements and impact on the permanent Facility. The Band, after consultation with Lakes, shall have the sole right to decide whether such a Temporary Facility will be built. If the Band decides to build a Temporary Facility, the cost of constructing and operating the Temporary Facility shall be funded out of the Development Loans, which shall be increased by an amount equal to the incremental cost of constructing and operating the Temporary Facility and reasonably acceptable to the Band and Lakes. Such incremental costs, if advanced under the Lakes Development Loan, shall be repaid by the Band on terms reasonably acceptable to the Band and Lakes; if advanced under the Bank Development Loan, under the terms applicable to that loan facility. "Commencement Date" shall, notwithstanding operation of a Temporary Facility, refer to the opening of the permanent Facility. ARTICLE 4 14 21 DESIGN PHASE Section 4.1. Employment of Architect. Lakes shall recommend to the Band a minimum of three duly licensed architects, who shall be familiar with the design of gaming facilities, for interview by the Pokagon Council, and the Band shall select an architect from the group or, if none of the first group is found acceptable to the Band, groups recommended by Lakes. The Band shall employ such architect (the "Architect") for the purpose of performing certain services in connection with the design and construction of the Facility, including site development. The Band's agreement with the Architect shall be in the form of a contract (the "Design Agreement") approved by Lakes and the Pokagon Council. The scope of the project contemplated by this Agreement (the "Project"), shall be stated and established in the Design Agreement, and shall be subject to the mutual approval of the parties, but shall incorporate at a minimum the Initial Scope of Work (subject to the provisions of ss. 4.4). The scope of design shall not include, but the design shall facilitate, the possibility of the Band later designing and constructing phased expansions of the hotel, theme retail space, golf course and other amenities. The Design Agreement shall also provide for and establish appropriate design packages ("Design Packages"), each pertaining to a discrete portion or phase of the Project. The Design Agreement shall allow Lakes the right and responsibility to supervise, direct, control and administer the duties, activities and functions of the Architect and to efficiently carry out its covenants and obligations under this Agreement; but the Design Agreement shall provide that the Architect will consult closely with the Band and the Band's advisers, and that all design elements shall be subject to review and approval by the Band. Section 4.2. Design and Construction Budgets. Lakes, with the assistance and input of the Architect and subject to the approval of the Pokagon Council, shall establish a preliminary Development Budget (the "Preliminary Development Budget") for designing, constructing, furnishing and equipping the Facility and related costs and Development Expenditures. The Preliminary Development Budget, as approved by the Pokagon Council and as it may be amended with the approval of the Pokagon Council, is referred to as the "Approved Development Budget." The Approved Development Budget shall reflect planned phasing, if any; but the initial phase of the Project shall include, at a minimum, the Initial Scope of Work except as provided in ss. 4.4. Lakes may, after notice to and approval by the Pokagon Council, revise the aggregate Approved Development Budget from time to time as necessary or appropriate to reflect any unpredicted changes, variables or events or to include additional and unanticipated Project costs. Lakes may, at is sole discretion after notice to and approval by the Business Board, reallocate part or all of the amount budgeted with respect to any line item to another line item and to make such other modifications to the Approved Development Budget as Lakes deems necessary or appropriate, provided that: (i) the cumulative modifications of the Approved 15 22 Development Budget for all Design Packages shall not, without Lakes's prior approval and the Pokagon Council's prior approval, exceed the aggregate Approved Development Budget, and (ii) any modifications shall not otherwise conflict with the terms of this Agreement. Approved Development Budget adjustments which otherwise vary from the terms of the Agreement, shall, in addition to requiring Lakes's approval, require the approval of the Pokagon Council. The Band acknowledges that the Approved Development Budget is intended only to be a reasonable estimate of Project costs, subject, however, to the provisions of ss. 5.8 with regard to cost overruns. Section 4.3. Gaming Regulatory Authority Expenses. The Approved Development Budget shall include such amounts as the Band determines, after consultation with Lakes, are reasonable and necessary to assure that the GRA is able to fulfill its regulatory role in a manner that does not slow the opening of the Facility (including the Temporary Facility, if any); provided that the cost of final preparation and approval of the Gaming Ordinance shall not exceed $20,000. Section 4.4 Modification of Initial Scope of Work. Notwithstanding any provision of this Article, the Initial Scope of Work may be reduced as follows: i. The Band and Lakes may at any time notify the other party that it believes that unanticipated material adverse changes in local gaming market conditions (not including changed economic conditions, whether locally or in the economy generally) make construction of the Facility to the Initial Scope of Work not feasible. In that event both parties shall negotiate in good faith to determine what adjustments, if any, in the Initial Scope of Work are appropriate in light of the changed local gaming market conditions; provided that such adjustments shall not result in a Facility, if located in New Buffalo, Michigan, with fewer than 1,350 slot machines, 60 table games and 40,000 sq.ft. of gaming space. ii. Lakes and the Band recognize that the Initial Scope of Work is premised on the Gaming Site being in New Buffalo, Michigan. If the Gaming Site is not in New Buffalo, the Initial Scope of Work shall not control. The parties shall in such event negotiate in good faith to determine what adjustments, if any, in the Initial Scope of Work are appropriate in light of the site chosen, provided that the following minimum scale shall apply: A. If the Gaming Site is in Benton Harbor, 1,350 slot machines, 60 gaming tables and 40,000 sq. ft. of gaming space; and 16 23 B. If the Gaming Site is in Hartford, 800 slot machines, 35 gaming tables and 25,000 sq. ft. of gaming space. iii. If the Gaming Site is not located in New Buffalo, Benton Harbor or Hartford, no minimum scale shall apply and the appropriate scale shall be subject to agreement between the parties. Section 4.5. Concept Design and Engineering. Lakes, after consultation with the Business Board and the Architect, shall prepare for the review and approval of the Pokagon Council, a statement of requirements for the Facility, if any, including, but not limited to, planned phasing, if any, a program of preliminary objectives, schedule requirements, design criteria, including assumptions regarding HVAC demands, space requirements and relationships, special equipment and site requirements. Section 4.6. Preliminary Program Evaluation. Lakes shall prepare for review by the Business Board and approval of the Pokagon Council, a preliminary evaluation of the proposed Project including, but not limited to, planned phasing, if any, schedule, Development Budget requirements, and alternative approaches to Project design and construction. Based upon the agreed-upon schedule, Development Budget requirements and design, the Architect shall prepare schematic design documents consisting of drawings and other documents illustrating the scale and relationship of the Facility and any other Enterprise components, as well as a preliminary estimate of Enterprise costs based upon the proposed area, size and scope of the Enterprise. Section 4.7. Design Development. After review by the Business Board and upon final approval of the schematic design documents by the Pokagon Council and Lakes, the Architect shall prepare design development documents consisting of drawings and other documents to fix and describe the size and character of the Project as to architectural, structural, mechanical and electrical systems, materials and such other elements and/or Design Packages as may be appropriate. Further, the Architect shall advise Lakes with respect to, and update, any Development Budget estimates. Lakes shall submit to the Pokagon Council, for its review and approval, finalized versions of the design development documents prepared by the Architect and agreed to by Lakes. Section 4.8. Plans and Specifications. Based upon the approved design development documents and any further adjustments in the scope and quality of the Project or in the Development Budget, the Architect shall prepare for approval by Lakes and the Business Board construction documents consisting of preliminary drawings and specifications setting forth the general requirements for construction of the Project. The Architect shall proceed with completion of detailed plans and specifications (the "Plans and Specifications") as they relate to construction of portions of the Facility in the order 17 24 such portions are to be completed or in the order required for sequential completion, and shall proceed with completion of all Plans and Specifications as soon as reasonably possible given construction scheduling and the intended progress of Project work. The Architect shall advise the Business Board of any adjustments to previous Development Budget estimates. The Plans and Specifications shall be designed to accommodate the addition of further amenities, including without limitation a hotel, parking garage and bingo/multi-purpose entertainment hall. As portions of the detailed Plans and Specifications are completed for segments of the Project, the Architect shall be required to submit duplicate copies of those portions of the Plans and Specifications to Lakes and to the Business Board (for approval prior to release of such documents to prospective bidders for bidding and prior to commencement of construction of such portions) and to the Pokagon Council (for information). Section 4.9. Compliance with Construction Standards, Environmental Laws and Regulations. The Facility shall be designed and constructed so as to adequately protect the environment and the public health and safety. The design, construction and maintenance of the Facility shall, except to the extent a particular requirement or requirements may be waived in writing by the Pokagon Council, meet or exceed all reasonable minimum standards pertaining to the Band and national, State and local building codes, fire codes and safety and traffic requirements (but excluding planning, zoning and Gaming Site use laws, ordinances, regulations and requirements), which would be imposed on the Enterprise by existing State or Federal statutes or regulations which would be applicable if the Facility were located outside of the jurisdictional boundaries of the Band, even though those requirements may not apply within the Band's jurisdictional boundaries. To the extent that the Band has adopted or may in the future adopt more stringent requirements, those requirements shall govern. Nothing in this subsection shall grant to the State or any political subdivision thereof any jurisdiction (including but not limited to, jurisdiction regarding zoning or Gaming Site use) over the Facility or Enterprise or its development, management and operation. Section 4.10. Advance of Funds for Design Work. Notwithstanding any lack of approval of the Management Agreement or this Agreement by the NIGC, Lakes shall advance such funds as are reasonably necessary to proceed prior to Bank Closing with site and facility planning, architectural renderings and plans, including payments to the Architect pursuant to the Design Agreement, engineering and environmental services, working drawings and construction contract bidding documents. All amounts so advanced by Lakes prior to NIGC Approval and Bank Closing shall be a part of the development cost of the Enterprise and shall be advanced under the Lakes Note as part of the Lakes Development Loan. 18 25 ARTICLE 5 CONSTRUCTION PHASE Section 5.1. Selection of Contractor or Construction Lakes. Lakes shall, in consultation with the Architect and the Business Board, initiate a pre-bid selection process in order to pre-qualify prospective general contractors and/or construction management in connection with the construction of the Facility. Lakes shall submit the list of pre-qualified general contractors and/or construction Lakes to the Pokagon Council, together with Lakes's recommendations, for the Pokagon Council's review, comment and approval. Special consideration shall be given in the selection of contractors and/or construction managers to companies with a proven history of effective employment of Native American and local subcontractors. Section 5.2. Vendor Preferences. In entering contracts for the supply of goods and services for the Enterprise, including the selection of contractors and/or construction managers, subcontractors and suppliers, Lakes shall give preference to qualified members of the Band, their spouses and children, and qualified business entities as to which the Band certifies that a member is the real party in interest, provided their bids are reasonably competitive. "Qualified" shall mean a member of the Band, a member's spouse or children, or a business entity certified by the Band to be controlled by members of the Band, who or which is able to provide services at reasonably competitive prices, has demonstrated skills and abilities to perform the tasks to be undertaken in an acceptable manner, in Lakes's opinion, and can meet the reasonable bonding requirements of Lakes. Lakes shall provide written notice to the Band in advance of all such contracting, subcontracting and construction opportunities. The Band reserves the right to require use of union labor on some or all contracts, subject to review with the Lakes of any related budgetary impact. Section 5.3. Proposal Review. Subsequent to the pre-qualification of prospective contractors and/or construction managers, Lakes shall conduct a review of responsive proposals for the construction of the Project, and Lakes shall recommend to the Band a well-qualified construction manager, contractor and/or contractors. The recommended contractor, contractors and/or construction manager shall be subject to the approval of the Pokagon Council, shall be properly licensed in the State of Michigan, and shall be capable of furnishing a payment and performance bond satisfactory to the Business Board to cover the construction for which the contractor, contractors and/or construction manager may be retained. Section 5.4. Contracts. The Band shall enter into a construction management agreement and/or construction contract or contracts (the "Construction Documents") with the parties selected and approved in the form negotiated by Lakes and approved by the 19 26 Business Board for each Construction Document. The Construction Documents shall provide that work shall begin only after NIGC Approval, and the Construction Documents may provide that they shall be canceled by either party if NIGC Approval has not occurred by a specified fixed calendar date. The selected contractor, construction manager and/or other contracting parties shall be compensated solely from the proceeds of the Lakes Development Loan and the Bank Development Loan, subject to, and in accordance with the terms, conditions and provisions of the Construction Documents and the respective Loan Agreements. Section 5.5. Construction Document Provisions. The Construction Documents shall (i) require the successful construction manager or general contractor and all contractors to be responsible for providing all materials, equipment and labor necessary to construct and equip the Project as necessary including site development; (ii) shall include appropriate provisions assuring non-payment of Michigan sales and use tax for goods and materials in the Project (to the extent said exemption is available for the Project); and (iii) require said construction manager or general contractor and all contractors to construct the Project in accordance with the Plans and Specifications, including any changes or modifications thereto approved by the Business Board. The Band agrees to indemnify Lakes against loss or liability caused by any written direction by the Pokagon Council not to collect or remit Michigan sales tax. The Construction Documents will provide for insurance conforming to the applicable insurance requirements of the Management Agreement, appropriate lien waivers, and for construction schedules by which milestones, progress payments and late penalties, if any, may be calculated. Section 5.6. Construction Administration. The Construction Documents shall provide that Lakes shall be responsible for all construction administration during the construction phase of the Project. Lakes shall act as the Band's designated representative and shall have full power and complete authority to act on behalf of the Band in connection with the Construction Documents. To the extent allowed by the Design Agreement and the Construction Documents, Lakes shall have control and charge of any persons performing work on the Project site, and shall interpret and decide on matters concerning the performance of any requirements of the Construction Documents. Lakes shall have the authority to reject work which does not conform to the Construction Documents. Lakes may conduct inspections to determine the date or dates of substantial completion and the Completion Date. Lakes shall observe and evaluate or authorize the observation and evaluation of Project work performed, review or authorize review of applications for payment for submission to the Band and review or authorize review and certification of the amounts due the contractors and/or construction Lakes. Section 5.7. Construction Commencement and Completion. The Construction Documents shall contain such provisions for the protection of the Band and 20 27 Lakes as the Band and Lakes shall deem appropriate; shall provide that the construction of the Project shall commence on NIGC Approval, following and subject to the granting of all approvals necessary to commence construction; and shall also provide that any contractor shall exert its best efforts to complete construction within such time as the Band and Lakes agree following the commencement of construction. All contractors shall, at a minimum, warrant their respective portions of the work to be performed to be free of defects for at least one year after the Completion Date. Section 5.8. Determination of Approved Construction Costs; Cost Overruns. Promptly upon the Band's execution of the Construction Documents, the Architect shall submit a final estimate of Construction Costs, which estimate shall be subject to the reasonable approval of Lakes and the Pokagon Council. This estimate of Construction Costs, as so approved, is referred to as "Approved Construction Costs." Lakes shall pay, without repayment from the Enterprise or recourse to the Band, Construction Costs to the extent they exceed the lesser of (a) such Approved Construction Costs (including the approved contingency reserve), as such costs may change because of change orders approved by the Band or amendments to the Approved Development Budget approved by the Band, or (b) $135,000,000, or such other amount as the Pokagon Council and Lakes may agree; in each case except insofar as such overruns are caused by Force Majeure or by acts or omissions of the Band. ARTICLE 6 FURNISHINGS AND EQUIPMENT Section 6.1. Selection of Furnishings and Equipment. Lakes shall submit to the Business Board, for its review and approval, the specifications for Furnishings and Equipment. Thereafter, Lakes shall select and procure vendors for purchase by the Band of Furnishings and Equipment required to operate the Enterprise in conformity with such specifications. The cost of Furnishings and Equipment shall be financed through the Equipment Loan. Alternatively, in the sole discretion of the Band, Lakes may arrange for the procurement of Furnishings and Equipment on lease terms consistent with the terms provided below as to the Equipment Loan, with such changes as may be approved by the Business Board. Any commitments for the procurement of Furnishings and Equipment shall, however, become binding on the Band only upon later of (a) NIGC Approval or (b) the receipt by Band of a commitment for the Equipment Loan consistent with the terms of this Agreement. ARTICLE 7 TERM 21 28 Section 7.1. Term. This Agreement shall enter into and remain in full force and effect from the date of execution hereof until, unless earlier terminated in accordance with its terms, the later of (i) five years from the Commencement Date or (ii) when all obligations owed to Lakes by the Band pursuant to this Agreement and any related notes have been satisfied in full or otherwise discharged. ARTICLE 8 PAYMENTS AND COMMITMENTS BY LAKES BEFORE APPROVAL OF MANAGEMENT AGREEMENT Section 8.1. Fees Payable By Lakes to the Band. Lakes will pay the following fees and advances to the Band: (a) Initial Fee. Lakes has paid the Band a non-refundable fee of $150,000 on execution of Term Sheet, the receipt of which is hereby acknowledged by the Band. (b) Signing Fee. Lakes will pay the Band a non-refundable signing fee of $1,000,000 (the "Signing Fee") which shall be paid to the Band as follows: $100,000 upon execution and delivery of the Management Agreement and this Agreement and $900,000 upon receipt of written notice of Ratification. Use and disbursement of Signing Fee monies, once received by the Band, shall be at the sole discretion of the Band, and Lakes shall have no responsibility for such funds after receipt thereof by the Band. (c) Monthly Payments. Lakes will advance $125,000 to the Band (the "Monthly Payments") on receipt of notice of Ratification, and thereafter on the 15th day of each month, beginning in the month following the month in which Ratification occurs, and continuing until the date on which one of the following, whichever is earlier, has occurred: (i) the Commencement Date has occurred; or (ii) this Agreement and the Management Agreement have been terminated in accordance with their terms, and all related payments have been made; or (iii) five years after the Ratification of this Agreement. 22 29 Use and disbursement of the Monthly Payments, once received by the Band, shall be at the sole discretion of the Band, and Lakes shall have no responsibility for such funds after receipt thereof by the Band. All Monthly Payments shall constitute advances under the Transition Loan pursuant to Section 8.3 of this Agreement and shall be repayable as provided in that section. Section 8.2. Deposit into the Account. Upon execution of the Agreements Lakes shall deposit $20,900,000 into the Account, subject to the Security Agreement and the Control Agreement. Lakes shall also deposit such further sums from time to time as shall be necessary to maintain a minimum balance in the Account of at least $2,000,000 at all times prior to the Commencement Date; provided that Lakes shall not be required to make aggregate deposits that exceed the total amount of fees, loans and other payments to be made by it to or for the account of the Band under this Agreement. The Account shall: (i) serve as collateral for liquidated or other damages payable to the Band as provided in the Agreements; and (ii) serve as a funding mechanism as provided in the Control Agreement, at Lakes's option, for Lakes's obligation to make payments to the Band (other than the Scholarship Program Fee) and to make advances under the Lakes Development Loan. Lakes agrees to execute and deliver the Security Agreement, the Control Agreement, and such financing statements and other instruments as the Band requests to perfect this security interest. Nothing in this section shall limit Lakes's obligations to make payments as required under this Agreement or limit the Band's remedies in the event of Lakes's default. Funds in the Account shall be invested in such manner as Lakes reasonably deems prudent, provided that the investment vehicles are liquid and do not include equities, swaps, derivatives, commodities, or speculative instruments. Lakes shall inform the Band of the nature and terms of the financial instruments in which the escrowed funds are invested. Income from the Account shall be payable to Lakes prior to a Lakes Event of Default. After a Lakes Event of Default,income shall be payable to the Band to the extent needed to fund damages payable to the Band. The Bank shall be entitled to reasonable compensation acceptable to the Band and Lakes and to reimbursement of expenses, all of which shall be payable from the Account prior to a Lakes Event of Default and, after such an Event of Default, by Lakes. Payments into the Account shall not be deemed advances to the Band for purposes of accrual of interest, and interest shall only accrue as to funds advanced by Lakes through the Account upon disbursement from the Account. 23 30 Section 8.3. Transition Loan. Upon Ratification, Lakes shall make a loan to the Band for the purposes and as set forth in clause (c) of Section 8.1, upon the terms set forth in the form of Transition Loan Note (the "Transition Loan"). Each advance of funds to the Band by Lakes as part of the Transition Loan shall be evidenced by the Transition Loan Note, duly authorized and executed by the Band. All amounts advanced under the Transition Loan shall be repayable to Lakes as unsecured Limited Recourse obligations of the Band; shall not accrue interest for the first two years after execution of the Management Agreement; shall, after the expiration of that two year period, bear interest at the Band Interest Rate, as defined below; and shall be payable monthly in arrears, beginning on the 15th day of the month after the Commencement Date, in 60 equal monthly payments of principal and interest. If the Bank Closing does not occur, interest shall accrue on amounts advanced under the Transition Loan at Wall Street Journal prime plus 1%, not to exceed 10%. Section 8.4. Advances on Lakes Development Loan. Lakes will provide the following funds to the Band after Ratification but prior to NIGC Approval and the Bank Closing as advances on the Lakes Development Loan, to be repaid with interest in accordance with the terms provided in ss. 9.2.1: (i) Gaming Site Acquisition Funds. After Ratification Lakes shall advance funds to permit the Band to enter into or perform in accordance with one or more Options or Gaming Site Purchase Agreements, pursuant to Section 2.2. (ii) Site Planning and Design Development. After Ratification Lakes shall advance funds reasonably necessary for the work described in Articles 3, 4 and 5 of this Agreement to be performed prior to NIGC Approval and the Bank Closing, pursuant to those Articles. (iii) Advances to the Band for Gaming Ordinance. In order to enable the Band to fulfill its covenant set forth in Section 11.2(i) below to timely adopt a Gaming Ordinance and regulations (the "Gaming Ordinance"), Lakes shall advance to the Band after Ratification but prior to NIGC Approval the reasonable cost of preparation and approval of the Gaming Ordinance, not to exceed $20,000. Section 8.5. Non-Gaming Land Acquisition Line of Credit. Lakes will provide advances to the Band under the Non-Gaming Land Acquisition Line of Credit after Ratification but prior to the Commencement Date as provided in Section 2.6, upon the terms set forth in the form of Non-Gaming Land Acquisition Line of Credit attached hereto as Exhibit C (the "Non-Gaming Land Acquisition Line of Credit"). Each advance of funds to the Band by Lakes as part of the Non-Gaming Land Acquisition Line of Credit shall be evidenced by such Line of Credit, duly authorized and executed by the 24 31 Band and setting forth the applicable terms of this Agreement. All such advances shall be repaid with interest on the same terms as provided in Article 9 with regard to the Lakes Development Loan, except that funds advanced under the Non-Gaming Land Acquisition Line of Credit shall at Lakes' request, prior to transfer of land into trust, be secured by mortgages in favor of Lakes on any Non-Gaming Lands acquired by the Band. The Non-Gaming Land Acquisition Line of Credit shall otherwise be Limited Recourse. All land and options acquired through the Non-Gaming Land Acquisition Line of Credit shall be acquired in the name of the Band. ARTICLE 9 PAYMENTS AND COMMITMENTS BY LAKES AFTER APPROVAL OF MANAGEMENT AGREEMENT Section 9.1 Scholarship Program Fee. Upon NIGC Approval and transfer of the Gaming Site into trust eligible for Gaming purposes, Lakes will pay the Band a non-refundable fee of $1,000,000 (the "Scholarship Program Fee") into an account established and controlled by the Band. The ultimate use and disbursement of these funds shall be at the sole discretion of the Band, and Lakes shall have no responsibility for such funds after payment to the Band. Section 9.2. Development and Equipment Loans. Lakes shall make available to the Band the Lakes Development Loan and, upon NIGC Approval and transfer of the Gaming Site into trust for the Band, shall assist the Band in obtaining the Bank Development Loan and the Equipment Loan. Such Loans shall be in an aggregate amount sufficient to, and shall be used to, pay for all Development Expenditures, provided that such aggregate amount shall not exceed $135,000,000. The Loans shall be in the following amounts and on the following terms, unless otherwise agreed by the Band: Section 9.2.1. Lakes Development Loan. i. Amount: $43,000,000, comprised of (A) up to $8,000,000 for Gaming Site Acquisition Advances and (B) $35,000,000 for Development Expenditures other than acquisition of the Gaming Site. ii. Five year term, plus the period of development and construction. iii. Interest at the Band Interest Rate shall accrue from date of advance until the Commencement Date; thereafter the Lakes 25 32 Development Loan shall be payable monthly in arrears, beginning on the 15th day of the month after the month of the Commencement Date, in equal monthly payments of principal and interest for the successive 60 months of the term. If the Bank Closing does not occur, interest shall accrue on amounts advanced under the Lakes Development Loan at Wall Street Journal prime plus 1%, not to exceed 10%. iv. Repayment of the Lakes Development Loan shall be subordinated to the Bank Development Loan, the Equipment Loan, as well as to any other third-party loans or equipment leases. Lakes agrees to execute and deliver a subordination agreement evidencing such subordination in form acceptable to the Bank Lender, the Equipment Lender, or such other third-party lender or equipment lessor. v. The Band shall be entitled to draw on the Lakes Development Loan prior to NIGC Approval, as provided in Section 8.4. Advances under the Lakes Development Loan may be made through the Account. vi. Principal may be prepaid at any time without penalty. vii. Each advance of funds to the Band by Lakes under the Lakes Development Loan shall be made under a promissory note in the form of Lakes Note, duly authorized and executed by the Band. viii. All disbursements under the Lakes Development Loan shall be made through the Enterprise Account and the Disbursement Account and shall be on account of Development Expenditures in accordance with the Approved Development Budget, unless otherwise approved by the Business Board. Lakes shall provide the Band with a monthly accounting of all such disbursements, which accounting shall include a certification by Lakes that the disbursements shown on the accounting were for Development Expenditures in accordance with the Approved Development Budget, or were otherwise approved by an attached vote of the Business Board. 26 33 Section 9.2.2 Bank Development Loan. i. Amount: $57,000,000. ii. Lakes shall not be required to provide its guarantee of the Bank Development Loan or any other credit enhancements. iii. The loan commitment or undertaking shall not be assignable by either Lakes or the Band without the written consent of both parties. iv. Lakes may after the Commencement Date seek to refinance the Bank Development Loan, to the extent it is made by a third party lender with Lakes' guarantee. The Band agrees to cooperate with that refinancing, provided that (I) all costs and expenses of the refinancing are borne by Lakes, (II) the terms of the refinancing are in all respects no less favorable to the Band than provided in this Agreement and the Bank Loan Agreement (including, without limitation, interest rate, amortization, and recourse), and are otherwise reasonably acceptable to the Band; and (III) the refinanced debt shall not be payable on termination of the Agreements with Lakes, provided that management of the Enterprise after such termination shall be reasonably acceptable to the lender. v. Lakes shall proceed promptly and with due diligence after NIGC Approval to assist the Band in obtaining a bank commitment or firm underwriting commitment for the Bank Development Loan, and in closing on the Bank Development Loan promptly after obtaining such commitment. vi. If the Band, with Lakes' assistance, is unable to obtain within 120 days after NIGC Approval a bank commitment or firm underwriting commitment to provide the Bank Development Loan on the terms set forth in this Agreement at an interest rate equal to or less than 13%, Lakes agrees that it will loan the Band $57,000,000 at a 13% interest rate on the same terms as provided in this Agreement with regard to the Bank Development Loan. Lakes agrees that the Band's inability to obtain such a commitment shall be presumed if it cooperates 27 34 with the reasonable requests of Lakes in seeking such financing. Section 9.2.3 Equipment Loan. i. Amount: $35,000,000. ii. Four year term, or such other term as may be reasonably acceptable to the Band. iii. Interest to accrue until the Commencement Date; thereafter payable monthly in arrears, beginning on the 15th day of the month after the month of the Commencement Date, in equal monthly payments of principal and interest for the successive 48 months of the term. iv. Security: Purchase money security interest in Furnishings and Equipment purchased with the loan proceeds. v. Lakes shall not be required to provide its guarantee or any other credit enhancement. vi. The loan commitment shall not be assignable by either Lakes or the Band without the written consent of both parties. vii. Lakes may after the Commencement Date seek to refinance the Equipment Loan, to the extent it is made by a third party lender with Lakes' guarantee. The Band agrees to cooperate with that refinancing, provided that (a) all costs and expenses of the refinancing are borne by Lakes, (b) the terms of the refinancing are in all respects no less favorable to the Band than provided in this Agreement and the Equipment Loan Agreement (including, without limitation, interest rate, amortization, and recourse), and are otherwise reasonably acceptable to the Band; and (c) the refinanced debt shall not be payable on termination of the Agreements with Lakes, provided that management of the Enterprise after such termination shall be reasonably acceptable to the lender. viii. At the Band's option the Equipment Loan may be structured into an equivalent equipment lease. 28 35 ix. Lakes shall proceed promptly and with due diligence after NIGC Approval to assist the Band in obtaining a commitment for the Equipment Loan, and in closing on the Equipment Loan promptly after obtaining such commitment. 29 36 x. If the Band, with Lakes' assistance, is unable to obtain within 90 days after NIGC Approval a bank or lessor commitment to provide the Equipment Loan on the terms set forth in this Agreement at an interest rate equal to or less than 13%, Lakes agrees that it will loan the Band $35,000,000 at a 13% interest rate on the same terms as provided in this Agreement with regard to the Equipment Loan. Lakes agrees that the Band's inability to obtain such a commitment shall be presumed if it cooperates with the reasonable requests of Lakes in seeking such financing. Section 9.2.4 Terms Applicable to all Loans. i. (intentionally deleted) ii. Loan repayments shall be solely out of revenues of the Enterprise and shall be a Limited Recourse obligation of the Band. The Band agrees not to encumber any of the assets of the Facility or the Enterprise without the written consent of Lakes and the holder of the Bank Development Loan, which consent will not be unreasonably withheld; except that the Band shall have the right without the consent of Lakes and such holder to grant subordinate security interests in Enterprise revenues, as well as first priority security interests in any Enterprise assets other than Furnishings and Equipment purchased with the proceeds of the Equipment Loan, but only if such security interests are granted to secure loans made for the benefit of the Enterprise. The Band shall not lease the Facility or grant a leasehold mortgage on the Facility without Lakes' consent. iii. The Band shall enter into a limited, transactional waiver of sovereign immunity and consent to jurisdiction and arbitration as to the holder of the Bank Note and the Equipment Note as provided in ss. ss. 14.1 and 14.2 as to Lakes. Governing law shall be Michigan law unless the Band otherwise agrees. iv. All other terms are subject to the Band's approval, which approval shall not be unreasonably withheld. v. The selection of the lenders making the Bank Development Loan, the Equipment Loan and all other loans or leases relating to the Enterprise, and of all underwriters and professionals relating to any such transaction, shall be subject to the Band's reasonable approval. 30 37 vi. Promptly and with due diligence after NIGC Approval and transfer of the Gaming Site into trust, but in no event later than 90 days after such approval and transfer (unless otherwise agreed by the Band), Lakes shall (a) deliver to the Band a proposed commitment from a lender with regard to the Equipment Loan, the terms of which shall be consistent with this Agreement and otherwise reasonably acceptable to the Band, and (b) increase the amount of the Escrow Account to $43 million (less amounts previously advanced under the Lakes Development Loan). vii. Promptly and with due diligence after NIGC Approval and transfer of the Gaming Site into trust, but in no event later than 90 days after such approval and transfer (unless otherwise agreed by the Band), Lakes shall deliver to the Band a proposed commitment or other firm undertaking from a lender or underwriter with regard to the Bank Development Loan, the terms of which shall be consistent with this Agreement and otherwise reasonably acceptable to the Band. viii. The Band may, not earlier than two years after the Commencement Date, seek to refinance any Loan. Lakes agrees to cooperate with that refinancing, provided that (I) all costs and expenses of the refinancing shall, to the extent that interest expense is reduced by the refinancing, be an Operating Expense of the Facility, and shall otherwise be either borne by the Band or funded through the refinancing; and (II) Lakes is not required to guarantee any new facilities. Interest on any new facility shall be an Operating Expense of the Facility. ix. The Band consents to the grant by Lakes of other guarantees pari passu to third parties, provided that such other guarantees do not and shall not impair Lakes's ability to perform under the Agreements. x. The amount of Loans may be reduced if the Initial Scope of Work is reduced on account of unanticipated material adverse changes in gaming market conditions or because of the Band's selection of a Gaming Site other than New Buffalo, as provided inss.4.4; the reduction in each Loan to be a fraction, the numerator of which is the number of slots in the Facility, as reduced in scale in accordance withss.4.4, and the denominator is the number of slots in the Initial Scope of Work. The amount of Loans may also be increased by agreement of Lakes and the Band to the extent that the 31 38 Approved Development Budget exceeds the funds available under the Loans as provided above. xi. Lakes's obligation to advance funds under the Lakes Development Loan (except as provided in ss. 8.4) and to procure and close on the Bank Development Loan and the Equipment Loan are conditioned upon NIGC Approval. Nothing in this subsection affects or impairs Lakes's liability for damages in the event of NIGC Disapproval. xii. The Band recognizes that if Lakes guarantees the Bank Development Loan or the Equipment Loan and pays in full either loan pursuant to its guarantee, Lakes shall be subrogated to the rights and remedies of the lender of the loan so paid. ARTICLE 10 EXCLUSIVITY; NON-COMPETITION Section 10.1. Exclusivity Regarding Facility. During the term of this Agreement, Lakes shall have an exclusive relationship with the Band regarding the development of the Facility. Section 10.2. Exclusivity in Michigan. The Band shall deal exclusively with Lakes for gaming development on Indian lands in Michigan from the date of execution of this Agreement through the earlier of five years from the Commencement Date or termination or buyout of the Agreements. Section 10.3. Indiana Casino. Lakes recognizes that the Band intends to develop a casino in Indiana, and that the Band shall have no obligations to Lakes in that regard; except that the Band agrees that, if it decides to engage an outside manager to develop or operate an Indiana casino, it shall discuss contracting with Lakes for such development or operation for 45 days before soliciting proposals from third parties as to management or development of that casino. No obligation to enter into an agreement with Lakes shall be implied from this undertaking, and the Band shall retain full and absolute discretion in that regard. Section 10.4. Non-Competition. Lakes agrees that for five years after execution of the Agreements or the Term of the Agreements, whichever is greater, neither it nor any present or future Insider will directly or indirectly in the Restricted Territory develop, operate, consult with regard to, or be in any way affiliated with any non-Indian gaming facility, any Class II or III Gaming facility or any other kind of gaming, or any hotels or other amenities related to such gaming or facility; except that Insiders shall not include (a) Kids Quest, Grand Casinos, Inc., Park Place Entertainment or Innovative Gaming Corp. by reason of (i) the service of (A) Lyle Berman as director or employee (without management responsibility) of such entities, provided that Mr. Berman votes as director 32 39 against, or abstains from voting as to, any direct or indirect lobbying by Park Place Entertainment against a compact between the Band and the State of Indiana or any direct or indirect opposition by Park Place Entertainment to the Band's taking of land into trust for a casino to be owned or operated by the Band in Indiana, and does not personally directly or indirectly lobby against such a compact or oppose such taking into trust; (B) Lyle Berman as employee of Park Place Entertainment with management responsibility, so long as Park Place Entertainment does not (x) develop, operate, consult with regard to, or be in any way affiliated with a Class III Gaming facility in the Restricted Territory (excluding Ohio) that commences new operations or expands its gaming capacity more than 50% after the execution of the Agreements, or (y) directly or indirectly lobby against a compact between the Band and the State of Indiana, or directly or indirectly oppose the taking of land into trust by the Band for a casino to be owned or operated by the Band in Indiana; or (C) Thomas Brosig as director or employee (without any management responsibility for gaming in the Restricted Territory unless the Band consents) in Park Place Entertainment, or (ii) any stock ownership of Lakes in such entities; or (b) any entity because of the investment banking services of Ron Kramer, a director of Lakes. Section 10.5. Assignment; Change of Control. a. Lakes may not assign its rights under this Agreement without the Band's prior written consent, except that Lakes may assign its rights under such Agreement, but not its obligations, to a wholly owned subsidiary. b. The Band may not assign its rights under this Agreement; except that the Band may, without the consent of Lakes, but subject to approval by the Secretary of the Interior or the Chairman of the NIGC or his authorized representative, if required, assign this Agreement and the assets of the Enterprise to a Corporate Commission or other instrumentality of the Band organized to conduct the business of the Project and the Enterprise for the Band that assumes all obligations herein. No assignment authorized hereunder shall be effective until all necessary governmental approvals have been obtained. No such assignment shall relieve the Band of any obligation hereunder, unless otherwise agreed by Lakes or the holder of such obligation. c. The Band shall be entitled to terminate the Agreements if Lakes undergoes a Change of Control without the prior written consent of the Band. The Band shall not be required to prepay any amounts advanced by Lakes or any third party in the event of such termination, and such obligations shall remain payable in accordance with their payment terms. Lakes agrees to notify the Band in writing within 30 days after the occurrence of any event described in Clauses I or II in the definition of Change of Control, and within 30 days of Lakes's knowledge of any event described in Clauses III or IV of that definition. 33 40 "Change of Control," for purposes of this provision, means (I) the merger, consolidation or other business combination of Lakes with, or acquisition of all or substantially all of the assets of Lakes by, any other entity; (II) Lyle Berman's ceasing to be either Chief Executive Officer or Chairman of the Board of Lakes (other than on account of death or disability, and except as provided at the end of this definition); (III) the acquisition by any person or affiliated group of persons not presently a shareholder of Lakes of beneficial ownership of 30% or more in interest of the outstanding voting stock of Lakes, as determined under 17 CFR ss.ss. 240.13d-3 or 240.16a-1; or (IV) the acquisition by any person or affiliated group of persons not presently a shareholder of Lakes of beneficial ownership of 10% or more in interest of the outstanding voting stock of Lakes, as determined under 17 CFR ss.ss. 240.13d-3 or 240.16a-1, if a majority of the Board of Directors of Lakes is replaced within two years after such acquisition by directors not nominated and approved by the Board of Directors. Notwithstanding any other provision of this definition, if the non-competition provisions of ss. 10.4(a)(i)(B) are breached, the following terms shall control: (A) Lakes shall notify the Band within 30 days of a breach of that subsection, and shall describe in reasonable detail the nature and circumstances of that breach. (B) The Band shall within 45 days of that notification inform Lakes if it will waive that breach. (C) If the Band states that it will not waive the breach, Lakes may within 30 days of the Band's notification inform the Band whether Mr. Berman will resign as officer and director of Lakes, and who Lakes proposes as Mr. Berman's successor as Chairman and/or Chief Executive Officer of Lakes. Lakes shall, in connection with that notification, provide the Band with a detailed description of the qualifications and affiliations of the proposed successor. (D) The Band shall then have 45 days to grant or withhold its consent to that succession, which consent shall not be unreasonably withheld. If the Band so consents, Mr. Berman resigns and the named successor replaces Mr. Berman as Chairman and/or Chief Executive Officer, the breach under ss. 10.4(a)(i)(B) shall be deemed waived. (E) If the Band does not so consent and its denial of consent is not unreasonable, or if Mr. Berman does not resign and the named successor does not succeed him, Lakes may nominate another 34 41 proposed successor within 30 days, failing which Lakes shall be in default (subject to arbitration). (F) If Lakes does nominate another proposed successor, subsections (C) and (D) shall apply to the new nominee. If the Band does not consent to the new nominee and its denial of consent is not unreasonable, or if Mr. Berman does not resign and the new nominee does not succeed him, Lakes shall be in default (subject to arbitration). Section 10.6. Restrictions on Collateral Development. Lakes agrees that for five years after execution of the Agreements or the Term of the Agreements, whichever is greater, neither it nor any present or future Insider will directly or indirectly purchase any land or operate, manage, develop or have any direct or indirect interest in any commercial facilities or business venture located within 20 miles of the Facility without the prior written consent of the Band. ARTICLE 11 REPRESENTATIONS, WARRANTIES, AND COVENANTS Section 11.1. Representations and Warranties of the Band. The Band represents and warrants to Lakes as follows: (i) The Band's execution, delivery and performance of this Agreement, the Lakes Note and all other instruments and agreements executed in connection with this Agreement have been properly authorized by the Band and do not require further Band approval. (ii) This Agreement, the Lakes Note, the Transition Loan Note, the Non-Gaming Acquisition Line of Credit and the Control Agreement and the Security Agreement have been properly executed, and once approved in accordance with Legal Requirements constitute the Band's legal, valid and binding obligations, enforceable against the Band in accordance with their terms. (iii) There are no actions, suits or proceedings, pending or threatened, against or affecting the Band before any court or governmental agency, except as disclosed on Exhibit E. Section 11.2. Band Covenants. The Band covenants and agrees as follows: (i) Promptly after the execution of this Agreement it will take the steps necessary to adopt and will adopt the Gaming Ordinance. The Gaming Ordinance will meet the requirements of IGRA and the applicable regulations under IGRA and be consistent with the provisions of this Agreement and the Management Agreement, and not adversely affect the rights of Lakes hereunder and thereunder. 35 42 After adoption of the Gaming Ordinance the Band will establish a governmental authority to regulate gaming at the Gaming Site ("the Gaming Regulatory Authority" or "GRA"). The Band agrees to consult with Lakes concerning the terms of the Gaming Ordinance and any regulations adopted thereunder, but the final decision on those matters is in the Band's sole discretion. (ii) After NIGC Approval the Band shall enter into the Bank Loan Agreement and the Equipment Loan Agreement and execute the Bank Note and the Equipment Note and related closing documentation, all subject to the terms provided in this Agreement and Lakes's performance of its obligations under this Agreement. (iii) During the term of this Agreement and the Management Agreement, the Band shall enact no law impairing the obligations or contracts entered into in furtherance of the development, construction, operation and promotion of Gaming on the Gaming Site. Neither the Pokagon Council nor any committee, agency, board of any other official body, and no officer or official of the Band shall, by exercise of the police power or otherwise, act to modify, amend, or in any manner impair the obligations of contracts entered into by the Pokagon Council or the GRA or other parties in furtherance of the financing, development, construction, operation, or promotion of Gaming at the Gaming Site without the written consent of the non-tribal parties to such contracts. Any such action or attempted action shall be void ab initio. (iv) The Band will waive sovereign immunity on the limited basis described in Article 14 with respect to the Loans, the Transition Loan and the Non-Gaming Land Acquisition Line of Credit. (v) This Agreement, the Management Agreement, the Lakes Note, the Transition Loan Note, the Non-Gaming Acquisition Line of Credit, the Control Agreement and the Security Agreement, and each other contract contemplated by this Agreement shall, once approved in accordance with Legal Requirements, be enforceable in accordance with their terms. (vi) In its performance of this Agreement, the Band shall comply with all Legal Requirements. (vii) The Band will not impose taxes on the revenues of the Facility or the management fee payable to Lakes, but reserves the right to otherwise impose usual and customary taxes and fees on transactions at or in connection with the Facility or on the Facilities's employees, officers, directors, vendors and patrons. The Band shall be specifically permitted to impose (i) charges, assessments, fines or fees imposed by governmental entities of the Band which are reasonably related to the cost of Tribal governmental regulation of public health, safety or welfare, or the integrity of Tribal gaming operations, and (ii) other taxes, charges, assessments or fees imposed against the Enterprise or property of the Enterprise, or sales, use, 36 43 excise, hotel occupancy and other similar taxes (excluding taxes, charges, assessments or fees against real or personal property of the Facility or on gaming revenues or earnings) of such types and percentage amounts not to exceed those imposed by any state or local government within the Restricted Territory. (viii) The Band shall not act in any way whatsoever, directly or indirectly, to cause this Agreement to be amended, modified, canceled, or terminated, except pursuant to its express terms or with the consent of Lakes. Section 11.3. Representations and Warranties of Lakes. Lakes represents and warrants to the Band as follows: (i) Lakes's execution, delivery and performance of this Agreement and all other instruments and agreements executed in connection with this Agreement have been properly authorized by Lakes and do not require further approval. (ii) This Agreement has been properly executed and constitutes Lakes's legal, valid and binding obligation, enforceable against Lakes in accordance with its terms. (iii) There are no actions, suits or proceedings pending or threatened against or affecting Lakes before any court or governmental agency that would in any material way affect Lakes's ability to perform this Agreement, other than litigation disclosed in filings by Lakes with the Securities and Exchange Commission. Lakes warrants that no litigation so disclosed in any material way affects or will affect Lakes' ability to perform under the Agreements. Section 11.4. Lakes Covenants. Lakes covenants and agrees as follows: (i) Lakes shall comply with all Legal Requirements in its performance of the Agreements. (ii) Lakes has and at all times during the Term shall have the financial capacity to pay to the Band all fees and payments and to make all advances and loans described in this Agreement. (iii) Lakes shall not act in any way whatsoever, directly or indirectly, to cause this Agreement to be amended, modified, canceled, or terminated, except pursuant to its express terms or with the consent of the Band. (iv) Lakes's Internal Expenses shall not be paid by the Enterprise from revenues of the Enterprise or the proceeds of any Loan, but may be paid by Lakes from Management Fees and loan repayments after they are received by Lakes. No officer or employee of Lakes shall receive a salary or other payment from the Facility. 37 44 (v) CRC shall not during the Term of the Management Agreement (a) be directly or indirectly affiliated with Lakes or the Facility, whether as joint venturer or otherwise, (b) be employed by Lakes or, to the knowledge of Lakes, any entity having any contractual relationship with Lakes, with regard to the Facility, or (c) directly or indirectly receive any payment or anything of value from Lakes from or out of the Management Fee or any other payment made to Lakes by the Band or the Facility. Lakes agrees to indemnify the Band and its members and hold them harmless against all loss, liability and expense relating to claims, of whatever kind or nature, of CRC against any one or more of them. The Band consents to the execution and delivery by Lakes of a certain Conditional Release and Termination Agreement between Lakes and CRC dated May 20, 1999, as amended by Amendment dated July, 1, 1999, true copies of which are attached as Exhibit F, provided that CRC executes and delivers to the Band and its members a general release in the form attached as Exhibit G. Lakes warrants that it has no agreements or understandings with CRC in any way related to the Band or the Enterprise other than as set forth in Exhibit F. The Band further agrees that Lakes may hold stock of CRC as collateral for a Lakes' guarantee of a loan to a third party, provided that on default it proceeds to liquidate such collateral in a reasonably prompt and orderly manner, and that Lyle Berman may continue to hold approximately 350,000 shares of CRC so long as he plays no role in the management of, and does not sit on, the board of directors of CRC. ARTICLE 12 EVENTS OF DEFAULT Section 12.1. Events of Default by the Band. Lakes shall not be obligated to pay any fees, provide the Bank Development Loan or the Equipment Loan, make any advance on the Lakes Development Loan or otherwise perform its obligations under or pursuant to this Agreement if a Band Event of Default, as defined below, has occurred and is continuing on the date such fee payment, loan advance or performance would otherwise be made. In addition, Lakes shall not be obligated to make any loan advance to the Band pursuant to this Agreement unless and until Lakes receives the duly authorized and executed Lakes Note. Each of the following shall be a "Band Event of Default": (i) The Band shall fail to pay when due the Lakes Note, the Transition Loan Note, the Non-Gaming Acquisition Line of Credit or any other indebtedness to Lakes, and such payment default has continued for thirty (30) days after Lakes gives the Band notice thereof. (ii) The Band shall commit a Material Breach of any of the Band's obligations under this Agreement, subject to the rights to cure provided in this Agreement. (iii) Any of the representations and warranties made by the Band in ss. 11.1 of this Agreement were not true when made or would not be true if made on the date such performance would otherwise be due. 38 45 (iv) The Band violates the provisions of Article 10 of this Agreement. (v) The Band commits any Material Breach of the Management Agreement which is not cured within any applicable cure period. (vi) The Band, through a vote of its Council at which a quorum is present prior to NIGC Approval, either expressly (i) repudiates the Management Agreement or the Development Agreement, or (ii) authorizes the Band, prior to terminating the Agreements in accordance with their terms or expiration of the Term, to enter into management or development agreements with a third party with regard to a Michigan casino. If any Band Event of Default occurs, Lakes may, upon written notice to Band, declare Lakes's commitment to make advances under this Agreement terminated and Lakes may exercise the rights and remedies available to Lakes provided in this Agreement; provided, however, that all such rights and remedies shall be Limited Recourse. Section 12.2. Events of Default by Lakes. The Band shall not be obligated to perform its obligations under or pursuant to this Agreement if a Lakes Event of Default, as defined below, has occurred or if any of the representations and warranties made by Lakes in this Agreement were not true when made or would not be true if made on the date such performance would otherwise be due. Each of the following shall be a "Lakes Event of Default": (i) Any Monthly Payment is not paid within ten (10) days after its due date. (ii) Lakes shall fail to make any other payments (whether of fees, advances or loans) required by this Agreement, and such failure shall continue for ten (10) days after the Band gives Lakes written notice thereof. (iii) Lakes shall commit any other Material Breach any of Lakes's obligations under this Agreement. (iii) Any representation or warranty that Lakes has made under this Agreement shall prove to have been untrue when made or would not be true if made on the date such performance would otherwise be due. (iv) Lakes violates the provisions of Article 10 of this Agreement, subject to rights of notice and cure to the extent provided in that Article. (v) Lakes commits any Material Breach of the Management Agreement which is not cured within any applicable cure period. (vi) NIGC Disapproval occurs. 39 46 If any Lakes Event of Default occurs, the Band may, upon written notice to Lakes, exercise the rights and remedies available to the Band provided in this Agreement. 12.3 Material Breach; Right to Cure. Neither party may terminate this Agreement or recover damages on grounds of Material Breach unless it has provided written notice to the other party of its intention to terminate this Agreement or seek damages or other remedies. During the 30 day period after the receipt of the notice to terminate (as to defaults which can be cured within 30 days) or the 90 day period after such receipt (as to defaults which cannot be cured within 30 days), whichever is applicable, either party may submit the matter to arbitration under the dispute resolution provisions of this Agreement set forth at Article 14. The discontinuance or correction of a Material Breach shall constitute a cure thereof. 40 47 ARTICLE 13 TERMINATION Section 13.1. Voluntary Termination. This Agreement may be terminated by mutual written consent. Section 13.2. Termination if No NIGC Approval. The Band and Lakes may each unilaterally terminate the Agreements by written notice if NIGC Approval has not occurred within five years after Ratification. Section 13.3. Lakes Right to Terminate on Band Event of Default. Lakes shall be entitled to terminate the Agreements (i) upon a Band Event of Default or (ii) as specifically provided in the Agreements. Section 13.4. Band Right to Terminate on Lakes Event of Default. The Band shall be entitled to terminate the Agreements (i) upon a Lakes Event of Default or (ii) as specifically provided in the Agreements. Section 13.5. Band Right to Terminate for Material Adverse Change. Prior to the Commencement Date, the Band shall be entitled to terminate the Agreements in the event of a Material Adverse Change; provided that the following procedures shall apply: i. Lakes shall notify the Band promptly in the event of any Material Adverse Change, and in any event within 30 days after its occurrence. ii. Lakes shall send to the Band copies of all filings by Lakes with the Securities and Exchange Commission under Forms 8K, 10Q and 10K; shall furnish the Band with copies of such other SEC filings that the Band may request; and shall furnish the Band with such other information concerning a Material Adverse Change as the Band may reasonably request. iii. If the Band believes that a Material Adverse Change has occurred, the Band shall so notify Lakes in writing and shall request specified further assurances of Lakes's continued ability to perform under the Agreements. iv. Within thirty (30) days after that notification Lakes shall admit or deny the alleged Material Adverse Change, giving the specific basis for its response; shall state whether it agrees to provide the requested further assurances; if it agrees to provide the requested further assurances, shall tender its performance in that regard; and, if it admits a Material Adverse Change but disputes the requested further 41 48 assurances, shall tender such further assurances as it deems sufficient to ensure its continued ability to perform under the Agreements. v. If Lakes denies the Material Adverse Change or disputes that the requested further assurances are reasonably required to assure the Band of Lakes's continued ability to perform under the Agreements, those issues shall be submitted to arbitration. The arbitrator shall determine whether (A) a Material Adverse Change has occurred; (B) the requested further assurances are reasonably required to assure the Band of Lakes's continued ability to perform under the Agreements; and (C) if a Material Adverse Change has occurred but the requested further assurances are not reasonably required to so assure the Band, what further assurances must be provided by Lakes to reasonably assure the Band of Lakes's continued ability to perform under the Agreements. Any further assurances required under the arbitrator's award must be furnished by Lakes within thirty (30) days after entry of the award. vi. If Lakes admits the Material Adverse Change but does not furnish further assurances, or if Lakes does not timely provide further assurances pursuant to an arbitrator's award, the Band may terminate the Agreements by written notice to Lakes. vii. Lakes and the Band agree that the continuing ability of Lakes to make the payments and advances provided under this Agreement, and to ensure the Band can obtain the Loans to develop, construct, equip and operate the Facility provided in this Agreement, is an essential part of the consideration for which the Band bargained in entering into the Agreements. Section 13.6. Termination on Buyout. This Agreement shall terminate if the Band exercises its option to buy out the Management Agreement in accordance with its terms. Section 13.7. Involuntary Termination Due to Changes in Legal Requirements. It is the understanding and intention of the parties that the development, construction and operation of the Enterprise shall conform to and comply with all Legal Requirements. If during the term of this Agreement, the Enterprise or any material aspect of Gaming at the Gaming Site is determined by the Congress of the United States, Department of the Interior of the United States of America, the NIGC, or the judgment of a court of competent jurisdiction (after expiration of the time within which appeals must be filed or completion of appeals, if any) to be unlawful under federal law, the obligations of the parties hereto shall cease and the Agreements shall be of no further force and effect as of 42 49 the date of such determination; subject, however, to the following provisions as to damages: i. If the date of such determination is prior to the Commencement Date, Lakes shall be entitled to damages to the same extent as provided in ss 14.4 with regard to failure to obtain NIGC Approval. ii. If the date of such determination is after the Commencement Date: (A) The Band shall retain all fees and Monthly Payments previously paid or advanced to its pursuant to this Agreement, as well as all Tribal Distributions and Non-Gaming Lands, the Gaming Site and any other property transferred into trust; (B) Any money loaned to the Band by or guaranteed by Lakes, or owed to Lakes as subrogee (to the extent Lakes has paid under such guarantees) shall be repaid to Lakes or its Affiliates in accordance with the Limited Recourse terms of the Lakes Note, the Transition Loan Note, the Non-Gaming Acquisition Line of Credit and this Agreement; and (C) The Band shall retain its interest in the title (and any lease) to all Enterprise assets, including the Gaming Site and any fixtures, supplies and equipment, subject to the purchase money security interest in equipment securing the Equipment Loan and any other liens granted in accordance with this Agreement. Section 13.8. Repair or Replacement. If the Facility is damaged, destroyed or condemned so that continued development, construction or operation of Gaming cannot be or can no longer be continued at the Facility, the Facility shall at the Band's option be reconstructed if the insurance or condemnation proceeds, together with any other funds available to the Band, are sufficient to restore or replace the Facility to a condition at least comparable to that before the casualty occurred or such other condition as Lakes and the Band may agree. If the insurance proceeds, together with other funds available to the Band, are not sufficient to so restore or replace the Facility or are not used to repair the Facility, the Band shall, with the assistance of Lakes, adjust and settle any and all claims for such insurance proceeds or condemnation awards, and such proceeds or award and any undistributed Net Revenues pursuant to Article 5 of the Management Agreement shall be applied first, as to proceeds or awards relating to Furnishings and Equipment securing the Equipment Loan, to the amounts due under the Equipment Loan; second, to the amounts due under the Bank Development Loan; third, to any remaining balance under the Equipment Loan and to any other third party liabilities of the Enterprise; fourth, to the Lakes Development Loan; and fifth, to the Band. Any unpaid balance of the Lakes Development Loan, after application of such proceeds, shall be repaid as provided in ss. 14.4 on failure to obtain NIGC Approval. 43 50 ARTICLE 14 DISPUTE RESOLUTION; LIQUIDATED DAMAGES Section 14.1. Band's Waiver of Sovereign Immunity and Consent to Suit. The Band expressly waives its sovereign immunity from suit for the purpose of permitting or compelling arbitration as provided in this Article 14 and consents to be sued in the United States District Court for the District in which the Gaming Site is located (or, if the Gaming Site has not been designated, for the Western District of Michigan - Southern Division), the United States Court of Appeals for the Sixth Circuit, and the United States Supreme Court for the purpose of compelling arbitration or enforcing any arbitration award or judgment arising out of this Agreement, the Management Agreement, the Lakes Note, the Transition Loan Note, the Non-Gaming Acquisition Line of Credit, the Control Agreement, the Security Agreement, any mortgages granted to Manager securing the Lakes Note or the Non-Gaming Land Acquisition Line of Credit, or other obligations between the parties. If the United States District Court lacks jurisdiction, the Band consents to be sued in the Michigan State Court system for the same limited purpose. The Band waives any requirement of exhaustion of tribal remedies. Without in any way limiting the generality of the foregoing, the Band expressly authorizes any governmental authorities who have the right and duty under applicable law to take any action authorized or ordered by any such court, and to take such action, including without limitation, repossessing or foreclosing on any real property not in trust and or on equipment subject to a security interest, or otherwise giving effect to any judgment entered; provided, however, that liability of the Band under any judgment shall always be Limited Recourse, and in no instance shall any enforcement of any kind whatsoever be allowed against any assets of the Band other than the limited assets of the Band specified in Section 14.3(i) below. The Band appoints the Chairman of the Pokagon Council and the Secretary of the Pokagon Council as its agents for service of all process under or relating to the Agreements. The Band agrees that service in hand or by certified mail, return receipt requested, shall be effective for all purposes under or relating to the Agreements if served on such agents. Section 14.2. Arbitration. All disputes, controversies or claims arising out of or relating to this Agreement and the Lakes Note, the Transition Loan Note, the Non-Gaming Acquisition Line of Credit, the Control Agreement and the Security Agreement or other obligations between the parties shall be settled by binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association in effect on the date demand for arbitration is made, and the Federal Arbitration Act. The parties agree that binding arbitration shall be the sole remedy as to all disputes arising out of this Agreement, except for disputes requiring injunctive or declaratory relief. (i) Choice of Law. In determining any matter the Arbitrator(s) shall apply the terms of this Agreement, without adding to, modifying or changing the terms in any respect, and shall apply Michigan law. 44 51 (ii) Place of Hearing. All arbitration hearings shall be held at a place designated by the arbitrator(s) in Kalamazoo, Michigan or at such other place agreed to by the parties. (iii) Confidentiality. The parties and the arbitrator(s) shall maintain strict confidentiality with respect to the arbitration. Section 14.3. Limitation of Actions. The Band's waiver of immunity from suit is specifically limited to the following actions and judicial remedies: (i) Damages. The enforcement of an award of money and/or damages by arbitration; provided that the award of any arbitrator and/or court must be Limited Recourse, and no arbitrator or court shall have authority or jurisdiction to order execution against any assets or revenues of the Band except (A) undistributed or future Net Revenues of the Enterprise; (B) as to the Equipment Loan, the Furnishings and Equipment securing that Loan; (C) as to the Transition Loan and the Non-Gaming Acquisition Line of Credit, if the Commencement Date does not occur, Subsequent Gaming Facility Revenues to the extent provided in this Agreement; (D) as to the Non-Gaming Acquisition Line of Credit, mortgages on the Non-Gaming Lands prior to their transfer into trust; and (E) as to the Lakes Note, mortgages on the Gaming Site prior to their transfer into trust). In no instance shall any enforcement of any kind whatsoever be allowed against any assets of the Band other than the limited assets of the Band specified in this subsection. (ii) Consents and Approvals. The enforcement of a determination by an arbitrator that the Band's consent or approval has been unreasonably withheld contrary to the terms of this Agreement. (iii) Injunctive Relief and Specific Performance. The enforcement of a determination by an arbitrator that prohibits the Band from taking any action that would prevent Lakes from performing its obligations pursuant to the terms of this Agreement, or that requires the Band to specifically perform any obligation under this Agreement; provided, however, that any injunction against the Band shall be Limited Recourse; shall not mandate, preclude or affect payment of any funds of the Band other than undistributed or future Net Revenues of the Enterprise; and shall not related to any asset of the Band other than the Facility. 45 52 (iv) Action to Compel Arbitration. An action to compel arbitration pursuant to this Article 14. Section 14.4. Damages on Termination for Failure to Obtain NIGC Approval. In the event of termination of this Agreement under ss.13.2 because NIGC Approval has not been obtained within five years after Ratification, (i) the Band shall be obligated to repay Lakes all amounts loaned by Lakes to the Band under or pursuant to this Agreement, but not fees, non-refundable payments and other payments not specifically designated as loans or advances under this Agreement; provided that such repayment shall be made only out of distributions to the Band from Subsequent Gaming Facility Revenues, and shall be paid in 60 equal monthly instalments of principal and interest beginning one month after opening of such a facility. To secure this obligation Lakes shall retain its mortgages, if any, on property of the Band not transferred into trust, and may foreclose such mortgages (subject to the arbitration provisions of this Article 14) if the Band fails to perform as provided in this subsection. Such payment and collateral shall be Lakes's sole remedy and recourse in the event of termination of this Agreement under ss. 13.2. In no event shall Lakes have recourse in the event of such termination to (a) assets purchased by the Band with funds advanced by Lakes, except as collateral to the extent provided in this subsection; (b) assets of any other gaming facility owned or operated by the Band, other than Subsequent Gaming Facility Revenues; or (c) any other asset of the Band. Section 14.5. Liquidated Damages and Limitations on Remedies. The following liquidated damages and limitations on remedies apply under this Agreement, in addition to those provided elsewhere in this Agreement as to claims and remedies against the Band: i. Liquidated Damages Payable by Lakes. In the event of a Lakes Event of Default prior to the Commencement Date, after such notice and right to cure as may be provided in this Agreement, Lakes shall: (A) forfeit to the Band all amounts in the Account as of the default; (B) pay the Band an amount equal to the sum of (x) the aggregate Monthly Payments payable under ss. 8.1(c) over the balance of the 5-year Term, as if the Agreements had not been terminated, and (y) the Accrued Expenses; (C) release all claims against the Band, including without limitation all amounts owed by the Band to Lakes under or related to the Agreements and all rights under the Agreements, and discharge all mortgage and security interests on assets of the Band; (D) transfer to the Band, at the Band's discretion and without payment of any consideration, any and all options and interests in real property in Michigan held by Lakes; and (E) deliver to the Band all documents and work product in the possession or control of Lakes or its agents related to the proposed Facility, the Gaming Site and the Non- Gaming Lands. Lakes agrees to execute and deliver such release, 46 53 discharges and transfer instruments, and to deliver such work product and documents, at the time of payment of liquidated damages. ii. Liquidated Damages Payable by the Band. In the event of a Band Event of Default prior to the Commencement Date, after such notice and right to cure as may be provided in this Agreement, the Band shall: (A) pay Lakes all amounts loaned by Lakes to the Band under this Agreement, but not fees, non-refundable payments and other payments not specifically designated as loans or advances under this Agreement, less the Band's right of offset, if any; such damages to be payable only out of Subsequent Gaming Facility Revenues on the same terms and with the same limitations on recourse as are provided in ss. 14.4 with regard to damages payable by the Band under that subsection; (B) release any interest in the funds in the Account, which shall be released to Lakes; and (C) transfer to Lakes all options and land (other than land held in trust) acquired by the Band through funds advanced by Lakes (or, failing such transfer, Lakes may foreclose on any mortgages it holds on such options or land not held in trust); provided that the amount of any damages payable to Lakes shall be reduced by the amount paid for any options or land transferred by the Band to Lakes. Section 14.6. Lakes Continuing Obligations. Nothing in this Article shall affect or impair Lakes' continuing obligations under ss.ss. 10.4 (non-competition) and 15.13 (confidentiality) of this Agreement, which shall remain enforceable for the following terms, notwithstanding the termination of the Agreements and payment of liquidated or other damages: (i) as to ss.10.4, the greater of five years after execution of the Agreements or one year after termination; and (ii) as to ss. 15.13, the greater of five years after execution of the Agreements or two years after termination. Section 14.7. Termination of Exclusivity. Section 10.2 (Exclusivity in Michigan) of this Agreement shall terminate upon any termination of the Agreements, notwithstanding any breach of the Agreements by the Band. Section 14.8. Remedies. In consideration of the agreement to liquidated damages to the extent provided above, the Band and Lakes each waive the right to actual, consequential, exemplary or punitive damages to the extent that liquidated damages are applicable to a default, but shall retain the right to injunctive relief (i) prior to termination of the Agreements, to enforce rights and remedies thereunder, subject to the Limited Recourse provisions of this Agreement as to the Band and the Band's limited waiver of sovereign immunity; and (ii) after termination, to the extent that provisions of this Agreement specifically survive such termination, subject to such Limited Recourse provisions and limited waiver. The injured party shall, where liquidated damages are not applicable and damages or remedies are not otherwise specified, be entitled to such 47 54 damages as it may be entitled to under applicable law, subject to such Limited Recourse provisions and limited waiver of the Band's sovereign immunity (which shall apply to all claims against the Band under or relating to the Agreements, in addition to all Loans). Section 14.9. Fees not Damages. In no event shall fees or other non-refundable payments or Tribal Distributions made by Lakes to Band constitute damages to Lakes or be repayable by the Band. ARTICLE 15 GENERAL Section 15.1. Nature of Agreement. This Agreement is not intended as and shall not be construed as a "management agreement" within the meaning of the IGRA. Section 15.2. Lakes's Interest. Nothing contained herein grants or is intended (i) to grant Lakes a titled interest to the Facility, or (ii) in any way to impair the Band's sole proprietary interest in the Facility. Section 15.3. Situs of the Agreement. This Agreement, the Lakes Note, the Transition Note and the Non-Gaming Land Acquisition Line of Credit shall be deemed entered into in Michigan. Section 15.4. Notice. Any notice required to be given pursuant to this Agreement shall be delivered to the appropriate party by Certified Mail Return Receipt Requested or by overnight mail or courier service, to the following addresses: If to the Band: Pokagon Band of Potawatomi Indians 53237 Townhall Road Dowagiac, MI 49047 Attn: Chairman, Tribal Council with a copy to: S. Eric Marshall, Esq. 1318 Mishawaka Avenue South Bend, Indiana 46615 and to: Daniel Amory, Esq. Drummond Woodsum & MacMahon P.O. Box 9781 Portland, ME 04104-5081 48 55 and to: Robert Gips, Esq. Gips and Associates 71 Myrtle Avenue, Suite 2000 South Portland, ME 04106 If to Lakes: Lakes Gaming, Inc. 130 Cheshire Lane Minnetonka, MN 55305 with a copy to: Douglas S. Twait, Esq. Johnson Hamilton Quigley Twait & Foley, PLC First National Bank Building Suite W1450 332 Minnesota Street Saint Paul, MN 55101-1314 or to such other different address(es) as Lakes or the Band may specify in writing. Any such notice shall be deemed given three days following deposit in the United States mail, one day following delivery to a courier service or upon actual delivery or upon actual delivery, whichever first occurs. Section 15.5. Relationship. Lakes and the Band shall not be construed as joint venturers or partners of each other by reason of this Agreement and neither shall have the power to bind or obligate the other except as set forth in this Agreement. Section 15.6. Further Actions. The Band and Lakes agree to execute all contracts, agreements and documents and to take all actions reasonably necessary to comply with the provisions of this Agreement and the intent hereof. Section 15.7. Waivers. No failure or delay by Lakes or the Band to insist upon the strict performance of any covenant, agreement, term or condition of this Agreement, or to exercise any right or remedy consequent upon the breach thereof, shall constitute a waiver of any such breach or any subsequent breach of such covenant, agreement, term of condition. No covenant, agreement, term or condition of this Agreement and no breach thereof shall be waived, altered or modified except by written instrument. No waiver of any breach shall affect or alter this Agreement, but each and every covenant, agreement, term and condition of this Agreement shall continue in full force and effect with respect to any other then existing or subsequent breach thereof. 49 56 Section 15.8. Captions. The captions of each article, section and subsection contained in this Agreement are for ease of reference only and shall not affect the interpretational meaning of this Agreement. Section 15.9. Third Party Beneficiary. This Agreement is exclusively for the benefit of the parties hereto and it may not be enforced by any party other than the parties to this Agreement and shall not give rise to liability to any third party other than the authorized successors and assigns of the parties hereto. Section 15.10. Survival of Covenants. Any covenant, term or provision of this Agreement which, in order to be effective, must survive the termination of this Agreement, shall survive any such termination. Section 15.11. Estoppel Certificate. Lakes and the Band agree to furnish to the other party, from time to time upon request, an estoppel certificate in such reasonable form as the requesting party may request stating whether there have been any defaults under this Agreement known to the party furnishing the estoppel certificate. Section 15.12. Periods of Time; Time of the Essence. Whenever any determination is to be made or action is to be taken on a date specified in this Agreement, if such date shall fall on a Saturday, Sunday or legal holiday under the laws of the Band or the State of Michigan, then in such event said date shall be extended to the next day which is not a Saturday, Sunday or legal holiday. Time is of the essence. Section 15.13. Confidential and Proprietary Information. Both parties agree that any information received concerning the other party during the performance of this Agreement, regarding the parties' organization, financial matters, marketing and development plans for the Enterprise, the Gaming Site, or other information of a proprietary nature (the "Confidential Information") will be treated by both parties in full confidence except for such public disclosure as may be required to allow Lakes and the Band to perform their respective covenants and obligations hereunder, or in response to legal process, and will not be revealed to any other persons, firms or organizations. This provision shall survive the termination of this Agreement as provided in ss. 14.6. The obligations not to use or disclose the Confidential Information shall not apply to Confidential Information (a) which has been made previously available to the public by the Band or Lakes or becomes generally available to the public, unless the Confidential Information being made available to the public results in a breach of this Agreement; (b) which prior to disclosure to the Band or Lakes was already rightfully in any such persons' possession; (c) which is obtained by the Band or Lakes from a third party who is lawfully in possession of such Information, and not in violation of any contractual, legal or fiduciary obligation to the Band or Lakes, with respect to such Confidential Information and who does not require the Band or Lakes to refrain from disclosing such Confidential Information to others; or (d) by the Band, if such Information pertains to the Gaming Site or the Enterprise, in connection with the Band's development, construction and operation of a gaming facility after termination of the Agreements. 50 57 Section 15.14. Government Savings Clause. Each of the parties agree to execute, deliver and, if necessary, record any and all additional instruments, certifications, amendments, modifications and other documents as may be required by the United States Department of the Interior, Bureau of Indian Affairs, the office of the field Solicitor, the NIGC, or any applicable statute, rule or regulation in order to effectuate, complete, perfect, continue or preserve the respective rights, obligations, liens and interests of the parties hereto to the fullest extent permitted by law; provided, that any such additional instrument, certification, amendment, modification or other document shall not materially change the respective rights, remedies or obligations of the Band or Lakes under this Agreement or any other agreement or document related hereto. Section 15.15. Successors and Assigns. The benefits and obligations of this Agreement shall inure to and be binding upon the parties hereto and their respective permitted successors and assigns. Section 15.16. Severability. If any provision, or any portion of any provision, of this Agreement is found to be invalid or unenforceable, such unenforceable provision, or unenforceable portion of such provision, shall be deemed severed from the remainder of this Agreement and shall not cause the invalidity or unenforceability of the remainder of this Agreement. If any provision, or any portion of any provision, of this Agreement is deemed invalid due to its scope or breadth, such provision shall be deemed valid to the extent of the scope or breadth permitted by law. Section 15.17. Entire Agreement. This Agreement (together with the Exhibits and Management Agreement of even date herewith) sets forth the entire agreement between the parties hereto with respect to the subject matter hereof. All agreements, covenants, representations, and warranties, express or implied, oral or written, of the parties with respect to the subject matter hereof are contained herein. No other agreements, covenants, representations, or warranties, express or implied, oral or written have been made by any party to the other with respect to the subject matter of this Agreement. All prior and contemporaneous conversations, discussions, negotiations, possible and alleged agreements and representations, covenants and warranties with respect to the subject matter hereof, including without limitation the Term Sheet agreed to by the parties dated June 18, 1999, are waived, merged herein and superseded hereby. Each party affirmatively represents that no promises have been made to that party which 51 58 are not contained in this Agreement, the Management Agreement, and the Exhibits, and stipulates that no evidence of any promises not contained in this Agreement, the Management Agreement, and the Exhibits, shall be admitted into evidence on their behalf. This Agreement shall not be supplemented, amended or modified by any course of dealing, course of performance or uses of trade and may only be amended or modified by a written instrument duly executed by officers of both parties. Section 15.18. Consents. a. Band. Where approval or consent or other action of the Band is required, such approval shall mean the written approval of the Pokagon Council evidenced by a resolution thereof, certified by a Band official as having been duly adopted, or such other person or entity designated by resolution of the Pokagon Council. Any such approval, consent or action shall not be unreasonably withheld or delayed; provided that the foregoing does not apply where a specific provision of this Agreement allows the Band an absolute or unilateral right to deny approval or consent or withhold action. b. Manager. Where approval or consent or other action of Manager is required, such approval shall mean the written approval of the Managing Officer. Any such approval, consent or other action shall not be unreasonably withheld or delayed. c. Business Board. Where approval or consent or other action of the Business Board is required, any such approval, consent or other action shall not be unreasonably delayed. Section 15.19. Ratification. The Agreements are effective upon their execution by the parties, but the continued rights and obligations of the parties hereunder are contingent upon Ratification of the Agreements. If Ratification does not occur, the Agreements and all related documents shall be of no force and effect; the Band shall retain all non-refundable payments made under these Agreements; and theControl Agreement shall be discharged, and all property in the Account shall be released to Lakes. (balance of this page intentionally left blank) 52 59 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. The Pokagon Band of Potawatomi Lakes Gaming, Inc. Indians By: /s/ John Miller By: /s/ Timothy J. Cope ------------------------------ ----------------------------- Its Council Chairman Its: Chief Financial Officer By: /s/ Kevin Daugherty ------------------------------ Its Secretary 53 EX-10.62 3 MANAGEMENT AGREEMENT WITH POKAGON BAND 1 EXHIBIT 10.62 MANAGEMENT AGREEMENT BETWEEN THE POKAGON BAND OF POTAWATOMI INDIANS AND LAKES GAMING, INC. DATED AS OF JULY 8, 1999 2 TABLE OF CONTENTS 1. RECITALS..................................................................1 2 DEFINITIONS...............................................................2 Affiliate.................................................................2 Band Gaming Ordinance.....................................................2 Band Representatives......................................................3 Bank Lender...............................................................3 BIA.......................................................................3 Business Board............................................................3 Capital Budget............................................................3 Capital Replacement(s)....................................................3 Capital Replacement Reserve...............................................3 Class II Gaming...........................................................3 Class III Gaming..........................................................3 Collateral Agreements.....................................................3 Compensation..............................................................4 Confidential Information..................................................4 Constitution..............................................................4 Development Agreement.....................................................4 Depository Account........................................................4 Disbursement Accounts.....................................................4 Emergency Condition.......................................................4 Enterprise................................................................5 Enterprise Accounts.......................................................5 Enterprise Employee.......................................................5 Enterprise Employee Policies..............................................5 Facility..................................................................5 Fiscal Year...............................................................5 Furnishings and Equipment.................................................6 Gaming....................................................................6 Gaming Regulatory Authority...............................................6 GRA.......................................................................6 Gaming Site...............................................................6 General Manager...........................................................6 Generally Accepted Accounting Principles..................................7 GAAP......................................................................7 Gross Gaming Revenue (Win)................................................7 Gross Revenues............................................................7 House Bank................................................................7 i 3 Internal Control Systems..................................................7 Legal Requirements........................................................7 Manager...................................................................8 Manager's Internal Expenses...............................................8 Manager's Representatives.................................................8 Management Agreement......................................................8 Management Fee............................................................8 Managing Officer..........................................................8 Material Breach...........................................................9 Member of the Band Government.............................................9 Minimum Balance...........................................................9 Minimum Guaranteed Monthly Payment........................................9 Monthly Distribution Payment..............................................9 Net Revenues..............................................................9 Net Revenues (gaming).....................................................9 Net Revenues (other).....................................................10 Operating Budget and Annual Plan.........................................11 Operating Expenses.......................................................11 Operating Supplies.......................................................13 Plans and Specifications.................................................13 Pokagon Council..........................................................13 Pre-Opening Budget.......................................................13 Pre-Opening Expenses.....................................................13 Promotional Allowances...................................................13 Relative.................................................................14 State....................................................................14 Term.....................................................................14 3 ENGAGEMENT; BUSINESS BOARD; COMPLIANCE...................................14 Engagement of Manager....................................................14 Term.....................................................................15 Status of Gaming Site....................................................15 Manager Compliance with Law; Licenses....................................15 Compliance with Compact..................................................16 Fire and Safety..........................................................16 Compliance with the National Environmental Policy Act....................16 Commencement Date........................................................16 4 BUSINESS AND AFFAIRS OF THE ENTERPRISE...................................16 Manager's Authority and Responsibility...................................16 Duties of Manager........................................................17 ii 4 Physical Duties..........................................................17 Compliance with Band Ordinances..........................................17 Required Filings.........................................................17 Contracts in Band's Name Doing Business as the Enterprise and at Arm's Length.............................................................17 Enterprise Operating Standards...........................................17 Security.................................................................18 Damage, Condemnation or Impossibility of the Enterprise..................18 Alcoholic Beverages and Tobacco Sales....................................18 Employees................................................................18 Manager's Responsibility.................................................18 Enterprise Employee Policies.............................................18 Senior Employees.........................................................19 Enterprise Employees.....................................................19 Removal of Employees.....................................................19 No Manager Internal Expenses; Limitation on Manager Payments.............19 GRA Expenses.............................................................20 Employee Background Checks...............................................20 Indian Preference: Recruiting and Training...............................20 Pre-Opening..............................................................21 Operating Budget and Annual Plan.........................................22 Adjustments to Operating Budget and Annual Plan and Capital Budget.......24 Capital Budgets..........................................................24 Capital Replacements.....................................................25 Capital Replacement Reserve..............................................26 Periodic Contributions to Capital Replacement Reserve....................26 Use and Allocation of Capital Replacement Reserve........................27 Indian Preference: Vendors and Contractors...............................27 Internal Control Systems.................................................27 Banking and Bank Accounts................................................28 Enterprise Accounts......................................................28 Daily Deposits to Depository Account.....................................28 Disbursement Accounts....................................................29 No Cash Disbursements....................................................29 Transfers Between Accounts...............................................29 Insurance................................................................29 Accounting and Books of Account..........................................29 Statements...............................................................29 Books of Account.........................................................30 Accounting Standards.....................................................30 Annual Audit.............................................................30 iii 5 Manager's Contractual Authority..........................................31 Retail Shops and Concessions.............................................31 Entertainment Approvals..................................................31 Litigation...............................................................31 5 MANAGEMENT FEE, DISBURSEMENTS, AND OTHER PAYMENTS BY MANAGER......................................................32 Management Fee...........................................................32 Fee Subordinated.........................................................32 Disbursements............................................................32 Adjustment to Bank Account...............................................33 Payment of Fees and Band Disbursement....................................33 Minimum Guaranteed Monthly Payment.......................................33 Payment of Net Revenues..................................................35 Harrah's Termination Agreement...........................................35 6 ENTERPRISE NAME; MARKS...................................................35 Enterprise Name..........................................................35 Marks....................................................................35 Signage..................................................................35 7 TAXES....................................................................36 State and Local Taxes....................................................36 Band Taxes...............................................................36 Compliance with Internal Revenue Code....................................36 8 BUY-OUT OPTION...........................................................37 9 EXCLUSIVITY; NON-COMPETITION.............................................37 Exclusivity in Michigan..................................................37 Indiana Casino...........................................................37 Non-Competition..........................................................37 Permitted Assignment; Change of Control..................................38 Restrictions on Collateral Development...................................40 10 REPRESENTATIONS, WARRANTIES, AND COVENANTS..............................40 Representations and Warranties of the Band...............................40 Due Authorization........................................................41 Valid and Binding........................................................41 Pending Litigation.......................................................41 Band Covenants...........................................................41 iv 6 No Impairment of Contract................................................41 Waiver of Sovereign Immunity.............................................41 Valid and Binding........................................................41 Legal Compliance.........................................................42 No Termination...........................................................42 Representations and Warranties of Manager................................42 Due Authorization........................................................42 Valid and Binding........................................................42 Litigation...............................................................42 Certifications...........................................................42 Manager Covenants........................................................42 Noninterference in Band Affairs..........................................42 Prohibition of Payments to Members of Band Government....................43 Prohibition of Hiring Members of Band Government.........................43 Prohibition of Financial Interest in Enterprise..........................43 No Amendment.............................................................43 CRC......................................................................44 No Liens.................................................................44 Permitted Liens..........................................................45 Authority to Execute and Perform Agreement...............................45 Brokerage................................................................45 11 DEFAULT..................................................................45 Events of Default by the Band............................................45 Events of Default by Manager.............................................46 Material Breach; Right to Cure...........................................47 12 TERMINATION..............................................................47 Voluntary Termination....................................................47 Termination if No NIGC Approval..........................................47 Manager Right to Terminate on Band Event of Default......................47 Band Right to Terminate on Manager Event of Default......................47 Band Right to Terminate for Material Adverse Change......................48 Termination if Manager License Withdrawn or on Conviction................49 Termination on Buy-Out...................................................49 Involuntary Termination Due to Changes in Legal Requirements.............49 13 DISPUTE RESOLUTION; LIQUIDATED DAMAGES...................................50 Band's Waiver of Sovereign Immunity and Consent to Suit..................50 Arbitration..............................................................51 Choice of Law............................................................51 v 7 Place of Hearing.........................................................51 Confidentiality..........................................................51 Limitation of Actions....................................................51 Damages..................................................................51 Consents and Approvals...................................................52 Injunctive Relief and Specific Performance...............................52 Action to Compel Arbitration.............................................52 Damages on Termination for Failure to Obtain NIGC Approval...............52 Liquidated Damages and Limitations on Remedies...........................52 Liquidated Damages Payable by Manager....................................53 Liquidated Damages Payable by the Band...................................53 Manager Continuing Obligations...........................................53 Termination of Exclusivity...............................................53 Remedies.................................................................53 Band Injunctive Relief...................................................54 No Setoff Against Payments to Band.......................................54 Indemnification on Termination...........................................54 Fees not Damages.........................................................54 Undistributed Net Revenues...............................................54 14 CONSENTS AND APPROVALS...................................................55 Band.....................................................................55 Manager..................................................................55 15 DISCLOSURES..............................................................55 Shareholders and Directors...............................................55 Warranties...............................................................55 Disclosure Amendments....................................................56 Breach of Manager's Warranties and Agreements............................57 16 NO PRESENT LIEN, LEASE OR JOINT VENTURE..................................57 17 CONCLUSION OF THE MANAGEMENT TERM........................................57 18 MISCELLANEOUS............................................................57 Situs of the Contracts...................................................57 Notice...................................................................58 Relationship.............................................................59 Further Actions..........................................................59 Waivers..................................................................59 Captions.................................................................59 vi 8 Severability.............................................................59 Advances.................................................................60 Third Party Beneficiary..................................................60 Survival of Covenants....................................................60 Estoppel Certificate.....................................................60 Periods of Time; Time of Essence.........................................60 Exhibits.................................................................60 Successors and Assigns...................................................60 Confidential and Proprietary Information.................................60 Patron Dispute Resolution................................................61 Modification.............................................................61 Entire Agreement.........................................................61 Government Savings Clause................................................61 Preparation of Agreement.................................................62 Consents.................................................................62 Execution................................................................62 vii 9 LIST OF EXHIBITS Exhibit A Manager's Affiliates, Principal Shareholders, Officers and Directors Exhibit B Pending Band Litigation viii 10 MANAGEMENT AGREEMENT THIS MANAGEMENT AGREEMENT has been entered into as of July 8th, 1999, by and between the POKAGON BAND OF POTAWATOMI (the "Band"), and LAKES GAMING, INC., a Minnesota corporation ("Manager") for the operation of a gaming facility in the State of Michigan. 1. RECITALS 1.1 The Band, pursuant to 25 U.S.C. ss.ss. 1300j et seq. (the "Restoration Act"), is a federally recognized Indian tribe recognized as eligible by the Secretary of the Interior for the special programs and services provided by the United States to Indians because of their status as Indians and is recognized as possessing powers of self-government. 1.2 As authorized by the Restoration Act, the Band intends to acquire the Gaming Site in the State of Michigan, to be held by the federal government in trust for the Band, on which the Band intends to construct and operate a permanent Class III gaming facility (the "Facility"); and the Band will possess sovereign governmental powers over the Gaming Site pursuant to the Band's recognized powers of self government, and the Band desires to use the Gaming Site to improve the economic conditions of its members. 1.3 Manager has paid $150,000, will on execution of this Agreement pay a further $100,000, and shall on Ratification pay a further $900,000, in each case as nonrefundable fees to the Band as part of the process which has led to the selection of Manager as the intended operator of the Facility. 1.4 Upon the transfer of the Gaming Site to the United States in trust for the Band, the Band will possess sovereign powers over the Gaming Site pursuant to the Band's recognized powers of self-government. 1.5 The Band desires to use the Gaming Site and the Facility to improve the economic conditions of its members, to enable it to serve the social, economic, educational and health needs of the Band, to increase the revenues of the Band and to enhance the Band's economic self sufficiency and self determination. 1.6 The Band wishes to establish an Enterprise, as hereinafter defined, to conduct Class II and Class III Gaming as hereinafter defined on the Gaming 1 11 Site. This Agreement sets forth the manner in which the Enterprise will be managed. 1.7 Manager has agreed to certain terms and has represented to the Band that it has the managerial and financial capacity to provide and to secure financing for the funds necessary to develop and construct the Facility, as defined herein, and to commence the operation of the Enterprise on the Gaming Site. 1.8 The Band is seeking technical experience and expertise for the operation of the Enterprise and instruction for members of the Band in the operation of the Enterprise. Manager is willing, and has represented to the Band that it is able, to provide such experience, expertise and instruction. 1.9 The Band desires to grant Manager the exclusive right and obligation to develop, manage, operate and maintain the Enterprise as described in this Agreement and to train Band members and others in the operation and maintenance of the Enterprise during the term of this Agreement. Manager wishes to perform these functions for the Band. 1.10 This Agreement is entered into pursuant to the Indian Gaming Regulatory Act of 1988, PL 100-497, 25 U.S.C. ss. 2701 et seq. (the "IGRA") as that statute may be amended. All gaming conducted at the Facility will at all times comply with the IGRA, applicable Band law and the Compact. 2 DEFINITIONS As they are used in this Agreement, the terms listed below shall have the meaning assigned to them in this Section: "AGREEMENT" shall mean this Management Agreement. "AGREEMENTS" shall mean this Agreement and the Development Agreement. "AFFILIATE" means as to Manager or the Band, any corporation, partnership, limited liability company, joint venture, trust department or agency or individual controlled by, under common control with, or which directly or indirectly controls, Manager or the Band. "BAND EVENT OF DEFAULT" has the meaning described in ss. 11.1. 2 12 "BAND GAMING ORDINANCE" shall mean the ordinance and any amendments thereto to be enacted by the Band, which authorizes and regulates Class II and Class III Gaming on Indian lands subject to the governmental power of the Band. "BAND INTEREST RATE" shall mean the lesser of (i) Wall Street Journal prime rate as of the Bank Closing plus 1%, or (ii) 10%. "BAND REPRESENTATIVES" shall mean the persons designated by the Pokagon Council to sit on the Business Board. "BANK CLOSING" means the closing on the Bank Loan. "BANK LENDER" shall mean the financial institution agreed upon by the parties to provide certain funding necessary to design, construct, and equip the Facility, and provide start-up capital for the Enterprise. "BANK LOAN" shall have the meaning defined in the Development Agreement. "BIA" shall mean the Bureau of Indian Affairs of the Department of the Interior of the United States of America. "BUSINESS BOARD" shall mean the decision making body created pursuant to ss. 3.4 of this Agreement. "BUY-OUT OPTION" shall mean the Band's option to buy out this Agreement under ss. 8. "CAPITAL BUDGET" shall mean the capital budget described in ss. 4.12. "CAPITAL REPLACEMENT(S)" shall mean any alteration or rebuilding or renovation of the Facility, and any replacement of Furnishings and Equipment, the cost of which is capitalized and depreciated rather than being expensed under GAAP. "CAPITAL REPLACEMENT RESERVE" shall mean the reserve described in ss. 4.14, into which periodic contributions are paid pursuant to ss. 4.15. "CHANGE OF CONTROL" shall have the meaning set out in ss. 9.4.3. "CLASS II GAMING" shall mean Class II Gaming as defined in the IGRA. "CLASS III GAMING" shall mean Class III Gaming as defined in the IGRA 3 13 "COLLATERAL AGREEMENTS" shall mean any agreements defined as collateral agreements under 25 USC ss. 2711(a)(3) and regulations issued thereto at 25 C.F.R. ss. 502.5. "COMMENCEMENT DATE" shall mean the first date that the permanent Facility is complete, open to the public and that Gaming is conducted in the Facility pursuant to the terms of this Agreement. "Commencement Date" shall not mean the opening of the Temporary Facility. "COMPACT" shall mean the Compact between the Band and the State dated December 3, 1998 and approved in 64 Fed.Reg. No. 32, Thursday, February 18, 1999, at 8111, as the same may, from time to time, be amended; or such other compact or consent decree that may be substituted therefor. "COMPENSATION" shall mean the direct salaries and wages paid to, or accrued for the benefit of, any employee, including incentive compensation, together with all fringe benefits payable to or accrued for the benefit of such executive or other employee, including employer's contribution under F.I.C.A., unemployment compensation or other employment taxes, pension fund contributions, workers' compensation, group life, accident and health insurance premiums and costs, and profit sharing, severance, retirement, disability, relocation, housing and other similar benefits. "CONFIDENTIAL INFORMATION" shall mean the information described in ss. 18.15. "CONSTITUTION" shall mean the document or documents which govern the actions of the Band and, upon enactment, the Constitution of the Pokagon Band of Potawatomi Indians as ultimately approved by the Band and approved by the Secretary of the Interior. "CORPORATE COMMISSION" shall mean a body corporate and politic established, at the Band's discretion, by the Pokagon Council to own the Enterprise and such other businesses and assets as the Band may deem appropriate. "CRC" means Casino Resource Corporation, a Minnesota corporation and its Insiders. "DEVELOPMENT AGREEMENT" shall mean the agreement of even date between Manager and the Band. "DEPOSITORY ACCOUNT" shall mean the bank account described in ss. 4.19.2. 4 14 "DISBURSEMENT ACCOUNTS" shall mean the bank account or accounts described in ss. 4.19.3. "EFFECTIVE DATE" shall have the meaning provided in ss. 18.22. "EMERGENCY CONDITION" shall have the meaning set forth in ss. 4.13. "ENTERPRISE" shall mean the enterprise of the Band created by the Band to engage in Class II and Class III Gaming at the Facility, and which shall include all gaming at the Facility and any other lawful commercial activity allowed in the Facility, including but not limited to the sale of alcohol, tobacco, gifts and souvenirs; provided, however, the Enterprise shall only include any hotel operated by the Band, ancillary non- Gaming activity within the Facility, or other commercial enterprise conducted by the Band which is not generally related to Class II or Class III Gaming if such hotel, non- Gaming activity or other commercial enterprise (a) is financed by, or through the guaranty of, Manager, (b) is specifically included within the Initial Scope of Work or is not a material expansion of the Initial Scope of Work, or (c) is specified by the Business Board and the Pokagon Council as being included in the Enterprise, in which case depreciation and other expenses relating to such hotel, non-Gaming activity or other commercial enterprise shall be an Operating Expense, all related revenues shall be included in Gross Revenues, and interest on all related financing shall be paid by the Enterprise; and provided further that the Enterprise shall not include a tribal gift/craft business which the Band may elect to operate, rent free, on an area of about 2,400 square feet at the Facility. The design and operation of such gift/craft shop shall be consistent with the theme and quality of the Facility, and the location of such gift/craft shop shall be approved by the Business Board. "ENTERPRISE ACCOUNTS" shall mean those accounts described in ss. 4.19.1. "ENTERPRISE EMPLOYEE" shall mean all employees who work at the Facility. "ENTERPRISE EMPLOYEE POLICIES" shall mean those employee policies described in ss. 4.5.2. "ENTERPRISE INVESTMENT POLICY" shall have the meaning described in ss. 4.19.1. "EQUIPMENT LENDER" shall mean the entity making the Equipment Loan. "EQUIPMENT LOAN" shall have the meaning provided in the Development Agreement. 5 15 "FACILITY" shall mean all buildings, structures, and improvements located on the Gaming Site and all fixtures, Furnishings and Equipment attached to, forming a part of, or necessary for the operation of the Enterprise. "FISCAL YEAR" shall mean the 12-month period commencing on the first day of the month next following the Commencement Date, and each succeeding 12-month period, or such other period as the Pokagon Council and Manager may agree. The Band and Manager agree to take such actions as are necessary to implement this Fiscal Year promptly after the Commencement Date. "FURNISHINGS AND EQUIPMENT" shall mean all furniture, furnishings and equipment required for the operation of the Enterprise in accordance with the standards set forth in this Agreement, including, without limitation: (i) cashier, money sorting and money counting equipment, surveillance and communication equipment, and security equipment; (ii) slot machines, video games of chance, table games, keno equipment and other gaming equipment; (iii) office furnishings and equipment; (iv) hotel equipment (to the extent a hotel is included in the Enterprise); (v) specialized equipment necessary for the operation of any portion of the Enterprise for accessory purposes, including equipment for kitchens, laundries, dry cleaning, cocktail lounges, restaurants, public rooms, commercial and parking spaces, and recreational facilities; and (vi) all other furnishings and equipment hereafter located and installed in or about the Facility which are used in the operation of the Enterprise in accordance with the standards set forth in this Agreement. "GAMING" shall mean any and all activities defined as Class II and Class III Gaming. "GAMING REGULATORY AUTHORITY" or "GRA" shall mean the Band body created pursuant to the Band Gaming Ordinance to regulate the Class II and Class III Gaming of the Band in accordance with the Compact, the IGRA and the Band Gaming Ordinance. 6 16 "GAMING SITE" shall mean any parcel of land in the State identified by the Band, after consultation with Manager, as suitable for development of the Facility and operation of the Enterprise which meets the requirements of United States of America to be accepted in trust for the Band for Gaming purposes. "GENERAL MANAGER" shall mean the person employed by the Band to direct the operation of the Enterprise. "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" or "GAAP" shall mean the principles defined by the Financial Accounting Standards Board. "GROSS GAMING REVENUE (WIN)" shall mean the net win from gaming activities which is the difference between gaming wins and losses before deducting costs and expenses. "GROSS REVENUES" shall mean all revenues of any nature derived directly or indirectly from the Enterprise including, without limitation, Gross Gaming Revenue (Win), food and beverage sales and other rental or other receipts from lessees, sublessees, licensees and concessionaires (but not the gross receipts of such lessees, sublessees, licensees and concessionaires provided that such lessees, sublessees, licensees and concessionaires are not Affiliates or Insiders of Manager), and revenue recorded from Promotional Allowances, but excluding any Permitted Taxes. "HOUSE BANK" shall mean the amount of cash, chips, tokens and plaques that Manager from time to time determines necessary to have at the Facility daily to meet its cash needs. "IGRA" shall mean the Indian Gaming Regulatory Act of 1988, PL 100-497, 25 U.S.C. ss. 2701 et seq. as it may from time to time be amended. "INSIDER" has the meaning defined in 11 U.S.C. ss. 101(31), assuming Manager were the debtor in that definition, and shall include persons or entities that become Insiders after the date of this Agreement, whether as the result of a merger, acquisition. restructuring or otherwise. "INTERNAL CONTROL SYSTEMS" shall mean the systems described in ss. 4.18. "LAKES DEVELOPMENT LOAN" shall have the meaning defined in the Development Agreement. 7 17 "LEGAL REQUIREMENTS" shall mean any and all present and future judicial, administrative, and tribal rulings or decisions, and any and all present and future federal, state, local and tribal laws, ordinances, rules, regulations, permits, licenses and certificates, in any way applicable to the Band, Manager, the Gaming Site, the Facility and the Enterprise, including without limitation, the IGRA, the Compact, and the Band Gaming Ordinance. "LIMITED RECOURSE" shall mean that all Loans and all liabilities of the Band under or related to the Agreements, the Enterprise or the Gaming Regulatory Authority, and any related awards, judgments or decrees, shall be payable solely out of undistributed or future Net Revenues of the Enterprise and shall be a limited recourse obligation of the Band, with no recourse to tribal assets other than such Net Revenues (except (i), as to the Equipment Loan, a security interest in the Furnishings and Equipment purchased with Equipment Loan proceeds, (ii), if the Commencement Date does not occur, Subsequent Gaming Facility Revenues to the extent provided in this Agreement, and (iii) mortgages on the Gaming Site and Non-Gaming Lands prior to their transfer into trust). In no event shall Lakes or any lender or other claimant have recourse to (a) the physical property of the Facility (other than Furnishings and Equipment subject to the security interest securing the Equipment Loan), (b) Tribal Distributions, (c) assets of the Band purchased with Tribal Distributions, (d) revenues or assets of any other gaming facility owned or operated by the Band, or (e) any other asset of the Band (other than (i) as to the Transition Loan and the Non-Gaming Acquisition Line of Credit, if the Commencement Date does not occur, Subsequent Gaming Facility Revenues to the extent provided in this Agreement, (ii) as to the Non-Gaming Acquisition Line of Credit, mortgages on the Non- Gaming Lands prior to their transfer into trust, (iii) as to the Lakes Note, mortgages on the Gaming Site prior to their transfer into trust, and (iv) such Net Revenues of the Enterprise). "LOANS" shall mean the Lakes Development Loan, the Bank Loan and the Equipment Loan. "MANAGER" shall mean Lakes Gaming, Inc. "MANAGER'S INTERNAL EXPENSES" shall mean Manager's corporate overhead, including without limitation salaries or benefits of any of Manager's officers and employees, whether or not they perform services for the Project or the Enterprise, and any travel or other expenses of Manager's employees. "MANAGER'S REPRESENTATIVES" shall mean the persons designated by Manager to sit on the Business Board. 8 18 "MANAGEMENT AGREEMENT" shall mean this Agreement and may be referred to herein as the "Agreement". "MANAGEMENT FEE" shall mean the management fee described in ss. 5.1. "MANAGER EVENT OF DEFAULT" has the meaning described in ss. 11.2. "MANAGING OFFICER" shall mean the person designated by Manager to serve as a liaison between Manager and the Band and to serve on the Business Board. "MARKS" means all trade names, trade marks and service marks used by the Facility or the Enterprise. "MATERIAL BREACH" means a failure of either party to perform any material duty or obligation on its part, if such party fails to (i) cure the specified default within thirty (30) days following receipt of the notice provided under ss. 11.3, or (ii) if the default is not capable of being cured within 30 days, commences such cure within 30 days, proceeds diligently to complete the cure, and completes the cure no later than 90 days after receipt of such notice. "MEMBER OF THE BAND GOVERNMENT" shall mean any member of the Pokagon Council, the GRA or any independent board or body created to oversee any aspect of Gaming and any Pokagon court official. "MINIMUM BALANCE" shall mean the amount described in ss. 4.19.1. "MINIMUM GUARANTEED MONTHLY PAYMENT" shall mean the payment due the Band each month commencing in the month after the Commencement Date occurs in accordance with 25 U.S.C. ss. 2711(b)(3) and ss. 5.6 hereof. "MONTHLY DISTRIBUTION PAYMENT" shall have the meaning set forth in ss. 5.5. "NATIONAL INDIAN GAMING COMMISSION" OR "NIGC" means the commission established pursuant to 25 U.S.C. ss. 2704. "NET REVENUES" shall mean the sum of "NET REVENUES (GAMING)" and "NET REVENUES (OTHER)". "NET REVENUES (GAMING)" shall mean the Gross Gaming Revenue (Win), of the Enterprise from Class II or Class III gaming less all gaming related Operating Expenses, excluding the Management Fee, and less the retail value of any Promotional Allowances, 9 19 and less the following revenues actually received by the Enterprise and included in Gross Revenues: (i) any gratuities or service charges added to a customer's bill: (ii) any credits or refunds made to customers, guests or patrons; (iii) any sums and credits received by the Enterprise for lost or damaged merchandise; (iv) any sales taxes, excise taxes, gross receipt taxes, admission taxes, entertainment taxes, tourist taxes or charges received from patrons and passed on to a governmental or quasi governmental entity, including without limitation any Permitted Taxes; (v) any proceeds from the sale or other disposition of furnishings and equipment or other capital assets; (vi) any fire and extended coverage insurance proceeds other than for business interruption; (vii) any condemnation awards other than for temporary condemnation; and (viii) any proceeds of financing or refinancing. It is intended that this provision be consistent with 25 U.S.C. ss.2703(9). "NET REVENUES (OTHER)" shall mean all Gross Revenues of the Enterprise from all other sources in support of Class II or Class III gaming not included in "Net Revenues (gaming)," such as food and beverage, entertainment, and retail, less all Operating Expenses, excluding the Management Fee and less the retail value of Promotional Allowances, if any, and less the following revenues actually received by the Enterprise and included in Gross Revenues: (i) any gratuities or service charges added to a customer's bill; (ii) any credits or refunds made to customer, guests or patrons; (iii) any sums and credits received by the Enterprise for lost or damaged merchandise; 10 20 (iv) any sales taxes, excise taxes, gross receipt taxes, admission taxes, entertainment taxes, tourist taxes or charges received from patrons and passed on to a governmental or quasi governmental entity, including without limitation any Permitted Taxes; (v) any proceeds from the sale or other disposition of furnishing and equipment or other capital assets; (vi) any fire and extended coverage insurance proceeds other than for business interruption; (vii) any condemnation awards other than for temporary condemnation; and (viii) any proceeds of financing or refinancing; but excluding revenues from hotel, non-Gaming activity or other commercial enterprises not included in the Enterprise. It is intended that this provision be consistent with 25 U.S.C. ss.2703(9). "NEW POKAGON COUNCIL" means the Pokagon Council elected at a Band election scheduled for on or about July 10, 1999, which shall take office in August, 1999. "NIGC APPROVAL" means (a) a determination by NIGC that Lakes is suitable for licensing and (b) approval by NIGC of the Agreements. "NIGC DISAPPROVAL" means a determination by NIGC that Lakes is unsuitable for licensing, if within 120 days after notification of the NIGC decision Lakes has not cured the reason for such unsuitability and obtained a statement of suitability from NIGC. "OPERATING BUDGET AND ANNUAL PLAN" shall mean the operating budget and plan described in ss. 4.11. "OPERATING EXPENSES" shall mean all expenses of the operation of the Enterprise, pursuant to GAAP, including but not limited to the following: (i) the Compensation of Enterprise Employees; (ii) Operating Supplies for the Enterprise; 11 21 (iii) utilities; (iv) repairs and maintenance of the Facility (excluding Capital Replacements) (v) interest on the Loans and all other loans or capital leases pertaining to the Facility and the Enterprise, but shall exclude interest on the Non-Gaming Land Acquisition Line of Credit and the Transition Loan; (vi) interest on installment contract purchases or other interest charges on debt approved by the Business Board; (vii) insurance and bonding; (viii) advertising and marketing, including busing and transportation of patrons to the Facility; (ix) accounting, audit, legal and other professional fees; (x) security costs; (xi) operating lease payments for Furnishings and Equipment to the extent approved by the Business Board, and capital lease payments to the extent approved by the Business Board and properly expensed under GAAP; (xiii) trash removal; (xiv) cost of goods sold; (xv) other expenses designated as Operating Expenses in accordance with the accounting standards as referred to in ss. 4.21.3; (xvi) expenses specifically designated as Operating Expenses in this Agreement; (xvii) depreciation and amortization of the Facility based on an assumed 30 year life, and depreciation and amortization of all other assets in accordance with GAAP; 12 22 (xviii) recruiting and training expenses; (xix) fees due to the NIGC under the IGRA; (xx) any required payments to the State or local governments made by or on behalf of the Enterprise or the Band pursuant to the Compact or any related consent decree; (xxi) any budgeted charitable contributions by the Enterprise for the benefit of charities located or providing services in the vicinity of the Gaming Site which are approved by the Business Board; (xxii) Pre-opening expenses shall be capitalized and treated as an expense during the first year after opening; and (xxiii) charges, assessments, fines or fees imposed by governmental entities of the Band which are reasonably related to the cost of Tribal governmental regulation of public health, safety or welfare, or the integrity of Tribal gaming operations. but Operating Expenses shall not include any portion of Manager's Internal Expenses or Permitted Taxes (other than as described in clause xxiii above), or any expenses related to hotel, non-Gaming activity or other commercial enterprises not included in the Enterprise. "OPERATING SUPPLIES" shall mean food and beverages (alcoholic and nonalcoholic) and other consumable items used in the operation of a casino, such as playing cards, tokens, chips, plaques, dice, fuel, soap, cleaning materials, matches, paper goods, stationary and all other similar items. "PERMITTED TAXES" shall mean taxes, fees, assessments or other charges imposed by the Band that are permitted under ss. 7.2. "PLANS AND SPECIFICATIONS" shall mean the final Plans and Specifications approved for the Facility as described in the Development Agreement. "POKAGON COUNCIL" shall mean the duly elected, governing legislative body of the Band described pursuant to Public Law 102-323 or, at the option of the Band, a designee committee or council created pursuant to resolution or ordinance of the Pokagon Council. "PRE-OPENING BUDGET" shall have the meaning described in ss. 4.10. 13 23 "PRE-OPENING EXPENSES" shall have the meaning described in ss. 4.10. "PROJECT" shall have the meaning described in ss. 4.1 of the Development Agreement. "PROMOTIONAL ALLOWANCES" shall mean the retail value of complimentary food, beverages, merchandise, and tokens for gaming, provided to patrons as promotional items. "RATIFICATION" means passage on or before September 15, 1999 of a resolution by the New Pokagon Council, at a duly called meeting with a quorum present, ratifying and endorsing the execution of this Agreement by the Band. "RELATIVE" shall mean an individual residing in the same household who is related as a spouse, father, mother, son or daughter. "RESTORATION ACT" shall mean 25 U.S.C. ss.ss. 1300j et seq. "RESTRICTED TERRITORY" shall mean the States of Ohio, Illinois, Indiana and Michigan. "STATE" shall refer to the State of Michigan. "SUBSEQUENT GAMING FACILITY REVENUES" means gaming revenues from a gaming facility (other than the Facility) owned or operated by the Band in Michigan, but only to the following extent: (i) all Class III Gaming Net Revenue, and (ii) Class II Gaming Net Revenue to the extent that such Class II Net Revenue exceeds $1,000,000. "TEMPORARY FACILITY" means a Temporary Facility located on the Gaming Site, if the Band elects to built and operate such a temporary facility prior to the Commencement Date in accordance with the Development Agreement, after consultation with Lakes. "TERM" shall mean the term of this Agreement as described in ss. 3.2. "TRIBAL DISTRIBUTIONS" shall mean Monthly Distribution Payments, Minimum Guaranteed Monthly Payments and any other payments received by the Band from the Enterprise pursuant to or in connection this Agreement. 2.1 Terms defined in the Development Agreement not otherwise defined in this Agreement shall have the same meaning herein as therein. 14 24 3 ENGAGEMENT; BUSINESS BOARD; COMPLIANCE In consideration of the mutual covenants contained in this Agreement, the parties agree and covenant as follows: 3.1 Engagement of Manager. The Band hereby retains and engages manager as the exclusive manager of the Enterprise pursuant to the terms and conditions of this Agreement, and Manager hereby accepts such retention and engagement, subject to receipt of all necessary regulatory approvals. 3.2 Term. The term of this Agreement shall begin on the date this Agreement, the Development Agreement and the Lakes Note are approved by the Chairman of the NIGC, and/or the BIA, if required, and continue for a period of five (5) years after the Commencement Date unless earlier terminated in accordance with its terms; but this five year term shall not be construed to include the period of time any Temporary Facility may be open. 3.3 Status of Gaming Site. The Band represents and covenants that it will acquire a Gaming Site in accordance with the terms of the Development Agreement, and will maintain the Gaming Site throughout the Term as land held in Trust by the United States of America for the benefit of the Band, eligible as a location upon which Class II and Class III Gaming can occur. The Band covenants, during the term hereof, that Manager shall and may peaceably have complete access to and presence in the Facility in accordance with the terms of this Agreement, free from molestation, eviction and disturbance by the Band or by any person or entity; provided, however, that such right of access to and presence in the Facility shall cease upon the termination of this Agreement pursuant to its terms. 3.4 Creation and Operation of Business Board. The Band and the Manager agree to create a Business Board comprised of an equal number of persons representing and designated by the Band and the Manager. Unless otherwise agreed by the Band and the Manager, the Business Board shall have four (4) members. Any member of the Business Board may designate another person to exercise authority as a member by written notice signed by such Business Board member and given in accordance withss.18.2 of this Agreement. The Business Board shall remain active during the entire term of this Agreement. Within thirty (30) days following the date of this Agreement, each party shall give the other notice of the individuals initially designated by each to serve on the Business Board. The Business Board 15 25 shall have the obligations, rights and powers described in this Agreement. In order to be effective, any action of the Business Board must be the result of mutual agreement of a majority of the Business Board members or their designees. In the event mutual agreement cannot be reached, the appropriate action shall be determined in the manner provided in Article 13. 3.5 Manager Compliance with Law; Licenses. Manager covenants that it will at all times comply with Legal Requirements, including the Band Gaming Ordinance, the IGRA, the Compact, State statutes, to the extent applicable, and any licenses issued under any of the foregoing. The Band shall not unreasonably withhold, delay, withdraw, qualify or condition such licenses as the Band is authorized to grant. 3.6 Compliance with Compact. The parties shall at times comply with the provisions of the Compact. 3.7 Fire and Safety. Manager shall ensure that the Facility shall be constructed and maintained in compliance with all fire and safety statutes, ordinances, and regulations which would be applicable if the Facility were located outside of the jurisdiction of the Band although those requirements would not otherwise apply within that jurisdiction. Nothing in this Section shall grant any jurisdiction to the State or any political subdivision thereof over the Gaming Site or the Facility. Manager and the Band shall be jointly responsible for arranging fire protection and police services for the Facility. 3.8 Compliance with the National Environmental Policy Act. With the assistance of Manager, the Band shall supply the NIGC with all information necessary for the NIGC to comply with any regulations of the NIGC issued pursuant to the National Environmental Policy Act (NEPA). 3.9 Commencement Date. Manager shall memorialize the Commencement Date in a writing signed by Manager and delivered to the Band and to the Chairman of the NIGC. 4 BUSINESS AND AFFAIRS OF THE ENTERPRISE 4.1 Manager's Authority and Responsibility. Manager shall conduct and direct all business and affairs in connection with the day-to-day operation, management and maintenance of the Enterprise and the Facility, including the establishment of operating days and hours. It is the parties' intention that the Enterprise be open 24 hours daily, seven days a week. Manager is 16 26 hereby granted the necessary power and authority to act, through the General Manager, in order to fulfill all of its responsibilities under this Agreement. Nothing herein grants or is intended to grant Manager a titled interest to the Facility or to the Enterprise. Manager hereby accepts such retention and engagement. The Band shall have the sole proprietary interest in and ultimate responsibility for the conduct of all Gaming conducted by the Enterprise, subject to the rights and responsibilities of Manager under this Agreement. 4.2 Duties of Manager. In managing, operating, maintaining and repairing the Enterprise and the Facility, under this Agreement, Manager's duties shall include, without limitation, the following: 4.2.1 Physical Duties. Manager shall use reasonable measures for the orderly physical administration, management, and operation of the Enterprise and the Facility, including without limitation cleaning, painting, decorating, plumbing, carpeting, grounds care and such other maintenance and repair work as is reasonably necessary. 4.2.2 Compliance with Band Ordinances. Manager shall comply with all duly enacted statutes, regulations and ordinances of the Band, subject to the provisions of ss. 10.2.1. 4.2.3 Required Filings. Manager shall comply with all applicable provisions of the Internal Revenue Code including, but not limited to, the prompt filing of any cash transaction reports and W-2G reports that may be required by the Internal Revenue Service of the United States or under the Compact. 4.2.4 Contracts in Band's Name Doing Business as the Enterprise and at Arm's Length. Contracts for the operations of the Enterprise shall be entered into in the name of the Band, doing business as the Enterprise, and signed by the General Manager. Any contract requiring an expenditure in any year in excess of $50,000, or such higher amount as may be set by the Business Board, shall be approved by the Business Board. No contracts, of any amount, for the supply of goods or services to the Enterprise shall be entered into with an Affiliate or Insider of the Manager unless that affiliation is disclosed to and approved by the Business Board, and the contract terms are no less favorable for the Enterprise than could be obtained from a nonaffiliated contractor. Nothing contained in this ss.4.2.4 17 27 shall be deemed to be or constitute a waiver of the Band's sovereign immunity. 4.2.5 Enterprise Operating Standards. Manager shall use its best efforts to operate the Enterprise in a proper, efficient and competitive manner in accordance with operating standards which are consistent with the highest operating standards of the casino, hospitality and resort industries. 4.2.6 Security. Manager shall provide for appropriate security for the operation of the Enterprise. All aspects of the Facility security shall be the responsibility of Manager. Any security officer shall at the request of the Business Board be bonded and insured in an amount commensurate with his or her enforcement duties and obligations. The cost of any charge for security and increased public safety services will be an Operating Expense. 4.3 Damage, Condemnation or Impossibility of the Enterprise. Damage to or destruction or condemnation of the Facility or the Enterprise shall be governed by the provisions of ss. 13.8 of the Development Agreement. 4.4 Alcoholic Beverages and Tobacco Sales. During the term of this Agreement alcoholic beverages may be served at the Facility if permissible in accordance with applicable law. The parties acknowledge that no enabling Band legislation for the sale of alcoholic beverages is now in force, and that such legislation would be necessary in order to serve alcoholic beverages at the Facility. If such legislation is subsequently enacted, and if other requisite approvals are obtained, the Band and Manager may mutually agree to include service of such beverages within the Enterprise. Tobacco may be sold at the Facility subject to and in accordance with the Band's licensing requirements, if any. 4.5 Employees. 4.5.1 Manager's Responsibility. Manager shall have, subject to the terms of this Agreement, the exclusive responsibility and authority to direct the selection, control and discharge of all employees performing regular services for the Enterprise in connection with the maintenance, operation, and management of the Enterprise and the Facility and any activity upon the Gaming Site; and the sole 18 28 responsibility for determining whether a prospective employee is qualified and the appropriate level of Compensation to be paid. 4.5.2 Enterprise Employee Policies. Manager shall prepare a draft of personnel policies and procedures (the "Enterprise Employee Policies"), including a job classification system with salary levels and scales, which policies and procedures shall be subject to approval by the Business Board and the Pokagon Council. The Enterprise Employee Policies shall include a grievance procedure in order to establish fair and uniform standards for the Enterprise Employees, which will include procedures for the resolution of disputes between Manager and Enterprise Employees. Any revisions to the Enterprise Employee Policies shall not be effective unless they are approved by the Business Board. All such actions shall comply with applicable Band law. 4.5.3 Senior Employees. The selection of the General Manager, Chief Financial Officer, Casino Manager, and Human Resources Manager of the Enterprise, or the functionally equivalent positions, shall be subject to consultation between, and agreement by, Manager, the Business Board and the Pokagon Council. All such Employees shall be Enterprise Employees. 4.5.4 Enterprise Employees. The terms of employment of all Enterprise Employees shall be structured as though all labor, employment, and unemployment insurance laws applicable in the State which would apply to Enterprise Employees if they were not working on an Indian reservation would also apply to Enterprise Employees; except that the Band reserves the right to by ordinance establish a workman's compensation trust fund and worker's compensation system instead of adopting Michigan workers compensation law, and to adopt other laws and regulations that might preempt otherwise applicable law. 4.5.5 Removal of Employees. Manager will act in accordance with the Enterprise Employee Policies with respect to the discharge, demotion or discipline of any Enterprise Employee. 4.5.6 Band Employees. All Enterprise Employees shall be employees of the Band. 4.6 No Manager Internal Expenses; Limitation on Manager Payments. No Manager Internal Expenses shall be paid by the Enterprise. No officer, 19 29 director, shareholder or employee of Manager shall be compensated by wages from or contract payments by the Enterprise for their efforts or for any work which they perform under this Agreement. Manager shall receive no payments from the Enterprise other than loan repayments (whether under the Lakes Note, for other advances in accordance with this Agreement, or as subrogee after paying on any Loan guarantee) and the Management Fee to be paid to Manager under ss. 5.1. Manager Internal Expenses may be paid from Management Fees and loan repayments after they have been received by Manager. Nothing in this subsection shall restrict the ability of an employee of the Enterprise to purchase or hold stock in Manager where (i) such stock is publicly held, and (ii) such employee acquirers, on a cumulative basis, less than five percent (5%) of the outstanding stock in the corporation. 4.7 GRA Expenses. The funding of the operation of the Gaming Regulatory Authority shall, prior to the Commencement Date, be a start up expense of the Enterprise and thereafter shall be an Operating Expense. The budget for the GRA shall reflect the reasonable cost of regulating the Enterprise. Disputes between the parties relating to GRA costs shall be resolved pursuant to the provisions of Article 13 of this Agreement. The decisions and actions of the GRA as to Manager shall be subject to the provisions of Article 13 hereof. 4.8 Employee Background Checks. A background investigation shall be conducted by the GRA in compliance with all Legal Requirements, to the extent applicable, on each applicant for employment as soon as reasonably practicable. No individual whose prior activities, criminal record, if any, or reputation, habits and associations are known to pose a threat to the public interest, the effective regulation of Gaming, or to the gaming licenses of Manager, or to create or enhance the dangers of unsuitable, unfair, or illegal practices and methods and activities in the conduct of Gaming, shall knowingly be employed by Manager or the Band. The background investigation procedures employed by the GRA shall be formulated in consultation with Manager and shall satisfy all regulatory requirements independently applicable to Manager. Any cost associated with obtaining such background investigations shall constitute an Operating Expense, provided, however, the costs of background investigations relating to Manager and the shareholders, officers, directors or employees of Manager or its Affiliates shall be borne solely by Manager, shall be nonrefundable, shall not be treated as part of the Lakes Development Loan or as Operating Expenses of the Enterprise, and shall not exceed $50,000. 20 30 4.9 Indian Preference: Recruiting and Training. In order to maximize benefits of the Enterprise to the Band, Manager shall, during the term of this Agreement, to the maximum extent reasonably possible under applicable law, including, but not limited to the Indian Civil Rights Act, 25 U.S.C. ss.1301, et. seq., give preference in recruiting, training and employment to qualified members of the Band, their spouses, and children in all job categories of the Enterprise, including senior management. Manager shall: (i) conduct job fairs and skills assessment meetings for Band members; (ii) in consultation with and subject to the approval of the Band, develop a management training program for Band members or people selected by the Band. This program shall be structured to provide appropriate training for those participating to assume full managerial control at the conclusion of the Term of this Agreement; and (iii) within two hundred seventy (270) days of the Commencement Date, Manager shall develop and present to the Band for its approval, a training plan designed so that, by the end of the Term of the Agreement, all Enterprise Employees will be Band members or others designated by the Band. Manager shall also give preference to residents of the community in which the Gaming Site is located. Final determination of the qualifications of Band members and all other persons for employment shall be made by Manager, subject to any licensing requirements of the Gaming Regulatory Authority. Not later than 90 days prior to the Commencement Date, Manager shall develop and present to the Band for its approval a training plan designed to meet the goals set out in this section. 4.10 Pre-Opening. Nine months prior to the scheduled Commencement Date, Manager shall commence implementation of a pre-opening program which shall include all activities necessary to financially and operationally prepare the Facility for opening. To implement the pre-opening program, Manager shall prepare a comprehensive pre-opening budget which shall be submitted to the Business Board for its approval no later than seven months prior to the scheduled Commencement Date ("Pre-Opening Budget"). The Pre-Opening Budget shall identify expenses which Manager anticipates to be necessary or desirable in order to prepare the Facility for the Commencement Date, including without limitation, cash for disbursements, 21 31 Furnishings and Equipment and Operating Supplies, hiring, training, relocation and temporary lodging of employees, advertising and promotion, office overhead and office space (whether on or off the Gaming Site), and travel and business entertainment (including opening celebrations and ceremonies) ("Pre-Opening Expenses"). The Band recognizes that the Pre- Opening Budget has been prepared well in advance of Commencement and is intended only to be a reasonable estimate, subject to variation due to a number of factors, some of which will be outside of Manager's control (e.g. the time of completion, inflationary factors and varying conditions for the goods and services required). The Band agrees that the Pre-Opening Budget may be modified from time to time, subject to approval of the Business Board in accordance with the procedure established by ss. 4.11 of this Agreement for adjustments to the Operating Budget and Annual Plan. If a Temporary Facility is constructed, Manager shall prepare a pre-opening budget in that regard which shall be submitted to the Business Board for its approval no later than two months prior to the scheduled opening of the Temporary Facility, or at such other time as may be approved by the Business Board. 4.11 Operating Budget and Annual Plan. Manager shall, prior to the scheduled Commencement Date, submit to the Business Board for its approval a proposed Operating Budget and Annual Plan for the Fiscal Year commencing on the Commencement Date. Thereafter, Manager shall, not less than 30 days prior to the commencement of each full or partial Fiscal Year, submit to the Business Board for its approval a proposed Operating Budget and Annual Plan for the ensuing full or partial Fiscal Year, as the case may be. The Operating Budget and Annual Plan shall include a projected income statement, balance sheet, and projection of cash flow for the Enterprise, with detailed justifications explaining the assumptions used therein. The Operating Budget and Annual Plan shall include, without limitation, a schedule of repairs and maintenance (other than Capital Replacements), a business and marketing plan for the Fiscal Year, and the Minimum Balance which must remain in the Enterprise Accounts and the House Bank as of the end of each month during the Fiscal Year to assure sufficient monies for working capital purposes, and detail of other expenditures proposed to be authorized under the Operating Budget and Annual Plan. The Operating Budget and Annual Plan for the Enterprise will be comprised of the following: 22 32 4.11.1 A statement of the estimated income and expenses for the coming Fiscal Year, including estimates as to Gross Revenues and Operating Expenses for such Fiscal Year, such operating budget to reflect the estimated results of the operation during each month of the subject Fiscal Year; 4.11.2 Either as part of the statement of the estimated income and expenses referred to ss. 4.11.1, or separately, budgets (and timetables and requirements of Manager) for: 4.11.2.1 repairs and maintenance; 4.11.2.2 Capital Replacements; 4.11.2.3 Furnishings and Equipment; 4.11.2.4 advertising and business promotion programs for the Enterprise; 4.11.2.5 the estimated cost of Promotional Allowances; and 4.11.2.6 a business and marketing plan for the subject Fiscal Year. 4.11.3 The Business Board's approval of the Operating Budget and Annual Plan shall not be unreasonably withheld or delayed. Manager shall meet with the Business Board to discuss the proposed Operating Budget and Annual Plan and the Business Board's approval shall be deemed given unless a specific written objection thereto is delivered by the Band Representatives to Manager within thirty (30) days after Manager and the Business Board have met to discuss the proposed Operating Budget and Annual Plan. If the Band Representatives for any reason decline to meet with Manager to discuss a proposed Operating Budget and Annual Plan after not less than twenty (20) days written notice, the Band Representatives shall be deemed to have consented unless a specific written objection is delivered to Manager within thirty (30) days after the date of the proposed meeting. The Business Board shall review the Operating Budget and Annual Plan on a line-by-line basis, if requested by the Band Representative. 23 33 4.11.4 If the initial proposed Operating Budget and Annual Plan contains disputed budget item(s), the Band Representatives on the Business Board and the Manager agree to cooperate with each other in good faith to resolve the disputed or objectionable proposed item(s). In the event that the Band Representatives on the Business Board and the Manager are not able to reach mutual agreement concerning any disputed or objectionable item(s) within a period of fifteen (15) days after the date the Band Representatives on the Business Board provide written notice of the Band's objection to Manager, either party shall be entitled to submit the dispute to arbitration in accordance with Article 13. If the Band Representatives on the Business Board and the Manager are unable to resolve the disputed or objectionable item(s) prior to the commencement of the applicable fiscal year, the undisputed portions of the proposed Operating Budget and Annual Plan shall be deemed to be adopted and approved and the corresponding line item(s) contained in the Operating Budget and Annual Plan for the preceding fiscal year shall be adjusted as set forth herein and shall be substituted in lieu of the disputed item(s) in the proposed Operating Budget and Annual Plan. Those line items which are in dispute shall be determined by increasing the preceding fiscal year's actual expense for the corresponding line items by an amount determined by Manager which does not exceed the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics of the United States Department of Labor, U.S. City Average, all items (1997-98 = 100) for the Fiscal Year prior to the Fiscal Year with respect to which the adjustment to the line item(s) is being calculated or any successor or replacement index thereto. The resulting Operating Budget and Annual Plan obtained in accordance with the preceding sentence shall be deemed to be the Operating Budget and Annual Plan in effect until such time as Manager and the Band Representatives on the Business Board have resolved the items objected to by the Band Representatives on the Business Board or an arbitrator has rendered his award on the dispute. 4.11.5 Adjustments to Operating Budget and Annual Plan and Capital Budget. Manager may, after notice to and approval by the Business Board, revise the Operating Budget and Annual Plan and the Capital Budget from time to time, as necessary, to reflect any unpredicted significant changes, variables or events or to include significant, additional, unanticipated items of expense. Expenditures 24 34 shall not materially vary from the approved budgets nor exceed the aggregate Operating Budget and Annual Plan (as approved by the Business Board, and revised with the reasonable approval of the Business Board) absent the written consent of the Business Board; provided that the Band recognizes that (a) the absolute amounts of expenditures may exceed budgeted amounts if the volume of business at the Facility exceeds projections, (b) the relative amounts of income and expense may vary from budgeted amounts if the volume of business is less than projected, and (c) Manager does not guarantee the economic performance shown in budgets. Manager shall submit a revision of the Operating Budget and Annual Plan to the Business Board for review on a quarterly or other appropriate basis. 4.12 Capital Budgets. Manager shall, not less than 30 days prior to the commencement of each fiscal year, or partial fiscal year, submit to the Business Board a recommended capital budget (the "Capital Budget") describing the present value, estimated useful life and estimated replacement costs for the ensuing full or partial year, as the case may be, for the physical plant, furnishings, equipment, and ordinary capital replacement items, all of which are defined to be any items, the cost of which is capitalized and depreciated, rather than expended, using GAAP ("Capital Replacements") as shall be required to operate the Enterprise in accordance with sound business practices. Capital Replacements in the Capital Budget in an aggregate sum equal to or less than the sum of the Capital Replacement Reserve for the Fiscal Year shall be approved by the Business Board; and any amounts in excess of the Capital Replacement Reserve for the Fiscal Year shall be subject to approval of the Pokagon Council in its sole discretion. The Pokagon Council, Business Board, and Manager shall meet to discuss the proposed Capital Budget and the Business Board and Pokagon Council shall be required to make specific written objections to a proposed Capital Budget in the same manner and within the same time periods specified in ss. 4.11.4 with respect to an Operating Budget and Annual Plan. The Business Board and Pokagon Council shall not unreasonably withhold or delay its consent. Unless the Pokagon Council, Business Board, and Manager otherwise agree, Manager shall be responsible for the design and installation of Capital Replacements, subject to the Business Board's approval and ratification by the Pokagon Council and right to inspect. 25 35 4.13 Capital Replacements. The Band shall effect and expend such amounts for any Capital Replacements as shall be required, in the course of the operation of the Enterprise, to maintain, at a minimum, the Enterprise in compliance with any Legal Requirements and to comply with Manager's recommended programs for renovation, modernization and improvement intended to keep the Enterprise competitive in its market; or to correct any condition of an emergency nature, including without limitation, maintenance, replacements or repairs which are required to be effected by the Band, which in Manager's sole discretion requires immediate action to preserve and protect the Facility, assure its continued operation, and/or protect the comfort, health, safety and/or welfare of the Facility's guests or employees (an "Emergency Condition"); provided, however, that the Band shall be under no obligation to fund Capital Replacements in aggregate amount greater than its periodic required contributions to the Capital Replacement Reserve described in ss. 4.15. Manager is authorized to take all steps and to make all expenditures from the Disbursement Accounts described in ss. 4.19.3 (in the case of non-capitalized repairs and maintenance), or Capital Replacement Reserve described at ss. 4.15, (in the case of expenditures for Capital Replacements) as it deems necessary to repair and correct any Emergency Condition, regardless whether such provisions have been made in the Capital Budget or the Operating Budget and Annual Plan for any such expenditures; or the cost thereof may be advanced by Manager and reimbursed from future revenues. Design and installation of Capital Replacements shall be effected in a time period and subject to such conditions as the Business Board may establish to minimize interference with or disruption of ongoing operations. 4.14 Capital Replacement Reserve. Manager shall establish a Capital Replacement Reserve on the books of account of the Enterprise, and the periodic contributions of cash required by ss. 4.15 shall be deposited by the Enterprise into an account (the "Capital Replacement Reserve") established in the Band's name at a bank designated by the Business Board in accordance with ss. 4.19.1 of this Agreement. All amounts in the Capital Replacement Reserve shall be invested in interest bearing investments in accordance with the Enterprise Investment Policy to the extent that availability of funds, when required, is not thereby impaired. Interest earned on amounts deposited in the Capital Replacement Reserve shall be credited to the Capital Replacement Reserve and shall be available for payment of expenditures for Capital Replacements to the Facility. Manager shall draw on the Capital Replacement Reserve for Capital Replacements to purchase those items included in the Capital Budget approved by the 26 36 Business Board or such emergency additions, repairs or replacements as shall be required to correct an Emergency Condition. 4.15 Periodic Contributions to Capital Replacement Reserve. In accordance with ss. 5.5 of this Agreement, Manager shall make monthly deposits into the Capital Replacement Reserve in amounts equivalent to an annual rate of 1% (one percent) of Gross Revenues during the first Fiscal Year after the Commencement Date and equivalent to an annual rate of 3% (three percent) of Gross Revenues during each Fiscal Year over the remainder of the Term; such reserve shall be funded out of Monthly Distribution Payments. The cash amounts required to be so deposited shall be calculated and deposited into the Capital Replacement Reserve, in arrears, no later than the twenty-first (21st) day of the month immediately following the month with respect to which a deposit is made. If any adjustment of Gross Revenues is made as result of an audit or for other accounting reasons, a corresponding adjustment in the Capital Replacement Reserve deposit shall be made. In addition, all proceeds from the sale of capital items no longer needed for the operation of the Enterprise, and the proceeds of any insurance received in reimbursement for any items previously paid from the Capital Replacement Reserve, shall be deposited into the Capital Replacement Reserve upon receipt. 4.16 Use and Allocation of Capital Replacement Reserve. Any expenditures for Capital Replacements which have been budgeted and previously approved may be paid from the Capital Replacement Reserve without further approval from the Business Board. Any amounts remaining in the Capital Replacement Reserve at the close of any year shall be carried forward and retained in the Capital Replacement Reserve until fully used. If the amounts in the Capital Replacement Reserve at the end of any year plus the anticipated contributions to the Capital Replacement Reserve for the next ensuing year are not sufficient to pay for Capital Replacements authorized by the Capital Budget for such ensuing year, then additional funds, in the amount of the projected deficiency, may be advanced by the Manager and reimbursed by the Enterprise from future revenues. 4.17 Indian Preference: Vendors and Contractors. In order to maximize benefits of the Enterprise to the Band, Manager and the Band shall, during the term of this Agreement, together strive for use of Native American contractors, sub-contractors and vendors, provided their bids are reasonably competitive. The Band and Manager shall agree on policies reasonably governing (i) preferential purchases from vendors and contractors owned by 27 37 or affiliated with members of the Band, which shall among other things limit such preference to entities in which the member is the real party in interest and require the price and other terms offered by such vendors to be reasonably competitive; and (ii) purchases of goods or services from the Band, which shall be on terms that are reasonably competitive. The Band reserves the right to require use of union labor on some or all contracts, subject to review of budgetary impact. Manager shall provide written notice to the Band in advance of all such contracting, subcontracting and construction opportunities. 4.18 Internal Control Systems. Manager shall install systems for monitor of all funds (the "Internal Control Systems"), which systems shall comply with all Legal Requirements, and shall be submitted to the Business Board and the Band Regulatory Authority for approval in advance of implementation, which approval shall not be unreasonably withheld. The Band shall retain the right to review all Internal Control Systems and any changes instituted to the Internal Control Systems of the Enterprise. The Band shall have the right to retain an auditor to review the adequacy of the Internal Control Systems prior to the Commencement Date. The cost of such review shall be a Pre-Opening Expense. Any significant changes in such systems after the Commencement Date also shall be subject to review and approval by the Gaming Regulatory Authority. The Gaming Regulatory Authority and Manager shall have the right and duty to maintain and police the Internal Control Systems in order to prevent any loss of proceeds from the Enterprise. The Gaming Regulatory Authority shall have the right to inspect and oversee the Internal Control System at all times. Manager shall install a closed circuit television system to be used for monitoring the cash handling activities of the Enterprise sufficient to meet all Legal Requirements. 4.19 Banking and Bank Accounts. 4.19.1 Enterprise Accounts. The Business Board shall select, and the Pokagon Council shall approve, a bank or banks for the deposit and maintenance of funds and shall establish in such bank or banks accounts as Manager deems appropriate and necessary in the course of business and as consistent with this Agreement ("Enterprise Accounts"). Establishment of any Enterprise Bank Account shall be subject to the approval of the Business Board. The sum of money agreed to by the Business Board to be maintained in the Enterprise Bank Account(s) to serve as working capital for Enterprise 28 38 operations, shall include all sums needed for the House Bank, and all sums needed to accrue for payment of expenses not paid on a monthly basis (the "Minimum Balance"). Manager shall propose a policy for investing funds in excess of the Minimum Balance (the "Enterprise Investment Policy"), which shall be subject to the approval of the Business Board. 4.19.2 Daily Deposits to Depository Account. Manager shall establish for the benefit of the Band in the Enterprise's name a Depository Account. Manager shall collect all Gross Revenues and other proceeds connected with or arising from the operation of the Enterprise, the sale of all products, food and beverage, and all other activities of the Enterprise and deposit the related cash daily into the Depository Account at least once during each 24-hour period unless otherwise agreed by the Business Board. All money received by the Enterprise on each day that it is open must be counted at the close of operations for that day or at least once during each 24-hour period. Manager agrees to obtain a bonded transportation service to effect the safe transportation of the daily receipts to the bank, which expense shall constitute an Operating Expense. 4.19.3 Disbursement Accounts. Manager shall establish for the benefit of the Band in the Enterprise's name one or more Disbursement Accounts. Manager shall, consistent with and pursuant to the approved annual Operating Budget and Annual Plan and Capital Budget, have responsibility and authority for making all payments for Operating Expenses, debt service, Management Fees, and Tribal Distributions from the Disbursement Accounts. 4.19.4 No Cash Disbursements. Manager shall not make any cash disbursements from the Enterprise Accounts except for the payment of cash prizes; and except for such cash disbursements, any and all payments or disbursements by the Manager shall be made by check or wire transfer drawn against an Enterprise Bank Account. 4.19.5 Transfers Between Accounts. Manager has the authority to transfer funds from and between the Enterprise Accounts to the Disbursement Accounts in order to pay Operating Expenses and to pay debt service pursuant to the Loans, to invest funds in accordance with the Enterprise Investment Policy, and to pay the Management Fees and Tribal Distributions pursuant to this Agreement. 29 39 4.20 Insurance. Manager, on behalf of the Band, shall arrange for, obtain and maintain, or cause its agents to maintain, with responsible insurance carriers licensed to do business in the State, insurance satisfactory to Manager and the Business Board covering the Facility and the operations of the Enterprise, naming the Band, the Enterprise and Manager as insured parties. Manager shall recommend to the Business Board the minimum amounts of insurance coverage for the Enterprise, which shall be subject to the reasonable approval of the Band. 4.21 Accounting and Books of Account. 4.21.1 Statements. Manager shall prepare and provide to the Band on a monthly, quarterly, and annual basis, operating statements on behalf of the Enterprise. The operating statements shall comply with all Legal Requirements and shall include an income statement, statement of cash flows, and balance sheet for the Enterprise. Such statements shall include the Operating Budget and Annual Plan and Capital Budget projections as comparative statements, and, after the first full year of operation, will include comparative statements from the comparable period for the prior year; and shall reflect in accordance with GAAP all amounts collected and received and all expenses, deductions and disbursements made therefrom in connection with the Enterprise. 4.21.2 Books of Account. Manager shall maintain full and accurate books of account on behalf of the Enterprise at an office in the Facility and at such other location as may be determined by Manager. The GRA and other designated representatives of the Pokagon Council shall have access to the daily operations of the Enterprise and shall have the unlimited right to inspect, examine, and copy all such books and supporting business records. Such rights may be exercised through the Gaming Regulatory Authority or through an agent, employee, attorney, or independent accountant acting on behalf of the Band. 4.21.3 Accounting Standards. Manager shall maintain the books and records on behalf of the Enterprise reflecting the operations of the Enterprise in accordance with Generally Accepted Accounting Principles consistently applied and shall adopt and follow the fiscal accounting periods utilized by Manager in its normal course of business (i.e., a month, quarter and year prepared in accordance with 30 40 the Fiscal Year). The accounting systems and procedures shall comply with Legal Requirements and, at a minimum: 4.21.3.1 include an adequate system of internal accounting controls; 4.21.3.2 permit the preparation of financial statements in accordance with GAAP; 4.21.3.3 be susceptible to audit; 4.21.3.4 permit the calculation and payment of the Management Fee described in ss. 5; and 4.21.3.5 provide for the allocation of operating expenses or overhead expenses among the Band, the Enterprise, and any other user of shared facilities and services. 4.22 Annual Audit. An independent certified public accounting firm selected by the Band and reasonably acceptable to Manager shall perform an annual audit of the books and records of the Enterprise and of all contracts for supplies, services or concessions reflecting Operating Expenses, and shall provide such other services as the Business Board shall designate. The Band, the BIA and the NIGC shall also have the right to perform special audits of the Enterprise on any aspect of the Enterprise at any time without restriction. The costs incurred for such audits shall constitute an Operating Expense. Such audits shall be provided by the Band to all applicable federal and state agencies, as required by law, and may be used by Manager for reporting purposes under federal and state securities laws, if required. 4.23 Manager's Contractual Authority. Manager is authorized to make, enter into and perform in the name of and for the account of the Band, doing business as the Enterprise, such contracts deemed necessary by Manager to perform its obligations under this Agreement, provided such contracts comply with the terms and conditions of this Agreement, including, but not limited to, ss. 4.2.4, and provided such contracts do not obligate the Enterprise to pay sums not approved in the Operating Budget and Annual Plan or the Capital Budget. 4.24 Retail Shops and Concessions. The Business Board shall approve in advance in writing the specific type or types of shops or concessions to be authorized for inclusion in the Facility. 31 41 4.25 Entertainment Approvals. The Pokagon Council may require that the Business Board approve in advance in writing entertainment and/or sporting events to provided at the Facility. 4.26 Litigation. Except for disputes between the Band and Manager, and claims relating to the Band's status as a Tribe or the trust status of the Gaming Site, Manager shall bring and/or defend and/or settle any claim or legal action brought against Manager, the Enterprise or the Band, individually, jointly or severally, or any Enterprise Employee, in connection with the operation of the Enterprise if the basis of such claim or legal action was within the scope of Manager's authority under the Agreements; except that bringing litigation or arbitration relating to claims in excess of $100,000 must be approved by the Business Board and, as to claims in excess of $500,000, by the Pokagon Council (which consent shall not be unreasonably withheld); and Manager shall furnish such information regarding claims, litigation and arbitration as the Band may request. Subject to the Band's approval of legal counsel, Manager shall retain and supervise legal counsel, accountants and such other professionals, consultants and specialists as Manager deems appropriate to assert or defend any such claim or cause of action. All liabilities, costs and expenses, including reasonable attorneys' fees and disbursements incurred in defending and/or settling any such claim or legal action which are not covered by insurance and which, as to Manager, relate to acts or omissions of Manager within the scope of its authority under the Agreements, shall be an Operating Expense, or, if incurred prior to the Commencement Date, shall be a Pre-Opening Expense. Nothing contained herein is a grant to Manager of the right to waive the Band's or the Enterprise's sovereign immunity. That right is strictly reserved to the Band, and shall at the option of the Pokagon Council be asserted by the Band through its counsel (whose fees and expenses relating to the Enterprise shall be an Operating Expense). Any settlement of a third party claim or cause of action shall require approval of the Business Board and, as to claims in excess of $100,000 not covered by insurance, by the Pokagon Council (which consent shall not be unreasonably withheld). 5 MANAGEMENT FEE, DISBURSEMENTS, AND OTHER PAYMENTS BY MANAGER. 5.1 Management Fee. Subject to the provisions of ss. 5.5, on or before the twenty-first (21st) day of each month after the month in which the Commencement Date occurs, Manager is authorized by the Band to pay itself from the Enterprise Bank Account(s) a fee as follows: 24% of the Net Revenues of the Enterprise in the period from the Commencement Date until the first day of the month next following the Commencement Date 32 42 (which shall constitute the commencement of the next Fiscal Year), payable on or before the twenty-first day of that next month; then 24% of the Net Revenues of each succeeding month, payable monthly in arrears, until the Net Revenues in a Fiscal Year have totaled $80 million; and thereafter 19% of Net Revenues of each succeeding month, payable monthly in arrears, to the extent that aggregate Net Revenues in such Fiscal Year exceed $80 million. To the extent that aggregate Net Revenues reach $80 million during a month, the fee shall be prorated. 5.2 Fee Subordinated. The Management Fee shall be subordinated to the Bank Loan, the Equipment Loan, any other third-party loans or equipment leases pertaining to the Enterprise, and the Minimum Guaranteed Monthly Payment. Manager agrees to execute and deliver a subordination agreement evidencing such subordination in form acceptable to the Bank Lender, the Equipment Lender, or any other third-party lender or equipment lessor. 5.3 Disbursements. As and when received by the Enterprise, Gross Revenues shall be deposited in the Depository Account created pursuant to ss. 4.19.2 of this Agreement. There shall, in turn, be disbursed by Manager, on a monthly basis, for and on behalf of the Band, funds from the Enterprise Bank Account(s) to pay, to the extent available, Operating Expenses and required deposits into the Capital Replacement Reserve for Capital Replacements. Manager will reserve funds in the Enterprise in amounts equal to the Minimum Balance. Additionally, Manager may advance any monies needed to cover any operating cash shortfall and shall be allowed to be reimbursed same in accordance with ss. 18.8. 5.4 Adjustment to Bank Account. After the disbursements pursuant to ss. 5.3 and establishment of any additional reserves for future disbursements as Manager deems necessary and as are approved by the Business Board, taking into account anticipated cash flow and Operating Costs of the Enterprise, any excess funds remaining in the Enterprise Bank Account(s) over the Minimum Balance, the Capital Replacement Reserve, and such additional reserves as may be approved by the Business Board shall be disbursed monthly in accordance with ss. 5.5. 5.5 Payment of Fees and Band Disbursement. Within twenty-one (21) days after the end of each calendar month of operations, Manager shall calculate Gross Revenues, Operating Expenses, and Net Revenues of the Enterprise for the previous month's operations and the Fiscal Year's operations to 33 43 date. Such Net Revenues shall be disbursed from the Enterprise Bank Account(s) to the extent available in the following order of priority: 5.5.1 the Minimum Guaranteed Monthly Payment described in ss. 5.6; 5.5.2 Current principal and any other payments due on all Loans (and if payments are due quarterly, a reserve equal to one third of the scheduled quarterly payment shall be deposited in a designated Enterprise Bank Account for such payment, and may be invested in accordance with the Enterprise Investment Policies pending payment); 5.5.3 Capital Replacement Reserve contributions as described in ss. 4.15; and 5.5.4 the Management Fee. All remaining Net Revenues (the "Monthly Distribution Payment") shall be distributed to the Band at the same time the Management Fee is paid. 5.6 Minimum Guaranteed Monthly Payment. The Enterprise shall, subject to the provisions of ss. 5.6.1, pay the Band $1,000,000 per month (the "Minimum Guaranteed Monthly Payment"), beginning on the Commencement Date and continuing for the remainder of the Term. The Minimum Guaranteed Monthly Payment shall be payable to the Band in arrears on the twenty first (21st) day of each calendar month following the month in which the Commencement Date occurs, which payment shall have priority over the Management Fee. If the Commencement Date is a date other than the first day of a calendar month, the first payment will be prorated from the Commencement Date to the end of the month. 5.6.1 Minimum Guaranteed Monthly Payments shall be charged against the Band's distribution of Net Revenues for each month; provided, however, that if the Net Revenues in a given month are less than $1,000,000, Manager shall pay the funds necessary to compensate for the deficiency from its own funds; and provided further that Manager's obligation to make such payment shall be reduced to the extent that the Band has received or receives distributions from Net Revenues during that Fiscal Year, on a cumulative basis, exceeding the Minimum Guaranteed Monthly Payments required under this section. For example, if (a) the Fiscal Year commences on October 34 44 1 and (b) the Band receives distributions in October, November and December totaling $5 million, receives no distributions in January, February and March, and receives $1.5 million in April; then Manager would not be required to make payments from its own funds in January and February; would be required to pay the Band $1 million in March; and would be permitted to recoup $500,000 of that payment out of the payment that the Band would otherwise receive in April. Manager shall not otherwise be entitled to reimbursement from the Enterprise or the Band for payments it makes from its own funds on account of Minimum Guaranteed Monthly Payments. 5.6.2 The obligation to make Minimum Guaranteed Monthly Payments shall cease upon termination of this Agreement, unless the Agreement is terminated by the Band for a Material Breach by the Manager. 5.6.3 The Minimum Guaranteed Monthly Payment shall be reduced prospectively from $1,000,000 to $500,000 upon the opening, if any, of a casino in Indiana owned by the Band, on the same cumulative basis as provided in ss. 5.6.1. 5.6.4 Except as provided in this ss. 5.6 with regard to cumulation of payments in any Fiscal Year or otherwise specifically provided in this Agreement, Manager's obligation to pay the Band the Minimum Guaranteed Monthly Payment is unconditional and shall not be affected by the actual level of funds generated by the Enterprise. 5.7 Payment of Net Revenues. The Net Revenues paid to the Band pursuant to this Article 5 shall be payable to the Band bank account specified by the Pokagon Council in a notice to Manager pursuant to ss. 18.2. 5.8 Harrah's Termination Agreement. Manager shall pay out of its Management Fee all obligations of the Band to make payments under ss.ss. 1.4.1 and 1.4.3 (as it pertains to interest on payments due under ss. 1.4.1) of the Termination Agreement dated September 12, 1998 between the Band and Harrah's Southwest Michigan Casino Corporation (the "Harrah's Termination Agreement"), and shall indemnify and hold the Band harmless against all loss, liability and expense relating to its liability under those sections of the Harrah's Termination Agreement. Such payments shall not constitute Operating Expenses of the Gaming Facility and shall not be reimbursed by the Band or the Enterprise. 35 45 5.9 The Band shall indemnify Manager against any decrease in Management Fee caused by an Indiana casino owned or operated by the Band, provided that (a) the alleged reduction in fees shall be measured against the Management Fees actually earned by Manager in the 12-month period preceding the date on which the Manager notifies the Band of the claim for indemnification under this section, without giving effect to any subsequent actual or projected increase in such fees over that level; and (b) in any arbitration relating to such a claim, Manager must prove its claim by clear and convincing evidence. 6 ENTERPRISE NAME; MARKS 6.1 Enterprise Name. The Enterprise shall be operated under a business name approved by the Business Board and reasonably acceptable to the Band (the "Enterprise Name"). 6.2 Marks. All Marks shall be approved by the Business Board and shall be subject to the reasonable approval of the Pokagon Council. Prior to the Commencement Date and from time to time during the Term hereof, Manager agrees to take such actions on behalf of the Band as are reasonably necessary to register and protect all Marks. 6.3 Signage. Manager shall erect and install in accordance with local codes and regulations appropriate signs in, on or about the Facility, including, but not limited to, signs bearing Marks as part of the Enterprise Name. The costs of purchasing, leasing, transporting, constructing, maintaining and installing the required signs and systems, and of registering and protecting all Marks, shall be part of the Operating Expenses. 7 TAXES 7.1 State and Local Taxes. If the State or any local government attempts to impose any tax including any possessory interest tax upon any party to this Agreement or upon the Enterprise, the Facility or the Gaming Site, the Pokagon Band may direct the Enterprise, in the name of the appropriate party or parties in interest, to resist such attempt through legal action. The costs of such action and the compensation of legal counsel shall be an Operating Expense of the Enterprise. Any such tax shall constitute an Operating Expense of the Enterprise. This section shall in no manner be 36 46 construed to imply that any party to this Agreement or the Enterprise is liable for any such tax. 7.2 Band Taxes. The Band agrees that neither it nor any agent, agency, affiliate or representative of the Band will impose any taxes, fees, assessments or other charges of any nature whatsoever on payments of any debt service on any Loan or on debt service on any other financing for the Facility or for the Enterprise, or on the revenues of the Enterprise or the Facility, or on the Management Fee as described in ss. 5.1 of this Agreement; but the Band reserves the right to otherwise impose usual and customary taxes and fees on transactions at or in connection with the Facility or on the Facilities's employees, officers, directors, vendors and patrons. Without limiting the foregoing, the Band shall be specifically permitted to impose (i) charges, assessments, fines or fees imposed by governmental entities of the Band which are reasonably related to the cost of Tribal governmental regulation of public health, safety or welfare, or the integrity of Tribal gaming operations, and (ii) other taxes, charges, assessments or fees imposed against the Enterprise or property of the Enterprise, or sales, use, excise, hotel occupancy and other similar taxes (excluding taxes, charges, assessments or fees against real or personal property of the Facility or on gaming revenues or earnings) of such types and percentage amounts not to exceed those imposed by any state or local government within the Restricted Territory. 7.3 Compliance with Internal Revenue Code. Manager shall comply with all applicable provisions of the Internal Revenue Code. 37 47 8 BUY-OUT OPTION The Band shall have the right, beginning two years after the Commencement Date, to buy out the remaining term of this Agreement (the "Buyout Option"), provided that such buyout includes repayment in full of all outstanding debt owed by the Band to Manager, including without limitation the Lakes Development Loan, the Transition Loan, the Non-Gaming Land Acquisition Line of Credit, and either repayment of the Bank Development Loan and the Equipment Loan (to the extent they are guaranteed by Manager) or release of Manager's guarantees and other credit enhancements, if any, relating to those Loans. The Buyout Option price shall be determined by multiplying the average monthly Management Fee earned during the 12 month period prior to exercise of the Buyout by the number of months remaining in the term of this Agreement, and discounting future payments at a discount rate equal to the Band Interest Rate. The Band shall not be required in connection with its exercise of the Buyout Option to pay any termination fee or to make any payment related to the value of gaming equipment, amenities, or any other asset of the Facility or the Enterprise. 9 EXCLUSIVITY; NON-COMPETITION 9.1 Exclusivity in Michigan. The Band shall deal exclusively with Manager for gaming development on Indian lands in Michigan from the date of execution of this Agreement through the earlier of five years from the Commencement Date or termination or buyout of the Agreements. 9.2 Indiana Casino. Manager recognizes that the Band intends to develop a casino in Indiana, and that the Band shall have no obligations to Manager in that regard; except that the Band agrees that, if it decides to engage an outside manager to develop or operate an Indiana casino, it shall discuss contracting with Manager for such development or operation for 45 days before soliciting proposals from third parties as to management or development of that casino. No obligation to enter into an agreement with Manager shall be implied from this undertaking, and the Band shall retain full and absolute discretion in that regard. 9.3 Non-Competition. Manager agrees that for five years after execution of the Agreements or the Term of the Agreements, whichever is greater, neither it nor any present or future Insider will directly or indirectly in the Restricted Territory develop, operate, consult with regard to, or be in any way affiliated with any non-Indian gaming facility, any Class II or III Gaming facility or any other kind of gaming, or any hotels or other amenities related to such gaming or facility; except that Insiders shall not include (a) Kids 38 48 Quest, Grand Casinos, Inc., Park Place Entertainment or Innovative Gaming Corp. by reason of (i) the service of (A) Lyle Berman as director or employee (without management responsibility) of such entities, provided that Mr. Berman votes as director against, or abstains from voting as to, any direct or indirect lobbying by Park Place Entertainment against a compact between the Band and the State of Indiana or any direct or indirect opposition by Park Place Entertainment to the Band's taking of land into trust for a casino to be owned or operated by the Band in Indiana, and does not personally directly or indirectly lobby against such a compact or oppose such taking into trust; (B) Lyle Berman as employee of Park Place Entertainment with management responsibility, so long as Park Place Entertainment does not (x) develop, operate, consult with regard to, or be in any way affiliated with a Class III Gaming facility in the Restricted Territory (excluding Ohio) that commences new operations or expands its gaming capacity more than 50% after the execution of the Agreements, or (y) directly or indirectly lobby against a compact between the Band and the State of Indiana, or directly or indirectly oppose the taking of land into trust by the Band for a casino to be owned or operated by the Band in Indiana; or (C) Thomas Brosig as director or employee (without any management responsibility for gaming in the Restricted Territory unless the Band consents) in Park Place Entertainment, or (ii) any stock ownership of Manager in such entities; or (b) any entity because of the investment banking services of Ron Kramer, a director of Manager. 9.4 Permitted Assignment; Change of Control. 9.4.1 Manager may not assign its rights under this Agreement without the Band's prior written consent, except that Manager may assign its rights under such Agreement, but not its obligations, to a wholly owned subsidiary. 9.4.2 The Band may not assign its rights under this Agreement; except that the Band may, without the consent of Manager, but subject to approval by the Secretary of the Interior or the Chairman of the NIGC or his authorized representative, if required, assign this Agreement and the assets of the Enterprise to a Corporate Commission or other instrumentality of the Band organized to conduct the business of the Project and the Enterprise for the Band that assumes all obligations herein. No assignment authorized hereunder shall be effective until all necessary governmental approvals have been obtained. No such assignment shall relieve the 39 49 Band of any obligation hereunder, unless otherwise agreed by Manager or the holder of such obligation. 9.4.3 The Band shall be entitled to terminate the Agreements if Manager undergoes a Change of Control without the prior written consent of the Band. The Band shall not be required to prepay any amounts advanced by Manager or any third party in the event of such termination, and such obligations shall remain payable in accordance with their payment terms. Manager agrees to notify the Band in writing within 30 days after the occurrence of any event described in Clauses I or II in the definition of Change of Control, and within 30 days of Manager's knowledge of any event described in Clauses III or IV of that definition. "Change of Control," for purposes of this provision, means (I) the merger, consolidation or other business combination of Manager with, or acquisition of all or substantially all of the assets of Manager by, any other entity; (II) Lyle Berman's ceasing to be either Chief Executive Officer or Chairman of the Board of Manager (other than on account of death or disability, and except as provided at the end of this definition); (III) the acquisition by any person or affiliated group of persons not presently a shareholder of Manager of beneficial ownership of 30% or more in interest of the outstanding voting stock of Manager, as determined under 17 CFR ss.ss. 240.13d-3 or 240.16a-1; or (IV) the acquisition by any person or affiliated group of persons not presently a shareholder of Manager of beneficial ownership of 10% or more in interest of the outstanding voting stock of Manager, as determined under 17 CFR ss.ss. 240.13d-3 or 240.16a-1, if a majority of the Board of Directors of Manager is replaced within two years after such acquisition by directors not nominated and approved by the Board of Directors. Notwithstanding any other provision of this definition, if the non-competition provisions of ss. 9.3(a)(i)(B) are breached, the following terms shall control: (A) Manager shall notify the Band within 30 days of a breach of that subsection, and shall describe in reasonable detail the nature and circumstances of that breach. 40 50 (B) The Band shall within 45 days of that notification inform Manager if it will waive that breach. (C) If the Band states that it will not waive the breach, Manager may within 30 days of the Band's notification inform the Band whether Mr. Berman will resign as officer and director of Manager, and who Manager proposes as Mr. Berman's successor as Chairman and/or Chief Executive Officer of Manager. Manager shall, in connection with that notification, provide the Band with a detailed description of the qualifications and affiliations of the proposed successor. (D) The Band shall then have 45 days to grant or withhold its consent to that succession, which consent shall not be unreasonably withheld. If the Band so consents, Mr. Berman resigns and the named successor replaces Mr. Berman as Chairman and/or Chief Executive Officer, the breach under ss. 9.3(a)(i)(B) shall be deemed waived. (E) If the Band does not so consent and its denial of consent is not unreasonable, or if Mr. Berman does not resign and the named successor does not succeed him, Manager may nominate another proposed successor within 30 days, failing which Manager shall be in default (subject to arbitration under ss. 13). (F) If Manager does nominate another proposed successor, subsections (C) and (D) shall apply to the new nominee. If the Band does not consent to the new nominee and its denial of consent is not unreasonable, or if Mr. Berman does not resign and the new nominee does not succeed him, Manager shall be in default (subject to arbitration under ss. 13). 9.5 Restrictions on Collateral Development. Manager agrees that for five years after execution of the Agreements or the Term of the Agreements, whichever is greater, neither it nor any present or future Insider will directly or indirectly purchase any land or operate, manage, develop or have any direct or indirect interest in any commercial facilities or business venture located within 20 miles of the Facility without the prior written consent of the Band. 10 REPRESENTATIONS, WARRANTIES, AND COVENANTS 41 51 10.1 Representations and Warranties of the Band. The Band represents and warrants to Manager as follows: 10.1.1 Due Authorization. The Band's execution, delivery and performance of this Agreement and all other instruments and agreements executed in connection with this Agreement have been properly authorized by the Band and do not require further Band approval. 10.1.2 Valid and Binding. This Agreement has been properly executed, and once approved in accordance with Legal Requirements constitutes the Band's legal, valid and binding obligations, enforceable against the Band in accordance with their terms. 10.1.3 Pending Litigation. There are no material actions, suits or proceedings, pending or threatened, against or affecting the Band before any court or governmental agency, except as disclosed on EXHIBIT B. 10.2 Band Covenants. The Band covenants and agrees as follows: 10.2.1 No Impairment of Contract. During the term of this Agreement and the Development Agreement, the Band shall enact no law impairing the obligations or contracts entered into in furtherance of the development, construction, operation and promotion of Gaming on the Gaming Site. Neither the Pokagon Council nor any committee, agency, board of any other official body, and no officer or official of the Band shall, by exercise of the police power or otherwise, act to modify, amend, or in any manner impair the obligations of contracts entered into by the Pokagon Council or the GRA or other parties in furtherance of the financing, development, construction, operation, or promotion of Gaming at the Gaming Site without the written consent of the non-tribal parties to such contracts. Any such action or attempted action shall be void ab initio. 10.2.2 Waiver of Sovereign Immunity. The Band will waive sovereign immunity on the limited basis described in ss. 13.1 with respect to this Agreement. 10.2.3 Valid and Binding. This Agreement, the Development Agreement, the Lakes Note, the Transition Note and the Non-Gaming Land 42 52 Acquisition Line of Credit, and each other contract contemplated by this Agreement shall, once approved in accordance with Legal Requirements, be enforceable in accordance with their terms. 10.2.4 Legal Compliance. In its performance of this Agreement, the Band shall comply with all Legal Requirements. 10.2.5 No Termination. The Band shall not act in any way whatsoever, directly or indirectly, to cause this Agreement to be amended, modified, canceled, or terminated, except pursuant to its express terms or with the consent of Manager. 10.3 Representations and Warranties of Manager. Manager represents and warrants to the Band as follows: 10.3.1 Due Authorization. Manager's execution, delivery and performance of this Agreement and all other instruments and agreements executed in connection with this Agreement have been properly authorized by Manager and do not require further approval. 10.3.2 Valid and Binding. This Agreement has been properly executed and constitutes Manager's legal, valid and binding obligation, enforceable against Manager in accordance with its terms. 10.3.3 Litigation. There are no actions, suits or proceedings pending or threatened against or affecting Manager before any court or governmental agency that would in any material way affect Manager's ability to perform this Agreement, other than litigation disclosed in filings by Manager with the Securities and Exchange Commission. Manager warrants that no litigation so disclosed in any material way affects or will affect Lakes' ability to perform under the Agreements. 10.3.4 Certifications. The certifications contained in the Respondent Certifications attached as Exhibit H to Manager's Proposal (the "Certificate") are true and correct as to Manager and as to all Insiders of Manager, as if each such Insider were the "undersigned respondent" on such Certificate. 10.4 Manager Covenants. Manager covenants and agrees as follows: 43 53 10.4.1 Noninterference in Band Affairs. Manager agrees not to interfere in or attempt to wrongfully influence the internal affairs or government decisions of the Band government by offering cash incentives, by making written or oral threats to the personal or financial status of any person, or by any other action, except for actions in the normal course of business of Manager that relate to the Enterprise. For the purposes of this ss. 10.4.1, if any such undue interference in Band affairs is alleged by the Pokagon Council and the NIGC finds that Manager has unduly interfered with the internal affairs of the Band government and has not taken sufficient action to cure and prevent such interference, that finding of interference shall be grounds for termination of the Agreement. Manager shall be entitled to immediate written notice and a complete copy of any such complaint to the NIGC. 10.4.2 Prohibition of Payments to Members of Band Government. Manager represents and warrants that no payments have been or will be made by Manager or any Affiliate or Insider of Manger to any Member of the Band Government, any Band official, any Relative of a Member of Band Government or Band official, any Band Government employee, any agent of the Band, or any entity known by Manager to be associated with any such person, for the purpose of obtaining any special privilege, gain, advantage or consideration. 10.4.3 Prohibition of Hiring Members of Band Government. No Member of the Band Government, Band official, Relative of a Member of the Band Government or Band official or employee of the Band Government may be employed at the Enterprise without a written waiver of this ss.10.4.3 by the Band. For this purpose, the Band will identify all such persons to Manager in a writing and take reasonable steps to keep the list current; Manager shall not be held responsible if any person not on such written list is employed. 10.4.4 Prohibition of Financial Interest in Enterprise. No Member of the Band Government or Relative of a Member of the Band Government shall have a direct or indirect financial interest in the Enterprise greater than the interest of any other member of the Band; provided, however, nothing in this subsection shall restrict the ability of a Band member to purchase or hold stock in Manager where (i) such stock is publicly held and (ii) the Band member acquires less than 5% of the outstanding stock in the corporation. 44 54 10.4.5 No Amendment. Manager shall not act in any way whatsoever, directly or indirectly, to cause this Agreement to be amended, modified, canceled, or terminated, except pursuant to its express terms or with the consent of the Band. 10.4.6 CRC. CRC shall not during the Term of the Management Agreement (a) be directly or indirectly affiliated with Manager or the Facility, whether as joint venturer or otherwise, (b) be employed by Manager or, to the knowledge of Manager, any entity having any contractual relationship with Manager, with regard to the Facility, or (c) directly or indirectly receive any payment or anything of value from Manager from or out of the Management Fee or any other payment made to Manager by the Band or the Facility. Manager agrees to indemnify the Band and its members and hold them harmless against all loss, liability and expense relating to claims, of whatever kind or nature, of CRC against any one or more of them. The Band consents to the execution and delivery by Manager of a certain Conditional Release and Termination Agreement between Lakes and CRC dated May 20, 1999, as amended by Amendment dated on or about July 7, 1999, true copies of which are attached as Exhibit F, provided that CRC executes and delivers to the Band and its members a general release in the form attached as Exhibit G. Manager warrants that it has no agreements or understandings with CRC in any way related to the Band or the Enterprise other than as set forth in Exhibit F. The Band further agrees that Manager may hold stock of CRC as collateral for Manager's guarantee of a loan to a third party, provided that on default it proceeds to liquidate such collateral in a reasonably prompt and orderly manner, and that Lyle Berman may continue to hold approximately 350,000 shares of CRC so long as he plays no role in the management of, and does not sit on, the board of directors of CRC. 10.5 No Liens. Subject to the exceptions stated in ss. 10.6, the Band specifically warrants and represents to Manager that during the term of this Agreement the Band shall not act in any way whatsoever, either directly or indirectly, to cause any person or entity to become an encumbrancer or lienholder of the Gaming Site or the Facility. Manager specifically warrants and represents to the Band that during the term of this Agreement Manager shall not act in any way, directly or indirectly, to cause any person or entity to become an encumbrancer or lienholder of the Gaming Site or the Facility, 45 55 or to obtain any interest in this Agreement without the prior written consent of the Band, and, where applicable, the United States. The Band and Manager shall keep the Facility and Gaming Site free and clear of all enforceable mechanics' and other enforceable liens resulting from the construction of the Facility and all other enforceable liens which may attach to the Facility or the Gaming Site, which shall at all times remain the property of the United States in trust for the Band. 46 56 10.6 Permitted Liens. The Band shall have the right to grant the following liens and security interests pertaining to the Enterprise and the Facility: 10.6.1 The purchase money security interest in Furnishings and Equipment granted to the Equipment Lender to secure the Equipment Loan; 10.6.2 Security interests in Facility or Enterprise revenues, subordinate to the right of Manager to receive payment of Management Fees and payments on the Lakes Development Loan; 10.6.3 Security interests in Facility or Enterprise assets, as provided in ss. 9.2.4(ii) of the Development Agreement; and 10.6.4 Other liens and security interests in assets of the Facility and Enterprise with the written consent of Manager and the Bank Lender, which consent will not be unreasonably withheld. 10.7 Authority to Execute and Perform Agreement. The Band and Manager represent and warrant to each other that they each have full power and authority to execute this Agreement and to be bound by and perform the terms hereof. On request, each party shall furnish the other evidence of such authority. 10.8 Brokerage. Manager and the Band represent and warrant to each other that neither has sought the services of a broker, finder or agent in this transaction, and neither has employed, nor authorized, any other person to act in such capacity. Manager and the Band each hereby agrees to indemnify and hold the other harmless from and against any and all claims, loss, liability, damage or expenses (including reasonable attorneys' fees) suffered or incurred by the other party as a result of a claim brought by a person or entity engaged or claiming to be engaged as a finder, broker or agent by the indemnifying party; subject, as to Manager's relations with CRC, to the provisions of ss. 10.4.6. 11 DEFAULT 11.1 Events of Default by the Band. Each of the following shall be an event of default by the Band under this Agreement ("Band Event of Default"): 47 57 11.1.1 The Band shall commit a Material Breach of any of the Band's obligations under this Agreement, subject to the rights to cure provided in this Agreement. 11.1.2 Any of the representations and warranties made by the Band in ss. 10.1 of this Agreement were not true when made or would not be true if made on the date such performance would otherwise be due. 11.1.3 The Band violates the provisions of ss.9.1 of this Agreement, subject to notice and right to cure. 11.1.4 The Band commits any Material Breach of the Development Agreement which is not cured within any applicable cure period. If any Band Event of Default occurs, Manager may, upon written notice to Band, exercise the rights and remedies available to Manager provided in this Agreement; provided, however, that all such rights and remedies shall be Limited Recourse. 11.2 Events of Default by Manager. Each of the following shall be an event of default by Manager under this Agreement ("Manager Event of Default"): 11.2.1 Any Minimum Guaranteed Monthly Payment, Monthly Distribution Payment or other payment due the Band under this Agreement is not paid within ten (10) days after its due date. 11.2.2 Manager shall commit any other Material Breach of any of Manager's obligations under this Agreement. 11.2.3 Any representation or warranty that Manager has made under this Agreement shall prove to have been untrue when made or would not be true if made on the date such performance would otherwise be due. 11.2.4 Manager violates the provisions of Article 9 of this Agreement applicable to Manager, subject to rights of notice and cure to the extent provided in that Article. 11.2.5 Manager commits any Material Breach of the Development Agreement which is not cured within any applicable cure period. 48 58 11.2.6 NIGC Disapproval occurs. 11.2.7 Manager violates Legal Requirements in the management of the Enterprise, including without limitation the Band Gaming Ordinance, and such violation is not cured within (i) thirty (30) days after notice, as to the Band Gaming Ordinance or any other gaming laws or regulations, or (ii) within a reasonable period, not to exceed 90 days, as to any other Legal Requirements. If any Manager Event of Default occurs, the Band may, upon written notice to Manager, exercise the rights and remedies available to the Band provided in this Agreement. 11.3 Material Breach; Right to Cure. Neither party may terminate this Agreement or recover damages on grounds of Material Breach unless it has provided written notice to the other party of its intention to terminate this Agreement or seek damages or other remedies. During the 30 day period after the receipt of the notice to terminate (as to defaults which can be cured within 30 days) or the 90 day period after such receipt (as to defaults which cannot be cured within 30 days), whichever is applicable, either party may submit the matter to arbitration under the dispute resolution provisions of this Agreement set forth at Article 13. The discontinuance or correction of a Material Breach shall constitute a cure thereof. 12 TERMINATION 12.1 Voluntary Termination. This Agreement may be terminated by mutual written consent. 12.2 Termination if No NIGC Approval. The Band and Manager may each unilaterally terminate the Agreements by written notice if NIGC Approval has not occurred within five years after execution of the Agreements. 12.3 Manager Right to Terminate on Band Event of Default. Manager shall be entitled to terminate the Agreements (i) upon a Band Event of Default or (ii) as specifically provided in the Agreements, subject to right to cure and arbitration as provided in this Agreement. 12.4 Band Right to Terminate on Manager Event of Default. The Band shall be entitled to terminate the Agreements (i) upon a Manager Event of Default or 49 59 (ii) as specifically provided in the Agreements, subject to right to cure and arbitration as provided in this Agreement. 12.5 Band Right to Terminate for Material Adverse Change. Prior to the Commencement Date, the Band shall be entitled to terminate the Agreements in the event of a Material Adverse Change; provided that the following procedures shall apply: i. Manager shall notify the Band in the event of any Material Adverse Change. ii. Manager shall send to the Band copies of all filings by Manager with the Securities and Exchange Commission under Forms 8K, 10Q and 10K; shall furnish the Band with copies of such other SEC filings that the Band may request; and shall furnish the Band with such other information concerning a Material Adverse Change as the Band may reasonably request. iii. If the Band believes that a Material Adverse Change has occurred, the Band shall so notify Manager in writing and shall request specified further assurances of Manager's continued ability to perform under the Agreements. iv. Within thirty (30) days after that notification Manager shall admit or deny the alleged Material Adverse Change, giving the specific basis for its response; shall state whether it agrees to provide the requested further assurances; if it agrees to provide the requested further assurances, shall tender its performance in that regard; and, if it admits a Material Adverse Change but disputes the requested further assurances, shall tender such further assurances as it deems sufficient to ensure its continued ability to perform under the Agreements. v. If Manager denies the Material Adverse Change or disputes that the requested further assurances are reasonably required to assure the Band of Manager's continued ability to perform under the Agreements, those issues shall be submitted to arbitration. The arbitrator shall determine whether (A) a Material Adverse Change has occurred; (B) the requested further assurances are reasonably required to assure the Band of Manager's continued ability to perform under the Agreements; and (C) if a Material Adverse Change has occurred but the requested further assurances are not 50 60 reasonably required to so assure the Band, what further assurances must be provided by Manager to reasonably assure the Band of Manager's continued ability to perform under the Agreements. Any further assurances required under the arbitrator's award must be furnished by Manager within thirty (30) days after entry of the award. vi. If Manager admits the Material Adverse Change but does not furnish further assurances, or if Manager does not timely provide further assurances pursuant to an arbitrator's award, the Band may terminate the Agreements by written notice to Manager. vii. Manager and the Band agree that the continuing ability of Manager to make the payments and advances provided under this Agreement, and to ensure the Band can obtain the Loans to develop, construct, equip and operate the Facility provided in this Agreement, is an essential part of the consideration for which the Band bargained in entering into the Agreements. 12.6 Termination if Manager License Withdrawn or on Conviction. The Band may also terminate this Agreement immediately where Manager has had its gaming license withdrawn in any jurisdiction by final administrative action (the finality of which shall be determined without regard to pending or possible judicial review or appeal), or if Manager, or an Insider of Manager, has been convicted of a criminal (i) felony or (ii) misdemeanor offense involving gaming, fraud or moral turpitude; provided, however, the Band may not terminate this Agreement based on a director or officer's conviction where Manager terminates such individual within ten (10) days after receiving notice of the conviction. 12.7 Termination on Buy-Out. This Agreement shall terminate if the Band exercises its option to buy out the Agreement in accordance with ss. 8. 12.8 Involuntary Termination Due to Changes in Legal Requirements. It is the understanding and intention of the parties that the development, construction and operation of the Enterprise shall conform to and comply with all Legal Requirements. If during the term of this Agreement, the Enterprise or any material aspect of Gaming at the Gaming Site is determined by the Congress of the United States, Department of the Interior of the United States of America, the NIGC, or the judgment of a court of competent jurisdiction (after expiration of the time within which appeals must be filed or completion of appeals, if any) to be unlawful under federal law, the obligations of the parties hereto shall cease and the 51 61 Agreements shall be of no further force and effect as of the date of such determination; subject, however, to the following provisions as to damages: i. If the date of such determination is prior to the Commencement Date, Manager shall be entitled to damages as provided in ss. 14.4 of the Development Agreement with regard to failure to obtain NIGC Approval. ii. If the date of such determination is after the Commencement Date: (A) The Band shall retain all fees and Monthly Payments previously paid or advanced to it pursuant to the Agreements, as well as all Tribal Distributions and Non-Gaming Lands, the Gaming Site and any other property transferred into trust; (B) Any money loaned to the Band by or guaranteed by Manager, or owed to Manager as subrogee (to the extent Manager has paid under such guarantees) shall be repaid to Manager in accordance with the Limited Recourse terms of the Lakes Note and the Development Agreement; (C) The Band shall retain its interest in the title (and any lease) to all Enterprise assets, including the Gaming Site and any fixtures, supplies and equipment, subject to the purchase money security interest in equipment securing the Equipment Loan and any other liens granted in accordance with the Development Agreement; and (D) Any Net Revenues accruing through the date of termination shall be distributed in accordance with Article 5 of this Agreement. 13 DISPUTE RESOLUTION; LIQUIDATED DAMAGES 13.1 Band's Waiver of Sovereign Immunity and Consent to Suit. The Band expressly waives its sovereign immunity from suit for the purpose of permitting or compelling arbitration as provided in this Article 13 and consents to be sued in the United States District Court for the District in which the Gaming Site is located (or, if the Gaming Site has not been designated, for the Western District of Michigan - Southern Division), the United States Court of Appeals for the Sixth Circuit, and the United States Supreme Court for the purpose of compelling 52 62 arbitration or enforcing any arbitration award or judgment arising out of this Agreement, the Transition Loan Note, the Lakes Note, the Non-Gaming Land Acquisition Line of Credit, the Development Agreement, any mortgages granted to Manager securing the Lakes Note or the Non-Gaming Land Acquisition Line of Credit, or other obligations between the parties. If the United States District Court lacks jurisdiction, the Band consents to be sued in the Michigan State Court system. The Band waives any requirement of exhaustion of tribal remedies. Without in any way limiting the generality of the foregoing, the Band expressly authorizes any governmental authorities who have the right and duty under applicable law to take any action authorized or ordered by any such court, and to take such action, including without limitation, repossessing or foreclosing on any real property not in trust and or on equipment subject to a security interest, or otherwise giving effect to any judgment entered; provided, however, that liability of the Band under any judgment shall always be Limited Recourse, and in no instance shall any enforcement of any kind whatsoever be allowed against any assets of the Band other than the limited assets of the Band specified in ss. 13.3.1 below. The Band appoints the Chairman of the Pokagon Council and the Secretary of the Pokagon Council as its agents for service of all process under or relating to the Agreements. The Band agrees that service in hand or by certified mail, return receipt requested, shall be effective for all purposes under or relating to the Agreements if served on such agents. 13.2 Arbitration. All disputes, controversies or claims arising out of or relating to this Agreement or other obligations between Manager and the Band shall be settled by binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association in effect on the date demand for arbitration is made, and the Federal Arbitration Act. The parties agree that binding arbitration shall be the sole remedy as to all disputes arising out of this Agreement, except for disputes requiring injunctive or declaratory relief. 13.2.1 Choice of Law. In determining any matter the Arbitrator(s) shall apply the terms of this Agreement, without adding to, modifying or changing the terms in any respect, and shall apply Michigan law. 13.2.2 Place of Hearing. All arbitration hearings shall be held at a place designated by the arbitrator(s) in Kalamazoo, Michigan or at such other place agreed to by the parties. 13.2.3 Confidentiality. The parties and the arbitrator(s) shall maintain strict confidentiality with respect to the arbitration. 53 63 13.3 Limitation of Actions. The Band's waiver of immunity from suit is specifically limited to the following actions and judicial remedies: 13.3.1 Damages. The enforcement of an award of money and/or damages by arbitration; provided that the award of any arbitrator and/or court must be Limited Recourse, and no arbitrator or court shall have authority or jurisdiction to order execution against any assets or revenues of the Band except (i) undistributed or future Net Revenues of the Facility; (ii) as to the Equipment Loan, the Furnishings and Equipment securing that Loan; (iii) as to the Transition Loan and the Non-Gaming Acquisition Line of Credit, if the Commencement Date does not occur, Subsequent Gaming Facility Revenues to the extent provided in this Agreement; (iv) as to the Non- Gaming Acquisition Line of Credit, mortgages on the Non-Gaming Lands prior to their transfer into trust; and (v) as to the Lakes Note, mortgages on the Gaming Site prior to their transfer into trust. In no instance shall any enforcement of any kind whatsoever be allowed against any assets of the Band other than the limited assets of the Band specified in this subsection. 13.3.2 Consents and Approvals. The enforcement of a determination by an arbitrator that the Band's consent or approval has been unreasonably withheld contrary to the terms of this Agreement. 13.3.3 Injunctive Relief and Specific Performance. The enforcement of a determination by an arbitrator that prohibits the Band from taking any action that would prevent Manager from performing its obligations pursuant to the terms of this Agreement, or that requires the Band to specifically perform any obligation under this Agreement; provided, however, that any injunction against the Band shall be Limited Recourse; shall not mandate, preclude or affect payment of any funds of the Band other than undistributed or future Net Revenues of the Facility; and shall not relate to any asset of the Band other than the Facility. 13.3.4 Action to Compel Arbitration. An action to compel arbitration pursuant to this Article 13. 13.4 Damages on Termination for Failure to Obtain NIGC Approval. In the event of termination of this Agreement under ss.12.2 because NIGC Approval has not been obtained within five years after execution of the Agreements, the Band shall be responsible for damages as provided in ss. 14.4 of the Development Agreement but shall not be liable for additional damages under this Agreement. 54 64 13.5 Liquidated Damages and Limitations on Remedies. The following liquidated damages and limitations on remedies apply under this Agreement, in addition to those provided elsewhere in this Agreement as to claims and remedies against the Band: 13.5.1 Liquidated Damages Payable by Manager. In the event of a Manager Event of Default prior to the Commencement Date, after such notice and right to cure as may be provided in this Agreement, Manager shall pay liquidated damages as provided in ss. 14.5(i) of the Development Agreement and shall not be liable for additional damages under this Agreement. 13.5.2 Liquidated Damages Payable by the Band. In the event of a Band Event of Default prior to the Commencement Date, after such notice and right to cure as may be provided in this Agreement, the Band shall pay liquidated damages as provided in ss. 14.5(ii) of the Development Agreement and shall not be liable for additional damages under this Agreement. 13.6 Manager Continuing Obligations. Nothing in this Article shall affect or impair Manager's continuing obligations under ss.ss. 9.3 (non-competition) and 18.15 (confidentiality) of this Agreement, all of which shall remain enforceable for the following terms, notwithstanding the termination of the Agreements and payment of liquidated or other damages: (i) as to ss. 9.3, the greater of five years after execution of the Agreements or one year after termination; and (ii) as to ss. 18.15, the greater of five years after execution of the Agreements or two years after termination. 13.7 Termination of Exclusivity. Section 9.1 (Exclusivity in Michigan) of this Agreement shall terminate upon any termination of the Agreements, notwithstanding any breach of the Agreements by the Band. 13.8 Remedies. In consideration of the agreement to liquidated damages to the extent provided above, the Band and Manager each waive the right to actual, consequential, exemplary or punitive damages to the extent that liquidated damages are applicable to a default, but shall retain the right to injunctive relief (i) prior to termination of the Agreements, to enforce rights and remedies thereunder, subject to the Limited Recourse provisions of this Agreement as to the Band and the Band's limited waiver of sovereign immunity; and (ii) after termination, to the extent that provisions of this Agreement specifically survive such termination, subject to such Limited Recourse provisions and limited waiver. The injured party shall, where liquidated damages are not applicable and damages or remedies are not 55 65 otherwise specified, be entitled to such damages as it may be entitled to under applicable law, subject to such Limited Recourse provisions and limited waiver of the Band's sovereign immunity (which shall apply to all claims against the Band under or relating to the Agreements, in addition to all Loans). 13.9 Band Injunctive Relief. Manager and Band acknowledge and agree that termination of this Agreement and payment of damages may not be a sufficient or appropriate remedy for breach by the Manager, and further agree that the Band shall, upon breach of this Agreement by the Manager, have the right to pursue such remedies (in addition to termination) at law or equity as it determines are best able to compensate it for such breach, including specifically actions to require payment of the Minimum Guaranteed Monthly payment and the Monthly Distribution Payment. The Manager specifically acknowledges and agrees that there will be irreparable harm to the Band and that damages will be difficult to determine if a Manager Event of Default occurs, and the Manager therefor further acknowledges that an injunction and/or other equitable relief will be an appropriate remedy for any such breach. 13.10 No Setoff Against Payments to Band. The Band's right to payment of the Minimum Guaranteed Monthly Payments and the Monthly Distribution Payments until termination shall be absolute and not subject to setoff or recoupment. 13.11 Indemnification on Termination. In the event of termination, (i) Manager shall indemnify and hold the Band harmless against all loss, liability, damage and expense from or arising out of any acts or omissions of Manager prior to termination in violation of, or beyond the scope of its authority under, this Agreement; and (ii) the Band shall indemnify and hold Manager harmless against all loss, liability, damage and expense from or arising out of any acts of Manager prior to termination pursuant to and in accordance with the terms of this Agreement. This covenant shall survive any termination. 13.12 Fees not Damages. In no event shall fees or other non-refundable payments made by Manager to Band, or Tribal Distributions, constitute damages to Manager or be repayable by the Band. 13.13 Undistributed Net Revenues. If on termination the Enterprise has accrued Net Revenues which have not been distributed under ss. 5 of this Agreement, 56 66 Manager shall receive that Management Fee equal to the Management Fee it would have received for the period prior to termination had the distribution occurred during the term of the Management Agreement, subject to the Band's right of setoff and recoupment. 57 67 14 CONSENTS AND APPROVALS 14.1 Band. Where approval or consent or other action of the Band is required, such approval shall mean the written approval of the Pokagon Council evidenced by a resolution thereof, certified by a Band official as having been duly adopted, or such other person or entity designated by resolution of the Pokagon Council. Any such approval, consent or action shall not be unreasonably withheld or delayed; provided that the foregoing does not apply where a specific provision of this Agreement allows the Band an absolute or unilateral right to deny approval or consent or withhold action. 14.2 Manager. Where approval or consent or other action of Manager is required, such approval shall mean the written approval of the Managing Officer. Any such approval, consent or other action shall not be unreasonably withheld or delayed. 14.3 Business Board. Where approval or consent or other action of the Business Board is required, any such approval, consent or other action shall not be unreasonably delayed. 15 DISCLOSURES 15.1 Shareholders and Directors. Manager warrants that on the date of this Agreement its Affiliates, directors, officers and shareholders owning five percent (5%) or more of the stock of Manager are those listed on EXHIBIT A. 15.2 Warranties. Manager further warrants and represents as follows: 15.2.1 No officer, director or individual owner of five percent (5%) or more of the stock of Manager or any Affiliate of Manager has been arrested, indicted for, convicted of, or pleaded nolo contendere to any felony or any gaming offense, or had any association with individuals or entities known to be connected with organized crime, except, as to Lyle Berman, an arrest prior to 1980 for a gaming offense that did not result in a conviction; and 15.2.2 No person or entity listed on EXHIBIT A to this Agreement, including any officers and directors of Manager, has been arrested, indicted for, convicted of, or pleaded nolo contendere to any felony or any gaming offense, or had any association with individuals or entities known to be connected with organized crime, except, as to Lyle 58 68 Berman, an arrest prior to 1980 for a gaming offense that did not result in a conviction. 15.2.3 Manager agrees that all of its directors and officers and any individual owners of five percent (5%) or more of the stock of Manager (whether or not involved in the Enterprise), shall: 15.2.3.1 consent to background investigations to be conducted by the Band, the State, the Federal Bureau of Investigation (the "FBI") or any law enforcement authority to the extent required by the IGRA and the Compact; 15.2.3.2 be subject to licensing requirements in accordance with Band law and this Agreement; 15.2.3.3 consent to a background, criminal and credit investigation to be conducted by or for the NIGC, if required; 15.2.3.4 consent to a financial and credit investigation to be conducted by a credit reporting or investigation agency at the request of the Band; 15.2.3.5 cooperate fully with such investigations; and 15.2.3.6 disclose any information requested by the Band which would facilitate the background and financial investigation. Any materially false or deceptive disclosures or failure to cooperate fully with such investigations by an employee of Manager or an employee of the Band shall result in the immediate dismissal of such employee. The results of any such investigation may be disclosed by the Band to federal officials and to such other regulatory authorities as required by law. 15.3 Disclosure Amendments. Manager agrees that whenever there is any material change in the information disclosed pursuant to this Article 15 it shall notify the Band of such change not later than thirty (30) days following the change or within ten days after it becomes aware of such change, whichever is later. The Band shall, in turn, provide the Secretary of the Interior and/or the NIGC (whichever is applicable) copies of any such notifications. All of the warranties and agreements contained in this 59 69 Article 15 shall apply to any person or entity who would be listed in this Article 15 as a result of such changes. 15.4 Breach of Manager's Warranties and Agreements. The material breach of any warranty or agreement of Manager contained in this Article 15 shall be grounds for immediate termination of this Agreement; provided that (a) if a breach of the warranties contained in ss.ss. 15.2.2 or 15.2.3 is discovered, and such breach was not disclosed by any background check conducted by the FBI as part of the BIA or other federal approval of this Agreement, or was discovered by the FBI investigation but all officers and directors of Manager sign sworn affidavits that they had no knowledge of such breach, then Manager shall have thirty (30) days after notice from the Band to terminate the interest of the offending person or entity and if such termination takes place, this Agreement shall remain in full force and effect; and (b) if a breach relates to a failure to update changes in financial position or additional gaming related activities, then Manager shall have thirty (30) days after notice from the Band to cure such default prior to termination. 16 NO PRESENT LIEN, LEASE OR JOINT VENTURE. The parties agree and expressly warrant that neither the Management Agreement nor any exhibit thereto is a mortgage or lease and, consequently, does not convey any present interest whatsoever in the Facility or the Gaming Site, nor any proprietary interest in the Enterprise itself. The parties further agree and acknowledge that it is not their intent, and that this Agreement shall not be construed, to create a joint venture between the Band and Manager; rather, Manager shall be deemed to be an independent contractor for all purposes hereunder. 17 CONCLUSION OF THE MANAGEMENT TERM. Upon the conclusion or the termination of this Agreement, Manager shall take reasonable steps for the orderly transition of management of the Enterprise to the Band or its designee pursuant to a transition plan; such transition period shall be for a reasonable period but not less than sixty days. Manager shall cooperate fully with the Band in that regard. No later than four months before the expiration of the Term of this Agreement, Manager shall submit to the Business Board and the Band a transition plan which shall be sufficient to allow the Band to operate the Enterprise and provide for the orderly transition of the management of the Enterprise. 18 MISCELLANEOUS 18.1 Situs of the Contracts. This Agreement, as well as all contracts entered into between the Band and any person or any entity providing services to the Enterprise, shall be deemed entered into in Michigan, and shall be subject to all 60 70 Legal Requirements of the Band and federal law as well as approval by the Secretary of the Interior where required by 25 U.S.C. ss. 81 or by the Chairman of the NIGC where required by the IGRA. 18.2 Notice. Any notice required to be given pursuant to this Agreement shall be delivered to the appropriate party by Certified Mail Return Receipt Requested, or by overnight mail or courier service to the following addresses: If to the Band: Pokagon Band of Potawatomi Indians 53237 Townhall Road Dowagiac, MI 49047 Attn: Chairman, Tribal Council with a copy to: S. Eric Marshall, Esq. 1318 Mishawaka Avenue South Bend, Indiana 46615 and to: Daniel Amory, Esq. Drummond Woodsum & MacMahon P.O. Box 9781 Portland, ME 04104-5081 and to: Robert Gips, Esq. Gips and Associates 71 Myrtle Avenue, Suite 2000 South Portland, ME 04106 If to Manager: Lakes Gaming, Inc. 130 Cheshire Lane Minnetonka, MN 55305 61 71 with a copy to: Douglas S. Twait, Esq. Johnson Hamilton Quigley Twait & Foley, PLC First National Bank Building Suite W1450 332 Minnesota Street Saint Paul, MN 55101-1314 or to such other different address(es) as Manager or the Band may specify in writing. Any such notice shall be deemed given three days following deposit in the United States mail, one day following delivery to a courier service or upon actual delivery, whichever first occurs. 18.3 Relationship. Manager and the Band shall not be construed as joint venturers or partners of each other by reason of this Agreement and neither shall have the power to bind or obligate the other except as set forth in this Agreement. 18.4 Further Actions. The Band and Manager agree to execute all contracts, agreements and documents and to take all actions reasonably necessary to comply with the provisions of this Agreement and the intent hereof. 18.5 Waivers. No failure or delay by Manager or the Band to insist upon the strict performance of any covenant, agreement, term or condition of this Agreement, or to exercise any right or remedy consequent upon the breach thereof, shall constitute a waiver of any such breach or any subsequent breach of such covenant, agreement, term or condition. No covenant, agreement, term, or condition of this Agreement and no breach thereof shall be waived, altered or modified except by written instrument. No wavier of any breach shall affect or alter this Agreement, but each and every covenant, agreement, term and condition of this Agreement shall continue in full force and effect with respect to any other then existing or subsequent breach thereof. 18.6 Captions. The captions for each section and subsection are intended for convenience only. 18.7 Severability. If any provision, or any portion of any provision, of this Agreement is found to be invalid or unenforceable, such unenforceable provision, or unenforceable portion of such provision, shall be deemed severed from the remainder of this Agreement and shall not cause the invalidity or unenforceability of the remainder of this Agreement. If any provision, or any portion of any 62 72 provision, of this Agreement is deemed invalid due to its scope or breadth, such provision shall be deemed valid to the extent of the scope or breadth permitted by law. 18.8 Advances. Except as otherwise provided in the Agreements, any amounts advanced by Manager or the Band related to the operation of the Enterprise shall accrue interest at the Band Interest Rate and shall be treated according to GAAP. 18.9 Third Party Beneficiary. This Agreement is exclusively for the benefit of the parties hereto and it may not be enforced by any party other than the parties to this Agreement and shall not give rise to liability to any third party other than the authorized successors and assigns of the parties hereto as such are authorized by this Agreement. 18.10 Survival of Covenants. Any covenant, term or provision of this Agreement which, in order to be effective, must survive the termination of this Agreement, shall survive any such termination. 18.11 Estoppel Certificate. Manager and the Band agree to furnish to the other party, from time to time upon request, an estoppel certificate in such reasonable form as the requesting party may request stating whether there have been any defaults under this Agreement known to the party furnishing the estoppel certificate and such other information relating to the Enterprise as may be reasonably requested. 18.12 Periods of Time; Time of Essence. Whenever any determination is to be made or action is to be taken on a date specified in this Agreement, if such date shall fall on a Saturday, Sunday or legal holiday under the laws of the Band or the State of Michigan, then in such event said date shall be extended to the next day which is not a Saturday, Sunday or legal holiday. Time is of the essence. 18.13 Exhibits. All exhibits attached hereto are incorporated herein by reference and made a part hereof as if fully rewritten or reproduced herein. 18.14 Successors and Assigns. The benefits and obligations of this Agreement shall inure to and be binding upon the parties hereto and their respective permitted successors and assigns. 18.15 Confidential and Proprietary Information. Both parties agree that any information received concerning the other party during the performance of this Agreement, regarding the parties' organization, financial matters, marketing and development plans for the Enterprise, the Gaming Site, or other information of a proprietary 63 73 nature (the "Confidential Information") will be treated by both parties in full confidence and except as required to allow Manager and the Band to perform their respective covenants and obligations hereunder, or in response to legal process, and will not be revealed to any other persons, firms or organizations. This provision shall survive the termination of this Agreement as provided in ss. 13.6. The obligations not to use or disclose the Confidential Information shall not apply to Confidential Information (a) which has been made previously available to the public by the Band or Manager or becomes generally available to the public, unless the Confidential Information being made available to the public results in a breach of this Agreement; (b) which prior to disclosure to the Band or Manager was already rightfully in any such persons' possession; (c) which is obtained by the Band or Manager from a third party who is lawfully in possession of such Information, and not in violation of any contractual, legal or fiduciary obligation to the Band or Manager, with respect to such Confidential Information and who does not require the Band or Manager to refrain from disclosing such Confidential Information to others; or (d) by the Band, if such Confidential Information pertains to the Gaming Site or the Enterprise, in connection with the Band's development, construction and operation of a gaming facility after termination of the Agreements. 18.16 Patron Dispute Resolution. Manager shall submit all patron disputes concerning play to the Gaming Regulatory Authority pursuant to the Band Gaming Ordinance, and the regulations promulgated thereunder. 18.17 Modification. Any change to or modification of this Agreement must be in writing signed by both parties hereto and shall be effective only upon approval by the Chairman of the NIGC, the date of signature of the parties notwithstanding. 18.18 Entire Agreement. This Agreement, including the Schedules and Exhibits referred to herein and any documents executed by the parties simultaneously herewith, including the Development Agreement, the Lakes Note, the Transition Loan Note, the Non-Gaming Acquisition Line of Credit, the Control Agreement and the Security Agreement which are expressly incorporated herein by reference, constitutes the entire understanding and agreement of the parties hereto and supersedes all other prior agreements and understandings, written or oral between the parties. 18.19 Government Savings Clause. Each of the parties agree to execute, deliver and, if necessary, record any and all additional instruments, certifications, amendments, modifications and other documents as may be required by the United States Department of the Interior, Bureau of Indian Affairs, the office of the field 64 74 Solicitor, the NIGC, or any applicable statute, rule or regulation in order to effectuate, complete, perfect, continue or preserve the respective rights, obligations, liens and interests of the parties hereto to the fullest extent permitted by law; provided, that any such additional instrument, certification, amendment, modification or other document shall not materially change the respective rights, remedies or obligations of the Band or Manager under this Agreement or any other agreement or document related hereto. 18.20 Preparation of Agreement. This Agreement was drafted and entered into after careful review and upon the advice of competent counsel; it shall not be construed more strongly for or against either party. 18.21 Consents. Except where expressly indicated that an agreement or consent is in the sole or unilateral discretion of a party, no agreement or consent under this Agreement shall be unreasonably withheld or delayed. 18.22 Execution. This Agreement may be executed in four counterparts, two to be retained by each party. Each of the four originals is equally valid. This Agreement shall be binding upon both parties when properly executed and approved by the Chairman of the NIGC (the "Effective Date"). IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. The Pokagon Band of Potawatomi Lakes Gaming, Inc. Indians By: /S/ John Miller By: /s/ Timothy J. Cope ------------------------------ ----------------------------- Its Council Chairman Its: Chief Financial Officer By: /s/ Kevin Daugherty ------------------------------ Its Secretary Approved pursuant to 25 U.S.C. ss.2711 NATIONAL INDIAN GAMING COMMISSION By ------------------------------ Print name: --------------------- Its Chairperson 65 EX-10.63 4 PROMISSORY NOTE DATED JULY 8, 1999 1 EXHIBIT 10.63 LAKES NOTE $ 43,000,000 July 8, 1999 Dowagiac, Michigan FOR VALUE RECEIVED, The Pokagon Band of Potawatomi Indians (the "Band") promises to pay to LAKES GAMING, INC., a Minnesota corporation ("Lakes"), such sums as may be advanced by Lakes to the Band in accordance with ss.ss. 8.4 and 9.2.1 of a Development Agreement between the Band and Lakes dated as of July 8, 1999 (the "Development Agreement"); provided that the principal amount due hereunder shall not exceed Forty Three Million Dollars ($ 43,000,000.00). 1. Advances; Funding. Advances under this Note shall be made (a) upon written request by the Band to Lakes in the form of Draw Request attached as Exhibit A, or (b) through advances by Lakes to the Enterprise Bank Accounts to pay Development Expenditures in accordance with either (a) the Approved Development Budget or, prior to the adoption of the Approved Development Budget, the approval of the Business Board or the Band; and (b) the Development Agreement. Draw Requests submitted by the Band shall be sent in accordance with ss. 15.4 of the Development Agreement. Advances under this Note may, at Lakes' option, be funded through transfer of funds from the Escrow Account; provided that interest shall only accrue under this Note on funds advanced through the Escrow Account after transfer from the Escrow Account to the Band Enterprise Account, and shall not begin to accrue on deposit by Lakes into the Escrow Account. All Draw Requests submitted by the Band shall be funded within ten (10) days of the date of the draw request. By making any advance to the Enterprise Bank Accounts, Lakes shall certify that the amounts so advanced are necessary for, and shall be used to pay, Development Expenditures in accordance with either (a) the Approved Development Budget or, prior to the adoption of the Approved Development Budget, the approval of the Business Board or the Band; and (b) the Development Agreement. 2. Interest. Interest shall accrue on the outstanding balance under this Note as follows: (a) if the Bank Closing occurs, at a fixed rate equal to the lesser of (i) Base Rate as of the Bank Closing plus 1% or (ii) 10% (the "Band Interest Rate"); or (b) If the Bank Closing does not occur, at a variable rate equal to the lesser of (i) Base Rate plus 1% or (ii) 10% (the lesser of (i) and (ii) being referred to as the 2 "Variable Interest Rate"). Lakes shall adjust the Variable Interest Rate on the then unpaid principal balance, by way of increase or decrease, in accordance with changes in the Base Rate. Such changes shall be effective as of the change in the Base Rate (the "Effective Date"). Upon the Bank Closing, interest accruing under this Note prior to the Bank Closing shall be adjusted retroactively to reflect the Band Interest Rate. "Base Rate" means the lowest Prime Rate as is published daily in The Wall Street Journal. In the event that the Wall Street Journal ceases to publish the Prime Rate, then the holder hereof may in its reasonable discretion select some other generally recognized comparable indicator of the national Prime Rate. 3. Repayment. If the Commencement Date occurs, the Band shall, beginning on the 15th day of the month following the Commencement Date, make equal monthly payments to Lakes of principal and interest in an amount sufficient to amortize the principal amount outstanding as of the Commencement Date over a sixty (60) month period at the Band Interest Rate, and shall thereafter continue to make payments in such amount on the 15th day of each succeeding month to and including the fifteenth day of the sixtieth month following the Commencement Date, when all remaining principal and interest shall be due and payable. If the Commencement Date does not occur, principal and interest shall be repayable to the extent and in the manner provided in the Development Agreement; provided that payments shall in any event be due and made only from Subsequent Gaming Facility Revenues in accordance with the Development Agreement. If Gaming commences at such a facility and payment is due under this Note in accordance with the Development Agreement, the Band shall, beginning on the 15th day of the month following such commencement date, make equal monthly payments to Lakes of principal and interest in an amount sufficient to amortize the principal amount outstanding as of such commencement date over a sixty (60) month period at the Variable Interest Rate, and shall thereafter continue to make such payments on the 15th day of each succeeding month to and including the fifteenth day of the sixtieth month following such commencement date, when all remaining principal and interest shall be due and payable. As of the Effective Date of a change in the Base Rate, Lakes shall adjust the monthly installments of principal and interest as of the installment next following the Effective Date so that the then unpaid principal balance would be amortized in full at the revised Variable Interest Rate five years after such commencement of gaming. Lakes shall -2- 3 promptly notify the Band in writing of any changes in the Base Rate and in the instalment payment due. 4. Prepayment. This Note may be prepaid at any time without penalty. 5. Subordination. Payment of amounts due hereunder shall be subordinated to the Bank Development Loan, the Equipment Loan and any other third-party loans or equipment leases to the Band relating to the Facility or, if the Commencement Date does not occur, or to any loans relating to any other Gaming facility in Michigan owned by the Band, on such terms as such third party lender shall reasonably require. 6. Limited Recourse. The obligations of the Band under this Note and any related awards, judgments or decrees shall be payable solely out of undistributed or future Net Revenues of the Enterprise and shall be a Limited Recourse obligation of the Band, with no recourse to tribal assets other than such Net Revenues and mortgages, if any, held by Lakes on the Gaming Site if the Gaming Site has not been transferred into trust (except that, if the Commencement Date does not occur, Lakes shall also have recourse to Subsequent Gaming Facility Revenues to the extent provided in the Development Agreement). In no event shall Lakes or any other claimant under this Note have recourse to (a) the physical property of the Facility, (b) Tribal Distributions, (c) assets of the Band purchased with Tribal Distributions, (d) revenues or assets of any other gaming facility owned or operated by the Band, or (e) any other asset of the Band (other than (i), if the Commencement Date does not occur, Subsequent Gaming Facility Revenues to the extent provided in the Development Agreement, (ii) such Net Revenues of the Enterprise, and (iii) such mortgages on the Gaming Site prior to its transfer into trust. Such mortgages shall be subject to the provisions of the Development Agreement, including, without limitation, Article 14 thereof. Lakes covenants and agrees that it shall promptly release any such mortgages upon transfer of such lands into trust or as otherwise provided in the Development Agreement. 7. Default; Acceleration. All outstanding principal together with accrued interest shall become immediately due and payable in full, subject to the limitations on recourse provided above, upon default in the payment of principal or interest due under this Note if such default is not remedied within thirty (30) days after receipt by the Band of written notice thereof as provided in the Development Agreement. 8. Band's Waiver of Sovereign Immunity and Consent to Suit. The Band expressly waives its sovereign immunity from suit for the purpose of permitting or compelling arbitration to enforce this Note as provided in Article 14 of the Development -3- 4 Agreement and consents to be sued in the United States District Court for the District in which the Gaming Site is located (or, if the Gaming Site has not been designated, for the Western District of Michigan - Southern Division), the United States Court of Appeals for the Sixth Circuit, and the United States Supreme Court for the purpose of compelling arbitration or enforcing any arbitration award or judgment arising out of this Note. If the United States District Court lacks jurisdiction, the Band consents to be sued in the Michigan State Court system for the same limited purpose. The Band waives any requirement of exhaustion of tribal remedies. Without in any way limiting the generality of the foregoing, the Band expressly authorizes any governmental authorities who have the right and duty under applicable law to take any action authorized or ordered by any such court, and to take such action, including without limitation, repossessing or foreclosing on any real property not in trust, or otherwise giving effect to any judgment entered; provided, however, that liability of the Band under any judgment shall always be Limited Recourse, and in no instance shall any enforcement of any kind whatsoever be allowed against any assets of the Band other than (i), if the Commencement Date does not occur, Subsequent Gaming Facility Revenues to the extent provided in the Development Agreement, (ii) Net Revenues of the Enterprise, and (iii) mortgages on the Gaming Site prior to its transfer into trust. The Band appoints the Chairman of the Pokagon Council and the Secretary of the Pokagon Council as its agents for service of all process under or relating to the Agreements. The Band agrees that service in hand or by certified mail, return receipt requested, shall be effective for all purposes under or relating to the Agreements if served on such agents. 9. Arbitration. All disputes, controversies or claims arising out of or relating to this Note shall be settled by binding arbitration as provided in Article 14 of the Development Agreement. 10. Business Purposes; Applicable Law. This Note evidences a loan for business and commercial purposes and not for personal, household, family or agricultural purposes, and shall be governed by the law of the State of Michigan and, to the extent applicable, federal law. 11. Notices. All notices under this Note shall be given in accordance with ss. 15.4 of the Development Agreement; except that copies of draw requests need not be sent to attorneys. 12. Defined Terms. Capitalized terms used herein shall have the same meanings assigned to them in the Development Agreement, and, if not defined in the Development Agreement, in the Management Agreement between the Band and Lakes of even date. -4- 5 13. Miscellaneous. a. Time is of the essence. b. The benefits and obligations of this Note shall inure to and be binding upon the parties hereto and their respective successors and assigns, provided that any succession or assignment is permitted under the Development Agreement. c. Waiver of any one default shall not cause or imply a waiver any subsequent default. d. This Note, together with the Development Agreement, the Management Agreement, the Escrow Agreement, the Transition Loan Note and the Non-Gaming Land Acquisition Line of Credit, the exhibits thereto and all related documents of near or even date herewith, sets forth the entire agreement between the parties hereto with respect to the subject matter hereof. All agreements, covenants, representations, and warranties, express or implied, oral or written, of the parties with respect to the subject matter hereof are contained herein and therein. This Note shall not be supplemented, amended or modified by any course of dealing, course of performance or uses of trade and may only be amended or modified by a written instrument duly executed by officers of both parties. THE POKAGON BAND OF POTAWATOMI INDIANS By: /s/ John Miller ----------------------------------- Its: Council Chairman By: /s/ Kevin Daugherty ----------------------------------- Its: Secretary LAKES GAMING, INC. By: /s/ Timothy J. Cope ----------------------------------- Its: Chief Financial Officer -5- 6 EXHIBIT A DRAW REQUEST The Pokagon Band of Potawatomi Indians (the "Band") requests that Lakes Gaming, Inc. ("Lakes") advance $ under the Lakes Development Loan Note. The Band certifies that the amounts drawn under this Request will be used for purposes set out in ss. 8.4 of the Development Agreement or for Development Expenditures, as per the attached itemization. Advances should be made [pursuant to wire transfer instructions previously given to Lakes] [as follows: ]. Dated: THE POKAGON BAND OF POTAWATOMI INDIANS ------------- By: -------------------------------- Its: Council Chairman By: -------------------------------- Its: Secretary [or other persons designated by the Band pursuant to the Development Agreement] 1341 -6- EX-10.64 5 ACQUISITION LINE OF CREDIT AGREEMENT 1 EXHIBIT 10.64 NON-GAMING LAND ACQUISITION LINE OF CREDIT THIS NON-GAMING LAND ACQUISITION LINE OF CREDIT AGREEMENT is dated as of the 8th day of July, 1999, by and between THE POKAGON BAND OF THE POTAWATOMI INDIANS (the "Band") and LAKES GAMING, INC. ("Lakes"): In consideration of the mutual covenants and promises hereinafter set forth, and in accordance with the terms of a certain Development Agreement by and between the Band and Lakes dated as of July 8, 1999, the Band and Lakes agree as follows: 1. Establishment of Credit. Subject to the terms of this Agreement and the Development Agreement, Lakes agrees to make advances to the Band in an amount not to exceed Ten Million Dollars ($10,000,000). 2. Draw Requests; Funding. All draws under this Line of Credit shall be made upon written request by the Band to Lakes in the form of Draw Request attached as Exhibit A. All Draw Requests shall be sent in accordance with ss. 15.4 of the Development Agreement and may, at Lakes' option, be funded through transfer of funds in the Escrow Account; provided that interest shall only accrue under this Line of Credit on funds advanced through the Escrow Account after disbursement from the Escrow Account, and shall not begin to accrue on deposit by Lakes into the Escrow Account. All Draw Requests shall be funded within ten (10) days of the date of the draw request through wire transfer to an account directed by the Band, or as otherwise specified by the Band. 3. Use of Advances. Advances hereunder shall be used by the Band to option or acquire Non-Gaming Lands, and to pay all related option fees, purchase prices, fees, real estate commissions, transfer taxes, costs and expenses. 4. Expiration. The commitment of Lakes to make advances hereunder shall expire on the earlier of (a) the Commencement Date, (b) the expiration of the Term of the Management Agreement or (c) the termination of the Agreements in accordance with their terms. 5. Interest Rate. Interest shall accrue on the outstanding balance under this Line of Credit as follows: (a) if the Bank Closing occurs, at a fixed rate equal to the lesser of (i) Base Rate as of the Bank Closing plus 1% or (ii) 10% (the "Band Interest Rate"); or 2 (b) If the Bank Closing does not occur, at a variable rate equal to the lesser of (i) Base Rate plus 1% or (ii) 10% (the lesser of (i) and (ii) being referred to as the "Variable Interest Rate"). Lakes shall adjust the Variable Interest Rate on the then unpaid principal balance, by way of increase or decrease, in accordance with changes in the Base Rate. Such changes shall be effective as of the change in the Base Rate (the "Effective Date"). If the Bank Closing occurs after the second annual anniversary of the date hereof, interest accruing under this Line of Credit prior to the Bank Closing shall be adjusted retroactively to reflect the Band Interest Rate. "Base Rate" means the lowest Prime Rate as is published daily in The Wall Street Journal. In the event that the Wall Street Journal ceases to publish the Prime Rate, then the holder hereof may in its reasonable discretion select some other generally recognized comparable indicator of the national Prime Rate. 6. Repayment. If the Commencement Date occurs, the Band shall, beginning on the 15th day of the month following the Commencement Date, make equal monthly payments to Lakes of principal and interest in an amount sufficient to amortize the principal amount outstanding as of the Commencement Date over a sixty (60) month period at the Band Interest Rate, and shall thereafter continue to make payments in such amount on the 15th day of each succeeding month to and including the fifteenth day of the sixtieth month following the Commencement Date, when all remaining principal and interest shall be due and payable. If the Commencement Date does not occur, principal and interest shall be repayable to the extent and in the manner provided in the Development Agreement; provided that payments shall in any event be due and made only from Subsequent Gaming Facility Revenues in accordance with the Development Agreement. If Gaming commences at such a facility and payment is due under this Line of Credit in accordance with the Development Agreement, the Band shall, beginning on the 15th day of the month following such commencement date, make equal monthly payments to Lakes of principal and interest in an amount sufficient to amortize the principal amount outstanding as of such commencement date over a sixty (60) month period at the Variable Interest Rate, and shall thereafter continue to make such payments on the 15th day of each succeeding month to and including the fifteenth day of the sixtieth month following such commencement date, when all remaining principal and interest shall be due and payable. As of the Effective Date of a change in the Base Rate, Lakes shall adjust the monthly installments of principal and interest as of the installment next following the Effective -2- 3 Date so that the then unpaid principal balance would be amortized in full at the revised Variable Interest Rate five years after such commencement of gaming. Lakes shall promptly notify the Band in writing of any changes in the Base Rate and in the instalment payment due. 7. Prepayment. This Line of Credit may be prepaid at any time without penalty. 8. Subordination. Payment of amounts due hereunder shall be subordinated to the Bank Development Loan, the Equipment Loan and any other third-party loans or equipment leases to the Band relating to the Facility or, if the Commencement Date does not occur, or to any loans relating to any other Gaming facility in Michigan owned by the Band, on such terms as such third party lender shall reasonably require. 9. Limited Recourse. The obligations of the Band under this Line of Credit and any related awards, judgments or decrees shall be payable solely out of undistributed or future Net Revenues of the Enterprise and shall be a Limited Recourse obligation of the Band, with no recourse to tribal assets other than such Net Revenues and mortgages, if any, held by Lakes on Non-Gaming Lands if the Non-Gaming Lands have not been transferred into trust (except that, if the Commencement Date does not occur, Lakes shall also have recourse to Subsequent Gaming Facility Revenues to the extent provided in the Development Agreement). In no event shall Lakes or any other claimant under this Line of Credit have recourse to (a) the physical property of the Facility, (b) Tribal Distributions, (c) assets of the Band purchased with Tribal Distributions, (d) revenues or assets of any other gaming facility owned or operated by the Band, or (e) any other asset of the Band (other than (i), if the Commencement Date does not occur, Subsequent Gaming Facility Revenues to the extent provided in the Development Agreement, (ii) such Net Revenues of the Enterprise, and (iii) such mortgages on the Non-Gaming Lands prior to their transfer into trust. Such mortgages shall be subject to the provisions of the Development Agreement, including, without limitation, Article 14 thereof. Lakes covenants and agrees that it shall promptly release any such mortgages upon transfer of such lands into trust or as otherwise provided in the Development Agreement. 10. Default; Acceleration. All outstanding principal together with accrued interest shall become immediately due and payable in full, subject to the limitations on recourse provided above, upon default in the payment of principal or interest due under this Line of Credit if such default is not remedied within thirty (30) days after receipt by the Band of written notice thereof as provided in the Development Agreement. -3- 4 11. Band's Waiver of Sovereign Immunity and Consent to Suit. The Band expressly waives its sovereign immunity from suit for the purpose of permitting or compelling arbitration to enforce this Line of Credit as provided in Article 14 of the Development Agreement and consents to be sued in the United States District Court for the District in which the Gaming Site is located (or, if the Gaming Site has not been designated, for the Western District of Michigan - Southern Division), the United States Court of Appeals for the Sixth Circuit, and the United States Supreme Court for the purpose of compelling arbitration or enforcing any arbitration award or judgment arising out of this Line of Credit. If the United States District Court lacks jurisdiction, the Band consents to be sued in the Michigan State Court system for the same limited purpose. The Band waives any requirement of exhaustion of tribal remedies. Without in any way limiting the generality of the foregoing, the Band expressly authorizes any governmental authorities who have the right and duty under applicable law to take any action authorized or ordered by any such court, and to take such action, including without limitation, repossessing or foreclosing on any real property not in trust, or otherwise giving effect to any judgment entered; provided, however, that liability of the Band under any judgment shall always be Limited Recourse, and in no instance shall any enforcement of any kind whatsoever be allowed against any assets of the Band other than (i), if the Commencement Date does not occur, Subsequent Gaming Facility Revenues to the extent provided in the Development Agreement, (ii) Net Revenues of the Enterprise, and (iii) mortgages on Non-Gaming Lands prior to their transfer into trust. The Band appoints the Chairman of the Pokagon Council and the Secretary of the Pokagon Council as its agents for service of all process under or relating to the Agreements. The Band agrees that service in hand or by certified mail, return receipt requested, shall be effective for all purposes under or relating to the Agreements if served on such agents. 12. Arbitration. All disputes, controversies or claims arising out of or relating to this Line of Credit shall be settled by binding arbitration as provided in Article 14 of the Development Agreement. 13. Business Purposes; Applicable Law. This Line of Credit evidences a loan for business and commercial purposes and not for personal, household, family or agricultural purposes, and shall be governed by the law of the State of Michigan and, to the extent applicable, federal law. 14. Notices. All notices under this Line of Credit shall be given in accordance with ss. 15.4 of the Development Agreement; except that copies of draw requests need not be sent to attorneys. -4- 5 15. Defined Terms. Capitalized terms used herein shall have the same meanings assigned to them in the Development Agreement, and, if not defined in the Development Agreement, in the Management Agreement between the Band and Lakes of even date. 16. Miscellaneous. a. Time is of the essence. b. The benefits and obligations of this Note shall inure to and be binding upon the parties hereto and their respective successors and assigns, provided that any succession or assignment is permitted under the Development Agreement. c. Waiver of any one default shall not cause or imply a waiver any subsequent default. d. This Note, together with the Development Agreement, the Management Agreement, the Escrow Agreement, the Transition Loan Note and the Non-Gaming Land Acquisition Line of Credit, the exhibits thereto and all related documents of near or even date herewith, sets forth the entire agreement between the parties hereto with respect to the subject matter hereof. All agreements, covenants, representations, and warranties, express or implied, oral or written, of the parties with respect to the subject matter hereof are contained herein and therein. This Note shall not be supplemented, amended or modified by any course of dealing, course of performance or uses of trade and may only be amended or modified by a written instrument duly executed by officers of both parties. THE POKAGON BAND OF POTAWATOMI INDIANS By: /s/ John Miller -------------------------------- Its: Council Chairman By: /s/ Kevin Daughterty -------------------------------- Its: Secretary LAKES GAMING, INC. By: /s/ Timothy J. Cope ----------------------------- Its: Chief Financial Officer ----------------------------- -5- 6 EXHIBIT A DRAW REQUEST The Pokagon Band of Potawatomi Indians (the "Band") requests that Lakes Gaming, Inc. ("Lakes") advance $ under the Non-Gaming Acquisition Line of Credit (the "Line of Credit"). The Band certifies that the amounts drawn under this Request will be used in accordance with ss. 3 of the Line of Credit and SS. 8.5 of the Development Agreement, as per the attached itemization. Advances should be made [pursuant to wire transfer instructions previously given to Lakes] [as follows: ]. Dated: THE POKAGON BAND OF POTAWATOMI INDIANS ------------------- By: -------------------------------- Its: Council Chairman By: -------------------------------- Its: Secretary -6- EX-10.65 6 TRANSITION LOAN NOTE 1 EXHIBIT 10.65 TRANSITION LOAN NOTE $7,500,000 July 8, 1999 Dowagiac, Michigan FOR VALUE RECEIVED, The Pokagon Band of Potawatomi Indians (the "Band") promises to pay to LAKES GAMING, INC., a Minnesota corporation ("Lakes"), such sums as may be advanced by Lakes to the Band under Section 8.3 of a Development Agreement between the Band and Lakes dated as of July 8, 1999 (the "Development Agreement"); provided that the principal amount due hereunder shall not exceed Seven Million Five Hundred Thousand Dollars ($ 7,500,000.00). 1. Advances. Advances under this Note may, at Lakes' option, be funded through transfer of funds from the Escrow Account; provided that interest shall only accrue under this Note on funds advanced through the Escrow Account after disbursement from the Escrow Account, and shall not begin to accrue on deposit by Lakes into the Escrow Account. 2. Interest. No interest shall accrue on amounts outstanding hereunder until two years after the date hereof. Beginning on the second annual anniversary of the date hereof, interest shall begin accruing on the outstanding balance as follows: (a) if the Bank Closing occurs, at a fixed rate equal to the lesser of (i) Base Rate as of the Bank Closing plus 1% or (ii) 10% (the "Band Interest Rate"); or (b) If the Bank Closing does not occur, at a variable rate equal to the lesser of (i) Base Rate plus 1% or (ii) 10% (the lesser of (i) and (ii) being referred to as the "Variable Interest Rate"). Lakes shall adjust the Variable Interest Rate on the then unpaid principal balance, by way of increase or decrease, in accordance with changes in the Base Rate. Such changes shall be effective as of the change in the Base Rate (the "Effective Date"). If the Bank Closing occurs after the second annual anniversary of the date hereof, interest accruing under this Note prior to the Bank Closing shall be adjusted retroactively to reflect the Band Interest Rate. "Base Rate" means the lowest Prime Rate as is published daily in The Wall Street Journal. In the event that the Wall Street Journal ceases to publish the Prime Rate, then the holder hereof may in its reasonable discretion select some other generally recognized comparable indicator of the national Prime Rate. 2 3. Repayment. If the Commencement Date occurs, the Band shall, beginning on the 15th day of the month following the Commencement Date, make equal monthly payments to Lakes of principal and interest in an amount sufficient to amortize the principal amount outstanding as of the Commencement Date over a sixty (60) month period at the Band Interest Rate, and shall thereafter continue to make payments in such amount on the 15th day of each succeeding month to and including the fifteenth day of the sixtieth month following the Commencement Date, when all remaining principal and interest shall be due and payable. If the Commencement Date does not occur, principal and interest shall be repayable to the extent and in the manner provided in the Development Agreement; provided that payments shall in any event be due and made only from Subsequent Gaming Facility Revenues, in accordance with the Development Agreement. If Gaming commences at such a facility and payment is due under this Note in accordance with the Development Agreement, the Band shall, beginning on the 15th day of the month following such commencement date, make equal monthly payments to Lakes of principal and interest in an amount sufficient to amortize the principal amount outstanding as of such commencement date over a sixty (60) month period at the Variable Interest Rate, and shall thereafter continue to make such payments on the 15th day of each succeeding month to and including the fifteenth day of the sixtieth month following such commencement date, when all remaining principal and interest shall be due and payable. As of the Effective Date of a change in the Base Rate, Lakes shall adjust the monthly installments of principal and interest as of the installment next following the Effective Date so that the then unpaid principal balance would be amortized in full at the revised Variable Interest Rate five years after such commencement of gaming. Lakes shall promptly notify the Band in writing of any changes in the Base Rate and in the installment payment due. 4. Prepayment. This Note may be prepaid at any time without penalty. 5. Limited Recourse. The obligations of the Band under this Note and any related awards, judgments or decrees shall be payable solely out of undistributed or future Net Revenues of the Enterprise and shall be a Limited Recourse obligation of the Band, with no recourse to tribal assets other than such Net Revenues (except that, if the Commencement Date does not occur, Lakes shall also have recourse to Subsequent Gaming Facility Revenues to the extent provided in the Development Agreement). In no -2- 3 event shall Lakes or any other claimant under this Note have recourse to (a) the physical property of the Facility, (b) Tribal Distributions, (c) assets of the Band purchased with Tribal Distributions, (d) revenues or assets of any other gaming facility owned or operated by the Band, or (e) any other asset of the Band (other than (i), if the Commencement Date does not occur, Subsequent Gaming Facility Revenues to the extent provided in the Development Agreement, and (ii) such Net Revenues of the Enterprise). 6. Subordination. Payment of amounts due hereunder shall be subordinated to the Bank Development Loan, the Equipment Loan and any other third-party loans or equipment leases to the Band relating to the Facility or, if the Commencement Date does not occur, or to any loans relating to any other Gaming facility in Michigan owned by the Band, on such terms as such third party lender shall reasonably require. 7. Default; Acceleration. All outstanding principal together with accrued interest shall become immediately due and payable in full, subject to the limitations on recourse provided above, upon default in the payment of principal or interest due under this Note if such default is not remedied within thirty (30) days after receipt by the Band of written notice thereof as provided in the Development Agreement. 8. Sovereign Immunity. The Band expressly waives its sovereign immunity from suit for the purpose of permitting or compelling arbitration to enforce this Note as provided in Article 14 of the Development Agreement and consents to be sued in the United States District Court for the District in which the Gaming Site is located (or, if the Gaming Site has not been designated, for the Western District of Michigan - Southern Division), the United States Court of Appeals for the Sixth Circuit, and the United States Supreme Court for the purpose of compelling arbitration or enforcing any arbitration award or judgment arising out of this Note. If the United States District Court lacks jurisdiction, the Band consents to be sued in the Michigan State Court system for the same limited purpose. The Band waives any requirement of exhaustion of tribal remedies. Without in any way limiting the generality of the foregoing, the Band expressly authorizes any governmental authorities who have the right and duty under applicable law to take any action authorized or ordered by any such court, and to take such action, including without limitation, repossessing or foreclosing on any real property not in trust, or otherwise giving effect to any judgment entered; provided, however, that liability of the Band under any judgment shall always be Limited Recourse, and in no instance shall any enforcement of any kind whatsoever be allowed against any assets of the Band other than (i), if the Commencement Date does not occur, Subsequent Gaming Facility Revenues to the extent provided in the Development Agreement, and (ii) Net Revenues of the Enterprise. The Band appoints the Chairman of the Pokagon Council -3- 4 and the Secretary of the Pokagon Council as its agents for service of all process under or relating to the Agreements. The Band agrees that service in hand or by certified mail, return receipt requested, shall be effective for all purposes under or relating to the Agreements if served on such agents. 9. Arbitration. All disputes, controversies or claims arising out of or relating to this Note shall be settled by binding arbitration as provided in Article 14 of the Development Agreement. 10. Business Purposes; Applicable Law. This Note evidences a loan for business and commercial purposes and not for personal, household, family or agricultural purposes, and shall be governed by the law of the State of Michigan and, to the extent applicable, federal law. 11. Defined Terms. Capitalized terms used herein shall have the same meanings assigned to them in the Development Agreement, and, if not defined in the Development Agreement, in the Management Agreement between the Band and Lakes of even date. 12. Miscellaneous. a. Time is of the essence. b. The benefits and obligations of this Note shall inure to and be binding upon the parties hereto and their respective successors and assigns, provided that any succession or assignment is permitted under the Development Agreement. c. Waiver of any one default shall not cause or imply a waiver any subsequent default. d. This Note, together with the Development Agreement, the Management Agreement, the Escrow Agreement, the Transition Loan Note and the Non-Gaming Land Acquisition Line of Credit the exhibits thereto and all related documents of near or even date herewith, sets forth the entire agreement between the parties hereto with respect to the subject matter hereof. All agreements, covenants, representations, and warranties, express or implied, oral or written, of the parties with respect to the subject matter hereof are contained herein and therein. This Note shall not be supplemented, amended or modified by any course of dealing, course of performance or uses of trade and may only be amended or modified by a written instrument duly executed by officers of both parties. -4- 5 THE POKAGON BAND OF POTAWATOMI INDIANS By: /s/ John Miller ----------------------------------- Its: Council Chairman By: /s/ Kevin Daughterty ----------------------------------- Its: Secretary -5- EX-10.66 7 ACCOUNT CONTROL AGREENT 1 Exhibit 10.66 ACCOUNT CONTROL AGREEMENT PARTIES: Pokagon Band of Potawatomi Indians ("Band") Lakes Gaming, Inc. ("Lakes") Firstar Bank of Minnesota, N.A. ("Bank") Background Lakes has granted Band a security interest pursuant to a Pledge and Security Agreement of near or even date (the "Security Agreement") in a securities account maintained by Bank for Lakes, and in all related property. The parties are entering into this agreement to perfect Band's security interest in that account and those assets. AGREEMENT 1. The Account. Bank represents and warrants to Band that: a. Bank maintains account number (xxxxxxx) (the "Account") for Lakes under the name "Pokagon Collateral Account." b. Lakes has deposited $20,900,000 in the Account, subject to this Control Agreement. c. Lakes shall make such further deposits into the Account as may be required under the Agreements, including without limitation such amounts as are needed to maintain a $2,000,000 balance in the Account in accordance with ss. 8.2 of the Development Agreement. d. Bank does not know of any claim to or interest in the Account, except for claims and interests of the parties referred to in this Agreement. 2. Definitions. a. The following terms shall have the indicated meanings: "AWARD" means the award of an arbitrator relating to the Account in an arbitration conducted in accordance with Article 14 of the Development Agreement. -1- 2 "BAND ACCOUNT" means a bank account in the name of the Band on which Lakes does not have signatory authority, which account is designated by the Band pursuant to ss. 13(a) of this Agreement to receive transfers from the Account on account of the Transition Loan and the Non-Gaming Acquisition Line of Credit and $900,000 of the Signing Fee. "BAND NOTIFICATION OF EXCLUSIVE CONTROL" means a Band Notification of Lakes Default or a Band Notification of Termination. "BAND NOTIFICATION OF LAKES DEFAULT" means notification by the Band to Bank that (a) a Manager Event of Default or a Lakes Event of Default has occurred under the Agreements and is continuing; (b) either (i) the time for Lakes to demand arbitration under the Agreements has expired, or (ii) Lakes timely demanded arbitration, and the arbitrator's award has found that a Manager Event of Default or a Lakes Event of Default has occurred; and (c) the Band is entitled to payment of the property in the Account to the extent specified therein. The Band Notification of Lakes Default shall be in the form attached hereto as Exhibit A. "BAND NOTIFICATION OF TERMINATION" means notification by the Band to Bank that (a) the Agreements have been terminated; (b) either (i) the time for Lakes to demand arbitration under the Agreements has expired, or (ii) Lakes timely demanded arbitration, and the arbitrator's award has confirmed that termination; and (c) the Band is entitled to payment from the property in the Account to the extent specified therein. The Band Notification of Termination shall be in the form attached hereto as Exhibit B. "BAND REPRESENTATIVES" means one or more persons designated by the Band in writing to give consents and receive notices on behalf of the Band under this Agreement. "COURT" means the United States District Court for the District in which the Gaming Site is located (or, if the Gaming Site has not been designated, for the Western District of Michigan - Southern Division), the United States Appeals for the Sixth Circuit, and the United States Supreme Court; or if Lakes or the Band delivers to the Bank the written opinion of their respective counsel that such federal courts lack jurisdiction, the courts of the State of Michigan. "DEVELOPMENT AGREEMENT" means the Development Agreement between Lakes and Band of even date herewith. -2- 3 "ENTERPRISE ACCOUNT" means a bank account in the name of the Band on which Lakes has signatory authority as agent for the Band pursuant to the Development Agreement, which account is designated by the Band and Lakes pursuant to ss. 13(b) of this Agreement to receive transfers from the Account on account of Development Expenditures with regard to the Facility or the Enterprise. "ENTITLEMENT ORDER" means a notification to Bank from Lakes or the Band directing the Bank to transfer or redeem any securities, property, cash or other property in the Account. "FINAL ORDER" means an order, judgment or decree of a Court entered after notice and hearing (a) enjoining transfer of property in the Account, or (b) mandating compliance with, or otherwise enforcing, an Award, provided that the time for appeal from any such Order has expired or, if the Band has taken an appeal from such order, that the appeal has been denied and the Order is now final. "JOINT NOTICE" means notification by the Band and Lakes to Bank that the Account shall be terminated, and directing the Bank to liquidate the property in the Account and deliver the proceeds thereof as directed in the Joint Notice. The Joint Notice shall be in the form attached hereto as Exhibit C. "LAKES DRAW REQUEST" means notification by Lakes to the Bank, prior to receipt by Bank of a Band Notification, to transfer funds from the Account, which notification shall be in the form of Exhibit D-1 (as to transfers to the Band Account) or D-2 (as to transfers to the Enterprise Account). "ORDER" means an order, judgment or decree of a Court entered after notice and hearing (a) enjoining transfer of property in the Account, or (b) mandating compliance with, or otherwise enforcing, an Award. b. Capitalized terms used herein without definition have the meanings assigned to them in the Development Agreement. 3. Control by Band. Bank will comply with Entitlements Orders as follows: a. Prior to receipt by Bank of a Band Notification of Exclusive Control. Prior to receipt by Bank of a Band Notification of Exclusive Control, Bank shall transfer funds from the Account in accordance with a Lakes Draw Request if -3- 4 the Band gives its prior written consent to such request. Such consent shall be in the form attached as Exhibit E. b. Joint Notice. After receipt by Bank of a Joint Notice, Bank shall liquidate the property in the Account and transfer the proceeds thereof, and all interest, dividends and other income thereon, in accordance with the directions in such Joint Notice. c. Band Notification of Exclusive Control. After receipt by Bank of a Band Notification of Exclusive Control, Bank shall: i. immediately cease complying with Entitlement Orders or other directions concerning the Account originated by Lakes, whether pursuant to a Lakes Draw Request or otherwise; ii. immediately cease purchasing or selling securities in the Account or making any distributions from the Account, except with the prior written consent of Band; iii. immediately cease distributing to Lakes interest and dividends on property in the Account; and iv. not less than thirty (30) nor more than forty-five (45) days after receipt by Bank of a Band Notification of Exclusive Control, and unless otherwise enjoined by an Order, liquidate all property in the Account and transfer the proceeds thereof and all interest, dividends and other income thereon to the Band Account, or such other account as the Band may direct in writing. d. Award. Bank shall comply with any Award not less than thirty (30) nor more than forty-five (45) days after receipt by Bank of a copy of the Award, unless enjoined by an Order of Court. e. Order; Final Order. Bank shall comply with any Order or Final Order; provided that Bank shall not distribute property out of the Account without the Band's written consent except pursuant to a Final Order. 4. Lakes's Rights in Account. a. Until Bank receives a Band Notice of Exclusive Control, Bank may distribute to Lakes all interest and regular cash dividends on property in the Account. -4- 5 Bank shall not distribute any other property in the Account, including without limitation securities or the proceeds of the sale of any securities, to or at the direction of Lakes except to the extent provided in ss. 3. b. Until Bank receives a Band Notice of Exclusive Control, Lakes may direct the investment of all property in the Account in accordance with ss. 8.2 of the Development Agreement, provided that (a) property in the Account shall not include equities, swaps, derivatives or commodities; (b) no instruments, certificated securities or financial assets, as defined in the Minnesota Uniform Commercial Code, shall be held in the name of Lakes, and all such assets shall be held in the name of the Account; and (c) any cash balances shall be invested in money market or other financial assets, unless needed to make distributions in accordance with this Agreement. Subject to that limitation, Bank may rely conclusively on Lakes' direction as to investment of property in the Account unless and until Bank receives a Band Notice of Exclusive Control. c. Bank will not comply with any Entitlement Order originated by Lakes that would require Bank to violate this Agreement. 5. Priority of Bank's Security Interest; Bank's Fees and Expenses; No Third Party Entitlement Orders. a. Bank subordinates in favor of Band any security interest, lien, or right of setoff it may have, now or in the future, against the Account or property in the Account, except that Bank will retain its prior lien on property in the Account to secure payment for property purchased for the Account, normal commissions and fees for the Account, and its reasonable fees (including attorneys fees) and expenses relating to the Account. Bank is authorized to deduct such commissions, fees and expenses from the Account. To the extent that the property in the Account is not sufficient to pay such commissions, fees and expenses, the Band and Lakes jointly and severally agree to pay such to Bank promptly on demand. b. Bank will not agree with any third party that Bank will comply with Entitlement Orders originated by the third party with regard to the Account or property in the Account. 6. Statements, Confirmations and Notices of Adverse Claims. a. Bank will send copies of all statements and confirmations for the Account simultaneously to Lakes and Band. Bank will use reasonable efforts promptly -5- 6 to notify Band and Lakes if any other person claims that it has a property interest in property in the Account and that it is a violation of that person's rights for anyone else to hold, transfer or deal with the property. Bank will also send the Band copies all other communications sent by Bank to Lakes relating to the Account, and shall furnish the Band with such other information concerning the Escrow Account as Band may reasonably request. b. Lakes shall send Band a copy of all communications sent by Lakes to Bank, including without limitation all Lakes Draw Requests; shall inform the Band of the nature and terms of the financial instruments in which the escrowed funds are invested; and shall furnish the Band with such other information concerning the Account as Band may request. c. The Band shall send Lakes a copy of all communications sent by the Band to Bank relating to the Account. 7. Bank's Responsibility. a. Except for permitting a withdrawal, delivery or payment in violation of ss.ss. 3 or 4, Bank will not be liable to Band for complying with Entitlement Orders from Lakes that are received by Bank before Bank receives a Band Notice of Exclusive Control. b. Bank will not be liable to Lakes for complying with a Band Notice of Exclusive Control or with Entitlement Orders originated by Band after receipt by the Bank of a Band Notice of Exclusive Control, even if Lakes notifies Bank that Band is not legally entitled to issue the Entitlement Order or the Band Notice of Exclusive Control, unless Bank takes the action after it is served with an Award or Order enjoining or prohibiting compliance with an Entitlement Order of the Band, and had a reasonable opportunity to act on the Award or Order. c. Bank shall incur no liability hereunder except for its willful misconduct or gross negligence so long as it shall have acted in good faith. d. In the event that a dispute arises as to the Account, Bank may liquidate the property in the Account and deposit the proceeds thereof with the Clerk of the United States District Court for the Western District of Michigan, Southern Division, and may interplead the parties hereto. Upon so depositing such documents and money and filing its complaint and interpleader, Bank shall be released from all liability under the terms hereof as to the money so deposited. -6- 7 e. Bank shall have no responsibility for the genuineness or validity of any notices, certificate, securities, documents or other things deposited with it and shall be fully protected in acting in accordance with any written instructions given to it hereunder and reasonably believed by it to have been signed by the proper person, party or parties. Bank can rely conclusively on the opinion of counsel to the Band, or the opinion of its own counsel, as to the expiration of the time for appeal, denial of appeal or finality of an Order; provided that nothing in this Agreement shall waive or impair any claim, if any, of Lakes against counsel issuing such opinion. f. Bank is expressly authorized to comply with and obey any and all Orders and Final Orders relating to the Account, provided that Bank does not distribute property from the Account without the Band's written consent except pursuant to a Final Order; and in case the Bank so obeys or complies with any such Order or Final Order it shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance. g. Without limiting the provisions of ss. 7(c) above, the Bank shall not incur any liability for not performing any act or fulfilling any duty, obligation or responsibility hereunder by reason of any occurrence beyond the control of the Bank (including but not limited to any act or provision of any present or future law or regulation or governmental authority, any act of God or war, or the unavailability of the Federal Reserve Bank wire or telex or other wire or communication facility). h. This Agreement does not create any obligation of Bank except for those expressly set forth in this Agreement. In particular, Bank need not investigate whether Band is entitled under Band's agreements with Lakes to give an Entitlement Order or a Band Notice of Exclusive Control. i. The Account shall be maintained in the name of "Pokagon Collateral Account" on the books of the Bank unless the Band otherwise consents in writing. 8. Termination; Survival. a. Band may terminate this Agreement by notice to Bank and Lakes. Bank may terminate this Agreement on 60 days' notice to Band and Lakes. b. If Band notifies Bank that Band's security interest in the Account has terminated, this Agreement will immediately terminate. -7- 8 c. Section 7, "Bank's Responsibility," will survive termination of this Agreement. 9. Financial Assets. All property credited to the Account will be treated as financial assets and investment property under Articles 8 and 9 of the Minnesota Uniform Commercial Code. -8- 9 10. Successors and Assigns. A successor to or assignee of Band's rights and obligations under the Development Agreement will succeed to Band's rights and obligations under this Agreement. 11. Band's Waiver of Sovereign Immunity and Consent to Suit. The Band expressly waives its sovereign immunity from suit for the purpose of permitting or compelling arbitration in disputes under or relating to this Agreement, and consents to be sued in a Court for the purpose of compelling arbitration or enforcing any arbitration award or judgment arising out of this Agreement; provided that such consent is limited to enforcement of awards or judgments relating to the Band's interest in the Account. If the United States District Court lacks jurisdiction, the Band consents to be sued in the Michigan State Court system for the same limited purposes. The Band waives any requirement of exhaustion of tribal remedies. Without in any way limiting the generality of the foregoing, the Band expressly authorizes any governmental authorities who have the right and duty under applicable law to take any action authorized or ordered by any such court, to give effect to any judgment entered; provided, however, that in no instance shall enforcement of any kind whatsoever be allowed against any assets of the Band other than the Band's interest in the Account. 12. Notice. a. Except as provided in ss. 12(b), any notice required to be given pursuant to this Agreement shall be delivered to the appropriate party by Certified Mail Return Receipt Requested or by overnight mail or courier service, to the following addresses: If to the Band: Pokagon Band of Potawatomi Indians 53237 Townhall Road Dowagiac, MI 49047 Attn: Chairman, Tribal Council with a copy to: S. Eric Marshall, Esq. 1318 Mishawaka Avenue South Bend, Indiana 46615 -9- 10 and to: Daniel Amory, Esq. Drummond Woodsum & MacMahon P.O. Box 9781 Portland, ME 04104-5081 and to: Robert Gips, Esq. Gips and Associates 71 Myrtle Avenue, Suite 2000 South Portland, ME 04106 If to Lakes: Lakes Gaming, Inc. 130 Cheshire Lane Minnetonka, MN 55305 Telecopy: 612-449-9353 with a copy to: Douglas S. Twait, Esq. Johnson Hamilton Quigley Twait & Foley, PLC First National Bank Building Suite W1450 Saint Paul, MN 55101-1314 if to Bank: Firstar Bank of Minnesota, N.A. 101 East Fifth Street St. Paul, MN 55101 attn: Frank P. Leslie Telecopy: 651-229-6415 b. Any consent by the Band to a Lakes Draw Request may be sent either as provided in ss. 12(a) or by telecopy addressed to the Bank and Lakes at the telecopy numbers set forth above. Copies of such consents need not be sent to counsel. -10- 11 c. Any party may change any address or telecopy number by written notice to all parties. d. Any notice shall be deemed given three days following deposit in the United States mail, one day following delivery to an overnight delivery service, on oral confirmation of receipt of a telecopy, or upon actual delivery, whichever first occurs. 13. Designation of Accounts. a. Band Account. The Band shall designate the Band Account by written notice to Bank. b. Enterprise Account. The Band and Lakes shall designate the Enterprise Account by written notice to Bank. c. Change in Account Designations. The Band may change the designation of the Band Account by written notice to Bank and Lakes. The Band and Lakes may change the designation of the Enterprise Account by written notice to Bank. d. Funds Wire Transferred. All transfers from the Account to the Band Account shall be by wire transfer to the accounts designated in this Agreement in accordance with written wire transfer instructions from the Band, subject to change in accordance with ss. 13(c). 14. Action or Consents by Band. a. Any action to be taken by the Band may be taken by the Pokagon Council on behalf of the Band. b. Any consent or other notification to be given by the Band may be given by any Band Representative. Lakes and Bank shall be entitled to rely conclusively upon any written communication signed by a Band Representative. 15. Arbitration. All disputes under or relating to this Agreement shall be subject to arbitration in accordance with Article 14 of the Development Agreement. -11- 12 16. Miscellaneous. a. This Agreement and the Account will be governed by the internal laws of the State of Minnesota. Bank and Lakes may not change the law governing the Account without Band's express written agreement. b. This Agreement may be modified only by a written amendment signed by all the parties hereto, and no waiver of any provision hereof shall be effective unless expressed in a writing signed by the party to be charged. c. The rights and remedies conferred upon the parties hereto shall be cumulative, and the exercise or waiver of any such right or remedy shall not preclude or inhibit the exercise of any additional rights or remedies. The waiver of any right or remedy hereunder shall not preclude the subsequent exercise of such right or remedy. d. The headings contained in this Agreement are for convenience of reference only and shall have no effect on the interpretation or operation hereof. e. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute one and the same instrument. f. Lakes agrees to indemnify and hold the Band harmless against all costs, expenses and fees (i) charged by the Bank against the Account on or after a Manager Event of Default, or (ii) which the Band pays Bank under ss. 5(a) of this Agreement. g. All income on property in the Account shall be for the account of Lakes. Lakes certifies that its IRS identification number is 41-1913991, and agrees that income on the property in the Account shall be reported in its name. h. To the extent a provision of this Agreement is unenforceable, this Agreement will be construed as if the unenforceable provision were omitted. i. The parties agree that Bank is a "securities intermediary" for purposes of Articles 8 and 9 of the Uniform Commercial Code, as adopted in Minnesota, and that Minnesota is the "securities intermediary's jurisdiction" for all purposes under those Articles with regard to the Control Agreement. j. This Agreement may be executed in counterparts, all of which together shall constitute one original. -12- 13 Each party acknowledges and agrees to be bound by the instructions and terms and conditions contained herein. Dated as of July 8, 1999 THE POKAGON BAND OF POTAWATOMI LAKES GAMING, INC. INDIANS By: /s/ John Miller By: /s/ Timothy J. Cope --------------------------------- ----------------------------------- Its: Council Chairman Its: Chief Financial Officer ---------------------------------- By: /s/ Kevin Daugherty --------------------------------- Its: Secretary FIRSTAR BANK OF MINNESOTA, N.A. By: /s/ Illegible --------------------------------- Its: Vice President -13- 14 EXHIBIT A BAND NOTIFICATION OF LAKES DEFAULT TO: Firstar Bank of Minnesota, N.A. 101 East Fifth Street St. Paul, MN 55101 attn: Frank P. Leslie RE: DEFAULT UNDER CERTAIN AGREEMENTS BY AND BETWEEN THE POKAGON BAND OF THE POTAWATOMI INDIANS (THE "BAND") AND LAKES GAMING, INC. ("LAKES") Dear Sir: (Note: Capitalized terms used herein without definition shall have the meanings assigned to them in a certain Control Agreement (the "Control Agreement") dated as of July 8, 1999 by and among the Band, Lakes and Firstar Bank of Minnesota, N.A . ("Bank").) Notice is hereby given to you under the Control Agreement that: (a) a Manager Event of Default or a Lakes Event of Default has occurred under the Agreements and is continuing; (b) either (i) the time for Lakes to demand arbitration under the Agreements has expired, or (ii) Lakes timely demanded arbitration, and the arbitrator's award has found that a Manager Event of Default or a Lakes Event of Default has occurred; and (c) the Band is entitled to payment of the property in the Account as provided herein. You are hereby directed to: i. immediately cease complying with Entitlement Orders or other directions concerning the Account originated by Lakes, whether pursuant to a Lakes Draw Request or otherwise; -1- 15 ii. immediately cease purchasing or selling securities in the Account or making any distributions from the Account, except with the prior written consent of Band; iii. immediately cease distributing to Lakes interest and dividends on property in the Account; and iv. not less than thirty (30) nor more than forty-five (45) days after your receipt hereof, and unless otherwise enjoined by an Order, liquidate all property in the Account and transfer the proceeds thereof and all interest, dividends and other income thereon to the following account by wire transfer: Amount: The entire proceeds of the Account (indicate which is applicable) or $ --------------------------- Wire to: Account Number: --------------------------- Bank: --------------------------- ABA Number: --------------------------- Reference: --------------------------- Dated: , ----------- ------ THE POKAGON BAND OF POTAWATOMI INDIANS By: ------------------------------ Its: Council Chairman By: ------------------------------ Its: Secretary -2- 16 EXHIBIT B BAND NOTIFICATION OF TERMINATION TO: Firstar Bank of Minnesota, N.A. 101 East Fifth Street St. Paul, MN 55101 attn: Frank P. Leslie RE: TERMINATION OF CERTAIN AGREEMENTS BY AND BETWEEN THE POKAGON BAND OF THE POTAWATOMI INDIANS (THE "BAND") AND LAKES GAMING, INC. ("LAKES") Dear Sir: (Note: Capitalized terms used herein without definition shall have the meanings assigned to them in a certain Control Agreement (the "Control Agreement") dated as of July 8, 1999 by and among the Band, Lakes and Firstar Bank of Minnesota, N.A . ("Bank").) Notice is hereby given to you under the Control Agreement that: (a) the Agreements have been terminated; (b) either (i) the time for Lakes to demand arbitration under the Agreements has expired, or (ii) Lakes timely demanded arbitration, and the arbitrator's award has confirmed that termination; and (c) the Band is entitled to payment of the property in the Account as provided herein. You are hereby directed to: i. immediately cease complying with Entitlement Orders or other directions concerning the Account originated by Lakes, whether pursuant to a Lakes Draw Request or otherwise; -1- 17 ii. immediately cease purchasing or selling securities in the Account or making any distributions from the Account, except with the prior written consent of Band; iii. immediately cease distributing to Lakes interest and dividends on property in the Account; and iv. not less than thirty (30) nor more than forty-five (45) days after your receipt hereof, and unless otherwise enjoined by an Order, liquidate all property in the Account and transfer the proceeds thereof and all interest, dividends and other income thereon to the following account by wire transfer: Amount: The entire proceeds of the Account (indicate which is applicable) or $ ------------------------------- Wire to: Account Number: --------------------------- Bank: --------------------------- ABA Number: --------------------------- Reference: --------------------------- Dated: , ----------- ------ THE POKAGON BAND OF POTAWATOMI INDIANS By: ------------------------------ Its: Council Chairman By: ------------------------------ Its: Secretary -2- 18 EXHIBIT C JOINT NOTICE To: Firstar Bank of Minnesota, N.A. 101 East Fifth Street St. Paul, MN 55101 attn: Frank P. Leslie RE: JOINT NOTICE OF TERMINATION OF CERTAIN AGREEMENTS BY AND BETWEEN THE POKAGON BAND OF THE POTAWATOMI INDIANS (THE "BAND") AND LAKES GAMING, INC. ("LAKES") (Note: Capitalized terms used herein without definition shall have the meanings assigned to them in a certain Control Agreement (the "Control Agreement") dated as of July 8, 1999 by and among the Band, Lakes and Firstar Bank of Minnesota, N.A. ("Bank").) Dear Sir: Notice is hereby given to you that the Agreements have been terminated. You are hereby directed to liquidate all property in the Account and transfer the proceeds as follows: 1. $ of said proceeds shall be ----------------- transferred to the following account by wire transfer: Account Number: --------------------------- Bank: --------------------------- ABA Number: --------------------------- Reference: --------------------------- 2. $ of said proceeds shall be ----------------- transferred to the following account by wire transfer: Account Number: --------------------------- Bank: --------------------------- ABA Number: --------------------------- Reference: --------------------------- -1- 19 Dated: , ----------- ------ THE POKAGON BAND OF POTAWATOMI LAKES GAMING, INC. INDIANS By: By: ------------------------------ ---------------------------- Its: Council Chairman Its: --------------------------- By: ------------------------------ Its: Secretary -2- 20 EXHIBIT D-1 LAKES DRAW REQUEST (TRANSFERS TO BAND ACCOUNT) To: Firstar Bank of Minnesota, N.A. 101 East Fifth Street St. Paul, MN 55101 attn: Frank P. Leslie RE: DRAW BY LAKES GAMING, INC., UNDER CONTROL AGREEMENT Dear Sir: (Note: Capitalized terms used herein without definition shall have the meanings assigned to them in a certain Control Agreement (the "Control Agreement") dated as of July 8, 1999 by and among the Band, Lakes and Firstar Bank of Minnesota, N.A . ("Bank").) Pursuant to ss. 3(a) of the Control Agreement, you are hereby directed to wire transfer, as soon as is practicable after receipt of the Consent of the Band, but within not more than two business days after your receipt thereof, the following sum: $ ----------------- from the Account to the Band Account as designated by the Band pursuant to ss. 13(a) of the Control Agreement. Dated: , ----------- ------ LAKES GAMING, INC. By: ------------------------------ Its: ------------------------------ -1- 21 EXHIBIT D-2 LAKES DRAW REQUEST (TRANSFERS TO ENTERPRISE ACCOUNT) To: Firstar Bank of Minnesota, N.A. 101 East Fifth Street St. Paul, MN 55101 attn: Frank P. Leslie RE: DRAW BY LAKES GAMING, INC., UNDER CONTROL AGREEMENT Dear Sir: (Note: Capitalized terms used herein without definition shall have the meanings assigned to them in a certain Control Agreement (the "Control Agreement") dated as of July 8, 1999 by and among the Band, Lakes and Firstar Bank of Minnesota, N.A . ("Bank").) Pursuant to ss. 3(a) of the Control Agreement, you are hereby directed to wire transfer, as soon as is practicable after receipt of the Consent of the Band, but within not more than two business days after your receipt thereof, the following sum: $ --------------- from the Account to the Enterprise Account as designated by the Band and Lakes pursuant to ss. 13(b) of the Control Agreement. Dated: , ----------- ------ LAKES GAMING, INC. By: ------------------------------ Its: ------------------------------ -1- 22 EXHIBIT E BAND CONSENT TO LAKES DRAW REQUEST To: Firstar Bank of Minnesota, N.A. 101 East Fifth Street St. Paul, MN 55101 attn: Frank P. Leslie RE: BAND CONSENT TO DRAW BY LAKES GAMING, INC., UNDER CONTROL AGREEMENT Dear Sir: (Note: Capitalized terms used herein without definition shall have the meanings assigned to them in a certain Control Agreement (the "Control Agreement") dated as of July 8, 1999 by and among the Band, Lakes and Firstar Bank of Minnesota, N.A . ("Bank").) Pursuant to ss. 3(a) of the Control Agreement, you are hereby notified that the Band consents to the Draw by Lakes dated , a copy of which is attached. Dated: ------------------------- ------------------------------------ Print name: ------------------------------------ Band Representative, duly authorized -1- EX-10.67 8 PLEDGE AND SECURITY AGREEMENT 1 EXHIBIT 10.67 PLEDGE AND SECURITY AGREEMENT This Agreement dated as of the 8th day of July, 1999 by and between Lakes Gaming, Inc. (the "Pledgor" or "Lakes"), and the Pokagon Band of Potawatomi Indians ("Secured Party" or the "Band") WITNESSETH: WHEREAS, the Band and Lakes entered into a Development Agreement (the "Development Agreement") and a Management Agreement (the "Management Agreement"; together with the Development Agreement, the "Agreements"), both dated as of July 8, 1999, pursuant to which Lakes will assist the Band in developing, financing and managing a Class III gaming facility in the State of Michigan; and WHEREAS, pursuant to ss. 8.2 of the Development Agreement Lakes has agreed to pay certain funds into an account (as defined in the Development Agreement, the "Account") subject to the Band's perfected security interest, which Account shall serve as (i) collateral for liquidated or other damages payable by Lakes to the Band as provided in the Agreements, and (ii) a funding mechanism for Lakes' obligation to pay certain fees pursuant to the Development Agreement and to make advances under the Transition Loan, the Non-Gaming Land Acquisition Line of Credit and the Lakes Development Loan; and WHEREAS, Lakes and the Band have entered into an Account Control Agreement (the "Control Agreement") with Firstar Trust Company ("Bank") of near or even date to perfect the Band's security interest in the Account; NOW THEREFORE, in consideration of one dollar and other consideration, the receipt and sufficiency of which is acknowledged, the parties agree as follows: 1. Definitions. a. "Secured Obligations" means the obligations of Lakes to the Band under or relating to the Agreements. b. Terms defined in the Control Agreement not otherwise defined herein have the same meaning herein as therein. 2 2. Transfer of Pledged Collateral. a. The Pledgor hereby pledges and grants to the Secured Party a valid lien on and security interest in Pledgor's right, title and interest in and to the Account and all cash, securities, securities entitlements, financial assets and other property in the Account (which, with any additional securities or collateral pledged hereunder, any replacements, substitutions, extensions, stock dividends, renewals or additions to such collateral and any dividends, interest or other income thereon and the proceeds of all of the foregoing, are hereinafter referred to collectively as the "Pledged Collateral"), as security for the Secured Obligations, all as the same may be amended from time to time, including any payments due pursuant to any amendments or modifications thereto, extensions and renewals thereof or substitutions therefor; and any and all other obligations or agreements of the Pledgor to the Secured Party outstanding from time to time, whether now existing or hereafter arising. b. Pledgor warrants that the security interest granted hereunder constitutes and shall remain a validly perfected first lien on the Pledged Collateral. 3. Agreement not to Sell, Pledge, Encumber, Etc. a. The Pledgor hereby covenants and agrees that it will not sell, convey, transfer or otherwise dispose of any of the Pledged Collateral, nor create, incur or permit to exist any pledge, mortgage, lien, charge, encumbrance or any security interest whatsoever with respect to any of the Pledged Collateral or the proceeds thereof, other than the liens on and security interest in the Pledged Collateral created hereunder. b. In case any dividend shall be declared on any of the Pledged Collateral from time to time, or any share of stock or fraction thereof shall be issued pursuant to any stock split involving any of the Pledged Collateral, or any distribution of capital shall be made on any of the Pledged Collateral, the cash, shares or other property so distributed shall constitute Pledged Collateral hereunder and be delivered to the Secured Party to be held as collateral security for the Secured Obligations. c. The Pledgor represents and warrants that there are no restrictions on the transferability of the Pledged Collateral to the Secured Party, that there are no restrictions as to or with respect to the foreclosure, transfer or disposition thereof by the Secured Party, and that any securities held in the account shall have been duly registered under applicable securities laws. 4. Additional Warranties, Representations, Covenants, Etc. a. Pledgor hereby covenants that the Pledged Collateral is duly and validly pledged to the Secured Party and warrants that it will defend the Secured Party's right, title and security interest in and to the Pledged Collateral against the claims and demands of all persons whomsoever. Pledgor represents and warrants to the Secured Party that the Pledgor has good 2 3 title to all the Pledged Collateral, free and clear of all claims, mortgages, pledges, liens, security interests and other encumbrances of every nature. b. Pledgor agrees that a default by Pledgor under the Control Agreement shall be a default under all Secured Obligations, and that all collateral securing any Secured Obligation to Secured Party shall secure all other obligations of Pledgor to Secured Party. c. Pledgor hereby covenants that this Agreement and the Control Agreement are valid and binding on it, are enforceable in accordance with its terms, and create a validly perfected first lien and security interest in the Pledged Collateral. d. Pledgor covenants that it will execute and deliver to Secured Party such other instruments, certificates, stock powers and other documents as are necessary or convenient to enable Secured Party to exercise its rights under this Agreement and otherwise carry out the intent of this Agreement. Pledgor grants Secured Party an irrevocable power of attorney coupled with an interest to execute in its stead and on its behalf any such instruments, certificates, stock powers and other documents as are needed to exercise its rights as to the Pledged Collateral upon the occurrence of an Event of Default hereunder. e. Pledgor agrees that investments in the Account shall at all times be consistent with the provisions of ss. 8.2 of the Development Agreement. 5. Transfer of Pledged Collateral Upon Event of Default. In case there shall exist an Event of Default (as hereinafter defined), the Secured Party may cause all or any of the Pledged Collateral to be transferred into its name or into the name of its nominee or nominees in accordance with the Control Agreement, and Bank and any broker or other securities intermediary having custody or control of the Pledged Collateral shall honor any such request from Secured Party. 6. Events of Default; Remedies. (a) If any one or more of the following events (herein called "Events of Default") shall occur: i. A Manager Event of Default or Lakes Event of Default shall occur under the Secured Obligations; or ii. Bank terminates the Control Agreement without the appointment of a successor securities intermediary in accordance with ss. 10 unless the Band has refused to consent to the successor, in which case all property in the Account shall be deposited with the Clerk of the United States District Court for the Western District of Michigan, Southern Division, subject to 3 4 the lien and security interest of the Band, and shall be subject to interpleader in that Court. iii. Pledgor violates any provision of the Control Agreement; or iv. The Pledgor shall fail duly to perform, observe or comply with any provision of this Agreement which default is not cured within 30 days following written notice of default, or Pledgor breaches any material warranty or representation made hereunder; then, upon the occurrence of any such Event of Default, the Secured Party shall have all rights and remedies of a secured party under the Minnesota Uniform Commercial Code or other applicable law and shall, in addition to such rights and remedies, have the right, in its absolute discretion, at any time or times thereafter to direct Bank or any other financial intermediary in accordance with the Control Agreement to sell or transfer any and all Pledged Collateral and deliver the proceeds thereof to Secured Party for application to the Secured Obligations. (b) The Secured Party will give Pledgor at least five (5) days prior written notice by registered or certified mail at the address of the Pledgor as set forth above (or at such other address or addresses as the Pledgor shall specify in writing to the Secured Party from time to time) of (i) time and place of any public sale thereof, (ii) the time after which any private sale or any other intended disposition of Pledged Collateral is to be made, or (iii) the time after which Secured Party may, in accordance with the Control Agreement, deliver entitlement orders to Bank or any other Financial intermediary with regard to the Pledged Collateral. Any such notice shall be deemed to meet the requirements hereunder or under any applicable law (including without limitation the Minnesota Uniform Commercial Code) that reasonable notification be given of the time and place of any such sale or disposition. Such notice may be given without any demand of performance or any other demand, all such demands being expressly waived by the Pledgor. All such sales shall be at such commercially reasonable price or prices as Secured Party shall deem fit, and for cash or for credit or for future delivery (without Secured Party assuming any responsibility for any credit or risk). At any such sale or sales the Secured Party may purchase any or all of the Pledged Collateral to be sold thereat upon such terms as the Secured Party may deem appropriate. Upon any such sale or sales of the Pledged Collateral, said purchase shall be held by the purchaser absolutely free from any equity of redemption or any similar rights, all such equity of redemption or any similar rights being hereby expressly waived and released by the Pledgor. In the event any consent, approval or authorization of any governmental agency will be necessary to effectuate any such sale or sales, the Pledgor shall execute all such applications or other instruments as may be required. c. The proceeds of any such sale or sales, together with any other additional collateral security at the time received and held hereunder, shall be received and applied: first, to the payment of all costs and expenses of such sale, including reasonable attorneys fees; second, to the payment of the Secured Obligations; and any surplus thereafter remaining shall be paid to the 4 5 Pledgor or to whomever may be legally entitled thereto. d. The Secured Party shall be entitled at its option after an Event of Default to exercise the voting power with respect to the Pledged Collateral, if applicable; to receive and retain, as collateral security for the Secured Obligations, any and all dividends, distributions at any time and from time to time declared or made upon any of the Pledged Collateral and to exercise any and all rights of payment, conversion, exchange, subscription or any other rights, privileges or options pertaining to the Pledged Collateral as if the Secured Party were the absolute owner thereof, including without limitation the right to exchange, at its discretion, any and all Pledged Collateral upon the merger, consolidation, reorganization, recapitalization, or other readjustment of any other issuer or maker of Pledged Collateral, or, upon the exercise of any such right, privilege or option pertaining to the Pledged Collateral, and, in connection therewith, to deposit and deliver any and all of the Pledged Collateral with any committee, depositary, agent, registrar or other designated agency upon such terms and conditions as the Secured Party shall determine, or without liability except to account for property actually received. e. After an Event of Default, any expenses incurred by the Secured Party in exercising any of the foregoing rights and remedies or in the enforcement or administration of this Security Agreement, the Control Agreement or the Agreements, or for the protection of the Secured Party's security interest in the Pledged Collateral, or in connection with the priority thereof, including without limitation all taxes, charges, liens and assessments against the Pledged Collateral, and all reasonable attorney's fees, shall be payable by Pledgor, shall be deemed advances necessary to protect the security, shall be added to the Secured Obligations, and shall bear interest at the Band Interest Rate. 7. Rights and Remedies are Cumulative. No course of dealing between the Pledgor and the Secured Party nor any failure to exercise, nor any delay in exercising, on the part of the Secured Party, any right, power or privilege hereunder or under the Secured Obligations, shall operate as a waiver thereof, nor shall any single or partial exercise of any rights, power or privilege constitute or be deemed to constitute any such waiver. The rights and remedies herein provided and provided under the Secured Obligations and under the Control Agreement are cumulative and are in addition to, and not exclusive of, any rights or remedies provided by law, including, without limitation, the rights and remedies of a secured party under the Minnesota Uniform Commercial Code. 8. Notices. Except as otherwise provided herein, notice to or demand upon the Pledgor or the Secured Party shall be deemed to have been sufficiently given or served for all purposes thereof if mailed by certified or registered mail, postage prepaid, to the following addresses: if to Secured Party: 5 6 Pokagon Band of Potawatomi Indians 53237 Townhall Road Dowagiac, MI 49047 Attn: Chairman, Tribal Council with a copy to: S. Eric Marshall, Esq. 1318 Mishawaka Avenue South Bend, Indiana 46615 and to: Daniel Amory, Esq. Drummond Woodsum & MacMahon P.O. Box 9781 Portland, ME 04104-5081 and to: Robert Gips, Esq. Gips and Associates 71 Myrtle Avenue, Suite 2000 South Portland, ME 04106 If to Pledgor: Lakes Gaming, Inc. 130 Cheshire Lane Minnetonka, MN 55305 Telecopy: 612-449-9353 with a copy to: Douglas S. Twait, Esq. Johnson Hamilton Quigley Twait & Foley, PLC First National Bank Building Suite W1450 Saint Paul, MN 55101-1314 or to such other address as the party to whom such notice is directed may have designated in writing to the other parties hereto. 6 7 9. Waiver of Presentment, Demand, Notice, Etc. The Pledgor hereby waives notice of acceptance of this Agreement as well as presentment, demand, payment, notice of dishonor or protest and all other notices of any kind in connection with the Secured Obligations except as expressly provided in this Agreement, the Control Agreement or the Agreements. 10. Reinstatement. This Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any amount received by the Secured Party in payment of the Secured Obligations is rescinded or may otherwise be restored or returned upon the insolvency, receivership or bankruptcy of the Pledgor. It is the intention of the parties hereto that this Agreement shall remain in full force and effect until all of the Secured Obligations are fully and indefeasibly paid and satisfied. 11. Resignation of Bank under Control Agreement. If Bank gives notice that it will terminate the Control Agreement, Pledgor may designate a successor financial intermediary under the Control Agreement, which designation shall be subject to Secured Party's reasonable consent. Pledgor and Secured Party shall execute a replacement Control Agreement on substantially the same terms with the successor financial intermediary. 12. Termination Secured Party agrees to terminate the Control Agreement and this Agreement upon the earlier of (a) the Commencement Date, provided that a Manager Event of Default has not occurred and is not continuing under the Agreements as of such date; (b) termination of the Agreements in accordance with their terms, and payment to the Band of all amounts that may be due to it on such termination; or (c) entry of a Final Order directing such termination. 13. Band's Waiver of Sovereign Immunity and Consent to Suit. The Band expressly waives its sovereign immunity from suit for the purpose of permitting or compelling arbitration in disputes under or relating to this Agreement, and consents to be sued in a Court for the purpose of compelling arbitration or enforcing any arbitration award or judgment arising out of this Agreement; provided that such consent is limited to enforcement of awards or judgments relating to the Band's interest in the Account. If the United States District Court lacks jurisdiction, the Band consents to be sued in the Michigan State Court system for the same limited purposes. The Band waives any requirement of exhaustion of tribal remedies. Without in any way limiting the generality of the foregoing, the Band expressly authorizes any governmental authorities who have the right and duty under applicable law to take any action authorized or ordered by any such court, to give effect to any judgment entered; provided, 7 8 however, that in no instance shall enforcement of any kind whatsoever be allowed against any assets of the Band other than the Band's interest in the Account. 14. Arbitration. All disputes under or relating to this Agreement shall be subject to arbitration in accordance with Article 14 of the Development Agreement. 15. Miscellaneous a. This Agreement and the Account will be governed by the internal laws of the State of Minnesota. Bank and Lakes may not change the law governing the Account without Band's express written agreement. b. This Agreement may be modified only by a written amendment signed by all the parties hereto, and no waiver of any provision hereof shall be effective unless expressed in a writing signed by the party to be charged. c. The rights and remedies conferred upon the parties hereto shall be cumulative, and the exercise or waiver of any such right or remedy shall not preclude or inhibit the exercise of any additional rights or remedies. The waiver of any right or remedy hereunder shall not preclude the subsequent exercise of such right or remedy. d. The headings contained in this Agreement are for convenience of reference only and shall have no effect on the interpretation or operation hereof. e. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute one and the same instrument. f. To the extent a provision of this Agreement is unenforceable, this Agreement will be construed as if the unenforceable provision were omitted. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as a sealed instrument as of the date first above written. THE POKAGON BAND OF POTAWATOMI LAKES GAMING, INC. 8 9 INDIANS By: /s/ John Miller By: /s/ Timothy J. Cope ----------------------------- --------------------------------- Its: Council Chairman Its: Chief Financial Officer By: /s/ Kevin Daugherty ------------------------------ Its: Secretary 9 EX-10.68 9 MEMORANDUM OF AGREEMENT 1 Exhibit 10.68 MEMORANDUM OF AGREEMENT REGARDING GAMING DEVELOPMENT AND MANAGEMENT AGREEMENTS BETWEEN JAMUL INDIAN VILLAGE A FEDERALLY RECOGNIZED TRIBE AND LAKES KAR-CALIFORNIA, LLC A DELAWARE LIMITED LIABILITY COMPANY DATED: FEBRUARY 15, 2000 1 2 THIS MEMORANDUM OF AGREEMENT, is made and entered into this Fifteenth day of February 15, 2000 by and between the Jamul Indian Village, a federally recognized Indian tribe (hereinafter referred to as "the Tribe"), located in the State of California with tribal offices located at P.O. Box 612 14191 Hwy 94 #16, Jamul, California 91935 and Lakes KAR- California, LLC, a Delaware limited liability company (hereinafter referred to as "Developer" or "Manager"), whose business office is located at 130 Cheshire Lane, Minnetonka, MN 55305. RECITALS A. The Tribe is a federally recognized Indian tribe eligible for the special programs and services provided by the United States to Indians because of their status as Indians and is recognized as possessing powers of self-government. B. The United States government holds lands in the State of California in trust for the benefit of the Tribe ("Tribal Lands") over which the Tribe possesses sovereign governmental powers, and the Tribe intends to acquire other lands contiguous to its Tribal Lands, to be held also in trust for the Tribe by the federal government and over which the Tribe will possess sovereign governmental powers. C. In compliance with the Indian Gaming Regulatory Act of 1988, P.L. 100-497, 25 U.S.C. ss.2701 et seq. as it may from time to time be amended, the Tribal Council of the Tribe will enact a tribal ordinance regulating the operation of gaming activities on Tribal Lands (hereinafter referred to as the "Gaming Control Ordinance"), creating the Jamul Gaming Control Board, and authorizing Class II and Class III gaming on its Tribal Lands subject to the provisions of the Gaming Control Ordinance and a Tribal-State Compact. D. The Tribe is committed to the use of gaming activities to provide employment and improve the social, economic, education, and health needs of its members; to increase the revenues of the Tribe; and to enhance the Tribe's economic self-sufficiency and self-determination. E. The Tribe presently lacks the resources to develop and operate a gaming facility and enterprise on its own and desires to retain the services of a developer and manager with knowledge and experience in the gaming industry to secure financing, develop, manage and operate Class II and Class III gaming facilities and related resort facilities on property acquired for the project or held in trust for the Tribe by the United States. F. The Developer/Manager has represented to the Tribe that it has the managerial and financial capacity to provide and secure financing for the funds necessary to develop and construct the Facility, as defined herein, and to commence operation of the Enterprise, as defined herein; and Developer/Manager agrees to assist the Tribe in obtaining the capital investment necessary to the development of gaming facilities, and provide the management expertise necessary to the conducting of successful tribal gaming operations. 2 3 G. Kean Argovitz Resorts-Jamul L.L.C. ("KAR-Jamul") entered into Development and Management Agreements with the Jamul Indian Village (the "Tribe") dated February, 1999 (the "Development and Management Agreements"), pursuant to which KAR-Jamul was to develop and manage a gaming facility and certain related facilities to be owned by the Tribe. Lakes Gaming, Inc. and KAR-Jamul entered into an agreement under which they agreed to form Developer/Manager to assume the rights and obligations of KAR-Jamul in connection with the Development and Management Agreements. KAR-Jamul has assigned its rights and obligations under the Development and Management Agreements to Developer/Manager pursuant to the terms of an Assignment and Assumption Agreement. H. The Tribe has consented to the assignment of the Development and Management Agreements to Developer/Manager by KAR-Jamul and to Developer/Manager's assumption of KAR-Jamul's rights and responsibilities under the Development and Management Agreements. I. In accordance with Developer/Manager's assumption of KAR-Jamul's rights and responsibilities under the Development and Management Agreements, the Tribe desires to grant to Developer/Manager the exclusive right and obligation to develop, manage, operate and maintain the Facility and Enterprise as described in this Memorandum of Agreement, which is intended by the parties hereto to supercede and replace the Development and Management Agreements. J. This Memorandum of Agreement constitutes two separate and distinct agreements, a Development Agreement and a Management Agreement. The Development Agreement will commence on the date that this Memorandum of Agreement is executed by the parties and shall continue until Class II gaming and Class III Gaming commences at the Facility (the "Commencement Date"). The Management Agreement shall become effective when all the necessary approvals listed in Section 3.19 of this Memorandum of Agreement are received (the "Effective Date") and shall continue for a term of five (5) years from the Commencement Date, or as otherwise provided in this Memorandum of Agreement. K. The Tribe and Developer/Manager desire to enter into agreements whereby the preliminary Facility design and development work (but not the Facility construction or Enterprise operation) may proceed prior to receipt of necessary regulatory approvals. L. The Tribe and Developer/Manager desire to take all steps reasonably possible prior to the receipt of the necessary regulatory approvals: (i) to obtain a preliminary commitment for financing of the Facility, (ii) to select and develop the site for the Facility, (iii) to design the Facility, and (iv) to enter into contracts to construct and equip the Facility so that the Facility can be opened to the public as soon as possible after the receipt of all necessary regulatory approvals. M. Developer/Manager desires to advance to the Tribe, subject to the terms and conditions of the Transition Loan described herein, sums sufficient to finance performance of the preliminary development work described immediately above and for other purposes. The Tribe and Developer/Manager agree that all sums previously advanced to the Tribe by KAR-Jamul 3 4 under the superceded Development and Management Agreements shall constitute advances by Developer/Manager to the Tribe hereunder, be credited to Developer/Manager's obligations hereunder, and shall be subject to the terms of the Transition Loan herein. O. The Tribe has selected Developer/Manager, and the Developer/Manager has agreed, to assist the Tribe in obtaining permanent financing for the Project, subject to the terms and conditions of the Facility Loan described herein, and to furnish technical experience and expertise for the development and design of the Project, and for contracting for the construction, furnishing and equipping of the Project. P. This Memorandum of Agreement is entered into pursuant 25 U.S.C. ss.81 and to the Indian Gaming Regulatory Act of 1988, P.L. 100-497, 25 U.S.C. ss.2701 et seq. (the "IGRA") as that statute may be amended. All gaming conducted at the Facility will at all times comply with the IGRA, applicable tribal law and the Tribal-State Compact. Any dispute regarding this Memorandum of Agreement between the parties is understood to have arisen under IGRA and other applicable federal law. NOW, THEREFORE, in consideration of the hereinafter mutual promises and covenants, and for other good and valuable consideration as set forth herein, the receipt and sufficiency of which are expressly acknowledged, the Tribe and Developer/Manager agree as follows: ARTICLE 1 DEFINITIONS As they are used in this Memorandum of Agreement, the terms listed below shall have the meaning assigned to them in this Article: 1.1 "Approved Construction Budget" means the budget prepared in the manner set forth in Section 2.2(b) in connection with the development and construction of the Facility, which has been approved by Developer and the Tribe. 1.2 "BIA" means the United States Department of Interior Bureau of Indian Affairs. 1.3 "Class II Gaming" means games as defined in 25 U.S.C ss. 2703 (7) (A), as such law may be amended and as defined by the National Indian Gaming Commission in 25 C.F.R. ss. 502.3 and amendments thereto, but only to the extent such games are authorized by tribal ordinance and licensed by the Gaming Control Board. 1.4 "Class III Gaming" means all gaming that is not Class I or Class II Gaming as defined in the IGRA, including, but not limited to, the forms of gaming listed as Class III games by the National Indian Gaming Commission in 25 C.F.R. ss. 502.4 and amendments thereto, but only to the extent such gaming is allowed by the Tribal-State Compact, tribal ordinance, and licensed by the Gaming Control Board. 4 5 1.5 "Commencement Date" means the first day upon which the Facility is open to the public to engage in gaming activities, as determined pursuant to Section 3.19. 1.6 "Completion" means the completion of the Facility, or portions thereof, in substantial accordance with the Plans and Specifications, as evidenced by a completion certificate from the Architect that the Facility, or portions thereof, have been substantially completed in accordance with the Plans and Specifications. 1.7 "Construction Contract" means the contract between the Tribe and the General Contractor described in Section 2.4(b). 1.8 "Costs of Construction" means all costs incurred by the Tribe or Developer pursuant to this Memorandum of Agreement in the estimated amount in the aggregate to develop, construct and complete the Facility, including, without limitation, labor, materials, all furniture, fixtures and equipment (including gaming equipment) necessary for the opening of the Facility to the public, builder's risk insurance, surveys, permits, interest on the Facility Loan or transition Loan incurred prior to the opening of the Facility to the public, payment and performance bonds, architectural plans and services, and a resort feasibility study, but excluding Initial Costs of Operation. The final amount of costs to be included in the Costs of Construction shall be determined by mutual agreement of the parties and shall be documented in the Approved Construction Budget. 1.9 "Costs of Gaming Operation" means all fees imposed by the Gaming Control Board based upon the Enterprise's gross receipts from operation of Class II and Class III Gaming at the Facility, fees imposed upon the Enterprise by the National Indian Gaming Commission based upon its gross receipts from Class II and Class III Gaming, any contributions and license/regulatory fee reimbursements payable to the State pursuant to the Tribal-State Compact, the amount required by the Tribal-State Compact to fund or support programs for the treatment and assistance of compulsive gamblers and for the prevention of compulsive gambling, license or other fees for background investigations upon "key employees" and "primary management officials" as defined in 25 C.F.R. ss. 502.14 and ss. 502.19, depreciation applicable to the portion of the Facility in which the Enterprise operates Class II and Class III Gaming and depreciable items located therein, costs of administration, hiring, firing and training employees working in or for the Enterprise's Class II and Class III Gaming activities, compensation and benefits to such employees, and total gaming-related costs, fees and expenses, including, without limitation, materials, supplies, inventory, utilities, repairs, maintenance, insurance, bonding, marketing, advertising, annual audits, accounting, legal or other professional and consulting services, security or guard services, and such other costs, expenses or fees necessarily, customarily and reasonably incurred in the operation of the Enterprise's Class II and Class III Gaming, including Initial Costs of Operation that are expenses and not recorded on the books of the Enterprise as assets relating to Class II and Class III Gaming, and reasonable and necessary travel expenses incurred subsequent to execution of this Memorandum of Agreement for officers and employees of Manager and authorized representatives of the Tribe; provided, however, that "Costs of Gaming Operation" shall specifically not include any license fees or costs of Manager or its employees; or management fees paid hereunder to Manager. 5 6 1.11 "Costs of Incidental Operations" means all expenses and costs incurred in operating the hotel, restaurants, food and beverage service, office space, swimming pool, fitness center, childcare, kids arcade, golf course and other areas comprising the Facility in which the Enterprise conducts neither Class II Gaming nor Class III Gaming, including, without limitation, depreciation applicable to such non-gaming facilities, all employment costs relating to non-gaming employees working in or for the facilities, non-gaming supplies and materials, insurance and other non-gaming costs reasonably and customarily incurred in operation of such portion of the Enterprise in which neither Class II nor Class III Gaming may be conducted. 1.12 "Design Agreement" means the contract between the Tribe and the Architect described in Section 2.2(a). 1.13 "Development Agreement" shall mean that portion of this Memorandum of Agreement that deals with the development and construction of the Facility. The Development Agreement shall commence on the date this Memorandum of Agreement and shall continue until the Commencement Date. 1.14 "Developer" means Lakes KAR-California, LLC, a Delaware limited liability company with its business office located at 130 Cheshire Lane, Minnetonka, MN 55305. 1.15 "Effective Date" means the effective date of the Management Agreement portion of this Memorandum of Agreement as determined pursuant to Section 3.19. 1.16 "Enterprise" means the business enterprise of the Tribe created to engage in Class II and Class III Gaming at the Facility, and which shall include any other lawful commercial activity allowed in the Facility including, but not limited to, operating and managing office space, kids arcade, child care facility, hotel with swimming pool and golf course, restaurant, RV park, retail stores, entertainment facilities, or the sale of fuel, food, beverages, alcohol, tobacco, gifts, and souvenirs. 1.17 "Facility" means the permanent buildings, structures and improvements located on the Gaming Site and all fixtures, furnishings and equipment attached to, forming a part of, or necessary for the operation of the Enterprise. 1.18 "Facility Loan" means the loan arranged by Developer for the Tribe, as borrower, in an aggregate principal amount not to exceed one hundred fifty million dollars ($150,000,000) for Initial Costs of Operation and for Costs of Construction, which Facility Loan shall be further evidenced by the Facility Note and other loan documentation as further defined herein. 1.19 "Facility Note" means the promissory note evidencing the Facility Loan in a form to be agreed to by the parties. 1.20 "Fiscal Year" means the accounting year used for the operation of the Enterprise as agreed upon by Manager and the Tribe. 6 7 1.21 "Furnishings and Equipment" shall mean all furniture, furnishings and equipment required for the operation of the Enterprise in accordance with the standards set forth in this Memorandum of Agreement, including, without limitation: (i) cashier, money sorting and money counting equipment, surveillance and communication equipment, and security equipment; (ii) slot machines, video games of chance, table games, keno equipment and other gaming equipment; (iii) office furnishings and equipment; (iv) specialized equipment necessary for the operation of any portion of the Enterprise for accessory purposes, including equipment for kitchens, laundries, dry cleaning, cocktail lounges, restaurants, public rooms, commercial and parking spaces, and recreational facilities; and (v) hotel equipment (to the extent a hotel is included in the Enterprise); (vi) all other furnishings and equipment hereafter located and installed in or about the Facility which are used in the operation of the Enterprise in accordance with the standards set forth in this Memorandum of Agreement. 1.22 "Gaming Control Board" means the Jamul Gaming Control Board created by Jamul Gaming Control Ordinance No. as such ordinance now exists or may in the future be amended, with authority to license and regulate gaming activities on Tribal Lands and which is a subordinate governmental entity of the Tribe and is entitled to all sovereign governmental immunity of the Tribe; which ordinance was approved by the NIGC on . 1.23 "Gaming Site" shall mean any parcel(s) of Tribal Lands in California identified by the Tribe, after approval by Developer/Manager, as suitable for development of the Facility and operation of the Enterprise which is in trust, contiguous to a trust parcel or which meets the requirements of United States of America to be accepted in trust for the Tribe for Class II and Class III Gaming purposes. 1.24 "General Contractor" shall mean the person or entity selected by the Tribe and approved by Developer pursuant to Section 2.4 to construct the Facility. 1.25 "Governmental Authorities" means the United States federal government, the BIA, the State, the State Gaming Agency, the Tribal Council, the National Indian Gaming Commission, the Gaming Control Board, and any court, agency, department, commission, board, bureau or instrumentality, or any of them to the extent each has legal jurisdiction over the Class II and Class III Gaming activities, Tribal Lands, the construction and operation of the Facility and Enterprise thereon, or Developer/Manager's performance under this Memorandum of 7 8 Agreement. 1.26 "Gross Gaming Revenues" means the Enterprise's total revenue from Class II Gaming and Class III Gaming activities. 1.27 "Gross Incidental Revenues" means the Enterprise's total receipts from the sale of food, beverages, souvenirs and any other goods and services supplied for non-Class II and Class III Gaming activities that are incidental to the operation of the Enterprise. 1.28 "Gross Total Revenues" means the total of Gross Gaming Revenues and Gross Incidental Revenues of the Enterprise. 1.29 "IGRA" means the Indian Gaming Regulatory Act of 1988, P.L. 100-497, as codified at 25 U.S.C. ss.ss. 2701 et. seq. , as such may be amended from time to time. 1.30 "Initial Costs of Operation" means all Costs of Operation advanced to the Tribe pursuant to Section 2.8 and 6.2, prior to the opening of the Facility to the public, including, but not limited to, advance payments or deposits to providers of goods and services, cash for bankrolls and slot hoppers, pre-opening payroll, cash for payment of prizes, legal, licensing, marketing, employee hiring and training, and all costs associated with grand opening events and any "fun" nights held prior to the public opening of the Facility. Initial Costs of Operation shall also include any costs incurred by either party in obtaining regulatory approval of this Memorandum of Agreement, but not those costs incurred by the parties, prior to execution, in negotiating this Memorandum of Agreement. 1.31 "Interim Promissory Note" means the promissory note evidencing the Transition Loan in a form to be agreed to by the parties attached hereto as Exhibit F. 1.32 "Legal Requirements" means any and all present and future judicial, administrative, and tribal rulings or decisions, and any and all present and future federal, state, local and tribal laws, ordinances, rules, regulations, permits, licenses and certificates, in any way applicable to the Tribe, Developer/Manager, the Tribal Lands, the Gaming Site, the Facility, and the Enterprise, including without limitation, the IGRA, the Tribal-State Compact, and the Tribe's Gaming Control Ordinance. 1.33 "Limited Recourse" means that the Facility Loan and Transition Loan advances, and all liabilities of the Tribe related to this Memorandum of Agreement, the Facility Loan or Facility Note, the Interim Promissory Note, any UCC financing Statements and their applicable documentation, the Facility, or the Enterprise contemplated by this Memorandum of Agreement, and any related awards, judgments or decrees, shall be payable solely out of undistributed future Net Total Revenues of the Enterprise and shall be a limited recourse obligation of the Tribe, with no recourse to tribal assets other than such undistributed future Net Total Revenues (except as to a security interest in the Furnishings and Equipment purchased with Facility Loan or Transition Loan proceeds or other purchase money agreements, and (ii) the mortgage or deed of trust on the Gaming Site prior to its transfer into trust). In no event shall Developer/Manager or any lender 8 9 or other claimant have recourse to (a) the physical property of the Facility (other than Furnishings and Equipment subject to the security interest securing the Facility Loan or Transition Loan or other purchase money agreements), (b) Net Total Revenue distributions already made to the Tribe, (c) assets of the Tribe purchased with its Net Total Revenue distributions, (d) revenues or assets of any other gaming facility owned or operated by the Tribe, or (e) any other asset of the Tribe (other than the mortgage or deed of trust on the Gaming Site prior to its transfer into trust, and such undistributed future Net Total Revenues of the Enterprise). 1.34 "Manager" means Lakes KAR-California, LLC, a Delaware limited liability company with its business office is located at 130 Cheshire Lane, Minnetonka, MN 55305. 1.35 "Management Agreement" shall mean the portion of this Memorandum of Agreement that deals with the management of the Facility and the Enterprise. The commencement date of the Management Agreement shall be the Commencement Date as set out in Section 3.19. 1.36 "Memorandum of Agreement" means the two distinct agreements contained in this document, the Development Agreement and the Management Agreement, and all amendments hereto. 1.37 "Minimum Guaranteed Monthly Payments" means the minimum monthly amount payable to the Tribe, which amount shall be determined pursuant to Section 6.3 hereof. 1.38 "National Indian Gaming Commission"or "NIGC" means the commission established pursuant to the IGRA. 1.39 "Net Gaming Revenues" means Gross Gaming Revenues less (1) amounts paid out as, or paid for, prizes; and (2) Costs of Gaming Operation, excluding management fees, as defined herein and in 25 C.F.R. ss. 502.16. 1.40 "Net Incidental Revenues" means Gross Incidental Revenues less Costs of Incidental Operations. 1.41 "Net Total Revenues" means the sum of Net Gaming Revenues plus Net Incidental Revenues. 1.42 "NIGC Approval" means (a) a determination by the NIGC that Manager is suitable for licensing and (b) written approval by the NIGC Chairman of this Memorandum of Agreement, including the Management Agreement herein. 1.43 "Plans and Specifications" means the approved plans, drawings, and specifications for the Facility pursuant to Section 2.2(b). 1.44 "Project" means the scope of the development project contemplated by this Memorandum of Agreement, established in the Design Agreement and approved by the parties 9 10 pursuant to Section 2.2(a). 1.45 "Property" means those parcels of Tribal Lands, agreed to by the parties, upon which the Tribe will build the Facility, and which parcel is held by the United States in trust for the Tribe, or will be placed in trust, and any other land or rights-of-way acquired for development of the Project. 1.46 "Resolution of Limited Waiver" refers to the limited waiver of sovereign immunity to be adopted by the Tribe in the form required and evidencing all approvals required pursuant to the Tribe's governing documents and applicable law in the form approved by the parties, and attached hereto as Exhibit C . 1.47 "Request for Advance" means any request by the Tribe for funds to pay for Project expenses incurred in connection with either approved Costs of Construction or Initial Costs of Operation pursuant to either Sections 2.5(a) or 2.5(b). 1.48 "Secretary" means the Secretary of the Interior of the United States, or his appropriately designated representative/agent. 1.49 "State" means the State of California. 1.50 "Chairperson" means the chief executive officer of the Tribe. 1.51 "Transition Loan" means the loan or advances made to the Tribe directly by Developer/Manager pursuant to Section 2.3 evidenced by the Interim Promissory Note. 1.52 "Executive Committee" means the governing body of the Tribe. 1.53 "Tribal Lands" means all lands presently and in the future held in trust by the United States for the Tribe and all lands within the confines of the Jamul Indian Reservation and to such lands as may be hereafter added thereto. 1.54 "Tribal-State Compact" means the agreement between the Tribe and the State approved on , as published in the Federal Register, concerning Class III Gaming and any amendments or other modifications thereto. 1.55 "Tribe" means the Jamul Indian Village. 1.56 "UCC Financing Statements" means UCC-1 financing statements naming Tribe as debtor and naming the lender and Developer/Manager as secured parties, in the form approved by the parties. 10 11 DEVELOPMENT AGREEMENT PROVISIONS ARTICLE 2 GAMING SITE SELECTION; CONSTRUCTION AND FINANCING 2.1 Gaming Site Selection. (a) As soon as reasonably possible after signing this Memorandum of Agreement, Developer shall recommend to the Tribal Council one or more sites for constructing the Facility on Tribal Lands, including advice as to the suitability of each site for the Facility. The Tribal Council shall then select the Gaming Site, after approval by Developer. (b) It is understood that acquisition of additional land may be necessary to ensure the success of the Enterprise and to be used as the Gaming Site. The Developer, through its designees, nominees or members, presently holds or intends to hold interests in lands contiguous to the Tribal Lands which the Tribe intends to acquire and add to its Tribal Lands ("Acquired Tribal Lands", a legal description of which is attached hereto as Exhibit A), to be held in trust for the Tribe by the United States, and over which the Tribe will possess sovereign governmental powers. The Developer agrees to transfer its interests in the Acquired Tribal Lands to the Tribe upon the Effective Date of the Management Agreement portion of this Memorandum of Agreement, such transfer to be without warranty or other recourse except as described below. All amounts advanced by Developer to acquire its interest in the Acquired Tribal Lands transferred to the Tribe, in an amount not to exceed $10,000,000 shall be included as a Costs of Construction and reimbursed to Developer by the Tribe from proceeds of the Facility Loan within thirty (30) days of the Tribe's receipt of the loan proceeds; if the Facility Loan is not obtained by the Tribe from a lender, then all amounts advanced by the Developer to acquire its interest in the Acquired Tribal Lands shall be repaid subject to the terms of the Transition Loan under Section 2.3 below. 2.2 Architects, Studies, Plans and Specifications. (a) As soon as reasonably possible after signing this Memorandum of Agreement, the Tribe, based upon the recommendation and subject to the approval of Developer, shall select an architect (the "Architect") for the purpose of performing certain services in connection with the design and construction of the Facility, including site development. The Tribe's agreement with the Architect shall be in the form of a contract (the "Design Agreement") approved by Developer and the Tribal Council. The scope of the project contemplated by this Memorandum of Agreement (the "Project"), shall be stated and established in the Design Agreement, and shall be subject to the mutual approval of the parties. It is contemplated the scope of the Project will be substantially as described on Exhibit B, subject to such changes as may be necessary or appropriate taking into account competitive conditions, financing and other 11 12 circumstances. The parties understand that market, Tribal-State Compact, governmental or other conditions may change and it may be necessary to expand or decrease the scope of the Project before construction is commenced. The Design Agreement shall also provide for and establish appropriate design packages, each pertaining to a discrete portion or phase of the Project. The Design Agreement shall allow Developer the right and responsibility to supervise, direct, control and administer the duties, activities and functions of the Architect and to efficiently carry out its covenants and obligations under this Memorandum of Agreement (b) The Architect shall be responsible for creating the Plans and Specifications and a budget for all Costs of Construction, both of which shall be subject to the mutual approval of the Tribe and Developer prior to the commencement of construction of the Facility. The Costs of Construction budget shall not be exceeded unless mutually agreed otherwise in writing by the Tribe and Developer, except Developer may in its discretion reallocate part or all of the amount budgeted with respect to any line item to another line item and to make such other modifications to the Approved Construction Budget as Developer deems necessary or appropriate; provided any increase or decrease of more than ten percent (10%) in the Approved Construction Budget requires the written approval of the Tribe. The Architect shall also supervise the completion of all construction, development and related activities undertaken pursuant to the terms and conditions of the Construction Contract with the General Contractor. (c) The Tribe, using funds advanced to it under the Facility Loan or Transition Loan, shall provide funds necessary for the design, construction and development of the Facility and Enterprise, including architectural and engineering costs. The fee for the Architect's services shall: (i) be agreed to by the Tribe and Developer; (ii) be advanced by Developer to the Tribe; and (iii) be repaid by the Tribe to Developer according to the terms of the Interim Promissory Note. Following Completion or in the event of a termination of this Memorandum of Agreement, it is agreed between the parties hereto that the Plans and Specifications and all other design documents shall be owned by Tribe. (d) The Facility shall be designed and constructed so as to adequately protect the environment and the public health and safety. The design, construction and maintenance of the Facility shall, except to the extent a particular requirement or requirements may be waived in writing by the Tribal Council, meet or exceed all reasonable minimum standards pertaining to the Tribe and national, State and local building codes, fire codes and safety and traffic requirements (but excluding planning, zoning and Gaming Site use laws, ordinances, regulations and requirements), which would be imposed on the Enterprise by existing State or federal statutes or regulations which would be applicable if the Facility were located outside of the jurisdictional boundaries of the Tribe, even though those requirements may not apply within the Tribe's jurisdictional boundaries. To the extent that the Tribe has adopted or may in the future adopt more stringent requirements, those requirements shall govern. Nothing in this subsection shall grant to the State or any political subdivision thereof any jurisdiction (including but not limited to, jurisdiction regarding zoning or Gaming Site use) over the Facility or Enterprise or its development, management and operation. (e) Any costs incurred by the Tribe in connection with the activities described in 12 13 Sections 2.1 or 2.2 may be financed in advance of the Tribe obtaining any permanent financing of the Project by advances from Developer/Manager to the Tribe, repayable under the Transition Loan on the terms and conditions described in the Interim Promissory Note, in the form agreed by the parties. 2.3 Pre-Construction Advances and Terms of Transition Loan. (a) Developer agrees to make the following pre-construction advances to the Tribe: (i) fifty thousand dollars ($50,000) upon execution of this Memorandum of Agreement; (ii) forty thousand dollars ($40,000) each month until the Effective Date of the Management Agreement portion of this Memorandum of Agreement; (iii) one hundred thousand dollars ($100,000) each month from the Effective Date until the Commencement Date or until the Memorandum of Agreement is terminated or its term expires, whichever is sooner; and (iv) advances for costs incurred in connection with the activities described in Sections 2.1 or 2.2. The Tribe and Developer/Manager agree that all sums previously advanced to the Tribe by KAR-Jamul under the superceded Development and Management Agreements shall constitute advances by Developer/Manager to the Tribe hereunder and be subject to the terms of the Transition Loan herein (b) The parties acknowledge that some Jamul tribal members will have to be temporarily re-located during the construction of the Facility. Should such tribal members have to be re-located prior to the Effective Date of the Management Agreement, Developer agrees top advance funds (in an amount not to exceed $ ) to cover the reasonable re-location costs of such members. Upon the Effective Date, and upon the Tribe's receipt of the increased monthly payments referenced in (a) above, these additional advance payments to the Tribe shall terminate. Any amounts advanced hereunder shall be included in the Transition Loan and repaid according to the terms thereof. (c) The total amount of funds advanced to the Tribe directly from Developer shall equal the total cost of the Transition Loan. The total amount of the Transition Loan shall be in an amount not exceeding twenty million dollars ($20,000,000). The Transition Loan shall accrue interest at the prime interest rate of Chase Manhattan Bank plus two percent (2%), fixed from the date the funds are advanced to the Tribe, with repayment of principal and interest to be made in equal monthly installments over a term of one (1) year commencing on the thirtieth (30th) day after the Commencement Date. (d) The Transition Loan shall (i) be subject to all the terms and conditions of this Memorandum of Agreement; (ii) be evidenced by the Interim Promissory Note executed by Tribe, in the form agreed by the Tribe and Developer; and (iii) be repaid solely as a Limited Recourse obligation of the Tribe without any cross collateralization from other projects of Tribe and without any other liability or guarantee on the part of the Tribe. Except for the Minimum Guaranteed Monthly Payment to the Tribe and repayment of the Facility Loan, repayment of the Transition Loan shall have first priority on any Net Gaming and Net Incidental Revenues generated by the Enterprise. The Tribe agrees to grant to Developer a security interest on any Net Gaming and Net Incidental Revenues of the 13 14 Enterprise in order to secure repayment of the Interim Promissory Note. The Tribe agrees not to encumber any of the assets of the Facility or the Enterprise without the written consent of Developer, which consent will not be unreasonably withheld; except that the Tribe shall have the right without the consent of Developer to grant subordinate security interests in the Enterprise's revenues. The Tribe agrees to enter into a limited, transactional waiver of sovereign immunity and consent to jurisdiction and arbitration as to Developer and in connection with the Transition Loan, as provided in the Resolution of Limited Waiver. (e) The Tribe shall retain the right to prepay the Transition Loan, in whole or in part, without imposition of any prepayment penalty. (f) It is the understanding of the parties that the Transition Loan will be the sole responsibility of Tribe, will be a Limited Recourse obligation of the Tribe, and will not be subject to any other guarantee or obligation on the part of the Tribe. 2.4 Construction. (a) Developer shall arrange financing for the Costs of Construction pursuant to Section 2.5. (b) As soon as reasonably possible after the approval of the Plans and Specifications and the budget for the Costs of Construction, the Tribe, with the assistance of the Architect, shall enter into a contract with a General Contractor pertaining to the construction of the Facility (the "Construction Contract"), subject to the approval of such contract by Developer. The General Contractor must (i) exhibit the financial capability to complete the work, (ii) have the ability to obtain adequate payment and performance bonds and builder's risk insurance in amounts requested by Developer and Tribe, (iii) provide an acceptable bid, as mutually agreed upon by Tribe and Developer, (iv) be capable of meeting the construction schedule and (v) construct quality facilities. The General Contractor shall be responsible for providing, including through subcontractors, all material, equipment and labor to construct and initially equip the Facility as necessary in conformance with the Plans and Specifications, including site development. (c) The Construction Contract shall contain such provisions for the protection of the Tribe and Developer as the parties deem appropriate, and shall provide that construction of the Facility shall commence within thirty days of the parties receiving NIGC Approval, following and subject to the granting of all approvals necessary to commence construction and obtaining the Facility Loan; and shall also provide that the General Contractor, and all its subcontractors, shall exert its best efforts to complete construction within such time as the Tribe and Developer agree, but which shall not exceed one year following NIGC Approval. The General Contractor shall, at a minimum, warrant its work to be performed free of defects and unworkmanlike labor for at least one year after Completion or not less than the maximum period subsequent to Completion customarily covered by the liability and errors and omissions insurance policy a General Contractor would usually obtain in the State, whichever is longer. The General Contractor shall also be required to obtain before construction commences and maintain until 14 15 Completion a policy of insurance in an amount at least equal to the estimated Cost of Construction of the Facility naming the Tribe as an additional insured; said policy to be issued by an insurance company licensed by the State and having an AM Best rating of A7 or better. (d) Construction change orders to the Plans and Specifications shall require written approval of the Architect, Tribe and Developer and a representative of the Gaming Control Board if required by applicable law. It is agreed that if completion of the construction, equipping and furnishing of the Facility cannot be reasonably accomplished within the budget for Costs of Construction to be agreed upon pursuant to Section 2.2(b) above, then, Tribe, upon receiving advice from Developer and Architect, shall promptly determine which components of the Facility shall be deleted or reduced in size, such that the total expenditures for Costs of Construction shall not exceed the approved budget. (e) Developer reserves the right, as a Cost of Construction, to inspect the Facility prior to the disbursement of each requested advance of funds, and (i) approve the progress and the workmanship of the construction; (ii) verify compliance with the Plans and Specifications; (iii) verify the percentage of the Completion as set forth in requests for advance; and (iv) satisfy itself that all work for which such advance is requested has been performed and all materials for which such advance is requested are in place or, as to stored materials, are owned by the Tribe and suitably safeguarded. Such inspection will be performed in a timely manner and not unreasonably delay the disbursement of any advance. (f) Final acceptance of construction of the Facility shall not occur until (i) evidence of Completion has been received and approved by Tribe, (ii) a fully executed indemnity or release from liens is received from the General Contractor and all subcontractors, (iii) any other documentation reasonably requested by the Tribe, the Gaming Control Board or Developer is received from the General Contractor and (iv) all approvals have been received from all Governmental Authorities from which approvals are required. (g) Developer, with the assistance of the Architect, shall submit to the Tribal Council, for its review and approval, the specifications for Furnishings and Equipment. Thereafter, Developer shall select and procure vendors for purchase by the Tribe of Furnishings and Equipment required to operate the Enterprise in conformity with such specifications. The cost of Furnishings and Equipment shall be financed through the Facility Loan. Alternatively, in the sole discretion of the Tribe, Developer may arrange for the procurement of Furnishings and Equipment on lease terms consistent with the terms provided as to the Facility Loan. (h) The Tribe shall keep the Facility and Gaming Site free and clear of all mechanic's and other liens resulting from the construction of the Facility, which shall at all times remain the property of the Tribe. If such lien is claimed or filed, it shall be the responsibility of the Enterprise to discharge the lien within thirty days after receiving written notice of such claim. The Tribe shall indemnify and hold harmless Developer/Manager for any pre-existing conditions on the Gaming Site and for any other prior agreements entered into by the Tribe with any persons or entities in connection with development of the Facility and the Enterprise, including but not limited to, Indian Gaming of America, Inc. 15 16 (i) The Tribe shall select an individual of its choice knowledgeable inn construction practices to act as the Tribe's construction monitor. The construction monitor shall be allowed access to all project contracts, including plans, designs, and construction cost information. The construction monitor shall inspect and approve each phase of construction, including change orders, before each subsequent phase may be initiated. The construction monitor shall inspect and shall not unreasonably withhold approvals within twenty-four (24) hours of notification. The construction monitor shall be compensated at a commercially reasonable rate to be agreed by the parties, and the fees for such services shall be a pre-development cost of the Enterprise; to be repaid under the Construction Loan herein and according to its terms thereof. 2.5 Financing Obligation and Terms of Facility Loan. (a) Commencing on the Effective Date of the Management Agreement portion of this Memorandum of Agreement, and subject to satisfaction of each of the conditions set forth in Section 2.6(a) below, Developer will, upon Developer's approval of requests to advance funds ("Requests for Advance"), either arrange for a lender to loan to the Tribe under the Facility Loan or advance directly to the Tribe for the benefit of Tribe funds for the actual Costs of Construction up to an aggregate of the Approved Construction Budget approved by the parties. Such amounts loaned or advanced for Costs of Construction shall be payable and accrue interest on terms as set forth in the Facility Note, in the form agreed to by the Tribe and the lender or Developer. All advances of Costs of Construction shall be recorded by Developer on a schedule to be attached to the Facility Note. (b) Commencing on the Effective Date of the Management Agreement portion of this Memorandum of Agreement, and subject to satisfaction of each of the conditions set forth in Section 2.6(b) below, Developer will either arrange to have a lender loan the Tribe under the Facility Loan or advance directly to the Tribe funds up to the amount of the approved budget to finance the Initial Costs of Operation. All amounts loaned or advanced for Initial Costs of Operation shall be payable and accrue interest on terms as set forth in the Facility Note. All advances of Initial Costs of Operations shall be recorded by Developer on a schedule to be attached to the Facility Note. (c) The Costs of Construction and Initial Costs of Operation shall equal the total cost of the Facility Loan. The total amount of the Facility Loan, or advances if made directly by Developer, shall be in an amount up to but not exceeding one hundred fifty million dollars ($150,000,000). The Facility Loan, or total advances if made directly by Developer, shall accrue interest at the prime interest rate of Chase Manhattan Bank plus two percent (2%), fixed from the date the funds are advanced to the Tribe, with repayment of principal and interest to be made in equal monthly installments over a term of five (5) years commencing on the thirtieth (30th) day after the Commencement Date, or seven (7) years if the Management Agreement portion of this memorandum of Agreement is extended pursuant to Section 3.19 of this Memorandum of Agreement. 16 17 (d) The Facility Loan, or total advances if made directly by Developer, shall (i) be subject to all the terms and conditions of this Memorandum of Agreement; (ii) be evidenced by the Facility Note executed by Tribe; and (iii) be repaid solely as a Limited Recourse obligation of the Tribe without any cross collateralization from other projects of Tribe and without any other liability or guarantee on the part of the Tribe. Except for the Minimum Guaranteed Monthly Payment to the Tribe, repayment of the Facility Loan, or total advances if made directly by Developer, shall have first priority on any Net Gaming and Net Incidental Revenues generated by the Enterprise. The Tribe agrees to grant to the lender, or to Developer to the extent Developer makes advances directly to the Tribe, a security interest on any Net Gaming and Net Incidental Revenues of the Enterprise in order to secure repayment of the Facility Note. The Tribe agrees not to encumber any of the assets of the Facility or the Enterprise without the written consent of Developer and the holder of the Facility Loan, which consent will not be unreasonably withheld; except that the Tribe shall have the right without the consent of Developer and such holder to grant subordinate security interests in the Enterprise's revenues. The Tribe agrees to enter into a limited, transactional waiver of sovereign immunity and consent to jurisdiction and arbitration as to the holder of the Facility Loan, or to Developer to the extent Developer makes advances directly to the Tribe, as provided in the Resolution of Limited Waiver. (e) The Tribe shall retain the right to prepay the Facility Loan, or total advances if made directly by Developer, in whole or in part, without imposition of any prepayment penalty. (f) It is the understanding of the parties that the Facility Loan, or total advances if made directly by Developer, will be the sole responsibility of Tribe, will be a Limited Recourse obligation of the Tribe, and will not be subject to any other guarantee or obligation on the part of the Tribe. 2.6 Conditions Precedent to Facility Loan. (a) The obligation of Developer to arrange for the issuance of the Facility Loan to the Tribe, or to make direct advances to the Tribe, for the initial or any subsequent advance of Costs of Construction pursuant to Section 2.5(a) above is subject to the following conditions: (i) The Facility Loan and related Facility Note, UCC Financing Statements or other related documentation required shall be dated and duly executed and delivered by the Tribe and shall have been approved by the BIA or National Indian Gaming Commission if required by applicable law. (ii) The Management Agreement portion of this Memorandum of Agreement shall have become effective pursuant to Section 3.19 and Developer shall have received an opinion of counsel for the Tribe concerning the enforceability of this Memorandum of Agreement and the Facility Note against 17 18 the Tribe and the authority of the Tribe to execute this Memorandum of Agreement and the Facility Note. (iii) Developer shall have received and approved the Plans and Specifications, the budget for the Costs of Construction, and the executed Construction Contract in accordance with Sections 2.2 and 2.4. (iv) Developer shall have received evidence that the Gaming Site is held in trust by the United States of America, as trustee for the Tribe. (v) Developer shall have received and approved evidence of the bonds and insurance required of the General Contractor pursuant to Section 2.4(b). (vi) Tribe shall have furnished to Developer a survey of the Gaming Site prepared by a BIA approved land surveyor, which survey shall locate all property lines, existing access ways, building setback lines and easements affecting the Gaming Site identified by book and page of recording, where applicable, water, electric and sewer lines, and other physical matters, including encroachments, if any, affecting the title and use of the Gaming Site. The survey shall set forth the exact legal description of the Gaming Site. Tribe further agrees to furnish to Developer a copy of the recorded plat, if any, applicable to the Gaming Site. All surveys required hereunder shall contain a certificate in favor of, and in form and substance satisfactory to, Developer. (vii) Developer shall have received satisfactory evidence that all permits or other authorizations, including, and without limitation, the building permit(s), required by any applicable Governmental Authority to authorize construction of the Facility have been issued and are in full force and effect. If all permits are not available prior to the closing of the Facility Loan, it shall be within Developer's discretion to arrange for the advance by a lender of such sums under the Facility Loan for work for which all applicable permits have been received. At Developer's option, the Tribe shall furnish Developer reasonable evidence that all other permits required in order to construct the Facility in accordance with the Plans and Specifications, and within the Approved Construction Budget, will be available when necessary. (viii) Developer shall have received satisfactory evidence of the availability of adequate water, electricity, telephone, sanitary sewer, and, if applicable, storm sewer service to the Facility to be provided as part of the Costs of Construction or otherwise as agreed to by the parties. (ix) All representations and warranties of the Tribe shall be true and correct, this Memorandum of Agreement shall remain in effect, and the Tribe shall not be in default under this Memorandum of Agreement on the date of each advance. 18 19 (x) There shall be no pending or threatened litigation, claim or dispute which, in Developer 's good faith judgment, might materially adversely affect the ability of the Tribe to timely perform its obligations under this Memorandum of Agreement, including, without limitation, a ruling that the Tribal-State Compact is void for purposes of the IGRA. Developer acknowledges, however, that prior lawsuits have ben filed by certain tribal members claiming to represent the Tribe. Developer does not foresee future actions of this nature to materially affect the ability of the Tribe to perform. Further, Tribe shall not be the subject of any pending or threatened bankruptcy, insolvency, reorganization or similar proceedings which, in Developer 's good faith judgment, would materially adversely affect the security for the Facility Loan or the Tribe's ability to perform its obligations under this Memorandum of Agreement or the Facility Note. (xi) Developer shall have received satisfactory evidence that the Gaming Site is free from environmental contamination of any nature whatsoever or any other environmental condition that would require any remediation pursuant to any applicable Legal Requirement. (b) The obligation of the Developer to arrange for a lender to make the initial or any subsequent advances for Initial Costs of Operation, or to make such advances directly to the Tribe, is subject to the conditions precedent set forth above in subparagraphs 2.6(a) (i), (ii), (ix), (x) and (xi). 2.7 Advances for Costs of Construction. Nothing herein contained shall obligate Developer to arrange for a lender to advance the Costs of Construction, or make advances directly to the Tribe, for payment of any item not included in or in an amount in excess of the Approved Construction Budget. (a) Subject to the provisions of Section 2.7 (c) relating to retainage, Developer shall arrange for a lender to make advances, or make advances directly, to the Tribe for materials purchased by the Tribe and stored on or off the Gaming Site but not yet incorporated into the Facility only if Tribe provides evidence satisfactory to Developer that such stored materials are protected against theft and damage. (b) Unless it otherwise agrees, Developer shall not be required to arrange for a lender to make advances, or make advances directly to the Tribe, for Costs of Construction under the Facility Note more often than once monthly. Advances for Costs of Construction will be made based upon the progress of construction as verified by Requests for Advance approved and certified by the Architect. (c) Subject to the provisions of the Construction Contract entered into between Tribe and the General Contractor, Developer may retain from each advance for payment of Costs of Construction to the General Contractor an amount equal to ten percent 19 20 (10%) (or other lower retainage as may be agreed upon by Developer and set forth in the Construction Contract with the General Contractor) of the amount of each Request for Advance. (d) Developer shall not be obligated to arrange for a lender to make the final advance, or make the final advance directly to the Tribe, for Costs of Construction until the following conditions have been satisfied: (i) all conditions stated in this Section 2.7 and Section 2.4(f) shall have been satisfied; and (ii) Developer shall have received the following: 1) evidence that all work requiring inspection by any Governmental Authorities having jurisdiction over the Facility has been inspected and approved by such authorities and that all other required certificates and approvals have been issued; 2) an as-built survey showing the Gaming Site, the Facility, including, without limitation, the building, parking areas (including parking spaces designated as regular, compact or handicapped spaces), walkways, driveways, access ways to public streets, signs, and any encroachments; and 3) a certificate from the Architect to the effect that the Facility (including landscaping and on-site and any off-site improvements) have been completed substantially in accordance with the Plans and Specifications and that direct connection has been made to all appropriate utility facilities. 2.8 Advances for Initial Costs of Operation. Advances under the Facility Note for Initial Costs of Operation will be arranged by Developer with a lender, or made directly by Developer to the Tribe, upon written request by the Tribe within the budget for Initial Costs of Operation approved pursuant to Section 6.1(b) and if supported by invoices or other documentation as Developer may reasonably require. Any Initial Cost of Operation exceeding the sum of One Hundred and Twenty Five Thousand Dollars ($125,000) shall require the signed consent of the Tribe. In addition, Developer is hereby authorized to make direct payments for Initial Costs of Operation incurred by Developer/Manager in its role as agent for the Tribe, subject to the accounting and record keeping provisions of Section 3.4(d), and the above dollar limitation. Developer shall provide the Tribe with monthly reports of all advances for Initial Costs of Operation that shall compare actual advances with the budget for Initial Costs of Operation prepared pursuant to Section 6.1(b). 2.9 Title to Facility. The Facility shall be the sole and exclusive property of the Tribe, subject to no liens or encumbrances except for any liens in favor of the lender and Developer granted herein or others permitted herein. 2.10 No Liens. During the term of this Memorandum of Agreement, neither the Tribe nor Developer shall act in any way whatsoever, either directly or indirectly, to cause any other party to lease or to become a lienholder of the Gaming Site, Facility or the Enterprise, except as expressly agreed to by the parties or permitted herein. 2.11 Limited Waiver of Sovereign Immunity. By this Memorandum of Agreement, the Tribe does not waive, limit, or modify its sovereign immunity from unconsented suit except as provided in the Resolution of Limited Waiver. The Tribe understands that its agreement to adopt an enforceable Resolution of Limited Waiver is a material inducement to the Developer's execution of this Memorandum of Agreement and is a condition precedent to any of the respective obligations of the parties under this Memorandum of Agreement. The Tribe further 20 21 agrees that it will not amend or alter or in any way lessen the rights of the lender or Developer as set forth in the Resolution of Limited Waiver, which is attached hereto as Exhibit C and incorporated here by reference. This Section 2.11 shall survive the termination of this Memorandum of Agreement, regardless of the reason for the termination. 2.12 Exclusivity. During the term of this Memorandum of Agreement, the Tribe shall have an exclusive relationship with Developer regarding all Class II and Class III Gaming and Incidental Operations development on Tribal Lands, and the development of the Facility and the Enterprise. Except for the restrictions in Section 10.21, nothing herein shall be deemed to restrict Developer's gaming activities related to commercial or Indian gaming. 2.13 Independent Agreement. The objective of the Tribe and Developer in entering into and performing this Development Agreement of this Memorandum of Agreement is to provide a legally enforceable procedure and agreement pursuant to which Developer will make certain advances and loans to the Tribe for the development of the Facility prior to the approval of the Management Agreement by the NIGC and the obtaining of any other necessary approvals so that the Project can commence operation as soon as possible; and to set forth the rights and obligations of the parties if approval of the Management Agreement by the NIGC does not occur or if the Project is unable to be developed for any other reason. This Development Agreement is intended to be a legally enforceable agreement, independent of the Management Agreement, which shall enter into effect when executed and delivered by the parties, and be enforceable between the parties regardless of whether or not this Memorandum of Agreement or the Management Agreement is approved by the Chairman of the NIGC. 2.14 Term of Development Agreement. The Development Agreement portion of this Memorandum of Agreement shall become effective upon execution by both the Tribe and Developer. Unless sooner terminated as provided in this Memorandum of Agreement, the term of the Development Agreement shall run from its execution date until the earlier of either (i) the Commencement Date; or (ii) five (5) years after February 26, 1999. MANAGEMENT AGREEMENT PROVISIONS ARTICLE 3 AUTHORITY AND DUTY OF MANAGER 3.1 Appointment as Agent. Subject to the terms and conditions of this Memorandum of Agreement, the Tribe hereby appoints Manager to act as the exclusive agent for the Tribe for all matters related to the Facility and the Enterprise during the term of the Management Agreement. Manager's agency responsibilities shall include, among other things, maintenance and improvement of the Facility, management and operation of the Enterprise's Class II and Class III Gaming activities within the Facility, and all other revenue producing activities that are conducted by the Enterprise, such as the sale of food and beverages in the Facility. Manager accepts such appointment as the Tribe's exclusive agent for the term of this Memorandum of 21 22 Agreement. Subject to the provisions of this Memorandum of Agreement and specifically the restrictions in this Article 3, Manager shall have, and the Tribe does hereby grant to Manager, the power and authority as agent for the Tribe, to exercise the rights of the Tribe under and to execute, modify, or amend any contracts, including, without limitation, purchase orders, leases, contracts for services, including utilities, and maintenance and repair services, relating to the operation of the Facility and the Enterprise except for contracts or compacts with the State which shall remain the authority of the Tribe. Notwithstanding the preceding, the Tribe shall be required to approve in writing all contracts for the retention of attorneys and certified public accounts, and all contracts entered into with any affiliate company of Manager. The duties and authorities of Manager shall be subject in all events to receipt of all necessary licenses, consents or approvals from the Gaming Control Board. 3.2 Limitations. Manager shall have no authority to waive or impair the Tribe's sovereign immunity. Except as stated herein, Manager shall have no authority as the Tribe's agent under this Memorandum of Agreement without the prior written approval of the Tribe (not to be unreasonably withheld): (a) to incur costs which are materially in excess of the expenditures to be agreed upon in the capital expenditure budget pursuant to Section 6.1(c) herein; (b) to sell, encumber or otherwise dispose of any personal property or equipment located in the Facility, except for inventory sold in the regular course of business and other items which must be replaced due to age, obsolescence, or wear and tear; (c) to purchase any goods or services from Manager or any of Manager's affiliated companies as a Cost of Gaming or Incidental Operations or Cost of Construction. Except as specifically authorized in this Article 3, Manager shall not hold itself out to any third party as the agent or representative of the Tribe. 3.3 Manager's Authority and Responsibility. (a) Manager shall conduct and direct all business and affairs in connection with the day-to-day operation, management and maintenance of the Enterprise and the Facility, including the establishment of operating days and hours. It is the parties' intention that the Enterprise be open 24 hours daily, seven days a week. Manager is hereby granted the necessary power and authority to act, through the Enterprise's general manager, in order to fulfill all of its responsibilities under this Agreement. Nothing herein grants or is intended to grant Manager a titled interest to the Facility or to the Enterprise. Manager hereby accepts such retention and engagement. The Tribe shall have the sole proprietary interest in and ultimate responsibility for the conduct of all Class II and Class III Gaming conducted by the Enterprise, subject to the rights and responsibilities of Manager under this Agreement. (b) In managing, operating, maintaining and repairing the Enterprise and the Facility under this Memorandum of Agreement, Manager's duties shall include, without limitation, the following: (i) Manager shall use reasonable measures for the orderly physical administration, management, and operation of the Enterprise and the Facility, including without limitation cleaning, painting, decorating, plumbing, carpeting, grounds care and such other maintenance and repair work as is reasonably necessary; (ii) Manager shall comply with all duly enacted statutes, regulations and ordinances of the Tribe; and (iii) Manager shall comply with all applicable provisions of the Internal Revenue Code including, but not limited to, the prompt filing of any cash transaction reports and W-2G reports that may be required by the Internal 22 23 Revenue Service of the United States or under the Tribal-State Compact. 3.4 Compliance with Laws. (a) Manager shall comply with all terms and conditions of the Tribal-State Compact, the Gaming Control Ordinance, IGRA and any gaming regulations, the violation of which would materially impair the conduct of gaming permitted to be conducted under IGRA by the Enterprise. Without limiting the foregoing, Manager shall also supply the NIGC with all information necessary to comply with the National Environmental Policy Act, as it may be amended from time to time, and comply with the NIGC's regulations relating thereto. Manager shall also comply with requirements concerning the reporting and withholding of taxes with respect to the winnings from gaming operations pursuant to this Memorandum of Agreement. The Tribe agrees to cooperate with Manager and to aid Manager in its compliance with the foregoing laws, regulations and requirements. (b) The parties shall use their best efforts to obtain all necessary approvals of Governmental Authorities of this Memorandum of Agreement. 3.5 Security. Manager shall provide for appropriate security for the operation of the Enterprise. All aspects of Facility security shall be the responsibility of Manager. Upon agreement of the Tribe and Manager, any security officer may be bonded and insured in an amount commensurate with his or her enforcement duties and obligations. The cost of any charge for security and increased public safety services will be a Costs of Gaming or Incidental Operations, as appropriate. 3.6 Accounting, Financial Records, and Audits. (a) Manager shall maintain full and accurate records and books of account for operations of gaming activities and related operations managed by Manager. Such records shall be maintained at Manager's office located within the Facility and shall be made available for inspection and verification at all reasonable times, including during hours of operation, as required by the Tribal-State Compact, the Tribal Council or its designated representative, the Gaming Control Board or IGRA. Inspection or verification by the Governmental Authorities shall be coordinated through the Gaming Control Board. (b) Subject to the approval of the Tribal Council and the Gaming Control Board, which approvals shall not be unreasonably withheld and which should occur within three months of commencement of the construction of the Facility, Manager shall establish and maintain such approved accounting systems and procedures that shall: (i) include procedures for internal accounting controls; (ii) permit the preparation of financial statements in accordance with generally accepted accounting principles; (iii) be susceptible to audit; and (iv) provide for the allocation of operating expenses or overhead expenses among the Tribe, the Enterprise and Manager, or any other user of shared facilities or services. Supporting records and the agreed upon accounting system shall be sufficiently detailed to permit the calculation and payment of Manager's fee hereunder and to permit the performance of any fee or contribution computations 23 24 required under IGRA, the Tribal-State Compact and other applicable laws or regulations. (c) Net Gaming Revenues, Net Incidental Revenues, and Net Total Revenues will be calculated for purposes of distribution monthly in accordance with Section 6.5. (d) All records shall be maintained so as to permit the preparation of financial statements in accordance with generally accepted accounting principles consistently applied and in accordance with procedures to be mutually agreed upon by the parties. Manager shall, as a Costs of Gaming Operations, furnish to the Tribe, and the Gaming Control Board, monthly financial reports in accordance with Section 6.4. Such reports shall provide reasonable detail as requested by the Tribe, and the Gaming Control Board with respect to revenues and expenses of each profit center of the Enterprise. In addition, all gaming operations conducted within the Facility shall be subject to special outside annual audits, which the Gaming Control Board may cause to be conducted, and all contracts or subcontracts for supplies, services or concessions for a contract amount in excess of $25,000 annually relating to gaming activities within Facility shall be subject to audits which the Gaming Control Board may cause to conducted by an independent certified public accountant selected and approved by the Gaming Control Board. The audits will be scheduled at times agreed upon by the Gaming Control Board and Manager. The cost of such audits and audit reports (including the annual audit under Section 6.6) shall constitute Costs of Gaming Operation. The Manager shall make any reports or presentations to the Tribal Council as are requested by the Tribe. 3.7 Cash Monitoring. As a Cost of Construction, Manager shall install a video surveillance system and computerized systems for monitoring the Gross Gaming Revenues on a daily basis. Manager will promulgate, and all parties and their respective employees, agents, and representatives will obey operational policies consistent with the Gaming Control Ordinance respecting the handling of cash, security systems, and access to cash cage, counting rooms, and other places where cash is kept and handled. The Tribe and the Gaming Control Board and their authorized representatives shall have the right to monitor and investigate systems for cash management implemented by Manager in order to prevent any skimming of receipts or losses of the proceeds and to verify daily Gross Gaming Revenues, Gross Incidental Revenues, and Gross Total Revenues. 3.8 Bank Accounts, Reserve Funds and Permitted Investments. (a) Gross Gaming and Incidental Revenues shall be deposited daily into one or more segregated bank accounts established in one or more commercial banks, of the Tribe's choice, organized under the laws of the United States of America or any state thereof provided such bank is a member of the Federal Deposit Insurance Corporation. The accounts must indicate the custodial nature of the accounts. The signature of an authorized representative of Manager shall be the only signature required to make withdrawals (by check or otherwise) from such accounts, provided that the monies withdrawn are to be used only for the purposes set forth herein, and provided further that if the amount of any single withdrawal exceeds Two Hundred and Fifty Thousand Dollars ($250,000) (excluding payout and prizes and transfers to any designated payroll accounts, taxes, purchases of currency and budget items already approved), 24 25 then the signature of the Tribe's designated representative will also be required. (b) Surplus funds deposited in such account may be invested by Manager in the following permitted investments: (i) a money market mutual fund registered under the Investment Company Act of 1940 that invests exclusively in (1) marketable direct obligations issued or unconditionally guaranteed by the United State Government or issued by an agency thereof and backed by the full faith and credit of the United States, (2) commercial paper having, at the time of acquisition, a rating of A-1 or P-1 or better from either Standard & Poor's Corporation or Moody's Investors Service, Inc., respectively; or (ii) other investments as may be directed by Manager with the prior written consent of Tribe. (c) In accordance with the terms and conditions for opening bank accounts and investment of funds contained herein, Manager may, with the approval of the Tribe, establish other segregated banking accounts for business purposes. 3.9 Enforcement of Rights. (a) During the term of this Memorandum of Agreement, except as otherwise provided in Section 3.9 (b), the Tribe and Manager shall mutually agree with respect to the handling of the defense, prosecution or settlement of civil disputes with third parties relating to gaming and other management activities conducted or contracts executed by Manager, as agent for the Tribe. The parties will assist and cooperate with each other with respect to such third-party claims and disputes. All uninsured liabilities incurred or expenses incurred by the Tribe and Manager or any of the employees, officers or directors of any party in defending such claims by third parties or prosecuting claims against third parties shall be considered either Costs of Gaming Operation or Costs of Incidental Operations, depending upon the circumstances and nature of the claim, except with respect to claims and liabilities resulting from criminal misconduct, which shall be governed by Article 8. (b) All claims brought against the Tribe or Manager or any of the employees, officers or directors of any party arising out of or relating to gaming or other operations conducted pursuant to this Memorandum of Agreement that may be settled and released for a total settlement amount of less than Seventy-Five Thousand Dollars ($75,000) may be paid and settled by Manager in accordance with Manager's good faith business judgment. 3.10 Fire and Safety Services. Manager shall be responsible for obtaining adequate coverage for fire and safety services and may, in its discretion, have such services provided on a contractual basis by the local Fire and Police Departments. The costs of any fire and safety protection services shall be appropriately allocated between Costs of Gaming Operation and Costs of Incidental Operations, and, if provided by a Department of the Tribe, shall not exceed the actual cost to the Tribe of providing such services. 3.11 Timely Payment of Costs of Gaming and Incidental Operations. Manager shall be responsible for paying Costs of Gaming Operation and Costs of Incidental Operations from the bank account(s) established pursuant to Section 3.8 so as to avoid any late-payment penalties, 25 26 except those incurred as a result of good faith payment disputes. 3.12 Acquisition of Gaming and Other Equipment. (a) All gaming equipment shall be acquired by Manager, as agent for the Tribe, from Gaming Control Board licensed distributors and manufacturers. Unless previously approved by the Tribe in a separate budget, all purchases exceeding One Hundred and Twenty-Five Thousand Dollars ($125,000) shall require the written approval of the Tribe. (b) All acquisitions of new equipment after the public opening of the Facility shall be purchased by Manager as agent for the Tribe on a cash on delivery basis, unless otherwise agreed by the Tribe. 3.13 Hours of Operation. Unless otherwise agreed by the parties, the facility and Enterprise shall be operated for the maximum days per week and hours per day, subject to any restrictions in the IGRA and the Tribal-State Compact. 3.14 Access to Operations. Manager shall provide immediate access by appropriate officials of the Gaming Control Board and the Tribe's designated representative to the gaming operation, including all books and records in addition to those listed in the access requirements set forth in Sections 3.6 and 3.7. 3.15 Increased Public Safety Services. The parties agree that increased actual costs of law enforcement and police protection services required as a result of the Class II and Class III Gaming in the Facility shall be paid as Costs of Gaming Operation. 3.16 Advertising. Manager shall contract for and place advertising, subject to prior approval of the general concepts of the advertising by the Tribe. Advertising costs will be included in the operating budgets prepared in accordance with Article 6. 3.17 Certain Meetings. The Tribe shall appoint a Gaming Committee consisting of two or three individuals. One of the Members shall serve as financial monitor and shall be afforded timely access to all financial records concerning the Enterprise. This Gaming Committee shall provide a means through which Manager can regularly communicate with the Tribe concerning issues or problems that require, or may require, Tribal approval or input. If a required approval is obtained from this Gaming Committee, no additional approval is necessary from the Tribe. The General Manager, or his representative, as mutually agreed by the parties, shall meet with the Gaming Committee at least once very two weeks. At such meetings manager shall provide progress reports and the most current financial information. The general policies of the Enterprise concerning employment, working conditions, employee training, expenditures, construction improvements, procurement, marketing, and similar business matters shall be discussed. The Gaming Committee may make proposals regarding these policies, but shall not interfere in the day-to-day operation of the Enterprise. Manager shall meet and confer in good faith with the Gaming Committee concerning matters raised by the Committee and concerning what remedial action, if any, shall be necessary. Unless agreement on such action or decision may be withheld in the sole discretion of Manager or the Tribe, such disagreement shall be 26 27 subject to the dispute resolution procedures in Article 11. 3.18 Maintenance. Manager will cause the Facility to be repaired and maintained and operated in a clean, good and orderly condition. Repairs and maintenance will be paid as Costs of Gaming Operation if related to the gaming operations of the Enterprise, or as Costs of Incidental Operation if related to the other operations of the Enterprise. 3.19 Term. Notwithstanding the date of signature of the parties hereto, the Management Agreement portion of this Memorandum of Agreement shall become effective upon the last of the following events to occur: (i) written approval of the Tribe's Gaming Control Ordinance, this Memorandum of Agreement, the executed Facility Loan and related Facility Note, UCC Financing Statements, and the Resolution of Limited Waiver and issuance of final agency decision by the chairman of the National Indian Gaming Commission and/or, as applicable, the BIA; (ii) approval by the Secretary and publication in the federal register of the Tribal-State Compact; or (iii) issuance by the Gaming Control Board of all applicable license(s) required by IGRA, the Tribe's Gaming Control Ordinance or the Tribal-State Compact to Manager ("Effective Date"). The Commencement Date shall be the first day upon which the Facility is open to the public to engage in gaming activities. Unless sooner terminated as provided in this Memorandum of Agreement, the Management Agreement portion of this Memorandum of Agreement shall run for a period of five (5) years from the Commencement Date; provided further that, because the capital investment required and the income projections for development of the Facility and Enterprise beyond the scope initially planned will require additional time beyond five (5) years, the term of the Management Agreement portion of this Memorandum of Agreement may be extended an additional two (2) years at the option of Manager provided that Manger has completed all of the following: (a) is successful in providing additional land to the Tribe in excess of Three Million Dollars ($3,000,000), (b) develops a gaming facility and related amenities with a cost in excess of Sixty Million Dollars ($60,000,000), (c) resolves the dispute between the Tribe and IGA relating to the Facility and Enterprise; or alternatively, Manager completes all of the following within the original five (5) year term: (i) 120,000 square feet of building space, (ii) one thousand seven hundred (1,700) compacted Class III gaming devices and 40 table games (assuming allowed by Tribal-State Compact), (iii) 2,000 parking spaces, (iv) speciality restaurant, (v) food buffet restaurant, (vi) 24 hour coffee shop, (vii) snack bar, (viii) retail area, (ix) multi-purpose entertainment room, (x) meeting rooms, (xi) child care center, (xii) video arcade facility, (xiii) administrative offices, (xiv) hotel with an indoor pool, (xv) RV park, and (xvi) convenience store/gas station. The extension shall be automatic unless the Tribe notifies the Manager in writing at least six (6) months in advance of the expiration of the original term that the Manager has yet to satisfy performance hereunder. 3.20 Surveillance. Manager shall provide for appropriate surveillance for the operation of the Enterprise. All areas and resources of the surveillance department shall be fully accessible to the Jamul Gaming Control Board upon official request of the Board. Pursuant to an official request, the Board may require the surveillance department to cooperate in all investigations, to turn over any and all video and audio recordings, to turn over any and all operations logs, and any other documents kept in the normal course of business by that department, and to permit the 27 28 Board to visually monitor any facet of the gaming operations. ARTICLE 4 PERSONNEL MATTERS 4.1 Employees. All employees involved with operation of the Enterprise's Class II and Class III Gaming activities and related activities throughout the Facility subject to management by Manager under this Management Agreement shall be employees of the Tribe. Subject to the applicable requirements in the Tribal-State Compact, the employment relationship shall be governed by Tribe substantive law, subject to the Tribe's reasonable Indian preference policies, and all matters will be subject to dispute resolution procedures in the manner described in this Memorandum of Agreement. Manager shall be solely responsible for the hiring, training, promoting, and firing of all such employees except for the general manager as agreed to by the Tribe and Manager, whose employment, advancement and termination shall be subject to approval of the Tribe, such approval not to be unreasonably withheld. Manager shall develop a policy and procedure in conjunction with the Tribe, to implement an executive development program for employees who are members of the Tribe whereby Tribe members will be prepared through training and education to assume key management positions within the gaming and non-gaming operations of the Enterprise. All salaries, wages, employee insurance, worker compensation premiums, employment taxes, government exactions of any kind related to employment, benefits, and overhead related to the hiring, supervising, and discharge of employees, will be Costs of Gaming Operations or Costs of Incidental Operations, as appropriate. 4.2 Enterprise Employee Policies. Manager shall prepare a draft of personnel policies and procedures (the "Enterprise Employee Policies"), including a job classification system with salary levels and scales, which policies and procedures shall be subject to approval by the Tribal Council. The Enterprise Employee Policies shall include a grievance procedure in order to establish fair and uniform standards for the Enterprise employees, which will include procedures for the resolution of disputes between Manager and Enterprise employees. Manager shall be responsible for administering the Enterprise Employee Policies. Any revisions to the Enterprise Employee Policies shall not be effective unless they are approved by the Tribal Council. All such actions shall comply with applicable tribal law, subject to the applicable requirements in the Tribal-State Compact. 4.3 Employee Background Checks. A background investigation shall be conducted by the Gaming Control Board in compliance with all Legal Requirements, to the extent applicable, on each applicant for employment as soon as reasonably practicable. No individual whose prior activities, criminal record, if any, or reputation, habits and associations are known to pose a threat to the public interest, the effective regulation of Class II or Class III Gaming, or to the gaming licenses of Manager, or to create or enhance the dangers of unsuitable, unfair, or illegal practices and methods and activities in the conduct of Enterprise gaming activities, shall knowingly be employed by Manager or the Tribe. The background investigation procedures employed by the Gaming Control Board shall be formulated in consultation with Manager and shall satisfy all regulatory requirements independently applicable to Manager. Any cost associated with obtaining such background investigations shall constitute an Cost of Gaming 28 29 Operation. 4.4 Indian Preference. Manager shall adhere in regard to recruitment, employment, reduction in force, promotion, training and related employment actions to a publicly announced policy and practice of Indian Preference as approved by the Tribe. 4.5 Conflict of Interest. (a) Manager covenants that it will not unduly interfere with, or attempt to influence the internal affairs or government decisions of the Tribe for its gain or advantage. (b) Manager hereby certifies that no payments have been made or will be made in the future by Manager to any Tribe official, member of the Tribal Council, relative of any tribal official or tribal government employee for the purpose of obtaining any special privilege, gain, advantage or consideration for Manager, except for the fees payable to the Gaming Control Board and amounts payable to the Tribe pursuant to this Memorandum of Agreement. However, nothing in this provision shall prohibit Manager from making contributions to community organizations within the Tribe or to the Tribe for the purpose of funding community activities. (c) No member of the Gaming Control Board, or any tribal court official may be employed by Manager or be a "Party in Interest" as defined in Section 9.1 (a) herein with respect to this Memorandum of Agreement or a gaming equipment agreement or have any direct or indirect financial interest in the gaming to be operated pursuant to this Memorandum of Agreement. Members of the Tribal Council and their relatives shall be eligible for employment at the Facility and Enterprise and to enter contracts for the provision of goods or services for the Facility and Enterprise. (d) Manager further agrees to comply with all conflict of interest rules set forth in regulations or ordinances of the Tribe. 4.6 Participation in Tribe Functions. Manager acknowledges that personnel who are members of the Tribe have cultural and religious responsibilities to perform in regard to Tribe rituals and similar activities. Manager will schedule working hours and take other actions, with the assistance and advice of the Tribe, to accommodate Tribe members in performing these responsibilities without affecting their employment status or position. ARTICLE 5 INSURANCE 5.1 Duty to Maintain. Manager shall maintain during the course of this Memorandum of Agreement, appropriately allocated as a Cost of Gaming Operation or a Cost of Incidental Operations, insurance coverages in forms and amounts that will adequately protect the Tribe and Manager, but in no case less than the amounts set forth in this Article, or as required by the Tribal-State Compact. 29 30 5.2 Workers' Compensation. Manager shall maintain adequate workers' compensation insurance in accordance with all applicable laws, including employer's liability insurance, in the amounts agreed to by the Manager and Tribe, or as required by the Tribal-State Compact. 5.3 Commercial General Liability. Manager shall maintain commercial general liability insurance covering operations of the Enterprise, including blanket contractual liability coverage, broad form property liability coverage, and personal injury coverage in the amount of $1,000,000 per person/$3,000,000 per occurrence for bodily injury and $1,000,000 per person/$3,000,000 per occurrence for property damage, or as required by the Tribal-State Compact or Gaming Control Board. 5.4 Automobile. Manager shall maintain comprehensive automobile liability insurance covering operations of the Enterprise, including all owned, hired and non-owned automobiles, trucks, buses, trailers, motorcycles or other equipment licensed for highway use with limits and coverage approved by the Manager and Tribe. 5.5 Tribe and Manager to be Insured. Insurance set forth in Sections 5.3 and 5.4 shall name the Tribe and Manager as insureds, and such policies shall be endorsed to prohibit the insurer from raising tribal sovereign immunity as a defense to the payment of claim by the insurer. 5.6 Property Insurance. Manager shall also, acting a agent for the Tribe, procure replacement value casualty and extended hazard insurance in appropriate coverage amounts which shall insure the Facility and any fixtures, improvements and contents located therein against lost or damage by fire, theft and vandalism. All such casualty insurance proceeds shall be applied to the immediate replacement of the applicable Facility part or fixture, improvements or contents therein unless the parties agree otherwise. Such casualty insurance policy or policies shall name the Tribe and Manager as insureds. 5.7 Fidelity Bond. Manager shall maintain fidelity bonds on such employees and in such amounts as Manager and Tribe shall deem reasonable. 5.8 Unemployment Insurance. Manager, acting as agent for the Tribe, shall maintain adequate unemployment compensation/disability insurance with respect to the Enterprise employees in compliance with the Tribal-State Compact. 5.9 Evidence of Insurance. Prior to the opening of the Facility to the public and commencing operations of the Enterprise, Manager shall supply to the Tribe and any necessary Governmental Authorities copies of the insurance policies applicable to the Facility or Enterprise operations as required by this Article. ARTICLE 6 30 31 BUDGETS, COMPENSATION AND REIMBURSEMENT 6.1 Projections and Budgets. (a) The parties have used their best efforts to project expected revenues and expenses for the first three (3) years of operation of the Enterprise, and the projections attached hereto as Exhibit D represent the parties' mutual expectations. (b) Manager shall prepare a budget for the Initial Costs of Operation and submit such budget to the Tribe within one hundred twenty (120) days of execution of this Memorandum of Agreement. Manager shall also prepare an initial operating budget and submit the same to the Tribe for approval by the Tribal Council at least ninety (90) days prior to the opening of Facility to the public and commencement of the Enterprise's Class II and Class III Gaming. Annual operating budgets shall be submitted by Manager to the Tribe thereafter by no later than thirty (30) days prior to the commencement of the Fiscal Year. The proposed initial operating budget and each subsequent annual operating budget shall be subject to approval or disapproval within thirty (30) days of submission to the Tribe, such approval not to be unreasonably withheld. The parties recognize that mutually agreeable adjustments may be made to previously approved operating budgets from time to time during any Fiscal Year, to reflect the impact of unforeseen circumstances, financial constraints, or other events. Manager agrees to keep the Tribe informed regarding any items of revenue or expense that are reasonably anticipated to cause a material change to the operating budget previously approved by the Tribe, and to obtain written approval from the Tribe for any budget increase or decrease of more than ten percent (10%) from the previously approved budget. (c) Manager shall prepare an annual capital expenditure budget and submit such budget to the Tribe at least ninety (90) days prior to the opening of the Facility to the public and commencement of the Enterprise's Class II and Class III Gaming. Annual capital expenditure budgets shall be submitted by Manager to the Tribe thereafter by no later than thirty (30) days prior to the commencement of the Fiscal Year. The proposed capital expenditure budgets shall be subject to approval or disapproval within thirty (30) days of submission to the Tribe for approval, such approval not to be unreasonably withheld. The parties recognize that mutually agreeable adjustments may be made to previously approved capital expenditure budgets from time to time during any budget year, to reflect the impact of unforeseen circumstances, financial constraints, or other events. Manager agrees to keep the Tribe informed and obtain Tribe's approval regarding any projects or expenditures that are reasonably anticipated to cause a material change to the capital expenditure budget previously approved by the Tribe, and to obtain written approval from the Tribe for any budget increase or decrease of more than ten percent (10%) from the previously approved budget. 6.2 Advances for Initial Costs of Operation. The initial operating budget for the Facility and the Enterprise shall contain an amount approved by Manager and the Tribe which Developer/Manager agrees to arrange for a lender to advance, or advance directly to the Tribe, for Initial Costs of Operation as a component of the Facility Loan in accordance with Section 2.5 of this Memorandum of Agreement. 31 32 6.3 Minimum Guaranteed Monthly Payments. (a) During the term of this Management Agreement, the Enterprise shall, subject to the provisions of Section 6.3(b) below, pay the Tribe One Million Dollars ($1,000,000) per month on a cumulative Fiscal Year basis (the "Minimum Guaranteed Monthly Payment"), beginning on the Commencement Date and continuing for the remainder of the Term. The Minimum Guaranteed Monthly Payment assumes that the Tribe will operate one thousand seven hundred (1,700) compacted gaming devices. In the event the number of permitted and operated compacted Class III gaming devices is less than one thousand seven hundred (1,700), the Minimum Guaranteed Monthly Payment shall be prorated down based upon the actual number of permitted and operated Class III gaming devices. However, in the event the number of permitted and operated compacted gaming devices is less that one thousand seven hundred (1,700), the Minimum Guaranteed Monthly Payment shall not be less than Six Hundred Thousand Dollars ($600,000). The Minimum Guaranteed Monthly Payment shall be payable to the Tribe in arrears on the twenty first (21st) day of each calendar month following the month in which the Commencement Date occurs, which payment shall have priority over the Management Fee and retirement of development and construction costs. If the Commencement Date is a date other than the first day of a calendar month, the first payment will be prorated from the Commencement Date to the end of the month. Manager agrees to use Urban Systems, Marquette Partners, or other mutually agreeable companies, to conduct a feasibility study concerning the number of compacted Class III gaming devices that can be operated by the Enterprise at the Facility under existing market conditions. In the event the feasibility study concludes that the 1700 compacted gaming devices are feasible, Manager agrees to open the Facility with at least that number of devices (assuming this is permitted by the Tribal-State Compact and this number of gaming devices are available pursuant thereto). (b) Minimum Guaranteed Monthly Payments shall be charged against the Tribe's monthly distributable share of Net Total Revenues under Section 6.5; provided, however, that if the Net Total Revenues in a given month are less than $1,000,000, Manager shall advance the funds necessary to compensate for the deficiency from its own funds; and provided further that Manager's obligation to make such payment shall be reduced to the extent that the Tribe has received or receives distributions from Net Total Revenues during that Fiscal Year, on a cumulative basis, exceeding the Minimum Guaranteed Monthly Payments required under this Section 6.3. For example, if (a) the Fiscal Year commences on January 1 and (b) the Tribe receives distributions in January, February, and March totaling $5,000,000, receives no distributions in April, May and June, and receives $2,000,000 in July; then Manager would not be required to make payments from its own funds in April and May; would be required to pay the Tribe $1,000,000 in June; and would be permitted to recoup $1,000,000 of the June payment out of the payment that the Tribe would otherwise receive in July. Manager shall not otherwise be entitled to reimbursement from the Enterprise or the Tribe for payments it makes from its own funds on account of Minimum Guaranteed Monthly Payments. However, no Minimum Guaranteed Monthly Payments shall be required with respect to any months (or portions thereof) that Class II or Class III Gaming is suspended or terminated at the Facility, provided that the reason or cause of such suspension or termination is beyond the control of Manager. Further, no 32 33 Minimum Guaranteed Monthly Payments shall accrue subsequent to termination of this Memorandum of Agreement. 6.4 Daily and Monthly Statements. Manager shall furnish to the Tribe's designated representative statements identifying for each day the Gross Gaming Revenues attributable to the Enterprise's Class II and Class III Gaming on each day that such reports are normally available. Within fifteen (15) days after the end of each calendar month, Manager shall provide a verifiable financial report to the Tribe and the Gaming Control Board covering the preceding month and identifying Gross Gaming Revenues, Gross Incidental Revenues, Gross Total Revenues, Costs of Gaming Operation, Costs of Incidental Operations, Net Gaming Revenues, Net Incidental Revenues, and Net Total Revenues, the amount in excess of Minimum Guaranteed Monthly Payments to be repaid pursuant to the Facility Note and the amount computed in accordance with Section 6.5 hereof, to be distributed to each of the parties hereunder. 6.5 Distribution of Net Total Revenues. (a) All Net Total Revenues shall be disbursed on a monthly basis as set forth below, paid on the twentieth day of each calendar month for the preceding month. (b) As compensation for Manager's services, Manager shall receive thirty percent (30%) of Net Total Revenues for the prior calendar month, and Tribe shall receive seventy percent (70%) of Net Total Revenues for such prior calendar month. (c) Manager, on behalf of the Enterprise, is responsible for making the Net Total Revenues disbursements to the appropriate party. 6.6 Annual Audit. With respect to each Fiscal Year, Manager shall cause an audit to be conducted by a nationally recognized certified public accounting firm approved by the parties, and on or before one hundred twenty (120) days after the end of such year, such accounting firm shall issue a report setting forth the Gross Gaming Revenues, Gross Incidental Revenues, Gross Total Revenues, the actual Costs of Gaming Operation, Costs of Incidental Operations, Net Gaming Revenues, Net Incidental Revenues, and the actual Net Total Revenues in each case with respect to the preceding Fiscal Year (or portion of the year in the case of the first year) to be approved at an annual meeting to be held at a location mutually agreed upon by the parties. In addition, upon termination of this Memorandum of Agreement in accordance with its terms, such accounting firm shall conduct an audit, and on or before ninety (90) days after the termination date, shall issue a report setting forth the same information as is required in the annual report, in each case with respect to the portion of the Fiscal Year ending on the termination date. If the Net Total Revenues or other amounts paid to the Tribe or Manager in accordance with Section 6.5 (b) above for relevant period are different from the amount which should have been paid to such party based on the report prepared by the accounting firm and based upon the provisions of this Memorandum of Agreement, then to the extent either party received an overpayment, it shall repay and deposit the amount of such overpayment into the bank account referenced in Section 3.8 (a) within twenty-five (25) days of the receipt by such party of the accountant's report, and to the extent either party received an underpayment, it shall receive a distribution from the bank 33 34 account referenced in Section 3.8 (a) of the amount of such underpayment within ten (10) days of the receipt by such party of the accountant's report. Manager may make adjustment to future payments to correct a discrepancy if required distributions are not made. 6.7 Advances for Working Capital. Where amounts in bank accounts established pursuant to Section 3.8 are insufficient to meet Costs of Gaming or Incidental Operation, then Manager reserves the right, in its sole discretion, to make advances as necessary to pay Costs of Gaming or Incidental Operation and to immediately repay itself for such advances from Gross Total Revenues. 6.8 Development and Construction Cost Recoupment. The maximum dollar amount for recoupment of development and construction costs for the Facility and Enterprise shall be the total amount of the sums advanced by the lender or Developer/Manager to the Tribe pursuant to the Transition Loan under Section 2.3 and the Facility Loan under Section 2.5 herein. 6.9 Loan Audits. At least ninety (90) days prior to the opening of the Facility and commencement of the Enterprise's Class II and Class III Gaming, an audit shall be commenced by an accounting firm mutually agreeable to the parties in order to confirm the proper expenditure of all funds under the Facility Loan and Transition Loan. The Loan Audit shall be completed within ninety (90) days. All funds found to be properly expended shall be repaid to Manager in accordance with the terms of the loans. The cost of the Loan Audit shall be a Cost of Gaming Operation. PROVISIONS APPLICABLE TO BOTH THE DEVELOPMENT AND MANAGEMENT AGREEMENTS ARTICLE 7 TERMINATION 7.1 Termination for Cause. (a) Either party may terminate this Memorandum of Agreement if the other party commits or allows to be committed a Material Breach (as hereinafter defined) of this Memorandum of Agreement and fails to cure or to take steps to substantially cure such breach within thirty (30) calendar days after receipt of a written notice from the non-breaching party identifying the nature of the Material Breach and its intention to terminate this Memorandum of Agreement. Termination is not an exclusive remedy for breach, and the non-breaching party shall be entitled to other rights and remedies as may be available. For purposes of this Memorandum of Agreement, a "Material Breach" is any of the following circumstances: (i) failure of Manager to provide the Tribe with the monthly Minimum Guaranteed Monthly Payments pursuant to Section 6.3, (ii) material failure of either party to perform in accordance with this Memorandum of Agreement for reasons not excused under Section 10.6 (Force Majeure), (iii) if any of Manager's employees are found guilty of theft, embezzlement or crime of moral turpitude by a final judgment of a court of competent jurisdiction and if, after knowledge 34 35 of such final judgment, Manager does not remove such employee from connection with Class II or Class III Gaming operations of the Enterprise, (iv) default under the Facility Note or the Transition Note by the Tribe, (v) any representation or warranty made pursuant to Section 10.11 or 10.12 proves to be knowingly false or erroneous in any material way when made, or (vi) failure of Manager to provide the Tribe with the payments pursuant to Section 2.3. (b) Notwithstanding any provision to the contrary herein, the parties agree that, for so long as the Tribe owes any amounts under the Facility Note or Transition Note, the Tribe agrees that it will not terminate this Memorandum of Agreement without cause. 7.2 Mutual Consent. This Memorandum of Agreement may be terminated at any time upon the mutual written consent and approval of the parties. 7.3 Involuntary Termination Due to Changes in Law or Tribal-State Compact. The parties hereby agree to use their best efforts to conduct Class II and Class III Gaming activities in accordance with this Memorandum of Agreement and to ensure that such activities and this Memorandum of Agreement conform to and comply with all applicable laws and the Tribal-State Compact. The Tribe agrees that, except as may be required by federal law, the Tribe will not enact or pass any new ordinances subsequent to the execution of this Memorandum of Agreement that would materially impair the rights of Developer/Manager under this Memorandum of Agreement. The Tribe will not enact any tax ordinance that will put the Facility or the Enterprise, or any portion thereof, at a competitive disadvantage with businesses in the same or like industries. In the event of any change in state or federal laws that results in a final determination by the Secretary, the National Indian Gaming Commission, or a court of competent jurisdiction that this Memorandum of Agreement is unlawful, the Tribe and Developer/Manager shall use their best efforts to amend this Memorandum of Agreement in a mutually satisfactory manner which will comply with the change in applicable laws and not materially change the rights, duties and obligations of the parties hereunder. In the event such amendment is not practical, performance of this Memorandum of Agreement shall be automatically suspended effective upon the date that performance of this Memorandum of Agreement becomes unlawful, and either party shall have the right to terminate such suspended Memorandum of Agreement (except the Notes and Security Provisions, as defined in Section 7.4 (a)) upon written notice to the other party). 7.4 Ownership of Assets and Repayment of Notes on Termination. (a) Upon termination, except in connection with Developer/Manager's and lender's security interest in the Net Total Revenues of the Enterprise pursuant to the Tribe's Limited Recourse obligations under the Facility Note and Interim Promissory Note (if not yet satisfied), the Tribe will retain full ownership of the Facility, Plans and Specifications therefor, and the Enterprise and its assets; and Manager will have no rights to the Enterprise and its assets or the Facility (or any equipment, books and records, materials or furnishings therein that were purchased with Costs of Gaming or Incidental Operations or Costs of Construction). In the event of any termination (whether voluntary or involuntary), the Tribe shall continue to have the obligation to pay unpaid principal and interest and other amounts due under either the Facility 35 36 Note or Interim Promissory Note executed in connection herewith. Any and all obligations and provisions contained in this Memorandum of Agreement concerning repayment of the Facility Note or Interim Promissory Note, and the security therefor (collectively, the "Notes and Security Provisions"), shall survive termination of this Memorandum of Agreement. (b) Subject to the provisions of Section 7.1 (b), in the event of termination of this Memorandum of Agreement for any reason prior to the full repayment to Developer/Manager of any amounts owed to it by the Tribe under either the Facility Note or Interim Promissory Note, the Tribe shall, as promptly as reasonably possible, appoint a person or entity to manage the Facility and operate the Enterprise (the "Replacement") and use its best efforts to obtain approvals of all required Governmental Authorities for such Replacement. The Tribe agrees to keep full and accurate financial records of operations of the Enterprise by such Replacement and to allow Developer/Manager to audit such records at reasonable times prior to full repayment to Developer/Manager of any amounts owed to it by the Tribe under either the Facility Note or Interim Promissory Note and that Tribe's compliance with this paragraph shall not preclude the Developer/Manager from exercising any of its other rights and remedies hereunder, including, without limitation, rights under the Facility Note or Interim Promissory Note. 7.5 Notice of Termination. In the event of termination pursuant to this Article, the Tribe shall provide notice of the termination to the Secretary or other appropriate Governmental Authorities within ten (10) days after the termination. 7.6 Cessation of Class II or Class III Gaming at the Facility. (a) If, during the term of this Memorandum of Agreement, Class II or Class III Gaming cannot be lawfully conducted at the Facility by reason of the application of any legislation or court or administrative agency order or decree adopted or issued by a governmental entity having the authority to do so, Developer/Manager shall, within 60 days after such legislation, order or decree becomes effective, elect to: (i) retain Developer/Manager's interest in this Memorandum of Agreement and suspend Gaming operations until such date, if any, during the term of this Memorandum of Agreement on which Class II or Class III Gaming at the Facility becomes lawful; or (ii) retain Developer/Manager's interest in this Memorandum of Agreement, suspend Class II or Class III Gaming operations until such date, if any, during the term of this Memorandum of Agreement on which Class II or Class III Gaming at the Facility becomes lawful, and with the prior approval of the Tribe, which approval shall not be unreasonably withheld, use the Facility for any other lawful purpose pursuant to a use agreement containing terms reasonably acceptable to Developer/Manager and the Tribe; or (iii) terminate Class II or Class III Gaming operations and terminate this 36 37 Memorandum of Agreement. Developer/Manager shall give the Tribe written notice of Developer/Manager's election within such 60-day period. (b) If Developer/Manager elects to retain its interest in this Memorandum of Agreement under Section 7.6 (a)(i) or (ii) above, Developer/Manager shall have the right (but not the obligation) to commence Class II or Class III Gaming operations within sixty (60) days after the date on which Class II or Class III Gaming becomes lawful. Developer/Manager may exercise such right by giving the Tribe written notice of such exercise within thirty (30) days after the date on which Class II or Class III Gaming becomes lawful. Any reasonable payment to any third party made during the period during which Class II or Class III Gaming is unlawful to preserve or eliminate any leasehold or purchase contract rights of the Facility shall be paid by Developer/Manager as Costs of Gaming Operation or Cost of Incidental Operations and reimbursed after Class II or Class III Gaming is recommenced. (c) If Developer/Manager elects to terminate this Memorandum of Agreement under this Section 7.6, the provisions of Section 7.4 above shall apply. (d) If, during the term of this Memorandum of Agreement, the Facility is damaged by casualty or other occurrence to the extent, as reasonably determined by Developer/Manager, that Class II or Class III Gaming cannot be conducted at the Facility, Developer/Manager shall, within sixty (60) days after such casualty or occurrence, elect to: (i) retain Developer/Manager's interest in this Memorandum of Agreement pending repair or reconstruction of the Facility, suspend Class II or Class III Gaming operations pending the repair or reconstruction of the Facility, and arrange for such repair or reconstruction in the manner described in this Section 7.6; or (ii) terminate Class II or Class III Gaming operations and terminate this Memorandum of Agreement. Developer/Manager shall give the Tribe and Tribe written notice of Developer/Manager's election within such sixty (60) day period. (e) If Developer/Manager elects to retain its interest in this Memorandum of Agreement under Section 7.6(d)(i) above, Developer/Manager shall promptly verify the amount of insurance proceeds available to pay the cost of repair or reconstruction. Developer/Manager is hereby granted the authority to submit, adjust and settle, on behalf of the Tribe, all insurance claims associated with the casualty or occurrence; provided, however, that Developer/Manager shall obtain the Tribe's prior written consent (which consent shall not be unreasonably withheld) to any settlement. Developer/Manager shall provide copies of all settlement documents to the Tribe. 7.8 Renewal Option. 37 38 The parties by mutual agreement may decide to renew or extend the Management Agreement of this Memorandum of Agreement. Any such renewal or extension shall become effective upon approval by the NIGC and appropriate licensing by the Gaming Control Board. ARTICLE 8 RELEASE AND INDEMNITY 8.1 Third-Party Claims. Except for Section 2.4(h), neither party shall be entitled to recover from, and expressly releases, the other party, its agents, officers and employees, from or for any third-party damages, claims, causes of action, losses and/or expenses of whatever kind or nature, except claims resulting from its own gross negligence or willful or criminal misconduct, including attorneys' fees and expenses incurred in defending such claims in connection with the lawful operation of the Facility and Enterprise in accordance with the terms of this Memorandum of Agreement, and such claims, damages, losses or expenses shall be considered either Costs of Gaming Operation or Costs of Incidental Operations, depending on the circumstances and nature of the claim, payable from the bank account established pursuant to Section 3.8(a). 8.2 Indemnity from Developer/Manager. Notwithstanding Section 8.1, Developer/Manager shall indemnify and hold the Tribe harmless against any and all damages, claims, losses or expenses of whatever kind or nature, including reasonable attorneys' fees resulting from the criminal misconduct of Developer/Manager, its officers and directors in connection with Developer/Manager's performance of this Memorandum of Agreement, and no such damages, losses or expenses shall be paid from the bank accounts established pursuant to Section 3.6 (a), nor shall such losses or expenses be considered Costs of Gaming or Incidental Operations. 8.3 Indemnity from Tribe. Notwithstanding Section 8.1, Tribe shall indemnify and hold Manager harmless against any and all damages, claims, losses or expenses of whatever kind or nature, including reasonable attorneys' fees resulting from the criminal misconduct of the Tribe, its officers, directors, or tribal government employees, in connection with the Tribe's performance of this Memorandum of Agreement, and no such damages, losses or expenses shall be paid from the bank accounts established pursuant to Section 3.8(a), nor shall such losses or expenses be considered Costs of Gaming or Incidental Operations. 8.4 Indemnity Against Unauthorized Debt and Liabilities. The parties expressly agree that neither this Memorandum of Agreement nor its performance creates or implies a partnership between the parties or authorizes either party to act as agent for the other except to the extent expressly provided herein. Developer/Manager hereby agrees to indemnify and hold the Tribe harmless from any third-party claims, actions and liabilities, including reasonable attorneys' fees on account of obligations or debts of Developer/Manager that Developer/Manager is not authorized to undertake as agent for the Tribe pursuant to the terms of this Memorandum of Agreement. The Tribe likewise agrees to indemnify and hold Developer/Manager harmless from any third-party claims, actions and liabilities on account of any of the separate obligations or debts of the Tribe that are not authorized Costs of Gaming or Incidental Operations or Costs of Construction pursuant to this Memorandum of Agreement. 38 39 ARTICLE 9 PARTIES IN INTEREST 9.1 Payment of Fees and Submission of Information for Background Investigations. Upon execution of this Memorandum of Agreement, Developer/Manager shall pay from its own funds the fees required by federal and Tribe regulations for background investigations for the "Parties in Interest" as defined herein, and it shall submit the information required by this Section in duplicate to the National Indian Gaming Commission and the Gaming Control Board and update such information at any time that changes occur in prior submissions so as to allow complete background investigations. However, in no event shall the cost of background investigations under this Section relating to Gaming Control Board regulations exceed twenty-Five Thousand Dollars ($25,000), without the mutual written consent of the parties. (a) As used in this Section 9.1, the term, "Parties in Interest" includes any person or entity with a financial interest in, or having management responsibility for, this Memorandum of Agreement or for which background investigations are required by 25 C.F.R. Part 537, and any amendments thereto. (b) Manager shall require sufficient information and identification from each "Party in Interest" to perform a background investigation for the purpose of determining the suitability of such persons for employment in a gaming operation, including, at a minimum, the information required by the National Indian Gaming Commission as set forth in 25 C.F.R. Part 537. (c) Without limiting the foregoing, Manager shall obtain a current set of fingerprints on each person for whom background investigations are required by the Gaming Control Board and the National Indian Gaming Commission, using forms supplied by the National Indian Gaming Commission and/or the Gaming Control Board, which shall be referred to the Federal Bureau of Investigation (FBI) Fingerprint Identification Division or other law enforcement agency designated by the Gaming Control Board. (d) The parties hereby certify that a listing of all "Parties in Interest" as defined in Section 9.1 (a) above is set forth in Exhibit E hereto. All such "Parties in Interest", as such listing shall be supplemented from time to time, shall be required to furnish the information required by this Section 9.1 prior to obtaining such interest. All necessary Governmental Authorities must approve any change in the "Parties in Interest". Any change of a person listed in Exhibit E shall not constitute a change in persons with a financial interest in or management responsibility for a management contract. 9.2 Removal; Divestiture. Should the Gaming Control Board or the National Indian Gaming Commission, in a final non-appealable decision, find that any person with a "direct or 39 40 indirect financial interest" in this Memorandum of Agreement (as defined in 25 C.F.R. ss. 502.17, and any amendments thereto) whose prior activities, criminal record, if any, or reputation, habits, and associations pose a threat to the public interest, or the tribal interest, or the effective regulation of gaming, or create or enhance the dangers of unsuitable, unfair, or illegal practices and methods and activities in the conduct of gaming or the carrying on of related business and financial arrangements, and should either agency notify Manager or the Tribe of such finding, then Manager shall require such individual to divest his or her interest in this Memorandum of Agreement and remove such person from all association with operations under this Memorandum of Agreement within ten (10) business days of receipt of such notice. In addition, if any person with "direct or indirect financial interest" in this Memorandum of Agreement (as defined in 25 C.F.R. ss. 502.17, and any amendments thereto) (a) has been or is subsequently convicted of a felony relating to gaming, (b) knowingly or willfully provided materially false statements to the Tribe, the Gaming Control Board or the National Indian Gaming Commission, or refused to respond to questions from either of such agencies, or (c) attempts to unduly interfere or unduly influence for his or her gain or advantage any decision or process of tribal government relating to Class II or Class III Gaming and if Manager becomes aware of such conflicts or prohibited actions, then Manager shall notify Tribe of such event and within seventy-two (72) hours cause such person to divest his or her interest in Manager. ARTICLE 10 MISCELLANEOUS 10.1 Assignment and Subcontractors. The rights and obligations under this Memorandum of Agreement shall not be assigned or subcontracted by any party without the prior written consent of the other party and without first obtaining prior approval by the National Indian Gaming Commission or the BIA, if applicable, and any other necessary regulatory approvals. However, the Tribe reserves the right to assign its rights and obligations under this Memorandum of Agreement to a tribally chartered entity or an IRA section 17 corporation that it wholly owns and controls and the Manager reserves the right to assign its rights and obligations under this Memorandum of Agreement to a wholly owned subsidiary. Other than as expressly provided herein, any attempted assignment or subcontracting without such consent and approval shall be void. Approval of any assignment or subcontract to any new party must be preceded by a complete background investigation of the new party as required by Section 9.1. Subject to the preceding requirements, this Memorandum of Agreement shall be binding upon and shall inure to the benefit of the parties and their respective successors and assigns. 10.2 Change of Control in Ownership Interest; Severability. Developer/Manager is a Delaware limited liability company whose members are Lakes Jamul, Inc. and Kean Argovitz Resorts- Jamul, LLC. In the event that either of Developer/Manager's members, as an entity, either: (i) has its gaming license withdrawn or fails to obtain a gaming license, each after exhaustion of all available administrative and other legal due process, and fails to cure the condition causing the license withdrawal or failure to obtain a license within the time frames contained in Section 7.1; or (ii) notifies the other member of its desire to withdraw from participation in this Memorandum of Agreement; or (iii) for any other reason is disassociated from participation in this Memorandum of Agreement; then the Tribe agrees that the 40 41 participation of that member of Developer/Manager in this Memorandum of Agreement shall cease and the remaining member of Developer/Manager shall assume all rights and obligations pursuant to this Memorandum of Agreement. Any Change of Control (as defined herein) in Developer/Manager shall require prior written consent of the Tribe and be subject to Legal Requirements, or this Memorandum of Agreement shall be terminated. For purposes of this Memorandum of Agreement, a "Change of Control" means the acquisition by any person or affiliated group of persons not presently members of Developer/Manager of beneficial ownership of 51% or more of membership interest in Developer/Manager. 10.3 Notices. Any notice, consent or any other communication permitted or required by this Memorandum of Agreement shall be in writing and shall be effective on the date sent and shall be delivered by personal service, via telecopier with reasonable evidence of transmission, express delivery or by certified or registered mail, postage prepaid, return receipt requested, and, until written notice of a new address or addresses is given, shall be addressed as follows: If to the Tribe: Jamul Indian Village P.O. Box 612 14191 Hwy 94 #16 Jamul, CA 91935 Attention: Mr. Kenneth Meza, Tribal Chair With a copy to: Eugene R. Madrigal 28581 Front Street, Suite 208 Temecula, CA 92590 If to the Manager Lakes-KAR California, LLC 130 Cheshire Lane Minnetonka, MN 55303-1062 Attention: Mr. Timothy Cope With a copy to: Kean Argovitz Resorts-Jamul, L.L.C. 11999 Katy Frwy., Suite 3 22 Houston, TX 77079 Attn.: Kevin M. Kean and Douglas S. Twait, Esq. Johnson Hamilton Quigley Twait & Foley PLC W1450 First National bank Building 332 Minnesota Street St. Paul, MN 55101-1314 Copies of any notices shall be given to the Gaming Control Board. 41 42 10.4 Amendments. This Memorandum of Agreement may be amended only by written instrument duly executed by all of the parties hereto and with any and all necessary regulatory approvals previously obtained. 10.5 Counterparts. This Memorandum of Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. 10.6 Force Majeure. No party shall be in default in performance due hereunder if such failure or performance is due to causes beyond its reasonable control, including acts of God, war, fires, floods, or accidents causing damage to or destruction of the Facility or property necessary to operate the Facility, or any other causes, contingencies, or circumstances not subject to its reasonable control which prevent or hinder performance of this Memorandum of Agreement. 10.7 Time is Material. The Parties agree that the time and schedule requirements set forth in this Memorandum of Agreement are material terms of this Memorandum of Agreement. 10.8 Further Assurances. The parties hereto agree to do all acts and deliver necessary documents as shall from time to time be reasonably required to carry out the terms and provisions of this Memorandum of Agreement. 10.9 Severability. In the event that any provision of this Memorandum of Agreement is, by final order of a court of competent jurisdiction or Government Authority, held to be illegal or void, the validity of the remaining portions of the Memorandum of Agreement shall be enforced as if the Memorandum of Agreement did not contain such illegal or void clauses or provisions, and the parties shall use their best efforts to negotiate an amendment to this Memorandum of Agreement which will comply with the judicial order and maintain the originally contemplated rights, duties and obligations of the parties hereunder. 10.10 Sovereign Immunity. Nothing in this Memorandum of Agreement shall be deemed or construed to constitute a waiver of sovereign immunity of the Tribe and the only applicable waivers of sovereign immunity shall be those expressly provided and executed by the Tribe's duly authorized representative and substantially conforming to the form as approved by the parties. The parties agree that they will not amend or alter the Resolution of Limited Waiver which will in any way lessen the rights of any party as set forth in the Resolution of Limited Waiver. The Resolution of Limited Waiver is attached hereto as Exhibit C and incorporated herein by reference. 10.11 Representations and Warranties of Developer/Manager. The Developer/Manager hereby represents and warrants as follows: (a) This Memorandum of Agreement has been duly executed and delivered by Developer/Manager and, when approved by necessary Governmental Authorities as set forth (where applicable), will constitute a valid and binding obligation, enforceable 42 43 against Developer/Manager in accordance with its terms. (b) The execution and delivery of this Memorandum of Agreement, the performance by Developer/Manager of its obligations hereunder and the consummation by Developer/Manager of the transactions contemplated hereby will not violate any contract or agreement to which Developer/Manager or any of its affiliated companies is a party or any law, regulation, rule or ordinance or any order, judgment or decree of any federal, state, tribal or local court or require any regulatory approval beyond those contemplated herein. (c) Developer/Manager has the full legal right, power and authority and has taken all action necessary to enter into this Memorandum of Agreement, to perform its obligations hereunder, and to consummate all other transactions contemplated by this Memorandum of Agreement. 10.12 Representations and Warranties of Tribe. The Tribe hereby represent and warrant as follows: (a) The Tribe is duly organized Indian tribe under the Constitution of the Tribe and laws of the United States. (b) The Tribe has full legal right, power and authority under the laws for the Tribe and has taken all official Tribal Council action necessary (i) to enter into this Memorandum of Agreement and authorize the Tribe to execute and deliver the Facility Loan documentation, Facility Note and Interim Promissory Note, (ii) to perform its obligations hereunder, and (iii) to consummate all other transactions contemplated by this Memorandum of Agreement. (c) This Memorandum of Agreement, the Facility Loan documentation and Facility Note, the Interim Promissory Note and related documentation, if required, when executed and delivered by Tribe and approved by necessary Governmental Authorities, including the Tribe, will constitute a valid and binding obligation, enforceable against Tribe in accordance with their terms. (f). The execution and delivery of this Memorandum of Agreement, the Facility Loan documentation and Facility Note, the Interim Promissory Note and related documentation, if required, the performance by Tribe of its obligations hereunder and the consummation by Tribe of the transactions contemplated hereby will not violate any contract or agreement to which Tribe is a party, law, regulation, rule or ordinance or any order judgment or decree of any federal, state, tribal or local court, or require any approval by Governmental Authorities beyond those contemplated herein.. 10.13 Governing Law. This Memorandum of Agreement has been negotiated, made and executed at the Tribe's office located in the State of California and shall be construed in accordance with the laws of the State of California, without regard to its conflict of laws 43 44 provisions, and applicable Tribe and federal laws. 10.14 Entire Agreement. This Memorandum of Agreement, including all exhibits, represents the entire agreement between the parties and supersedes all prior agreements relating to the subject matter of Class II and Class III Gaming at the Facility and management of the Enterprise. 10.15 Representatives of Tribe. The Tribal Council shall furnish to Developer/Manager a list of the authorized representatives who are empowered to act on behalf of the Tribe for the purposes of this Memorandum of Agreement and the Tribe shall keep such list current. 10.16 Limitations of Liability. (a) Developer/Manager expressly agrees that the Tribe's total aggregate liability for damages for breach of the Memorandum of Agreement shall be limited in accordance with the Resolution of Limited Waiver attached hereto as Exhibit C and incorporated herein by reference. The Tribe shall bear no liability for further damages. (b) The Tribe expressly agrees that the Developer/Manager's total aggregate liability for damages for breach of the Memorandum of Agreement be limited to $ ; provided, however, that the limitation contained in this Section 10.16(b) shall not be construed to relieve Developer/Manager of its obligations to distribute to the Tribe the Tribe's share of undistributed Net Total Revenues determined in accordance with Section 6.5. 10.17 Approvals. Unless otherwise provided herein, all approvals or consents required by either party hereunder shall not be unreasonably withheld or delayed, unless otherwise provided herein. Approval by the Tribal Council or its duly authorized representative shall be deemed to constitute approval by the Tribe and approval by the Chief Executive Officer of the Developer/Manager shall be deemed to constitute approval by the Developer/Manager. 10.18 Best Efforts. Developer/Manager and the Tribe shall use their best efforts to perform and fulfill their obligations under this Memorandum of Agreement in the manner required by this Memorandum of Agreement. 10.19 Request for NIGC Approval. The parties specifically request that the NIGC, or the Secretary where appropriate, approve the Agreements herein. 10.20 Non-disclosure. The parties agree not to divulge to third parties the terms of this Memorandum of Agreement or any other proprietary or confidential information exchanged between the parties pursuant to this Memorandum of Agreement, unless (i) the information is required to be disclosed pursuant to judicial or Legal Requirements, (ii) the information is at the time of disclosure already in the public domain, or (iii) to the extent required in order to obtain financing. This prohibition shall not apply to disclosures by either party to their attorneys, accountants, or other professional advisers. In situations where disclosure of the terms of this Memorandum of Agreement to regulatory, governmental or judicial entities is required by law or 44 45 regulations, the parties will make reasonable efforts to secure confidential treatment of the terms of this Memorandum of Agreement by such entities. The parties agree to consult with each other and cooperate regarding any press releases regarding this Memorandum of Agreement and the relationships described herein. 10.21 Non-Competition. Developer/Manager agrees that it will not manage any facility where Class II or Class III Gaming is conducted in the State of California with any other entity or Tribe within any area south of the city limits of Escondido without the prior approval of Tribe. The Tribe agrees that it will not solicit or enter into any negotiations or agreements with any person or company with respect to any Class II or Class II Gaming conducted upon Tribal Lands within the State of California Tribe within any area south of the city limits of Escondido without the prior approval of Developer/Manager. 10.22 Other Business Opportunities. Developer/Manager agrees that, in an effort to develop a long-lasting business relationship with the Tribe, Developer/Manager will make its best efforts to present appropriate business and investment opportunities to the Tribe. 10.23 Use of Trade Marks and Trade Names. To assure that the Tribe can continue operation of the Facility and Enterprise without disruption in the event that this Memorandum of Agreement is terminated or not renewed, Developer/Manager agrees that it will not use any trade mark or trade name to identify any portion of the Facility or Enterprise or services offered within the Facility or Enterprise unless such trade mark or trade name is registered in the name of the Tribe. ARTICLE 11 DISPUTE RESOLUTION 11.1 Disputes Between the Enterprise and Patrons. Disputes that arise between the Enterprise and any patron of the Facility shall be resolved in accordance with the Tribal-State Compact and tribal ordinances, if applicable. 11.2 Disputes Between the Enterprise and Enterprise Employees. The Tribe and Manager shall jointly develop an employee dispute resolution policy and the Manager shall implement and administer the employee dispute resolution policy after its adoption. 11.3 Disputes Between the Tribe and the Developer/Manager. Disputes between the Tribe Developer/Manager with respect to this Memorandum of Agreement or the Interim Promissory Note, or a party's performance hereunder, shall be resolved by the following dispute resolution process:. (a) The parties shall first meet and confer in a good faith attempt to resolve the dispute through negotiations not later than 10 calendar days after receipt of written notice of the dispute, unless both parties agree in writing to an extension of time. (b) If the dispute is not resolved to the satisfaction of the parties within 30 45 46 calendar days after the first meeting in Section 11.3(a) above, then any claim, controversy or dispute arising out of or relating to this Memorandum of Agreement or the Interim Promissory Note, or any alleged default hereunder or breach of any provisions hereof shall be submitted to binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association in effect at the time of submission. Judgment on any arbitration award may be entered in any court having jurisdiction over the parties pursuant to the Resolution of Limited Waiver attached hereto as Exhibit C and incorporated herein by reference. (c) Unless the parties hereto otherwise agree in writing prior of the submission of such claim, controversy or dispute to arbitration, arbitration proceedings under this Article 11 shall be held in San Diego, California. (d) Either party may, at any time prior to the selection of an arbitrator or arbitrators, require that the arbitrator or arbitrators selected be an attorney or attorneys licensed to practice law in the United States and that the attorneys have experience in Indian gaming regulatory and development issues. (e) Unless the parties hereto otherwise agree in writing, any matter to be arbitrated shall be submitted to a panel of three arbitrators. One arbitrator shall be selected by the Tribe, one arbitrator shall be selected by Developer/Manager and the third arbitrator shall be selected by mutual agreement of the two arbitrators selected by the parties hereto. (f) The arbitration award shall be in writing signed by each of the arbitrators, and shall state the basis for the award. (g) Except to the extent such enforcement will be inconsistent with a specific provision of this Memorandum of Agreement, arbitration awards made pursuant to this Article 11 shall be enforceable under Title 9 of the United States Code and any applicable tribal or state law governing the enforcement of arbitration awards. (h) In addition to any basis for appeal of an arbitration award stated in Title 9 of the United States Code or any applicable tribal or state law governing the enforcement of arbitration awards, either party hereto may appeal an arbitration award on the basis that the arbitrator or arbitrators incorrectly decided a question of law in making the award. (i) Either Party hereto shall have the right to seek and obtain a court order from a court having jurisdiction over the parties requiring that the circumstances specified in the order be maintained pending completion of the arbitration proceeding. IN WITNESS WHEREOF, the parties hereto have executed this Memorandum of Agreement. Jamul Indian Village 46 47 Lakes KAR-California, LLC By: /s/ Kevin M. Kean ----------------------------------- Its: President ----------------------------------- By: /s/ Kenneth A. Meza ---------------------------- Its: Chairman ---------------------------- By: /s/ Carlene A. Chamberlain As to the Management Agreement ---------------------------- As to the Development Agreement, if Its: Vice-Chairman applicable ---------------------------- Approved pursuant to 25 U.S.C. ss.2711 Approval pursuant to 25 U.S.C. ss.81 By: /s/ William Mesa ---------------------------- National Indian Gaming Commission Its: Council Member Secretary of the Interior ---------------------------- By: ----------------------- By: /s/ Adolph Thing ---------------------------- Print Name: ----------------------- Its: Council Member ---------------------------- Its Chairman: Title: By: /s/ Erica M. Pinto ----------------------------- ---------------------------- Its: Council Member ---------------------------- By: /s/ Julia Lotta ---------------------------- Its: Secretary/Treasurer ---------------------------- 47 48
LIST OF EXHIBITS Exhibit A Legal Description of Acquired Tribal Lands Exhibit B Initial Scope of Development Project Exhibit C Resolution of Limited Waiver of Immunity from Suit Exhibit D Three (3) Year Revenue and Expense Projection Exhibit E List of Manager's "Parties in Interest" Exhibit F Interim Promissory Note
48 EX-10.69 10 OPERATION AGREEMENT 1 Exhibit 10.69 OPERATING AGREEMENT OF LAKES KEAN ARGOVITZ RESORTS-CALIFORNIA, L.L.C. This OPERATING AGREEMENT of LAKES KEAN ARGOVITZ RESORTS-CALIFORNIA, L.L.C. (the "Company") is made as of this 25th day of May, 1999 by Lakes Jamul, Inc. ("LAJA") and Kean Argovitz Resorts-Jamul, L.L.C. ("KAR") and those other persons, if any, who from time to time become parties to or are otherwise bound by this Agreement as provided herein. WHEREAS, Lakes Gaming, Inc. ("LACO") and KAR have entered into a Letter Agreement of even date, a copy of which is attached hereto as Exhibit "A", (the "Letter Agreement") which sets forth the terms under which they propose to develop and operate a gaming Facility and related facilities for the Jamul Indian Village of Jamul, California (the "Tribe"); WHEREAS, KAR is a party with the Tribe to a certain Development Agreement dated February 26, 1999, a copy of which is attached hereto as Exhibit B (the "Development Agreement"); WHEREAS, KAR is a party with the Tribe to a certain Management Agreement dated February 26, 1999, a copy of which is attached hereto as Exhibit C (the "Tribe Management Agreement"); WHEREAS, KAR has assigned its rights under the Development Agreement and the Management Agreement to the Company and the Company has assumed KAR's obligations under the Agreements (the "Assignment and Assumption Agreement") ; WHEREAS, the Company has entered into a management agreement with LAJA, a copy of which is attached as Exhibit D (the "LAJA Management Agreement"), pursuant to which LAJA will provide services on behalf of the Company as required under the Tribe Management Agreement; NOW THEREFORE, the parties hereto, desiring to form a limited liability company for the purposes set forth in this Agreement, hereby agree as follows: ARTICLE 1: ORGANIZATION AND DEFINITIONS 1.1 FORMATION AND NAME. The Members agree to the formation of a limited liability company under the name "Lakes Kean Argovitz Resorts-California L.L.C.," or any other name determined by the Company in accordance with governing law pursuant to the provisions of the Act and this Agreement, and have caused the Certificate of Formation to be prepared, executed 1 2 and filed with the Secretary of State of the State of Delaware. The Company will develop and operate a gaming facility and certain related facilities. 1.2 INITIAL OWNERSHIP. Upon execution of this Operating Agreement, the Ownership Interests of the Company are as set forth below:
MEMBER OWNERSHIP INTEREST INITIAL CONTRIBUTION ------ ------------------ -------------------- Kean Argovitz Resorts-Jamul, L.L.C. 50% $500 Lakes Jamul, Inc. 50% $500
The Ownership Interests may be adjusted from time to time in accordance with the provisions of this Agreement. If LACO pledges, guarantees, loans or otherwise materially encumbers its balance sheet in any way or makes a commitment in excess of $15 million dollars in furtherance of the Equity Advance for funding obligations to the Tribe under the Agreements, then the Ownership Interest shall be 40% to KAR and 60% to LACO. In the event that LACO does pledge, guarantee, loan or otherwise materially encumber is balance sheet in excess of $15 million dollars, it is agreed that KAR has the option to participate in this commitment of whatever nature and to share the obligation equally with LACO ("the Excess $15 million dollars Commitment"). If KAR chooses to exercise its option to participate in the excess $15 million dollars Commitment, and demonstrates to the reasonable satisfaction of LACO its ability to perform on the commitment, then KAR shall retain its 50% Ownership Interest in the Company. The Ownership Interests of the Members shall at all times be maintained on Appendix I hereto. 1.3 OFFICE AND AGENT: PRINCIPAL PLACE OF BUSINESS. The initial registered office of the Company in Delaware is located at 1209 Orange Street, Wilmington, Delaware 19801, and its initial registered agent at such address is CT Corporation. The Company may subsequently change its registered office or registered agent in Delaware in accordance with the Act. The initial principal place of business of the Company shall be at 130 Cheshire Lane, Minnetonka, Minnesota. 1.4 TERM. The Company begins on the date its Certificate of Formation is filed with the Delaware Secretary of State and shall continue in perpetuity, or such earlier date as a Dissolution may occur. 1.5 FOREIGN QUALIFICATION. After formation of the Company under the Act, the Company will apply for any required certificate of authority to do business in California or in any other state or jurisdiction where it conducts business, as appropriate. 1.6 DEFINITIONS. Terms used with initial capital letters will have the meanings specified in Appendix II applicable to both singular and plural forms, for all purposes of this Agreement. ARTICLE 2: PURPOSES AND POWERS 2 3 2.1 PRINCIPAL PURPOSE. The business and principal purpose of the Company is to develop, operate and manage certain facilities to be owned by the Jamul Indian Village of Jamul, California, and to engage in all activities related thereto, including, without limitation, the operation of casinos, restaurants, entertainment facilities, retail or commercial facilities and/or hotels. 2.2 POWERS. The Company has all of the powers granted to a limited liability company under the Act, as well as all powers necessary or convenient to achieve its purposes and to further its business. ARTICLE 3: CAPITAL CONTRIBUTIONS 3.1 INITIAL CAPITAL OF THE COMPANY. The Members have made an initial Capital Contribution to the Company and have received the Initial Ownership Interests set forth in Section 1.2 above. 3.2 NO ADDITIONAL CAPITAL CONTRIBUTIONS. Except as may be separately agreed to in writing by a Member, no Member shall be required to make an additional Capital Contribution to the Company. 3.3 NO WITHDRAWAL. Except as specifically provided in this Agreement, no Member will be entitled to withdraw all or any part of such Member's capital from the Company or, when such withdrawal of capital is permitted, to demand a distribution of property other than cash. 3.4 NO INTEREST ON CAPITAL. Except as provided in the Letter Agreement with respect to the Equity Advance, no Member will be entitled to receive interest on such Member's Capital Contribution or Capital Account. 3.5 LOANS BY MEMBERS. Subject to the provisions of the Letter Agreement, the Company may borrow money from any Member or Affiliate for Company purposes on such terms as the Company and such Member or Affiliate may agree; provided that, such terms may not be less favorable to the Company than the terms available from an unrelated lender dealing at arms'-length (including a reasonable financing fee). Except as otherwise provided in the Letter Agreement, any such advance or loan will be treated as indebtedness of the Company, and will not be treated as a Capital Contribution by a Member. 3.6 CAPITAL ACCOUNTS. A Capital Account will be maintained for each Member and credited, charged and otherwise adjusted in accordance with generally accepted accounting principles consistently applied. Each Member's Capital Account will be: (a) Credited with (i) the Capital Contributions (net of liabilities secured by such property that the Company takes subject to or assumes), (ii) the Member's allocable share of Profits and (iii) all other items properly credited to the Member's Capital Account; and 3 4 (b) Charged with (i) the amount of cash distributed to the Member by the Company, (ii) the Fair Market Value of property distributed to the Member by the Company (net of liabilities secured by such property that the Member takes subject to or assumes), (iii) the Member's allocable share of Losses and (iv) all other items properly charged to the Member's Capital Account. Any unrealized appreciation or depreciation with respect to any asset distributed in kind will be allocated among the Members in accordance with the provisions of Article 5 as though such asset had been sold for its Fair Market Value on the date of Distribution, and each Member's Capital Account will be adjusted to reflect both the deemed realization of such appreciation or depreciation and the Distribution of such property. In determining the Fair Market Value of any asset of the Company for purposes of any Distribution, the Company may obtain the written report of any one or more independent qualified appraisers (or appraisal firms). If more than one appraisal report is obtained by the Company, Fair Market Value will be determined as the average of such appraised values. The Company will select each such appraiser (or appraisal firm), and bear the cost of any such appraisal. The Capital Account of each Member shall be determined and maintained in accordance with generally accepted accounting principles consistently applied. For income tax purposes, the Company shall make all required allocations under Section 704(b) of the Code and the Regulations. 3.7 TRANSFER. If all or any part of an Ownership Interest is transferred in accordance with this Agreement, the Capital Account and Ownership Interest of the Transferor (including a pro-rata share of Capital Contributions) that is attributable to the transferred interest will carry over to the Transferee. 3.8 CERTIFICATES FOR OWNERSHIP INTERESTS. Ownership Interests in the Company shall be represented by Certificates, which shall be in such form as may be determined by the Managers. Certificates shall be signed by a majority of the Managers. All Certificates shall be consecutively numbered or otherwise identified. The name of the Person to whom the Ownership Interests are issued, with the percentage Ownership Interest and the date of issue, shall be entered on the books of the Company. All Certificates surrendered to the Company for transfer shall be canceled and no new Certificate shall be issued until the former Certificate for a like percentage of Ownership Interest shall have been surrendered and canceled, except that in the case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the Company as the Managers may prescribe. Transfers of Ownership Interests of the Company shall be made only on the books of the Company by the holder of record thereof or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Company, and, on surrender for cancellation of the Certificate for such Ownership Interest. The Person in whose name an Ownership Interest stands on the books of the Company shall be deemed the 4 5 owner thereof for all purposes as regards the Company. ARTICLE 4: MEMBERS AND MANAGERS 4.1 INITIAL MANAGERS, ACTION, MEETINGS. There shall be four Managers of which LAJA shall be entitled to elect two Managers, and KAR shall be entitled to elect two Managers. In the event LAJA exercises its right under Section 1(b) of the Letter Agreement because it has been required to materially encumber its balance sheet (commitment for Equity Advance in excess of 15 million dollars where KAR elects not to participate in such excess), then there shall be five Managers of which LAJA shall be entitled to elect three and KAR shall elect two. If such material encumbrance is removed, the Managers shall revert back to four and each of LAJA and KAR shall elect two. The initial Managers of the Company shall be Jerry A. Argovitz and Kevin M. Kean on behalf of KAR, and and on behalf of LAJA. Each Member shall have the right to remove, replace, fill a vacancy or designate a temporary replacement for the Manager or Managers elected by it, in the Member's sole and absolute discretion. Managers shall hold office for a term of one year from election, or until the next Annual Meeting of Members. Subject to Section 1(c) of the Letter Agreement, actions of the Managers shall be by majority vote at meetings duly called for purposes of taking action at which a quorum is present. A quorum at any meeting of the Managers shall consist of three Managers if there are five Managers or two Managers if there are four Managers, so long as (i) a representative of each of KAR and LAJA are in attendance, and (ii) notice is given as provided herein. Subject to Section 1(c) of the Letter Agreement, the Managers may also act by unanimous written consent in lieu of a meeting. Meetings of the Managers shall be held no less often than quarterly (one of which shall be the Annual Meeting of the Members) on dates established therefor at each preceding Annual Meeting of the Managers. Special meetings of the Managers shall be held from time to time as called by any of the Managers on no less than seven (7) days' advance notice given in writing by the Manager calling such meeting, which notice may be given by facsimile, Federal Express or similar courier service, certified mail or personal delivery. Notices of meetings shall be effective when sent, if sent by facsimile, or upon receipt, if given by certified mail, overnight courier or personal delivery, in each case at the address of each of the Managers on the books and records of the Company. The Managers may participate in a meeting by means of conference telephone or similar communications equipment by which all the members participating in the meeting can hear each other at the same time. Such participation will constitute presence in person at the meeting and waiver of any required notice. 4.2 MANAGEMENT AUTHORITY. Except as otherwise provided in this Agreement, all management decisions of the Company (including, without limitation, any actions or votes taken by or on behalf of the Company in respect of any equity interest held by the Company in another entity) shall be made by the Managers, who shall be responsible for the conduct of the business of the Company, subject to the provisions of this Agreement and the Act. Subject to Section 1(c) 5 6 of the Letter Agreement, the Managers shall have all of the rights, powers, duties and obligations of managers as provided in the Act, and as otherwise provided by law, and any action taken by the Managers, not otherwise in violation of the Act or this Agreement, shall constitute the act of and serve to bind the Company. Without in any manner limiting the grant of authority to the Managers, except as otherwise provided in this Agreement, the Managers shall have the authority to manage the business and affairs of the Company, including, without limitation, the power and authority to perform any and all of the following on behalf of the Company: (a) To acquire property from any Person; (b) To borrow money for the Company from banks and other lending institutions, all on such terms as the Managers determine, and in connection therewith, to hypothecate, grant security interests in and otherwise encumber the assets of the Company to repay such borrowed sums, provided that the Project Loan shall be subject to unanimous consent as provided in Section 4.11; (c) To purchase liability and other insurance to protect the Company's property and business; (d) To hold and own real and personal property in the name of the Company; (e) To invest Company funds in any investment determined appropriate by the Managers; (f) To authorize any employee, officer or agent of the Company to execute on behalf of the Company all instruments and documents, including, without limitation, checks, drafts, notes and other negotiable instruments, mortgages or deeds of trusts, financing statements and documents providing for the acquisition, disposition or mortgage of property of the Company; (g) To employ accountants, legal counsel, managing agents or other experts to perform services for the Company (whether or not affiliated or connected with any Manager or a Member); (h) To make any and all determinations with respect to the manner in which the Company votes any stock interest, partnership interest or other equity interest held by the Company, on any matter on which the Company possesses a right to vote; and (i) To do and perform all other acts as may be necessary or appropriate to the conduct of the Company's business. Subject to the provisions of Sections 1(c) and 1(d) of the Letter Agreement, LAJA shall have primary responsibility for developing the Project, including Project design, construction, financing and management of the Project. KAR shall have primary responsibility for community and Tribal relations. 6 7 4.3 LIMITATION ON LIABILITY: MANAGER COMPENSATION. A Manager shall perform his duties as a Manager in good faith, in a manner he reasonably believes to be in the best interest of the Company and the Members, and with such care as an ordinarily prudent person in a like position would use under similar circumstances. A person who so performs his duties shall not have any liability by reason of being or having been a Manager of the Company. The Managers shall not be liable, responsible or accountable in damages or otherwise to the Company or any Member for any action taken or failure to act on behalf of the Company within the scope of authority conferred on the Managers under this Agreement or the Act, except where the claim at issue is based on the fraud, gross negligence or bad faith of the Managers. The Managers shall only receive such compensation from the Company in consideration for performing their management duties and responsibilities hereunder as the Members may approve from time to time in writing. Notwithstanding the foregoing, any and all reasonable expenses incurred by the Managers in connection with the operation or affairs of the Company shall be reimbursed by the Company as appropriate. 4.4 MEMBER'S REPRESENTATIVE. Each Member that is not an individual will designate one or more individuals to act as such Member's duly authorized representative and agent for purposes of exercising such Member's vote on any matter involving the Company requiring the approval or action of the Members. Each Member that is not an individual may also designate one or more individuals as an alternate in the event that the primary representative is unavailable to act for any reason. A Member may change any such designation at any time upon similar notice. The representatives of a Member will cast the vote of each Member in accordance with such Member's Ownership Interest, as provided in this Article. 4.5 MEMBERS' VOTING. Subject to the provisions of Section 1(c) of the Letter Agreement, all decisions reserved by the Act or this Operating Agreement to the Members will be made by the affirmative vote of Members owning more than 50% of the Ownership Interests, unless the unanimous vote (under Section 4.11) provisions apply or except as to any other matter the Members agree shall require a unanimous vote or as otherwise specifically provided in this Agreement. Any determination to be made by the Members will be made in each Member's sole and absolute discretion. 4.6 NO RESIGNATION OR RETIREMENT. Except as provided in the Letter Agreement or this Agreement, each Member agrees not to voluntarily resign or retire as a Member in the Company. However, if such voluntary resignation or retirement occurs in contravention of this Agreement and the Letter Agreement, the withdrawing Member will, without further act, become a Transferee of such Ownership Interest (with the limited rights of a Transferee as set forth in Section 13.6). Any Member who resigns or retires from the Company in contravention of this Agreement or the Letter Agreement (i) will be liable to the Company and the other Members for proven monetary damages as provided in Section 11.2 (but any such action or proposed action to resign or retire will not be subject to any equitable action for injunctive relief or specific performance) and (ii) will not be entitled to receive any distribution upon resignation pursuant to Section 18-604 of the Act. 7 8 4.7 POWERS OF THE MANAGERS. Each Manager is an agent of the Company for the purpose of conducting its business and affairs. The act of any Manager for apparently carrying on in the usual way of the Company's business or affairs binds the Company unless the Manager so acting has, in fact, no authority to act for the Company in the particular matter and the person with whom such Manager is dealing has knowledge of such lack of authority. The act of any Manager which is not apparently for the carrying on in the usual way of the Company's business or affairs does not bind the Company unless authorized in accordance with this Agreement. Without the Consent of all the Members, no Member shall have authority to act on behalf of the Company. 4.8 SUBSTITUTE MEMBERS. A Transferee may be admitted as a substitute Member of the Company only upon the affirmative written agreement of all of the Members (excluding the Transferor Member), effective upon a date specified (which must be on or after the effective date of the Transfer, as determined under Section 13.5). The transfer of an Ownership Interest, which results in fewer than two continuing Members (including any Transferee admitted as a substitute Member), will trigger an event of Withdrawal as provided in Article 11. 4.9 ADDITIONAL MEMBERS. Subject to Section 4.11, additional Members of the Company may be admitted only upon the affirmative written agreement of all Members, effective upon a date specified by all the Members. 4.10 OFFICERS. The Company, acting through the Managers, may appoint and remove such officers as it determines to be necessary or desirable to carry out the day-to-day management of the Company and the Managers may delegate such authority to such officers as they deem appropriate, subject to the provisions of this Agreement and the Act. The Company's officers may include a president, one or more vice presidents, a secretary and a treasurer, as well as one or more assistant vice presidents, secretaries and treasurers. Such officers may also include a chief executive officer, chief operating officer and chief financial officer. Appointment as an officer or agent of the Company will not, of itself create any contract rights. The officers of the Company, acting in their capacity as such, will be agents acting on behalf of the Company as principal. No officer of the Company has the continuing exclusive authority to make independent business decisions on behalf of the Company without the approval of the Managers as set forth in this Article. The initial chief executive officer of the Company shall be Kevin M. Kean. 4.11 UNANIMOUS VOTE. Notwithstanding anything to the contrary in this Agreement, the following actions by the Company will require the unanimous vote of the Managers and the affirmative vote of all the Members: (a) A call for additional Capital Contributions by the Members; (b) The approval of the principal terms of the Project Loan or of any refinancing thereof or the granting of a security interest in the cash flow of the Company; 8 9 (c) The appointment of the Chief Operating Officer or the Chief Financial Officer of the Company or the appointment of a replacement for the initial Chief Executive Officer of the Company; (d) The admission of an additional Member under Section 4.8 of this Agreement; (e) Any non pro-rata Distribution, except as provided in the Letter Agreement or Section 6.1 of this Agreement; (f) The amendment of this Agreement, except as provided in Section 14.1 of this Agreement; (g) The merger of the Company with any other business entity as provided by governing law; (h) The sale of all or substantially all of the Company's assets; (i) The Dissolution of the Company, except as provided in Article 11 of this Agreement; and (j) The agreement to have LACO materially encumber its balance sheet. 4.12 BUSINESS PURSUITS OF MEMBERS AND MANAGERS. Except as otherwise provided in any other written agreement by which a Manager may be bound, the Managers may engage in other business activities and the Managers shall be obligated by reason of this Agreement to devote only as much of their time to the Company's business as shall be reasonably required in light of the Company's business and objectives and the responsibilities undertaken or assigned to the Managers. Except as otherwise provided in this Agreement, the Letter Agreement or in any other written agreement by which any Member or Manager may be bound, this Agreement shall not preclude or limit in any respect the right of any Member or Manager to engage in or invest in any business activity of any nature or description, whether or not competitive with the business of the Company and a Member or Manager shall have no obligation to offer any opportunity to the Company. Any such activity may be engaged in independently or with other Members or Managers. No Member shall have the right, by virtue of the Certificate, this Agreement or the relationship created hereby, to any interest in such other ventures or activities or to the income or proceeds derived therefrom. Except as otherwise provided in this Agreement, the Letter Agreement or in any other written agreement by which any Member or Manager may be bound, the pursuit of such other ventures shall not be deemed wrongful or improper and any Member or Manager shall have the right to participate in or to recommend to others any such investment opportunity. 4.13 TRANSACTIONS WITH AFFILIATES. Any transactions between a Member or a Manager or their respective Affiliates and the Company shall be on terms not less favorable to the Company than the terms that would be available to the Company from an unrelated party dealing at arms' 9 10 length. Additionally, no Member shall charge the Company for any expenditure which the Tribe or the Project has agreed to pay or be charged under the Management Agreement or Development Agreement. The parties acknowledge that the terms of the LAJA Management Agreement are acceptable and satisfy the terms of this Section 4.13. ARTICLE 5: ALLOCATION OF PROFITS AND LOSSES 5.1 PROFITS AND LOSSES. For each Fiscal Year, Profits or Losses of the Company will be an amount equal to the Company's income or loss determined under the accrual method of accounting, in accordance with generally accepted accounting principles consistently applied. 5.2 GENERAL ALLOCATION RULE. Except as otherwise provided in (or until changed pursuant to) this Agreement, the Profits or Losses of the Company, including items of income, gain, loss and deduction for each Fiscal Year, will be allocated to the Members in proportion to their respective Ownership Interests as defined herein. Appropriate adjustment during the Fiscal Year of any change in this allocation will be determined in accordance with Section 706 of the Code and the Section 706 Regulation to take into account the varying interests of the Members in the Company during such Fiscal Year, in the manner determined by the Company. 5.3 EXCEPTION. Notwithstanding the general rule on allocation and for tax accounting purposes only and not for financial statement purposes or any other provision of this Operating Agreement, no cash shall be distributed to any Member if the effect thereof would be to create a deficit in his Capital Account balance or increase the deficit in his Capital Account below the sum of (1) the amount (if any,) which he is required to contribute to the Company and (2) said Member's share of gain which the Company would recognize upon a sale of its property for an amount equal to the balance of the non-recourse debt encumbering it, (the "Company's Minimum Gain") and such cash shall be retained by the Company and shall be distributed to the Member at the earliest time or times possible when such distributions will not cause such a deficit or increase such a deficit in the distributee's Capital Account balance. Notwithstanding the provisions of Section 5.2, the following allocations of net profits and net losses and items thereof shall be made: (a) If in any taxable year there is a net decrease in the amount of the Company's Minimum Gain, each Member shall be allocated items of the Company's net profits for that year (and, if necessary, subsequent years) equal to that Member's share of the net decrease in the Company's Minimum Gain (within the meaning of Treasury Regulation Section 1.704-2(g)(2). The items to be so allocated shall be determined in accordance with Treasury Regulation Section 1.704-2(j)). This Section 5.3 is intended to comply with the Minimum Gain Chargeback requirement in Treasury Regulation Section 1.704-2 and shall be interpreted consistently therewith. (b) If during any taxable year a Member unexpectedly receives any adjustments, allocations or distributions described in Treasury Regulation Section 1 .704-l(b)(2)(ii)(d)(4), (5), or (6), then items of net profits shall be specially allocated to each Member in an amount and 10 11 manner sufficient to eliminate, to the extent required by Treasury Regulation Section 1. 704-( 1)(b)(2)(ii)(d), the deficit in the Capital Account of such Member as quickly as possible, provided that an allocation pursuant to this Section 5.3 (b) shall be made only if and to the extent that such Member has an adjusted Capital Account deficit after all other allocations provided for in this Article 5 have been tentatively made and as if this Section 5.3(b) were not in this Agreement. This Section 5.3(b) is intended to comply with the Qualified Income Offset requirements in Treasury Regulation Section 1.704- 1(b)(2)(ii)(d) and shall be interpreted consistently therewith. It is the intent of the Members that the allocations provided for in this Operating Agreement have "substantial economic effect," as that term is defined in Section 704(b) of the Code. Notwithstanding anything in this Section 5.3 to the contrary, nothing contained in this Section 5.3 shall serve to restrict any distribution by the Company to any Member. 5.4 TAX ALLOCATIONS. Allocation of items of income, gain, loss and deduction of the Company for federal income tax purposes for a Fiscal Year will be allocated, as nearly as is practicable, in accordance with the manner in which such items are reflected in the allocations of Profits and Losses among the Members for such Fiscal Year. To the extent possible, principles identical to those that apply to allocations for federal income tax purposes will apply for state and local income tax purposes. 5.5 TRANSFER. Except as otherwise provided in Section 5.2, if an Ownership Interest is transferred during any Fiscal Year (whether by Transfer or liquidation of an Ownership Interest, or otherwise), the books of the Company will be closed as of the effective date of Transfer. The Profits or Losses attributed to the period from the first day of such Fiscal Year through the effective date of Transfer will be allocated to the Transferor, and the Profits or Losses attributed to the period commencing on the effective date of Transfer will be allocated to the Transferee. In lieu of an interim closing of the books of the Company and with the agreement of the Transferor and Transferee, the Company may agree to allocate Profits and Losses for such Fiscal Year between the Transferor and Transferee based on a daily proration of items for such Fiscal Year or any other reasonable method of allocation (including an allocation of extraordinary Company items, as determined by the Company, based on when such items are recognized for federal income tax purposes). 5.6 CONTRIBUTED PROPERTY. All items of income, gain, loss and deduction with respect to property contributed (or deemed contributed) to the Company will, solely for tax purposes, be allocated among the Members as required by Section 704(c) of the Code so as to take into account the variation between the tax basis of the property and its Fair Market Value at the time of contribution. For example, if there is built-in gain with respect to contributed property, upon the Company's sale of that property the pre-contribution taxable gain (as subsequently adjusted under the Section 704(c) Regulations during the period such property was held by the Company) would be allocated to the contributing Member (and such pre-contribution gain would not again create a Capital Account adjustment since the property was credited to Capital Account upon contribution at its Fair Market Value). Except as limited by the following sentence, the 11 12 allocation of tax items with respect to Section 704(c) property to Members not contributing such property will, to the extent possible, be equal to the allocation of the corresponding book items made to such noncontributing Members with respect to such property. If book allocations of cost recovery deductions (such as depreciation or amortization) exceed the tax allocations of those items so that the ceiling rule of the Section 704(c) Regulations applies, any curative or remedial allocations of tax items will be made as the Company may determine. All tax allocations made under this provision will be made in accordance with Section 704(c) of the Code and the Section 704(c) Regulations. 5.7 TAX CREDITS. Any tax credit, and any tax credit recapture, will be allocated to the Members in the same ratio that the federal income tax basis of the asset (to which such tax credit relates) is allocated to the Members under the Section 46 Regulations, and if no basis is allocated, in the same manner as Profits are allocated to the Members under Section 5.2. ARTICLE 6: PAYMENTS AND DISTRIBUTIONS 6.1 PAYMENTS AND DISTRIBUTIONS. Notwithstanding anything in this Agreement or any other agreement or instrument or under the Act to the contrary, payments and distributions from Cash Flow shall be made in the following order of priority: First, any monthly installment payments to the Company by the Tribe under the Interim Promissory Note shall be paid dollar-for-dollar by the Company to LAJA to pay first the interest and then the principal until LAJA is paid all principal and interest on the monthly installment payments due under the Interim Promissory Note; Second, the Company shall pay the LAJA Management Fee; Third, so long as the Interim Promissory Note remains unpaid, the remaining cash available for distribution after establishment of reserves for the Company's other expenses will be distributed to LAJA until all principal and interest under the Interim Promissory Note has been paid to LAJA. Fourth, all remaining cash available for distribution, or proceeds from the payment to the Company under the Interim Promissory Note, if LAJA shall have already received an amount equal to the total principal and interest due it under the Interim Promissory Note, shall be distributed to the Members in accordance with their respective Ownership Interest established in this Agreement. Notwithstanding anything to the contrary above, the Company shall make cash Distributions to the Members in amounts sufficient for the Members to pay their Tax Liabilities (including any amounts necessary to pay the amount of Tax Liabilities for prior periods for which inadequate amounts of Cash Flow were available to meet the Member's Tax Liabilities) ("Tax Distributions"), provided that there is Cash Flow to pay such amounts, which Tax Distributions shall be made at or prior to the due date of the related Tax Liabilities. For this purpose, "Tax Liabilities" means Federal or State income tax liabilities which may be chargeable to any 12 13 Member as a consequence of the Member's interest in the Company, or, if such Member is not a taxpaying entity, each beneficial owner of such Member who is a taxpaying entity (using the maximum income tax rate applicable to such taxpaying entity) for each fiscal year of the Company not previously used to offset taxable income of the Company shown on the information returns of the Company as of the end of the fiscal year of the Company as to which such determination is being made. 6.2 NONPRORATA DISTRIBUTIONS. Except as provided in Section 6.1, the Members intend that all Distributions will be made to the Members in proportion to their Ownership Interests. Except as permitted in Section 6.1, in the event any Distribution is not made in proportion to their Ownership Interests, any excess Distribution to a Member will be treated as an advance or loan made by the Company to such Member, payable to the Company with Interest and on demand. 6.3 PAYMENT. Any Distribution will be made to a Member only if such Person owns an Ownership Interest on any record date established by the Company or, if none is established, on the date of Distribution, as reflected on the books of the Company. 6.4 WITHOLDING. If required by the Code or by state or local law, the Company will withhold any required amount from Distributions to a Member for payment to the appropriate taxing authority. Any amount so withheld from a Member will be treated as a Distribution by the Company to such Person. Each Member agrees to timely file any agreement that is required by any taxing authority in order to avoid any withholding obligation that would otherwise be imposed on the Company. 6.5 DISTRIBUTION LIMITATION. Notwithstanding any other provision of this Agreement, the Company shall not make any Distribution to the Members in contravention of Section 18-607(a) of the Act. ARTICLE 7: MEETINGS OF MEMBERS 7.1 ANNUAL MEETING. Unless the Company determines (whether by vote or otherwise) that an annual meeting is not necessary or desirable, the annual meeting of the Members will be held at a time and place determined by the Managers and by Notice to all other Members. The purpose of the annual meeting is to review the Company's operations for the preceding Fiscal Year and to transact such business as may come before the meeting. The failure to hold any annual meeting has no adverse effect on the continuance of the Company. 7.2 SPECIAL MEETINGS. Special meetings of the Members, for any purpose or purposes, may be called by any Member or Members owning at least ten percent (10%) of the Ownership Interests held by all Members by notice to all other Members. 7.3 PLACE. The Members calling the meeting may designate any place as the place of meeting for any meeting of the Members. If no designation is made, or if a special meeting is otherwise called, the place of meeting will be the Company's executive offices in California, or at a 13 14 location agreed to by the Managers. 7.4 NOTICE. Notice of any annual meeting determined by resolution of the Members or of any special meeting must be given not less than 5 days nor more than 30 days before the date of the meeting. Such notice must state the place, day, and hour of the meeting and, in the case of a special meeting, the purpose for which the meeting is called. 7.5 WAIVER OF NOTICE. Any Member may waive, in writing, any notice that is required to be given to such Member, whether before or after the time stated in such notice. Any Member who signs minutes of action (or written consent or agreement) will be deemed to have waived any required notice with respect to such action. 7.6 RECORD DATE. For the purpose of determining Members entitled to notice of or to vote at any meeting of Members, the date on which notice of the meeting is first given will be the record date for the determination of Members. Any such determination of Members entitled to vote at any meeting of Members will apply to any adjournment of a meeting. 7.7 QUORUM. A quorum at any meeting of Members shall consist of Members owning more than 50% of the Ownership Interests held by all Members. Any meeting at which a quorum is not present may adjourn the meeting to another place, day and hour without further notice. 7.8 MANNER OF ACTING. Subject to the provisions of Section 1(c) of the Letter Agreement, if a quorum is present, the affirmative vote of Members as set forth in Article 4 will be the act of the Company. 7.9 PROXIES. At a meeting of the Members, a Member may vote in person or by written proxy given to another Member. Such proxy must be signed by the Member or by a duly authorized attorney-in-fact and filed with the Company before or at the time of the meeting. No proxy will be valid after eleven months from the date of its signing unless otherwise provided in the proxy. Attendance at the meeting by the Member giving the proxy will revoke the proxy during the period of attendance. 7.10 MEETING BY TELEPHONE. The Members may participate in a meeting by means of conference telephone or similar communications equipment by which all Members participating in the meeting can hear each other at the same time. Such participation will constitute presence in person at the meeting and waiver of any required notice. 7.11 ACTION WITHOUT A MEETING. Any action required or permitted to be taken at a meeting of Members under this Article 7 may be taken without a meeting if the action is evidenced by one or more written consents describing the action taken, signed by Members owning total Ownership Interests sufficient for the particular action as set forth in Article 4. Action so taken is effective when sufficient Members approving the action have signed the consent, unless the consent specifies a later effective date. Notice of the action must be provided to all members. 14 15 ARTICLE 8: LIABILITY OF A MEMBER 8.1 LIMITED LIABILITY. No Member of the Company shall be individually liable for the debts or liabilities of the Company. 8.2 LIABILITY TO COMPANY. Each Member is liable to the Company for any Capital Contribution or Distribution that has been wrongfully or erroneously returned or paid to such Person in violation of the Act, the Certificate or this Agreement. ARTICLE 9: INDEMNIFICATION 9.1 INDEMNIFICATION. The Company shall indemnify, defend and hold harmless any Person who was or is a party (or is threatened to be made a party) to any Proceeding by reason of the fact that such Person is or was a Member, or agent or representative thereof, or a Manager, officer, employee or agent of the Company, to the fullest extent provided or permitted by the Act. Any such indemnification will apply to any Liability actually and reasonably incurred in connection with the defense or settlement of the Proceeding. 9.2 EXPENSE ADVANCEMENT. With respect to the expenses actually and reasonably incurred by a current or former Member or agent or representative thereof or by a current or former Manager, officer, employee or agent of the Company who is a party or is threatened to be made a party to a Proceeding, the Company shall provide funds to such Person in advance of the final disposition of the Proceeding if the Person agrees in writing to repay the advance if it is subsequently determined that such Person was not entitled to indemnification. 9.3 INSURANCE. The indemnification provisions of this Article do not limit a Person's right to recover under any insurance policy or other financial arrangement by the Company (including any self-insurance, trust fund, letter of credit, guaranty or surety). If, with respect to any Liability, any Person receives an insurance or other indemnification payment which, together with any indemnification payment made by the Company, exceeds the amount of such Liability, then such Person will immediately repay such excess to the Company. ARTICLE 10: ACCOUNTING AND REPORTING 10.1 FISCAL YEAR. For income tax and accounting purposes, the Fiscal Year of the Company will end on the closest Sunday of the calendar year (unless otherwise required by the Code). 10.2 ACCOUNTING METHOD. For accounting purposes, the Company will use generally accepted accounting principles. 10.3 TAX ELECTIONS. The Company will have the authority to make such tax elections, and to revoke any such election, as the Company may from time to time determine. 10.4 RETURNS. The Company will cause the preparation and timely filing of all tax returns 15 16 required to be filed by the Company pursuant to the Code, as well as all other tax returns required in each jurisdiction in which the Company does business. 10.5 REPORTS. The Company will furnish a Profit or Loss statement and a balance sheet to each Member within a reasonable time after the end of each fiscal quarter. The Company books will be closed at the end of each Fiscal Year and audited financial statements prepared showing the financial condition of the Company and its Profits or Losses from operations. Copies of these statements will be given to each Member. In addition, as soon as is practicable after the close of each Fiscal Year (and in any event within 90 days following the end of each Fiscal Year), the Company will provide each Member with all necessary tax reporting information. 10.6 BOOKS AND RECORDS. The records of the Company will be kept at the Company's business office in Minnesota, and will be available for inspection and copying by any Member at such Person's expense, during ordinary business hours. 10.7 INFORMATION. Any Member has the right to inspect and copy the Company books and records as provided in Section 10.6 and to have a formal accounting of Company affairs whenever circumstances render it just and reasonable. In addition, subject to reasonable standards as established by the Company from time to time, and upon reasonable demand for any purpose reasonably related to the Member's interest as a Member, any Member has the right to obtain from the Company correct and complete information relating to the state of the Company's business and its financial condition. 10.8 BANKING. The Company may establish one or more bank or financial accounts and safe deposit boxes. The Company may authorize one or more individuals to sign checks on and withdraw funds from such bank or financial accounts and to have access to such safe deposit boxes, and may place such limitations and restrictions on such authority as the Company deems advisable. 10.9 TAX MATTERS PARTNER. Until further action by the Company, LACO is designated as the tax matters partner under Section 6231(a) (7) of the Code. The tax matters partner will be responsible for notifying all Members of ongoing proceedings, both administrative and judicial, and will represent the Company throughout any such proceeding. The Members will furnish the tax matters partner with such information as it may reasonably request to provide the Internal Revenue Service with sufficient information to allow proper notice to the Members. If an administrative proceeding with respect to a partnership item under the Code has begun, and the tax matters partner so requests, each Member will notify the tax matters partner of its treatment of any partnership item on its federal income tax return, if any, which is inconsistent with the treatment of that item on the partnership return for the Company. Any settlement agreement with the Internal Revenue Service will be binding upon the Members only as provided in the Code. The tax matters partner will not bind any other Member to any extension of the statute of limitations or to a settlement agreement without such Member's written consent. Any Member who enters into a settlement agreement with respect to any partnership item will notify the other Members of such settlement agreement and its terms within 30 days from the date of settlement. 16 17 If the tax matters partner does not file a petition for readjustment of the partnership items in the Tax Court, Federal District Court or Claims Court within the 90 day period following a notice of a final partnership administrative adjustment, any notice partner or 5-percent group (as such terms are defined in the Code) may institute such action within the following 60 days. The tax matters partner will timely notify the other Members in writing of its decision. Any notice partner or 5 percent group will notify any other Member of its filing of any petition for readjustment. 10.10 NO PARTNERSHIP. The classification of the Company as a partnership will apply only for federal (and, as appropriate, state and local) income tax purposes. This characterization, solely, for tax purposes, does not create or imply a general partnership between the Members for state law or any other purpose. Instead, the Members acknowledge the status of the Company as a limited liability company formed under the Act. ARTICLE 11: DISSOLUTION OF THE COMPANY 11.1 DISSOLUTION. Dissolution of the Company will occur upon the happening of any of the following events: (a) By operation of law; or (b) By unanimous agreement of the Members. 11.2 EVENTS OF WITHDRAWAL. An event of Withdrawal of a Member occurs when any Member Transfers all of such Member's Ownership Interest (which Transfer is treated as a resignation), including a Transfer of LAJA's Ownership Interest pursuant to Section 3 of the Letter Agreement. Within 30 days following the happening of any event of Withdrawal with respect to a Member, such Member must give notice of the date and the nature of such event to the Company. Any Member failing to give such notice will be liable in damages for the consequences of such failure as provided in Section 4.6 of this Agreement. Upon the occurrence of an event of Withdrawal with respect to a Member, such Member will cease to have voting rights under Article 4, and such Member's Ownership Interest will be deemed transferred to such Member's Transferee or other successor in interest, if any (which Person, unless already a Member in such capacity, will have only the limited rights of a Transferee as set forth in Section 13.6, unless and until admitted as a substitute Member) or, if there is no Transferee or successor in interest, such withdrawing Member shall, without further action, become a Transferee of such Member's Interest with the limited rights of a Transferee as set forth in Section 13.6. 11.3 CONTINUATION. In the event of Withdrawal of a Member, the Company will be continued if, within 90 days following such event, there is an affirmative written agreement of a Majority In Interest of all the remaining Members to continue the Company's business as a limited liability company under the Act and this Agreement. Any Transferee admitted as a substitute Member will be treated as a remaining Member. If the business of the Company is so continued, an event 17 18 of Withdrawal of one or more Members will not cause the Dissolution of the Company. If the business of the Company is so continued, with respect to any Member as to which an event of Withdrawal has occurred, such Member or such Member's Transferee or other successor-in-interest (as the case may be) will, without further act, become a Transferee of such Ownership Interest (with the limited rights of a Transferee as set forth in Section 13.6, unless and until admitted as a substitute Member). If the Company is not continued as above provided, the Company will be treated as dissolved as of the end of such 90-day period. ARTICLE 12: LIQUIDATION 12.1 LIQUIDATION. Upon Dissolution of the Company, the Company will immediately proceed to wind up its affairs and liquidate. The Managers will appoint a liquidating trustee. The winding up and Liquidation of the Company will be accomplished in a businesslike manner as determined by the liquidating trustee pursuant to the Act and this Article 12. A reasonable time will be allowed for the orderly Liquidation of the Company and the discharge of liabilities to creditors so as to enable the Company to provide for any losses attendant upon Liquidation. Any gain or loss on disposition of any Company assets in Liquidation will be allocated to Members and credited or charged to Capital Accounts in accordance with the provisions of Articles 3 and 5. Any liquidating trustee is entitled to reasonable compensation for services actually performed, and may contract for such assistance in the liquidation process as such Person deems necessary. Until the filing of articles of dissolution as provided in Section 12.6, the liquidating trustee may settle and close the Company's business, prosecute and defend suits, dispose of its property, discharge or make provision for its liabilities, and make distributions in accordance with the priorities set forth in Section 12.2. 12.2 PRIORITY OF PAYMENT. The assets of the Company will be distributed in Liquidation of the Company in the following order: (a) First, to creditors, including Members and Managers who are creditors, to the extent otherwise permitted by law, in satisfaction of liabilities of the Company (whether by payment or the making of reasonable provision for payment thereof) other than liabilities for which reasonable provision for payment has been made and liabilities for Distributions to Members and former Members under Section 18-601 or Section 18-604 of the Act; (b) Second, except as otherwise provided in this Agreement, to Members and former Members in satisfaction of liabilities for Distributions under Section 18-601 or Section 18-604 of the Act; (c) Third, to any Member for any other loans or debts owing to such Member by the Company which have not been paid pursuant to (a) or (b) above; (d) Fourth, to all Members in proportion to their Capital Account balances to the extent allowable under Section 5.3 until their Capital Account balances are reduced to zero; and, 18 19 (e) Fifth, the balance, if any, to all Members in accordance with their respective Membership Interests. 12.3 DISTRIBUTION TO MEMBERS. Distributions in Liquidation due to the Members may be made by either or a combination of the following methods: selling the Company assets and distributing the net proceeds, or by distributing the Company assets to the Members at their net Fair Market Value in kind. Any liquidating Distribution in kind to the Members may be made either by a pro-rata Distribution of undivided interests or, upon the affirmative vote of all Members, by non pro-rata Distribution of specific assets at Fair Market Value on the effective date of Distribution. Any Distribution in kind may be made subject to, or require assumption of, liabilities to which such property may be subject, but in the case of any non pro-rata Distribution only upon the express written agreement of the Member receiving the Distribution. Each Member hereby agrees to save and hold harmless the other Members from such Member's share of any and all such liabilities which are taken subject to or assumed. Appropriate and customary prorations and adjustments shall be made incident to any Distribution in kind. The Members will look solely to the assets of the Company for the return of their Capital Contributions, and if the assets of the Company remaining after the payment or discharge of the debts and liabilities of the Company are insufficient to return such contributions, they will have no recourse against any other Member. 12.4 NO RESTORATION OBLIGATION. Except as otherwise specifically provided in Article 8, nothing contained in this Agreement imposes on any Member an obligation to make a Capital Contribution in order to restore a deficit Capital Account upon Liquidation of the Company. Furthermore, each Member will look solely to the assets of the Company for the return of such Member's Capital Contribution and Capital Account. 12.5 LIQUIDATING REPORTS. A report will be submitted with each liquidating distribution to Members, showing the collections, disbursements and distributions during the period which is subsequent to any previous report. A final report, showing cumulative collections, disbursements and distributions, will be submitted upon completion of the liquidation process. 12.6 ARTICLES OF DISSOLUTION. Upon Dissolution of the Company and the completion of the winding up of its business, the Company will file articles of dissolution (to cancel its Certificate) with the Delaware Secretary of State pursuant to the Act. At such time, the Company will also file an application for withdrawal of its certificate of authority in any jurisdiction where it is then qualified to do business. ARTICLE 13: TRANSFER RESTRICTIONS 13.1 GENERAL RESTRICTION. No Member may Transfer all or any part of its Ownership Interest in any manner whatsoever except: (a) to a Permitted Transferee as set forth in Section 13.3 or (b) after full compliance with the right of first refusal set forth in Section 13.4, and in either case only if the requirements of Section 13.5 have also been satisfied. Any other Transfer of all or any 19 20 part of an Ownership Interest is null and void, and of no effect. For purposes of this Article 13, a Transfer of the Ownership Interest held by KAR shall be deemed to occur upon any change in Control of KAR other than to a Permitted Transferee pursuant to Section 13.3. Any Member who makes a permitted Transfer of all of such Member's Ownership Interest will be treated as resigning from the Company on the effective date of such Transfer. Any Member who makes a permitted Transfer of part (but not all) of such Member's Ownership Interest will continue as a Member (with respect to the interest retained), and such partial Transfer will not constitute an event of Withdrawal of such Member. The rights and obligations of any resigning Member or of any Transferee of an Ownership Interest will be governed by the other provisions of this Agreement. 13.2 NO MEMBER RIGHTS. No Member has the right or power to confer upon any Transferee the attributes of a Member in the Company. The Transferee of all or any part of an Ownership Interest by operation of law does not, by virtue of such Transfer, succeed to any rights as a Member in the Company. 13.3 PERMITTED TRANSFEREE. Subject to the requirements set forth in Section 13.5, a Person may Transfer all or any part of such Person's Ownership Interest: (a) To an Affiliate of such Person, (b) To another Member, (c) To the Company, (d) To a Person approved by all the Members; or, (e) In the form of a pledge or the granting of a security interest to another Person or a foreclosure or sale in lieu of foreclosure in connection with the granting of any such pledge or security interest as described in Section 13.7. 13.4 RIGHT OF FIRST REFUSAL. Prior to any proposed Transfer of all or any part of an Ownership Interest, other than to a Permitted Transferee pursuant to Section 13.3, the Transferor must obtain a Third Party Offer. The Third Party Offer must not be subject to unstated conditions or contingencies or be part of a larger transaction such that the price for the Ownership Interest stated in such Third Party Offer does not accurately reflect the Fair Market Value (reduced by the amount of associated liabilities) of such Ownership Interest. The Third Party Offer must contain a description of all of the consideration, material terms and conditions of the proposed Transfer. The Transferor will give notice of the Third Party Offer to the Company and all the Members exclusive of Members who have not been admitted as substitute Members pursuant to Section 4.6 (the "Other Members") other than the Transferor, together with a written offer to sell the Ownership Interest (which is the subject of the Third Party Offer) to the Company and the other Members on the same price and terms as the Third Party Offer as provided herein. The Company may accept such offer by the Transferor, in whole but not in part, by giving notice to the 20 21 Transferor within 30 days after notice of such offer. Unless otherwise agreed, the closing of such sale will be held at the Company's principal office in California on a date to be specified by the Company which is not later than 60 days after the date of the Company's notice of acceptance. At the closing, the Company will deliver the consideration in accordance with the terms of the Third Party Offer, and the Transferor will by appropriate documents assign to the Company the Ownership Interest to be sold, free and clear of all liens, claims and encumbrances. Subject to Section 13.5, if the Company has not accepted the Third Party Offer and closed the purchase in accordance with this Section 13.4, the Other Members shall have the right, on a pro rata basis in accordance with the ratio of their Ownership Interests, to purchase, in whole but not in part, the Ownership Interest of the Transferor in accordance with the terms of the Third Party Offer by written notice to the Transferor within 30 days after the expiration of the thirty-day period for the Company's acceptance. If all of the other Members reject the offer or if the offer is not closed in accordance with this Section 13.4, the Transferor will be free for a period of 60 days after the last day for such acceptance to sell all, but not less than all, of such Ownership Interest so offered, but only to the Third Party for a price and on terms no more favorable to the Third Party than the Third Party Offer. If such Ownership Interest is not so sold within such 60-day period (or within any extensions of such period agreed to in writing by the Company), all rights to sell such Ownership Interest pursuant to such Third Party Offer (without making another offer to the Company pursuant to this Section 13.4) will terminate and the provisions of this Article will continue to apply to any proposed future Transfer. 13.5 GENERAL CONDITIONS ON TRANSFERS. No Transfer of an Ownership Interest will be effective unless all of the conditions set forth below are satisfied: (a) Unless waived by the Company, the Transferor signs and delivers to the Company an undertaking in form and substance satisfactory to the Company to pay all reasonable expenses incurred by the Company in connection with the Transfer (including, but not limited to, reasonable fees of counsel and accountants and the costs to be incurred with any additional accounting required in connection with the Transfer, and the cost and fees attributable to preparing, filing and recording such amendments to the organizational documents or filings as may be required by law); (b) Unless waived by the Company, the Transferor delivers to the Company an opinion of counsel for the Transferor satisfactory in form and substance to the Company to the effect that the Transfer of the Ownership Interest is in compliance with the applicable federal and state securities laws, and a statement of the Transferee in form and substance satisfactory to the Company making appropriate representations and warranties in respect to compliance with the applicable federal and state securities laws and as to any other matter reasonably required by the Company; (c) Unless waived by the Company, the Company receives an opinion from its counsel that (i) the Transfer does not cause the Company to lose its classification as a partnership for federal income tax purposes, and (ii) the Transfer, together with all other Transfers within the preceding twelve months, does not cause a termination of the Company for federal income tax 21 22 purposes; (d) The Transferor signs and delivers to the Company a copy of the assignment of the Ownership Interest to the Transferee; (e) The Transferee signs and delivers to the Company its agreement to be bound by this Agreement; and (f) The Transfer is in compliance with the other provisions of this Article. Notwithstanding the above, only the last two requirements will apply to a Transfer by operation of law. Except as the Company and the Transferee may otherwise agree, the Transfer of an Ownership Interest will be effective as of 12:01 a.m. (Eastern Standard Time) on the first day of the month following the month in which all of the above conditions have been satisfied. Upon the effective date, Appendix I will be deemed amended to reflect the new Ownership Interests. Notwithstanding anything to the contrary expressed or implied in this Agreement: (i) the Transfer, pledge or other disposition of any direct or indirect interest in the Company is subject to applicable State and Federal laws, regulations, requirements, limitations and decisions that regulate or pertain to gaming and, except; (ii) for Transfers to Permitted Transferees, the Transfer of any direct or indirect interest in the Company shall be subject to approval by the Tribe; and (iii) the merger or consolidation of Lakes Jamul, Inc. with or into another Person or a change in Control of Lakes Gaming, Inc. shall not constitute a Transfer of Lakes Gaming, Inc.'s interest in the Company for any purpose. 13.6 RIGHTS OF TRANSFEREES. Any Transferee of an Ownership Interest will, on the effective date of the Transfer, have only those rights of an assignee as specified in the Act and this Agreement unless and until such Transferee is admitted as a substitute Member. This provision limiting the rights of a Transferee will not apply if such Transferee is already a Member; provided that, any Member who resigns or retires from the Company in contravention of Section 4.6 will have only the rights of an assignee as specified in the Act and this Agreement. Any Transferee of all or any part of an Ownership Interest who is not admitted as a substitute Member in accordance with this Agreement has no right (a) to participate or interfere in the management or administration of the Company's business or affairs or to elect or appoint any Managers, (b) to vote or agree on any matter affecting the Company or any Member, (c) to require any information on account of Company transactions, or (d) to inspect the Company's books and records. The only right of a Transferee of all or any part of an Ownership Interest who is not admitted as a substitute Member in accordance with this Agreement is to receive the allocations and Distributions to which the Transferor was entitled (to the extent of the Ownership Interest transferred) and to receive required tax reporting information. However, each Transferee of all or any part of an Ownership Interest (including both immediate and remote Transferees) will be subject to all of the obligations, restrictions and other terms contained in this Agreement as if such Transferee were a Member. To the extent of any Ownership Interest transferred, the 22 23 Transferor Member does not possess any right or power as a Member and may not exercise any such right or power directly or indirectly on behalf of the Transferee. The Members acknowledge that these provisions may differ from the rights of an assignee as set forth in the Act, and the Members agree that they intend, to that extent, to vary those provisions by this Agreement. 13.7 SECURITY INTEREST. The pledge or granting of a security interest, lien or other encumbrance in or against all or any part of a Member's Ownership Interest does not cause the Member to cease to be a Member with voting rights or constitute an event of Withdrawal. Upon foreclosure or sale in lieu of foreclosure of any such secured interest, the secured party will be entitled to receive the allocations and Distributions as to which a security interest has been granted by such Member. In no event will any secured party be entitled to exercise any rights under this Agreement, and such secured party may look only to such Member for the enforcement of any of its rights as a creditor. In no event will the Company have any liability or obligation to any Person by reason of the Company's payment of a Distribution to any secured party as long as the Company makes such payment in reliance upon written instructions from the Member to whom such Distributions would be payable. Any secured party will be entitled, with respect to the security interest granted, only to the Distributions to which the assigning Member would be entitled under this Agreement, and only if, as and when such Distribution is made by the Company. Neither the Company nor any Member will owe any fiduciary duty of any nature to a secured party. Reference to any secured party includes any assignee or successor-in-interest of such Person. 13.8 REGULATORY COMPLIANCE RESTRICTIONS. Notwithstanding anything to the contrary in this Agreement or elsewhere, the following provisions shall apply. Each Member acknowledges that as a result of the transactions contemplated by this Agreement, the other Member and its Affiliates may be subject to licensing and other regulatory review and approval procedures ("Regulatory Review"), by any governmental or quasi-governmental agency which is authorized or empowered to regulate the gaming operations of such Member and its Affiliates ("Regulatory Authority") in the jurisdictions in which such Member and its Affiliates conduct or propose to conduct gaming activities. Each Member agrees to cooperate fully and to cause its Affiliates to cooperate fully with the representatives of all such Regulatory Authorities in making applications, supplying information, providing reports, attending licensing and other hearings, and otherwise cooperating with and complying with the requirements of all such Regulatory Authorities so as not to interfere with the other Member's or its Affiliates' ability to develop new business, including the Project, or to continue to conduct its existing business. In the event a Member reasonably determines based upon communications with a Regulatory Authority that the other Member or any of its Affiliates (an "Unsuitable Member") is likely to be determined unsuitable by such Regulatory Authority and as a result the Unsuitable Member may not be permitted to engage or to continue to engage in a gaming activity, including the Project, (collectively a "Licensing Problem"), then, within the lesser of 150 days' notice of 23 24 such event from the other Member to the Unsuitable Member or the applicable period prescribed by the appropriate Regulatory Authority (the "Cure Period"), the Unsuitable Member shall eliminate the Licensing Problem to the reasonable satisfaction of the other Member or transfer its rights and obligations hereunder and its Ownership Interest to a Person reasonably acceptable to the other Member, who does not have a Licensing Problem, and such Person shall be accepted as a Member of the Company for all purposes. Any such transfer shall be subject to the terms and conditions contained in Section 13.5 hereof. In the event such transfer does not occur or the Licensing Problem is not eliminated within the Cure Period, the Unsuitable Member shall immediately convey its Ownership Interest under this Agreement to the other Member or an Affiliate designated by the other Member for an amount and upon terms mutually agreed to by the parties. Subject to the provisions of Section 1(g) of the Letter Agreement, each of the Members will bear its respective costs and expenses in connection with any applications, permits or licenses that may be required by the respective Members in connection with the Project. ARTICLE 14: GENERAL PROVISIONS 14.1 AMENDMENT. This Agreement may be amended by the unanimous written agreement of the Members. Any amendment will become effective upon such approval, unless otherwise provided. Notice of any proposed amendment must be given at least 5 days in advance of the meeting at which the amendment will be considered (unless the approval is evidenced by duly signed minutes of action). Any duly adopted amendment to this Agreement is binding upon, and inures to the benefit of, each Person who holds an Ownership Interest at the time of such amendment. Notwithstanding any other provision of this Agreement, with respect to any Transferee not admitted as a substitute Member, no amendment to Section 5.2 (relating to the general allocation rule for allocation of Profits or Losses), Section 12.2 (relating to Distributions in Liquidation) and Section 14.1 (relating to amendment of this Agreement) will be effective, nor will such Person be required to make any Capital Contribution, without such Person's written consent. 14.2 UNREGISTERED INTERESTS. Each Member (a) acknowledges that the Ownership Interests are being offered and sold without registration under the Securities Act of 1933, as amended, or under similar provisions of state law, (b) represents and warrants that such Person is an accredited investor as defined for federal securities laws purposes, (c) represents and warrants that it is acquiring an Ownership Interest for such Person's own account, for investment, and with no view to the distribution of the Ownership Interest, and (d) agrees not to Transfer, or to attempt to Transfer, all or any part of its Ownership Interest without registration under the Securities Act of 1933, as amended, and any applicable state securities laws, unless the Transfer is exempt from such registration requirements. 14.3 WAIVER OF PARTITION RIGHT. Each Member waives and renounces any right that such Person may have prior to Dissolution and Liquidation to institute or maintain any action for 24 25 partition with respect to any real property owned by the Company. 14.4 WAIVERS GENERALLY. No course of dealing will be deemed to amend or discharge any provision of this Agreement. No delay in the exercise of any right will operate as a waiver of such right. No single or partial exercise of any right will preclude its further exercise. A waiver of any right on any one occasion will not be construed as a bar to, or waiver of, any such right on any other occasion. 14.5 EQUITABLE RELIEF. If any Person proposes to Transfer all or any part of such Person's Ownership Interest in violation of the terms of this Agreement, the Company or any Member may apply to any court of competent jurisdiction for an injunctive order prohibiting such proposed Transfer except upon compliance with the terms of this Agreement, and the Company or any Member may institute and maintain any action or proceeding against the Person proposing to make such Transfer to compel the specific performance of this Agreement. Any attempted Transfer in violation of this Agreement is null and void, and of no force and effect. The Person against whom such action or proceeding is brought waives the claim or defense that an adequate remedy at law exists, and such Person will not urge in any such action or proceeding the claim or defense that such remedy at law exists. 14.6 REMEDIES FOR BREACH. The rights and remedies of the Members set forth in this Agreement are neither mutually exclusive nor exclusive of any right or remedy provided by law, in equity or otherwise. The Members agree that all legal remedies (such as monetary damages) as well as all equitable remedies (such as specific performance) will be available for any breach or threatened breach of any provision of this Agreement. 14.7 ORIGINAL. This Agreement is signed in two original documents that are to be delivered to each initial Member. A photocopy of this Agreement, as signed, will be delivered to each substitute or additional Member, and each such photocopy will be deemed to be an original document. 14.8 NOTICES. Any notices (including any communication or delivery) required or permitted under this Agreement shall be in writing; may be given by facsimile, Federal Express or similar courier service, certified mail or personal delivery; and shall be addressed as follows: If to LAJA: Lakes Jamul, Inc. Attention: Lyle Berman 130 Cheshire Lane Minnetonka, Minnesota 55305 Telephone: (612) 449-7001 Fax: (612) 449-7064 With a copy to: Doug Twait, Esq. Johnson Hamilton Quigley Twait & Foley, PLC 25 26 West 1450 First National Bank Building St. Paul, Minnesota 55101 Telephone: (651) 602-6262 Fax: (651) 602-9976 If to KAR: Kean Argovitz Resorts-Jamal, Inc. Attention: Kevin M. Kean 11999 Katy Frwy., Suite 322 Houston, Texas 77079 Telephone: (281) 597-9960 Fax: (281) 597-8480 With a Copy to: Darryl M. Burman, Esq. DiCecco, Fant & Burman, L.L.P. 1900 West Loop South, Suite 1100 Houston, Texas 77027 Telephone: (713) 961-3366 Fax: (713) 961-3938 Notices shall be effective when sent, if sent by facsimile, or upon receipt, if given by overnight courier, certified mail or personal delivery. Any Member may change such Person's address by notice to the Company and each other Member. 14.9 COSTS. If the Company or any Member retains counsel for the purpose of enforcing or preventing the breach or any threatened breach of any provision of this Agreement or for any other remedy relating to it, then each party shall bear its own costs and expenses, including attorney's fees. 14.10 INDEMNIFICATION. Each Member hereby indemnifies and agrees to hold harmless the Company and each other Member from any liability, cost or expense arising from or related to any act or failure to act of such Member which is in violation of this Agreement. 14.11 PARTIAL INVALIDITY. Wherever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law. However, if for any reason any one or more of the provisions of this Agreement are held to be invalid, illegal or unenforceable in any respect, such action will not affect any other provision of this Agreement. In such event, this Agreement will be construed as if such invalid, illegal or unenforceable provision had never been contained in it. 14.12 ENTIRE AGREEMENT. This Agreement, together with the Letter Agreement, Development Agreement, Tribe Management Agreement, Assignment and Assumption Agreement, and the LAJA Management Agreement, contains the entire agreement and understanding of the Members with respect to its subject matter, and it supersedes all prior written and oral agreements. No amendment of this Agreement will be effective for any purpose unless it is made in accordance 26 27 with Section 14.1. 14.13 BENEFIT. The obligations of each Member will inure solely to the benefit of the other Members and the Company and their permitted successors and assigns, without conferring on any other Person any rights of enforcement or other rights. 14.14 BINDING EFFECT. This Agreement is binding upon, and inures to the benefit of, the Members and their permitted successors and assigns; provided that, any Transferee will have only the rights specified in Section 13.6 unless admitted as a substitute Member in accordance with this Agreement. 14.15 FURTHER ASSURANCES. Each Member agrees, without further consideration, to sign and deliver such other documents of further assurance as may reasonably be necessary to effectuate the provisions of this Agreement. 14.16 HEADINGS. Article and section titles have been inserted for convenience of reference only. They are not intended to affect the meaning or interpretation of this Agreement. 14.17 TERMS. Terms used with initial capital letters will have the meanings specified, applicable to both singular and plural forms, for all purposes of this Agreement. All pronouns (and any variation) will be deemed to refer to the masculine, feminine or neuter, as the identity of the Person may require. The singular or plural include the other, as the context requires or permits. The word "include" (and any variation) is used in an illustrative sense rather than a limiting sense. 14.18 GOVERNING LAW; CONFLICTS. This Agreement will be governed by, and construed in accordance with, the laws of the State of Delaware (except to the extent preempted by any federal law or the gaming laws of any State or governmental agency having jurisdiction over the affairs of the Company or any Member). Any conflict or apparent conflict between this Agreement and the Act will be resolved in favor of this Agreement except as otherwise required by the Act. The Members and the Company have entered into the Letter Agreement, which contains certain provisions as to the affairs of the Company and the conduct of its business and which, for purposes of the Act, shall be considered, together with this Agreement, as an "operating agreement" of the Company; provided that in the event of any conflict between the terms of the Letter Agreement and this Agreement, the terms of the Letter Agreement shall control. 14.19 REPRESENTATIONS. Each Member represents and warrants to each other Member that, as of the signing of this Agreement: (a) Such Member is duly organized, validly existing and in good standing as a corporation or company under the laws of the jurisdiction where it purports to be organized, and is a United States Person; (b) Such Member has full power and authority to enter into and perform this Agreement 27 28 and the Letter Agreement; (c) All actions necessary to authorize the signing and delivery of this Agreement and the Letter Agreement, and the performance of their respective obligations under each of them, have been duly taken; (d) This Agreement and the Letter Agreement have been duly signed and delivered by a duly authorized officer or other representative of such Member, and constitutes the legal, valid and binding obligation of such Member enforceable in accordance with its terms (except as such enforceability may be affected by applicable bankruptcy, insolvency or other similar laws effecting creditors' rights generally, and except that the availability of equitable remedies is subject to judicial discretion); (e) No consent or approval of any other Person is required in connection with the signing, delivery and performance of this Agreement or the Letter Agreement by such Member; and (f) The signing, delivery and performance of this Agreement and the Letter Agreement do not violate the organizational documents of such Member, or any agreement to which such Member is a party or by which such Member is bound. 14.20 CONFIDENTIALITY. Subject to the next sentence, the Members will use their respective best efforts to keep all matters pertaining to the Project confidential except as required by law, or to the extent necessary to complete the Project or to carry on their other businesses and comply with requirements applicable to them. A Member may make such announcements, file such documents (including this Agreement) with the Securities and Exchange Commission, and other regulatory authorities, and otherwise take such actions to comply with the requirements of federal and state securities laws as it deems appropriate. To the extent reasonably practicable, each Member will provide the other with the portion of any such announcement or filing that refers to this Agreement and the transactions contemplated by it no later than concurrently with releasing or filing the same. ARTICLE 15: DISPUTE RESOLUTION 15.1 DISPUTES. Except as to any disputes for which injunctive relief may be available, in the event a dispute of any kind arises in connection with this Agreement or the Letter Agreement (including any dispute concerning the construction, performance or breach of either agreement), the parties to the dispute (who may be any combination of the Company and any one or more of the Members) will attempt to resolve the dispute as set forth in Section 15.2 before proceeding to arbitration as provided in Section 15.3. All documents, discovery and other information related to any such dispute, and the attempts to resolve or arbitrate such dispute, will be kept confidential to the fullest extent possible. This Article shall not apply to disputes arising under the LACO Management Agreement. 28 29 15.2 NEGOTIATION. If a dispute arises, any party to the dispute will give notice to each other party. After notice has been given, the parties in good faith will attempt to negotiate or mediate a resolution of the dispute. 15.3 APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California. Any action shall be commenced in California Superior Court. If any of the terms and provisions hereof shall be held invalid or unenforceable for any reason, such validity or unenforceability shall in no event affect any of the other terms or provisions hereof, all such other terms and provisions to be held valid and enforceable to the fullest extent permitted by law. IN WITNESS WHEREOF, the initial Members have signed this Operating Agreement of Lakes Kean Argovitz Resorts-California L.L.C. as of the date first set forth above. LAKES JAMUL, INC. a Minnesota corporation By: /s/ Timothy Cope ------------------------------------ Name: Timothy Cope ---------------------------------- Title: Executive Vice President --------------------------------- KEAN ARGOVITZ RESORTS-JAMUL, L.L.C. a Nevada limited liability company By: /s/ Kevin M. Kean ------------------------------------ Name: Kevin M. Kean ---------------------------------- Title: President --------------------------------- APPENDIX II 29 30 DEFINITIONS In addition to the terms that are expressly defined in the Operating Agreement, the following terms shall have the following meanings: ACT: The Delaware Limited Liability Company Act, as amended from time to time. ANNUAL BUDGET: The Operating Budget and Annual Plan, as provided and defined in the Tribe Management Agreement. AFFILIATE: An "Affiliate" of a Person means a Person directly or indirectly controlling, controlled by or under common control with such Person. For this purpose and for purposes of the use of the term "Control" in this Agreement, Control means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. AGREEMENT: This Operating Agreement, as amended from time to time. CAPITAL ACCOUNT: The book value capital account maintained under Section 3.6. CAPITAL CONTRIBUTION: The aggregate amount of cash and the Fair Market Value of property (less the amount of indebtedness, if any, of such Member which is assumed by the Company and/or the amount of indebtedness, if any, to which such property is subject, as of the date of contribution, without regard to the provisions of Code Section 7701(g)), or services rendered or a promissory note or other obligation to contribute cash or property or to perform services, which a Person contributes to the Company in his capacity as a Member. CAPITAL TRANSACTION: Any sale, exchange, condemnation (including any eminent domain or similar transaction), casualty, financing, refinancing or other disposition with respect to any real or personal property owned by the Company which is not in the ordinary course of business. CASH FLOW: For any period, the amount by which (a) the gross cash receipts of the Company from any source for such period (including, but not limited to, Capital Contributions, loans, repayments of monies advanced and payments of principal or interest with respect to the Interim Promissory Note or the Project Loan, distributions received by the Company in respect of any stock, partnership interest or other equity interest owned by the
30 31 Company, and proceeds from the sale, financing, refinancing or other disposition of all or any portion of the Company property), exceed (b) the sum of (i) the aggregate cash disbursements for such period (including, but not limited to, the Company administrative costs, fees paid by the Company under the LACO Management Agreement, principal and interest payable on the Company debt to non-Members and capital expenditures), and (ii) amounts previously set aside as reserves as determined by the Managers in their discretion. CODE: The Internal Revenue Code of 1986, as amended from time to time (including corresponding provisions of subsequent revenue laws). COMPANY: Lakes Kean Argovitz Resorts-California, L.L.C., as formed under the Certificate and as operating under this Agreement. DEVELOPMENT LOAN: A loan from LACO to the Company as provided and defined in the Letter Agreement. DEVELOPMENT PLAN: The plan for the development of the Project, as adopted by the Company. DISSOLUTION: The dissolution of the Company as provided in Section 11.1. DISTRIBUTION: A distribution of money or other property made by the Company with respect to an Ownership Interest. EQUITY ADVANCE: A commitment from LACO to loan or contribute capital to the Company, in an amount of 25% of the Project Loan not to exceed $15,000,000.00 as provided and defined in the Letter Agreement. FAIR MARKET VALUE: As to any property, the price at which a willing seller would sell and a willing buyer would buy such property having full knowledge of the relevant facts, in an arm's-length transaction without time constraints, and without being under any compulsion to buy or sell, or the value otherwise agreed by the Members to be the Fair Market Value. FISCAL YEAR: The fiscal and taxable year of the Company as determined under this Agreement, including both 12-month and short taxable years. INITIAL OWNERSHIP: The relative Ownership Interest of the Members existing upon the execution of this Agreement entitling the holders thereof to all the benefits of ownership in the Company, but which Ownership Interests may be changed from time to time as set forth in this Agreement.
31 32 INTEREST: The Prime Rate as reported, at the time such rate is to be calculated, by the Chase Manhattan Bank, N.A., or any successor, plus two percent (2 %). KAR: Kean Argovitz Resorts-Jamul, L.L.C., a Nevada limited liability company, and its Permitted Transferees (provided that any Transferee will become a substitute Member only in accordance with the Agreement). KAR ADVANCES: The sum of $ , expended by KAR with respect to the Project as of the date of this Agreement, as provided and defined in Section 5(c) of the Letter Agreement. KAR LOAN: A loan of $970,000.00 from LACO to KAR, as provided and defined in the Letter Agreement. LAJA: Lakes Jamul, Inc. a Minnesota corporation, and its Permitted Transferees (provided that any Transferee will become a substitute Member only in accordance with the Agreement). LIABILITY: The obligation to pay any judgment, settlement, penalty, fine or expense (including reasonable attorneys' fees, experts' expenses and court costs) incurred with respect to any Proceeding. LIQUIDATION: The process of terminating the Company and winding up its business under Article 12 after its Dissolution. LOSSES: The Company's net loss (including deductions) for any Fiscal Year, determined under Section 5.1. MAJORITY IN INTEREST: More than 50% of the Ownership Interests. MANAGER: Those Persons designated or appointed as Managers pursuant to this Agreement, and any other Person who becomes a successor or additional Manager of the Company pursuant to this Agreement. MEMBER: A person who is an initial Member of the Company, or who is subsequently admitted as a substitute or an additional Member as provided in this Agreement. NET SALES CASH: Cash receipts of the Company from a Capital Transaction, less payment of fees or expenses related to the Capital Transaction. NOTICE: Written notice (including any communication or delivery),
32 33 actually given pursuant to Section 14.8. OWNERSHIP INTEREST: With respect to each Person owning an interest in the Company, all of the interests of such Person in the Company (including, without limitation, an interest in Profits and Losses of the Company, the right to receive Distributions, a Capital Account interest, and all other rights and obligations of such Person under this Agreement), expressed as a percentage (carried to the nearest one-thousandth of a percent, if other than an even percentage), as initially set forth in Section 1.2 and as subsequently changed in accordance with this Agreement. PERMITTED TRANSFEREE: A person described in Section 13.3 to whom an Ownership Interest may be transferred without compliance with a right of first refusal. PERSON: An individual, corporation, trust, partnership, limited liability company, limited liability association, unincorporated organization, association or other entity. PROCEEDING: Any threatened, pending or completed claim, action, suit or proceeding, whether formal or informal, and whether civil, administrative, investigative or criminal. PROFITS: The Company's net profit (including income and gains) for any Fiscal Year, determined under Section 5.1. PROJECT LOAN: A loan of in the principal amount of up to $60 Million from a financial institution or institutions, as provided and defined in the Letter Agreement. REGULATIONS: The Treasury Regulations (including temporary regulations) promulgated under the Code, as amended from time to time (including corresponding provisions of succeeding regulations). TAX LIABILITY: A Member's tax liability as defined in Section 9(b) of the Letter Agreement. THIRD PARTY: With respect to any Member, a Person other than an Affiliate. THIRD PARTY OFFER: A bonafide, non-collusive, binding, arm's-length written offer from a Third Party stated in terms of U.S. dollars. TRANSFER: A sale, exchange, assignment or other disposition, whether voluntary or by operation of law. TRANSFEREE: A person to whom an Ownership Interest is transferred.
33 34 TRANSFEROR: A person who transfers an Ownership Interest. WITHDRAWAL: The occurrence of an event with respect to a Member which terminates membership in the Company, as provided in Section 11.2.
34 EX-10.70 11 PROMISSORY NOTE DATED 2/15/2000 1 INTERIM PROMISSORY NOTE $20,000,000 Minnetonka, MN February 15, 2000 FOR VALUE RECEIVED, THE JAMUL INDIAN VILLAGE, A FEDERALLY RECOGNIZED INDIAN TRIBE ("MAKER"), promises to pay to the order of LAKES KAR-CALIFORNIA, LLC, A DELAWARE LIMITED LIABILITY COMPANY ("LENDER"), in the United States of America, in immediately available funds, at such place as the holder hereof may from time to time designate, or in the absence of such designation, at the office of the Lender, 130 Cheshire Lane, Minnetonka, Minnesota 55305, the principal sum not to exceed of TWENTY MILLION U.S. DOLLARS ($20,000,000), or the aggregate unpaid principal amount of all advances made to Maker pursuant to the Memorandum of Agreement between the parties (the "Memorandum of Agreement"), a copy of which is attached hereto as Exhibit A, whichever is less, plus interest thereon from the date of such advances, in like money, in accordance with the following terms and provisions: 1. Defined Terms. Capitalized terms used herein and not defined shall have the meanings given them in the Memorandum of Agreement. 2. Advances. Lender hereby agrees to loan to Maker an amount up to but not to exceed $20,000,000, such funds to be loaned in more than one advances (each, an "Advance") as entered on the Schedule of Advances attached hereto as Schedule I (such borrowing, in the aggregate, the "Loan"). Each Advance shall bear interest at the Interest Rate, as described herein, from and including the date the proceeds of such Advance are advanced (such date the "Funding Date" of such Advance) through the date of payment. 3. Repayment; Limited Recourse Obligations. The obligation of Maker to repay the funds advanced shall be a Limited Recourse obligation, as defined in the Memorandum of Agreement. Principal payments shall be made in twelve (12) equal monthly payments commencing on the 15th day of the month after the month in which the Commencement Date occurs. Maker shall have the right to prepay all or any part of this Interim Promissory Note at any time without penalty or premium provided any partial payment is at least $10,000 or an even multiple thereof, but any such prepayment shall be applied to the installments of principal due hereunder in the inverse order of maturity. 4. Interest Rate. The Interest Rate means, as to each Advance, an interest rate equal to the prime rate of Chase Manhattan Bank, NA. (or any successor Bank), fixed as of the first business day of each calendar month, plus two percent (2%), per annum. Interest at the foregoing rate shall accrue and be compounded monthly and shall be payable as a Limited Recourse obligation as provided in the Memorandum of Agreement. Interest shall be computed for the 2 actual number of days elapsed on the basis of a year consisting of 360 days. It is intended that the rate of interest hereon shall never exceed the maximum rate, if any, which may be legally charged on the Loan evidenced by this Note ("Maximum Rate"), and if the provisions for interest contained in this Note would result in a rate higher than the Maximum Rate, interest shall nevertheless be limited to the Maximum Rate and any amounts which may be paid toward interest in excess of the Maximum Rate shall be applied to the reduction of principal, or, at the lawfully exercised option of the Lender, returned to Maker. 5. Schedule of Amounts Owed. Maker hereby authorizes Lender to endorse on the Schedule of Advances annexed to this Note all Advances made to the Maker and all payments of principal amounts in respect of such Advances, which endorsements shall, in the absence of manifest error, be conclusive as to the outstanding principal amount of all Advances; provided, however, that the failure to make such notation with respect to any Advance or payments shall not limit or otherwise affect the obligations of Maker. 6. Default; Acceleration. If any default occurs in the payment of any principal, interest or any other sums when due hereunder, or in the performance of any covenant or agreement hereunder or in any of the other Loan Documents, and such default continues for a period of ten (10) days after written notice thereof to Maker, then the outstanding principal amount of the Loan, any interest accrued thereon from time to time, and any other sums then remaining unpaid hereunder, at the option of the holder hereof and without notice, shall become immediately due and payable. Failure to exercise any such option shall not constitute a waiver of the right to exercise the same at a later time or in the event of any subsequent default. The following shall constitute events of default for purposes of this Interim Promissory Note: i. Failure by Maker to make timely payments of any of the installments of principal due hereunder, which is not cured within ten (10) days after written notice of such nonpayment is delivered to Maker; or ii. The occurrence of any event of default under any credit facility, term loan or any other agreement entered into by Maker for the use of borrowed funds, with respect to which the creditor has recourse to assets of the Enterprise, and with respect to which (i) the creditor has accelerated the maturity of the indebtedness of Maker to such creditor, or (ii) the creditor has initiated action to collect such indebtedness; or iii. There shall have been filed or commenced against Maker an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect or an action shall have been commenced to appoint a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of Maker or for any substantial part of Maker's property or for the winding up or liquidation of Maker's affairs and such action or proceeding shall not have been dismissed within sixty (60) days; or 3 iv. Maker shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect; or shall consent to the entry of an order for relief in an involuntary case under any such law; or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of Maker or of any substantial part of the Maker's property; or shall make any general assignment for the benefit of creditors; or shall take any action in furtherance of any of the foregoing; or v. Default by Maker in the performance by Maker or any of its covenants or commitments under the Memorandum of Agreement which default is not cured by Maker within thirty (30) days after written notice of default is delivered to Maker. 7. Security. This Interim Promissory Note is secured by a security interest granted to Lender in certain assets of Maker pursuant to the Memorandum of Agreement between the parties. 8. Presentment Waiver. Maker and all endorsers, guarantors hereby waive to the fullest extent permitted by law presentment, demand, protest, notice of protest, notice of dishonor and notice of any other kind (except as specifically required herein) in connection with this Note. 9. Collection Expenses. Maker agrees to pay all costs and out-of-pocket expenses (including, but not limited to, reasonable attorneys' fees and expenses) incurred by Lender in connection with the collection or enforcement of this Note. 10. Applicable Law. This Note shall be construed in accordance with and governed by the internal laws and decisions of California, without giving effect to California choice of law principles. 11. Savings Clause. The parties hereto intend and believe that each provision of this Note comports with all applicable local, state and federal laws and judicial decisions. However, if any provision or provisions, or if any portion of any provision or provisions of this Note is found by a court of law to be in violation of any applicable local, state or federal ordinance, statute law, administrative or judicial decision, or public policy, and if such court should declare such portion, provision or provisions of this Note to be illegal, invalid, unlawful, void or unenforceable as written, then it is the intent of all parties hereto that such portion, provision or provisions shall be given force to the fullest possible extent that it or they are legal, valid and enforceable, that the remainder of this Note shall be construed as if such illegal, invalid, unlawful, void or unenforceable portion, provision or provisions were not contained herein, and that the rights, obligations and interest of Maker and holder hereof under the remainder of this Note shall continue in full force and effect. 12. Amendment. No modification, waiver, amendment, discharge or change of this 4 Note shall be valid unless the same is in writing and signed by the party against which the enforcement of such modification, waiver, amendment, discharge or change is sought. 13. Time is Material. Time is hereby declared to be of the essence of this Note and of every part hereof. 14. Successors and Assigns. This Note shall inure to the benefit of and shall be binding on the parties hereto and their respective successors and assigns. Any reference to the Lender shall be deemed to include and apply to every subsequent holder of this Note. 15. Notice. Any notice, demand, request or other communication which any party hereto may be required or may desire to give hereunder shall be given in accordance with Section 10.3 of the Memorandum of Agreement. 16. Dispute Resolution. Maker and Lender agree that any dispute in connection with this Note shall be subject to the dispute resolution procedures and limited waiver of sovereign immunity contained in the Memorandum of Agreement and the Resolution of Limited Waiver. IN WITNESS WHEREOF, Maker has caused this Note to be executed and delivered as of the date first above written. MAKER: JAMUL INDIAN VILLAGE By: /s/ Kenneth A Meza ---------------------------------------- Name: Kenneth A. Meza -------------------------------------- Title: Chairman ------------------------------------- EX-10.71 12 SECURITY AGREEMENT 1 Exhibit 10.71 SECURITY AGREEMENT THIS AGREEMENT is made as of the 25 day of May, 1999, by and between Lakes Jamul, Inc., a Minnesota corporation (the "Secured Party"), located at 130 Cheshire Lane, Minnetonka, Minnesota 55305 and Lakes Kean Argovitz Resorts-California, L.L.C., a Delaware limited liability company (the "Debtor") located at 130 Cheshire Lane, Minnetonka, Minnesota 55305. W I T N E S S E T H: WHEREAS, Lakes Gaming, Inc and Kean Argovitz Resorts- Jamul, LLC have entered into a Letter Agreement, a copy of which is attached hereto as Exhibit 1 (the "Letter Agreement"), which sets forth terms under which those parties agreed to form Debtor for the purpose of developing and operating a gaming facility and related facilities ( the "Enterprise") for the Jamul Indian Village of Jamul, California (the "Tribe"); WHEREAS, under Section 5 and Section 6 of the Letter Agreement Lakes Gaming, Inc. agreed that upon Debtor's formation it would make certain advances to Debtor identified in the Letter Agreement as the "Development Loan" and "Equity Advance"; WHEREAS, Lakes Jamul, Inc has agreed to assume all of Lakes Gaming Inc.'s rights and obligations under the Letter Agreement; WHEREAS, Debtor desires to receive the Development Loan and Equity Advance from Lakes Jamul, Inc. pursuant to the terms of the Letter Agreement; WHEREAS, Debtor understands that it is a condition precedent to Lakes Jamul, Inc. making the Development Loan and Equity Advance to Debtor that Debtor agree to secure repayment of the Development Loan and Equity Advance by granting to Lakes Jamul, Inc. a security interest in all of Debtor's assets as hereinafter provided; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows: 1. Definitions. When used herein, the following terms shall have the following meanings: (a) "Accounts" means any and all rights to payment now owned or possessed or hereafter acquired by the Debtor for goods sold or leased or for services rendered, whether or not they have been earned by performance and all other property of the Debtor now or hereafter classified as accounts under the California UCC. 2 (b) "California UCC" means the Uniform Commercial Code as adopted in the State of California. (c) "Chattel Paper" means a writing or writings which evidence both a monetary obligation and a security interest in or a lease of specific goods as well as all other property of the Debtor now or hereafter classified as chattel paper under the California UCC. When a transaction is evidenced both by such a security agreement or a lease and by an instrument or series of instruments, the group of writings taken together constitutes Chattel Paper. (d) "Collateral" means all assets of the Debtor including Accounts, Inventory, Equipment, Chattel Paper, Instruments, and General Intangibles of the Debtor, whether now owned or possessed or hereafter acquired by the Debtor, all additions and accessories thereto, cash and cash equivalents and all proceeds, including insurance proceeds, from the sale or other disposition of such assets. Without limitation of the foregoing, Collateral includes all rights to payment under the Interim Promissory Note (the "Interim Promissory Note") and the Security and Reimbursement Agreement executed, or to be executed, pursuant to the Development Agreement dated February 26, 1999 between Kean Resorts, Inc. and the Jamul Indian Village of Jamul, California (the "Tribe"). (e) "Equipment" means all goods, machinery, furniture, furnishings, fixtures, tools, supplies, motor vehicles and all other property used or useful in the business of the Debtor, now or hereafter owned or possessed or hereafter acquired by the Debtor, together with all additions, accessions and replacements thereto and all other property of the Debtor now or hereafter classified as equipment under the California UCC. (f) "Event of Default" has the meaning given to that term in Section 5. (g) "General Intangibles" means any personal property (including, without limitation, things in action, contracts, patent rights, trade secrets, copyrights, licenses, know how and all trade names and trademarks) other than Inventory, Equipment, Accounts, Chattel Paper, Instruments and money. (h) "Instrument" means a negotiable instrument or any other writing which evidences a right to the payment of money and is not itself a security agreement or lease and is of a type which is in the ordinary course of business transferred by delivery with any necessary endorsement or assignment. (i) "Inventory" means all raw materials, work in process, finished products, materials used or consumed in the Debtor's business and all property of every kind and description (including, without limitation, software and computer programs of every kind) intended for sale, lease or license or to be furnished under contracts of service in the Debtor's business, now owned or possessed or at any time hereafter acquired by the Debtor, including such property repossessed by or returned to the Debtor, and all other property of the Debtor now 3 or hereafter classified as inventory under the California UCC. (j) "Loan Documents" means this Agreement, one or more Promissory Notes executed by and between Secured Party and Debtor evidencing any advance of funds under the Development Loan or Equity Advance, UCC Financing Statements and the other agreements or documents executed by Debtor hereunder or thereunder. (k) "Obligations" means (1) Any and all indebtedness or liabilities, of whatever kind, nature and description, now existing or hereafter arising, of the Debtor to the Secured Party, whether direct or indirect, absolute or contingent, joint or several, arising out of or relating to the Development Loan or the Equity Advance, the Note or any evidence of indebtedness relating to the Equity Advance, and any other indebtedness or liabilities of the Debtor to the Secured Party; and (2) Any and all liabilities of the Debtor to the Secured Party incurred under this Agreement. (l) "Permitted Encumbrances" means (1) Liens imposed by law, which were incurred in the ordinary course of business, and (x) which do not in the aggregate materially detract from the value of the property or assets to which such liens attach or materially impair the use thereof in the operation of the business of the Debtor or (y) which are being contested in good faith by appropriate proceedings which have the effect of preventing the forfeiture or sale of the property or assets subject to any such lien; and (2) Liens created pursuant to this Agreement. (m) "Person" means any individual, partnership, joint venture, firm, corporation, association, trust or other enterprise or any government or political subdivision or any agency, department or instrumentality thereof. (n) "Subsidiary" means a corporation in which the Debtor owns, directly or indirectly through one or more subsidiaries, a majority of shares ordinarily, in the absence of contingencies, having the right to elect at least a majority of the members of the board of directors. (o) "UCC" means the Uniform Commercial Code as adopted in the relevant jurisdiction and any other applicable commercial code in such jurisdiction. Unless otherwise defined herein, all other capitalized terms contained in this Agreement shall have the meanings provided by the Letter Agreement and the California UCC. 4 2. Security Interest. To secure the performance by the Debtor of its Obligations, the Debtor hereby grants to the Secured Party a first priority security interest in and to the Collateral. 3. Debtor's Representations and Warranties. The Debtor hereby represents and warrants, which representations and warranties will survive the execution and delivery of this Agreement, to the Secured Party as follows: (a) Ownership of Collateral. Except for Permitted Encumbrances, the Debtor is the owner of all of the Collateral free and clear of any lien, security interest, encumbrance or other right, title or interest of any Person. (b) Necessary Filings. All filings, registrations and recordings necessary or appropriate to create, preserve, protect and perfect the security interests granted by the Debtor to the Secured Party pursuant to this Agreement have been accomplished and the security interests granted to the Secured Party pursuant to this Agreement in and to the Collateral constitute perfected security interests therein which are, subject to the Permitted Encumbrances, superior and prior to the rights of all other persons therein. (c) Financing Statements. There is no financing statement (or similar statement or instrument of registration under the law of any jurisdiction) now on file (other than those filed in connection with this Agreement or the Permitted Encumbrances) or registered in any public office covering or purporting to cover any interest of any kind in the Collateral. (d) Binding Agreement. Debtor has the corporate power to execute, deliver and perform its obligations under the Loan Documents. Debtor has duly executed and delivered this Agreement and the Note, and this Agreement and the Notes each constitutes its legal, valid and binding obligation enforceable against Debtor in accordance with their respective terms. (e) No Conflicts. Neither the execution, delivery or performance by Debtor of this Agreement or any of the other Loan Documents, nor compliance by it with the terms and provisions hereof or thereof, (i) will contravene any provision of any law, statute, rule or regulation or any order, writ, injunction or decree of any court or governmental instrumentality or (ii) will conflict or be inconsistent with or result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any lien upon any of its property or assets pursuant to the terms of any indenture, mortgage, deed of trust, credit agreement, security agreement or any other agreement, contract or instrument to which it is a party or by which it or any of its property or assets is bound or to which it may be subject. (f) No Consents. No order, consent, approval, license, authorization or validation of, or filing, recording or registration with (except as have been obtained or made prior to the date of this Agreement), or exemption by, any governmental or public body or authority, or any subdivision thereof, is required to authorize, or is required in connection with (i) Debtor's 5 execution, delivery and performance of the Loan Documents or (ii) the legality, validity, binding effect or enforceability of the Loan Documents. 4. Debtor's Covenants. The Debtor covenants and agrees that until all Obligations have been paid in full: (a) Sale and Use of Collateral. The Debtor will not sell, offer to sell, assign, lease, rent, or otherwise transfer or dispose of any Collateral. (b) Liens. Except as permitted under the terms of this Agreement, the Debtor will not (i) create, incur, assume or permit to exist any lien, security interest or encumbrance on any existing or future item of Collateral, other than Permitted Encumbrances and interests in favor of the Secured Party as contemplated hereunder, or (ii) enter into or assume any agreement containing a negative pledge which would require a sharing of an interest in the Collateral or which prohibits or limits the grant of any such interest. (c) Financing Statements. The Debtor will not execute or authorize to be filed (except in connection with this Agreement or the Permitted Encumbrances) or registered in any public office any financing statement (or similar statement or instrument of registration under the law of any jurisdiction) covering or purporting to cover any interest of any kind in the Collateral. (d) Defense of Collateral. The Debtor will defend the Collateral and proceeds thereof against all claims and demands of all Persons other than the Secured Party at any time claiming any interest therein and will save and hold the Secured Parries harmless from all such claims and demands. (e) Execution of Other Documents. The Debtor will, at its own expense, make, execute, endorse, acknowledge, file and deliver to the Secured Party from time to time such financing statements, lists, descriptions and designations of its Collateral, conveyances, transfer endorsements, powers of attorney, certificates, reports and other assurances or instruments and take such further steps relating to the Collateral and other property or rights covered by the security interests hereby granted, which the Secured Party may reasonably request, in a form satisfactory to the Secured Party to create, preserve, protect and perfect the security interests and the priority thereof granted by the Debtor to the Secured Party in and to the Collateral. The Debtor will pay any applicable filing fees and related expenses. The Debtor authorizes the Secured Party at any time and from time to time to file any financing statements related to the Collateral without the signature of the Debtor and to file a copy of this Agreement as a financing statement. 5. Events of Default. The Debtor shall be in default under this Agreement and an event of default (an "Event of Default") shall exist hereunder upon the occurrence of any of the following events or conditions: (a) The Debtor shall be in default in the payment or performance of any 6 Obligations. (b) The Debtor shall be in default pursuant to the terms of any Note(s) executed in connection with either the Development Loan or the Equity Advance. (c) The Debtor shall breach any warranty, representation, covenant or agreement made herein. (d) The occurrence of any liquidation, dissolution, termination of existence, insolvency (failure to pay its debts as they mature or the failure to maintain its assets value in excess of its liabilities), business failure, appointment of a trustee, custodian or receiver of any part of the property of, assignment for the benefit of creditors by, or the commencement of any bankruptcy or insolvency proceeding by or against the Debtor or any action taken by the Debtor for the purpose of effecting any of the foregoing. (e) One or more judgments or decrees are entered against the Debtor involving in the aggregate for the Debtor a liability, not paid or fully covered by insurance (other than the insurance policy' reasonable deductible), of $10,000 or more, and all such judgments or decrees have not been vacated, discharged, stayed or bonded pending appeal within 60 days after the entry thereof. (f) A notice of lien, levy or assessment, other than a Permitted Encumbrances is filed of record with respect to all or any part of the Collateral by any party, including the United States or any department, agency or instrumentally thereof or by any state, county, municipal or other governmental agency. (g) There is an event of default under the Interim Promissory Note executed by the Tribe. 6. Remedies. (a) Generally. Upon the occurrence of any such Event of Default and the expiration of any applicable cure period, any and all Obligations secured hereby shall, at the option of the Secured Party, become immediately due and payable without notice, presentation, demand for payment or protest, all of which are expressly waived by the Debtor, and the Secured Party, at its option, shall have, in addition to any other rights and remedies which the Secured Party may have hereunder, any and all of the rights and remedies of a secured creditor under the California UCC and the UCC in the state where the Collateral is located. Without limiting the generality of the foregoing, the Secured Party shall have the following rights, remedies and obligations: (1) The Secured Party shall be entitled to take possession of, hold, maintain, preserve and prepare the Collateral for sale until it is disposed of, or may propose to retain the Collateral, subject to the Debtor's right of redemption in satisfaction of the Debtor's obligations as provided in the California UCC and the UCC. 7 (2) The Secured Party may require the Debtor to assemble the Collateral and make it available to the Secured Party for possession at a place or places to be designated by the Secured Party. (3) Unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, the Secured Party will give the Debtor at least five business days notice of the time and place of any public sale thereof or of the time after which any private sale or other intended disposition thereof is to be made. The requirements of reasonable notice shall be met if such notice is mailed, postage prepaid, to the Debtor at its address specified in accordance with Section 14 at least five business days before the time of the sale or disposition. (4) Any and all expenses of the Secured Party incurred in the taking, holding, preparing for sale and selling of the Collateral, including the Secured Party's reasonable attorneys fees and legal expenses, shall become additional Obligations of the Debtor, payable on demand and secured by the Collateral. (5) The Secured Party may buy at any public sale and, if the Collateral is of a type customarily sold on a recognized market or is of a type which is subject to widely distributed, standard price quotations, the Secured Party may buy at private sale. The net proceeds realized upon any such disposition of the Collateral, after deduction for the expenses of retaking, holding, preparing for sale or lease, selling, leasing and the like, and the reasonable attorneys fees and legal expenses incurred by the Secured Party in connection therewith, shall be applied in satisfaction of the Obligations. The Secured Party will account to the Debtor for any surplus realized on such disposition and the Debtor shall remain liable for any deficiency. (6) The remedies of the Secured Party hereunder are cumulative and the exercise of any one or more of the remedies provided for herein or under the California UCC or any other UCC shall not be construed as a waiver of any of the other remedies of the Secured Party, so long as any part of the Debtor's obligations secured hereby shall remain unsatisfied. (b) Maintenance of Collateral Accounts. At the request of the Secured Party upon the occurrence of an Event of Default, the Debtor agrees to deliver to the Secured Party, or, at the Secured Party's option, to deposit in one or more special collateral accounts maintained for the Secured Party by any bank reasonably satisfactory to the Secured Party, all collections on General Intangibles, Chattel Paper and other rights to payment constituting Collateral, and all other cash proceeds of Collateral, immediately upon receipt thereof, in the form received, except for the Debtor's endorsement when necessary. Amounts deposited in a collateral account shall not bear interest and shall not be subject to withdrawal by the Debtor, except after full payment and discharge of all Obligations. 7. Indemnities. 8 (a) General Indemnity. The Debtor agrees to indemnity, pay and hold the Secured Party and its officers, directors, employees. agents, and affiliates (collectively, the "Indemnitees") harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatever (including, without limitation. the fees and disbursements of counsel for such Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not such Indemnitees are designated parties thereto) that may be imposed on, incurred by, or asserted against the Indemnitees, in any manner relating to or arising out of the Agreement (the "Indemnified Liabilities"); provided, however, that the Debtor shall have no obligation to an Indemnitee hereunder with respect to Indemnified Liabilities arising from the negligence or willful misconduct of that Indemnitee. (b) Liens. Without limiting the generality of the foregoing, the Debtor agrees to pay or reimburse the Secured Party for any and all fees, costs and expenses of any kind or nature whatsoever (including, without limitation, fees and disbursements of counsel) incurred in connection with the creation, preservation or protection of the Secured Party's liens on, and security interest in, the Collateral, including, without limitation, all fees and taxes in connection with the recording or filing of instruments and documents in public offices, payment or discharge of any taxes (excluding income or similar taxes) or liens upon or in respect of the Collateral, premiums for insurance with respect to the Collateral and all other fees, costs and expenses in connection with protecting, maintaining or preserving the Collateral and the Secured Party's interest therein, whether through judicial proceedings or otherwise, or in defending or prosecuting any actions, suits or proceedings arising out of or relating to the Collateral. (c) Unenforceability. To the extent that the undertaking to indemnify, pay and hold harmless set forth in this Section may be unenforceable because it is vocative of any law or public policy, the debtor shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by the Indemnitees or any of them. (d) Indemnity Obligation Secured by Collateral. Any amounts paid by any Indemnitee hereunder as to which such Indemnitee has the right to reimbursement shall constitute Obligations secured by the Collateral. (c) Survival. The provisions of this Section shall survive the termination of this Agreement and the discharge of the Debtor's other obligations hereunder. 8. Waiver. No delay an the part of the Secured Party in the exercise of any right, power or remedy shall operate as a waiver thereof, nor shall any single or partial exercise by the Secured Party of any right, power or remedy preclude the further exercise thereof, or the exercise of any other right, power or remedy. 9. Benefit. This Agreement shall be binding upon, and inure to the benefit of, the 9 Debtor and the Secured Party and their respective successors and assigns; provided, however, that the Debtor may not assign its rights or obligations hereunder or in connection herewith or any interest herein (voluntarily, by operation of law or otherwise) without the prior written consent of the Secured Party. The Secured Party may assign their rights and obligations under this Agreement to the same extent as they may assign their rights and obligations under the Note, in which event, upon notice thereof by the Secured Party to the Debtor, the assignee shall have, to the extent of such assignment (unless otherwise provided therein), the same rights and benefits as it would have if it were a secured party hereunder and shall be deemed a secured party for all purposes of this Agreement. Except as provided in this Section, this Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns. 10. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California, and for all purposes shall be construed in accordance with the laws of said state, without regard to principles of conflicts of law, except for the perfection and enforcement of security interests and liens in other jurisdictions, which shall be governed by the laws of those jurisdictions. 11. Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be ineffective or invalid, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions or this Agreement. 12. Headings. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. 13. Amendment. This Agreement embodies the entire agreement and undertaking between the Secured Party and the Debtor and supersedes all prior agreements and understandings between the Secured Party and the Debtor relating to the subject matter hereof. The terms of this Agreement may not he modified or amended except by an agreement in writing signed by the parties hereto or their assignees. 14. Notices. All notices, requests and other communications to any party hereto shall be in writing (including telegram, telecopier, telex or similar writing) and shall be given to such party, addressed to it at its address or telecopier or telex number as set forth on the signature page hereof or such other address or telecopier or telex number as such party may hereafter specify for the purpose of notice to the other party. Each such notice, request or communication shall be effective (a) if given by telex or telecopy, when such telex or telecopy is transmitted to the telex or telecopy number specified above, (b) if given by mail, three business days after such communication is deposited in the United States mails with first class postage prepaid, addressed as aforesaid, or (c) if given by any other means, when delivered at the address specified herein. 10 15. Effectiveness/Counterparts. This Agreement shall be effective upon its signing by the Debtor and may be signed in counterparts by the Debtor and the Secured Party, the counterparts together constituting the Agreement. Copies of this Agreement may be filed by the Secured Party in the appropriate officers in each jurisdiction where the Collateral is located to perfect the Secured Party's security interest. 16. Submission to Jurisdiction. Debtor hereby irrevocably submits to the non-exclusive jurisdiction of any California state or federal court sitting in California over any action or proceeding arising out of or relating to this Agreement, the Note or any other Loan Document, and hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such California state or federal court. Debtor hereby irrevocably waives, to the fullest extent permitted by law, any objection it may now or hereafter have to the laying of venue in any such action or proceeding in any such court as well as any right it may now or hereafter have, to remove any such action or proceeding, once commenced, to another court on the grounds of forum non convenient or otherwise. IN WITNESS WHEREOF, the undersigned have executed and delivered this Agreement as of the date first written above. Secured Party: LAKES JAMUL, INC. 130 Cheshire Lane Minnetonka, Minnesota Telephone No. (612) 449-7030 ------------- Telecopy No. (612) 449-7064 ------------- By: /s/ Timothy Cope -------------------------- Its: Executive Vice President ------------------------- Debtor: LAKES KEAN ARGOVITZ RESORTS-CALIFORNIA, L.L.C. 130 Cheshire Lane Minnetonka, Minnesota Telephone No. (612) 449-7030 ------------- Telecopy No. (612) 449-7064 ------------- By: /s/ Kevin M. Kean -------------------------- Its: President -------------------------- EX-10.72 13 MANAGEMENT AGREEMENT 1 Exhibit 10.72 MANAGEMENT AGREEMENT BETWEEN THE SHINGLE SPRINGS BAND OF MIWOK INDIANS AND KEAN ARGOVITZ RESORTS - SHINGLE SPRINGS, LLC DATED, AS OF JUNE 11, 1999 2 TABLE OF CONTENTS MANAGEMENT AGREEMENT ......................................................1 1. RECITALS .............................................................1 2. DEFINITIONS ..........................................................2 Affiliate ............................................................2 Bank Accounts ........................................................2 BIA ..................................................................2 Business .............................................................2 Capital Budget .......................................................2 Capital Replacement(s) ...............................................2 Capital Replacement Reserve ..........................................2 Centralized Services .................................................2 Class III Gaming .....................................................2 Collateral Agreements ................................................2 Commencement Date ....................................................2 Compact ..............................................................2 Compensation .........................................................3 Completion Date ......................................................3 Constitution .........................................................3 Development Agreement ................................................3 Depository Account ...................................................4 Disbursement Account .................................................4 Effective Date .......................................................4 Emergency Condition ..................................................5 Employees ............................................................5 Enterprise ...........................................................5 Enterprise Bank Accounts .............................................5 Enterprise Employee ..................................................5 Enterprise Employee Policies .........................................5 Facility .............................................................5 Facility Bank ........................................................5 Fiscal Year ..........................................................5 Furnishings and Equipment ............................................5 Gaming ...............................................................6 General Manager ......................................................6 Generally Accepted Accounting Principles .............................6 GAAP .................................................................6 Gross Gaming Revenue (Win) ...........................................6 Gross Revenues .......................................................6 IGRA .................................................................6 Interim Promissory Note ..............................................6 Internal Control Systems .............................................7 SHINGLE SPRINGS Gaming Ordinance .....................................7 SHINGLE SPRINGS Regulatory Authority .................................7 SHINGLE SPRINGS Resolutions ..........................................7 KAR ..................................................................7 Key Employees ........................................................7 Legal Requirements ...................................................7 Loan Agreement .......................................................7 Management Agreement .................................................7 Management Fee .......................................................7 ii 3 Managing Officer....................................................... 7 Material Breach........................................................ 7 Member of SHINGLE SPRINGS Government................................... 8 Minimum Balance........................................................ 8 Minimum Guaranteed Monthly Payment..................................... 8 Monthly Distribution Payment........................................... 8 National Indian Gaming Commission (NIGC)............................... 8 Net Revenues........................................................... 8 Net Revenues (gaming).................................................. 8 Net Revenues (other)................................................... 9 Note................................................................... 9 Off-Site Employees..................................................... 9 Operating Budget and Annual Plan....................................... 10 Operating Equipment.................................................... 10 Operating Expenses..................................................... 10 Operating Supplies..................................................... 11 Plans and Specifications............................................... 11 Pre-Opening Budget..................................................... 11 Pre-Opening Expenses................................................... 11 Promotional Allowances................................................. 11 Property............................................................... 11 Relative............................................................... 12 Security and Reimbursement Agreement................................... 12 State.................................................................. 12 System Marks........................................................... 12 System Fees............................................................ 12 Temporary Gaming Facility.............................................. 12 Term................................................................... 12 3. COVENANTS.............................................................. 12 3.1 Engagement of KAR................................................. 12 3.2 Term.............................................................. 12 3.3 Status of Property................................................ 13 3.4 KAR Compliance with Law; Licenses................................. 13 3.5 Amendments to SHINGLE SPRINGS Gaming Ordinance.................... 14 3.6 Compliance with Compact........................................... 14 3.7 Fire and Safety................................................... 14 3.8 Compliance with the National Environment Policy Act............... 14 3.9 Satisfaction of Effective Date Requirements....................... 14 3.10 Commence Date..................................................... 15 4. BUSINESS AND AFFAIRS IN CONNECTION WITH ENTERPRISE..................... 15 4.1 KAR's Authority and Responsibility................................ 15 4.2 Duties of KAR..................................................... 15 4.2.1 Physical Duties............................................. 15 4.2.2 Compliance.................................................. 15 4.2.3 Required Filings............................................ 15 4.2.4 Contracts in SHINGLE SPRING's Name and at Arm's Length...... 15 4.2.5 Enterprise Operating Standards.............................. 16 4.3 Security.......................................................... 16 4.4 Damage, Condemnation or Impossibility of the Enterprise........... 16 4.4.1 Recommencement of Operations................................ 16 4.4.2 Repair or Replacement....................................... 16 4.4.3 Other Business Purposes..................................... 17 4.4.4 Termination of Gaming....................................... 17 4.4.5 Tolling of the Agreement.................................... 17 4.5 Alcoholic Beverages and Tobacco Sales............................. 18 iii 4 4.6 Employees............................................................ 18 4.6.1 KAR's Responsibility............................................. 18 4.6.2 Enterprise Employee Policies..................................... 18 4.6.3 Key Employees.................................................... 18 4.6.4 Off-Site Employees............................................... 19 4.6.5 No KAR Wages or Salaries......................................... 19 4.6.6 SHINGLE SPRINGS Regulatory Authority (Costs)..................... 19 4.6.7 Employee Background Checks....................................... 19 4.6.8 Indian Preference, Recruiting and Training....................... 20 4.6.9 Goals and Remedies............................................... 21 4.6.10 Removal of Employees............................................ 21 4.7 Optional Services.................................................... 21 4.8 Pre-Opening.......................................................... 21 4.9 Operating Budget and Annual Plan..................................... 22 4.9.1 Adjustments to Operating Budget and Annual Plan.................. 23 4.10 Capital Budgets..................................................... 24 4.11 Capital Replacements................................................ 24 4.12 Capital Replacement Reserve......................................... 25 4.13 Periodic Contributions to Capital Replacement Reserve............... 25 4.14 Use and Allocation of Capital Replacement Reserve................... 26 4.16 Internal Control Systems............................................ 26 4.17 Banking and Bank Accounts........................................... 26 4.17.1 Bank Accounts................................................... 26 4.17.2 Daily Deposits to Depository Account............................ 27 4.17.3 Disbursement Account............................................ 27 4.17.4 No Cash Disbursements........................................... 27 4.17.5 Transfers Between Accounts...................................... 27 4.18 Insurance........................................................... 27 4.19 Accounting and Books of Account..................................... 27 4.19.1 Statements...................................................... 28 4.19.2 Books of Accounts............................................... 28 4.19.3 Accounting Standards............................................ 28 4.19.4 Annual Audit.................................................... 28 4.20 Retail Shops and Concessions........................................ 29 5. LIENS................................................................... 29 5.1 Exceptions........................................................... 29 6. MANAGEMENT FEE, REIMBURSEMENTS, DISBURSEMENTS, AND OTHER PAYMENTS BY KAR..................................................................... 30 6.1 Management Fee....................................................... 30 6.2 Disbursements........................................................ 30 6.3 Adjustment to Bank Account........................................... 30 6.4 Payment of Fees and SHINGLE SPRINGS Disbursement..................... 30 6.5 Minimum Guaranteed Monthly Payment................................... 31 6.6 Payment of Net Revenues.............................................. 31 7. TRADE NAMES, TRADE MARKS AND SERVICE MARKS.............................. 31 7.1 Enterprise Name...................................................... 31 7.2 System Marks......................................................... 31 7.3 Litigation Involving System Marks.................................... 32 8. TAXES................................................................... 32 8.1 State and Local Taxes................................................ 33 8.2 SHINGLE SPRINGS Taxes................................................ 33 8.2.1 Termination by KAR............................................... 33 8.3 Compliance with Internal Revenue Code................................ 33 9. GENERAL PROVISIONS...................................................... 33 9.1 Sites of the Contracts............................................... 33 9.2 Notice............................................................... 34 9.3 Authority to Execute and Perform Agreement........................... 34 iv 5 9.4 Relationship..........................................................34 9.5 KAR's Contractual Authority...........................................34 9.6 Further Actions.......................................................35 9.7 Defense...............................................................35 9.8 Waivers...............................................................35 9.9 Captions..............................................................35 9.10 Severability.........................................................36 9.11 Interest.............................................................36 9.12 Recoupment and Reimbursement.........................................36 9.13 Travel and Out-of-Pocket Expenses....................................36 9.14 Third Party Beneficiary..............................................36 9.15 Brokerage............................................................36 9.16 Survival of Covenants................................................37 9.17 Estoppel Certificate.................................................37 9.18 Periods of Time......................................................37 9.19 Exhibits.............................................................37 9.20 Successors, Assigns, and Subcontracting..............................37 9.21 Time is of the Essence...............................................38 9.22 Patron Dispute Resolution............................................38 9.23 Modification.........................................................38 10. WARRANTIES...............................................................38 10.1 Non-Interference in SHINGLE SPRINGS Affairs..........................38 10.2 Prohibition of Payments to Members of SHINGLE SPRINGS Government.....38 10.3 Prohibition of Hiring Members of SHINGLE SPRINGS Government..........39 10.4 Prohibition of Financial Interest in Enterprise......................39 10.5 Definitions..........................................................39 10.6 SHINGLE SPRINGS......................................................39 11. GROUNDS FOR TERMINATION..................................................39 11.1 Voluntary Termination and Termination for Cause......................39 11.2 Voluntary Termination................................................39 11.3 Termination for Cause................................................39 11.4 Involuntary Termination Due to Changes in Legal Requirements.........41 11.5 KAR's right to Terminate Agreement...................................41 11.6 SHINGLE SPRINGS's Right to Terminate Agreement.......................42 11.7 Consequences of KAR's Breach.........................................42 11.8 Consequences of SHINGLE SPRINGS's Breach.............................43 11.9 Notice and Opportunity to Cure.......................................43 12. CONCLUSION OF THE MANAGEMENT TERM........................................44 12.1 Transition...........................................................44 12.2 Undistributed Net Revenues...........................................44 13. CONSENTS AND APPROVALS...................................................44 13.1 SHINGLE SPRINGS......................................................44 13.2 KAR..................................................................44 14. DISCLOSURES..............................................................44 14.1 Shareholders and Directors...........................................44 14.2 Warranties...........................................................45 14.3 Criminal and Credit Investigation....................................45 14.4 Disclosure Amendments................................................46 14.5 Breach of KAR's Warranties and Agreements............................46 15. RECORDATION..............................................................46 16. NO PRESENT LIEN, LEASE OR JOINT VENTURE..................................46 17. DISPUTE RESOLUTION.......................................................46 17.1 General...............................................................47 17.2 Arbitration...........................................................47 v 6 17.2.1 Initiation of Arbitration and Selection of Arbitrators.......47 (i) Choice of Law................................................48 (ii) Place of Hearing.............................................48 (iii) Confidentiality..............................................48 17.3 Limited Waiver of Sovereign Immunity.................................48 (i) Time Period..................................................48 (ii) Limitations of Actions.......................................48 (a) Damages..................................................48 (b) Consents and Approvals...................................49 (c) Injunctive Relieve and Specific Performance..............49 (d) Action to Compel Arbitration.............................49 (e) Service of Process.......................................49 (f) Enforcement..............................................49 (g) Limitation Upon Enforcement..............................49 17.4 Performance During Disputes..........................................50 18. CONFIDENTIAL AND PROPRIETARY INFORMATION................................50 18.1 Confidential Information.............................................50 19. ENTIRE AGREEMENT........................................................51 20. GOVERNMENT SAVINGS CLAUSE...............................................51 21. PREPARATION OF AGREEMENT................................................51 22. STANDARD OF REASONABLENESS..............................................51 23. EXECUTION...............................................................51 EXHIBIT A: DISPUTE RESOLUTION BETWEEN KAR AND ENTERPRISES EMPLOYEES ........52 EXHIBIT B: KEY EMPLOYEE JOB CATEGORIES......................................53 EXHIBIT C: ENTERPRISE INVESTMENT POLICY.....................................54 STATEMENT OF INVESTMENT POLICY FOR THE SHINGLE SPRINGS GAMING ENTERPRISE(...55 I. INVESTMENT OBJECTIVES..................................................55 II. INVESTMENT RESPONSIBILITY..............................................55 III. INVESTMENT GUIDELINES..................................................55 IV. INVESTMENT REVIEW......................................................55 EXHIBIT "A" OF EXHIBIT C: PERMITTED INVESTMENTS.............................56 EXHIBIT D: SHINGLE SPRINGS IRREVOCABLE BANKING INSTRUCTIONS.................58 EXHIBIT E: SHINGLE SPRINGS INSURANCE REQUIREMENTS...........................60 1.01 COVERAGE...............................................................60 1.01.1 Required Insurance................................................60 1.01.2 Responsibility to Maintain........................................62 1.01.3 Changes in Coverage...............................................62 1.01.4 Requirements......................................................62 1.02 POLICIES AND ENDORSEMENTS..............................................62 1.02.1 Policies..........................................................62 1.02.2 Endorsement.......................................................63 1.02.3 Additional Insured................................................63 1.03 WAIVER OF LIABILITY - FIRE & CASUALTY INSURANCE........................63 EXHIBIT F: KAR'S OFFICERS AND DIRECTORS.....................................65 EXHIBIT G: KAR'S SHAREHOLDERS...............................................66 vi 7 MANAGEMENT AGREEMENT THIS MANAGEMENT AGREEMENT has been entered into as of June 11, 1999, by and between the SHINGLE SPRINGS BAND OF MIWOK INDIANS ("SHINGLE SPRINGS"), and KEAN ARGOVITZ RESORTS-SHINGLE SPRINGS, L.L.C., a Nevada limited liability company ("KAR"), for the operation of a gaming facility in the State of California. 1. RECITALS. 1.1 SHINGLE SPRINGS is a federally recognized Indian Tribe. 1.2 The United States holds land in trust for the benefit of SHINGLE SPRINGS, (the "Property") on selection of KAR as the intended operator of the Facility. 1.3 SHINGLE SPRINGS possesses sovereign powers over the SHINGLE SPRING's existing property held in trust by the United States pursuant to SHINGLE SPRING's recognized powers of self-government. 1.4 SHINGLE SPRINGS desires to use the Facility to improve the economic conditions of its members, to enable it to serve the social, economic, educational and health needs of SHINGLE SPRINGS, to increase the revenues of SHINGLE SPRINGS and to enhance SHINGLE SPRING's economic self-sufficiency and self-determination. 1.5 SHINGLE SPRINGS wishes to establish an Enterprise, as hereinafter defined, to conduct Class II and Class III Gaming as hereinafter defined on the Property. This Agreement sets forth the manner in which the Enterprise will be managed. 1.6 KAR has agreed to certain terms and has represented to SHINGLE SPRINGS that it has capabilities to provide professional management, funds and financing necessary to develop and construct the Facility, as defined herein, and to commence the operation of the Enterprise. 1.7 SHINGLE SPRINGS is seeking technical experience and expertise for the operation of the Enterprise and instruction for members of SHINGLE SPRINGS in the operation of the Enterprise. KAR is willing, and has represented to SHINGLE SPRINGS that it is able, to provide such expertise and instruction. 1.8 SHINGLE SPRINGS desires to grant KAR the exclusive right and obligation to develop, manage, operate and maintain the Enterprise as described in this Agreement and to train SHINGLE SPRINGS members and KAR wishes to perform these functions exclusively for SHINGLE SPRINGS. 1.9 This Agreement is entered into pursuant to the Indian Gaming Regulatory Act of 1 8 1988, PL 100-497, 25 U.S.C. 2701 et seq. ("IGRA") as that statue may be amended. All gaming conducted at the Facility will at all times comply with the IGRA, applicable law and the SHINGLE SPRINGS-state compact entered into pursuant to the terms of IGRA. 2. DEFINITIONS. As they are used in this Agreement, the terms listed below shall have the meaning assigned to them in this Section: "AFFILIATE" means as to KAR any corporation, partnership, limited liability company, joint venture, trust, department or agency or individual controlled by, under common control with, or which controls, directly or indirectly KAR. "BANK ACCOUNTS" shall mean those bank accounts described in Section 4.17. "BIA" shall mean the Bureau of Indian Affairs of the Department of the Interior of the United States of America. "BUSINESS" shall have the same meaning as the term "Enterprise." "CAPITAL BUDGET" shall mean the capital budget described in Section 4.10. "CAPITAL REPLACEMENT(S)" shall mean any alteration or rebuilding or renovation of the Facility, and any replacement of Furnishings and Equipment, the cost of which is capitalized and depreciated, rather than being expensed, applying generally accepted accounting principles. "CAPITAL REPLACEMENT RESERVE" shall mean the reserve described in Section 4.12. "CENTRALIZED SERVICES" shall mean those services related to the development, construction and management of the Enterprise which are approved by the Tribal Council and which may be purchased from or provided by KAR or its Affiliates in Houston, Texas or at locations other than the Facility. "CLASS II GAMING" shall mean Class II Gaming as defined in the IGRA. "CLASS III GAMING" shall mean Class III Gaming as defined in the IGRA. "COLLATERAL AGREEMENTS" shall mean any agreements defined to be collateral agreements by the phrase found at 25 U.S.C. Section 2711 (a)(3) and regulations promulgated pursuant thereto. "COMMENCEMENT DATE" shall mean the first date that the Facility is complete, open to the public and that Gaming is conducted in the Facility pursuant to the terms of this Agreement. "COMPACT" shall mean SHINGLE SPRINGS-State Compact which SHINGLE 2 9 SPRINGS intends to negotiate and execute with the State regarding Class III Gaming, if and when executed between SHINGLE SPRINGS and the State and approved pursuant to the IGRA; as the same may, from time to time, be amended, or such other compact that may be substituted therefor. "COMPENSATION" shall mean the direct salaries and wages paid to, or accrued for the benefit of, any employee, including incentive compensation, together with all fringe benefits payable to or accrued for the benefit of such executive or other employee, including employer's contribution under F.I.C.A., unemployment compensation or other employment taxes, pension fund contributions, workers' compensation, group life, accident and health insurance premiums and costs, and profit sharing, severance, retirement, disability, housing relocation, housing and other similar benefits. "COMPLETION DATE" shall mean the date upon which KAR receives: (i) an architect's certificate from the Architect identified in the Development Agreement or Architect of Record as having responsibility for the design, supervision and responsibility for the construction, equipping and furnishing of the Facility, certifying that the Facility has been fully constructed substantially in accordance with the Plans and Specifications; (ii) certification from KAR (or the division, department or designee of KAR having responsibility to assure compliance with any operational standards) stating that the Facility, as completed, is in substantial compliance with any such standards; (iii) a permanent or temporary certificate of occupancy, if required, from any government authority or authorities pursuant to whose jurisdiction the Facility is to be constructed, permitted the use and operation of all portion of the Facility in accordance with this Agreement; and (iv) certificates of such professional designers, inspectors or consultants or opinions of counsel, as KAR may determine to be appropriate, verifying construction and furnishing of the Facility in compliance with all Legal Requirements. "CONSTITUTION" shall mean the Constitution of SHINGLE SPRINGS Band of Miwok Indians. "DEVELOPMENT AGREEMENT" shall mean that certain agreement, of even date herewith, by and between KAR and SHINGLE SPRINGS, providing the terms under which KAR and SHINGLE SPRINGS will work exclusively together to develop certain SHINGLE SPRINGS Commercial and Gaming Development and KAR will advance certain 3 10 specified loans to SHINGLE SPRINGS and will cause to be financed and develop the Facility, including without limitation, design, construction, furnishing and equipping same. "DEPOSITORY ACCOUNT" shall mean the bank account described in Section 4.17.2. "DISBURSEMENT ACCOUNT" shall mean the bank account described in Section 4.17.3. "EFFECTIVE DATE" shall mean the date five days following the date on which all of the following listed conditions are satisfied: (i) written approval, as required by law, of this Agreement and the Development Agreement, is granted by the Chairperson of the NIGC; (ii) written approval, as required by law, of the Loan Agreement, the Security and Reimbursement Agreement, the Note, and the Interim Promissory Note is granted by the Chairperson of the NIGC and/or the BIA, if required; (iii) written approval, as required by law, of a SHINGLE SPRINGS Gaming Ordinance and of any other ordinances adopted by SHINGLE SPRINGS relative to any of the documents referenced in this Agreement is granted by the Chairperson of the NIGC or the BIA; (iv) written confirmation that SHINGLE SPRINGS, the State (to the extent required by the Compact), and the NIGC have approved background investigations of KAR; (v) KAR has received a certified copy of SHINGLE SPRINGS Gaming Ordinance and SHINGLE SPRINGS Resolutions adopted by SHINGLE SPRINGS in accordance with SHINGLE SPRINGS's governing documents authorizing the execution of the Management Agreement, Loan Agreement, Note, Interim Promissory Note, Security and Reimbursement Agreement, and the Development Agreement; (vi) KAR has satisfied itself as to the proper ownership and control of the Property and its suitability for construction and operation of the Facility, and that all of the Legal Requirements and other requirements for lawful conduct and operation of the Enterprise in accordance with this Agreement have been met and satisfied; (vii) for purposes of Class III gaming, the Compact has been signed by the Secretary of Interior and published in the Federal Register as provided in 25 U.S.C. Section 2710(d)(8)(D); 4 11 (viii) the satisfactory completion of all necessary and applicable feasibility studies required for the development, construction and operation of the Enterprise; (ix) receipt by KAR of all applicable licenses for or related to development, construction or management of the Enterprise; and (x) receipt by KAR of SHINGLE SPRING's written approval of the Plans and Specifications for the Facility. "EMERGENCY CONDITION" shall have the meaning set forth in Section 4.12. "EMPLOYEES" shall mean those employees working for the Enterprise who are not KAR Employees. "ENTERPRISE" shall mean the enterprise of SHINGLE SPRINGS created to engage in Class II and Class III Gaming at the Facility, and which shall include any other lawful commercial activity allowed in the Facility including, but not limited to the operation of a hotel, RV Park, retail stores, restaurants, entertainment facilities, or the sale of food, beverages, alcohol, tobacco, gifts and souvenirs. "ENTERPRISE BANK ACCOUNTS" shall mean those accounts described in Section 4.17.1. "ENTERPRISE EMPLOYEE" shall mean all KAR Employees and SHINGLE SPRINGS Employees who are assigned to work at the Facility. "ENTERPRISE EMPLOYEE POLICIES" shall mean those employee policies described in Section 4.6.2. "FACILITY" shall mean all buildings, structures, and improvements located on the Property and comprising part of the Enterprise and all fixtures, Furnishing and Equipment attached to, forming a part of, or necessary for the operation of the Enterprise. "FACILITY BANK" shall mean the amount of cash, chips, tokens and plaques that KAR from time to time determines necessary to have at the Facility daily to meet its cash needs. "FISCAL YEAR" shall mean the fiscal year of KAR. "FURNISHINGS AND EQUIPMENT" shall mean all fixtures, furnishings and equipment (excepting "Operating Equipment" as hereinafter defined) required for the operation of the Enterprise in accordance with the standards set forth in this Agreement, including, without limitation: (i) cashier, money sorting and money counting equipment, 5 12 surveillance and communication equipment, and security equipment; (ii) slot machines, video games of chance, table games, keno equipment and other gaming equipment; (iii) office furnishings and equipment; (iv) specialized equipment necessary for the operation of any portion of the Enterprise for accessory purposes, including equipment for kitchens, laundries, dry cleaning, cocktail lounges, restaurants, public rooms, commercial and parking spaces, and recreational facilities; and (v) all other furnishings and equipment hereafter located and installed in or about the Facility which are used in the operation of the Enterprise in accordance with the standards set forth in this Agreement. "GAMING" shall mean any and all activities defined in the IGRA as Class II and Class III Gaming. "GENERAL MANAGER" shall mean the person employed by the Enterprise to direct the operation of the Enterprise. "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" or "GAAP" shall mean those principles defined by the Financial Accounting Standards Board. "GROSS GAMING REVENUE (WIN)" shall mean the net win from gaming activities which is the difference between Gaming wins and losses before deducting costs and expenses. "GROSS REVENUES" shall mean all revenues of any nature derived directly or indirectly from the Enterprise including, without limitation, Gross Gaming Revenue (Win), food and beverage sales and other rental or other receipts from lessees, subleases, licensees and concessionaires (but not the gross receipts of such lessees, subleases, licensees or concessionaires, provided that such lessees, subleases, and licensees and concessionaires are not subsidiaries or Affiliates of KAR), and revenue recorded for Promotional Allowances. "IGRA" shall mean the Indian Gaming Regulatory Act of 1988, PL 100-497, 25 U.S.C. Section 2701 et seq. as same may, from time to time, be amended. "INTERIM PROMISSORY NOTE" shall have the meaning described for one or more promissory notes to be executed by SHINGLE SPRINGS in favor of KAR pursuant to the Development Agreement and Management Agreement which shall include but not be limited to signing advance, tribal consultant advances, monthly advances, equity advances, land advances and any other funds advanced to or on behalf of Shingle Springs. 6 13 "INTERNAL CONTROL SYSTEMS" shall mean the systems described in Section 4.16. "SHINGLE SPRINGS GAMING ORDINANCE" shall mean the ordinance and any amendments thereto to be enacted by SHINGLE SPRINGS, which authorizes and regulates Class II and Class III Gaming on Indian lands subject to the governmental power of SHINGLE SPRINGS. "SHINGLE SPRINGS REGULATORY AUTHORITY" shall mean SHINGLE SPRINGS body created pursuant to SHINGLE SPRINGS Gaming Ordinance to regulate the Class II and Class III Gaming of SHINGLE SPRINGS in accordance with the Compact, the IGRA and the SHINGLE SPRINGS Gaming Ordinance. "SHINGLE SPRINGS RESOLUTIONS" shall have the meaning described in Section 3.9. "KAR" shall mean Kean Argovitz Resorts-Shingle Springs, LLC and its affiliates. "KEY EMPLOYEES" shall mean those employees of KAR who are working at the Facility. "LEGAL REQUIREMENTS" shall mean any and all present and future judicial, administrative, and tribal rulings or decisions, and any and all present and future federal, state, local, and tribal laws, ordinances, rules, regulations, permits, licenses and certificates, in any way applicable to SHINGLE SPRINGS, KAR, the Property, the Facility, and the Enterprise, including without limitation, the IGRA, the Compact, and SHINGLE SPRINGS Gaming Ordinance. "LENDER" shall mean the financial institution agreed upon by the parties to provide the funding necessary to design, construct, and equip the Facility, and provide start-up capital for the Enterprise. "LOAN AGREEMENT" shall mean the loan agreement in a principal amount of up to ONE HUNDRED MILLION DOLLARS ($100,000,000.00), to be entered into between SHINGLE SPRINGS and KAR or one of its Affiliates, or between SHINGLE SPRINGS and the Lender, the proceeds of which are to be used exclusively for the development, design, construction, furnishing and equipping of the Facility and/or providing start-up and working capital for the Enterprise. "MANAGEMENT AGREEMENT" shall mean this Agreement and may be referred to herein as the "Agreement" or "Management Agreement." "MANAGEMENT FEE" shall mean the management fee described in Section 6.1. "MANAGING OFFICER" shall mean such person who KAR designates to serve as a liaison between KAR and SHINGLE SPRINGS. "MANAGING BREACH" shall mean such material breach as described in Section 10. 7 14 "MEMBER OF SHINGLE SPRINGS GOVERNMENT" shall have the meaning described in Section 10.5. "MINIMUM BALANCE" shall mean the amount described in Section 6.2, but not defined. "MINIMUM MONTHLY PRIORITY PAYMENT" shall mean that payment due SHINGLE SPRINGS each month commencing in the month after the Commencement Date occurs in accordance with 25 U.S.C. 2711 (b)(3) and Section 6.5 hereof. "MONTHLY DISTRIBUTION PAYMENT" shall have the meaning set forth in Section 6.4 "NATIONAL INDIAN GAMING COMMISSION ("NIGC")" shall mean the commission established pursuant to 25 U.S.C. Section 2704. "NET REVENUES" shall mean the sum of "Net Revenues (gaming)" and "Net Revenues (other)." "NET REVENUES (GAMING)" shall mean Gross Gaming Revenue (Win), of the Enterprise from Class II and Class III gaming less all gaming related Operating Expenses, excluding the Management Fee, and less the retail value of any promotional Allowances, and less the following revenues actually received by the Enterprise and included in Gross Revenues: (i) any gratuities or service charges added to a customer's bill; (ii) any credits or refunds made to customers, guests or patrons; (iii) any sums and credits received by the Enterprise for lost or damaged merchandise; (iv) any sales taxes, excise taxes, gross receipt taxes, admission taxes, entertainment taxes, tourist taxes or charges received from patrons and paid to a governmental or quasi governmental entity; (v) any proceeds from the sale or other disposition of furnishings and equipment or other capital assets; (vi) any fire and extended coverage insurance proceeds other than for business interruption; (vii) any condemnation awards other than for temporary condemnation; (viii) any proceeds of financing or refinancing; and 8 15 (ix) any interest on bank accounts(s). It is intended that this provision be consistent with 25 U.S.C. Section 2703 (9). "NET REVENUES (OTHER)" shall mean all Gross Revenues of the Enterprise from all other sources in support of Class II and Class III gaming not included in "Net Revenues" (gaming), such as food and beverage, entertainment, and retail, less all Operating Expenses, excluding the Management Fee and less the retail value of Promotional Allowances, if any, and less the following revenues actually received by the Enterprise and included in Gross Revenues: (i) any gratuities or service charges added to a customer's bill; (ii) any credits or refunds made to customers, guests or patrons; (iii) any sums and credits received by the Enterprise for lost or damaged merchandise; (iv) any sales taxes, excise taxes, gross receipt taxes, admission taxes, entertainment taxes, tourist taxes or charges received from patrons and passed on to a governmental or quasi governmental entity; (V) any proceeds from the sale or other disposition of furnishings and equipment or other capital assets; (vi) any fire and extended coverage insurance proceeds other than for business interruption; (vii) any condemnation awards other than for temporary condemnation; (viii) any proceeds of financing or refinancing; and (ix) any interest on bank accounts(s). It is intended that this provision be consistent with 25 U.S.C. Section 2703 (9). "NOTE" shall mean the promissory note to be executed by SHINGLE SPRINGS pursuant to the Loan Agreement, which shall evidence a loan to SHINGLE SPRINGS, in an amount up to ONE HUNDRED MILLION DOLLARS ($100,000,000.00), from either the Lender or KAR. "OFF-SITE EMPLOYEES" shall mean such employees of KAR or KAR's Affiliates who are not located at the Facility but who are used by KAR to provide services to the Enterprise as described in Section 4.6.4 and 4.7. 9 16 "OPERATING BUDGET AND ANNUAL PLAN" shall mean the operating budget and plan described in Section 4.9. "OPERATING EQUIPMENT" shall mean all equipment required for the operation of a casino, including accessory gaming table equipment, chinaware, glassware, linens, silverware, utensils, uniforms, and all other similar items. "OPERATING EXPENSES" shall mean all expenses of the operation of the Enterprise, pursuant to GAAP, including but not limited to the following: (i) the payment of (i) salaries, wages, and benefit programs for Enterprise Employees; (ii) salaries, wages, and benefit programs for Off-Site Employees to the extent approved by the Tribal Council; and (iii) the cost of Centralized Services to the extent approved by the Tribal Council. (ii) Operating Supplies for the Enterprise; (iii) utilities; (iv) repairs and maintenance of the Facility (excluding Capital Replacements); (v) interest on the Note; (vi) interest on installment contract purchases or other interest charges on debt approved by the Tribal Council; (vii) insurance and bonding; (viii) advertising and marketing, including busing and transportation of patrons to the Facility; (ix) accounting, legal and other professional fees; (x) security costs; (xi) reasonable travel expenses for officers and employees of the Enterprise, KAR or its Affiliates, to inspect and oversee the Enterprise, subject to the budget agreed upon by the Tribal Council; (xii) lease payments for Furnishings and Equipment and Operating Equipment to the extent approved by the Tribal Council; (xiii) trash removal; 10 17 (xiv) cost of goods sold; (xv) other expenses designated as Operating Expenses in accordance with the accounting standards as referred to in Section 4.19.3; (xvi) expenses specifically designated as Operating Expenses in this Agreement; (xvii) depreciation and amortization of the Facility based on an assumed thirty (30) year life, and depreciation and amortization of all other assets in accordance with GAAP; (xviii) recruiting and training expenses; (xix) fees due to the NIGC under the IGRA; (xx) any required payments to the State or local governments made by or on behalf of the Enterprise or SHINGLE SPRINGS pursuant to the Compact or another related agreement; (xxi) any budgeted charitable contributions by the Enterprise which are approved by the Tribal Council; and (xxii) Pre-Opening Expenses shall be capitalized and treated as an expense during the first year after opening. "OPERATING SUPPLIES" shall mean food and beverages (alcoholic and nonalcoholic) and other consumable items used in the operation of a casino, such as playing cards, tokens, chips, plaques, dice, fuel, soap, cleaning materials, matches, paper goods, stationery and all other similar items. "PLANS AND SPECIFICATIONS" shall mean the final Plans and Specifications approved for the Facility as described in the Development Agreement. "PRE-OPENING BUDGET" shall have the meaning described in Section 4.8. "PRE-OPENING EXPENSES" shall have the meaning described in Section 4.8. "PROMOTIONAL ALLOWANCES" shall mean the retail value of complimentary food, beverages, merchandise, and tokens for gaming, provided to patrons as promotional items. "PROPERTY" shall mean any parcel of land in California identified and mutually acknowledged in a writing executed by SHINGLE SPRINGS and KAR as suitable for development of the Facility and operation of the Enterprise which meets the requirements 11 18 of United States of America in trust for SHINGLE SPRINGS for gaming purposes as required by the IGRA. "RELATIVE" shall have the meaning described in Section 10.5. "SECURITY AND REIMBURSEMENT AGREEMENT" shall mean that agreement to be entered into between KAR and SHINGLE SPRINGS which shall set out the security interest of KAR and reimbursement obligation of SHINGLE SPRINGS relating to the Loan and the Interim Promissory Note. "STATE" shall refer to the State of California. "SYSTEM MARKS" shall mean the marks of KAR described in Section 7.2 "SYSTEM FEES" shall mean those fees from time to time established for KAR Services, as described in Section 4.7.1. "TEMPORARY GAMING FACILITY" shall mean a Class II and Class III Gaming facility which, if deemed feasible by KAR and SHINGLE SPRINGS in the manner described in this and the Development Agreement may be constructed on an accelerated basis concurrently with the construction of the permanent Gaming Facility with a goal of opening within the first 90 to 120 days after the Effective Date. If the parties agree that it is economically feasible, said facility may also offer Class II gaming. "TERM" shall mean the term of this Agreement as described in Section 3.2. "TRIBAL LANDS" means all lands presently and in the future held in trust for SHINGLE SPRINGS and all lands within the confines of the Shingle Springs Band of Miwok Indians Rancheria and to such lands as may thereafter be added thereto. 3. COVENANTS. In consideration of the mutual covenants contained in this Agreement, the parties agree and covenant as follows: 3.1 ENGAGEMENT OF KAR. SINGLE SPRINGS invited KAR to submit a written proposal and SHINGLE SPRINGS after due consideration hereby retains and engages KAR as the exclusive Manager of the Enterprise pursuant to the terms and conditions of this Agreement, and KAR hereby accepts such retention and engagement, subject to receipt of all necessary regulatory written approvals. 3.2 TERM. The term of this Agreement shall begin on the date this Agreement, the Development Agreement and the Interim Promissory Note and Security and Reimbursement Agreement are approved by the Chairperson of the NIGC, and/or the BIA, if required, and continue for a period of five (5) years after the Commencement Date. However, this five (5) year term shall not be construed to include the period of time any Temporary Facility may be open. Provided further that the five (5) year term of this 12 19 Agreement may be extended for an additional two (2) year period at the option of the KAR in the event KAR completes any of the following: (A) is successful in providing additional land to SHINGLE SPRINGS in excess of Four Million Two Hundred Thousand Dollars ($4,200,000), (B) develops a gaming facility and resort with a cost in excess of One Hundred Million Dollars $100,000,000.00, or (C) completes the projects described in the Development Agreement to wit: - - 120,000 square feet of building space. - - 3,000 compacted gaming devices and 40 table games (assuming allowed by Compact). - - Parking garage and flat parking totaling 1,500 spaces. - - Specialty restaurant. - - Food buffet restaurant. - - 24 hour coffee shop. - - Snack bar. - - Retail area. - - Multi-purpose entertainment, bingo, and convention facility. - - Meeting rooms. - - Child care facility. - - Video arcade facility. - - Administrative offices. - - Regulatory authority offices. - - 300 Room hotel with indoor pool & fitness facility. - - RV Park. - - Convenience Store/Gas Station. The parties understand that market, compact or other governmental conditions may change and it may be necessary to expand or decrease the scope of the project before construction is commenced. 3.3 STATUS OF PROPERTY. SHINGLE SPRINGS represents that it will, in accordance with the terms of the Development Agreement, before the Effective Date and throughout the Term, and will maintain Property as land held in trust by the United States of America for the benefit of SHINGLE SPRINGS, eligible as a location upon which Class II and III Gaming can occur. SHINGLE SPRINGS covenants, during the term hereof that KAR shall and may peaceably have complete access to and presence in the Facility in accordance with the terms of this Agreement, free from molestation, eviction and disturbance by SHINGLE SPRINGS or by any other person or entity. SHINGLE SPRINGS shall, at SHINGLE SPRINGS expense, undertake and prosecute all actions, judicial or otherwise, required to assure such access and presence by KAR. 3.4 KAR COMPLIANCE WITH LAW; LICENSES. KAR covenants that it will at all times comply with all Legal Requirements, including SHINGLE SPRINGS Gaming Ordinance, the IGRA, the Compact, California statutes, to the extent applicable, and any licenses issued under any of the foregoing. SHINGLE SPRINGS shall not unreasonably 13 20 withhold, delay, withdraw, qualify or condition such licenses as SHINGLE SPRINGS is authorized to grant. 3.5 AMENDMENTS TO SHINGLE SPRINGS GAMING ORDINANCE. SHINGLE SPRINGS covenants that any amendments made to SHINGLE SPRINGS Gaming Ordinance will be a legitimate effort to ensure that Gaming is conducted in a manner that adequately protects the environment, the public health and safety, and the integrity of the Enterprise. Any amendments to SHINGLE SPRING'S Gaming Ordinance which materially and adversely affects the rights of KAR pursuant to this Agreement which are not in compliance with this covenant or applicable federal law shall be void ad initio as to their application to KAR. 3.6 COMPLIANCE WITH COMPACT. The parties shall at all times comply with the provisions of the Compact. 3.7 FIRE AND SAFETY. KAR shall ensure that the Facility shall be constructed and maintained in compliance with the Compact or at the option of KAR and SHINGLE SPRINGS, as mutually agreed, with all fire and safety statutes, ordinances, and regulations which would be applicable if the Facility were located outside of the jurisdiction of SHINGLE SPRINGS although those requirements would not otherwise apply within that jurisdiction. Nothing in this Section shall grant any jurisdiction to the State of California or any political subdivision thereof over the Property or the Facility, KAR and SHINGLE SPRINGS shall be jointly responsible for arranging fire protection and police services for the Facility. 3.8 COMPLIANCE WITH THE NATIONAL ENVIRONMENT POLICY ACT. With the assistance of KAR SHINGLE SPRINGS shall supply the NIGC with all information necessary for the NIGC to comply with the National Environmental Protection Act and the regulations of the NIGC issued pursuant to the National Environmental Policy Act (NEPA). 3.9 SATISFACTION OF EFFECTIVE DATE REQUIREMENTS. KAR and SHINGLE SPRINGS each agree to cooperate and to use their best efforts to satisfy all of the conditions of the Effective Date at the earliest possible date. SHINGLE SPRINGS shall adopt a resolution (the "SHINGLE SPRINGS Resolution") reciting that is the governing law of SHINGLE SPRINGS that the Management Agreement, Loan Agreement, Note, Interim Promissory Note, Security and Reimbursement Agreement, Development and the exhibited documents attached thereto are the legal and binding obligations of SHINGLE SPRINGS, valid and enforceable in accordance with their terms. KAR agrees to memorialize the satisfaction of each of the following requirements as well as the Effective Date in writings signed by KAR and delivered to SHINGLE SPRINGS and to the Chairperson of the NIGC: (i) KAR has satisfied itself as to the proper ownership and control of the Property and its suitability for construction and operation of the Facility, and that all of the Legal Requirements and other requirements for lawful conduct and 14 21 operation of the Enterprise in accordance with this Agreement have been met and satisfied; and (ii) the satisfactory completion of all necessary and applicable feasibility studies required for the development, construction and operation of the Enterprise. 3.10 COMMENCE DATE. KAR shall memorialize the Commencement Date in writing signed by KAR and delivered to SHINGLE SPRINGS and to the Chairperson of the NIGC. 4. BUSINESS AND AFFAIRS IN CONNECTION WITH ENTERPRISE. 4.1 KAR's AUTHORITY AND RESPONSIBILITY. KAR shall conduct and direct all business and affairs in connection with the day to day operation, management and maintenance of the Enterprise and the Facility, including the establishment of operating days and hours. KAR is hereby granted the necessary power and authority to act, through KAR, in order to fulfill all of its responsibilities under this Agreement. Nothing herein grants or is intended to grant KAR a titled interest to the Facility or to the Enterprise. KAR hereby accepts such retention and engagement. SHINGLE SPRINGS shall have the sole proprietary interest in and ultimate responsibility for the conduct of all Gaming conducted by the Enterprise, subject to the rights and responsibilities of KAR under the Agreement. 4.2 DUTIES OF KAR. Under this Agreement, KAR's duties shall include, without limitation, the following: 4.2.1 PHYSICAL DUTIES. KAR shall use reasonable measures for the orderly physical administration, management, and operation of the Enterprise and the Facility, including without limitation cleaning, painting, decorating, plumbing, carpeting, grounds care and such other maintenance and repair work as is reasonably necessary. 4.2.2 COMPLIANCE. KAR shall comply with all duly enacted statutes, regulations and ordinances of SHINGLE SPRINGS. 4.2.3 REQUIRED FILINGS. KAR shall comply with all applicable provisions of the Internal Revenue Code including, but not limited to, the prompt filing of any cash transaction reports and the reports that may be required by the Internal Revenue Service of the United States or under the Compact. 4.2.4 CONTRACTS IN SHINGLE SPRINGS'S NAME AND AT ARM'S LENGTH. Contracts for the operations of the Enterprise shall be entered into in the name of SHINGLE SPRINGS, doing business as the Enterprise, and signed by the General Manager. Any combination of contract requiring an expenditure in any year in excess of $500,000 over the budget shall be approved by the Tribal Council. No contracts of any amount, for the supply of goods or services to the Enterprise shall be entered into with an Affiliate of KAR unless that affiliation is disclosed to and 15 22 approved by the Tribal Council, and the contract terms are no less favorable for the Enterprise than could be obtained from a nonaffiliated contractor. Notwithstanding anything to the contrary contained herein, contracts for the supply of any goods or services paid for entirely by KAR may be provided by an Affiliate of the KAR, provided that payments on such contracts shall not constitute Operating Expenses and shall be the sole responsibility of KAR and the Tribal Council shall be notified of any such contracts. Nothing contained in this Section 4.2.4 shall be deemed to be or constitute a waiver of SHINGLE SPRINGS's sovereign immunity. The General Manger shall not have the authority to waive Shingle Springs sovereign immunity. 4.2.5 ENTERPRISE OPERATING STANDARDS. KAR shall operate the Enterprise in a proper, efficient and competitive manner in accordance with operating standards which are consistent with the operating standards of the casino resort industry. 4.3 SECURITY. KAR shall provide for appropriate security of the operation of the Enterprise. All aspects of the Facility security shall be the responsibility of KAR. Any security officer shall be bonded and insured in an amount commensurate with his or her enforcement duties and obligations. The cost of any charge for security and increased public safety services will be an Operating Expense. All resources of the surveillance department shall be fully accessible to the Shingle Springs Gaming Commission at all times. The Commission shall have the authority to require that department to cooperate in all investigations, to turn over any and all video and audio recordings, to turn over any operations logs, and any other documentation kept in the normal course of business by that department, and to visually monitor any facet of the gaming operations. 4.4 DAMAGE, CONDEMNATION OR IMPOSSIBILITY OF THE ENTERPRISE. If, during the term of this Agreement, the Facility is damaged or destroyed by fire, war, or other casualty, or by an Act of God, or is taken by condemnation or sold under the threat of condemnation, or if Gaming on the Property is prohibited as a result of a decision of a court of competent jurisdiction or by operation of any applicable legislation, KAR shall have the following options: 4.4.1 RECOMMENCEMENT OF OPERATIONS. If Gaming on the Property is prohibited by Legal Requirements, KAR shall have the option to continue its interest in this Agreement and to commence or recommence the operation of Gaming at the Facility if, at some point during the Term of this Agreement, such commencement or recommencement shall be legally and commercially feasible in the sole judgement of KAR. 4.4.2 REPAIR OR REPLACEMENT. If the Facility is damaged, destroyed or condemned so that Gaming can no longer be conducted at the Facility, the Facility shall be reconstructed if the insurance or condemnation proceeds are sufficient to restore or replace the Facility to a condition at least comparable to that before the casualty occurred. If KAR elects to reconstruct the Facility and if the insurance 16 23 proceeds or condemnation awards are insufficient to reconstruct the Facility to such condition, KAR may, in its sole discretion, advance such additional funds as are necessary to reconstruct the Facility to such condition and such fund shall, with the prior consent of SHINGLE SPRINGS and the BIA or NIGC, as appropriate, constitute a loan to SHINGLE SPRINGS, secured by the revenues from the Enterprise and repayable upon such terms as may be agreed upon by SHINGLE SPRINGS and KAR. SHINGLE SPRINGS may also elect to advance funds or borrow funds from a third party to reconstruct the Facility and such funds shall constitute a loan to the Enterprise repayable as an operating expense upon such terms as may be agreed upon by SHINGLE SPRINGS and KAR. The loan provided for herein shall not be subject to the ceiling set forth in the Development Agreement. If the insurance proceeds are not sufficient and are not used to repair the Facility, SHINGLE SPRINGS and KAR shall jointly adjust and settle any and all claims for such insurance proceeds or condemnation awards, and such proceeds or award shall be applied first, to the amounts due under the Note or Security and Reimbursement Agreement (including principal and interest); second, any other loans; third, any undistributed Net Revenues pursuant to Section 6 of this Agreement, and fourth, any surplus shall be distributed to SHINGLE SPRINGS. 4.4.3 OTHER BUSINESS PURPOSES. KAR shall have the option to use the Facility for other purposes provided the Tribal Council has approved such purposes (which written approval shall not be unreasonably withheld). For any purpose other than Gaming, KAR shall obtain all written approvals necessary under applicable law. 4.4.4 TERMINATION OF GAMING. KAR shall have the option at any time within a sixty (60) day period following the cessation of Gaming on the Property to notify SHINGLE SPRINGS in writing that it is terminating operations under this Agreement, in which case KAR shall retain any rights KAR may have to undistributed Net Revenues pursuant to Section 6 prior to the date of termination of this Agreement and rights to repayments of amounts owed to it. If KAR does not elect to terminate this Agreement, it may take whatever action may be necessary to reduce expenses during such termination of Gaming. 4.4.5 TOLLING OF THE AGREEMENT. If, after a period of cessation of Gaming on the Property, the recommencement of Gaming is possible, and if KAR has not terminated this Agreement under the provisions of Section 4.4.4, the period of such cessation shall not be deemed to have been part of the term of this Agreement and the date of expiration of the term of this Agreement shall be extended by the number of days of such cessation. Any reasonable payments agreed upon by the Tribal Council or made to any third party to eliminate rights acquired in the Property, the Facility or the Business during the period of cessation or to eliminate or cure the problems which caused the cessation of Gaming shall constitute Operating Expenses of the Business. 17 24 4.5 ALCOHOLIC BEVERAGES AND TOBACCO SALES. During the term of this Agreement alcoholic beverages may be served at the Facility if permissible in accordance with applicable law. The parties acknowledge that no enabling SHINGLE SPRINGS legislation for the sale of alcoholic beverages is now in force, and that such legislation would be necessary in order to serve alcoholic beverages at the Facility. If such legislation is subsequently enacted, and if other requisite written approvals are obtained, SHINGLE SPRINGS and a KAR may mutually agree to include service of such beverages within the Enterprise. Tobacco may be sold at the Facility subject to and in accordance with SHINGLE SPRINGS's licensing requirements, if any. 4.6 EMPLOYEES. 4.6.1 KAR'S RESPONSIBILITY. Except as limited by Section 4.6.3 or other specific provisions of this Agreement, the KAR shall have, subject to the terms of this Agreement, the exclusive responsibility and authority to direct the selection, control and discharge of all employees performing regular services for the Enterprise in connection with maintenance, operation, and management of the Enterprise and the Facility and any activity upon the Property; and the sole responsibility for determining whether a prospective employee is qualified and the appropriate level of compensation to be paid, subject to the requirement of Section 4.6.7. 4.6.2 ENTERPRISE EMPLOYEE POLICIES. KAR shall prepare a draft of personnel policies and procedures (the "Enterprise Employee Policies"), including a job classification system with salary levels and scales, which policies and procedures shall be subject to written approval by the Tribal Council. The Enterprise Employee Policies shall include a grievance procedure in order to establish fair and uniform standards for the employees of SHINGLE SPRINGS engaged in the Enterprise, which will include procedures for the resolution of disputes between the KAR and the Enterprises as set forth in Exhibit A attached hereto. Any revisions to the Enterprise Employee Policies shall not be effective unless they are approved in the same manner as the original Enterprise Employee Policies. All such actions shall comply with applicable SHINGLE SPRINGS law. 4.6.3 KEY EMPLOYEES. The selection of the General Manager following the recommendation by KAR shall be subject to the written approval of the SHINGLE SPRINGS Tribal Council or its authorized designee and approval shall not be unreasonably withheld. KAR and SHINGLE SPRINGS expect that initially, in addition to this person, there will be a core group of employees working for the Enterprise, filling the positions set forth at Exhibit B (collectively, the "Key Employees"). The salaries and benefits of these Key Employees shall be subject to written approval by the Tribal Council and shall be an Operating Expense of the Enterprise. Nothing contained herein is intended to limit KAR's right to reasonably consolidate or eliminate any of these positions, or, subject to 18 25 Section 4.6.9 and subject to the written approval of the Tribal Council, to increase the number of Key Employees. 4.6.4 OFF-SITE EMPLOYEES. Subject to written approval of the Tribal Council, KAR shall also have the right to use employees of KAR and KAR's Affiliates not located at the Facility to provide services to the Enterprise ("Off-Site Employees"). All expenses, costs (including, but not limited to, salaries and benefits, but excluding pension, retirement, severance or similar benefits), which are related to such Off-Site Employees shall be subject to the Operating Budget approved by the Tribal Council, and shall be treated as Pre-Opening Expenses or Operating Expenses as appropriate. 4.6.5 NO KAR WAGES OR SALARIES. Except as otherwise provided with respect to Key Employees described in Section 4.6.3 and Off-Site Employees described in Section 4.6.4, neither KAR nor KAR's Affiliates nor any of their officers, directors, shareholders, or employees shall be compensated by wages from or contract payments by the Enterprise for their efforts or for any work which they perform under this Agreement, other than loan repayments, reimbursement pursuant to the Security and Reimbursement Agreement and the Management Fee to be paid to KAR under Section 6.1. Nothing in this subsection shall restrict the ability of an employee of the Enterprise to purchase or hold stock in KAR, or KAR's Affiliates where (i) such stock is publicly held, and (ii) such employee acquires, on a cumulative basis, less than five percent (5%) of the outstanding stock in the corporation. 4.6.6 SHINGLE SPRINGS REGULATORY AUTHORITY (COSTS). The funding of the operation of SHINGLE SPRINGS Regulatory Authority shall, prior to the Commencement Date, be a start up expense of the Enterprise and thereafter shall be an Operating Expense. The budget for the SHINGLE SPRINGS Regulatory Authority shall be in an amount which reasonably reflects the cost of operating of this Agency up to a maximum cost of one quarter of one percent (0.25%) of Gross Gaming Revenue, but in no event shall this payment be less than $200,000 if Class III gaming is operated. Subject to the minimum and maximum amount described above, payments of 25% of the SHINGLE SPRINGS Regulatory Authority's annual approved budget shall be payable to SHINGLE SPRINGS bank account specified by the Tribal Council in a notice to KAR pursuant to the Notices Section of this Agreement on January 21st, April 21st, July 21st and October 21st of each calendar year. Such payments shall not be combined with any other payments to SHINGLE SPRINGS and said regulatory expense shall be an operating expense. 4.6.7 EMPLOYEE BACKGROUND CHECKS. A background investigation shall be consistent with the IGRA, the Compact and the Minimum Internal Controls conducted by the SHINGLE SPRINGS Regulatory Authority in compliance with all Legal Requirements, to the extent applicable, on each applicant for 19 26 employment as soon as reasonably practicable. No individual whose prior activities, criminal record, if any, or reputation, habits and association are known to pose a threat to the public interest, the effective regulation of Gaming, or to the gaming licenses of KAR or any or its Affiliates, or to create or enhance the dangers of unsuitable, unfair or illegal practices and methods and activities in the conduct of Gaming, shall knowingly be employed by KAR. The background investigation procedures employed by the SHINGLE SPRINGS Regulatory Authority shall be formulated in consultation with KAR and shall satisfy all regulatory requirements independently applicable to KAR. Any cost associated with obtaining such background investigations shall constitute an Operating Expense, provided, however, the costs of background investigations relating to KAR, its Affiliates and the shareholders, officers and directors of KAR or its Affiliates shall be borne solely by KAR, and shall not be treated as part of the Loan or as Operating Expenses of the Enterprise. 4.6.8 INDIAN PREFERENCE, RECRUITING AND TRAINING. KAR shall, during the term of this Agreement, to the extent permitted by applicable law, including but not limited to the Indian Civil Rights Act, 25 U.S.C. Section 1301 et. seq., give preference in recruiting, training and employment to qualified Indians who reside on or near the lands within the confines of the Shingle Springs Rancheria and to such land as may hereafter be added thereto as provided in the Constitution of SHINGLE SPRINGS in all job categories of the Enterprise. KAR shall: (i) conduct job fairs and skills assessment meetings for SHINGLE SPRINGS members; (ii) in consultation with and subject to the written approval of SHINGLE SPRINGS, develop a management training program. This program shall be structured to provide appropriate training for those participating to assume full managerial control at the conclusion of the Term of this Agreement; and (iii) train and hire, to the maximum extent permitted by law, members of the local communities where the Facility is located. Final determination of the qualifications of all persons for employment shall be made by KAR, subject to any licensing requirements of SHINGLE SPRINGS Regulatory Authority. (v) Within two hundred seventy (270) days of the Commencement Date, KAR shall develop and present to SHINGLE SPRINGS for its written approval, a training plan designed to progressively reduce the number of KAR Employees, so that, by the end of the Term of the 20 27 Agreement, all Enterprise Employees will be SHINGLE SPRINGS Employees. 4.6.9 GOALS AND REMEDIES. All hiring for the Enterprise shall be done by KAR, based on the hiring policies established by the parties in consultation with each other. 4.6.10 REMOVAL OF EMPLOYEES. KAR will act in accordance with the Enterprise Employee Policies with respect to the discharge, demotion or discipline of any Enterprise Employee. 4.6.11 INDIAN PREFERENCE CONTRACTING. KAR shall during the term of this Agreement, to the extent permitted by applicable law, including but not limited to the Indian Civil Rights Act, 25 U.S.C. 1301 et. Seq., give preference in contracting for goods and services for the Enterprise to qualified Indians who reside on or near the lands within the confines of the Shingle Springs Rancheria and to such land as may hereafter be added thereto as provided in the Constitution of Shingle Springs. Qualified shall mean a person who is able to provide the same quality services and has demonstrated skills and abilities to perform the tasks to be undertaken in an acceptable manner, as non-Indian competitors at competitive prices, and shall be able to meet the bonding requirements of KAR and the Enterprise. 4.7 OPTIONAL SERVICES. SHINGLE SPRINGS acknowledges that KAR and KAR's Affiliates may provide services in addition to those which are encompassed by this Agreement. SHINGLE SPRINGS agrees to consider in good faith any bids/proposals presented to it by KAR or any of KAR's Affiliates to provide any such additional services to the Enterprise, it being understood, however, that this Section shall in no event be construed to require SHINGLE SPRINGS to accept any such bid/proposal. 4.8 PRE-OPENING. Six (6) months prior to the scheduled Commencement Date, KAR shall commence implementation of a pre-opening program which shall include all activities necessary to financially and operationally prepare the Facility for opening. To implement the pre-opening program, KAR shall prepare a comprehensive pre-opening budget which shall be submitted to the Tribal Council for their written approval no later than seven (7) months prior to the scheduled Commencement Date ("Pre-Opening Budget"). The Pre-Opening Budget sets forth expenses which KAR anticipates to be necessary or desirable in order to prepare the Facility for the Commencement, including without limitation, cash for disbursements, Furnishings and Equipment, initial Operating Equipment and Operating Supplies, hiring, training, relocation and temporary lodging of employees, advertising and promotion, office overhead and office space (whether on or off the Property), and travel and business entertainment (including opening celebrations and ceremonies) ("Pre-Opening Expenses"). SHINGLE SPRINGS recognizes that the Pre-Opening Budget has been prepared well in advance of Commencement and is intended only to be a reasonable estimate, subject to variation due to a number of factors, 21 28 some of which will be outside of KAR's control (e.g. the time of completion, inflationary factors and varying conditions for the goods and services required). SHINGLE SPRINGS agrees that the Pre-Opening Budget may be modified from time to time, subject to written approval of SHINGLE SPRINGS in accordance with the procedure established by Article 4.9 of this Agreement for adjustments to the Operating Budget and Annual Plan. 4.9 OPERATING BUDGET AND ANNUAL PLAN. KAR shall, prior to the scheduled Commencement Date, submit to the Tribal Council, for its written approval, a proposed Operating Budget and Annual Plan for the remainder of the current Fiscal Year. Thereafter, KAR shall, not less than sixty (60) days prior to the commencement of each full or partial Fiscal Year, submit to the Tribal Council, for its written approval, a proposed Operating Budget and Annual Plan for the ensuing full or partial Fiscal Year, as the case may be. The Operating Budget and Annual Plan shall include a projected income statement, balance sheet, and projection of cash flow for the Enterprise, with detailed justifications explaining the assumptions used therein and included with the Operating Budget and Annual Plan be a schedule of repairs and maintenance (other than Capital Replacements), a business and marketing plan for the Fiscal Year, and the Minimum Balance which must remain in the Bank Account and the Facility Bank as of the end of each month during the Fiscal Year to assure sufficient monies for working capital purposes, the Facility Bank and other expenditures authorized under the Operating Budget and Annual Plan. The Operating Budget and Annual Plan for the Enterprise will be comprised of the following: (a) a statement of the estimated income and expenses for the coming Fiscal Year, including estimates as to Gross Revenues and Operating Expenses for such Fiscal Year, such operating budget to reflect the estimated results of the operation during each Fiscal Month of the subject Fiscal Year; (b) either as part of the statement of the estimated income and expenses referred to in the preceding clause (a), or separately, budgets (and timetables and requirements of KAR) for: (i) repairs and maintenance; (ii) Capital Replacements; (iii) Operating Equipment; (iv) advertising and business promotion programs for the Casino; and (v) the estimated cost of Promotional Allowances; and 22 29 (c) a business and marketing plan for the subject Fiscal Year. The Tribal Council's written approval of the Operating Budget and Annual Plan shall not be unreasonably withheld or delayed. KAR shall meet with the Tribal Council to discuss the proposed Operating Budget and Annual plan and the Tribal Council's written approval shall be deemed given unless a specific written objection thereto is delivered by the Tribal Council to KAR within fifteen (15) days after KAR and the Tribal Council have met to discuss the proposed Operating Budget and Annual Plan. If the Tribal Council for any reason decline to meet with KAR to discuss a proposed Operating Budget and Annual Plan, the Tribal Council shall be deemed to have consented unless a specific written objection is delivered to KAR within fifteen (15) days after the date the proposed Operating Budget and Annual Plan is submitted to the Tribal Council. The Tribal Council shall review the Operating Budget and Annual Plan on a line-by-line basis: To be effective, any notice which disapproves a proposed Operating Budget and Annual Plan must contain specific objections in reasonable detail to individual line items. If the initial proposed Operating Budget and Annual Plan contains disputed budget item(s), the Tribal Council and the KAR agree to cooperate with each other in good faith to resolve the disputed or objectionable proposed item(s). In the event the Tribal Council and the KAR are not able to reach mutual agreement concerning any disputed or objectionable item(s) within twenty one (21) days after the date SHINGLE SPRINGS representatives on the Tribal Council provides written notice of its objection to KAR, either party shall be entitled to submit the dispute to arbitration in accordance with Section 17.1. If the Tribal Council and KAR are unable to resolve the disputed or objectionable item(s) prior to the commencement of the applicable fiscal year, the undisputed portions of the proposed Operating Budget and Annual Plan shall be deemed to be adopted and approved and the corresponding line item(s) contained in the Operating Budget and Annual Plan for the preceding fiscal year shall be adjusted as set forth herein and shall be substituted in lieu of the disputed item(s) in the proposed Operating Budget and Annual Plan. Those line items which are in dispute shall be determined by increasing the preceding fiscal year's actual expense for the corresponding line items by an amount determined by KAR which does not exceed the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics of the United States Department of Labor, U.S. City Average, all items (1982-1984=100) for the fiscal year prior to the fiscal year with respect to which the adjustment to the line item(s) is being calculated or any successor or replacement index thereto. The resulting Operating Budget be deemed to be the Operating Budget and annual Plan in effect until such time as KAR and the Tribal Council have resolved the items objected to by the Tribal Council. 4.9.1 ADJUSTMENTS TO OPERATING BUDGET AND ANNUAL PLAN. KAR may, after notice to and written approval by the Tribal Council, revise the Operating Budget and annual Plan from time to time, as necessary, to reflect any unpredicted significant changes, variables 23 30 or events or additional, unanticipated items of expense. KAR may, after notice to the Tribal Council, reallocate part of all of the amount budgeted with respect to any line item to another line item and to make such other modifications to the Operating Budget and Annual Plan as KAR deems necessary, provided that the total adjustments to the Operating Budget and Annual Plan shall not exceed one hundred ten percent (110%) of the aggregate approved Operating Budget and Annual Plan without written approval of the Tribal Council. KAR shall submit a revision of the Operating Budget and Annual Plan to the Tribal Council for review on a quarterly basis. In addition, in the event actual Gross Revenues for any fiscal period are greater than those provided for in the Operating Budget and annual Plan, the amounts approved in the Operating Budget and Annual Plan for guest services, food and beverage, telephone, utilities, marketing and the repair and maintenance of the Facility for any fiscal month shall be automatically deemed to be increased to an amount that bears the same relationship (ratio) to the amount budgeted for such items as actual Gross Revenue for such fiscal month. SHINGLE SPRINGS acknowledges that the Operating Budget and Annual Plan is intended only to be a reasonable estimate of the Enterprise's revenues and expenses for the ensuing Fiscal Year. KAR shall not be deemed to have made any guarantee concerning projected results contained in the Operating Budget and Annual Plan. 4.10 CAPITAL BUDGETS. KAR shall, not more than sixty (60) days or less than thirty (30) days prior to the Commencement of each fiscal year, or partial fiscal year, submit to the Tribal Council a recommended "Capital Budget" describing the present value, estimated useful life and estimated replacement costs for the ensuing full or partial year, as the case may be, for the Property, Furnishings, Equipment, and ordinary Capital Replacement items, all of which are defined to be any items, the cost of which is capitalized and depreciated, rather than expensed, using GAAP ("Capital Replacements") as shall be required to operate the Enterprise in accordance with sound business practices. Capital Replacements in the Capital Budget in an aggregate sum equal to or less than the sum of the Capital Replacement Reserve for the fiscal Year shall be recommended by KAR and approved by the Tribal Council; and any amounts in excess of the Capital Replacement Reserve for the Fiscal Year shall be subject to written approval of the Tribal Council. The Tribal Council, and KAR shall meet to discuss the proposed Capital Budget and the Tribal Council shall be required to make specific written objections to a proposed Capital Budget in the same manner and within the same time periods specified in Section 4.9 with respect to an Operating Budget and Annual Plan. The Tribal Council shall not unreasonably withhold or delay its consent. KAR shall be responsible for the design and installation of Capital Replacements, subject to the Tribal Council's written approval, and inspection, which approval shall not be unreasonably withheld. 4.11 CAPITAL REPLACEMENTS. SHINGLE SPRINGS shall effect and expend such amounts for any Capital Replacements as shall be required, in the course of the operation of the Enterprise, to maintain, at a minimum, the Enterprise in compliance with any Legal Requirements and to comply with KAR's recommended programs for renovation, modernization and improvement intended to keep the Enterprise competitive in its market, or to correct any condition of an emergency nature, including without limitation, 24 31 maintenance, replacements or repairs which are required to be effected by SHINGLE SPRINGS, which in KAR's sole discretion requires immediate action to preserve and protect the comfort, health, safety and/or welfare of the Facility's guests or employees (an "Emergency Condition"); provided, however, that SHINGLE SPRINGS shall be under no obligation to fund Capital Replacements in aggregate amount greater than its periodic required contributions to the Capital Replacement Reserve described in Section 4.12. KAR is authorized to take all steps and to make all expenditures from the Disbursement Account, described at Section 4.17.3 (in the case of non-capitalized repairs and maintenance), or Capital Replacement Reserve, described in Section 4.12, (in the case of expenditures for Capital Replacements) as it deems necessary to repair and correct any Emergency Condition, regardless whether such provisions have been made in the Capital Budget or the Operating Budget and Annual Plan for any such expenditures; or the cost thereof may be advanced by KAR and reimbursed from future revenues. Design and installation of Capital Replacements shall be effected in a time period and subject to such conditions as the KAR may establish to minimize interference with or disruption of ongoing operations. 4.12 CAPITAL REPLACEMENT RESERVE. KAR shall establish a Capital Replacement Reserve on the books of account of the Enterprise, and the cash contributions required by Section 4.13 shall be deposited by the KAR into an account (the "Capital Replacement Reserve") established in SHINGLE SPRINGS's name at a bank designated by the Tribal Council. All amounts in the Capital Replacement Reserve shall be invested in interest bearing investments in accordance with the Enterprise Investment Policy set forth in Exhibit C to this Agreement to the extent that availability of funds, when required, is not thereby impaired. Interest earned on amounts deposited in the Capital Replacement Reserve shall be credited to the Capital Replacement Reserve and shall be available for payment of expenditures for Capital Replacements to the Facility. KAR shall draw on the Capital Replacement Reserve for Capital Replacements to purchase those items included in the "Capital Budget" approved by the Tribal Council or such emergency additions of replacements as shall be required to keep the Enterprise in compliance with legal requirements or such emergency additions or replacements necessary to protect the comfort, health, safety or welfare of the Facility's guests or employees. 4.13 PERIODIC CONTRIBUTIONS TO CAPITAL REPLACEMENT RESERVE. Deposits into the Capital Replacement Reserve Equivalent to an annual rate of 1% (one percent) of Gross Revenues during the first two years of the Term of this Agreement after the Commencement Date and equivalent to an annual rate of 2% (two percent) of Gross Revenues during the remainder of the Term, and shall be made monthly. The cash amounts required to be so deposited shall be calculated and deposited into the Capital Replacement Reserve, in arrears, no later than the twenty-first (21st) day of the month immediately following the month with respect to which a deposit is made. If any adjustments of Gross Revenues is made as a result of an audit or for other accounting reasons, a corresponding adjustment in the Capital Replacement Reserve deposit shall be made. In addition, all proceeds from the sale of capital items no longer needed for the operation of the Enterprise, and the proceeds of any insurance received in reimbursement 25 32 for any items previously paid for from the Capital Replacement Reserve, shall be deposited into the Capital Replacement Reserve upon receipt, and said Capital Replacement Reserve shall be an operating expense. 4.14 USE AND ALLOCATION OF CAPITAL REPLACEMENT RESERVE. Any expenditures for Capital Replacements which have been budgeted and previously approved may be paid from the Capital Replacement Reserve without further written approval from SHINGLE SPRINGS. Any amounts remaining in the Capital Replacement Reserve at the close of any year shall be carried forward and retained in the Capital Replacement Reserve until fully used. If amounts in the Capital Replacement Reserve at the end of any year plus the anticipated contributions to the Capital Replacement Reserve for the next ensuing year are not sufficient to pay for Capital Replacements authorized by the Capital Budget for such ensuing year, then additional funds, in the amount of the projected deficiency, may be advanced by the KAR and reimbursed by the Enterprise from future revenues. 4.15 INTERNAL CONTROL SYSTEMS. KAR shall install systems for monitoring of all funds (the "Internal Control Systems"), which systems shall comply with all Legal Requirements included in SHINGLE SPRING's Minimum Internal Controls, and shall be submitted to SHINGLE SPRINGS Regulatory Authority for written approval in advance of implementation, which written approval shall not be unreasonably withheld. SHINGLE SPRINGS shall retain the right to review all Internal Control Systems and any changes instituted to the Internal Control Systems of the Enterprise. SHINGLE SPRINGS shall have the right to retain an auditor to review the adequacy of the Internal Control Systems prior to the Commencement Date. The cost of such review shall be a Pre-Opening Expense. Any changes in such systems after the Commencement Date also shall be subject to review and written approval by SHINGLE SPRINGS Regulatory Authority SHINGLE SPRINGS Regulatory Authority and KAR shall have the right and duty to maintain and police the Internal Control Systems in order to prevent any loss of proceeds from the Enterprise. SHINGLE SPRINGS Regulatory Authority shall have the right to inspect and oversee the Internal Control System at all times. KAR shall install a closed circuit television system to be used for monitoring the cash handling activities of the Enterprise sufficient to meet all Legal Requirements. 4.16 BANKING AND BANK ACCOUNTS. 4.16.1 BANK ACCOUNTS. The Tribal Council shall select, and the Tribal Council shall approve, a bank or banks for the deposit and maintenance of funds and shall establish in such bank or banks accounts as KAR deems appropriate and necessary in the course of business and as consistent with this Agreement ("Enterprise Bank Accounts"). Establishment of any Enterprise Bank Account shall be subject to the written approval of the Tribal Council. The sum of money agreed to by the Tribal Council to be maintained in the Enterprise Bank Account(s) to serve as working capital for Enterprise operations, shall include all sums needed for the Facility Bank, and all sums needed to accrue for payment of expenses not paid on a monthly basis (the "Minimum Balance"). Attached hereto 26 33 as Exhibit D is the form of Irrevocable Banking Instructions to be executed by SHINGLE SPRINGS with regard to each Enterprise Bank Account and to be in effect during the Term of this Agreement. 4.16.2 DAILY DEPOSITS TO DEPOSITORY ACCOUNT. KAR shall establish for the benefit of SHINGLE SPRINGS in the Enterprise's name a Depository Account. KAR shall collect all gross revenues and other proceeds connected with or arising from the operation of the Enterprise, the sale of all products, food and beverage, and all other activities of the Enterprise and deposit the related cash daily into the Depository Account at least once during each 24-hour period. All money received by the Enterprise on each day that it is open must be counted at the close of operations for that day or at least once during each 24-hour period. KAR agrees to obtain a bonded transportation service to effect the safe transportation of the daily receipts to SHINGLE SPRINGS, which expenses shall constitute an Operating Expense. 4.16.3 DISBURSEMENT ACCOUNT. KAR shall establish for the benefit of SHINGLE SPRINGS in the Enterprise's name a Disbursement Account. KAR shall, constitute with and pursuant to the approved annual Operating Budget and Annual Plan, have responsibility and authority for making all payments for Operating Expenses, debt service, management fees, and disbursements to SHINGLE SPRINGS from the Disbursement Account. 4.16.4 NO CASH DISBURSEMENTS. KAR shall not make any cash disbursements from the Enterprise Bank Accounts except for the payment of cash prizes of $7,000 or less; and except for such cash disbursements, any and all additional cash prizes and all payments or disbursements by the KAR shall be made by check or wire transfer drawn against an Enterprise Bank Account. 4.16.5 TRANSFERS BETWEEN ACCOUNTS. KAR has the authority to transfer funds from and between the Enterprise Bank Accounts to the Disbursement Account in order to pay Operating Expenses and to pay debt service pursuant to the Loan Agreement and Note, the Security and Reimbursement Agreement, the Development Agreement, to invest funds in accordance with the Enterprise Investment Policy and to pay the fees payable to KAR pursuant to this Agreement. 4.17 INSURANCE. KAR, on behalf of SHINGLE SPRINGS, shall have the responsibility to arrange for, obtain and maintain, or cause it agents to maintain, with responsible insurance carriers licensed to do business in the State of California, insurance satisfactory to KAR and the Tribal Council covering the Facility and the operations of the Enterprise, naming SHINGLE SPRINGS, the Enterprise, KAR, and KAR's Affiliates as insured parties, in at least the amounts which are set forth in Exhibit E. 4.18 ACCOUNTING AND BOOKS OF ACCOUNT. 27 34 4.18.1 STATEMENTS. KAR shall prepare and provide to the Tribal Council on a monthly, quarterly, and annual basis, operating statements. The operating statements shall comply with all Legal Requirements and shall include an income statement, statement of cash flows, and balance sheet for the Enterprise. Such statements shall include Operating Budget and Annual Plan and Capital Budget projections as comparative statements, and which, after the first full year of operation, will include comparative statements from the comparable period for the prior year of all revenues, and all other amounts collected and received, and all deductions and disbursements made therefrom in connection with the Enterprise. 4.18.2 BOOKS OF ACCOUNT. KAR shall maintain full and accurate books of account at an office in the Facility and at such other location as may be determined by KAR. SHINGLE SPRINGS shall have access to the daily operations of the Enterprise and shall have the unlimited right to inspect, examine, and copy all such books and supporting business records. Such rights may be exercised through SHINGLE SPRINGS Regulatory Agency or through an agent, employee, attorney, or independent accountant acting on behalf of the Tribal Council or SHINGLE SPRINGS's Gaming Regulatory Agency. 4.18.3 ACCOUNTING STANDARDS. KAR shall maintain the books and records reflecting the operations of the Enterprise in accordance with the accounting practices of KAR in conformity with Generally Accepted Accounting Principles consistently applied and shall adopt and follow the fiscal accounting periods utilized by KAR in its normal course of business (i.e., a month, quarter and year prepared in accordance with the Enterprise Fiscal Year). The accounting systems and procedures shall comply with Legal Requirements and, at a minimum: (i) include an adequate system of internal accounting controls; (ii) permit the preparation of financial statements in accordance with generally accepted accounting principles; (iii) be susceptible to audit; (iv) permit the calculation and payment of the Management Fee described in Section 6; and (v) provide for the allocation of operating expenses or overhead expenses among SHINGLE SPRINGS, the Enterprise, and any other user of shared facilities and services. 4.18.4 ANNUAL AUDIT. An independent certified public accounting firm selected by SHINGLE SPRING's Gaming Regulatory Agency and Tribal Council and KAR shall perform an annual audit of the books and records of the Enterprise and 28 35 of all contracts for supplies, services or concessions reflecting Operating Expenses. SHINGLE SPRINGS's Gaming Regulatory Agency and Tribal Council, the BIA and the NIGC shall also have the right to perform special audits of the Enterprise on any aspect of the Enterprise at any time without restriction. The costs incurred for such audits shall constitute an Operating Expense. Such audits shall be provided by SHINGLE SPRINGS to all applicable federal and state agencies, as required by law, and may be used by KAR for reporting purposes under federal and state securities laws, if required. 4.19 RETAIL SHOPS AND CONCESSIONS. With respect to the operation of the shops and concessions located within the Facility the Tribal Council shall approve in advance in writing the specific type or types of shops or concessions proposed by KAR to be authorized for inclusion in the Facility, which approval shall not be unreasonably withheld. 5. LIENS. Subject to the exceptions hereinafter stated in Section 5.1, SHINGLE SPRINGS specifically warrants and represents to KAR that during the term of this Agreement SHINGLE SPRINGS shall not act in any way whatsoever, either directly or indirectly, to cause any one to become an encumbrance or lienholder of the Property or the Facility, other than KAR or Lender, or to allow any one to obtain any interest in this Agreement without the prior written consent of KAR, and, where applicable, consent from the United States. KAR specifically warrants and represents to SHINGLE SPRINGS that during the term of this Agreement, KAR shall not act in any way, directly or indirectly, to cause any one to become an encumbrance or lienholder of the Property or the Facility, or to obtain any interest in this Agreement without prior consent of SHINGLE SPRINGS, and, where applicable, the United States. SHINGLE SPRINGS and KAR shall keep the Facility and Property free and clear of all enforceable mechanics' and other enforceable liens resulting from the construction of the Facility and all other enforceable liens which may attach to the Facility or the Property, which shall at all times remain the property of the United States in trust for SHINGLE SPRINGS. If any such lien is claimed or filed, it shall be the duty of SHINGLE SPRINGS to discharge or take the legal action to contest the claim or the lien within thirty (30) days after having been given written notice of such claim, either by payment to the claimant, by the posting of a bond and the payment into the court of the amount necessary to relieve and discharge or stay such claim, or in any other manner which will result in the discharge or stay of such claim, and KAR is authorized to act in behalf of SHINGLE SPRINGS to discharge any liens if SHINGLE SPRINGS fails to take appropriate action towards that goal within that 30 day period. It is understood that this shall not apply to the Tribe's portion of the Net Revenues after transferred to SHINGLE SPRINGS. 5.1 EXCEPTIONS. SHINGLE SPRINGS shall have the right to grant security interests in Enterprise revenues subordinated to the interests of the KAR pursuant to the Security and Reimbursement Agreement, as well as priority security interests in any Facility assets other than personal property purchased with the proceeds of the Loan, but only if such security interests are granted to secure loans made to and for the benefit of the Enterprise, and KAR has been offered a prior opportunity to make such loans on similar financial terms. 29 36 6. MANAGEMENT FEE, REIMBURSEMENTS, DISBURSEMENTS, AND OTHER PAYMENTS BY KAR. 6.1 MANAGEMENT FEE. Subject to the provisions of Section 6.4, on or before the twenty-first (21st) day of each month after the first calendar month of operation, KAR is authorized by SHINGLE SPRINGS to pay itself from the Enterprise SHINGLE SPRINGS Account(s) a fee equal to thirty percent (30%) of Net Revenues for the prior calendar month. 6.2 DISBURSEMENTS. As and when received by KAR, Gross Revenues shall be deposited in the Depository Account created pursuant to Section 4.16.2 of this Agreement. There shall, in turn, be disbursed by KAR, on a monthly basis, for and on behalf of SHINGLE SPRINGS, funds from the Enterprise Bank Account(s) to pay, to the extent available, Operating Expenses and required deposits into the Capital Replacement Reserve for Capital Replacements. KAR will reserve funds in the Enterprise in amounts equal to the Minimum Balance, and KAR may increase the Minimum Balance, in KAR's sole discretion, at anytime during the first year following the Commencement Date to reflect unanticipated working capital needs revealed by actual Enterprise operations. Additionally, KAR may advance any monies needed to cover any operating cash shortfall and shall be allowed to be reimbursed same in accordance with Section 9.12. 6.3 ADJUSTMENT TO BANK ACCOUNT. After the disbursements pursuant to Section 6.2, and establishment of any additional reserves for future disbursements as KAR deems necessary and as are approved by the Tribal Council, taking into account anticipated cash flow and Operating Costs of the Enterprise, any excess funds remaining in the Enterprise Bank Account(s) over the Minimum Balance, the Capital Replacement Reserve, and such additional reserves approved by the Tribal Council, shall be disbursed monthly in accordance with Section 6.4. 6.4 PAYMENT OF FEES AND SHINGLE SPRINGS DISBURSEMENT. Within twenty-one (21) days after the end of each calendar month of operations, KAR shall calculate Gross Revenues, Operating Expenses, and Net Revenues of the Enterprise for the previous month's operations and the year's operations to date. Such Net Revenues shall be disbursed from the Enterprise Bank Account(s) to the extent available to pay the scheduled items to the extent due any payable and earned in the following order of priority: (i) the Minimum Monthly Priority Payment described in Section 6.5; (ii) Current principal and any other payments due on the Loan (and if payments are due quarterly, a reserve equal to one third of the scheduled quarterly payment shall be deposited in a designated Enterprise Bank Account for such payment, and may be invested in accordance with the Enterprise Investment 30 37 Policies pending payment); (iii) Capital Replacement Reserve contributions as described in Section 4.13; (iv) payments due on the Interim Promissory Note and the reimbursement of amounts advanced by KAR; and (v) Management Fee All remaining Net Revenues less minimum monthly priority payments to SHINGLE SPRINGS shall be distributed to SHINGLE SPRINGS at the same time ("Monthly Distribution Payment") the Management Fee is paid. 6.5 MINIMUM MONTHLY PRIORITY PAYMENT. Commencing on the tenth (10th) day of the first month following the Commencement Date (unless and to the extent that the Commencement Date is delayed as a result of the action or negligence of SHINGLE SPRINGS) remainder of the term of this Agreement and until SHINGLE SPRINGS has received pursuant to this Agreement a cumulative amount of SIX MILLION DOLLARS ($6,000,000.00) during each twelve month period commencing on the date of the first distribution hereunder following the Commencement Date, FIVE HUNDRED THOUSAND DOLLARS ($500,000.00) per month to SHINGLE SPRINGS which shall be charged against SHINGLE SPRING'S share of net profits. The payments under this Section 6.5 shall be the Minimum Monthly Priority Payments and such payments shall be prorated for any partial month on the basis of the number of days in such month. No Minimum Monthly Priority Payment shall be owed for any months during which Class III gaming is suspended or terminated at the Facility regardless of the reason or cause for such suspension or termination or if there is a change in any law which has material adverse effect on the operation of the Enterprise. If Net Profits are inadequate to make the Minimum Monthly Priority Payments, KAR shall advance the required amount and shall be reimbursed from future Net Profits payable to SHINGLE SPRINGS. 6.6 PAYMENT OF NET REVENUES. The Net Revenues paid to SHINGLE SPRINGS pursuant to this section 6 shall be payable to SHINGLE SPRINGS bank account specified by the Council in a notice to KAR pursuant to Section 9.2. 7. TRADE NAMES, TRADE MARKS AND SERVICE MARKS. 7.1 ENTERPRISE NAME. The exact name of the Enterprise shall be approved in writing by SHINGLE SPRINGS, which approval shall not be unreasonably withheld. 7.2 SYSTEM MARKS. Prior to the Commencement Date and from time to time during the Term hereof, Manager agrees to erect and install, in accordance with local codes and regulations, all signs KAR deem necessary in, on or about the Facility, including, but not limited to, signs bearing the System Marks as part of the Enterprise Name. The costs of purchasing, leasing, transporting, constructing, maintaining and 31 38 installing the required signs and systems shall be part of the start-up costs. KAR shall obtain the written approval from SHINGLE SPRINGS for any use of any System Mark prior to installation and use by the Enterprise. SHINGLE SPRINGS agrees to recognize the exclusive right of ownership of KAR to all KAR's trademarks, copyrights, trade names, and patents, now or hereafter held or applied for in connection therewith (collectively, the "System Marks"). SHINGLE SPRINGS hereby disclaims any right or interest therein, regardless of any legal protection afforded thereto. SHINGLE SPRINGS acknowledges that all of the System Marks might not be used in connection with the Enterprise, and KAR and SHINGLE SPRINGS shall determine which circumstance shall be so used. SHINGLE SPRINGS covenants that in the event of termination, cancellation or expiration of this Agreement, whether as a result of default by KAR or otherwise, SHINGLE SPRINGS shall not hold itself out as, or continue operation of the Enterprise as a KAR casino nor will it utilize any of the System Marks of any variant thereof in the name or operation of the Enterprise. SHINGLE SPRINGS agrees that KAR or their respective representative may, at any time thereafter, enter the Facility and may remove all signs, furnishings, printed material, emblems, slogans or other distinguishing characteristics which are not or hereafter may be connected or identified with KAR or which carry any KAR Mark. SHINGLE SPRINGS shall not use any of the KAR corporate names, or any variation thereof, directly or indirectly. (a) in connection with a private placement or public sale of securities or other comparable means of financing or (b) press releases and other public communications, without the prior written approval of KAR (or any successor owner of the KAR trademarks and service marks), which consent shall not be unreasonably withheld. 7.3 LITIGATION INVOLVING SYSTEM MARKS. SHINGLE SPRINGS and KAR agree that, in the event SHINGLE SPRINGS and/or KAR is or are the subject of any litigation or action brought by any party seeking to restrain the use by SHINGLE SPRINGS or KAR, or either of them, of any System Mark used by KAR for or on or in connection with the Facility or Enterprise, any such litigation or action shall be defended entirely by and at the expense of KAR, notwithstanding that KAR may not be named as a party thereto. SHINGLE SPRINGS shall not have the right to bring suit against any user of the System Marks. In all cases, the conduct of any suit, whether brought by KAR or instituted against SHINGLE SPRINGS and/or KAR shall be under the absolute control of counsel to be nominated and retained by KAR, notwithstanding that KAR may not be a party to such suit. KAR agrees and covenants to defend and hold SHINGLE SPRINGS harmless from and to indemnify SHINGLE SPRINGS against any judgments or awards of any court or administrative agency or competent jurisdiction, whether such awards be in the form of damages, costs or otherwise, imposed against SHINGLE SPRINGS and arising from the use by KAR of any System Marks or similar rights or registrations for or on or in connection with the Facility or Enterprise in accordance with the terms of this Agreement. 8. TAXES. 32 39 8.1 STATE AND LOCAL TAXES. If the State or any local government attempts to impose any excise, use or transactional tax upon any party to this Agreement or upon the Enterprise, the Facility or the Property, the Tribal Council may, in the name of the appropriate party or parties in interest, may, upon unanimous vote, resist such attempt through legal action. The costs of such action and the compensation of legal counsel shall be an Operating Expense of the Enterprise. This Section shall in no manner be construed to imply that any party to this Agreement or the Enterprise is liable for any such tax. 8.2 SHINGLE SPRINGS TAXES. SHINGLE SPRINGS agrees that neither it nor any agent, agency, affiliate or representative of SHINGLE SPRINGS will impose any taxes, fees, assessments, or other charges of any nature whatsoever on payment of any debt service to KAR of any of its Affiliates or to any lender furnishing financing for the Facility or for the Enterprise, or on the Enterprise, the Facility, the revenues therefrom or on the Management Fee as described in Section 6.1 of this Agreement; provided, however, SHINGLE SPRINGS may assess license fees reflecting reasonable regulatory costs incurred by SHINGLE SPRINGS Regulatory Agency as provided for in Section 4.6.6. SHINGLE SPRINGS further agrees that neither it nor any agent, agency, affiliate or representative will impose any taxes, fees, assessments or other charges of any nature whatsoever on the salaries or benefits, or dividends paid to, any of KAR's members, officers, directors or employees, or other Affiliates or any of the employees of the Enterprise; or any provider of goods, materials, or services to the Enterprise. KAR retains the right, subject to Section 11 of this Agreement, to terminate this Agreement, the Development Agreement and all accompanying agreements if it reasonably determines that any statute, law, ordinance or regulation of SHINGLE SPRINGS renders operation of the Enterprise uncompetitive. 8.2.1 TERMINATION BY KAR. Should KAR terminate the Agreement pursuant to this Section, KAR shall retain the right to repayment of: (a) money lent to SHINGLE SPRINGS by KAR's or KAR's Affiliates and money lent to SHINGLE SPRINGS and guaranteed by the KAR and/or KAR's Affiliates to the extent KAR and/or KAR's Affiliates are required to pay pursuant to such guarantee; (b) reimbursement of any monies which may become due and payable under the terms of the Interim Promissory Note, and the Security and Reimbursement Agreement. Except as otherwise provided herein, if any taxes, fees or assessments are levied by SHINGLE SPRINGS, such taxes and assessments shall constitute Operating Expenses of the Enterprise. 8.3 COMPLIANCE WITH INTERNAL REVENUE CODE. KAR shall comply with all applicable provisions of the Internal Revenue Code. 9. GENERAL PROVISIONS. 9.1 SITES OF THE CONTRACTS. This Agreement, as well as all contracts entered into 33 40 between SHINGLE SPRINGS and any person or any entity providing services to the Enterprise, shall be deemed entered into in the State of California, and shall be subject to all Legal Requirements of SHINGLE SPRINGS and federal law. 9.2 NOTICE. Any notice required to be given pursuant to this Agreement shall be delivered to the appropriate party by Federal Express or by Certified Mail Return Receipt Requested, addressed as follows: If to SHINGLE SPRINGS: Jim Adams, Chairperson Shingle Springs Bank of Miwok Indians P.O. Box 1340 Shingle Springs, CA 95682 Copies to: Phillip E. Thompson Thompson Associates 2307 Thornknoll Drive Suite 100 Fort Washington, MD 20744 If to KAR: Kean Argovitz Resorts - Shingle Springs, LLC 11999 Katy Frwy., Suite 322 Houston, TX 77079 Attn.: Kevin M. Kean Copies to: Kean Argovitz Resorts - Shingle Springs, LLC 11999 Katy Frwy., Suite 322 Houston, TX 77079 Attn.: Dr. Jerry A. Argovitz and to different address(es) as KAR or SHINGLE SPRINGS may specify in writing using the notice procedure called for in this Section 9.2. Any such notice shall be deemed given two days following deposit in the United States mail or upon actual delivery, whichever first occurs. 9.3 AUTHORITY TO EXECUTE AND PERFORM AGREEMENT. SHINGLE SPRINGS and KAR represent and warrant to each other that they each have full power and authority to execute this Agreement and to be bound by and perform the terms hereof. On request, each party shall furnish the other evidence of such authority. 9.4 RELATIONSHIP. KAR and SHINGLE SPRINGS shall not be construed as joint ventures or partners of each other by reason of this Agreement and neither shall have the power to bind or obligate the other except as set forth in this Agreement. 9.5 KAR'S CONTRACTUAL AUTHORITY. KAR is authorized, subject to the Tribal Council review, which is not to be unreasonably withheld, to make, enter into and 34 41 perform in the name of and for the account of SHINGLE SPRINGS, doing business as the Enterprise, such contracts deemed necessary by KAR to perform its obligations under this Agreement, provided such contracts comply with the terms and conditions of this Agreement provided such contracts do not obligate the Enterprise to pay sums not approved in the Operating Budget and Annual Plan or the Capital Budget. 9.6 FURTHER ACTIONS. SHINGLE SPRINGS and KAR agree to execute all contracts, agreements and documents and to take all actions necessary to comply with the provisions of this Agreement and the intent hereof. 9.7 DEFENSE. Except for disputes between SHINGLE SPRINGS and KAR, and claims relating to SHINGLE SPRING's status as a Federally recognized Indian Tribe, KAR shall bring and/or defend and/or settle any claim or legal action brought against KAR, the Enterprise or SHINGLE SPRINGS, individually, jointly or severally, or any Enterprise Employee, in connection with the operation of the Enterprise. KAR shall recommend and subject to SHINGLE SPRING's written approval of legal counsel, which approval shall not be unreasonably withheld, KAR shall retain and supervise legal counsel, accountants and such other professionals, consultants and specialists as KAR deems appropriate to defend any such claim or cause of action provided that the Tribal Council retains the right to suspend any such negotiations if it reasonably concludes, based on the advice of its legal council that such negotiations or settlements is endangering the legal rights and long term welfare of SHINGLE SPRINGS. All liabilities, costs, and expenses, including reasonable attorneys' fees and disbursements incurred in defending and/or settling any such claim or legal action which are not covered by insurance shall be an Operating Expense, or, if incurred prior to the Commencement Date, shall be a Start-up Expense except for any fees, settlements or other costs pertaining to actions, claims, or settlements involving agreements or contracts with SHINGLE SPRINGS that were initiated prior to the execution of this Agreement. Nothing contained herein is a grant to KAR of the right to waive SHINGLE SPRINGS's or the Enterprise's sovereign immunity. That right is strictly reserved to SHINGLE SPRINGS. Any settlement of a third party claim or cause of action shall require written approval of the Tribal Council. Nothing in this paragraph shall prohibit or prevent SHINGLE SPRINGS from retaining and supervising legal counsel of its choice. 9.8 WAIVERS. No failure or delay by KAR or SHINGLE SPRINGS to insist upon the strict performance of any covenant, agreement, term or condition of this Agreement, or to exercise any right or remedy consequent upon the breach thereof, shall constitute a waiver of any such breach or any subsequent agreement, term, or condition of this Agreement and no breach thereof shall be waived, altered or modified except by written instrument. No waiver of any breach shall affect or alter this Agreement, but each and every covenant, agreement, term and condition of this Agreement shall continue in full force and effect with respect to any other then existing or subsequent breach thereof. 9.9 CAPTIONS. The captions for each Section and Sub-Section are intended for convenience only. 35 42 9.10 SEVERABILITY. If any of the terms and provisions hereof shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any of the other terms or provisions hereof. If, however, any material part of a party's rights under this Agreement shall be declared invalid or unenforceable, (specifically including KAR's right to receive its Management Fees) the party whose rights have been declared invalid or unenforceable shall have the option to terminate this Agreement upon thirty (30) days written notice to the other party, without liability on the part of the terminating party. 9.11 INTEREST. Except as otherwise provided in the Development Agreement, any amount advanced by KAR or SHINGLE SPRINGS related to the operation of the Enterprise shall accrue interest at same rate as the Note and shall be treated according to GAAP. 9.12 RECOUPMENT AND REIMBURSEMENT. The performance by KAR of its responsibilities under this Agreement are conditioned upon the Enterprise generating sufficient funds to KAR on a timely basis to enable KAR to perform its obligations hereunder. KAR shall, according to the terms of this Agreement or at its option if not so required, advance funds or contribute property, on behalf of SHINGLE SPRINGS, to satisfy obligations of SHINGLE SPRINGS in connection with the Facility and this Agreement. KAR shall keep appropriate records to document all reimbursable expenses paid by KAR, which records shall be made available for inspection by SHINGLE SPRINGS or its agents upon request and KAR shall send written notice of the same to the Tribal Council within 72 hours of such advance. SHINGLE SPRINGS agrees to reimburse KAR with interest from future Net Revenues for money paid or property contributed by KAR to satisfy obligations of SHINGLE SPRINGS in connection with the Enterprise and this Agreement. Interest shall be calculated at the rate of prime plus 2% as established by the Chase Manhattan Bank from the date SHINGLE SPRINGS was obligated to remit the funds or contribute the property for the satisfaction of such obligation to the date reimbursement is made. KAR's sole source of such reimbursement shall be from undistributed and future Net Revenues of SHINGLE SPRINGS. 9.13 TRAVEL AND OUT-OF-POCKET EXPENSES. To the extent approved by the Tribal Council, KAR and the Tribe shall be reimbursed for all travel and out-of-pocket expenses reasonably incurred in the performance of this Agreement. Subject to the Operating Budget and Annual Plan, all travel and out-of-pocket expenses of Enterprise Employees reasonably incurred in the performance of their duties shall be an Operating Expense. 9.14 THIRD PARTY BENEFICIARY. This Agreement is exclusively for the benefit of the parties hereto and it may not be enforced by any party other than the parties to this Agreement and shall not give rise to liability to any third party other than the authorized successors and assigns of the parties hereto as such are authorized by this Agreement. 9.15 BROKERAGE. KAR and SHINGLE SPRINGS represent and warrant to each other neither has sought the services of a broker, finder or agent in this transaction, and neither 36 43 has employed, nor authorized, any other person to act in such capacity. KAR and SHINGLE SPRINGS each hereby agrees to indemnify and hold the other harmless from an against any and all claims, loss, liability, damage or expenses (including reasonable attorneys' fees) suffered or incurred by the other party as a result of a claim brought by a person or entity engaged or claiming to be engaged as a finder, broker or agent by the indemnifying party. 9.16 SURVIVAL OF COVENANTS. Any covenant, term or provision of this Agreement which, in order to be effective, must survive the termination of this Agreement, shall survive any such termination. 9.17 ESTOPPEL CERTIFICATE. KAR and SHINGLE SPRINGS agree to furnish to the other party, from time to time upon request, an estoppel certificate in such reasonable form as the requesting party may request stating whether there have been any defaults under this Agreement known to the party furnishing the estoppel certificate and such other information relating to the Enterprise as may be reasonably requested. 9.18 PERIODS OF TIME. Whenever any determination is to be made or action is to be taken on a date specified in this Agreement, if such date shall fall on a Saturday, Sunday or legal holiday under the laws of SHINGLE SPRINGS or the State of California, then in such event said date shall be extended to the next day which is not a Saturday, Sunday or legal holiday. 9.19 EXHIBITS. All exhibits attached hereto are incorporated herein by reference and made a part hereof as if fully rewritten or reproduced herein. 9.20 SUCCESSORS, ASSIGNS, AND SUBCONTRACTING. The benefits and obligations of this Agreement shall inure to and be binding upon the parties hereto and their respective successors and assigns. KAR shall have the right to assign its rights under this Agreement and the Development Agreement only with the prior written consent of the Tribal Council, provided that such assignee or subcontractor has the competency and financial capability to perform as required by this Agreement. The acquisition of KAR by a party other than an Affiliate of KAR, or its successor corporation, shall not constitute an assignment of this Agreement by KAR and this Agreement shall remain in full force and effect between SHINGLE SPRINGS and KAR, subject only to legal Requirements. Other than stated above, this Agreement may not be assigned or its non-gaming obligation subcontracted by KAR, without the prior written approval of the Tribal Council and the written approval of the Chairperson of the NIGC or his authorized representative after a complete background investigation of the proposed assignee. SHINGLE SPRINGS shall, without the consent of KAR, have the right to assign this Agreement and the assets of the Enterprise to an instrumentality of SHINGLE SPRINGS or to a corporation wholly-owned by SHINGLE SPRINGS organized to conduct the business of the Enterprise for SHINGLE SPRINGS that assumes all obligations herein. 37 44 Any assignment by SHINGLE SPRINGS shall not prejudice the right of KAR under this Agreement. No assignment authorized hereunder shall be effective until all necessary government written approvals have been obtained. 9.21 TIME IS OF THE ESSENCE. Time is of the essence in the performance of this Agreement. 9.22 PATRON DISPUTE RESOLUTION. KAR shall address all patron disputes in manner which is consistent with the patron dispute policy approved by the SHINGLE SPRINGS Regulatory Authority which shall at all times be consistent with SHINGLE SPRINGS Gaming Ordinance. 9.23 INDEMNIFICATION. SINGLE SPRINGS hereby agrees to indemnify and will hold KAR harmless from and against any and all claims, demands, liabilities, actions, damages, costs, charges and expenses (including attorney fees) as a consequence, direct or indirect of SHINGLE SPRING's association with including but not limited to Chris Anderson, Sharp Image Gaming, Excelsior Gaming, or any other party with any claims against SHINGLE SPRINGS. The Coushatta Tribe of Louisiana and Lakes Gaming, Inc. shall be excluded. 9.24 MODIFICATION. Any change to or modification of this Agreement must be in writing signed by both parties hereto and shall be effective only upon written approval by the Chairperson of the NIGC, the date of signature of the parties notwithstanding. 10. WARRANTIES. 10.1 NON-INTERFERENCE IN SHINGLE SPRINGS AFFAIRS. KAR agrees not to interfere in or attempt to wrongfully influence the internal affairs or government decisions of SHINGLE SPRINGS government by offering cash incentives, by making written or oral threats to the personal or financial status of any person, or by any other action, except for actions in the normal course of business of KAR that relate to the Enterprise. For the purposes of this Section 10.1, if any such undue interference in SHINGLE SPRINGS affairs is alleged by the federally recognized tribal government in writing and the NIGC, finds that KAR has unduly interfered with the internal affairs of SHINGLE SPRINGS government and has not taken sufficient action to cure and prevent such interference, that finding of interference shall be grounds for termination of the Agreement. KAR shall be entitled to immediate written notice and a complete copy of any such complaint to the NIGC. 10.2 PROHIBITION OF PAYMENTS TO MEMBERS OF SHINGLE SPRINGS GOVERNMENT. KAR represents and warrants that no payments have been or will be made by KAR or KAR's Affiliates, to any Member of SHINGLE SPRINGS Government, any SHINGLE SPRINGS official, any relative of a member of SHINGLE SPRINGS government of SHINGLE SPRINGS official, or any SHINGLE SPRINGS government employee for the purpose of obtaining any special privilege, gain, advantage or consideration. 38 45 10.3 PROHIBITION OF HIRING MEMBERS OF SHINGLE SPRINGS GOVERNMENT. No member of SHINGLE SPRINGS Government, SHINGLE SPRINGS official, relative of a Member of SHINGLE SPRINGS Government or SHINGLE SPRINGS official or employee of SHINGLE SPRINGS government may be employees at the Enterprise without a written waiver of this Section 10.3 by SHINGLE SPRINGS. For this purpose, SHINGLE SPRINGS will identify all such persons to KAR in a writing and take reasonable steps to keep the list current; KAR shall not be held responsible if any person not on such written list is an employee. 10.4 PROHIBITION OF FINANCIAL INTEREST IN ENTERPRISE. No Member of SHINGLE SPRINGS Government or relative of a Member of SHINGLE SPRINGS Government shall have a direct or indirect financial interest in the Enterprise greater than the interest of any other member of SHINGLE SPRINGS; provided, however, nothing in this subsection shall restrict the ability of a SHINGLE SPRINGS member to purchase or hold stock in KAR, or KAR's Affiliates where (i) such stock is publicly held, and (ii) SHINGLE SPRINGS member acquires less than 5% of the outstanding stock in the corporation, provided that if a SHINGLE SPRINGS member shall acquire more than 5% such person shall comply with all applicable law. 10.5 DEFINITIONS. As used in this Section 10, "Member of SHINGLE SPRINGS Government" means any member of the Tribal Council of SHINGLE SPRINGS, the SHINGLE SPRINGS Regulatory Authority or any independent board or body created to oversee any aspect of Gaming and any SHINGLE SPRINGS court official; "Relative" means an individual residing in the same household who is related as a spouse, father, mother, son or daughter. 10.6 SHINGLE SPRINGS. SHINGLE SPRINGS represents and warrants to KAR that SHINGLE SPRINGS has land located near Shingle Springs, California as legally described on Exhibit H hereto, which is held in trust by the United States for the benefit of SHINGLE SPRINGS. 11. GROUNDS FOR TERMINATION. 11.1 VOLUNTARY TERMINATION AND TERMINATION FOR CAUSE. This Agreement may be terminated pursuant to the provisions of Section 4.4.4, 10.1, 10.2, 10.3, 10.4, and 10.5. 11.2 VOLUNTARY TERMINATION. This Agreement may be terminated upon the mutual written consent and written approval of the parties. 11.3 TERMINATION FOR CAUSE. Either party may terminate this Agreement if the other party commits or allows to be committed any Material Breach of this Agreement. A Material Breach of this Agreement means a failure of either party to perform any material duty or obligation on its part for any twenty (20) consecutive days after notice, and shall include, but not be limited to, those events identified as a Material Breach in this 39 46 Agreement and those events identified as an Event of Default in Article 12 of the Development Agreement. Any action taken or the adoption of any statue or ordinance that taxes, materially prejudices or materially adversely affects or imposes additional costs or burdens on KAR's rights or duties under this Agreement shall be a Material Breach of this Agreement. Neither party may terminate this Agreement on grounds of Material Breach unless it has provided written notice to the other party of its intention to declare a default and to terminate this Agreement and the defaulting party thereafter fails to cure or take steps to substantially cure the default within thirty (30) days following receipt of such notice. During the period specified in the notice to terminate, either party may submit the matter to arbitration under the dispute resolution provisions of this Agreement at Section 16. The discontinuance or correction of a Material Breach shall constitute a cure thereof. This Agreement may be terminated due to insolvency of KAR. KAR shall be conclusively presumed to have become insolvent if KAR can no longer perform its financial obligations hereunder, or; (a) has filed for relief under Title 11 of the United States Code or has suffered the filing of an involuntary petition under Title 11 which is not dismissed within one (1) year after filing; (b) has a receiver appointed to take possession of all or substantially all of KAR's property; or (c) has suffered an assignment for the benefit of creditors. SHINGLE SPRINGS may also terminate this Agreement immediately where KAR has had its license withdrawn because KAR, or a director or officer of KAR, has been convicted of a criminal felony or misdemeanor offense in the performance of KAR duties hereunder; provided, however, SHINGLE SPRINGS may not terminate this Agreement based on a director or officer's conviction where KAR terminates such individual within ten (10) days after receiving notice of the conviction. In the event of any termination for cause, regardless of fault, the parties shall retain all money previously paid to them pursuant to Section 6 of this Agreement; and SHINGLE SPRINGS shall retain title to all Enterprise facility fixtures, improvements, supplies, equipment, funds and accounts, subject to the rights of KAR under any security agreement and to the right of KAR to any accrued and unpaid Net Revenues due under Section 6 of this Agreement. KAR shall continue to have the right to repayment of unpaid principal and interest and other amounts due to KAR or outstanding and guaranteed by KAR and/or KAR's Affiliates (if KAR is called on to pay under such guarantee) under the Note, Loan Agreement and/or Security and Reimbursement Agreement and advances made by KAR and interest thereon or any other agreements entered into pursuant hereto. 40 47 An election to pursue damages or to pursue specific performance of this Agreement or other equitable remedies while this Agreement remains in effect shall not preclude the injured party from providing notice of termination pursuant to this Section 11.3. Neither shall termination preclude a suit for damages. 11.4 INVOLUNTARY TERMINATION DUE TO CHANGES IN LEGAL REQUIREMENTS. It is the understanding and intention of the parties that the establishment and operation of the Enterprise shall conform to and comply with all Legal Requirements. If during the term of this Agreement, the Enterprise of any material aspect of Gaming is determined by the Congress of the United States, the Department of the Interior of the United States of America, the NIGC, or the final judgment of a court of competent jurisdiction to be unlawful under federal law, the obligations of the parties hereto shall cease, and this Agreement shall be of no further force and effect, provided that: (i) KAR shall have the rights described in Section 4.4.1 of this Agreement; (ii) KAR and SHINGLE SPRINGS shall retain all money previously paid to them pursuant to Section 6 of this Agreement; (iii) funds of the Enterprise in any Enterprise account shall be paid and distributed in Section 6 of this Agreement; (iv) any money loaned to SHINGLE SPRINGS by or guaranteed by KAR or KAR's Affiliates (to the extent KAR or its Affiliates have paid under such guarantee) or owed to KAR or its Affiliates pursuant to the Interim Promissory Note or Security and Reimbursement Agreement shall be repaid to KAR or its Affiliates in accordance with the terms thereof; and (v) any money loaned to the Enterprise by SHINGLE SPRINGS shall be repaid in accordance with the terms of this Agreement or that Loan Agreement entered into when the advance was made. (vi) SHINGLE SPRINGS shall retain its interest in the title (and any lease) to all Enterprise assets, including all Fixtures, Supplies and Equipment, subject to the rights of KAR under the Security and Reimbursement Agreement and subject to any requirements of financing arrangements. 11.5 KAR'S RIGHT TO TERMINATE AGREEMENT. KAR may terminate this Agreement by written notice effective upon receipt if: (i) Any SHINGLE SPRINGS, State or Federal authority where written approval is required fails to approve this Agreement, the Development Agreement or any related agreements or otherwise objects to any of the material terms thereof. 41 48 (ii) KAR has been notified by any regulatory agency that the exercise of any performance by it of any obligation imposed by this Agreement, the Development Agreement or any related agreements will jeopardize the ability of KAR or any Affiliate to obtain or retain any license, permit or written approvals in other jurisdiction, and KAR is unable to immediately rectify any such complaint. (iii) KAR has reason to believe that the exercise of any right or the performance by it or SHINGLE SPRINGS of any obligation imposed under this Agreement may reasonably be expected to result in the breach of any Legal Requirement and the parties have been unable to agree upon waiver of such right or performance within ten (10) days written notice by KAR. (iv) Through its own actions, SHINGLE SPRINGS fails to make any payment to KAR when due within the time specified in this Agreement and a grace period of ten (10) days following written notice. (v) The Development Agreement terminates, other than as a result of a default by KAR. 11.6 SHINGLE SPRING'S RIGHT TO TERMINATE AGREEMENT. SHINGLE SPRINGS may terminate this Agreement by written notice effective upon receipt if: (i) Any Federal or State authority, where written approval is required, fails to approve this Agreement or otherwise objects to the performance by KAR of any obligation imposed on it under this Agreement and KAR has not cured the circumstances giving rise to the failure to approve the objection with one hundred twenty (120). (ii) SHINGLE SPRINGS has reason to believe that the performance by it or KAR of any obligation imposed under this Agreement may reasonably be expected to result in the breach of any Legal Requirement other than a Legal Requirement of the Tribe and the parties have been unable to agree upon waiver of such performance within twenty (20) days of written notice given by SHINGLE SPRINGS. (iii) KAR fails to make any payment to SHINGLE SPRINGS when due, including but not limited to any Monthly Distribution Payment or any Minimum Monthly Priority Payment to SHINGLE SPRINGS within the time specified in this Agreement including any applicable grade period and a grace period of twenty (20) days after KAR's receipt of written notice of the amount due. 11.7 CONSEQUENCES OF KAR'S BREACH. In the event of the termination of this Agreement by SHINGLE SPRINGS for cause under Section 11.3, KAR shall not, except as provided in Section 11.3, have the right to its Management Fee from the Enterprise accruing after the date of termination, but such termination shall not affect KAR's right 42 49 relating to payment of the Management fees accruing through the date of termination or repayment, recoupment and reimbursement of monies owed to KAR and/or guaranteed by KAR and/or KAR's Affiliates under this Agreement, the Development Agreement, the Loan Agreement, the Note, the Interim Promissory Note and the Security and Reimbursement Agreement or any other agreements entered pursuant hereto. Any Net Revenues accruing through the date of termination shall be distributed in accordance with Section 6 of this Agreement. KAR and SHINGLE SPRINGS acknowledge and agree that termination of this Agreement may not be a sufficient or appropriate remedy for breach by KAR, and further agree that pursuant to the other provisions of this Agreement, SHINGLE SPRINGS shall, upon breach of this Agreement by the KAR, have the right to pursue such remedies (in addition to termination) at law or equity as it determines are best able to compensate it for such breach. KAR specifically acknowledges and agrees that there may be irreparable harm to SHINGLE SPRINGS and that damages will be difficult to determine if KAR commits a Material Breach, and KAR therefore further acknowledges that an injunction and/or other equitable relief may be an appropriate remedy for any such breach. 11.8 CONSEQUENCES OF SHINGLE SPRINGS BREACH. In the event of termination of this Agreement by KAR for cause under Section 11.3, KAR shall not be required to perform any further services under this Agreement and SHINGLE SPRINGS shall indemnify and hold KAR and its Affiliates harmless against all liabilities of any nature whatsoever relating to the Enterprise, but only insofar as these liabilities result from acts within the control of SHINGLE SPRINGS or its agents or from the termination of this Agreement. KAR and SHINGLE SPRINGS acknowledge and agree that termination of this Agreement may not be a sufficient or appropriate remedy for breach by SHINGLE SPRINGS, and further agree that subject to the provisions of Section 17, KAR shall, upon breach of this Agreement by SHINGLE SPRINGS, have the right to pursue such remedies, including, without limitation, actions to require payment of the Management Fee pursuant to Section 6 for a term equal to the then remaining term of this Agreement at the percentage of Net Revenues specified in Section 6. SHINGLE SPRINGS specifically acknowledges and agrees that there may be irreparable harm to KAR and that damages will be difficult to determine if SHINGLE SPRINGS commits a material breach, and SHINGLE SPRINGS therefore further acknowledges that an injunction and/or other equitable relief may be an appropriate remedy for any such breach. In any event, KAR shall have the right to its Management Fee accruing through the date of termination as provided in Section 6 of this Agreement, and to the repayment of unpaid principal and interest and other amounts due under the Note from the Lender, Interim Note and any other note guaranteed by KAR or its Affiliates, the Loan Agreement, and any other loans to SHINGLE SPRINGS, and the Security and Reimbursement Agreement. 11.9 NOTICE AND OPPORTUNITY TO CURE. Except where SHINGLE SPRINGS's Gaming Ordinance or SHINGLE SPRING's Regulatory Authority's regulations provide for an emergency and immediate termination of KAR's license, SHINGLE SPRINGS will give KAR notice of any alleged violation of SHINGLE SPRINGS Gaming Ordinance by KAR 43 50 and thirty (30) days opportunity to cure before SHINGLE SPRINGS Regulatory Authority may take any action based on such alleged violation. 12. CONCLUSION OF THE MANAGEMENT TERM. Upon the conclusion or the termination of this Agreement, KAR shall have the following rights and obligations: 12.1 TRANSITION. KAR shall take reasonable steps for the orderly transition of management of the Enterprise to SHINGLE SPRINGS or its designee pursuant to a transition plan and such transition period shall be for a reasonable period but not less than thirty (30) days. 12.2 UNDISTRIBUTED NET REVENUES. If the Enterprise has accrued Net Revenues which have not been distributed under Section 6 of this Agreement, KAR shall receive an amount that is equal to the Management Fee it would have received had the distribution occurred during the term of the Management Agreement. 12.3 BUYOUT. Following thirty six (36) contiguous months of KAR operating the permanent Class III Gaming Facility for SHINGLE SPRINGS, SHINGLE SPRINGS shall have the right to buy KAR out of the Management Agreement with SHINGLE SPRINGS for the sum of all the monies KAR earned as a management fee exclusive of repayment of any notes for the previous 36 months multiplied times five. 13. CONSENTS AND APPROVALS. 13.1 SHINGLE SPRINGS. Where written approval or consent or other action of SHINGLE SPRINGS is required, such written approval shall mean the written approval of the Tribal Council evidenced by a resolution thereof, certified by a SHINGLE SPRINGS official as having been duly adopted, or, if provided by resolution of the Tribal Council, the written approval of SHINGLE SPRINGS Regulatory Authority, or such other person or entity designated by resolution of the Tribal Council. Any such written approval, consent or action shall not be unreasonably withheld or delayed; if no adverse written denial from the Tribal Council is given to KAR within seven (7) days of KAR's request, then the request shall be automatically approved provided that the foregoing does not apply where a specific provision of this Agreement allows SHINGLE SPRINGS an absolute right to deny written approval or consent or withhold action. 13.2 KAR. Where written approval or consent or other action of KAR is required, such written approval shall mean the written approval of KAR evidenced by a resolution thereof. Any such written approval, consent or other action shall not be unreasonably withheld or delayed. 14. DISCLOSURES. 14.1 SHAREHOLDERS AND DIRECTORS. KAR warrants that on the date of this Agreement its shareholders, directors and officers are those listed at Exhibits F and G. 44 51 14.2 WARRANTIES. KAR further warrants and represents as follows: (i) no person or entity has any beneficial ownership interest in KAR other than as set forth herein; (ii) no officer, director or owner of five percent (5%) or more of the stock of KAR has been arrested indicted for, convicted of, or pleaded nolo contendere to any felony or any gaming offense, or had any association with individuals or entities known to be connected with organized crime; and (iii) no person or entity listed on Exhibit F and G to this Agreement, including any officers and directors of KAR, has been arrested, indicted for, convicted of, or pleaded nolo contendere to any felony or any gaming offense, or had any association with individuals or entities known to be connected with organized crime. 14.3 CRIMINAL AND CREDIT INVESTIGATION. KAR agrees that all of its members, directors and officers (whether or not involved the Enterprise), shall: (i) consent to background investigation to be conducted by SHINGLE SPRINGS, the State, the Federal Bureau of Investigation (the "FBI") the NIGC or any other law enforcement or gaming regulatory authority to the extent required by the IGRA and the Compact, (ii) be subject to licensing requirements in accordance with SHINGLE SPRINGS law and this Agreement, (iii) consent to a background, criminal and credit investigation to be conducted by or for the NIGC, if required, (iv) consent to a financial and credit investigation to be conducted by a credit reporting or investigation agency at the request of SHINGLE SPRINGS, (v) cooperate fully with such investigations, and (vi) disclose any information requested by SHINGLE SPRINGS which would facilitate the background and financial investigation. Any materially false or deceptive disclosures or failure to cooperate fully with such investigations by an employee of KAR or an employee of SHINGLE SPRINGS shall result in the immediate dismissal of such employee. The results of any such investigation may be disclosed by SHINGLE SPRINGS to federal officials and to such other regulatory authorities as required by law. 45 52 14.4 DISCLOSURE AMENDMENTS. KAR agrees that whenever there is any material change in the information disclosed pursuant to this Section 14 it shall notify SHINGLE SPRINGS of such change not later than thirty (30) days following the change or within ten (10) days after it becomes aware of such change, whichever is later. SHINGLE SPRINGS shall, in turn, provide the Secretary or the Interior and/or the NIGC (whichever is applicable) copies of any such notifications. All of the warranties and agreements contained in this Section 14 shall apply to any person or entity who would be listed in this Section 14 as a result of such changes. 14.5 BREACH OF KAR'S WARRANTIES AND AGREEMENTS. The material breach of any warranty or agreement to KAR contained in this Section 14 shall be grounds for immediate termination of this Agreement; provided that (a) if a breach of the warranty contained in clause (ii) of Section 14.2 is discovered, and such breach was not disclosed by any background check conducted by the NIGC or the FBI as part of the NIGC's or other federal written approval of this Agreement, or was discovered by the FBI investigation but all the non-offending officers and directors or KAR sign sworn affidavits that they had no knowledge of such breach, then KAR shall have thirty (30) days after notice from SHINGLE SPRINGS to terminate the interest of the offending person or entity and, if such termination takes place, this Agreement shall remain in full force and effect; and (b) if a breach relates to a failure to update changes in financial position or additional gaming related activities, then KAR shall have thirty (30) days after notice from SHINGLE SPRINGS to cure such default prior to termination. 15. RECORDATION. At the option of KAR or SHINGLE SPRINGS, any security agreement related to the Loan Agreement, including the Security and Reimbursement Agreement, may be recorded in any public records. Where such recordation is desired in any relevant recording office maintained by SHINGLE SPRINGS, and/or in the public records of the BIA, SHINGLE SPRINGS will accomplish such recordation upon the request of KAR. KAR shall promptly reimburse SHINGLE SPRINGS for all expenses, including attorney fees, incurred as a result of such request. No such recordation shall waive SHINGLE SPRINGS's sovereign immunity. 16. NO PRESENT LIEN, LEASE OR JOINT VENTURE. The parties agree and expressly warrant that neither the Management Agreement nor any exhibit thereto is a mortgage or lease and, consequently, does not convey any present interest whatsoever in the Facility or the Property, nor any proprietary interest in the Enterprise itself. The parties further agree and acknowledge that it is not their intent, and that this Agreement shall not be construed, to create a joint venture between SHINGLE SPRINGS and KAR; rather, KAR shall be deemed to be an independent contractor for all purposes hereunder. 17. DISPUTE RESOLUTION. 46 53 17.1 GENERAL. The parties agree that binding arbitration pursuant to this Article 17 shall be the remedy for all disputes, controversies and claims arising out of this Development Agreement, Management Agreement, the Note, Loan Agreement, the Interim Promissory Note and the Security and Reimbursement Agreement, any documents or agreements referenced by any of these documents, any agreements collateral thereto, or any notice of termination thereof, including without limitation, any dispute, controversy or claim arising out of any of these agreements. The parties intend that such arbitration shall provide final and binding resolution of any dispute, and that action in any other forum shall be brought only if necessary to compel arbitration, or to enforce an arbitration award or order. (i) Each party agrees that it will use its best efforts to negotiate an amicable resolution of any dispute between KAR and SHINGLE SPRINGS arising from this Agreement. If SHINGLE SPRINGS and KAR are unable to negotiate an amicable resolution of a dispute within fourteen (14) days from the date of notice of the dispute pursuant to the notice section of this Agreement, or such other period as the parties mutually agree in writing, either party may refer the matter to arbitration as provided herein. (ii) SHINGLE SPRINGS's election to terminate this Agreement is, however, final and conclusive and not subject to dispute resolution between the parties, but only if the NIGC makes a final determination that KAR is not suitable to hold a license. The parties recognize that minor revisions of contracts before the NIGC is routine, and an NIGC notice requesting revisions in the Agreement shall not be grounds for termination by SHINGLE SPRINGS unless KAR refuses to make the changes necessary to obtain NIGC written approval. 17.2 ARBITRATION. 17.2.1 INITIATION OF ARBITRATION AND SELECTION OF ARBITRATORS. Arbitration shall be initiated by written notice by one party to the other pursuant to the notice section of this Agreement, and the Commercial Arbitration Rules of the American Arbitration Association shall thereafter apply. The arbitrators shall have the power to grant equitable and injunctive relief and specific performance as provided in this Agreement. If necessary, orders to compel arbitration or enforce an arbitration award may be sought before the United States District Court for the Eastern District of California and any federal court having appellate jurisdiction over said court. If the United States District Court for the Eastern District of California finds that it lacks jurisdiction, SHINGLE SPRINGS consents to be sued in a Court of competent jurisdiction. The arbitrator shall not have the power to award punitive damages. The arbitrator shall be a licensed attorney knowledgeable in federal Indian law and be appointed pursuant to the commercial arbitration rules of the American Arbitration Association. All initial arbitration or 47 54 judicial proceedings shall be instituted within twelve (12) months after the claim accrues are shall be forever barred. (i) CHOICE OF LAW. In determining any matter the Arbitrator shall apply the terms of this Agreement, without adding to, modifying or changing the terms in any respect, and shall apply federal and applicable State law. (ii) PLACE OF HEARING. All arbitration hearings shall be held at a place designated by the arbitrator in Sacramento, California. (iii) CONFIDENTIALITY. The parties and the arbitrator(s) shall maintain strict confidentiality with respect to arbitration. 17.3 LIMITED WAIVER OF SOVEREIGN IMMUNITY. SHINGLE SPRINGS expressly and irrevocably waives its immunity from suit as provided for and limited by this Section. This waiver is limited to SHINGLE SPRINGS's consent to all arbitration proceedings, and actions to compel arbitration and to enforce any awards or orders issuing from such arbitration proceedings which are sought solely in United States Court for the Eastern District of California and any federal court having appellate jurisdiction over said court, provided that if the United States District Court for the Eastern District of California finds that it lacks jurisdiction, SHINGLE SPRINGS consents to be sued in a Court of competent jurisdiction. Nothing contained in this section shall be construed to grant any waiver of Tribal sovereign immunity to any third party. The arbitrators shall not have the power to award punitive damages. (i) TIME PERIOD. The waiver granted herein shall commence as of the Effective Date of this Agreement and the Development Agreement and shall continue for one year following expiration, termination or cancellation of this Agreement, or termination of the Enterprise whichever is earlier, but shall remain effective for the duration of any arbitration, litigation or dispute resolution proceedings then pending, all appeals therefrom, and except as limited by this Section, to the full satisfaction of any awards or judgments which may issue from such proceedings, provided that an action to collect such judgments has been filed within one year of the date of the final judgment. Provided however, all collection actions shall terminate six (6) years after the date of the final judgment. (ii) LIMITATIONS OF ACTIONS. This limited waiver is specifically limited to the following actions and judicial remedies: (a) DAMAGES. The enforcement of an arbitrator's award of money damages provided that the waiver does not extend beyond the assets specified in Subsection (g) of this Section. No arbitrator or court shall have any authority or jurisdiction to order execution against any assets or revenues of SHINGLE SPRINGS except as provide in this Section or to award any punitive damages against SHINGLE SPRINGS. 48 55 (b) CONSENTS AND APPROVALS. The enforcement of a determination by an arbitrator that SHINGLE SPRINGS's consent or written approval has been unreasonably withheld contrary to the terms of this Agreement. (a) INJUNCTIVE RELIEF AND SPECIFIC PERFORMANCE. The enforcement of a determination by an arbitrator that prohibits SHINGLE SPRINGS from taking any action that would prevent KAR from operating the Business pursuant to the terms of this Agreement, or that requires SHINGLE SPRINGS to specifically perform any obligation under this Agreement (other than an obligation to pay money which is protected by Subsection (g) of this Section. (b) ACTION TO COMPEL ARBITRATION. An action to compel or enforce arbitration or arbitration awards or orders pursuant to this Section. (c) SERVICE OF PROCESS. In any litigation or arbitration service of process on SHINGLE SPRINGS shall be effective if made by certified mail return receipt requested to the Chairperson of SHINGLE SPRINGS at the Address set for in Section 9.2 herewith. (d) ENFORCEMENT. If enforcement of a judicial order or arbitration award becomes necessary by reason of failure of one or both parties to voluntarily comply, the parties agree that the matter may be resolved by entry of judgment on the award and enforcement as described herein. Without in any way limiting or expanding the provisions of this Section, SHINGLE SPRINGS expressly authorizes any governmental authorities which may lawfully exercise the right and duty to take any action authorized or ordered by any court to whom its sovereign immunity is waived pursuant to this Section, including without limitation, entering the Property and Facility for the purpose of executing against any property subject to a security interest or otherwise giving effect to any judgment properly entered pursuant to this Section; provide however, that in no instance shall any enforcement of any kind whatsoever be allowed against any assets of SHINGLE SPRINGS other than the limited assets of SHINGLE SPRINGS Specified in Subsection (g) below. (e) LIMITATION UPON ENFORCEMENT. Damages awarded against SHINGLE SPRINGS or the Enterprise shall be satisfied solely from the distributable share of Net Revenues of SHINGLE SPRINGS from the Enterprise and the Net Revenues of any other SHINGLE SPRINGS gaming business of the kind contemplated and the Net Revenues of any future gaming business of any kind which is 49 56 operated by or for SHINGLE SPRINGS, whether or not operated under this Agreement, provided, however, that this limited waiver of sovereign immunity shall terminate with respect to the collection of any Net Revenues transferred from the accounts of any of these Businesses to SHINGLE SPRINGS or SHINGLE SPRINGS's bank account in the normal course of business. In no instance shall any enforcement of any kind whatsoever be allowed against any assets of SHINGLE SPRINGS other than those specified in this Subsection. 17.4 PERFORMANCE DURING DISPUTES. Except where an Arbitrator concludes that operation by the KAR would violate applicable law or endanger the integrity of gaming, it is mutually agreed that during any kind of controversy, claim, disagreement or dispute, including a dispute as to the validity of this Agreement, KAR shall continue to possess the rights, duties, and obligations set forth in this Agreement, and SHINGLE SPRINGS and KAR shall continue their performance of the provisions of this Agreement and its exhibits. KAR and SHINGLE SPRINGS shall agree that the Enterprise Bank Accounts shall not be subject to attachment, or rights of deduction or set off or counterclaim by either party. KAR and SHINGLE SPRINGS shall each be entitled to injunctive relief from a civil court or other competent authority to maintain such rights, duties, and obligations in the event of a threatened eviction during any dispute, controversy, claim or disagreement arising out of this Agreement. 18. CONFIDENTIAL AND PROPRIETARY INFORMATION. 18.1 CONFIDENTIAL INFORMATION. Both parties agree that any information received concerning the other party during the performance of this Agreement, regarding the parties' organization, financial matters, marketing plans, or other information of a proprietary nature (the "Confidential Information"), will be treated by both parties in full confidence and except as required to allow KAR and SHINGLE SPRINGS to perform their respective covenants and obligations hereunder, or in response to legal process or appropriate and necessary inquiry, and will not be revealed to any other persons, firms or organizations. The provision shall survive the termination of this Agreement for a period of two (2) years. Obligations not to use or disclose the Confidential Information shall not apply to Confidential Information which (a) has been made previously available to the public by SHINGLE SPRINGS or KAR or KAR's Affiliates or becomes generally available to the public, unless the Confidential Information being made to the public results in a breach of this Agreement; (b) prior to the disclosure to SHINGLE SPRINGS or KAR or KAR's Affiliates, was already rightfully in any such person's possession; or (c) is obtained by SHINGLE SPRINGS or KAR or KAR's Affiliates from a third party who is lawfully in possession of such information, and not in violation of any contractual, legal or fiduciary obligation to SHINGLE SPRINGS or KAR or KAR's Affiliates, with respect to such Confidential Information and who does not require SHINGLE SPRINGS or KAR or KAR's Affiliates to refrain from disclosing such Confidential Information, (d) is necessary for KAR to comply with Securities reporting requirements. 50 57 19. ENTIRE AGREEMENT. This Agreement, including the Schedules and Exhibits referred to herein and any documents executed by the parties simultaneously herewith, including the Development Agreement and the Interim Promissory Note which are expressly incorporated herein by reference, constitutes the entire understanding and agreement of the parties hereto and supersedes all other prior agreements and understandings, written or oral, between the parties. 20. GOVERNMENT SAVINGS CLAUSE. Each of the parties agrees to execute, deliver and, if necessary, record any and all additional instruments, certifications, amendments, modifications and other documents as may be required by the United States Department of the Interior, BIA, and NIGC, the office of the Field Solicitor, or any applicable statute, rule or regulation in order to effectuate, complete, perfect, continue or preserve the respective rights, obligations, liens and interests of the parties hereto to the fullest extent permitted by law; provided, that any such additional instrument, certification, amendment, modification or other document shall not materially change the respective rights, remedies or obligations of SHINGLE SPRINGS or KAR under this Agreement or any other agreement or document related hereto. 21. PREPARATION OF AGREEMENT. This Agreement was drafted and entered into after careful review and upon the advice of competent counsel; it shall not be construed more strongly for or against either party. 22. STANDARD OF REASONABLENESS. Unless specifically provided otherwise, all provisions of this Agreement and all collateral agreements shall be governed by a standard of reasonableness. 23. EXECUTION. This Agreement may be executed in four counterparts, two to be retained by each party. Each of the four originals is equally valid. This Agreement shall be deemed "executed" and shall be binding upon both parties when properly executed and approved by the Chairperson of the NICG. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. SHINGLE SPRINGS BAND OF MIWOK INDIANS By: /s/Jim Adams _________________________________ Jim Adams, Chairperson KEAN ARGOVITZ RESORTS-SHINGLE SPRINGS, LLC By: /s/Kevin M. Kean _________________________________ Kevin M. Kean, President Approved pursuant to 25 U.S.C. Section 2711 Approved pursuant to 25 U.S.C. Section 81 NATIONAL INDIAN GAMING COMMISSION By: _____________________________ 51 58 EXHIBIT A DISPUTE RESOLUTION BETWEEN KAR AND ENTERPRISE EMPLOYEES BOARD OF REVIEW Once an employee has been employed at the Enterprise for 90 calender days, the employee may request a Board of Review if the employee feels job-related problems have not been resolved. The employee may request a Board of Review to protest decisions, work history entries, performance evaluations, any disciplinary action including termination, etc. Three impartial members of the Board shall decide to either uphold, modify, or overturn the original decision made in relation to the issue the employee is protesting. The Board of review is made up of five impartial members as follows: 1. Two SHINGLE SPRINGS representatives: 2. A KAR representative having no jurisdiction over the employee's department; 3. A Human Resources representative who has not been involved in the employee's issue. 4. An employee representative. A Board of Review request form must be filed with Human Resources within seven days of the incident or of the employee learning of the incident. A decision is made on the basis of facts and evidence presented to the Board of Review. The Board's decision is final and cannot be appealed or reversed by anyone in the Enterprise. On an annual basis, employees are asked to volunteer for one year terms as employee representative on the Board of Review. 52 59 EXHIBIT B KEY EMPLOYEE JOB CATEGORIES Vice President/General Manager Director of Finance & Administration Director of Marketing Director of Casino Operations Director of Human Resources Casino Operations Managers (3) Security/Surveillance Manager Slot Performance Manager Food & Beverage Manager Technical Systems Manager Human Resources Training Manager Controller (Cashier Manager) Cashiers Supervisor Purchasing Supervisor 53 60 EXHIBIT C ENTERPRISE INVESTMENT POLICY RESOLUTION NO. SHINGLE SPRINGS (Gaming Enterprise Cash Management and Investment Policy) WHEREAS, The Shingle Springs Band of Miwok Indians ("SHINGLE SPRINGS") is a federally recognized Indian Tribe; and WHEREAS, SHINGLE SPRINGS has determined that facilities owned by SHINGLE SPRINGS offering Class II and Class III gaming activities, as defined in the Indian Gaming Regulatory Act of 1988, Pub. L. 100-497, 25 U.S.C. Sections 1701-2721 and 18 U.S.C. 1166-1168 ("IGRA"), will be constructed and operated on its lands; and WHEREAS, SHINGLE SPRINGS has entered into a Management Agreement with KAR for the management of SHINGLE SPRINGS Gaming Enterprise, said resolution having been approved by the NIGC on ; and WHEREAS, SHINGLE SPRINGS deems it in its best interest to provide for KAR to manage the gaming Enterprise's short-term cash position so as to maximize income to SHINGLE SPRINGS; NOW, THEREFORE, BE IT RESOLVED, that in order to maximize SHINGLE SPRINGS income and to manage its short term cash position, KAR is hereby authorized, during the term of its Management Agreement with SHINGLE SPRINGS, to invest cash of SHINGLE SPRINGS Gaming Enterprise in accordance with the attached Investment Policy. CERTIFICATION Pursuant to (CITATIONS HERE) the Shingle Springs Band of Miwok Indians, a quorum of members present at an Tribal Council meeting held on , 1999, by a vote of for, against, not voting, and absent; the foregoing resolution was adopted. By: ________________________________ Secretary By: ________________________________ Jim Adams, Chairperson 54 61 STATEMENT OF INVESTMENT POLICY FOR THE SHINGLE SPRINGS GAMING ENTERPRISE ("ENTERPRISE") I. Investment Objectives A. Primary - to ensure the value and safety of principal invested in short-term money market securities. B. Secondary - to ensure liquidity to meet projected and emergency cash needs: to provide for prudent diversification of investments to maximize investment income consistent with other objectives to comply with the requirements of the Enterprise's debt agreements. II. Investment Responsibility It will be the responsibility of KAR (1) to invest funds for which the company has been designated as cash manager, and (2) to maintain adequate records of all investments. All investments must conform to the Investment Guidelines. II. Investment Guidelines A. Investment Types and Limitations The attached Exhibit "A" provides a description of the "Permitted Investments" for the Enterprise. B. Investment Institutions In order for a firm to be included on the list of Investment Institutions that are approved for dealing with the Enterprise, an authorized signer of the firm must first execute a copy of the attached document. This will provide written verification of their being familiar with the types of securities ("Permitted Investments") that are acceptable under the Enterprise's Investment Policy. The KAR of Cash Management will be responsible for obtaining the executed document, distributing a list of approved institutions to designated Treasury personnel and retaining records of all investment contracts with those investment institutions. II. Investment Review An Investment Report is distributed on a daily basis to the Assistant Treasurer and Manager of Cash Management for review of adherence to the Investment Guidelines. In addition, the accuracy of the report is verified by the Manager of Treasury Administration, who matches the information on the report with the confirmations provided by the brokers. Discrepancies are investigated as they are received. A revised report, if necessary, is distributed by the Manager of Treasury Administration. 55 62 EXHIBIT "A" OF EXHIBIT C PERMITTED INVESTMENTS (i) marketable obligations of the United States having a maturity which is not more than 60 days from the date of acquisition; (ii) marketable obligations of an agency of the United States, payment of which is fully and directly guaranteed by the United States, which obligations have a maturity which is not more than 60 days from the date of acquisition; (i) certificates of deposit, time deposits, bankers' acceptances and other interest-bearing obligations (A) having maturities of not more than 60 days from the date of acquisition thereof, and (B) issued by any Managing Agent or any commercial bank (domestic or foreign) whose capital, surplus and undivided profits aggregate at all times at lease $250,000,000 and which is rated at least A or its equivalent by Standard & Poor's Corporation or Moody's Investors Service, Inc. (i) banks having deposits in an aggregate amount of less than $5,000,000 and only on an overnight basis); (ii) open market commercial paper with a maturity not in excess of 60 days from the date of acquisition thereof which is rated A2 or its equivalent by Standard & Poor's Corporation or Moody's Investors Service, Inc.; (iii) investments in Fidelity Money Market Trust or other comparable money market accounts that would be first approved by the Tribal Council, in an amount not to exceed $25,000,000 outstanding at any time; (iv) fully secured repurchase obligations with a maturity not in excess of five days from the date of acquisition thereof for underlying Permitted Investments referred to in clauses (i), (ii) and (iii) above entered into with any Managing Agent or any commercial bank satisfying the qualifications specified in clause (iii) above or entered into with securities dealers of recognized national standing, if, but only if, (x) such agreements comply with the guidelines set forth in the Federal Financial Institutions Examination Counsel Supervisory Policy-Repurchase Agreements of Depository Institutions with Securities Dealers and others, as adopted by the Comptroller of Currency on October 31, 1985 (the "Supervisory Policy"), and (y) possession or control of the underlying securities is established as provided in the Supervisory Policy; 56 63 (v) other interest-bearing debt securities or obligations issued by any corporation, which is rated A or its equivalent by Standard 7 Poor's Corporation or Moody's Investors Service, Inc., which (w) are sold at a discount, (x) have a maturity not in excess of 90 days from the date of acquisition thereof, and (y) are dollar denominated or subject to a forward rate contract. 57 64 EXHIBIT D SHINGLE SPRINGS IRREVOCABLE BANKING INSTRUCTIONS The undersigned does hereby certify that he is the duly authorized Chairperson of the Shingle Springs Band of Miwok Indians ("SHINGLE SPRINGS"), and that the following resolutions were duly adopted by the Tribal Council and such resolutions regarding banking arrangement of SHINGLE SPRING's gaming and related ventures (the "Enterprise") are now in full force and effect: RESOLVED, that upon written instruction from any employee of KAR as Manager for SHINGLE SPRINGS ("KAR") holding one of the following positions (as certified by the Secretary of KAR (hereinafter referred to as "Officer") or their designees: President Senior Vice President Vice President Treasurer Controller Assistant Treasurer SHINGLE SPRINGS may open bank accounts (the "Enterprise Bank Accounts") with such banks (the "Bank(s)") as the Officers determine would be a reasonable depository in any jurisdiction in which the Enterprise does business; RESOLVED, that funds deposited in any of the Enterprise Bank Accounts may be withdrawn only upon a check, draft, or order when signed by any TWO of the said Officers, or their designee(s), whose signatures shall be duly certified to the Bank (the "Certified Signers") by KAR, and not otherwise; RESOLVED, that any TWO of the Officers or their designees may authorize the use of facsimile signatures on an Enterprise Bank Account, and the Banks shall be authorized to honor check, drafts, or orders up to Fifty Thousand Dollars ($50,000.00), when bearing the facsimilie signatures of any TWO of the Certified Signers, and shall be entitled to honor and charge for all such checks, drafts, or orders if such facsimilie signatures resemble the facsimilie specimens duly certified by the Secretary of KAR and filed with the Bank; RESOLVED, that consistent with these resolutions KAR is hereby authorized to use phone initiated or electronic clearing house facilities of the Federal Reserve System for the purpose of transferring Enterprise funds to and from various banks; RESOLVED, that KAR is hereby authorized to arrange for the servicing by a Bank of any automatic teller machines purchased or leased on behalf of the Enterprise; RESOLVED, that the appointment of KAR and the Certified Signers shall be an appointment coupled with an interest, and shall be irrevocable by SHINGLE SPRINGS unless revocation is consented to in writing by KAR or this appointment is terminated by an arbitration award entered and the Development Agreement pursuant to the dispute resolution provisions of the Management Agreement entered into by and between SHINGLE SPRINGS and KAR dated June 11, 1999, as the same any have heretofore been or hereafter be amended (the "Management Agreement" and the "Development Agreement", respectively); RESOLVED, that the Enterprise Bank Accounts established and administered by KAR shall not 58 65 be subject to attachment, or any rights of deduction, set off or counterclaim by KAR in the event of any disagreements between KAR and SHINGLE SPRINGS, it being the intent that the assets in the Enterprise Bank Accounts will be used solely for purposes permitted and provided for in the Management Agreement and the Development Agreement, and recourse to said Enterprise Bank Accounts as a remedy in the event of dispute shall be permitted only in the event so ordered in an arbitration award entered pursuant to the dispute resolution provisions of the Management Agreement and the Development Agreement. RESOLVED, that any TWO of the Officers of KAR or their designees are hereby authorized to execute and deliver any documents including signature cards, authorizations, powers of attorney or appointment, or other documents which they deem necessary and appropriate to give effect to the foregoing resolutions; RESOLVED, that the Bank is hereby authorized to rely upon certificates signed by any of the above named Officers of KAR or their designees as to all matters concerning the identity, authority or signature of Certified Signers; and RESOLVED, that each of the Officers, or their designees appointed in writing be, and each of them hereby is, authorized to perform the obligations under the agreements and contracts described in the aforesaid resolutions, and to negotiate, execute and deliver on behalf of SHINGLE SPRINGS and to perform the obligations under any and all other documents, agreements, contracts,and other instruments that any one or more of the Officers deems necessary or desirable to evidence and give effect to the transactions contemplated in the foregoing resolutions, all upon such terms and conditions, not inconsistent with the aforesaid resolutions, as any one or more of the Officers or their designees may approve. WITNESS my signature this 11 day of June, 1999 SHINGLE SPRINGS BAND OF MIWOK INDIANS By: /s/ JIM ADAMS ---------------------- Jim Adams, Chairperson 59 66 EXHIBIT E SHINGLE SPRINGS'S INSURANCE REQUIREMENTS 1.01 COVERAGE 1.01.1 REQUIRED INSURANCE. The following minimum insurance will be obtained by KAR and maintained with respect to the Facility at all times during the term of this Agreement: (a) All-risk property insurance, including flood (if the Facility or Property is located in a Federal Emergency Management Area flood hazard district) and earthquake insurance, on the Facility in an amount equal to the full replacement value thereof (with no co-insurance clause); (b) All-risk business interruption insurance and increased cost of operation insurance for full recovery of the pre-casualty projected Net Revenues of the Facility (or, if greater, the Minimum Monthly Priority Payment, the projected Operating Expenses and debt service for the Facility which are anticipated) for a period of one (1) year from the date of any casualty, or such additional period as SHINGLE SPRINGS may elect; (c) Insurance against loss from accidental damage to, or from the explosion of, boilers in an amount equal to the full replacement value of the Property, and damage to adjacent property and property of others, in amounts acceptable to KAR; (d) Business interruption insurance against loss from accidental damage to, or from the explosion of, boilers for full recovery of the projected Net Revenues (or, if greater, the Minimum Priority Payment, the projected Operating Expenses and debt service) for the entire period of any such business interruption but not less than one (1) year from the date of such casualty, or such additional period as SHINGLE SPRINGS may elect; (a) Commercial general liability insurance naming SHINGLE SPRINGS as named insured and KAR as an additional insured, covering bodily injury, personal injury (including humiliation), broad form property damage (including completed operations), automobile liability (including owned, non-owned and leased automobiles) innkeeper's liability (including liquor liability) in applicable statutory amounts, products liability, and contractual liability in an amount equal to not less than $10,000,000 single limit per occurrence; (b) Comprehensive crime insurance in an amount equal to not less than $10,000,000; (c) Workers' compensation insurance equal to the statutory requirements of the State of California (which shall, in the case of KAR Employees be carried by KAR and in the case of all other employees be carried by SHINGLE SPRINGS, and which shall, in either case, be paid for by SHINGLE SPRINGS); and (d) The amount of the minimum coverage in the above clause (e) may be lowered if an umbrella policy is furnished covering any excess of the liabilities 60 67 described in clause (e) with a combined limit of liability of not less than $50,000,000 per occurrence During construction of any improvements at the Facility, KAR shall further maintain or cause the general contractor responsible for such work, or, if no general contractor is employed, each subcontractor to maintain, in compliance with Sections 1.01.4 and 1.02, through and including 1.03, the following additional coverage in the following amounts: (e) Statutory workers' compensation and other benefits as required by law, and employer's liability as required by law; (f) Commercial general liability insurance, including contractor's and owner's liability, independent contractor's protective liability, contingent liability; products completed operations liability; all on occurrence basis, with personal injury coverage for injury to persons caused by long exposure as well as by an instantaneous happening, and broad form property damage removing the "XCU" exclusions relating to explosion, collapse, and underground property Damage. Personal Injury Each person $25,000,000 Each Occurrence $25,000,000 Personal and other Property Damage Each Occurrence $25,000,000 (g) Contractor's protective personal injury liability; Each person $25,000,000 Each Occurrence $25,000,000 (h) Contractor's protective property, all risk coverage for all contractors' equipment; Each Occurrence $25,000,000 (i) Comprehensive automobile liability, including coverage for owned, non-owned, and hired automobiles: Personal Injury Each person $2,000,000 Each Occurrence $2,000,000 Property Damage Each Occurrence $2,000,000 (j) Completed operations and products liability shall be maintained for an additional two (2) years after final payment; 61 68 (k) Builder's risk (all-risk completed value form)(either by amendment and endorsement or substitution for SHINGLE SPRINGS's property insurance policy), demolition, increased cost of reconstruction and such other riders or endorsements in such amounts as KAR may require in order to assure reconstruction of the Facility in the event of a casualty. 1.01.2 RESPONSIBILITY TO MAINTAIN. The obligation to maintain the insurance policies required by the Management Agreement, the cost of which shall be an Operating Expense and subject to the of the Management Agreement, shall lie solely with KAR. During the budgeting process, KAR shall recommend to the Tribal Council for its written approval a schedule setting forth the kinds and amount of such insurance to be maintained by it during the ensuring policy year. 1.01.3 CHANGES IN COVERAGE. KAR shall have the right to raise the minimum amount of insurance to be maintained with respect to the Facility under Section 1.01.1 and/or to require the insurance of additional risks, not specified herein, in order to make such insurance compatible with prudent industry standards (including consideration of the incremental cost thereof) and to reflect increases in liability exposures, taking into account the size and location of the Facility. 1.01.4 REQUIREMENTS. All policies of insurance shall, to the extent such coverage is commercially available, be written on a "occurrence" basis. To the extent that any insurance required hereby is or becomes available only on a "claims made" basis, SHINGLE SPRINGS shall, as on Operating Expense, purchase satisfactory extended reporting period endorsements to policies placed during the term of the Management Agreement or, in the alternative, continue to insure KAR as an additional insured party under policies of insurance placed after termination of this Agreement until the expiration, without claim of all applicable statutes of limitation as may be necessary to assure that KAR has the benefit of the required insurance for causes of action arising out of events occurring with respect to the Enterprise during the term of the Management Agreement, whether or not any such claim is actually asserted prior to the expiration or earlier termination thereof. 1.02. POLICIES AND ENDORSEMENTS. 1.02.1 POLICIES. All insurance coverage provided for under the Management Agreement shall be effected by policies issued by insurance companies authorized to do business in the state where the Enterprise is located that are of good reputation and of sound and adequate financial responsibility, having an A.M. Best's ("Best") Rating of B+ VII, or better or a comparable rating if Best ceases to publish its rating or materially changes its rating standards or procedures. KAR shall be entitled to object to an insurance company which meets this standard, but only for reasonable cause based upon rates, claim experience, and other similar pertinent considerations. The KAR shall deliver to SHINGLE SPRINGS duplicate copies of the insurance policies or certificates of insurance with respect to all of the policies of insurance so procured, including 62 69 existing, additional and renewal policies, and in the case of insurance about to expire, shall deliver duplicate copies of the insurance policies or certificates of insurance with respect to the renewal policies to KAR not less than ten (10) business days prior to the respective dates of expiration. Certificates or duplicate copies of insurance shall be sent to KAR and SHINGLE SPRINGS at the addresses contained in the Notices Section of this Agreement. 1.02.2 ENDORSEMENT. All policies of insurance provided for under the Management Agreement shall, to the extent obtainable, have attached thereto (a) an endorsement that such policy shall not be canceled or materially changed without at least thirty (30) days prior written notice to KAR, and (b) an endorsement to the effect that no act or omission of SHINGLE SPRINGS or KAR, other than nonpayment, after written notice thereof, of the premiums for such policy, shall affect the obligation of the insurer to pay the full amount of any loss sustained (but not to exceed, in any event, the policy limits). All insurance policies required under clauses (e), (f), (j), (k), (m), and (n) of Subsection 1.01.1, shall contain an endorsement to the effect that such insurance shall be primary, not excess, and not contributory to any similar insurance carried by KAR. Insurance carried under Subsections 1.01.1(i) through and including (o) shall permit partial occupancy of the Facility prior to Completion. 1.02.3 ADDITIONAL INSURED. All policies of insurance required under Subsection 1.01.1, shall be carried in the name of SHINGLE SPRINGS, and, if required, name SHINGLE SPRINGS's mortgagees as additional insured, or, as appropriate, mortgagees having the benefit of the standard New York form of mortgagee endorsement. Losses thereunder shall be payable to the parties as their respective interests may appear. Notwithstanding the foregoing, if SHINGLE SPRINGS's first mortgagee is an Institutional Lender, and so requires, losses under any fire or casualty policy may be made payable to such mortgagee, or to a bank or trust company qualified to do business in the state where the Facility is located, in either instance as trustee for the custody and disposition of the proceeds therefrom. All liability policies shall name KAR, and in each case any Affiliates which KAR may specify, and their respective directors, officers, agents, employees, and partners as additional insured. 1.03 WAIVER OF LIABILITY - FIRE & CASUALTY INSURANCE. To the extent any loss is coverage by insurance proceeds actually paid or would be covered by insurance required to be carried under this Agreement, but no otherwise, KAR and SHINGLE SPRINGS each waive, release and discharge the other from all claims or demands which each may have or acquire against the other, or against each other's directors, officers, agents, employees, or partners, with respect to any claims for any losses, damages, liability or expenses (including attorneys' fees) incurred or sustained by either of them on account of damage to their respective property (but not as to personal injury or property damage suffered by third parties) arising out of the ownership, management, operation and maintenance of the Facility, regardless whether any such claim or demand may arise because of the fault or negligence of the other party or its officers, partners, agents, and employees. Each policy of fire and property damage insurance shall contain a specific 63 70 waiver of subrogation reflecting the provisions of this Section 1.03, or a provision to the affect that the existence of the preceding waiver shall not affect the validity of any such policy or the obligation of the insurer to pay the full amount of any loss sustained. Although KAR shall be named as an additional insured party under any primary liability insurance required to be maintained for the Facility, it shall not be a requirement that any excess liability insurance policy maintained by KAR contain a waiver of the insurer's right of subrogation, and the waiver contained herein shall not apply as to any losses insured and paid pursuant to such policies. 64 71 EXHIBIT F KAR'S OFFICERS AND DIRECTORS KEAN ARGOVITZ RESORTS-SHINGLE SPRINGS, LLC. Kevin M. Kean Jerry A. Argovitz 65 72 EXHIBIT G KAR'S SHAREHOLDERS KEAN ARGOVITZ RESORTS-SHINGLE SPRINGS, LLC. Kevin M. Kean Jerry A. Argovitz 66 EX-10.73 14 DEVELOPMENT AGREEMENT 1 Exhibit 10.73 DEVELOPMENT AGREEMENT BETWEEN THE SHINGLE SPRINGS BAND OF MIWOK INDIANS AND KEAN ARGOVITZ RESORTS - SHINGLE SPRINGS, LLC DATED, AS OF JUNE 11, 1999 2 TABLE OF CONTENTS RECITALS................................................................. 1 ARTICLE 1. DEFINITIONS AND OBJECTIVES................................ 2 SECTION 1.1 DEFINITIONS............................................... 2 Agreement........................................................... 2 Architect........................................................... 2 BIA................................................................. 2 Class II Gaming..................................................... 2 Class III Gaming.................................................... 2 Commencement Date................................................... 2 Commercial Development.............................................. 3 Compact............................................................. 3 Completion Date..................................................... 3 Constitution........................................................ 3 Contract Documents.................................................. 3 Design Agreement.................................................... 3 Design Packages..................................................... 4 Development Budget.................................................. 4 Effective Date...................................................... 4 Enterprise.......................................................... 5 Tribal Council...................................................... 5 Fixtures and Equipment.............................................. 5 Gaming.............................................................. 5 Gaming Facility..................................................... 5 IGRA................................................................ 6 Interim Promissory Note............................................. 6 Legal Requirements.................................................. 6 Lender.............................................................. 6 Loan................................................................ 6 Loan Agreement...................................................... 6 Management Agreement................................................ 6 National Indian Gaming Commission (NIGC)............................ 6 Net Revenues........................................................ 6 Non-Gaming Land..................................................... 7 Note................................................................ 7 Plans and Specifications............................................ 7 Project............................................................. 7 Security and Reimbursement Agreement................................ 7 State............................................................... 7 Temporary Gaming Facility........................................... 7 Term................................................................ 7 Transition Loan..................................................... 7 Tribal Distributions................................................ 7 Tribal Lands........................................................ 7 ARTICLE 2. INDEPENDENT AGREEMENT..................................... 8 SECTION 2.1. INDEPENDENT AGREEMENT..................................... 8 ARTICLE 3. SITE ACQUISITION.......................................... 8 SECTION 3.1. SELECTION OF TRIBAL LANDS................................. 8 3 SECTION 3.2. PURCHASE AGREEMENT........................................... 8 SECTION 3.3. LAND COSTS................................................... 8 SECTION 3.4. TRANSFER OF TRIBAL LANDS TO BAND............................. 9 SECTION 3.5. CONFIDENTIALITY.............................................. 9 ARTICLE 4. FEASIBILITY STUDIES.......................................... 9 SECTION 4.1. TEMPORARY GAMING FACILITY.................................... 9 SECTION 4.2. FEASIBILITY DETERMINATION.................................... 9 ARTICLE 5. DESIGN PHASE................................................. 9 SECTION 5.1. EMPLOYMENT OR ARCHITECT...................................... 9 SECTION 5.2. DESIGN AND CONSTRUCTION BUDGETS.............................. 10 SECTION 5.3. CONCEPT DESIGN AND ENGINEERING............................... 10 SECTION 5.4. PRELIMINARY PROGRAM EVALUATION............................... 11 SECTION 5.5. DESIGN DEVELOPMENT........................................... 11 SECTION 5.6. CONSTRUCTION DOCUMENTS....................................... 11 SECTION 5.7. PLANS AND SPECIFICATIONS..................................... 11 SECTION 5.8. COMPLIANCE WITH CONSTRUCTION STANDARDS, ENVIRONMENTAL LAWS AND REGULATIONS.............................................. 12 SECTION 5.9. ADVANCE OF FUNDS FOR DESIGN WORK............................. 12 ARTICLE 6. CONSTRUCTION PHASE........................................... 12 SECTION 6.1. SELECTION OF CONTRACTOR OR CONSTRUCTION MANAGER.............. 12 SECTION 6.2. VENDOR PREFERENCES........................................... 12 SECTION 6.3. PROPOSAL REVIEW.............................................. 13 SECTION 6.4. CONTRACTS.................................................... 13 SECTION 6.5. CONTRACT DOCUMENT PROVISIONS................................. 13 SECTION 6.6. CONSTRUCTION ADMINISTRATION.................................. 13 SECTION 6.7. CONSTRUCTION COMMENCEMENT AND COMPLETION..................... 14 ARTICLE 7. FURNITURE, FIXTURES AND EQUIPMENT............................ 14 SECTION 7.1. SELECTION OF FURNITURE, FIXTURES AND EQUIPMENT............... 14 ARTICLE 8. TERM......................................................... 14 SECTION 8.1. TERM......................................................... 14 ARTICLE 9. ADVANCES BY KAR.............................................. 14 SECTION 9.1. ADVANCES BY KAR TO DRY CREEK................................. 14 SECTION 9.2. LOAN COMMITMENT.............................................. 15 SECTION 9.3. TRANSITION LOANS............................................. 17 SECTION 9.4. ADVANCES ON LOAN............................................. 17 (i) GAMING FACILITY SITE ACQUISITION FUNDS................................ 17 (ii) SITE PLANNING AND DESIGN DEVELOPMENT................................. 17 ARTICLE 10. EXCLUSIVITY.................................................. 18 SECTION 10.1. EXCLUSIVITY REGARDING GAMING FACILITY........................ 18 SECTION 10.2. EXCLUSIVITY.................................................. 18 ARTICLE 11. REPRESENTATIONS, WARRANTIES, AND COVENANTS................... 18 SECTION 11.1. REPRESENTATIONS AND WARRANTIES OF DRY CREEK.................. 18 SECTION 11.2. COVENANTS.................................................... 19 SECTION 11.3. REPRESENTATIONS AND WARRANTIES OF THE KAR.................... 20 ARTICLE 12. EVENTS OF DEFAULT............................................ 21 SECTION 12.1. EVENTS OF DEFAULT BY DRY CREEK............................... 21
ii 4
SECTION 12.2. EVENTS OF DEFAULT BY KAR..................................... 22 ARTICLE 13. TERMINATION.................................................. 23 SECTION 13.1. VOLUNTARY TERMINATION........................................ 23 SECTION 13.2. TERMINATION FOR CAUSE........................................ 23 SECTION 13.3. TERMINATION IF DRY CREEK VIOLATES ARTICLE 10................. 23 SECTION 13.4. INVOLUNTARY TERMINATION DUE TO CHANGES IN LEGAL REQUIREMENTS. 23 SECTION 13.5. REPAIR AND REPLACEMENT OF DAMAGED GAMING FACILITY............ 24 SECTION 13.6. TRIBE'S RIGHT TO TERMINATE AGREEMENT......................... 24 ARTICLE 14. DISPUTE RESOLUTION........................................... 25 14.1 GENERAL...................................................... 25 SECTION 14.2. ARBITRATION.................................................. 26 Section 14.2.1 Initiation of Arbitration and Selection of Arbitrators...... 26 (i) Choice of Law................................................... 26 (ii) Place of Hearing................................................ 26 (iii) Confidentiality................................................. 26 14.3 LIMITED WAIVER OF SOVEREIGN IMMUNITY......................... 26 (i) Time Period.......................................................... 26 (ii) Recipient of Waiver.................................................. 27 (b) Consents and Approvals.......................................... 27 (c) Injunctive Relief and Specific Performance...................... 27 (d) Action to Compel Arbitration.................................... 27 (e) Service of Process.............................................. 27 (f) Enforcement..................................................... 27 (g) Limitation Upon Enforcement..................................... 28 ARTICLE 15................................................................... 28 ARTICLE 15. GENERAL....................................................... 28 SECTION 15.1. NATURE OF AGREEMENT.......................................... 28 SECTION 15.2. KAR'S INTEREST IN THE GAMING FACILITY........................ 28 SECTION 15.3. SITUS OF THE AGREEMENT....................................... 28 SECTION 15.4. NOTICE....................................................... 28 SECTION 15.5. RELATIONSHIP................................................. 29 SECTION 15.6. FURTHER ACTIONS.............................................. 29 SECTION 15.7. WAIVERS...................................................... 29 SECTION 15.8. CAPTIONS..................................................... 30 SECTION 15.9. THIRD PARTY BENEFICIARY...................................... 30 SECTION 15.10. SURVIVAL OF COVENANTS........................................ 30 SECTION 15.11. ESTOPPEL CERTIFICATE......................................... 30 SECTION 15.12. PERIODS OF TIME.............................................. 30 SECTION 15.13. GOVERNMENTAL SAVINGS CLAUSE.................................. 30 SECTION 15.14. SUCCESSORS AND ASSIGNS....................................... 30 SECTION 15.15. SEVERABILITY................................................. 31 SECTION 15.16. ENTIRE AGREEMENT............................................. 31 ARTICLE 16. INDEMNITY.................................................... 31 SECTION 16.1. INDEMNITY.................................................... 31 EXHIBIT A. PRELIMINARY PROJECT DESCRIPTION................................... 33 EXHIBIT B. SECURITY AND REIMBURSEMENT AGREEMENT.............................. 34 RECITALS..................................................................... 34
iii 5 AGREEMENT................................................................ 35 1. Security (Collateral).......................................... 35 2. Notice of Guaranty Payments.................................... 36 3. Indemnity by DRY CREEK - Guaranty.............................. 36 4. Obligations Absolute........................................... 36 5. Rights of Guarantors........................................... 37 6. Representations and Warranties................................. 37 7. Transfer of Collateral......................................... 37 8. Events of Default.............................................. 37 9. Remedies....................................................... 38 10. Receipt of Sales Proceeds...................................... 38 11. Application of Collateral...................................... 38 12. Waivers; Modifications......................................... 38 13. Remedies Cumulative............................................ 38 14. Notices........................................................ 39 15. Successors and Assigns......................................... 40 16. Guarantors Not Bound........................................... 40 17. Severability................................................... 40 18. Further Assurances............................................. 40 19. Release........................................................ 41 20. Governing Law; Integration..................................... 41 21. Business Day Extension......................................... 41 22. Indemnification................................................ 41 24. Dispute Resolution............................................. 41 24.1. General.................................................. 41 24.2. Arbitration.............................................. 42 24.2.1. Initiation of Arbitration and Selection of Arbitrators................................... 43 25. Limited Waiver of Sovereign Immunity........................... 43 (i) Time Period............................................. 43 (ii) Receipt of Waiver....................................... 43 (iii) Limitations of Actions.................................. 43 (a) Damages............................................ 43 (b) Consents and Approvals............................. 43 (c) Injunctive Relief and Specific Performance......... 43 (d) Action to Compel Arbitration....................... 44 (e) Service of Process................................. 44 (f) Enforcement........................................ 44 (g) Limitation......................................... 44 26. Government Savings Clause...................................... 45 iv 6 DEVELOPMENT AGREEMENT This Development Agreement is made this 11 day of June, 1999 by and between the SHINGLE SPRINGS BAND OF MIWOK INDIANS, A FEDERALLY RECOGNIZED INDIAN TRIBE, ("SHINGLE SPRINGS"), P.O. Box 1340, Shingle Springs, California 95682 and KEAN ARGOVITZ RESORTS-SHINGLE SPRINGS, LLC., a Nevada limited liability company ("KAR"), 11999 Katy Frwy., Suite 322, Houston, TX, 77079. RECITALS A. SHINGLE SPRINGS is a federally recognized Indian tribe recognized as eligible by the Secretary of the Interior for the special programs and services provided by the United States to Indians because of their status as Indians and is recognized as possessing powers of self-government. B. The U.S. holds land in trust for the benefit of SHINGLE SPRINGS, pursuant to the SHINGLE SPRINGS'S recognized powers of self-government, and the Constitution, statutes and ordinances of SHINGLE SPRINGS. C. SHINGLE SPRINGS will possess sovereign governmental powers over the Tribal Lands and desires to utilize the Tribal Lands to improve the economic conditions of SHINGLE SPRINGS's members. D. KAR has agreed to assist SHINGLE SPRINGS in acquiring additional Tribal Lands and in financing and developing the Gaming Facility. E. SHINGLE SPRINGS, on the same date as the date of this Development Agreement, has entered into a Management Agreement with KAR whereby KAR, subject to receipt of regulatory approvals, will manage the Gaming Facility (the "Management Agreement"). F. KAR and SHINGLE SPRINGS desire to take all steps reasonably possible prior to the receipt of the regulatory approvals (i) to obtain a preliminary commitment for financing of the Gaming Facility, (ii) to select and develop the site for the Gaming Facility, (iii) to design the Gaming Facility, and (iv) to enter into contracts to construct and equip the Gaming Facility so that the Gaming Facility can be opened to the public as soon as possible after the receipt of all regulatory approvals. G. SHINGLE SPRINGS has selected KAR to assist SHINGLE SPRINGS to obtain financing for the gaming developments, and to furnish technical experience and expertise for the development and design of the developments, and for contracting for the construction, furnishing and equipping of the Gaming Facility. 1 7 H. SHINGLE SPRINGS and KAR intend that their relationship with regard to this Development Agreement shall be exclusive. I. SHINGLE SPRINGS and KAR desire to enter into an agreement whereby the preliminary Gaming Facility design and development work (but not the Gaming Facility construction or operation) may proceed prior to receipt of regulatory approvals. J. KAR has agreed to certain terms and has represented to SHINGLE SPRINGS that KAR has the capabilities to provide professional management, funds and financing necessary to develop and construct the Gaming Facility, as defined herein, and to commence the operation of the Enterprise as outlined in this Agreement as consideration for the exclusive right to develop and manage the Gaming Facility pursuant to the Management Agreement, and for other development rights as described herein. NOW, THEREFORE, in consideration of the mutual covenants, conditions and promises herein contained, the receipt and sufficiency of which are expressly acknowledged SHINGLE SPRINGS and ("KAR") hereby agree as follows: ARTICLE 1 DEFINITIONS AND OBJECTIVES SECTION 1.1. DEFINITIONS. Capitalized terms not otherwise defined herein shall have the meanings set forth in the Management Agreement. In addition to other terms which are defined elsewhere in this Agreement, the following terms, for purposes of this Agreement, shall have the meanings set forth in this Section: "AFFILIATE" means as to KAR, any corporation, partnership, limited liability company, joint venture, trust, department or agency or individual controlled by, under common control with, or which controls, directly or indirectly KAR. "AGREEMENT" shall mean this Development Agreement. "ARCHITECT" shall have the meaning described in Section 5.1. "BIA" shall mean the Bureau of Indian Affairs under the Department of the Interior of the United States of America. "CLASS II GAMING" shall mean Class II gaming as defined in the IGRA. "CLASS III GAMING" shall mean Class III Gaming as defined in the IGRA. "COMMENCEMENT DATE" shall mean the first date that the Gaming Facility is complete, open to the public and that Gaming is conducted in the Gaming Facility pursuant to the terms of the Management Agreement. 2 8 "COMMERCIAL DEVELOPMENT" shall mean Tribal economic development projects that are non-gaming in nature. "COMPACT" shall mean SHINGLE SPRINGS-State Compact which SHINGLE SPRINGS intends to negotiate and execute with the State for the conduct of Class III Gaming, and approved pursuant to the IGRA; as the same may, from time to time, be amended, or such other compact that may be substituted therefor. "COMPLETION DATE" shall mean the date upon which KAR receives: (i) an architect's certificate from the Architect chosen pursuant to this Agreement as having responsibility for the design and supervision of construction, equipping and furnishing of the Gaming Facility certifying that the Gaming Facility has been fully constructed substantially in accordance with the Plans and Specifications; (ii) certification from KAR or its designee, having responsibility to assure compliance with any operational standards stating that the Gaming Facility, as completed, is in substantial compliance with any such standards; (iii) a permanent or temporary certificate of occupancy, if required, from any government authority or authorities pursuant to whose jurisdiction the Gaming Facility is to be constructed, permitting the use and operation of all portions of the Gaming Facility in accordance with this Agreement; and (iv) certificates of such professional designers, inspectors or consultants or opinions of counsel, as ("KAR") may determine to be appropriate, verifying construction and furnishing of the Gaming Facility in compliance with all Legal Requirements. "CONSTITUTION" shall mean the Constitution of the Shingle Springs Band of Miwok Indians. "CONTRACT DOCUMENTS" shall have the meaning described in Section 6.3. "DESIGN AGREEMENT" shall have the meaning described in Section 5.1. "DESIGN PACKAGES" shall have the meaning described in Section 5.1. "DEVELOPMENT AGREEMENT" shall mean that certain agreement, of even date herewith, by and between KAR and SHINGLE SPRINGS, providing the terms under which KAR and SHINGLE SPRINGS will work exclusively together to develop certain Commercial and Gaming Development, and KAR will advance certain specified loans to SHINGLE SPRINGS and will cause to be financed and develop the Facility, including without limitation, design, construction, furnishing and equipping same. 3 9 "DESIGN PACKAGES" shall have the meaning described in Section 5.1. "DEVELOPMENT BUDGET" shall have the meaning described in Section 5.2. "EFFECTIVE DATE" shall mean the date five days following the date on which all of the following listed conditions are satisfied: (i) written approval of the Management Agreement is granted by the Chairperson of the NIGC; (ii) written approval, as required by law, of the Note, the Loan Agreement, the Security and Reimbursement Agreement and the Interim Promissory Note, is granted by the Chairperson of the NIGC and/or the BIA; if required (iii) written approval of an SHINGLE SPRINGS Gaming Ordinance ("Gaming Ordinance") and of any other ordinances adopted by SHINGLE SPRINGS relative to any of the documents referenced in the Management Agreement in form and substance satisfactory to KAR as required by the NIGC or the BIA; (iv) written confirmation, if required, that SHINGLE SPRINGS, the State, and the NIGC, have approved background investigations of KAR and any related parties subject to background investigations; (v) KAR has received a certified copy of the ratifying SHINGLE SPRINGS resolution and Ordinance adopted in accordance with SHINGLE SPRINGS's governing documents reciting that it is the governing law of SHINGLE SPRINGS, that this Agreement, the Management Agreement, Loan Agreement, Note, Security and Reimbursement Agreement and the exhibited documents attached thereto are the legal and binding obligations of SHINGLE SPRINGS, valid and enforceable in accordance with their terms; (vi) KAR has satisfied itself as to the proper ownership and control of the Tribal Lands and its suitability for construction and operation of the contemplated Gaming Facility, and that all of the Legal Requirements and other requirements for lawful conduct and operation of the Enterprise in accordance with the Management Agreement have been met and satisfied; (vii) for purposes of Class III Gaming, the Compact has been signed by the Secretary of the Interior and published in the Federal Register as provided in 25 U.S.C. Section 2710(d)(8)(D); (viii) the satisfactory completion of all necessary and applicable feasibility 4 10 studies required for the development, construction and operation of the Gaming Facility; (ix) receipt by KAR of all applicable licenses for or related to the development, construction and operation of the Gaming Facility; and (x) receipt by KAR of SHINGLE SPRINGS's approval of the Plans and Specifications of the Gaming Facility. SHINGLE SPRINGS agrees to cooperate and use its best efforts to satisfy all of the above conditions at the earliest possible date. KAR agrees to memorialize the satisfaction of each of (vi) and (viii), as well as the Effective Date, in writings signed by KAR and delivered to SHINGLE SPRINGS and to the Chairperson of the NIGC. "ENTERPRISE" shall mean the enterprise of SHINGLE SPRINGS created to engage in Class II and Class III Gaming at the Gaming Facility, and which shall include any other lawful commercial activity allowed in the Gaming Facility including, but not limited to the operation of a hotel, RV Park, retail stores, restaurants, entertainment facilities, or the sale of fuel, food, beverages, alcohol, tobacco, gifts, and souvenirs. "FIXTURES AND EQUIPMENT" shall mean all furniture, fixtures and equipment (excepting "Operating Equipment" as hereinafter defined) required for the operation of the Enterprise in accordance with the standards set forth in this Agreement, including, without limitation: (i) cashier, money sorting and money counting equipment, surveillance and communication equipment, and security equipment; (ii) slot machines, video games of chance, table games, keno equipment and other gaming equipment; (iii) office furniture and equipment; (iv) specialized equipment necessary for the operation of any portion of the Enterprise for accessory purposes, including equipment for kitchens, laundries, dry clearing, cocktail lounges, restaurants, public rooms, commercial and parking spaces, and recreational facilities; and (v) all other furnishing and equipment hereafter located and installed in or about the Gaming Facility which are used in the operation of the Enterprise in accordance with the standards set forth in this Agreement. "GAMING" shall mean any and all activities defined as Class II and Class III Gaming pursuant to IGRA. "GAMING FACILITY" shall mean the buildings, structures and improvements located on the 5 11 Tribal Lands and all Furniture, Fixtures and Equipment attached thereto, forming a part of, or necessary for the operation of the Enterprise. "IGRA" shall mean the Indian Gaming Regulatory Act of 1988, PL 100-497, 25 U.S.C. Section 2701 et. seq. as same may, from time to time, be amended. "INTERIM PROMISSORY NOTE" shall have the meaning described for one or more promissory notes to be executed by SHINGLE SPRINGS in favor of KAR pursuant to this Agreement, the Management Agreement which shall include but not be limited to signing advance, tribal consultant advances, monthly advances, equity advances, land advances and any other funds advanced to or on behalf of SHINGLE SPRINGS. "KAR" shall mean Kean Argovitz Resorts - Shingle Springs, LLC or it's affiliates. "LEGAL REQUIREMENTS" shall mean any and all present and future judicial, administrative, and tribal rulings or decisions, and any and all present and future federal, state, local, and tribal laws, ordinances, rules, regulations, permits, licenses and certificates, in any way applicable to SHINGLE SPRINGS, KAR, the Tribal Lands, the Gaming Facility, and the Enterprise, including without limitation, the IGRA, the Compact, and SHINGLE SPRINGS's Gaming Ordinance. "LENDER" shall mean the financial institution agreed upon by the parties to provide the funding necessary to design, construct, and equip the Facility, and provide start-up capital for the Enterprise. "LOAN" shall mean the loan to SHINGLE SPRINGS to be made pursuant to the Loan Agreement. "LOAN AGREEMENT" shall mean the loan agreement in a principal amount of up to ONE HUNDRED MILLION DOLLARS ($100,000,000), to be entered into between SHINGLE SPRINGS and KAR, or between SHINGLE SPRINGS and the Lender, but in any event KAR will cause to be loaned the above proceeds which are to be used exclusively for Gaming Developments, the design construction, furnishing and equipping of the Gaming Facility and/or providing start-up and working capital for the Enterprise. "MANAGEMENT AGREEMENT" shall mean the agreement between SHINGLE SPRINGS and KAR dated the same date as this Agreement pursuant to which KAR will manage the Enterprise. "NATIONAL INDIAN GAMING COMMISSION" ("NIGC") is the commission established pursuant to 25 U.S.C. Section 2704. "NET REVENUES" shall have the meaning set forth in the Management Agreement, and shall include "Net Revenues (gaming)" and "Net Revenues (other)." 6 12 "NON-GAMING LAND" means those lands acquired by SHINGLE SPRINGS with the assistance of KAR which the SHINGLE SPRINGS will use for non-gaming purposes. "NOTE" shall mean the promissory note to be executed by SHINGLE SPRINGS pursuant to the Loan Agreement, which shall evidence a loan to SHINGLE SPRINGS, in an amount up to ONE HUNDRED MILLION DOLLARS ($100,000,000), from either the Lender and/or KAR. "PLANS AND SPECIFICATIONS" shall mean the final Plans and Specifications approved for the Gaming Facility as described in this Agreement. "PROJECT" shall have the mean the planning, construction, and development of the temporary and permanent Gaming Facility. "SECURITY AND REIMBURSEMENT AGREEMENT" shall mean that agreement to be entered into between KAR and SHINGLE SPRINGS which shall set out the security interest of KAR and reimbursement obligation of SHINGLE SPRINGS relating to the Loan and the Interim Promissory Note. "STATE" shall refer to the State of California. "SHINGLE SPRINGS" shall mean the Shingle Springs Band of Miwok Indians. "TEMPORARY GAMING FACILITY" shall mean a class II and/or class III gaming facility which, if deemed feasible by KAR and SHINGLE SPRINGS in the manner described in this Agreement, may be constructed on an accelerated basis concurrently with the construction of the permanent Gaming Facility with a goal of opening within the first 90 to 120 days after the Effective Date. If the parties agree that it is economically feasible, said facility may also offer Class II gaming. "TERM" shall mean the term of this Agreement as described in Article 8. "TRIBAL CONSULTANTS" shall mean in this Agreement as described in Article 9, section 9.1, (iii) the Administrative Assistant to the Council and Tribal Consulting Attorney. "TRIBAL COUNCIL" shall mean the duly elected governing body of SHINGLE SPRINGS. "TRANSITION LOAN" shall have the meaning described in Section 9.3. "TRIBAL DISTRIBUTIONS" shall have the meaning described in Section 9.2(ii). "TRIBAL LANDS" means all lands presently and in the future held in trust for the SHINGLE SPRINGS and all lands within the confines of the Shingle Springs Band of Miwok Indians Rancheria and to such lands as may thereafter be added thereto. ARTICLE 2 7 13 INDEPENDENT AGREEMENT SECTION 2.1. INDEPENDENT AGREEMENT. The objective of SHINGLE SPRINGS and KAR in entering into and performing this Agreement is to provide a legally enforceable procedure and agreement pursuant to which KAR will make certain loans to SHINGLE SPRINGS for the development of the Gaming Facility prior to the approval of the Management Agreement by the NIGC and the obtaining of any other necessary approvals so that the Project can commence operations as soon as possible; and set forth the rights and obligations of the parties if approval of the Management Agreement by the NIGC does not occur or if the Project is unable to be developed for any other reason. This is intended to be a legally enforceable agreement, independent of the Management Agreement, which shall enter into effect when executed and delivered by the parties, and be enforceable between the parties regardless of whether or not this Agreement or the Management Agreement is approved by the Chairperson of the NIGC. ARTICLE 3 SITE ACQUISITION SECTION 3.1. SELECTION OF TRIBAL LANDS. It is unlikely that the existing SHINGLE SPRINGS Trust Land will be used as the site for the Gaming Facility, it is understood that additional land will be necessary because it is land locked and it is understood that acquisition of additional land may be necessary as a site for the Gaming Facility. Thus, as soon as reasonably possible after the date of this Agreement, KAR shall recommend one or more sites to be acquired for the SHINGLE SPRINGS Gaming Facility (and the Temporary Gaming Facility, if it is determined to be feasible); and shall furnish the Tribal Council with a site including advice as to the suitability of each site for the Gaming Facility. It is expressly understood that SHINGLE SPRINGS and KAR shall investigate the acquisition of sites contiguous to existing SHINGLE SPRINGS trust land. SECTION 3.2. PURCHASE AGREEMENT. Upon approval of acquisition of a site by the mutual agreement of KAR and the Tribal Council, KAR shall negotiate a purchase contract or option agreement for purchase of the site by KAR or its designee or nominee. Upon approval of the form of Purchase or Option Agreement proposed by KAR by the Tribal Council, KAR or its designee or nominee shall enter into the Purchase or Option Agreement with the seller of the site. It is mutually agreed that the site shall be transferred by KAR to the United States to be held in trust for the benefit of SHINGLE SPRINGS upon approval of a Tribal-State compact. The actual closing of the real estate agreement and the transfer of title to the United States to be held in trust for the benefit of SHINGLE SPRINGS may occur following the Effective Date, or at a time as may be necessary to secure approval by appropriate officials or agencies of the Management Agreement, the Compact and the approval of the Secretary of the Interior to take the site into trust for the benefit of SHINGLE SPRINGS for gaming purposes. All amounts so advanced by KAR shall be a part of the Transition Loan and shall be repaid to KAR from the first proceeds of the Loan to the extent proceeds from the Loan are available for this purpose. SECTION 3.3. LAND COSTS. KAR will advance to SHINGLE SPRINGS up to Four 8 14 Million Two Hundred Thousand Dollars ($4,200,000.00) to acquire land for the gaming facility. SECTION 3.4. TRANSFER OF TRIBAL LANDS TO BAND. On or immediately following the Effective Date, or at such time as may be necessary to secure approval by appropriate officials or agencies, of the Management Agreement or the Compact and the approval of the Secretary of the Interior to take the land into trust for the benefit of SHINGLE SPRINGS for gaming purposes, KAR or its designee or nominee shall transfer title to the United States to be held in trust by the United States for the benefit of SHINGLE SPRINGS for gaming purposes. Any amounts required to be paid to effect such transfer shall be paid by KAR and shall be a part of the development cost of the Enterprise and repaid to KAR from the first proceeds of the Loan. SECTION 3.5. CONFIDENTIALITY. The parties agree on a reasonable efforts basis to keep the intended use of each site confidential until the Purchase Agreement has been executed and delivered by all parties to the Purchase Agreement. ARTICLE 4 FEASIBILITY STUDIES SECTION 4.1. FEASIBILITY STUDY. As soon as reasonably possible after the signing of this Agreement by both parties, KAR shall perform a feasibility study to explore the design, cost, size and projected economic benefit of the Gaming Facility within the scope of the Enterprise. A copy of the feasibility study shall be furnished by KAR to the Tribal Council. All actual costs incurred by KAR to perform or cause the feasibility study to be performed shall be included as part of the development cost of the Enterprise and repaid to KAR as a Transition Loan or from the first proceeds of the Loan to the extent available for this purpose. SECTION 4.2. FEASIBILITY DETERMINATION. After said feasibility study has been furnished to the Tribal Council, the Tribal Council and KAR shall jointly determine the size and scope of the Gaming Facility and whether or not to include the Temporary Gaming Facility within the Enterprise. Inclusion of the Temporary Gaming Facility within the Enterprise shall be dependent upon an agreement between KAR and SHINGLE SPRINGS with respect to such additional matters as may need to be addressed in order to fully provide for said Temporary Gaming Facility. Construction and operation of the Temporary Gaming Facility shall in no way limit the full term of the Management Agreement for the Gaming Facility. The terms, conditions and provisions of this Section 4.2 shall control and take precedence over any contrary terms, conditions and provisions contained in this Agreement. ARTICLE 5 DESIGN PHASE SECTION 5.1. EMPLOYMENT OF ARCHITECT. KAR and the Tribal Council shall contract with an Architect and/or Engineer for the Enterprise. Thereafter the Tribal Council shall, with the assistance and concurrence of KAR, negotiate and enter into a contract in the name of SHINGLE SPRINGS, with this Architect and/or Engineer. Provided that such company or 9 15 individual is a duly licensed Architect and/or Engineer (the "Architect") familiar with the design of gaming facilities. This Agreement shall be for the purpose of performing certain services in connection with the design and construction of the Gaming Facility (and the Temporary Gaming Facility and/or the Bingo and Entertainment Hall, if included) including site development. SHINGLE SPRING's agreement with the Architect shall be in the form of a contract (the "Design Agreement") approved by KAR and the Tribal Council. The scope of the project contemplated by this Agreement (the "Project") including the Gaming Facility and the Temporary Facility, if included), shall be stated and established in the Design Agreement, and shall be subject to the mutual approval of the parties, and as agreed upon by SHINGLE SPRINGS and KAR may incorporate a plan for the expansion of gaming and a future phased addition of a hotel, RV park, gas station and convenience store, and theme retail space and the plans set forth in Exhibit A hereto. The Design Agreement shall also provide for and establish appropriate design packages ("Design Packages"), each including portions of the Enterprise. The Design Agreement shall allow KAR the right and responsibility to supervise, direct, control and administer the duties, activities and functions of the Architect and to efficiently carry out its covenants and obligations under this Agreement; but the Design Agreement shall provide that the Architect will consult closely with SHINGLE SPRINGS and SHINGLE SPRINGS consultants, and that major design elements shall be subject to approval by the Tribal Council. It is contemplated the scope of the Project will be substantially as described on Exhibit A, subject to such changes as may be necessary or appropriate taking into account competitive conditions, financing and other circumstances. The parties understand that market, compact, governmental or other conditions may change and it may be necessary to expand or decrease the scope of the project before construction is commenced. SECTION 5.2. DESIGN AND CONSTRUCTION BUDGETS. KAR, with the assistance and input of the Architect, shall submit to the Tribal Council, proposed budgets (collectively the "Development Budget") for designing, constructing, furnishing and equipping the Gaming Facility, including the Temporary Gaming Facility, if any, and related costs which may be identified, prior to the commencement of design by the Architect. The Development Budget shall reflect planned phasing, if any. KAR may, after notice to and approval by the Tribal Council, revise the aggregate Development Budget from time-to-time, as necessary or appropriate to reflect any unpredicted changes, variables or events or to include additional and unanticipated Project costs. KAR may, at its sole discretion after notice to and approval by the Tribal Council, reallocate part or all of the amount budgeted with respect to any line item to another line item and to make such other modifications to the Development budget as KAR deems necessary or appropriate, provided that: (i) the cumulative modifications of the Development Budget for all Design Packages shall not, without KAR's prior approval and the Tribal Council's prior approval, exceed the approved aggregate Development Budget, and (ii) such modifications do not otherwise conflict with the terms of this Agreement shall. Development Budget adjustments which otherwise vary from the terms of the Agreement shall, in addition to requiring KAR's approval require the approval of the Tribal Council. SHINGLE SPRINGS acknowledges that the Development Budget is intended only to be a reasonable estimate of Project costs. SECTION 5.3. CONCEPT DESIGN AND ENGINEERING. KAR, shall prepare for the review 10 16 and approval of the Tribal Council, a statement of requirements for the Gaming Facility, and the Temporary Gaming Facility, if any, including, but not limited to, planned phasing, if any, a program of preliminary objectives, schedule requirements, design criteria, including assumptions regarding HVAC demands, space requirements and relationships, special equipment and site requirements. SECTION 5.4. PRELIMINARY PROGRAM EVALUATION. KAR shall prepare, for the review and approval of the Tribal Council, a preliminary evaluation of the proposed Project including, but not limited to a feasibility study, planned phasing, if any, schedule, Development Budget requirements, and alternative approaches to Project design and construction. Based upon the agreed-upon schedule, Development Budget requirements and design, the Architect shall prepare schematic design documents consisting of drawings and other documents illustrating the scale and relationship of the Gaming Facility, the Temporary Gaming Facility, if any, and any other Enterprise components, as well as a preliminary estimate of Enterprise costs based upon the proposed area, size and scope of the Enterprise. SECTION 5.5. DESIGN DEVELOPMENT. Upon final approval of the schematic design documents by the Tribal Council and KAR, the Architect shall prepare design development documents consisting of drawings and other documents to fix and describe the size and character of the Project as to architectural, structural, mechanical and electrical systems, materials and such other elements and/or Design Packages as may be appropriate. Further, the Architect shall advise KAR with respect to, and update, any Development Budget estimates. KAR shall submit to the Tribal Council for its review and approval, finalized versions of the design development documents prepared by the Architect and agreed to by KAR. SECTION 5.6. CONSTRUCTION DOCUMENTS. Based upon the approved design development documents and any further adjustments in the scope and quality of the Project or in the Development Budget, the Architect shall prepare for approval by KAR and the Tribal Council, construction documents consisting of preliminary drawings and specifications setting forth the general requirements for construction of the Project. The Architect shall proceed with completion of detailed plans and specifications (the "Plans and Specifications") as they relate to construction or portions of the Gaming Facility in the order such portions are to be completed or in the order required for sequential completion, and shall proceed with completion for all Plans and Specifications as soon as reasonably possible given construction scheduling and the intended progress of Project work. The Architect shall advise the Tribal Council of any adjustments to previous Development Budget estimates. Copies of all construction documents and all notices of Design Budget adjustments shall be forwarded to the Tribal Council to keep it informed of the progress of the work and the projected costs of the Project. SECTION 5.7. PLANS AND SPECIFICATIONS. As portions of the detailed Plans and Specifications are completed for segments of the Project, the Architect shall be required to submit duplicate copies of those portions of the Plans and Specifications to KAR and to the Tribal Council (for approval prior to release of such documents to prospective bidders for bidding and prior to commencement of construction of such portions). 11 17 SECTION 5.8. COMPLIANCE WITH CONSTRUCTION STANDARDS, ENVIRONMENTAL LAWS AND REGULATIONS. The Gaming Facility shall be designed and constructed so as to adequately protect the environment and the public health and safety. The design, construction and maintenance of the Gaming Facility shall, except to the extent a particular requirement or requirements may be waived in writing by the Tribal Council, meet or exceed all reasonable minimum standards pertaining to SHINGLE SPRINGS and State building codes, fire codes and safety and traffic requirements (but excluding planning, zoning and property use laws, ordinances, regulations and requirements), which would be imposed on the Enterprise by existing State or Federal statutes or regulations or codes which would be applicable if the Gaming Facility were located outside of the jurisdictional boundaries of SHINGLE SPRINGS, even though those requirements may not apply within SHINGLE SPRINGS's jurisdictional boundaries. To the extent that SHINGLE SPRINGS may adopt more stringent requirements, those requirements shall govern. Nothing in this subsection shall grant to the State or any political subdivision thereof any jurisdiction (including but not limited to, jurisdiction regarding zoning or property use) over the Enterprise or its development, management and operation. SECTION 5.9. ADVANCE OF FUNDS FOR DESIGN WORK. Notwithstanding any lack of approval of the Management Agreement or this Agreement by the NIGC, KAR shall advance such funds as are reasonably necessary to proceed with site and facility planning, architectural renderings and plans, including payments to the Architect pursuant to the Design Agreement, engineering and environmental services, working drawings and construction contract bidding documents, and the advances shall be repaid to KAR as a Transition Loan or from the first draws under the Loan to the extent proceeds of the Loan are available for this purpose. After the Effective Date, the Architect shall be compensated for services rendered in accordance with the Design Agreement out of Loan proceeds, subject to and in accordance with the terms, conditions and provisions of the Loan Agreement. ARTICLE 6 CONSTRUCTION PHASE SECTION 6.1. SELECTION OF CONTRACTOR OR CONSTRUCTION MANAGER. KAR shall, in consultation with the Architect, initiate a pre-bid selection process in order to pre-qualify prospective general contractors and/or construction managers in connection with the construction of the Gaming Facility. KAR shall submit the list of pre-qualified general contractors and/or construction managers to the Tribal Council, together with KAR's recommendations, for its review, comment and approval. Special consideration shall be given in the selection of contractors and/or construction managers to companies located in the State and companies with a proven history of effective employment of Native American and local subcontractors. The parties will work together to strive for maximum possible use of qualified Native American contractors and subcontractors. SECTION 6.2. VENDOR PREFERENCES. In entering contracts for the supply of goods and services for the Enterprise, including the selection of contractors and/or construction managers, subcontractors and suppliers, KAR shall give preference to qualified Indians who reside on or near the SHINGLE SPRINGS OF BAND OF MIWOK INDIANS Rancheria, who are able to 12 18 provide services at competitive prices and have demonstrated skills and abilities to perform tasks to be undertaken in an acceptable manner, in KAR's opinion, and can meet the reasonable bidding requirements of KAR. KAR shall provide written notice to SHINGLE SPRINGS in advance of all such contracting, subcontracting and construction opportunities. SECTION 6.3. PROPOSAL REVIEW. Subsequent to the pre-qualification of prospective contractors and/or construction managers, KAR shall conduct a review of responsive proposals for the construction of the Project, and KAR shall negotiate and propose to the Tribal Council a construction management agreement and/or construction contract or contracts (collectively "Contract Documents") with a well-qualified construction manager, contractor contractors and/or contractors subject to the approval of the Tribal Council. The successful contractor, contractors and/or construction manager shall be properly licensed in the State; and shall be capable of furnishing a payment and performance bond satisfactory to KAR and Tribal Council to cover the construction for which the contractor, contractors and/or construction manager may be retained. SECTION 6.4. CONTRACTS. The Band shall enter into the Contract with the parties selected and approved in the form negotiated by KAR and approved by the Tribal Council. The Contract Documents shall provide that they may be canceled by either party if the Effective Date has not occurred by a specified fixed calendar date. The selected contractor, construction manager and/or other contracting parties shall be compensated solely from the Loan proceeds subject to, and in accordance with the terms, conditions and provisions of the Contract Documents and the Loan Agreement. SECTION 6.5. CONTRACT DOCUMENT PROVISIONS. The Contract Documents shall (i) require the successful construction manager or general contractor and all contractors to be responsible for providing all materials, equipment and labor necessary to construct and equip the Project as necessary, including site development; (ii) shall include appropriate provisions assuring nonpayment of State sales and use tax for goods and materials in the Project (to the extent said exemption is available for the Project); and (iii) require said construction manager or general contractor and all contractors to construct the Project in accordance with the Plans and Specifications, including any changes or modifications thereto approved by the Tribal Council. The Contract Documents will provide for insurance conforming to the applicable insurance requirements of the Management Agreement, appropriate lien waivers, and for construction schedules by which milestones, progress payments and late penalties, if any, may be calculated. Nothing in this section shall prohibit SHINGLE SPRINGS from entering into a contract pursuant to which SHINGLE SPRINGS agrees to procure the necessary construction materials for the project. SECTION 6.6. CONSTRUCTION ADMINISTRATION. It is intended that the Contract Documents shall provide that KAR shall be responsible for all construction administration during the construction phase of the Project. KAR shall act as SHINGLE SPRINGS's designated representative and shall have full power and complete authority to act on behalf of SHINGLE SPRINGS in connection with the Contract Documents. KAR shall have control and charge of any persons performing work on the Project site, and shall interpret and decide on matters concerning the performance of any requirements of the Contract Documents. KAR shall have 13 19 the authority to reject work which does not conform to the Contract Documents. KAR may conduct inspections to determine the date or dates of substantial completion and the Completion Date. KAR shall observe and evaluate or authorize the observation and evaluation of Project work performed, review or authorize review of applications for payment for submission to SHINGLE SPRINGS and review or authorize review and certification of the amounts due the contractors and/or construction manager. SECTION 6.7. CONSTRUCTION COMMENCEMENT AND COMPLETION. The Contract Documents shall contain such provisions for the protection of SHINGLE SPRINGS and KAR as SHINGLE SPRINGS and KAR shall deem appropriate; shall provide that the construction of the Project shall commence on the Effective Date following and subject to the granting of all approvals necessary to commence construction; and shall also provide that any contractor shall exert its best efforts to complete construction within such time as SHINGLE SPRINGS and KAR agree following the commencement of construction. All contractors shall warrant their respective portions of the work to be performed to be free of defects for at least one year after the Completion Date. ARTICLE 7 FURNITURE, FIXTURES AND EQUIPMENT SECTION 7.1. SELECTION OF FURNITURE, FIXTURES AND EQUIPMENT. KAR shall select and propose to the Tribal Council vendors for purchase by SHINGLE SPRINGS of equipment, furniture and fixtures required to operate the Enterprise. Alternatively, KAR may arrange for the procurement of equipment, furniture and fixtures on lease terms as may be approved by the Tribal Council. Any commitments for the procurement of equipment, furniture and furnishing shall, however, become binding on SHINGLE SPRINGS only upon the Effective Date. ARTICLE 8 TERM SECTION 8.1. TERM. This Agreement shall enter into and remain in full force and effect from the date of execution hereof for a period ending when the obligations of the parties pursuant to Article 9 of this Agreement have expired or until all obligations owed to KAR by SHINGLE SPRINGS pursuant to this Agreement, the Management Agreement and any Interim Promissory Note have been satisfied in full, whichever is later; provided, however, that nothing herein shall prohibit KAR and SHINGLE SPRINGS from agreeing in a separate writing that the obligations of this Agreement shall be subsumed into any one or all of the other agreements between the parties immediately upon the Effective Date thereof and that, at such time as the obligations hereof are so subsumed, this Agreement shall, except to the extent contrary to the express terms hereof, automatically terminate. ARTICLE 9 ADVANCES BY KAR SECTION 9.1. ADVANCES BY KAR TO SHINGLE SPRINGS. KAR will advance the 14 20 following funds to SHINGLE SPRINGS. (i) SIGNING ADVANCE. KAR will advance SHINGLE SPRINGS the sum of Two Hundred Fifty Thousand Dollars ($250,000.00) upon the execution of this Agreement and the Management Agreement. (ii) TRIBAL OPERATING ADVANCES. Beginning 30 days after the execution of this Agreement and the Management Agreement and after the initial signing advance of $250,000.00 until the Commencement Date, KAR will advance SHINGLE SPRINGS seventy thousand dollars ($70,000.00) per month. The parties agree that there may also be certain unanticipated and unexpected legal expenses of the Enterprise which may occur. In that event, upon the approval of both KAR and SHINGLE SPRINGS, which approval shall not be unreasonably withheld, the parties agree to increase the monthly advances to cover those costs. The signing advance and the monthly advances to SHINGLE SPRINGS shall include the Tribal Consultants fees. (iii) TRIBAL CONSULTANTS. Upon execution of this Agreement and the Management Agreement and until the Commencement Date, of the signing advance and the monthly advances to SHINGLE SPRINGS, Five Thousand Dollars ($5,000.00) per month shall be used to pay the Shingle Springs Administrative Assistant to the Council and Eight Thousand Six Hundred Dollars ($8,600.00) per month will be used to pay SHINGLE SPRINGS Tribal Consulting Attorney. There will be a three percent (3%) annual increase in these fees. Upon execution of this Agreement and the Management Agreement and until the Commencement Date, KAR shall advance SHINGLE SPRINGS. Following the Commencement Date, the Tribal Consulting Attorney and the Administrative Assistant to the Council shall become an expense of the Enterprise and shall be for the term of this Agreement and the Management Agreement. Use and disbursement of the monthly advances shall be at the sole discretion of SHINGLE SPRINGS, and KAR shall have no responsibility for such funds after receipt thereof by SHINGLE SPRINGS. The advances will be disbursed to SHINGLE SPRINGS as Transition Loans pursuant to Section 9.3 of this Agreement. SECTION 9.2. LOAN COMMITMENT. KAR shall be responsible for arranging for a development loan to SHINGLE SPRINGS to finance the development of the Gaming Facility. Within ninety (90) days following the approval of a compact between SHINGLE SPRINGS and the State, KAR will provide to SHINGLE SPRINGS a preliminary conditional Letter of Commitment to fund the facility in the sum not to exceed One Hundred Million Dollars ($100,000,000) contingent upon compliance with all applicable federal, tribal and state laws. Within one hundred twenty (120) days following the Effective Date, KAR shall provide a firm financing commitment acceptable to SHINGLE SPRINGS, to finance the acquisition of the Tribal Lands and to pay for all costs of design, development, construction and opening of the 15 21 Gaming Facility, including but not limited to all planning, professional fees, land acquisition costs, development, infrastructure improvements, construction and pre-opening costs, fees and expenses (the "Loan") on terms to SHINGLE SPRINGS as follows: (i) The principal of the Loan shall be for an amount up to $100 million. (ii) The Loan shall be repayable solely out of revenues of the Gaming Facility, as provided in the Management Contact, and shall be a limited recourse obligation of SHINGLE SPRINGS, with no recourse to other tribal assets, including the Tribal Lands and the tangible assets of the Gaming Facility, or to revenues received by SHINGLE SPRINGS after distribution from the Enterprise ("Tribal Distributions") or to assets purchased with Tribal Distributions, provided that SHINGLE SPRINGS shall waive sovereign immunity with respect to the Loan only to the extent provided in subsection (vii) of this Section. (iii) SHINGLE SPRINGS shall covenant not to encumber any of the assets of the Gaming Facility without KAR's prior written consent. However, SHINGLE SPRINGS shall have the right to grant subordinate security interests in Gaming Facility revenues, as well as first priority security interests in any Gaming Facility assets other than personal property purchases with the proceeds of the Loan, but only if such security interests are granted to secure loans made to and for the benefit of the Gaming Facility and KAR has been given at least thirty (30) days prior opportunity by SHINGLE SPRINGS to make such loans on similar financial terms. For purposes of this Agreement the assets of the Facility, as defined by Generally Accepted Accounting Principals shall not include SHINGLE SPRING's share of the distributable proceeds of the facility after they are transferred to SHINGLE SPRINGS's general account. (iv) The Loan shall not be assignable by either KAR or SHINGLE SPRINGS without the reasonable written consent of the non-assigning party. This restriction on assignment shall not be construed to impede a sale of KAR to a third party. (v) SHINGLE SPRINGS shall consent to arbitration, jurisdiction in state and federal court, and to State law as the law governing the Loan Agreement as provided for and limited by Article 14 of this Agreement. (vi) The Loan may be made directly by the Lender to SHINGLE SPRINGS, provided that the Loan is totally non-recourse to SHINGLE SPRINGS and otherwise conforms with the terms set forth in this Section 9.2. (vii) SHINGLE SPRINGS will waive sovereign immunity with respect to the Loan to the extent set forth in Article 14: (a) if KAR makes the Loan 16 22 directly to SHINGLE SPRINGS, (b) if a Lender makes the Loan and KAR subsequently becomes the holder of the Loan, and (c) to reimburse KAR if KAR's guarantee of the Loan is called due to a payment default by SHINGLE SPRINGS; and upon execution of the Loan Agreement shall enter into an enforceable reimbursement agreement with KAR secured by a first security interest in Gaming Facility revenues (the "Security and Reimbursement Agreement") to secure repayment of the Loan (a) if KAR makes the Loan directly to SHINGLE SPRINGS, (b) if a Lender makes the Loan and KAR subsequently becomes the holder of the Loan through assignment or otherwise, to the extent of KAR's holding or participation in the Loan, and (c) to reimburse KAR if KAR's guarantee of the Loan is called due to a payment default by SHINGLE SPRINGS. The Security and Reimbursement Agreement shall be in the form attached hereto as Exhibit B. (viii) It shall be a condition of the loan commitment that a management agreement between SHINGLE SPRINGS and KAR in substantially the form of the Management Agreement, and this Development Agreement, be approved by the chairman of the NIGC. SECTION 9.3. TRANSITION LOANS. KAR shall make loans for the purposes and as set forth in Section 9.1 and Section 9.4 (each a "Transition Loan") to SHINGLE SPRINGS, upon the terms set forth in the form of the promissory note attached hereto (the "Interim Promissory Note"). Each advance of funds to SHINGLE SPRINGS by KAR as part of any Transition Loan shall be evidenced by the Interim Promissory Note, duly authorized and executed by SHINGLE SPRINGS, setting forth the applicable terms of this Agreement. Payments under the Interim Promissory Note shall be repayable as unsecured, limited recourse, with an interest rate of a per annum variable rate no greater than the prime rate of Chase Manhattan Bank plus two percent (2%) or KAR's cost to borrow funds, whichever is lower, bearing obligations of SHINGLE SPRINGS payable solely out of Gaming Facility revenues, as provided in the Management Contract, in twelve (12) equal monthly payments commencing on the 15th day of the month after the month in which the Commencement Date occurs. SECTION 9.4. ADVANCES ON LOAN. KAR will provide the following funds to SHINGLE SPRINGS as advances on the Loan to be repaid with an interest rate of a per annum variable rate no greater than the prime rate of Chase Manhattan Bank plus two percent (2%) or KAR's cost to borrow funds, whichever is lower: (i) GAMING FACILITY SITE ACQUISITION FUNDS. For funding one or more Purchase Agreements, pursuant to Section 3.2. (ii) SITE PLANNING AND DESIGN DEVELOPMENT. KAR shall advance the funding for the work described in Articles 4, 5, and 6 of this Agreement performed prior to the Effective Date as provided in those Articles. 17 23 SECTION 9.5. CESSATION OF PAYMENTS. In the event a Tribal-State compact is not entered into within two (2) years of the date of this Agreement, KAR, at its sole discretion, may terminate the payments being made under this Agreement until said compact has been completed. ARTICLE 10 EXCLUSIVITY SECTION 10.1. EXCLUSIVITY REGARDING GAMING FACILITY. During the term of this Agreement, KAR shall have an exclusive relationship with SHINGLE SPRINGS regarding the development of the Gaming Facility. SECTION 10.2. EXCLUSIVITY. SHINGLE SPRINGS shall deal exclusively with KAR for commercial and gaming development as set forth in Exhibit A or other economic development that KAR deems feasible on existing or future Tribal Lands for a period beginning on the date of execution of this Agreement and ending upon termination of the Management Contract. Nothing contained herein shall be deemed to restrict KAR's gaming development activities related to commercial or Indian gaming. ARTICLE 11 REPRESENTATIONS, WARRANTIES, AND COVENANTS SECTION 11.1. REPRESENTATIONS AND WARRANTIES OF SHINGLE SPRINGS. SHINGLE SPRINGS represents and warrants to KAR as follows: (i) SHINGLE SPRINGS execution, delivery and performance of this Agreement, the Management Agreement, and Interim Promissory Note, and all other instruments and agreements executed in connection with this Agreement have been properly authorized by SHINGLE SPRINGS and do not require further approval. (ii) This Development Agreement, the Management Agreement, and Interim Promissory Note and all other instruments and agreements executed in connection with this Agreement have been properly executed, and once approved in accordance with Legal Requirements constitute SHINGLE SPRINGS's legal, valid and binding obligations, enforceable against SHINGLE SPRINGS in accordance with their terms. (iii) That with regards to the Development Agreement, the Management Agreement, the Interim Promissory Note, and all other instruments and agreements executed in connection with this Agreement, that SHINGLE SPRINGS shall not act or fail to act in any way whatsoever, directly or indirectly, to cause these Agreements to be amended, modified, canceled, or terminated, except pursuant to its express terms, or to cause KAR to be unable to perform its obligations or to develop the project as required or 18 24 contemplated by these Agreements shall take all action necessary to ensure that these Agreements shall remain in full force and effect at all times. SECTION 11.2 COVENANTS. The SHINGLE SPRINGS covenants and agrees as follows: (i) That promptly after the execution of this Agreement SHINGLE SPRINGS will take all steps necessary to negotiate an SHINGLE SPRINGS-State Compact with the State of California and adopt and obtain approval by the Chairman of the NIGC a gaming ordinance and that will meet the requirements of IGRA and the applicable regulations under IGRA and be consistent with the provisions of this Agreement, the Management Agreement, the Interim Promissory Note, and all other instruments and agreements executed in connection with this Agreement and not adversely affect the rights of KAR hereunder and thereunder. When adopting the Gaming Ordinance, SHINGLE SPRINGS will give KAR the opportunity to review and comment on the drafts thereof. Pursuant to the Gaming Ordinance, SHINGLE SPRINGS will promptly establish SHINGLE SPRINGS Regulatory Authority. (ii) SHINGLE SPRINGS agrees to enter into the Loan Agreement, and execute the Note and to take and perform such other actions as may be necessary to carry out the purposes of this Agreement, the Management Agreement, the Interim Promissory Note, and all other instruments executed in connection with this Agreement and the Related Agreements in accordance with the terms of the Compact, the legal requirements pertaining to the Tribal Lands, and factual particulars for development, construction and operation of the Gaming Facility for Class II & III Gaming. (iii) That during the term of this Development Agreement and the Management Agreement, SHINGLE SPRINGS shall not unnecessarily or in bad faith enact any law impairing the obligations of contracts entered into in furtherance of the financing, development, construction, operation and promotion of gaming on Tribal Lands. Neither the Tribal Council nor any committee, agency, board or other official body, and no officer or official of SHINGLE SPRINGS shall, by exercise of the police power or otherwise, act unnecessarily or in bad faith to modify, amend, or in any manner impair the obligations of contracts entered into by the Tribal Council or other parties in furtherance of the financing, development, construction, operation, or promotion of gaming on Tribal Lands without the written consent of the non-tribal parties to such contracts. SHINGLE SPRINGS warrants that any changes in Tribal law and any exercise of its police power in these areas shall be a good faith effort to ensure that gaming is conducted in a manner that adequately protects the environment, the public health and safety and the integrity of the Enterprise and to 19 25 insure compliance with applicable law or to perform an essential governmental function of SHINGLE SPRINGS. Any such action or attempted action taken in violation of this warranty shall be void ab initio. (iv) That SHINGLE SPRINGS will waive sovereign immunity on the limited basis described in Article 14 with respect to the Loan (a) if KAR makes the Loan directly to SHINGLE SPRINGS, (b) if a Lender makes the Loan and KAR subsequently becomes the holder of the Loan through assignment or otherwise, to the extent of KAR's holding or participation in the Loan, and (c) to reimburse KAR if KAR's guarantee of the Loan is called due to a payment default by SHINGLE SPRINGS; and upon the Effective Date shall enter the Security and Reimbursement Agreement to secure repayment of the Loan (a) if KAR makes the Loan directly to SHINGLE SPRINGS, (b) if a Lender makes the Loan and KAR subsequently becomes the holder of the Loan though assignment or otherwise, to the extent of KAR's holding or participation in the Loan, (c) to reimburse KAR if KAR's guarantee of the Loan is called due to a payment default by SHINGLE SPRINGS; (v) That SHINGLE SPRINGS will waive sovereign immunity on the limited basis described in Article 14 and enter into the Security and Reimbursement Agreement to secure repayment of any amounts owing to KAR or its Affiliates pursuant to Section 13.3. (vi) That this Agreement, the Management Agreement, the Loan Agreement, the Note, the Interim Promissory Notes, the Security and Reimbursement Agreement, and each other contract contemplated by this Agreement shall be specifically enforceable in accordance with their respective terms. (vii) That in its performance of this Agreement, SHINGLE SPRINGS shall comply with all Legal Requirements. SECTION 11.3. REPRESENTATIONS AND WARRANTIES OF KAR. KAR represents and warrants to SHINGLE SPRINGS as follows: (i) KAR has the financial contacts, business acumen, experience and capability to make or secure all advances and loans to SHINGLE SPRINGS described in this Development Agreement. (ii) KAR's execution, delivery and performance of this Agreement and all other instruments and agreements executed in connection with this Agreement have been properly authorized by KAR and do not require further approval. (iii) This Agreement has been properly executed, and once approved in 20 26 accordance with Legal Requirements, constitutes KAR's legal, valid and binding obligations are enforceable against KAR in accordance with its terms. (iv) There are no actions, suits or proceedings pending or threatened against or affecting KAR before any court or governmental agency that would in any material way affect KAR's ability to perform this Agreement. (v) That KAR shall not act in any way whatsoever, directly or indirectly, to cause this Agreement to be amended, modified, canceled, or terminated, except pursuant to its terms, and shall take all actions necessary to ensure that this Agreement shall remain in full force and effect at all times. Section 11.4 COVENANTS. KAR covenants and agrees that in its performance of this Agreement, it will comply with all Legal Requirements. ARTICLE 12 EVENTS OF DEFAULT SECTION 12.1. EVENTS OF DEFAULT BY SHINGLE SPRINGS. KAR shall not be obligated to loan SHINGLE SPRINGS any monies, provide the Loan commitment or make any advance on the Loan or otherwise perform its obligations under this Agreement pursuant to this Agreement if an Event of Default, as defined below, has occurred or if any of the representations and warranties made by SHINGLE SPRINGS in this Agreement would not be true if made on the date such fee payment or loan advance would otherwise be made. In addition, KAR shall not be obligated to make any loan advance to SHINGLE SPRINGS pursuant to this Agreement unless and until KAR receives the duly authorized and executed versions of the Management Agreement, the Security and Reimbursement Agreement, and the Interim Promissory Note. Each of the following shall be an "Event of Default": (i) SHINGLE SPRINGS shall fail to pay when due the Interim Promissory Note or any other indebtedness to KAR that SHINGLE SPRINGS owes or has guaranteed and such failure shall continue for twenty (20) days after KAR has given SHINGLE SPRINGS written notice of this Breach; (ii) Any event referred to in any Interim Promissory Note that permits KAR to declare the Interim Promissory Note due and payable shall occur; (iii) SHINGLE SPRINGS shall breach any of it's obligations under this Agreement and such breach shall continue for twenty (20) days after KAR gives SHINGLE SPRINGS written notice thereof. (iv) Any representation or warranty that SHINGLE SPRINGS has made under this Agreement or any other Related Agreement shall prove to have been untrue when made. 21 27 (v) SHINGLE SPRINGS violates the provisions of Article 10 of the Agreement. (vi) SHINGLE SPRINGS commits any material breach of the Management Agreement or the Security and Reimbursement Agreement. If any Event of default described in above occurs, KAR's commitments under this Agreement shall automatically terminate and any outstanding Interim Promissory Note and all of SHINGLE SPRINGS's other obligations to KAR under this Agreement and the Management Agreement shall immediately become due and payable and upon written notice to SHINGLE SPRINGS, declare KAR commitment to make advances under this Agreement terminated and/or declare the principal balance of each Interim Promissory Note and any accrued interest to be immediately due, and KAR may exercise any other rights and remedies available to KAR by law or agreement. KAR has the right to set off all sums owing by SHINGLE SPRINGS to KAR against all credits SHINGLE SPRINGS may have with, and any claims SHINGLE SPRINGS may have against KAR at any time after the Event of Default occurs. SECTION 12.2 EVENTS OF DEFAULT BY KAR. SHINGLE SPRINGS shall not be obligated to perform its obligations under this Agreement pursuant to this Agreement if an Event of Default, as defined below, has occurred or if any of the representations and warranties made by KAR in this Agreement would not be true if made on the date such performance would otherwise be due. Each of the following shall be an "Event of Default". (i) KAR shall fail to make advances required by this Agreement, and such failure shall continue for twenty (20) days after SHINGLE SPRINGS gives KAR written notice thereof; (ii) KAR shall breach any of KAR's obligations under this Agreement and such breach shall continue for twenty (20) days after SHINGLE SPRINGS gives KAR written notice thereof. (iii) Any representation or warranty that KAR has made under this Agreement or any other Related Agreement shall prove to have been untrue when made. (iv) KAR violates the provisions of Article 11 of this Agreement. (v) KAR shall be in material breach under the Management Agreement. (vi) has filed for relief under Title 11 of the United States Code or has suffered the filing of an involuntary petition under Title 11 which is not dismissed within one (1) year after filing; (vii) has a receiver appointed to take possession of all or substantially all of 22 28 KAR's property; or (viii) has suffered an assignment for the benefit of creditors. If any Event of Default described in clause (iv) above occurs, SHINGLE SPRINGS's commitments under this Agreement shall automatically terminate. If any other Event of Default occurs, SHINGLE SPRINGS may, upon written notice to KAR, exercise any other rights and remedies available to SHINGLE SPRINGS by law or agreement. SHINGLE SPRINGS has the right to set off all sums owing by KAR to SHINGLE SPRINGS against all credits KAR may have with, and any claims KAR may have against, SHINGLE SPRINGS at any time after an Event of Default occurs. ARTICLE 13 TERMINATION SECTION 13.1 VOLUNTARY TERMINATION. This Agreement may be terminated upon the mutual written consent and approval of the parties. SECTION 13.2. TERMINATION FOR CAUSE. Either party may terminate this Agreement if the other party commits or allows to be committed any material breach of this Agreement. A material breach of this Agreement means a failure of either party to perform any material duty or obligation on its part for any twenty (20) consecutive days after notice. Neither party may terminate this Agreement on grounds of material breach (not including any Event of Default) unless it has provided written notice to the other party of its intention to terminate this Agreement and the defaulting party thereafter fails to cure or take steps to substantially cure the default within thirty (30) days following receipt of such notice. The notice shall describe in detail the nature of he breach and the section of this Agreement alleged to have been violated. During the periods specified in the notice to terminate, either party may submit the matter to arbitration under Article 14 of this Agreement. The discontinuance or correction of a material breach shall constitute a cure thereof. In the event of any termination for cause, regardless of fault, KAR shall retain the right to repayment of unpaid principal and any interest on all monies loaned by it to SHINGLE SPRINGS whether pursuant to this Agreement or otherwise. SECTION 13.3 TERMINATION IF SHINGLE SPRINGS VIOLATES ARTICLE 10. If KAR terminates this Agreement because of a violation by SHINGLE SPRINGS of Article 10, SHINGLE SPRINGS, in addition to its obligations to KAR under the Interim Promissory Notes, agrees to repay KAR for all amounts advanced by KAR to SHINGLE SPRINGS, or for SHINGLE SPRINGS, pursuant to Article 9 of this Agreement, the Management Agreement or any other Related Agreement, that pursuant to this Agreement and SHINGLE SPRINGS agrees that its obligation to repay such amounts shall be subject to Section 14.1 regarding waiver of sovereign immunity by SHINGLE SPRINGS other provisions of Article 14, and a Security and Reimbursement Agreement pursuant to Section 11.2. SECTION 13.4 INVOLUNTARY TERMINATION DUE TO CHANGES IN LEGAL REQUIREMENTS. It is the understanding and the intention of the parties that the development, construction and 23 29 operation of the Enterprise shall conform to and comply with all Legal Requirements. If during the term of this Agreement, the Enterprise or any material aspect of the Gaming contemplated by the parties pursuant to this Agreement is determined by the Congress of the United States, the United States Department of the Interior, the NIGC or the final judgment of a court of competent jurisdiction to be unlawful, the obligations of the parties hereto shall cease, and this Agreement shall be of no further force and effect; provided that: (i) Any money loaned to SHINGLE SPRINGS by or guaranteed by KAR shall be repaid to KAR immediately from Shingle Springs share of undistributed proceeds of the gaming Enterprise. (ii) SHINGLE SPRINGS shall retain its interest in the title (and any lease) to the Enterprise's assets, including all fixtures, supplies and equipment, subject to the rights of KAR under the Security and Reimbursement Agreement and subject to any requirements of any financing agreements. SECTION 13.5. REPAIR AND REPLACEMENT OF DAMAGED GAMING FACILITY. If the Gaming Facility is damaged, destroyed or condemned so that continued development and construction of Gaming cannot be or can no longer be continued at the Gaming Facility, the Gaming Facility shall be reconstructed if the insurance or condemnation proceeds are sufficient to restore or replace the Gaming Facility to a condition at least comparable to that before the casualty occurred. If KAR elects to reconstruct the Gaming Facility and if the insurance proceeds or condemnation awards are insufficient to reconstruct the Gaming Facility to such condition, KAR may, in its sole discretion, offer to loan such additional funds as are necessary to reconstruct the Gaming Facility to such condition and such funds shall, with the prior consent of the Tribal Council and NIGC, as appropriate, constitute a loan to the Enterprise, secured by the revenues from the Business and repayable upon such terms as may be agreed upon by the Tribal Council and KAR. Any loan provided for herein shall not be subject to the ceiling set forth in this Development Agreement. SHINGLE SPRINGS may also, in its sole discretion provided from SHINGLE SPRINGS funds or borrow from a third party such funds as are necessary to rebuild the Gaming Facility. In such event, these funds shall be treated as a tribal loan to the Enterprise and shall be repaid under such terms and conditions as the Tribal Council and KAR may agree upon. If the insurance proceeds are not sufficient and are not used to repair the Gaming Facility, and neither SHINGLE SPRINGS nor KAR wishes to provide the additional funds necessary to re-build and re-open the Gaming Facility, SHINGLE SPRINGS and KAR shall jointly adjust and settle any and all claims for such insurance proceeds or condemnation awards, and such proceeds or award shall be applied first, to the amounts due under the Note or Security and Reimbursement Agreement (including principal and interest); second, to any other loans; third, to any fees or costs owed to KAR pursuant to the Management Agreement; fourth, any surplus shall be distributed to SHINGLE SPRINGS. SECTION 13.6. TRIBE'S RIGHT TO TERMINATE AGREEMENT. SHINGLE SPRINGS may terminate this Agreement by written notice effective upon receipt if: (i) Any Federal or State authority objects to the performance by KAR of any 24 30 obligation imposed on it under this Agreement and KAR has not cured the circumstance, if it is within its control to cure, giving rise to the objection to performance within one hundred twenty (120) days. SHINGLE SPRINGS's ability to terminate this Agreement pursuant to this provision shall be tolled during any contest by KAR of any such objection to its performance. (ii) SHINGLE SPRINGS has reason to believe that the performance by it or KAR of any obligation imposed under this Agreement may reasonably be expected to result in the breach of any Legal Requirement and the parties have been unable to agree upon a waiver of such performance within twenty (20) days of written notice given by SHINGLE SPRINGS. (iii) KAR's failure to make any payment to SHINGLE SPRINGS when due within the time specified in this Agreement after KAR has received twenty 20 days written notice of its failure to pay. ARTICLE 14 DISPUTE RESOLUTION 14.1. GENERAL. The parties agree that binding arbitration pursuant to this Article 14 shall be the remedy for all disputes, controversies and claims arising out of this Development Agreement, Management Agreement, the Note, Loan Agreement, the Security and Reimbursement Agreement, any documents or agreements references by any of these documents, any agreements collateral thereto, or any notice of termination thereof, including without limitation, any dispute, controversy or claim arising out of any of these agreements. The parties intend that such arbitration shall provide final and binding resolution of any dispute, controversy or claim, and that action in any other forum shall be brought only if necessary to compel arbitration, or to enforce an arbitration award or order. (i) Each party agrees that it will use its best efforts to negotiate an amicable resolution of any dispute between KAR and SHINGLE SPRINGS arising from this Agreement. If SHINGLE SPRINGS and KAR are unable to negotiate an amicable resolution of a dispute within 14 days from the date of notice of the dispute pursuant to the notice section of this Agreement, or such other period as the parties mutually agree in writing, either party may refer the matter to arbitration as provided herein. (ii) The SHINGLE SPRINGS's election to terminate this Agreement is, however, final and conclusive and not subject to dispute resolution between the parties, but only if the NIGC makes a final determination that KAR is not suitable to hold a license. The parties recognize that minor revisions of contracts before the NIGC is routine, and an NIGC notice requesting revisions in the Agreement shall not be grounds for termination by SHINGLE SPRINGS unless KAR refuses to make the changes 25 31 necessary to obtain NIGC approval. SECTION 14.2. ARBITRATION SECTION 14.2.1. INITIATION OF ARBITRATION AND SELECTION OF ARBITRATORS. Arbitration shall be initiated by written notice by one party to the other pursuant to the notice section of this Agreement, and the Commercial Arbitration Rules of the American Arbitration Association shall thereafter apply. The arbitrators shall have the power to grant equitable and injunctive relief and specific performance as provided in this Agreement. If necessary, orders to compel arbitration or enforce an arbitration award may be sought before the United States District Court for the Eastern District of California and any federal court having appellate jurisdiction over said court. If the United States District Court for the Eastern District of California finds that it lacks jurisdiction, SHINGLE SPRINGS consents to be sued in a Court of competent jurisdiction. The arbitrator shall be a licensed attorney, knowledgeable in federal Indian law and selected pursuant to the Commercial Arbitration Rules of the American Arbitration Association. (i) CHOICE OF LAW. In determining any matter the Arbitrator shall apply the terms of this Development Agreement, without adding to, modifying or changing the terms in any respect, and shall apply federal and applicable State law. (ii) PLACE OF HEARING. All arbitration hearings shall be held at a place designated by the arbitrator in Sacramento, California. (iii) CONFIDENTIALITY. The parties and the arbitrator shall maintain strict confidentiality with respect to arbitration. 14.3. LIMITED WAIVER OF SOVEREIGN IMMUNITY. SHINGLE SPRINGS expressly and irrevocably waives its immunity from suit as provided for and limited by this Section. This waiver is limited to SHINGLE SPRINGS's consent to all arbitration proceedings, and actions to compel arbitration and to enforce any awards or orders issuing from such arbitration proceedings which are sought solely in United States District Court for the Eastern District of California and any federal court having appellate jurisdiction over said court, provided that if the United States District Court for the Eastern District of California finds that it lacks jurisdiction, SHINGLE SPRINGS consents to be sued in a Court of competent jurisdiction. The arbitrators shall not have the power to award punitive damages. (i) TIME PERIOD. The waiver granted herein shall commence as of the Date of this Agreement and shall continue for one year following expiration, termination or cancellation of this Agreement, or termination of the Enterprise whichever is earlier, but shall remain effective for the duration of any arbitration, litigation or dispute resolution proceedings then pending, all appeals therefrom, and except as limited by this Section, to the full satisfaction of any awards or judgments which may issue from such proceedings, provided that an action to collect such judgments has 26 32 been filed within one year of the date of the final judgment. Provided however, all collection action shall terminate six (6) years after the final judgment. (ii) RECIPIENT OF WAIVER. This limited waiver is granted only to KAR and the Lender. (iii) LIMITATIONS OF ACTIONS. This limited waiver is specifically limited to the following actions and judicial remedies: (a) DAMAGES. The enforcement of an arbitrator's award of money damages provided that the waiver does not extend beyond the assets specified in Subsection (g) below. No arbitrator or court shall have the authority or jurisdiction to order execution against any assets or revenues of the SHINGLE SPRINGS except as provided in this Section or to award any punitive damages against SHINGLE SPRINGS. (b) CONSENTS AND APPROVALS. The enforcement of a determination by an arbitrator that SHINGLE SPRINGS's consent or approval has been unreasonably withheld contrary to the terms of this Agreement. (c) INJUNCTIVE RELIEF AND SPECIFIC PERFORMANCE. The enforcement of a determination by an arbitrator that prohibits SHINGLE SPRINGS from taking any action that would prevent KAR from operating the Enterprise pursuant to the terms of this Agreement, or that requires the SHINGLE SPRINGS to specifically perform any obligation under this Agreement (other than an obligation to pay money which is protected by Subsection (g) below. (d) ACTION TO COMPEL ARBITRATION. An action to compel or enforce arbitration or arbitration awards or orders pursuant to this Section. (e) SERVICE OF PROCESS. In any litigation or arbitration service of process on SHINGLE SPRINGS shall be effective if made by certified mail return receipt requested to the Chairperson of SHINGLE SPRINGS at the Address set for in Article 15.4 below. (f) ENFORCEMENT. If enforcement of a judicial order or arbitration award becomes necessary by reason of failure of one or both parties to voluntarily comply, the parties agree that the matter may be resolved by entry of judgment on the award and enforcement as described herein. Without in any way limiting or expanding the provisions of this Section, SHINGLE SPRINGS expressly authorizes any governmental authorities which may lawfully 27 33 exercise the right and duty to take any action authorized or ordered by any court to whom its sovereign immunity is waived pursuant to this Section, including without limitation, entering the Tribal Lands and Gaming Facility for the purpose of executing against any property subject to a security interest or otherwise giving effect to any judgment properly entered pursuant to this Section; provide however, that in no instance shall any enforcement of any kind whatsoever be allowed against any assets of SHINGLE SPRINGS other than the limited assets of SHINGLE SPRINGS specified in subjection (g) below. (g) LIMITATION UPON ENFORCEMENT. Damages awarded against SHINGLE SPRINGS or the Enterprise shall be satisfied solely from the distributable share of Net Revenues of SHINGLE SPRINGS from the Enterprise and the Net Revenues of, any other Commercial Development in conjunction with KAR of the kind contemplated and the Net Revenues of any future gaming business of any kind which is operated by or for SHINGLE SPRINGS, whether or not operated under this Agreement, provided, however, that this limited waiver of sovereign immunity shall terminate with respect to the collection of any Net Revenues transferred from the accounts of any of these businesses to SHINGLE SPRINGS or SHINGLE SPRINGS bank account in the normal course of business. In no instance shall any enforcement of any kind whatsoever be allowed against any assets of SHINGLE SPRINGS other than those specified in this subsection. ARTICLE 15 GENERAL SECTION 15.1. NATURE OF AGREEMENT. This Agreement is not intended as a Management Agreement and shall not be construed as a "management agreement" within the meaning of the IGRA. SECTION 15.2. KAR'S INTEREST IN THE GAMING FACILITY. Nothing contained herein grants or is intended (i) to grant KAR a titled interest to the Gaming Facility, or (ii) in any way to impair SHINGLE SPRING's sole proprietary interest in the Enterprise. SECTION 15.3. SITUS OF THE AGREEMENT. This Agreement and any Interim Promissory Note shall be deemed entered into in California. SECTION 15.4. NOTICE. Any notice required to be given pursuant to this Agreement shall be delivered to the appropriate party by Certified Mail Return Receipt Requested, addressed as follows: 28 34 If to SHINGLE SPRINGS: Jim Adams Shingle Springs of Band of Miwok Indians P.O. Box 1340 Shingle Springs, California 95682 Attn.: Chairperson Copies to: Phillip E. Thompson Thompson Associates 2307 Thornknoll Drive Suite 100 Fort Washington, MD 20744 If to KAR: Kevin M. Kean Kean Argovitz Resorts - Shingle Springs, LLC 11999 Katy Frwy., Suite 322 Houston, Texas 77079 Copies to: Jerry Argovitz Kean Argovitz Resorts - Shingle Springs, LLC 11999 Katy Frwy., Suite 322 Houston, TX 77079 or to such other different address(es) as KAR or SHINGLE SPRINGS may specify in writing. Any such notice shall be deemed given two days following deposit in the United States mail or upon actual delivery, whichever first occurs. SECTION 15.5. RELATIONSHIP. KAR and SHINGLE SPRINGS shall not be construed as joint venturers or partners of each other by reason of this Agreement and neither shall have the power to bind or obligate the other except as set forth in this Agreement. SECTION 15.6. FURTHER ACTIONS. The SHINGLE SPRINGS and KAR agree to execute all contracts, agreements and documents and to take all actions necessary to comply with the provisions of this Agreement and the intent hereof. SECTION 15.7. WAIVERS. No failure or delay by KAR or SHINGLE SPRINGS to insist upon the strict performance of any covenant, agreement, term or condition of this Agreement, or to exercise any right or remedy consequent upon the breach thereof, shall constitute a waiver of any such breach or any subsequent breach of such covenant, agreement, term or condition. No covenant, agreement, term, or condition of this Agreement and no breach thereof shall affect or alter this Agreement, but each and every covenant, agreement, term and condition of this Agreement shall continue in full force and effect with respect to any other then existing or 29 35 subsequent breach thereof. SECTION 15.8. CAPTIONS. The captions of each article, section and subsection contained in this Agreement are for ease of reference only and shall not affect the interpretational meaning of this Agreement. SECTION 15.9. THIRD PARTY BENEFICIARY. This Agreement is exclusively for the benefit of the parties hereto and it may not be enforced by any party other than the parties to this Agreement and shall not give rise to liability to any third party other than the authorized successors and assigns of the parties hereto. SECTION 15.10. SURVIVAL OF COVENANTS. Any covenant, term or provision of this Agreement which, in order to be effective, must survive the termination of this Agreement, shall survive any such termination. SECTION 15.11. ESTOPPEL CERTIFICATE. KAR and SHINGLE SPRINGS agree to furnish to the other party, from time to time upon request, an estoppel certificate in such reasonable form as the requesting party may request stating whether there have been any defaults under this Agreement known to the party furnishing the estoppel certificate. SECTION 15.12. PERIODS OF TIME. Whenever any determination is to be made or action is to be taken on a date specified in this Agreement, if such date shall fall on a Saturday, Sunday or legal holiday under the laws of SHINGLE SPRINGS or the State of California, then in such event said date shall be extended to the next day which is not a Saturday, Sunday or legal holiday. SECTION 15.13. GOVERNMENTAL SAVINGS CLAUSE. Each of the parties agrees to execute, deliver, and, if necessary, record any and all additional instruments, certifications, amendments, modifications and other documents as may be required by the United States Department of the Interior, Bureau of Indian Affairs, the office of the Field Solicitor, the NIGC, or any applicable statute, rule or regulation in order to effectuate, complete, perfect, continue or preserve the respective right, obligations, liens and interests of the parties hereto to the fullest extent permitted by law; provided, that any such additional instrument, certification, amendment, modification or other document shall not materially change the respective rights, remedies or obligations of SHINGLE SPRINGS or KAR under this Agreement or any other agreement or document related hereto. SECTION 15.14. SUCCESSORS AND ASSIGNS. The benefits and obligations of this Agreement shall inure to and be binding upon the parties hereto and their respective successors and assigns. SHINGLE SPRINGS prior written consent shall be required for KAR to assign any of its rights, said consent shall not be unreasonably withheld hereunder, and, if necessary the Secretary of the Interior or the chairman of the NIGC approves, and that any such assignee agrees to be bound by the terms and conditions of this Agreement. The acquisition of KAR by a third party shall not constitute an assignment of this Agreement by KAR subject to the approval of SHINGLE SPRINGS, which approval shall not be unreasonably withheld. The SHINGLE SPRINGS shall, 30 36 without the consent of KAR, but subject to approval by the Secretary of the Interior or the Chairperson of the NIGC or his authorized representative, if required, have the right to assign this Agreement and the assets of the Enterprise to an instrumentality of the SHINGLE SPRINGS or to a corporation wholly owned by SHINGLE SPRINGS organized to conduct the business of the Project and Enterprise for SHINGLE SPRINGS that assumes all obligations herein. Any assignment by the SHINGLE SPRINGS shall not prejudice the rights of KAR under this Agreement. No assignment authorized hereunder shall be effective until all necessary governmental approvals have been obtained. SECTION 15.15 SEVERABILITY. If any provision, or any portion of any provision, of this Agreement is found to be invalid or unenforceable, such unenforceable provision, or unenforceable portion of such provision, shall be deemed severed from the remainder of this Agreement. If any provision, or any portion of any provision, of this Agreement is deemed invalid due to its scope or breadth, such provision shall be deemed valid to the extent of the scope or breadth permitted by law. If, however, any material part of a party's rights under this Agreement or the Management Agreement shall be declared invalid or unenforceable (specifically including KAR right to receive its management fees or SHINGLE SPRINGS's right to receive payments for loans from KAR) the party whose rights have been declared invalid or unenforceable shall have the option to terminate this Agreement upon thirty (30) days' written notice to the other party, without liability on the part of the terminating party, but KAR shall retain the right to repayment of unpaid principal and interest on all monies loaned to it by SHINGLE SPRINGS whether pursuant to this Agreement or otherwise. SECTION 15.16 ENTIRE AGREEMENT. This Agreement (together with the Exhibits and Management Agreement of even date herewith) sets forth the entire agreement between the parties hereto with respect to the subject matter hereof. All agreements, covenants, representations, and warranties, express or implied, oral or written, of the parties with respect to the subject matter hereof are contained herein. No other agreements, covenants, representations, or warranties, express or implied, oral or written have been made by any party to the other with respect to the subject matter of this Agreement. All prior and contemporaneous conversations, discussions, negotiations, possible and alleged agreements and representations, covenants and warranties with respect to the subject matter hereof, are waived, merged herein and superseded hereby. Each party affirmatively represents that no promises have been made to that party which are not contained in this Agreement, the Management Agreement, and the Exhibits, and stipulates that no evidence of any promises not contained in this Agreement, the Management Agreement, and the Exhibits, shall be admitted into evidence on their behalf. This Agreement shall not be supplemented, amended or modified by any course of dealing, course of performance or uses of trade and may only be amended or modified by a written instrument duly executed by officers of both parties. ARTICLE 16 INDEMNIFICATION SECTION 16.1 INDEMNITY. SHINGLE SPRINGS hereby agrees to indemnify and will hold KAR harmless from and against any and all claims, demands, liabilities, actions, damages, 31 37 costs, charges and expenses (including attorney fees) as a consequence, direct or indirect of SHINGLE SPRINGS's association including but not limited to Chris Anderson, Sharp Image Gaming, Excelsior Gaming or any other party which may have claims against SHINGLE SPRINGS. The Coushatta Indian Tribe of Louisiana and Lakes Gaming, Inc. shall be excluded. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. ARTICLE 17 TRIBAL RESOLUTION SECTION 17.1 TRIBAL RESOLUTION. SHINGLE SPRINGS Tribal Council has given the Tribal Chairperson authority to enter into this Agreement, the Management Agreement, the Interim Promissory Note and all other instruments and agreements executed in connection with this Agreement. SHINGLE SPRINGS OF BAND OF MIWOK INDIANS By: /s/ Jim Adams ---------------------- Jim Adams, Chairman KEAN ARGOVITZ RESORTS - SHINGLE SPRINGS, LLC. By: /s/ Kevin M. Kean ---------------------- Kevin M. Kean, President 32 38 EXHIBIT A PRELIMINARY PROJECT DESCRIPTION According to the preliminary plan, the Gaming Facility should contain the following components in order to fully capture the potential market demand: - - 120,000 square feet of building space. - - 3,000 compacted gaming devices and 40 table games (assuming allowed by (Compact). - - Parking garage and flat parking with 1,500 spaces. - - Specialty restaurant. - - Food buffet restaurant. - - 24 hour coffee shop. - - Snack bar. - - Retail area. - - Multi-purpose entertainment, bingo and convention facility. - - Meeting rooms. - - Child care facility. - - Video arcade facility. - - Administrative offices. - - Regulatory authority. - - 300 Room hotel with indoor pool & fitness facility. - - RV Park. - - Convenience Store/Gas Station. - - Acquire Additional land for the SHINGLE SPRINGS. 33 39 EXHIBIT B SECURITY AND REIMBURSEMENT AGREEMENT THIS AGREEMENT is made and entered into as of the 11 day of June, 1999 by and among the SHINGLE SPRINGS OF BAND OF MIWOK INDIANS, a federally recognized Indian Tribe, and its permitted successors and assigns ("SHINGLE SPRINGS") P.O. Box 1340, SHINGLE SPRINGS, California 95682; and Kean Argovitz Resorts - Shingle Springs, LLC., a Nevada limited liability company, with offices at 11999 Katy Frwy., Suite 322, Houston, TX 77079 ("KAR"), referred to herein as "Guarantors". RECITALS A. SHINGLE SPRINGS is a federally recognized Indian tribe and possesses sovereign governmental powers over the Tribal Lands, and is held in trust by the United States of America for the benefit of the SHINGLE SPRINGS OF BAND OF MIWOK INDIANS. B. SHINGLE SPRINGS desires to build a gaming facility on the Tribal Lands (the "Gaming Facility"). C. SHINGLE SPRINGS intends to finance construction of the Gaming Facility with up to $100,000,000 of unsecured non-recourse debt (the "Lender Financing"). D. ("________") has or will issue a conditional commitment for the Lender Financing (the "Commitment"), requiring, among other things, that Guarantors guaranty to the holders of the Lender Financing certain matters, including the complete and unconditional guaranty of the payment of the Lender Financing. Such guaranty is referred to as the "Guaranty". E. The obligations of SHINGLE SPRINGS to make any payments under this Agreement are limited to the same extent as the obligations of SHINGLE SPRINGS are limited under the agreements and documents evidencing the Lender Financing (the "Loan Documents"). Recourse under this Agreement is limited to the Collateral and the proceeds, if any, realized by the Guarantors upon the disposition thereof, and SHINGLE SPRINGS shall not be obligated to apply any other assets or revenues to the payment or performance of its obligations hereunder. F. Guarantors require, as a condition to the issuance of the Guaranty, among other things: (i) that SHINGLE SPRINGS agree to reimburse, indemnify and hold harmless from and against all amounts Guarantor may be called on to pay under the Guaranty; and (ii) that SHINGLE SPRINGS agrees, that all amounts due and owing under this Agreement will be evidenced by the agreements, instruments and documents evidencing the Lender Financing. G. KAR and SHINGLE SPRINGS have signed an agreement of even date herewith providing for the management of a gaming enterprise (the "Enterprise") at the Gaming 34 40 Facility by KAR (the "Management Agreement") (and performance of the Management Agreement by KAR has been guaranteed by KAR and SHINGLE SPRINGS have signed an agreement of even date regarding development, financing and construction of the Gaming Facility (the "Development Agreement"). All capitalized terms in this Securities and Reimbursement Agreement not otherwise defined herein shall have the definitions set forth in the Management Agreement. H. Guarantors have required, as a condition to the execution by them of the Development Agreement, that SHINGLE SPRINGS execute this Security and Reimbursement Agreement to secure repayment to the Guarantors of certain loans and advances to and on behalf of SHINGLE SPRINGS to be made pursuant to the Development Agreement. I. Guarantors and SHINGLE SPRINGS wish, by the execution hereof, to set forth their agreements in regard to the Guaranty. AGREEMENT NOW THEREFORE, in consideration of TEN DOLLARS ($10.00), the issuance of the Guaranty, and other good valuable consideration, the receipt and sufficiency of which is acknowledged, Owner and Guarantors hereby agree as follows: 1. SECURITY ("COLLATERAL"). As security for the full and punctual payment and performance of SHINGLE SPRINGS's obligations under this Agreement, SHINGLE SPRINGS irrevocably grants, pledges and assigns, subject to the terms of this Agreement, a continuing lien on and security interest in, the distributable share of Total Net Revenues of SHINGLE SPRINGS from the Enterprise, the distributable share of Total Net Revenues any other Tribal gaming business of the kind contemplated and the distributable share of Total Net Revenues of any future gaming business of any kind which is operated by or for SHINGLE SPRINGS, whether or not operated under an Agreement with KAR, provided, however, that these funds shall cease to be collateral for this Agreement when they are transferred from the accounts of any of these Businesses to SHINGLE SPRINGS or SHINGLE SPRINGS's bank account in the normal course of business. In no instance shall any enforcement of any kind whatsoever be allowed against any assets of SHINGLE SPRINGS other than those specified in this subsection. Provided, however, that the security interest and lien on the Collateral granted hereunder (i) shall not be deemed to exist unless and until the Guaranty has been called and the Guarantors have purchased the Lender Financing or the Guarantors has made a loan or advance pursuant to the Development Agreement that is to be secured by this Security and Reimbursement Agreement, SHINGLE SPRINGS recognizes that Guarantors will be required by the holders of the Lender Financing, to purchase the Lender Financing ("Loan Documents") on demand. SHINGLE SPRINGS agrees if the Guaranty is called and Guarantors purchase the Lender Financing, then all amounts from time to time owed by SHINGLE SPRINGS to Guarantors, or either of them, under this Agreement shall thereupon be secured by this Agreement as advances made to protect the Collateral. As an inducement to Guarantors to deliver the Guaranty, and recognizing that Guarantors will rely hereupon, SHINGLE SPRINGS agrees that, in the event Guarantors or any of their affiliates acquires the Lender Financing, no defense, set-off, counterclaim or other claim whatsoever 35 41 (collectively "claims") will be made against Guarantors or their affiliates based upon the acts or omissions of the Lender and/or any prior holder(s) of the Loan Documents, and the sole remedy for such acts or omissions shall be a separate action against the Lender and/or such holder(s) for damages. 2. NOTICE OF GUARANTY PAYMENTS. Guarantors shall notify SHINGLE SPRINGS of each payment made under the Guaranty (each, a "Guaranty Payment," and collectively, the "Guaranty Payments") in the manner provided in Section 14 of this Agreement. 3. INDEMNITY BY SHINGLE SPRINGS - GUARANTY. With respect to the Loan Documents, SHINGLE SPRINGS indemnifies Guarantors and holds Guarantors harmless from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including without limitation all Guaranty Payments, costs of legal contests, and all attorneys' fees and allocated costs of internal counsel) that Guarantors, may incur or be subject to as a consequence, direct or indirect, of the issuance, performance, or contest of the Guaranty. Payment of all such amounts by SHINGLE SPRINGS shall, unless otherwise specified in this Agreement, be made as follows: (i) The principal amounts advanced and outstanding shall be due and payable on the maturity dates set forth in the Loan Documents, notwithstanding any acceleration by the Lender; and one day following the maturity of the Lender Financing; and (ii) Interest shall be calculated daily on the principal amount owed and outstanding from the date of its advance to the date of its repayment at a rate equal to that set forth in the Lender Financing; and shall be due and payable monthly on the first day of each calendar month from the date hereof until Maturity. 4. OBLIGATIONS ABSOLUTE. The obligations of SHINGLE SPRINGS to Guarantors are unconditional, irrevocable and continuing until paid and performed in full, and shall be paid and performed in strict accordance with the terms of this Agreement under all circumstances, including without limitation, the following: (i) Any lack of validity or enforceability of any Guaranty; (ii) The existence of any claim, set-off, defense or other right that SHINGLE SPRINGS may have at any time against any Guarantor, or any affiliate of any Guarantor, or against Lender or any other lender participating in the Lender Financing (or any persons or entities for whom any such party may be acting), or against any other person or entity, whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction; (i) Any other circumstance or happening whatsoever. 36 42 5. RIGHTS OF GUARANTORS. The Guarantors, may, at any time and from time to time, without consent of or notice to SHINGLE SPRINGS, and without incurring responsibility to SHINGLE SPRINGS, and without impairing or releasing the obligations of SHINGLE SPRINGS hereunder: (i) Exercise or refrain from exercising any rights against SHINGLE SPRINGS, the collateral (or any other collateral or guaranty which may otherwise secure the repayment of liabilities of the Guarantors under the Guaranty) or otherwise act or refrain from acting (or consent to any such action or inaction); and (ii) Apply any sums by whomsoever paid, or howsoever realized, to any liability or liabilities of SHINGLE SPRINGS hereunder (or under any other agreements, instruments or documents which may hereafter be acquired to secure repayment of the liabilities of the Guarantors under the Guaranty), regardless of what liabilities or liabilities of SHINGLE SPRINGS remain unpaid so long as such payments are consistent with the priority of payments set forth in the Development and Construction Agreement and/or the Management Agreement. 6. REPRESENTATIONS AND WARRANTIES. SHINGLE SPRINGS represents and warrants to Guarantors as follows: (i) SHINGLE SPRINGS is a federally recognized Indian tribe recognized as eligible by the Secretary of the Interior for the special programs and services provided by the United States to Indians because of their status as Indians and is recognized as possessing powers of self-government. (ii) SHINGLE SPRINGS has all requisite power and authority to execute, deliver and perform this Agreement. 7. TRANSFER OF COLLATERAL. Except as to any Lender Financing, and except as allowed pursuant to the Loan Agreement and the Development Agreement, no Collateral shall be sold, transferred, assigned, pledged, made subject to any other security interest, or otherwise disposed of or encumbered (each, a "Transfer") without the express prior written consent of Guarantors. Any Transfer in violation of this Agreement shall be null and void, ab initio. 8. EVENTS OF DEFAULT. An "Event of Default" shall exist if any of the following shall have occurred: (i) SHINGLE SPRINGS shall fail to comply with any of the covenants or agreements made by it in this Agreement and such failure shall not be remediable, or if remediable, such failure shall have continued unremedied for ten (10) days after written notice thereof has been given to SHINGLE SPRINGS by any Guarantor. (ii) Any representation or warranty made by SHINGLE SPRINGS in this Agreement 37 43 shall fail to have been correct or shall have been misleading in any material respect on the date made or as of the time recited; or (iii) SHINGLE SPRINGS shall have defaulted in any of its obligations with respect to: (1) the Loan documents and maturity of the debt evidenced thereby shall have been accelerated; (2) the Development Agreement or (3) any agreement entered into with respect to the Gaming Facility by and between SHINGLE SPRINGS and any Guarantor or affiliate of any Guarantor. 9. REMEDIES. If an Event of Default shall occur, and if the Guarantors, or any of them, shall have purchased the Lender Financing under one or more of the Guaranties, the Guarantors, shall have, in addition to its other rights, all rights of the Lender under the Loan Documents. All amounts advanced by, or on behalf of, the Guarantors, in exercising rights under this Agreement (including but not limited to legal expenses and disbursements incurred in connection therewith, and fees and costs of preparing for and consummating any sale of the Collateral), together with interest thereon from the date of such advance at the applicable rate allowed by the Loan Documents, shall be payable by SHINGLE SPRINGS, on demand, and shall be secured by the Collateral. 10. RECEIPT OF SALES PROCEEDS. Upon any sale of the Collateral by the Guarantors (whether by virtue of the power of sale herein granted, pursuant to judicial process or otherwise), the receipt of the Guarantors or the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Collateral so sold, and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over the Guarantors or such officer or be answerable in any way for the misapplication or non-application thereof. 11. APPLICATION OF COLLATERAL. All proceeds of any Collateral now or at any time hereafter received or retained by the Guarantors pursuant to this Agreement (including without limitation, any proceeds from the sale of the Collateral, and all distributions, dividends and other payments received by the Guarantors in respect of the Collateral) shall be applied: (i) first, to the payment of any costs incurred in the enforcement of or exercise of rights under this Agreement; (ii) second, to the payment of accrued and unpaid interest; (iii) third, to the payment of the principal amount owned; and (iv) fourth, to SHINGLE SPRINGS or otherwise as directed by a court of competent jurisdiction. If obligations of SHINGLE SPRINGS are due and unpaid under more than one Guaranty, Guarantors may apply such proceeds to the unsatisfied Guaranty in such order as they may, in their sole discretion, determine. 12. WAIVERS; MODIFICATIONS. (i) No failure or delay on the part of the Guarantors to insist on strict performance in exercising any privilege, right or remedy shall operate as a waiver thereof or a waiver of any term, provision or condition hereof, nor shall any single or partial exercise of any privilege, right or remedy preclude any other or further exercise thereof or the exercise of any other privilege, right or remedy. 38 44 (ii) A waiver in one or more instances of any of the terms, covenants, conditions or provisions hereof shall apply to the particular instance or instances and at the particular time or times only, and no such waiver shall be deemed a continuing waive, but all of the terms, covenants, conditions and other provisions of this Agreement shall survive and continue to remain in full force and effect; and no waiver shall be effective unless in writing, dated and signed by the Guarantors. (iii) No change, amendment, modification, cancellation or discharge hereof, shall be valid unless in writing, dated and signed by the party against whom such change, amendment, modification, cancellation or discharge is sought to be charged. 13. REMEDIES CUMULATIVE. All rights and remedies afforded to the parties hereto by reason of this Agreement are separate and cumulative remedies, and shall be in addition to all other rights and remedies in favor of such parties existing at law or in equity or otherwise. No one of such remedies, whether or not exercised by any such party, shall be deemed to exclude, limit or prejudice the exercise of any other legal or equitable remedy or remedies available to such parties so long as same fall within the scope of those provided in the Management Agreement and/or the Development Agreement between SHINGLE SPRINGS and Guarantors. 14. NOTICES. All notices, demands, requests, and other communications required or permitted hereunder shall be in writing and shall be deemed to have been given: (i) when presented personally; or (ii) one (1) business day after delivery to a commercial overnight courier service; or (iii) three (3) business days after mailing with the United States Postal service, postage prepaid, certified mail, return receipt requested; in each case addressed or delivered, in the case of personal presentation, to the respective party, as the case may be, at the following address, or such other address any party may from time to time designate by written notice to the others as herein required. If to the Guarantors: Kean Argovitz Resorts - Shingle Springs, LLC 11999 Katy Frwy., Suite 322 Houston, TX 77079 Attn: Kevin Kean With simultaneous copies to: Kean Argovitz Resorts - Shingle Springs, LLC 11999 Katy Frwy., Suite 322 Houston, TX 77079 Attn.: Dr. Jerry Argovitz If to SHINGLE SPRINGS: Jim Adams, Chairman Shingle Springs of Band of Miwok Indians P.O. Box 1340 Shingle Springs, California 95682 39 45 With simultaneous copies to: Phillip E. Thompson Thompson Associates 2307 Thornknoll Drive Suite 100 Fort Washington, MD 20744 15. SUCCESSORS AND ASSIGNS. The benefits and obligations of this Agreement shall inure to and be binding upon the parties hereto and their respective successors and permitted assigns. SHINGLE SPRINGS's consent shall not be required for Guarantors to assign any of their rights, interests or obligations as Guarantors hereunder to any parent, subsidiary or affiliate of Guarantors or their successor corporations, provided that the Secretary of the Interior approves and that any such assignee agrees to be bound by the terms and conditions of this Agreement. The acquisition of the Guarantors or their parent company by a third party shall not constitute an assignment of this Agreement by Guarantors and this Agreement shall remain in full force and effect between SHINGLE SPRINGS and Guarantors. This Agreement may be assigned by the Guarantors, subject to approval by SHINGLE SPRINGS, which approval shall not be unreasonably withheld, and by the Secretary of the Interior or his authorized representative after a complete background investigation of the proposed assignee. SHINGLE SPRINGS shall, without the consent of the Guarantors have the right to assign this Agreement and the assets of the Enterprise to an instrumentality of SHINGLE SPRINGS or to a corporation wholly owned by SHINGLE SPRINGS organized to conduct the business of the Enterprise for SHINGLE SPRINGS that assumes all obligations herein. Any assignment by SHINGLE SPRINGS shall not prejudice the rights of the Guarantors under this Agreement. No assignment authorized hereunder shall be effective until all necessary government approvals have been obtained. 16. GUARANTORS NOT BOUND. Nothing herein shall be construed to make the Guarantors liable as partners of SHINGLE SPRINGS, and the Guarantors, by virtue of this Agreement, shall not have any of the duties, obligations or liabilities of a partner of SHINGLE SPRINGS. 17. SEVERABILITY. All rights, powers and remedies provided herein may be exercised only to the extent that the exercise thereof does not violate any applicable law, and are intended to be limited to the extent necessary so that they will not render this Agreement invalid or unenforceable. If any one or more of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions hereof, but the balance of this Agreement shall be construed as if such invalid, illegal or unenforceable provision or provisions had never been included. 18. FURTHER ASSURANCES. SHINGLE SPRINGS shall, at any time and from time to time after the execution and delivery of this Agreement, within ten (10) days after request by the Guarantors, execute, acknowledge and deliver such further conveyances, assignments, agreements and instruments of further assurance and other documents and do such further acts and things as the Guarantors may reasonably request and are reasonably necessary in order to: (i) carry into effect the purposes of this Agreement following the acquisition thereof, or (ii) extend 40 46 the lien of this Agreement to secure all amounts due and payable by SHINGLE SPRINGS under this Agreement; (iii) further assure and confirm unto the Guarantors their rights, privileges and remedies under this Agreement and under the Loan Documents. SHINGLE SPRINGS also authorizes the Guarantors to file financing statements without their signatures, if lawful. If Guarantors shall file any financing statement without the signature of SHINGLE SPRINGS, Guarantors shall deliver a copy of such financing statement to the affected party after the filing thereof. 19. RELEASE. The lien on and security interest in all of the Collateral shall automatically be released and terminated and no longer be of force and effect upon absolute and unconditional release or satisfaction of the Guaranty and payment in full of any unreimbursed loss or cost whatsoever incurred by Guarantors pursuant thereto. 20. GOVERNING LAW; INTEGRATION. This Agreement shall be governed by and construed enforced in accordance with the laws of the State of California without regard to the conflicts or choice of laws rules of California State, except to the extent provided by any mandatory provisions of applicable law. 21. BUSINESS DAY EXTENSION. In the event any time period or any date provided in this Agreement ends or falls on a day other than a business day, then such time period shall be deemed to end and such date shall be deemed to fall on the next succeeding business day with the same force and effect as if made on such other day. "Business day" shall mean each Monday through and including Friday excluding only days upon which banks are authorized to be closed for business in the state of California. 22. INDEMNIFICATION. SHINGLE SPRINGS shall indemnify and hold the Guarantors harmless from and against any and all defenses, losses, expenses, liabilities and claims arising from any breach by SHINGLE SPRINGS of its respective obligations hereunder. SHINGLE SPRINGS shall also reimburse the Guarantors for all costs and expenses (including fees of outside or internal counsel) incurred by or on behalf of the Guarantors in enforcing SHINGLE SPRINGS's obligations under this Agreement. 23. DISPUTE RESOLUTION. 23.1. GENERAL. The parties agree that binding arbitration pursuant to this Section 24 shall be the remedy for all disputes, controversies and claims arising out of this Agreement, the Development Agreement, Management Agreement, the Note, Loan Agreement, any other Security and Reimbursement Agreement, any documents or agreements referenced by any of these documents, any agreements collateral thereto, or any notice of termination thereof, including without limitation, any dispute, controversy or claim arising out of any of these agreements. The parties intend that such arbitration shall provide final and binding resolution of any dispute, and that action in any other forum shall be brought only if necessary to compel arbitration, or to enforce an arbitration award 41 47 or order. (i) Each party agrees that it will use its best efforts to negotiate an amicable resolution of any dispute between KAR and SHINGLE SPRINGS arising from this Agreement. If SHINGLE SPRINGS and KAR are unable to negotiate an amicable resolution of a dispute within 14 days from the date of notice of the dispute pursuant to the notice section of the Development Agreement, or such other period as the parties mutually agree in writing, either party may refer the matter to arbitration as provided for in this Section. (ii) SHINGLE SPRINGS's election to terminate this Agreement is, however, final and conclusive and not subject to dispute resolution between the parties, but only if the NIGC makes a final determination that KAR is not suitable to hold a license. The parties recognize that minor revisions of contracts before the NIGC is routine, and an NIGC notice requesting revisions in the Agreement shall not be grounds for termination by SHINGLE SPRINGS unless KAR refuses to make the changes necessary to obtain NIGC approval. 23.2. ARBITRATION 23.2.1 INITIATION OF ARBITRATION AND SELECTION OF ARBITRATORS. Arbitration shall be initiated by written notice by one party to the other pursuant to the notice section of the Development Agreement, and the Commercial Arbitration Rules of the American Arbitration Association shall thereafter apply. The arbitrators shall have the power to grant equitable and injunctive relief and specific performance as provided in this Agreement. If necessary, orders to compel arbitration or enforce an arbitration award may be sought before the United States District Court for the Eastern District of California and any federal court having appellate jurisdiction over said court. If the United States District Court for the Eastern District of California finds that it lacks jurisdiction, SHINGLE SPRINGS consents to be sued in a court of competent jurisdiction. The arbitrator shall be a licensed attorney knowledgeable in federal Indian law and selected pursuant to the Commercial Arbitration Rules of the American Arbitration Association. (i) CHOICE OF LAW. In determining any matter the Arbitrator(s) shall apply the terms of this Agreement, without adding to, modifying or changing the terms in any respect, and shall apply California law. (ii) PLACE OF HEARING. All arbitration hearings shall be held at a place designated by the arbitrator(s) in Sacramento, California. 42 48 (iii) CONFIDENTIALITY. The parties and the arbitrator(s) shall maintain strict confidentiality with respect to arbitration. 24. LIMITED WAIVER OF SOVEREIGN IMMUNITY. SHINGLE SPRINGS expressly and irrevocably waives its immunity from suit as provided for and limited by this Section. This waiver is limited to SHINGLE SPRING's consent to all arbitration proceedings, and actions to compel arbitration and to enforce any awards or orders issuing from such arbitration proceedings which are sought solely in United States District Court for the Eastern District of California and any federal court having appellate jurisdiction over said court, provided that if the United States District Court for the Eastern District of California finds that it lacks jurisdiction, SHINGLE SPRINGS consents to such actions in a court of competent jurisdiction. This consent to State Court jurisdiction shall only apply if KAR exercises reasonable efforts to argue for the jurisdiction of the federal court over said matter. The arbitrators shall not have the power to award punitive damages. (i) TIME PERIOD. The waiver granted herein shall commence as of the Effective Date of this Agreement and shall continue for one year following expiration, termination or cancellation of this Agreement, or termination of the Enterprise and shall remain effective for the duration of any arbitration, litigation or dispute resolution proceedings then pending, all appeals therefrom, and except as limited by this Section through the satisfaction of any awards or judgments which may issue from such proceedings, provided that an action to collect such judgment has been filed within one year of the date of the final judgment. (ii) RECIPIENT OF WAIVER. This limited waiver is granted only to KAR, and not to any other individual or entity. (iii) LIMITATIONS OF ACTIONS. This limited waiver is specifically limited to the following actions and judicial remedies: (a) DAMAGES. The enforcement of an arbitrator's award of money damages provided that the waiver does not extend beyond the assets specified in Subsection (o) of this Section. No arbitrator or court shall have any authority or jurisdiction to order execution against any assets or revenues of the SHINGLE SPRINGS except as provide in this Subsection (o) of this Section or to award any punitive damages against SHINGLE SPRINGS. (b) CONSENTS AND APPROVALS. The enforcement of a determination by an arbitrator that SHINGLE SPRINGS's consent or approval has been unreasonably withheld contrary to the terms of this Agreement. (c) INJUNCTIVE RELIEF AND SPECIFIC PERFORMANCE. The enforcement of 43 49 a determination by an arbitrator that prohibits SHINGLE SPRINGS from taking any action that would prevent KAR from operating the Business pursuant to the terms of this Agreement, or that requires SHINGLE SPRINGS to specifically perform any obligation under this Agreement (other than an obligation to pay money which is protected by the Limitation Upon Enforcement Provisions of this Section.) (d) ACTION TO COMPEL ARBITRATION. An action to compel or enforce arbitration or arbitration awards or orders pursuant to this Section. (e) SERVICE OF PROCESS. In any litigation or arbitration service of process against SHINGLE SPRINGS shall be effective if made by certified mail return receipt requested to the Chairperson of SHINGLE SPRINGS at the Address set for in the Notices Section of the Development Agreement. (f) ENFORCEMENT. If enforcement of a judicial order or arbitration award becomes necessary by reason of failure of one or both parties to voluntarily comply, the parties agree that the matter may be resolved by entry of judgment on the award and enforcement as described herein. Without in any way limiting or expanding the provisions of this Section, SHINGLE SPRINGS expressly authorizes any governmental authorities which may lawfully exercise the right and duty to take any action authorized or ordered by any court to whom a waiver is granted pursuant to this Section, including without limitation, entering the Tribal Lands and Gaming Facility for the Purpose of executing against any property subject to a security interest or otherwise giving effect to any judgment properly entered pursuant to this Section; provide however, that in no instance shall any enforcement of any kind whatsoever be allowed against any assets of SHINGLE SPRINGS other than the limited assets of SHINGLE SPRINGS specified in Subsection (g) of this Section. (g) LIMITATION. Upon Enforcement Damages awarded against SHINGLE SPRINGS or the Enterprise shall be satisfied solely from the distributable share of Total Net Revenues of SHINGLE SPRINGS from the Enterprise, the distributable share of the Total Net Revenues of any other SHINGLE SPRINGS gaming business of the kind contemplated and the distributable share of the Net Revenues of any future gaming business of any kind which is operated by or for SHINGLE SPRINGS, whether or not operated under an Agreement with KAR, provided, however, that this limited waiver of sovereign immunity shall terminate with respect 44 50 to the collection of any Net Revenues transferred from the accounts of the Business to SHINGLE SPRINGS or SHINGLE SPRINGS's bank account in the normal course of business. In no instance shall any enforcement of any kind whatsoever be allowed gains any assets of SHINGLE SPRINGS other than those specified in this subsection. 25. GOVERNMENT SAVINGS CLAUSE. The parties hereto acknowledge and agree that this Agreement is a "collateral agreement" to the Management Agreement and the Development Agreement within the meaning of 25 U.S.C. 2710, and, together with the Management Agreement and the Development Agreement and any other collateral agreements thereto, is subject to the provisions of the Indian Gaming Regulatory Act, 25 U.S.C. 2710 et seq. ("IGRA"). It is the intention of the parties that this Agreement, the Management Agreement, the Development Agreement and any other collateral agreements comply with all restrictions and limitations of IGRA. Consequently, if any provision of this Agreement contravenes any provision of IGRA, such provision shall be deemed to be modified or deleted herefrom to the extent necessary to comply with IGRA; provided that such modification and deletion shall not materially change the respective rights, remedies or obligations of SHINGLE SPRINGS or the Guarantors under this Agreement, the Management Agreement and the Development Agreement or any other collateral agreement. Each of the parties agrees to execute, deliver and, if necessary, record any and all additional instruments, certifications, amendments, modifications and other documents as may be required by the United States Department of the Interior, B.I.A., the NIGC, the office of the Field Solicitor, or any applicable statute, rule or regulation in order to effectuate, complete, perfect, continue or preserve the respective rights, obligations, liens and interests of the parties hereto to the fullest extent permitted by law; provided, that any such additional instrument, certification, amendment, modification or other document shall not materially change the respective rights, remedies or obligations of SHINGLE SPRINGS or the Guarantors under this Agreement or any other agreement or document related hereto. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. SHINGLE SPRINGS: SHINGLE SPRINGS OF BAND OF MIWOK INDIANS By: /s/ Jim Adams _______________________________ Jim Adams, Chairman KAR: KEAN ARGOVITZ RESORTS--SHINGLE SPRINGS, LLC. By: /s/ Kevin Kean _______________________________ Kevin Kean, President 45 51 Approved pursuant to 25 U.S.C. Section 81 Approved pursuant to 25 U.S.C. Section 2710 NATIONAL INDIAN GAMING COMMISSION By: ------------------------------ Name: ---------------------------- Title: --------------------------- 46 EX-10.74 15 MANAGEMENT AGREEMENT DATED 7/29/1999 1 EXHIBIT 10.74 MANAGEMENT AGREEMENT This MANAGEMENT AGREEMENT (the "Agreement"), dated as of this 29th day of July, 1999, is by and between LAKES SHINGLE SPRINGS, INC., a Minnesota corporation ("Manager"), and LAKES KAR-shingle Springs, L.L.C., a Delaware limited liability company (the "Company"). A. Kean Argovitz Resorts-Shingle Springs, L.L.C. ("KARSS") entered into a Management Agreement with the Shingle Springs Band of Miwok Indians (the "Tribe") dated June 11, 1999 (the "Tribe Management Agreement"), pursuant to which KARSS was to manage a casino and certain related facilities to be owned by the Tribe. Lakes Gaming, Inc. and KARSS entered into a Letter Agreement (the "Letter Agreement") under which they agreed to form the Company to assume the rights and obligations of KARSS in connection with the Tribe Management Agreement. KARSS has assigned its rights and obligations under the Tribe Management Agreement to the Company pursuant to the terms of an Assignment and Assumption Agreement. B. The Tribe has consented to the assignment of the Tribe Management Agreement to the Company by KARSS and to the Company's assumption of KARSS's rights and responsibilities under the Tribe Management Agreement. C. The Company desires to have Manager assume certain of its responsibilities and authority under the Tribe Management Agreement relating to the management and operation of the foregoing facility, all upon the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the Company and Manager agree as follows: 1. DEFINITIONS AND REFERENCES. Except for the terms defined in this Agreement, the capitalized terms used herein shall have the meanings assigned to them in the Tribe Management Agreement. 2. SCOPE OF AGREEMENT, RESPONSIBILITIES. 2.1 Authority of The Company. The Company shall determine the general policy with respect to the management of the Enterprise and the Facility. 2.2 Authority of Manager. Subject to the foregoing general authority of the Company, and subject to the terms of this Agreement, Manager shall have the authority granted to the Company under Article 4 of the Tribe Management Agreement. The Company agrees that it will cooperate with Manager in every reasonable and proper way to permit and assist Manager to carry out its duties hereunder and comply with any conditions or restrictions under Article 4 of the Tribe Management Agreement or imposed by the Tribe or any gaming authority. The 2 Manager shall have the authority granted to the Company under Article 4 of the Tribe Management Agreement. 2.3 Duties and Obligations of Manager. The Manager shall perform the duties of the Company under Article 4 of the Tribe Management Agreement with respect to the management and operation of the Enterprise and the Facility. 2.4 Performance of Duties. Manager shall devote to its responsibilities such time as may be reasonably necessary for the proper performance of all duties hereunder in the manner prescribed by the Tribe Management Agreement. 2.5 Consultation with the Company. Manager shall at all times keep the Company reasonably apprised and aware of all operating policies. Manager agrees to consult with the Company as frequently as the Company shall reasonably request to review operating policies and other matters referred to herein. The Company shall, at all times, have the right to enter the Facility for the purpose of inspecting same and reviewing the operations. The Company agrees that it and its representatives will, at no time, act in a manner which is inconsistent with the authority granted to Manager. 3. TERM. Unless earlier terminated as provided herein, the term of this Agreement shall be the same as the Term of the Tribe Management Agreement. 4. OPERATION OF THE BUSINESS. 4.1 Licenses and Permits. Manager and the Company shall timely apply for, obtain and maintain all licenses and permits required to operate the business (other than gaming authority permits, licenses and approvals required to be obtained by parties other than the Company or Manager), at the Enterprise's expense. 4.2 Personnel. 4.2.1 General. Subject to the Tribe Management Agreement, Manager shall hire, supervise, direct, discharge and determine terms of employment of all personnel working for the Enterprise. 4.2.2 Key Employees. Key employees and the Off-Site Employees may, at the option of Manager be employees of Manager. Except as Manager and the Company may otherwise agree, all other personnel shall be in the sole employ of the Enterprise or the Tribe. 5. TITLE, OTHER MATTERS. 5.1 Proprietary Information. All specifically identifiable information developed by Manager for the Company shall be the property of both Manager and the Company. All existing information of Manager previously developed by Manager at Manager's expense, including, 3 without limitation, all customer lists, gaming and marketing strategies and other similar information, shall be the property of Manager and not the Company or the Tribe and neither the Company, the Tribe nor any of their respective affiliates or successors may use such proprietary information without the consent of Manager, which consent shall not be unreasonably withheld. The parties agree that Proprietary Information does not include information which is clearly available in the public domain. 5.2 Outside Activities of Parties. Subject to Section 21 of the Letter Agreement, this Agreement shall be limited to the purposes set forth herein and nothing in this Agreement, whether by implication or otherwise, shall be construed to extend the relationship of the parties beyond such purposes. Each party acknowledges that the other party and their respective affiliates are or may hereafter become interested, directly or indirectly, by ownership, contract, agency or otherwise, in business opportunities which are not within the purpose of this Agreement and which may compete with or otherwise affect all or some aspects of the Enterprise or the Facility. 6. COMPENSATION OF MANAGER. In consideration for the services to be performed by Manager, Manager shall be entitled to an annual management fee equal to two percent (2%) of the Enterprises' gross Revenue, not to exceed Two Million Dollars ($2,000,000) per annum. The fee shall become due and payable ten (10) days after the end of each month based upon the gross revenue for the previous month. 7. INSURANCE. Manager shall be a named insured on all insurance policies required to be maintained under the Tribe Management Agreement. 8. DEFAULT AND TERMINATION. 8.1 Events of Default. It shall be an event of default hereunder (an "Event of Default") if Manager or the Company (the "Defaulting Party") as hereinafter defined fails to keep, perform or observe any material covenant, obligation or agreement required to be kept, performed or observed by such party under the terms of this Agreement, followed by written notice of such breach, default or non-compliance from the other party (the "Non-Defaulting Party" as hereinafter defined) to the Defaulting Party and the Defaulting Party fails to remedy or correct such breach, default or non-compliance within thirty (30) days after receipt of such notice. If the breach, default or non-compliance is other than payment of money and is of a nature such that it cannot reasonably be cured within such thirty (30) day period, the period for curing the default shall be extended so long as the Defaulting Party commences immediately and expediently as possible to cure the breach, default or non-compliance within such thirty (30) day period. 8.2 Termination. 8.2.1 General. If an Event of Default occurs and has not been cured, this Agreement shall terminate at the election of the Non-Defaulting Party. Notice of termination 4 pursuant to this Section 8.2.1 may be given by the Non-Defaulting Party to the Defaulting Party at any time prior to the curing of such Event of Default, and such termination shall be effective as of the date specified in such notice of termination, which date shall be not less than sixty (60) nor more than one hundred twenty (120) days after the date of such notice. Notwithstanding the foregoing, if the Event of Default pertains to the payments of money, Manager may cease the discharge of its responsibilities hereunder effective upon the expiration of the thirty (30)-day notice referenced in Section 8.1 hereof. Manager shall receive all funds due to it at the time of Termination. 8.2.2 Termination. In addition to the foregoing, this Agreement shall terminate upon any of the following events: (a) The mutual agreement of the parties; (b) The termination of the Tribe Management Agreement or the Letter Agreement (pursuant to paragraph 3 thereof); (c) The inability of either party to receive or maintain the licenses to perform their obligations hereunder; or (d) Manager shall (i) apply for or consent to the appointment of, or taking possession by, a receiver, custodian, trustee, liquidator or other similar official of all of its assets; (ii) make a general assignment for the benefit of creditors; (iii) be adjudicated as bankrupt or insolvent or have any order for relief entered with respect thereto; or (iv) file a voluntary petition, commence a voluntary case under the federal bankruptcy laws as now or hereafter constituted or file a petition or an answer seeking reorganization or any arrangement with creditors or take advantage of any bankruptcy, reorganization, insolvency, readjustment of debts, dissolution or liquidation law or statute. 8.2.3 Waiver. The waiver of any one Event of Default shall not be construed as the waiver of any other Event of Default. 8.3 Remedies Cumulative. Except as herein provided to the contrary, the termination of this Agreement by the Non-Defaulting Party upon an Event of Default shall be without damages, injunctions, specific performance or other legal or equitable remedies by reason of any breach, default or noncompliance by the Defaulting Party with such Defaulting Party's covenants, 5 obligations and agreements hereunder, except for compensatory (but not punitive) damages based on the gross negligence or willful misconduct of the Defaulting Party. Except as to any disputes for which injunctive relief would be an appropriate remedy, in the event a dispute of any kind arises in connection with this Agreement (including any dispute concerning its construction, performance or breach), the parties to the dispute will attempt to resolve the dispute as set forth in Section 8.4 before proceeding to arbitration as provided in Section 8.5. All documents, discovery and other information related to any such dispute, and the attempts to resolve or arbitrate such dispute, will be kept confidential to the fullest extent possible. 8.4 Negotiation. If a dispute arises, any party to the dispute will give notice to each other party. After notice has been given, the parties in good faith will attempt to negotiate or mediate a resolution of the dispute. 9. NOTICES. 9.1 Notices. Every notice, demand, consent, approval or other document or instrument required or permitted to be served upon any of the parties hereto shall be in writing and shall be deemed to have been duly served on the day of mailing, and shall be sent by registered or certified United States Mail, postage prepaid, return receipt requested, addressed to the respective parties at the addresses stated below: If to Manager: Lakes Shingle Springs, Inc., President or his designee Manager 130 Cheshire Lane Minnetonka, Minnesota 55305 With copies thereof to the following: Doug Twait, Esq. Johnson Hamilton Quigley Twait & Foley PLC West 1450 First National Bank Building 322 Minnesota Street St. Paul, Minnesota 55101 If to the Company: Lakes KAR-Shingle Springs, L.L.C. 130 Cheshire Lane Minnetonka, Minnesota 55305 Attn: Timothy Cope --------------------- With copies thereof to the following: Kevin M. Kean Kean Argovitz Resorts-Shingle Springs, L.L.C. 11999 Katy Freeway, Suite 322 6 Houston, Texas 77079 Darryl M. Burman, Esq. DiCecco, Fant & Burman, L.L.P. 1900 West Loop South, Suite 1100 Houston, Texas 77027 Doug Twait, Esq. Johnson Hamilton Quigley Twait & Foley PLC West 1450 First National Bank Building 322 Minnesota Street St. Paul, Minnesota 55101 or to such other address as either Manager or the Company may have specified in a notice duly given as required herein to the other. 10. RELATIONSHIP, AUTHORITY AND FURTHER ACTIONS. 10.1 Relationship. Manager and the Company shall not be construed as joint venturers or partners of each other by reason of this Agreement and neither shall have the power to bind or obligate the other except as specifically authorized and set forth in this Agreement. Nevertheless, Manager is granted such authority and powers as may be reasonably necessary for it to carry out the provisions of this Agreement. This Agreement, either alone or in conjunction with any other documents, shall not be deemed to constitute or create a lease of all or any portion of the Facility. 10.2 Contractual Authority. Subject to the limitations thereon set forth in this Agreement and the Tribe Management Agreement, and in conformity with the Operating Budget and Annual Plan, Manager is authorized to make, enter into and perform in the name of, for the account of, on behalf of the Tribe any contracts and agreements (including, but not limited to bank accounts) which are reasonably necessary and appropriate to carry out and place in effect the terms and conditions of this Agreement. Copies of all executed contracts shall be immediately conformed and furnished to the Company or the Tribe as appropriate. 10.3 Further Actions. The Company and Manager agree to execute all contracts, agreements and documents and to take all actions necessary to comply with the provisions of this Agreement and the intent hereof. 11. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California. Any action shall be commenced in California Superior Court. If any of the terms and provisions hereof shall be held invalid or unenforceable for any reason, such validity or unenforceability shall in no event affect any of the other terms or provisions hereof, all such other terms and provisions to be held valid and enforceable to the fullest extent permitted by law. 7 12. MISCELLANEOUS. 12.1 Successors and Assigns. Manager shall not assign the whole or any portion of this Agreement or any payments due Manager hereunder, without the consent of the Company, which consent will not be unreasonably withheld. The Company shall not assign the whole or any portion of this Agreement, without Managers consent, except as collateral for any financing obtained in connection with the development and/or operation of the Facility. 12.2 Force Majeure. If at any time it becomes necessary in Manager's or the Company's reasonable opinion to cease operation of all or part of the Facility to protect the Facility or the health, safety or welfare of guests or employees of the Enterprise for reasons of force majeure, such as, but not limited to, weather, acts of war, insurrection, civil strife and commotion, labor unrest, contagious illness, catastrophic events, or acts of God, then in such event, as provided or permitted in the Tribe Management Agreement, Manager may close and cease operations of all or part of the Facility, reopening and commencing operation when Manager determines in good faith that such may be done without jeopardy to the Enterprise or the Facility, its guests and employees. Neither party shall be liable for failure to perform any obligation hereunder (other than to pay money) when prevented by any force majeure cause not reasonably within the control of such party, such as strike, lockout, breakdown, accident, order or regulation of or by any governmental authority, failure of supply or inability, by the exercise of reasonable diligence, to obtain supplies, parts or employees necessary to perform such obligation to which such force majeure applies and shall be extended for a period of time equivalent to the delay from such cause. 12.3 Authorization. The Company and Manager represent to the other that it has full power and authority to execute this Agreement and to be bound by and perform the terms hereof. On request, each party shall furnish the other evidence of such authority. 12.4 Entire Agreement; Amendments. This Agreement sets forth the entire and only agreement or understanding between the Company and Manager relating to the subject matter hereof and supersedes and cancels all previous agreements, negotiations, commitments and representations in respect hereof among them. The Company has not relied on any projection of earnings or statements as to the possibility of future success or other similar matters which may have been prepared by Manager, or any of its affiliates, and understands that no guaranty is made or implied by Manager or its affiliates as to the cost or the future financial success of the operations being managed hereunder. This Agreement may not be amended in any respect except by an instrument in writing signed by the Company and Manager. 12.5 Survival of Covenants. Any covenant, term or provision of this Agreement which, in order to be effective, must survive the termination of this Management, shall survive any such termination. 12.6 No Waiver. No waiver by either party of a breach by the other party of any of the 8 terms, covenants or conditions of this Agreement, shall be construed or held to be a waiver of any succeeding or preceding breach of the same or any other term, covenant or condition herein contained. No waiver of any default of either party hereunder shall be implied from any omission by the other party to take any action on account of such default if such default persists or is repeated, and no express waiver shall affect default other than as specified in said waiver. 12.7 Compliance. In performing its obligations under this Agreement, Manager shall comply with the applicable terms of the Tribe Management Agreement and with all present and future laws, ordinances and all rules and regulations, requirements and orders of all governmental authorities and shall obtain all licenses and permits required to perform such obligations and shall file all returns and reports lawfully required of Manager in connection with its duties hereunder, including, but not limited to, income tax withholding returns, Federal Insurance Contributions Act returns and reports, Federal Unemployment Tax Act and worker's compensation returns and reports, sales and use tax returns (and shall timely pay all contributions, taxes, costs and other amounts due thereunder). All of the foregoing returns and reports shall be maintained as a part of the books and records of Manager. 12.8 Benefit. The rights and obligations of the parties hereto shall inure solely to the benefit of the parties and their successors and assigns, without conferring on any other person or entity any right of enforcement or other rights of any kind whatsoever. 12.9 Headings. The headings hereunder are used for convenience only and shall not affect the construction or interpretation of any provision hereof. 12.10 Counterparts. For the convenience of the parties hereto, this Management Agreement may be executed in several original counterparts, each of which shall be deemed an original for all purposes and all such counterparts shall constitute but one and the same agreement. IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Management Agreement as of the date and year first above written. LAKES SHINGLE SPRINGS, INC. LAKES KAR-Shingle Springs, L.L.C. a Minnesota corporation a Delaware limited liability company By: /s/ Timothy Cope By: /s/ Kevin M. Kean ------------------------------ ------------------------------ Name: Timothy Cope Name: Kevin M. Kean ---------------------------- ---------------------------- Title: Executive Vice President Title: President --------------------------- --------------------------- EX-10.75 16 OPERATING AGREEMENT OF LAKES KARSS-SHINGLE SPRINGS 1 EXHIBIT 10.75 OPERATING AGREEMENT OF LAKES KARSS-SHINGLE SPRINGS, L.L.C. This OPERATING AGREEMENT of LAKES KARSS - SHINGLE SPRINGS, L.L.C. (the "Company") is made as of this 29th day of July, 1999 by Lakes Shingle Springs, Inc. ("LASS") and Kean Argovitz Resorts-Shingle Springs, L.L.C. ("KARSS") and those other persons, if any, who from time to time become parties to or are otherwise bound by this Agreement as provided herein. WHEREAS, Lakes Gaming, Inc. ("LACO") and KARSS have entered into a Letter Agreement of even date, a copy of which is attached hereto as Exhibit "A", (the "Letter Agreement") which sets forth the terms under which they propose to develop and operate a gaming Facility and related facilities for the Shingle Springs Band of Miwok Indians (the "Tribe"); WHEREAS, KARSS is a party with the Tribe to a certain Development Agreement dated June 11, 1999, a copy of which is attached hereto as Exhibit B (the "Development Agreement"); WHEREAS, KARSS is a party with the Tribe to a certain Management Agreement dated June 11, 1999, a copy of which is attached hereto as Exhibit C (the "Tribe Management Agreement"); WHEREAS, KARSS has assigned its rights under the Development Agreement and the Management Agreement to the Company and the Company has assumed KARSS's obligations under the Agreements (the "Assignment and Assumption Agreement") ; WHEREAS, the Company has entered into a management agreement with LASS, a copy of which is attached as Exhibit D (the "LASS Management Agreement"), pursuant to which LASS will provide services on behalf of the Company as required under the Tribe Management Agreement; NOW THEREFORE, the parties hereto, desiring to form a limited liability company for the purposes set forth in this Agreement, hereby agree as follows: ARTICLE 1: ORGANIZATION AND DEFINITIONS 1.1 FORMATION AND NAME. The Members agree to the formation of a limited liability company under the name "LAKES KAR-Shingle Springs, L.L.C.," or any other name determined by the Company in accordance with governing law pursuant to the provisions of the Act and this Agreement, and have caused the Certificate of Formation to be prepared, executed and filed with the Secretary of State of the State of Delaware. The Company will develop and operate a gaming 1 2 facility and certain related facilities. 1.2 INITIAL OWNERSHIP. Upon execution of this Operating Agreement, the Ownership Interests of the Company are as set forth below:
MEMBER OWNERSHIP INTEREST INITIAL CONTRIBUTION ------ ------------------ -------------------- Kean Argovitz Resorts- 40% $500 Shingle Springs, L.L.C. Lakes Shingle Springs, Inc. 60% $500
The Ownership Interests may be adjusted from time to time in accordance with the provisions of this Agreement. If LACO pledges, guarantees, loans or otherwise materially encumbers its balance sheet in any way or makes a commitment in excess of $25 million dollars in furtherance of the Equity Advance for funding obligations to the Tribe under the Agreements, then the Ownership Interest shall be 30% to KARSS and 70% to LACO. In the event that LACO does pledge, guarantee, loan or otherwise materially encumber is balance sheet in excess of $25 million dollars, it is agreed that KARSS has the option to participate in this commitment of whatever nature and to share the obligation equally with LACO ("the Excess $25 million dollars Commitment"). If KARSS chooses to exercise its option to participate in the excess $25 million dollars Commitment, and demonstrates to the reasonable satisfaction of LACO its ability to perform on the commitment, then KARSS shall retain its 40% Ownership Interest in the Company. The Ownership Interests of the Members shall at all times be maintained on Appendix I hereto. 1.3 OFFICE AND AGENT: PRINCIPAL PLACE OF BUSINESS. The initial registered office of the Company in Delaware is located at 1209 Orange Street, Wilmington, Delaware 19801, and its initial registered agent at such address is CT Corporation. The Company may subsequently change its registered office or registered agent in Delaware in accordance with the Act. The initial principal place of business of the Company shall be at 130 Cheshire Lane, Minnetonka, Minnesota. 1.4 TERM. The Company begins on the date its Certificate of Formation is filed with the Delaware Secretary of State and shall continue in perpetuity, or such earlier date as a Dissolution may occur. 1.5 FOREIGN QUALIFICATION. After formation of the Company under the Act, the Company will apply for any required certificate of authority to do business in California or in any other state or jurisdiction where it conducts business, as appropriate. 1.6 DEFINITIONS. Terms used with initial capital letters will have the meanings specified in Appendix II applicable to both singular and plural forms, for all purposes of this Agreement. ARTICLE 2: PURPOSES AND POWERS 2 3 2.1 PRINCIPAL PURPOSE. The business and principal purpose of the Company is to develop, operate and manage certain facilities to be owned by the Jamul Indian Village of Jamul, California, and to engage in all activities related thereto, including, without limitation, the operation of casinos, restaurants, entertainment facilities, retail or commercial facilities and/or hotels. 2.2 POWERS. The Company has all of the powers granted to a limited liability company under the Act, as well as all powers necessary or convenient to achieve its purposes and to further its business. ARTICLE 3: CAPITAL CONTRIBUTIONS 3.1 INITIAL CAPITAL OF THE COMPANY. The Members have made an initial Capital Contribution to the Company and have received the Initial Ownership Interests set forth in Section 1.2 above. 3.2 NO ADDITIONAL CAPITAL CONTRIBUTIONS. Except as may be separately agreed to in writing by a Member, no Member shall be required to make an additional Capital Contribution to the Company. 3.3 NO WITHDRAWAL. Except as specifically provided in this Agreement, no Member will be entitled to withdraw all or any part of such Member's capital from the Company or, when such withdrawal of capital is permitted, to demand a distribution of property other than cash. 3.4 NO INTEREST ON CAPITAL. Except as provided in the Letter Agreement with respect to the Equity Advance, no Member will be entitled to receive interest on such Member's Capital Contribution or Capital Account. 3.5 LOANS BY MEMBERS. Subject to the provisions of the Letter Agreement, the Company may borrow money from any Member or Affiliate for Company purposes on such terms as the Company and such Member or Affiliate may agree; provided that, such terms may not be less favorable to the Company than the terms available from an unrelated lender dealing at arms'-length (including a reasonable financing fee). Except as otherwise provided in the Letter Agreement, any such advance or loan will be treated as indebtedness of the Company, and will not be treated as a Capital Contribution by a Member. 3.6 CAPITAL ACCOUNTS. A Capital Account will be maintained for each Member and credited, charged and otherwise adjusted in accordance with generally accepted accounting principles consistently applied. Each Member's Capital Account will be: (a) Credited with (i) the Capital Contributions (net of liabilities secured by such property that the Company takes subject to or assumes), (ii) the Member's allocable share of Profits and (iii) all other items properly credited to the Member's Capital Account; and 3 4 (b) Charged with (i) the amount of cash distributed to the Member by the Company, (ii) the Fair Market Value of property distributed to the Member by the Company (net of liabilities secured by such property that the Member takes subject to or assumes), (iii) the Member's allocable share of Losses and (iv) all other items properly charged to the Member's Capital Account. Any unrealized appreciation or depreciation with respect to any asset distributed in kind will be allocated among the Members in accordance with the provisions of Article 5 as though such asset had been sold for its Fair Market Value on the date of Distribution, and each Member's Capital Account will be adjusted to reflect both the deemed realization of such appreciation or depreciation and the Distribution of such property. In determining the Fair Market Value of any asset of the Company for purposes of any Distribution, the Company may obtain the written report of any one or more independent qualified appraisers (or appraisal firms). If more than one appraisal report is obtained by the Company, Fair Market Value will be determined as the average of such appraised values. The Company will select each such appraiser (or appraisal firm), and bear the cost of any such appraisal. The Capital Account of each Member shall be determined and maintained in accordance with generally accepted accounting principles consistently applied. For income tax purposes, the Company shall make all required allocations under Section 704(b) of the Code and the Regulations. 3.7 TRANSFER. If all or any part of an Ownership Interest is transferred in accordance with this Agreement, the Capital Account and Ownership Interest of the Transferor (including a pro-rata share of Capital Contributions) that is attributable to the transferred interest will carry over to the Transferee. 3.8 CERTIFICATES FOR OWNERSHIP INTERESTS. Ownership Interests in the Company shall be represented by Certificates, which shall be in such form as may be determined by the Managers. Certificates shall be signed by a majority of the Managers. All Certificates shall be consecutively numbered or otherwise identified. The name of the Person to whom the Ownership Interests are issued, with the percentage Ownership Interest and the date of issue, shall be entered on the books of the Company. All Certificates surrendered to the Company for transfer shall be canceled and no new Certificate shall be issued until the former Certificate for a like percentage of Ownership Interest shall have been surrendered and canceled, except that in the case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the Company as the Managers may prescribe. Transfers of Ownership Interests of the Company shall be made only on the books of the Company by the holder of record thereof or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Company, and, on surrender for cancellation of the Certificate for such Ownership Interest. The Person in whose name an Ownership Interest stands on the books of the Company shall be deemed the 4 5 owner thereof for all purposes as regards the Company. ARTICLE 4: MEMBERS AND MANAGERS 4.1 INITIAL MANAGERS, ACTION, MEETINGS. There shall be five Managers of which LASS shall be entitled to elect three Managers, and KARSS shall be entitled to elect two Managers. The initial Managers of the Company shall be Jerry A. Argovitz and Kevin M. Kean on behalf of KARSS, and ________________ , and _______________ on behalf of LASS. Each Member shall have the right to remove, replace, fill a vacancy or designate a temporary replacement for the Manager or Managers elected by it, in the Member's sole and absolute discretion. Managers shall hold office for a term of one year from election, or until the next Annual Meeting of Members. Subject to Section 1(d) of the Letter Agreement, actions of the Managers shall be by majority vote at meetings duly called for purposes of taking action at which a quorum is present. A quorum at any meeting of the Managers shall consist of three Managers if there are five Managers or two Managers if there are four Managers, so long as (i) a representative of each of KARSS and LASS are in attendance, and (ii) notice is given as provided herein. Subject to Section 1(d) of the Letter Agreement, the Managers may also act by unanimous written consent in lieu of a meeting. Meetings of the Managers shall be held no less often than quarterly (one of which shall be the Annual Meeting of the Members) on dates established therefor at each preceding Annual Meeting of the Managers. Special meetings of the Managers shall be held from time to time as called by any of the Managers on no less than seven (7) days' advance notice given in writing by the Manager calling such meeting, which notice may be given by facsimile, Federal Express or similar courier service, certified mail or personal delivery. Notices of meetings shall be effective when sent, if sent by facsimile, or upon receipt, if given by certified mail, overnight courier or personal delivery, in each case at the address of each of the Managers on the books and records of the Company. The Managers may participate in a meeting by means of conference telephone or similar communications equipment by which all the members participating in the meeting can hear each other at the same time. Such participation will constitute presence in person at the meeting and waiver of any required notice. 4.2 MANAGEMENT AUTHORITY. Except as otherwise provided in this Agreement, all management decisions of the Company (including, without limitation, any actions or votes taken by or on behalf of the Company in respect of any equity interest held by the Company in another entity) shall be made by the Managers, who shall be responsible for the conduct of the business of the Company, subject to the provisions of this Agreement and the Act. Subject to Section 1(d) of the Letter Agreement, the Managers shall have all of the rights, powers, duties and obligations of managers as provided in the Act, and as otherwise provided by law, and any action taken by the Managers, not otherwise in violation of the Act or this Agreement, shall constitute the act of and serve to bind the Company. 5 6 Without in any manner limiting the grant of authority to the Managers, except as otherwise provided in this Agreement, the Managers shall have the authority to manage the business and affairs of the Company, including, without limitation, the power and authority to perform any and all of the following on behalf of the Company: (a) To acquire property from any Person; (b) To borrow money for the Company from banks and other lending institutions, all on such terms as the Managers determine, and in connection therewith, to hypothecate, grant security interests in and otherwise encumber the assets of the Company to repay such borrowed sums, provided that the Project Loan shall be subject to unanimous consent as provided in Section 4.11; (c) To purchase liability and other insurance to protect the Company's property and business; (d) To hold and own real and personal property in the name of the Company; (e) To invest Company funds in any investment determined appropriate by the Managers; (f) To authorize any employee, officer or agent of the Company to execute on behalf of the Company all instruments and documents, including, without limitation, checks, drafts, notes and other negotiable instruments, mortgages or deeds of trusts, financing statements and documents providing for the acquisition, disposition or mortgage of property of the Company; (g) To employ accountants, legal counsel, managing agents or other experts to perform services for the Company (whether or not affiliated or connected with any Manager or a Member); (h) To make any and all determinations with respect to the manner in which the Company votes any stock interest, partnership interest or other equity interest held by the Company, on any matter on which the Company possesses a right to vote; and (i) To do and perform all other acts as may be necessary or appropriate to the conduct of the Company's business. Subject to the provisions of Sections 1(d) and 1(e) of the Letter Agreement, LASS shall have primary responsibility for developing the Project, including Project design, construction, financing and management of the Project. KARSS shall have primary responsibility for community and Tribal relations. 4.3 LIMITATION ON LIABILITY: MANAGER COMPENSATION. A Manager shall perform his duties as a Manager in good faith, in a manner he reasonably believes to be in the best interest of the Company and the Members, and with such care as an ordinarily prudent person in a like position would use under similar circumstances. A person who so performs his duties shall not have any 6 7 liability by reason of being or having been a Manager of the Company. The Managers shall not be liable, responsible or accountable in damages or otherwise to the Company or any Member for any action taken or failure to act on behalf of the Company within the scope of authority conferred on the Managers under this Agreement or the Act, except where the claim at issue is based on the fraud, gross negligence or bad faith of the Managers. The Managers shall only receive such compensation from the Company in consideration for performing their management duties and responsibilities hereunder as the Members may approve from time to time in writing. Notwithstanding the foregoing, any and all reasonable expenses incurred by the Managers in connection with the operation or affairs of the Company shall be reimbursed by the Company as appropriate. 4.4 MEMBER'S REPRESENTATIVE. Each Member that is not an individual will designate one or more individuals to act as such Member's duly authorized representative and agent for purposes of exercising such Member's vote on any matter involving the Company requiring the approval or action of the Members. Each Member that is not an individual may also designate one or more individuals as an alternate in the event that the primary representative is unavailable to act for any reason. A Member may change any such designation at any time upon similar notice. The representatives of a Member will cast the vote of each Member in accordance with such Member's Ownership Interest, as provided in this Article. 4.5 MEMBERS' VOTING. Subject to the provisions of Section 1(d) of the Letter Agreement, all decisions reserved by the Act or this Operating Agreement to the Members will be made by the affirmative vote of Members owning more than 50% of the Ownership Interests, unless the unanimous vote (under Section 4.11) provisions apply or except as to any other matter the Members agree shall require a unanimous vote or as otherwise specifically provided in this Agreement. Any determination to be made by the Members will be made in each Member's sole and absolute discretion. 4.6 NO RESIGNATION OR RETIREMENT. Except as provided in the Letter Agreement or this Agreement, each Member agrees not to voluntarily resign or retire as a Member in the Company. However, if such voluntary resignation or retirement occurs in contravention of this Agreement and the Letter Agreement, the withdrawing Member will, without further act, become a Transferee of such Ownership Interest (with the limited rights of a Transferee as set forth in Section 13.6). Any Member who resigns or retires from the Company in contravention of this Agreement or the Letter Agreement (i) will be liable to the Company and the other Members for proven monetary damages as provided in Section 11.2 (but any such action or proposed action to resign or retire will not be subject to any equitable action for injunctive relief or specific performance) and (ii) will not be entitled to receive any distribution upon resignation pursuant to Section 18-604 of the Act. 4.7 POWERS OF THE MANAGERS. Each Manager is an agent of the Company for the purpose of conducting its business and affairs. The act of any Manager for apparently carrying on in the usual way of the Company's business or affairs binds the Company unless the Manager so acting has, in fact, no authority to act for the Company in the particular matter and the person with 7 8 whom such Manager is dealing has knowledge of such lack of authority. The act of any Manager which is not apparently for the carrying on in the usual way of the Company's business or affairs does not bind the Company unless authorized in accordance with this Agreement. Without the Consent of all the Members, no Member shall have authority to act on behalf of the Company. 4.8 SUBSTITUTE MEMBERS. A Transferee may be admitted as a substitute Member of the Company only upon the affirmative written agreement of all of the Members (excluding the Transferor Member), effective upon a date specified (which must be on or after the effective date of the Transfer, as determined under Section 13.5). The transfer of an Ownership Interest, which results in fewer than two continuing Members (including any Transferee admitted as a substitute Member), will trigger an event of Withdrawal as provided in Article 11. 4.9 ADDITIONAL MEMBERS. Subject to Section 4.11, additional Members of the Company may be admitted only upon the affirmative written agreement of all Members, effective upon a date specified by all the Members. 4.10 OFFICERS. The Company, acting through the Managers, may appoint and remove such officers as it determines to be necessary or desirable to carry out the day-to-day management of the Company and the Managers may delegate such authority to such officers as they deem appropriate, subject to the provisions of this Agreement and the Act. The Company's officers may include a president, one or more vice presidents, a secretary and a treasurer, as well as one or more assistant vice presidents, secretaries and treasurers. Such officers may also include a chief executive officer, chief operating officer and chief financial officer. Appointment as an officer or agent of the Company will not, of itself create any contract rights. The officers of the Company, acting in their capacity as such, will be agents acting on behalf of the Company as principal. No officer of the Company has the continuing exclusive authority to make independent business decisions on behalf of the Company without the approval of the Managers as set forth in this Article. The initial chief executive officer of the Company shall be Kevin M. Kean. 4.11 UNANIMOUS VOTE. Notwithstanding anything to the contrary in this Agreement, the following actions by the Company will require the unanimous vote of the Managers and the affirmative vote of all the Members: (a) A call for additional Capital Contributions by the Members; (b) The approval of the principal terms of the Project Loan or of any refinancing thereof or the granting of a security interest in the cash flow of the Company; (c) The appointment of the Chief Operating Officer or the Chief Financial Officer of the Company or the appointment of a replacement for the initial Chief Executive Officer of the Company; (d) The admission of an additional Member under Section 4.8 of this Agreement; 8 9 (e) Any non pro-rata Distribution, except as provided in the Letter Agreement or Section 6.1 of this Agreement; (f) The amendment of this Agreement, except as provided in Section 14.1 of this Agreement; (g) The merger of the Company with any other business entity as provided by governing law; (h) The sale of all or substantially all of the Company's assets; (i) The Dissolution of the Company, except as provided in Article 11 of this Agreement; and (j) The agreement to have LACO materially encumber its balance sheet. 4.12 BUSINESS PURSUITS OF MEMBERS AND MANAGERS. Except as otherwise provided in any other written agreement by which a Manager may be bound, the Managers may engage in other business activities and the Managers shall be obligated by reason of this Agreement to devote only as much of their time to the Company's business as shall be reasonably required in light of the Company's business and objectives and the responsibilities undertaken or assigned to the Managers. Except as otherwise provided in this Agreement, the Letter Agreement or in any other written agreement by which any Member or Manager may be bound, this Agreement shall not preclude or limit in any respect the right of any Member or Manager to engage in or invest in any business activity of any nature or description, whether or not competitive with the business of the Company and a Member or Manager shall have no obligation to offer any opportunity to the Company. Any such activity may be engaged in independently or with other Members or Managers. No Member shall have the right, by virtue of the Certificate, this Agreement or the relationship created hereby, to any interest in such other ventures or activities or to the income or proceeds derived therefrom. Except as otherwise provided in this Agreement, the Letter Agreement or in any other written agreement by which any Member or Manager may be bound, the pursuit of such other ventures shall not be deemed wrongful or improper and any Member or Manager shall have the right to participate in or to recommend to others any such investment opportunity. 4.13 TRANSACTIONS WITH AFFILIATES. Any transactions between a Member or a Manager or their respective Affiliates and the Company shall be on terms not less favorable to the Company than the terms that would be available to the Company from an unrelated party dealing at arms' length. Additionally, no Member shall charge the Company for any expenditure which the Tribe or the Project has agreed to pay or be charged under the Management Agreement or Development Agreement. The parties acknowledge that the terms of the LASS Management Agreement are acceptable and satisfy the terms of this Section 4.13. 9 10 ARTICLE 5: ALLOCATION OF PROFITS AND LOSSES 5.1 PROFITS AND LOSSES. For each Fiscal Year, Profits or Losses of the Company will be an amount equal to the Company's income or loss determined under the accrual method of accounting, in accordance with generally accepted accounting principles consistently applied. 5.2 GENERAL ALLOCATION RULE. Except as otherwise provided in (or until changed pursuant to) this Agreement, the Profits or Losses of the Company, including items of income, gain, loss and deduction for each Fiscal Year, will be allocated to the Members in proportion to their respective Ownership Interests as defined herein. Appropriate adjustment during the Fiscal Year of any change in this allocation will be determined in accordance with Section 706 of the Code and the Section 706 Regulation to take into account the varying interests of the Members in the Company during such Fiscal Year, in the manner determined by the Company. 5.3 EXCEPTION. Notwithstanding the general rule on allocation and for tax accounting purposes only and not for financial statement purposes or any other provision of this Operating Agreement, no cash shall be distributed to any Member if the effect thereof would be to create a deficit in his Capital Account balance or increase the deficit in his Capital Account below the sum of (1) the amount (if any,) which he is required to contribute to the Company and (2) said Member's share of gain which the Company would recognize upon a sale of its property for an amount equal to the balance of the non-recourse debt encumbering it, (the "Company's Minimum Gain") and such cash shall be retained by the Company and shall be distributed to the Member at the earliest time or times possible when such distributions will not cause such a deficit or increase such a deficit in the distributee's Capital Account balance. Notwithstanding the provisions of Section 5.2, the following allocations of net profits and net losses and items thereof shall be made: (a) If in any taxable year there is a net decrease in the amount of the Company's Minimum Gain, each Member shall be allocated items of the Company's net profits for that year (and, if necessary, subsequent years) equal to that Member's share of the net decrease in the Company's Minimum Gain (within the meaning of Treasury Regulation Section 1.704-2(g)(2). The items to be so allocated shall be determined in accordance with Treasury Regulation Section 1.704-2(j)). This Section 5.3 is intended to comply with the Minimum Gain Chargeback requirement in Treasury Regulation Section 1.704-2 and shall be interpreted consistently therewith. (b) If during any taxable year a Member unexpectedly receives any adjustments, allocations or distributions described in Treasury Regulation Section 1 .704-l(b)(2)(ii)(d)(4), (5), or (6), then items of net profits shall be specially allocated to each Member in an amount and manner sufficient to eliminate, to the extent required by Treasury Regulation Section 1. 704-( 1)(b)(2)(ii)(d), the deficit in the Capital Account of such Member as quickly as possible, provided that an allocation pursuant to this Section 5.3 (b) shall be made only if and to the extent that such Member has an adjusted Capital Account deficit after all other allocations provided for in this Article 5 have been tentatively made and as if this Section 5.3(b) were not in this 10 11 Agreement. This Section 5.3(b) is intended to comply with the Qualified Income Offset requirements in Treasury Regulation Section 1.704- 1(b)(2)(ii)(d) and shall be interpreted consistently therewith. It is the intent of the Members that the allocations provided for in this Operating Agreement have "substantial economic effect," as that term is defined in Section 704(b) of the Code. Notwithstanding anything in this Section 5.3 to the contrary, nothing contained in this Section 5.3 shall serve to restrict any distribution by the Company to any Member. 5.4 TAX ALLOCATIONS. Allocation of items of income, gain, loss and deduction of the Company for federal income tax purposes for a Fiscal Year will be allocated, as nearly as is practicable, in accordance with the manner in which such items are reflected in the allocations of Profits and Losses among the Members for such Fiscal Year. To the extent possible, principles identical to those that apply to allocations for federal income tax purposes will apply for state and local income tax purposes. 5.5 TRANSFER. Except as otherwise provided in Section 5.2, if an Ownership Interest is transferred during any Fiscal Year (whether by Transfer or liquidation of an Ownership Interest, or otherwise), the books of the Company will be closed as of the effective date of Transfer. The Profits or Losses attributed to the period from the first day of such Fiscal Year through the effective date of Transfer will be allocated to the Transferor, and the Profits or Losses attributed to the period commencing on the effective date of Transfer will be allocated to the Transferee. In lieu of an interim closing of the books of the Company and with the agreement of the Transferor and Transferee, the Company may agree to allocate Profits and Losses for such Fiscal Year between the Transferor and Transferee based on a daily proration of items for such Fiscal Year or any other reasonable method of allocation (including an allocation of extraordinary Company items, as determined by the Company, based on when such items are recognized for federal income tax purposes). 5.6 CONTRIBUTED PROPERTY. All items of income, gain, loss and deduction with respect to property contributed (or deemed contributed) to the Company will, solely for tax purposes, be allocated among the Members as required by Section 704(c) of the Code so as to take into account the variation between the tax basis of the property and its Fair Market Value at the time of contribution. For example, if there is built-in gain with respect to contributed property, upon the Company's sale of that property the pre-contribution taxable gain (as subsequently adjusted under the Section 704(c) Regulations during the period such property was held by the Company) would be allocated to the contributing Member (and such pre-contribution gain would not again create a Capital Account adjustment since the property was credited to Capital Account upon contribution at its Fair Market Value). Except as limited by the following sentence, the allocation of tax items with respect to Section 704(c) property to Members not contributing such property will, to the extent possible, be equal to the allocation of the corresponding book items made to such noncontributing Members with respect to such property. If book allocations of cost recovery deductions (such as depreciation or amortization) exceed the tax allocations of those items so that the ceiling rule of the Section 704(c) Regulations applies, any curative or remedial 11 12 allocations of tax items will be made as the Company may determine. All tax allocations made under this provision will be made in accordance with Section 704(c) of the Code and the Section 704(c) Regulations. 5.7 TAX CREDITS. Any tax credit, and any tax credit recapture, will be allocated to the Members in the same ratio that the federal income tax basis of the asset (to which such tax credit relates) is allocated to the Members under the Section 46 Regulations, and if no basis is allocated, in the same manner as Profits are allocated to the Members under Section 5.2. ARTICLE 6: PAYMENTS AND DISTRIBUTIONS 6.1 PAYMENTS AND DISTRIBUTIONS. Notwithstanding anything in this Agreement or any other agreement or instrument or under the Act to the contrary, payments and distributions from Cash Flow shall be made in the following order of priority: First, any monthly installment payments to the Company by the Tribe and the Emterprise under the Interim Promissory Note shall be paid dollar-for-dollar by the Company to LASS to pay first the interest and then the principal until LASS is paid all principal and interest on the monthly installment payments due under the Interim Promissory Note; Second, the Company shall pay the LASS Management Fee; Third, so long as the Interim Promissory Note remains unpaid, the remaining cash available for distribution after establishment of reserves for the Company's other expenses will be distributed to LASS until all principal and interest under the Interim Promissory Note has been paid to LASS. Fourth, all remaining cash available for distribution, or proceeds from the payment to the Company under the Interim Promissory Note, if LASS shall have already received an amount equal to the total principal and interest due it under the Interim Promissory Note, shall be distributed to the Members in accordance with their respective Ownership Interest established in this Agreement. Notwithstanding anything to the contrary above, the Company shall make cash Distributions to the Members in amounts sufficient for the Members to pay their Tax Liabilities (including any amounts necessary to pay the amount of Tax Liabilities for prior periods for which inadequate amounts of Cash Flow were available to meet the Member's Tax Liabilities) ("Tax Distributions"), provided that there is Cash Flow to pay such amounts, which Tax Distributions shall be made at or prior to the due date of the related Tax Liabilities. For this purpose, "Tax Liabilities" means Federal or State income tax liabilities which may be chargeable to any Member as a consequence of the Member's interest in the Company, or, if such Member is not a taxpaying entity, each beneficial owner of such Member who is a taxpaying entity (using the maximum income tax rate applicable to such taxpaying entity) for each fiscal year of the Company not previously used to offset taxable income of the Company shown on the information returns of the Company as of the end of the fiscal year of the Company as to which such 12 13 determination is being made. 6.2 NONPRORATA DISTRIBUTIONS. Except as provided in Section 6.1, the Members intend that all Distributions will be made to the Members in proportion to their Ownership Interests. Except as permitted in Section 6.1, in the event any Distribution is not made in proportion to their Ownership Interests, any excess Distribution to a Member will be treated as an advance or loan made by the Company to such Member, payable to the Company with Interest and on demand. 6.3 PAYMENT. Any Distribution will be made to a Member only if such Person owns an Ownership Interest on any record date established by the Company or, if none is established, on the date of Distribution, as reflected on the books of the Company. 6.4 WITHOLDING. If required by the Code or by state or local law, the Company will withhold any required amount from Distributions to a Member for payment to the appropriate taxing authority. Any amount so withheld from a Member will be treated as a Distribution by the Company to such Person. Each Member agrees to timely file any agreement that is required by any taxing authority in order to avoid any withholding obligation that would otherwise be imposed on the Company. 6.5 DISTRIBUTION LIMITATION. Notwithstanding any other provision of this Agreement, the Company shall not make any Distribution to the Members in contravention of Section 18-607(a) of the Act. ARTICLE 7: MEETINGS OF MEMBERS 7.1 ANNUAL MEETING. Unless the Company determines (whether by vote or otherwise) that an annual meeting is not necessary or desirable, the annual meeting of the Members will be held at a time and place determined by the Managers and by Notice to all other Members. The purpose of the annual meeting is to review the Company's operations for the preceding Fiscal Year and to transact such business as may come before the meeting. The failure to hold any annual meeting has no adverse effect on the continuance of the Company. 7.2 SPECIAL MEETINGS. Special meetings of the Members, for any purpose or purposes, may be called by any Member or Members owning at least ten percent (10%) of the Ownership Interests held by all Members by notice to all other Members. 7.3 PLACE. The Members calling the meeting may designate any place as the place of meeting for any meeting of the Members. If no designation is made, or if a special meeting is otherwise called, the place of meeting will be the Company's executive offices in California, or at a location agreed to by the Managers. 7.4 NOTICE. Notice of any annual meeting determined by resolution of the Members or of any special meeting must be given not less than 5 days nor more than 30 days before the date of the meeting. Such notice must state the place, day, and hour of the meeting and, in the case of a 13 14 special meeting, the purpose for which the meeting is called. 7.5 WAIVER OF NOTICE. Any Member may waive, in writing, any notice that is required to be given to such Member, whether before or after the time stated in such notice. Any Member who signs minutes of action (or written consent or agreement) will be deemed to have waived any required notice with respect to such action. 7.6 RECORD DATE. For the purpose of determining Members entitled to notice of or to vote at any meeting of Members, the date on which notice of the meeting is first given will be the record date for the determination of Members. Any such determination of Members entitled to vote at any meeting of Members will apply to any adjournment of a meeting. 7.7 QUORUM. A quorum at any meeting of Members shall consist of Members owning more than 50% of the Ownership Interests held by all Members. Any meeting at which a quorum is not present may adjourn the meeting to another place, day and hour without further notice. 7.8 MANNER OF ACTING. Subject to the provisions of Section 4.1 herein, if a quorum is present, the affirmative vote of Members as set forth in Article 4 will be the act of the Company. 7.9 PROXIES. At a meeting of the Members, a Member may vote in person or by written proxy given to another Member. Such proxy must be signed by the Member or by a duly authorized attorney-in-fact and filed with the Company before or at the time of the meeting. No proxy will be valid after eleven months from the date of its signing unless otherwise provided in the proxy. Attendance at the meeting by the Member giving the proxy will revoke the proxy during the period of attendance. 7.10 MEETING BY TELEPHONE. The Members may participate in a meeting by means of conference telephone or similar communications equipment by which all Members participating in the meeting can hear each other at the same time. Such participation will constitute presence in person at the meeting and waiver of any required notice. 7.11 ACTION WITHOUT A MEETING. Any action required or permitted to be taken at a meeting of Members under this Article 7 may be taken without a meeting if the action is evidenced by one or more written consents describing the action taken, signed by Members owning total Ownership Interests sufficient for the particular action as set forth in Article 4. Action so taken is effective when sufficient Members approving the action have signed the consent, unless the consent specifies a later effective date. Notice of the action must be provided to all members. ARTICLE 8: LIABILITY OF A MEMBER 8.1 LIMITED LIABILITY. No Member of the Company shall be individually liable for the debts or liabilities of the Company. 8.2 LIABILITY TO COMPANY. Each Member is liable to the Company for any Capital Contribution or Distribution that has been wrongfully or erroneously returned or paid to such 14 15 Person in violation of the Act, the Certificate or this Agreement. ARTICLE 9: INDEMNIFICATION 9.1 INDEMNIFICATION. The Company shall indemnify, defend and hold harmless any Person who was or is a party (or is threatened to be made a party) to any Proceeding by reason of the fact that such Person is or was a Member, or agent or representative thereof, or a Manager, officer, employee or agent of the Company, to the fullest extent provided or permitted by the Act. Any such indemnification will apply to any Liability actually and reasonably incurred in connection with the defense or settlement of the Proceeding. 9.2 EXPENSE ADVANCEMENT. With respect to the expenses actually and reasonably incurred by a current or former Member or agent or representative thereof or by a current or former Manager, officer, employee or agent of the Company who is a party or is threatened to be made a party to a Proceeding, the Company shall provide funds to such Person in advance of the final disposition of the Proceeding if the Person agrees in writing to repay the advance if it is subsequently determined that such Person was not entitled to indemnification. 9.3 INSURANCE. The indemnification provisions of this Article do not limit a Person's right to recover under any insurance policy or other financial arrangement by the Company (including any self-insurance, trust fund, letter of credit, guaranty or surety). If, with respect to any Liability, any Person receives an insurance or other indemnification payment which, together with any indemnification payment made by the Company, exceeds the amount of such Liability, then such Person will immediately repay such excess to the Company. ARTICLE 10: ACCOUNTING AND REPORTING 10.1 FISCAL YEAR. For income tax and accounting purposes, the Fiscal Year of the Company will end on the closest Sunday of the calendar year (unless otherwise required by the Code). 10.2 ACCOUNTING METHOD. For accounting purposes, the Company will use generally accepted accounting principles. 10.3 TAX ELECTIONS. The Company will have the authority to make such tax elections, and to revoke any such election, as the Company may from time to time determine. 10.4 RETURNS. The Company will cause the preparation and timely filing of all tax returns required to be filed by the Company pursuant to the Code, as well as all other tax returns required in each jurisdiction in which the Company does business. 10.5 REPORTS. The Company will furnish a Profit or Loss statement and a balance sheet to each Member within a reasonable time after the end of each fiscal quarter. The Company books will be closed at the end of each Fiscal Year and audited financial statements prepared showing the financial condition of the Company and its Profits or Losses from operations. Copies of these 15 16 statements will be given to each Member. In addition, as soon as is practicable after the close of each Fiscal Year (and in any event within 90 days following the end of each Fiscal Year), the Company will provide each Member with all necessary tax reporting information. 10.6 BOOKS AND RECORDS. The records of the Company will be kept at the Company's business office in Minnesota, and will be available for inspection and copying by any Member at such Person's expense, during ordinary business hours. 10.7 INFORMATION. Any Member has the right to inspect and copy the Company books and records as provided in Section 10.6 and to have a formal accounting of Company affairs whenever circumstances render it just and reasonable. In addition, subject to reasonable standards as established by the Company from time to time, and upon reasonable demand for any purpose reasonably related to the Member's interest as a Member, any Member has the right to obtain from the Company correct and complete information relating to the state of the Company's business and its financial condition. 10.8 BANKING. The Company may establish one or more bank or financial accounts and safe deposit boxes. The Company may authorize one or more individuals to sign checks on and withdraw funds from such bank or financial accounts and to have access to such safe deposit boxes, and may place such limitations and restrictions on such authority as the Company deems advisable. 10.9 TAX MATTERS PARTNER. Until further action by the Company, LASS is designated as the tax matters partner under Section 6231(a) (7) of the Code. The tax matters partner will be responsible for notifying all Members of ongoing proceedings, both administrative and judicial, and will represent the Company throughout any such proceeding. The Members will furnish the tax matters partner with such information as it may reasonably request to provide the Internal Revenue Service with sufficient information to allow proper notice to the Members. If an administrative proceeding with respect to a partnership item under the Code has begun, and the tax matters partner so requests, each Member will notify the tax matters partner of its treatment of any partnership item on its federal income tax return, if any, which is inconsistent with the treatment of that item on the partnership return for the Company. Any settlement agreement with the Internal Revenue Service will be binding upon the Members only as provided in the Code. The tax matters partner will not bind any other Member to any extension of the statute of limitations or to a settlement agreement without such Member's written consent. Any Member who enters into a settlement agreement with respect to any partnership item will notify the other Members of such settlement agreement and its terms within 30 days from the date of settlement. If the tax matters partner does not file a petition for readjustment of the partnership items in the Tax Court, Federal District Court or Claims Court within the 90 day period following a notice of a final partnership administrative adjustment, any notice partner or 5-percent group (as such terms are defined in the Code) may institute such action within the following 60 days. The tax matters partner will timely notify the other Members in writing of its decision. Any notice partner or 5 percent group will notify any other Member of its filing of any petition for readjustment. 16 17 10.10 NO PARTNERSHIP. The classification of the Company as a partnership will apply only for federal (and, as appropriate, state and local) income tax purposes. This characterization, solely, for tax purposes, does not create or imply a general partnership between the Members for state law or any other purpose. Instead, the Members acknowledge the status of the Company as a limited liability company formed under the Act. ARTICLE 11: DISSOLUTION OF THE COMPANY 11.1 DISSOLUTION. Dissolution of the Company will occur upon the happening of any of the following events: (a) By operation of law; or (b) By unanimous agreement of the Members. 11.2 EVENTS OF WITHDRAWAL. An event of Withdrawal of a Member occurs when any Member Transfers all of such Member's Ownership Interest (which Transfer is treated as a resignation), including a Transfer of LASS's Ownership Interest pursuant to Section 3 of the Letter Agreement. Within 30 days following the happening of any event of Withdrawal with respect to a Member, such Member must give notice of the date and the nature of such event to the Company. Any Member failing to give such notice will be liable in damages for the consequences of such failure as provided in Section 4.6 of this Agreement. Upon the occurrence of an event of Withdrawal with respect to a Member, such Member will cease to have voting rights under Article 4, and such Member's Ownership Interest will be deemed transferred to such Member's Transferee or other successor in interest, if any (which Person, unless already a Member in such capacity, will have only the limited rights of a Transferee as set forth in Section 13.6, unless and until admitted as a substitute Member) or, if there is no Transferee or successor in interest, such withdrawing Member shall, without further action, become a Transferee of such Member's Interest with the limited rights of a Transferee as set forth in Section 13.6. 11.3 CONTINUATION. In the event of Withdrawal of a Member, the Company will be continued if, within 90 days following such event, there is an affirmative written agreement of a Majority In Interest of all the remaining Members to continue the Company's business as a limited liability company under the Act and this Agreement. Any Transferee admitted as a substitute Member will be treated as a remaining Member. If the business of the Company is so continued, an event of Withdrawal of one or more Members will not cause the Dissolution of the Company. If the business of the Company is so continued, with respect to any Member as to which an event of Withdrawal has occurred, such Member or such Member's Transferee or other successor-in-interest (as the case may be) will, without further act, become a Transferee of such Ownership Interest (with the limited rights of a Transferee as set forth in Section 13.6, unless and until admitted as a substitute Member). If the Company is not continued as above provided, the Company will be treated as dissolved as of the end of such 90-day period. 17 18 ARTICLE 12: LIQUIDATION 12.1 LIQUIDATION. Upon Dissolution of the Company, the Company will immediately proceed to wind up its affairs and liquidate. The Managers will appoint a liquidating trustee. The winding up and Liquidation of the Company will be accomplished in a businesslike manner as determined by the liquidating trustee pursuant to the Act and this Article 12. A reasonable time will be allowed for the orderly Liquidation of the Company and the discharge of liabilities to creditors so as to enable the Company to provide for any losses attendant upon Liquidation. Any gain or loss on disposition of any Company assets in Liquidation will be allocated to Members and credited or charged to Capital Accounts in accordance with the provisions of Articles 3 and 5. Any liquidating trustee is entitled to reasonable compensation for services actually performed, and may contract for such assistance in the liquidation process as such Person deems necessary. Until the filing of articles of dissolution as provided in Section 12.6, the liquidating trustee may settle and close the Company's business, prosecute and defend suits, dispose of its property, discharge or make provision for its liabilities, and make distributions in accordance with the priorities set forth in Section 12.2. 12.2 PRIORITY OF PAYMENT. The assets of the Company will be distributed in Liquidation of the Company in the following order: (a) First, to creditors, including Members and Managers who are creditors, to the extent otherwise permitted by law, in satisfaction of liabilities of the Company (whether by payment or the making of reasonable provision for payment thereof) other than liabilities for which reasonable provision for payment has been made and liabilities for Distributions to Members and former Members under Section 18-601 or Section 18-604 of the Act; (b) Second, except as otherwise provided in this Agreement, to Members and former Members in satisfaction of liabilities for Distributions under Section 18-601 or Section 18-604 of the Act; (c) Third, to any Member for any other loans or debts owing to such Member by the Company which have not been paid pursuant to (a) or (b) above; (d) Fourth, to all Members in proportion to their Capital Account balances to the extent allowable under Section 5.3 until their Capital Account balances are reduced to zero; and, (e) Fifth, the balance, if any, to all Members in accordance with their respective Membership Interests. 12.3 DISTRIBUTION TO MEMBERS. Distributions in Liquidation due to the Members may be made by either or a combination of the following methods: selling the Company assets and distributing the net proceeds, or by distributing the Company assets to the Members at their net Fair Market Value in kind. Any liquidating Distribution in kind to the Members may be made 18 19 either by a pro-rata Distribution of undivided interests or, upon the affirmative vote of all Members, by non pro-rata Distribution of specific assets at Fair Market Value on the effective date of Distribution. Any Distribution in kind may be made subject to, or require assumption of, liabilities to which such property may be subject, but in the case of any non pro-rata Distribution only upon the express written agreement of the Member receiving the Distribution. Each Member hereby agrees to save and hold harmless the other Members from such Member's share of any and all such liabilities which are taken subject to or assumed. Appropriate and customary prorations and adjustments shall be made incident to any Distribution in kind. The Members will look solely to the assets of the Company for the return of their Capital Contributions, and if the assets of the Company remaining after the payment or discharge of the debts and liabilities of the Company are insufficient to return such contributions, they will have no recourse against any other Member. 12.4 NO RESTORATION OBLIGATION. Except as otherwise specifically provided in Article 8, nothing contained in this Agreement imposes on any Member an obligation to make a Capital Contribution in order to restore a deficit Capital Account upon Liquidation of the Company. Furthermore, each Member will look solely to the assets of the Company for the return of such Member's Capital Contribution and Capital Account. 12.5 LIQUIDATING REPORTS. A report will be submitted with each liquidating distribution to Members, showing the collections, disbursements and distributions during the period which is subsequent to any previous report. A final report, showing cumulative collections, disbursements and distributions, will be submitted upon completion of the liquidation process. 12.6 ARTICLES OF DISSOLUTION. Upon Dissolution of the Company and the completion of the winding up of its business, the Company will file articles of dissolution (to cancel its Certificate) with the Delaware Secretary of State pursuant to the Act. At such time, the Company will also file an application for withdrawal of its certificate of authority in any jurisdiction where it is then qualified to do business. ARTICLE 13: TRANSFER RESTRICTIONS 13.1 GENERAL RESTRICTION. No Member may Transfer all or any part of its Ownership Interest in any manner whatsoever except: (a) to a Permitted Transferee as set forth in Section 13.3 or (b) after full compliance with the right of first refusal set forth in Section 13.4, and in either case only if the requirements of Section 13.5 have also been satisfied. Any other Transfer of all or any part of an Ownership Interest is null and void, and of no effect. For purposes of this Article 13, a Transfer of the Ownership Interest held by KARSS shall be deemed to occur upon any change in Control of KARSS other than to a Permitted Transferee pursuant to Section 13.3. Any Member who makes a permitted Transfer of all of such Member's Ownership Interest will be treated as resigning from the Company on the effective date of such Transfer. Any Member who makes a permitted Transfer of part (but not all) of such Member's Ownership Interest will continue as a Member (with respect to the interest retained), and such partial Transfer will not constitute an 19 20 event of Withdrawal of such Member. The rights and obligations of any resigning Member or of any Transferee of an Ownership Interest will be governed by the other provisions of this Agreement. 13.2 NO MEMBER RIGHTS. No Member has the right or power to confer upon any Transferee the attributes of a Member in the Company. The Transferee of all or any part of an Ownership Interest by operation of law does not, by virtue of such Transfer, succeed to any rights as a Member in the Company. 13.3 PERMITTED TRANSFEREE. Subject to the requirements set forth in Section 13.5, a Person may Transfer all or any part of such Person's Ownership Interest: (a) To an Affiliate of such Person, (b) To another Member, (c) To the Company, (d) To a Person approved by all the Members; or, (e) In the form of a pledge or the granting of a security interest to another Person or a foreclosure or sale in lieu of foreclosure in connection with the granting of any such pledge or security interest as described in Section 13.7. 13.4 RIGHT OF FIRST REFUSAL. Prior to any proposed Transfer of all or any part of an Ownership Interest, other than to a Permitted Transferee pursuant to Section 13.3, the Transferor must obtain a Third Party Offer. The Third Party Offer must not be subject to unstated conditions or contingencies or be part of a larger transaction such that the price for the Ownership Interest stated in such Third Party Offer does not accurately reflect the Fair Market Value (reduced by the amount of associated liabilities) of such Ownership Interest. The Third Party Offer must contain a description of all of the consideration, material terms and conditions of the proposed Transfer. The Transferor will give notice of the Third Party Offer to the Company and all the Members exclusive of Members who have not been admitted as substitute Members pursuant to Section 4.6 (the "Other Members") other than the Transferor, together with a written offer to sell the Ownership Interest (which is the subject of the Third Party Offer) to the Company and the other Members on the same price and terms as the Third Party Offer as provided herein. The Company may accept such offer by the Transferor, in whole but not in part, by giving notice to the Transferor within 30 days after notice of such offer. Unless otherwise agreed, the closing of such sale will be held at the Company's principal office in California on a date to be specified by the Company which is not later than 60 days after the date of the Company's notice of acceptance. At the closing, the Company will deliver the consideration in accordance with the terms of the Third Party Offer, and the Transferor will by appropriate documents assign to the Company the Ownership Interest to be sold, free and clear of all liens, claims and encumbrances. Subject to Section 13.5, if the Company has not accepted the Third Party Offer and closed the purchase in 20 21 accordance with this Section 13.4, the Other Members shall have the right, on a pro rata basis in accordance with the ratio of their Ownership Interests, to purchase, in whole but not in part, the Ownership Interest of the Transferor in accordance with the terms of the Third Party Offer by written notice to the Transferor within 30 days after the expiration of the thirty-day period for the Company's acceptance. If all of the other Members reject the offer or if the offer is not closed in accordance with this Section 13.4, the Transferor will be free for a period of 60 days after the last day for such acceptance to sell all, but not less than all, of such Ownership Interest so offered, but only to the Third Party for a price and on terms no more favorable to the Third Party than the Third Party Offer. If such Ownership Interest is not so sold within such 60-day period (or within any extensions of such period agreed to in writing by the Company), all rights to sell such Ownership Interest pursuant to such Third Party Offer (without making another offer to the Company pursuant to this Section 13.4) will terminate and the provisions of this Article will continue to apply to any proposed future Transfer. 13.5 GENERAL CONDITIONS ON TRANSFERS. No Transfer of an Ownership Interest will be effective unless all of the conditions set forth below are satisfied: (a) Unless waived by the Company, the Transferor signs and delivers to the Company an undertaking in form and substance satisfactory to the Company to pay all reasonable expenses incurred by the Company in connection with the Transfer (including, but not limited to, reasonable fees of counsel and accountants and the costs to be incurred with any additional accounting required in connection with the Transfer, and the cost and fees attributable to preparing, filing and recording such amendments to the organizational documents or filings as may be required by law); (b) Unless waived by the Company, the Transferor delivers to the Company an opinion of counsel for the Transferor satisfactory in form and substance to the Company to the effect that the Transfer of the Ownership Interest is in compliance with the applicable federal and state securities laws, and a statement of the Transferee in form and substance satisfactory to the Company making appropriate representations and warranties in respect to compliance with the applicable federal and state securities laws and as to any other matter reasonably required by the Company; (c) Unless waived by the Company, the Company receives an opinion from its counsel that (i) the Transfer does not cause the Company to lose its classification as a partnership for federal income tax purposes, and (ii) the Transfer, together with all other Transfers within the preceding twelve months, does not cause a termination of the Company for federal income tax purposes; (d) The Transferor signs and delivers to the Company a copy of the assignment of the Ownership Interest to the Transferee; (e) The Transferee signs and delivers to the Company its agreement to be bound by this Agreement; and 21 22 (f) The Transfer is in compliance with the other provisions of this Article. Notwithstanding the above, only the last two requirements will apply to a Transfer by operation of law. Except as the Company and the Transferee may otherwise agree, the Transfer of an Ownership Interest will be effective as of 12:01 a.m. (Eastern Standard Time) on the first day of the month following the month in which all of the above conditions have been satisfied. Upon the effective date, Appendix I will be deemed amended to reflect the new Ownership Interests. Notwithstanding anything to the contrary expressed or implied in this Agreement: (i) the Transfer, pledge or other disposition of any direct or indirect interest in the Company is subject to applicable State and Federal laws, regulations, requirements, limitations and decisions that regulate or pertain to gaming and, except; (ii) for Transfers to Permitted Transferees, the Transfer of any direct or indirect interest in the Company shall be subject to approval by the Tribe; and (iii) the merger or consolidation of Lakes Jamul, Inc. with or into another Person or a change in Control of Lakes Gaming, Inc. shall not constitute a Transfer of Lakes Gaming, Inc.'s interest in the Company for any purpose. 13.6 RIGHTS OF TRANSFEREES. Any Transferee of an Ownership Interest will, on the effective date of the Transfer, have only those rights of an assignee as specified in the Act and this Agreement unless and until such Transferee is admitted as a substitute Member. This provision limiting the rights of a Transferee will not apply if such Transferee is already a Member; provided that, any Member who resigns or retires from the Company in contravention of Section 4.6 will have only the rights of an assignee as specified in the Act and this Agreement. Any Transferee of all or any part of an Ownership Interest who is not admitted as a substitute Member in accordance with this Agreement has no right (a) to participate or interfere in the management or administration of the Company's business or affairs or to elect or appoint any Managers, (b) to vote or agree on any matter affecting the Company or any Member, (c) to require any information on account of Company transactions, or (d) to inspect the Company's books and records. The only right of a Transferee of all or any part of an Ownership Interest who is not admitted as a substitute Member in accordance with this Agreement is to receive the allocations and Distributions to which the Transferor was entitled (to the extent of the Ownership Interest transferred) and to receive required tax reporting information. However, each Transferee of all or any part of an Ownership Interest (including both immediate and remote Transferees) will be subject to all of the obligations, restrictions and other terms contained in this Agreement as if such Transferee were a Member. To the extent of any Ownership Interest transferred, the Transferor Member does not possess any right or power as a Member and may not exercise any such right or power directly or indirectly on behalf of the Transferee. The Members acknowledge that these provisions may differ from the rights of an assignee as set forth in the Act, and the Members agree that they intend, to that extent, to vary those provisions by this Agreement. 13.7 SECURITY INTEREST. The pledge or granting of a security interest, lien or other 22 23 encumbrance in or against all or any part of a Member's Ownership Interest does not cause the Member to cease to be a Member with voting rights or constitute an event of Withdrawal. Upon foreclosure or sale in lieu of foreclosure of any such secured interest, the secured party will be entitled to receive the allocations and Distributions as to which a security interest has been granted by such Member. In no event will any secured party be entitled to exercise any rights under this Agreement, and such secured party may look only to such Member for the enforcement of any of its rights as a creditor. In no event will the Company have any liability or obligation to any Person by reason of the Company's payment of a Distribution to any secured party as long as the Company makes such payment in reliance upon written instructions from the Member to whom such Distributions would be payable. Any secured party will be entitled, with respect to the security interest granted, only to the Distributions to which the assigning Member would be entitled under this Agreement, and only if, as and when such Distribution is made by the Company. Neither the Company nor any Member will owe any fiduciary duty of any nature to a secured party. Reference to any secured party includes any assignee or successor-in-interest of such Person. 13.8 REGULATORY COMPLIANCE RESTRICTIONS. Notwithstanding anything to the contrary in this Agreement or elsewhere, the following provisions shall apply. Each Member acknowledges that as a result of the transactions contemplated by this Agreement, the other Member and its Affiliates may be subject to licensing and other regulatory review and approval procedures ("Regulatory Review"), by any governmental or quasi-governmental agency which is authorized or empowered to regulate the gaming operations of such Member and its Affiliates ("Regulatory Authority") in the jurisdictions in which such Member and its Affiliates conduct or propose to conduct gaming activities. Each Member agrees to cooperate fully and to cause its Affiliates to cooperate fully with the representatives of all such Regulatory Authorities in making applications, supplying information, providing reports, attending licensing and other hearings, and otherwise cooperating with and complying with the requirements of all such Regulatory Authorities so as not to interfere with the other Member's or its Affiliates' ability to develop new business, including the Project, or to continue to conduct its existing business. In the event a Member reasonably determines based upon communications with a Regulatory Authority that the other Member or any of its Affiliates (an "Unsuitable Member") is likely to be determined unsuitable by such Regulatory Authority and as a result the Unsuitable Member may not be permitted to engage or to continue to engage in a gaming activity, including the Project, (collectively a "Licensing Problem"), then, within the lesser of 150 days' notice of such event from the other Member to the Unsuitable Member or the applicable period prescribed by the appropriate Regulatory Authority (the "Cure Period"), the Unsuitable Member shall eliminate the Licensing Problem to the reasonable satisfaction of the other Member or transfer its rights and obligations hereunder and its Ownership Interest to a Person reasonably acceptable to the other Member, who does not have a Licensing Problem, and such Person shall be accepted as a Member of the Company for all purposes. Any such transfer shall be subject to the terms and conditions contained in Section 13.5 hereof. 23 24 In the event such transfer does not occur or the Licensing Problem is not eliminated within the Cure Period, the Unsuitable Member shall immediately convey its Ownership Interest under this Agreement to the other Member or an Affiliate designated by the other Member for an amount and upon terms mutually agreed to by the parties. Subject to the provisions of Section 1(g) of the Letter Agreement, each of the Members will bear its respective costs and expenses in connection with any applications, permits or licenses that may be required by the respective Members in connection with the Project. ARTICLE 14: GENERAL PROVISIONS 14.1 AMENDMENT. This Agreement may be amended by the unanimous written agreement of the Members. Any amendment will become effective upon such approval, unless otherwise provided. Notice of any proposed amendment must be given at least 5 days in advance of the meeting at which the amendment will be considered (unless the approval is evidenced by duly signed minutes of action). Any duly adopted amendment to this Agreement is binding upon, and inures to the benefit of, each Person who holds an Ownership Interest at the time of such amendment. Notwithstanding any other provision of this Agreement, with respect to any Transferee not admitted as a substitute Member, no amendment to Section 5.2 (relating to the general allocation rule for allocation of Profits or Losses), Section 12.2 (relating to Distributions in Liquidation) and Section 14.1 (relating to amendment of this Agreement) will be effective, nor will such Person be required to make any Capital Contribution, without such Person's written consent. 14.2 UNREGISTERED INTERESTS. Each Member (a) acknowledges that the Ownership Interests are being offered and sold without registration under the Securities Act of 1933, as amended, or under similar provisions of state law, (b) represents and warrants that such Person is an accredited investor as defined for federal securities laws purposes, (c) represents and warrants that it is acquiring an Ownership Interest for such Person's own account, for investment, and with no view to the distribution of the Ownership Interest, and (d) agrees not to Transfer, or to attempt to Transfer, all or any part of its Ownership Interest without registration under the Securities Act of 1933, as amended, and any applicable state securities laws, unless the Transfer is exempt from such registration requirements. 14.3 WAIVER OF PARTITION RIGHT. Each Member waives and renounces any right that such Person may have prior to Dissolution and Liquidation to institute or maintain any action for partition with respect to any real property owned by the Company. 14.4 WAIVERS GENERALLY. No course of dealing will be deemed to amend or discharge any provision of this Agreement. No delay in the exercise of any right will operate as a waiver of such right. No single or partial exercise of any right will preclude its further exercise. A waiver of any right on any one occasion will not be construed as a bar to, or waiver of, any such right on any other occasion. 24 25 14.5 EQUITABLE RELIEF. If any Person proposes to Transfer all or any part of such Person's Ownership Interest in violation of the terms of this Agreement, the Company or any Member may apply to any court of competent jurisdiction for an injunctive order prohibiting such proposed Transfer except upon compliance with the terms of this Agreement, and the Company or any Member may institute and maintain any action or proceeding against the Person proposing to make such Transfer to compel the specific performance of this Agreement. Any attempted Transfer in violation of this Agreement is null and void, and of no force and effect. The Person against whom such action or proceeding is brought waives the claim or defense that an adequate remedy at law exists, and such Person will not urge in any such action or proceeding the claim or defense that such remedy at law exists. 14.6 REMEDIES FOR BREACH. The rights and remedies of the Members set forth in this Agreement are neither mutually exclusive nor exclusive of any right or remedy provided by law, in equity or otherwise. The Members agree that all legal remedies (such as monetary damages) as well as all equitable remedies (such as specific performance) will be available for any breach or threatened breach of any provision of this Agreement. 14.7 ORIGINAL. This Agreement is signed in two original documents that are to be delivered to each initial Member. A photocopy of this Agreement, as signed, will be delivered to each substitute or additional Member, and each such photocopy will be deemed to be an original document. 14.8 NOTICES. Any notices (including any communication or delivery) required or permitted under this Agreement shall be in writing; may be given by facsimile, Federal Express or similar courier service, certified mail or personal delivery; and shall be addressed as follows: If to LASS: Lakes Shingle Springs, Inc. Attention: Lyle Berman 130 Cheshire Lane Minnetonka, Minnesota 55305 Telephone: (612) 449-7001 Fax: (612) 449-7064 With a copy to: Doug Twait, Esq. Johnson Hamilton Quigley Twait & Foley, PLC West 1450 First National Bank Building St. Paul, Minnesota 55101 Telephone: (651) 602-6262 Fax: (651) 602-9976 If to KARSS: Kean Argovitz Resorts-Shingle Springs, Inc. Attention: Kevin M. Kean 11999 Katy Frwy., Suite 322 25 26 Houston, Texas 77079 Telephone: (281) 597-9960 Fax: (281) 597-8480 With a Copy to: Darryl M. Burman, Esq. DiCecco, Fant & Burman, L.L.P. 1900 West Loop South, Suite 1100 Houston, Texas 77027 Telephone: (713) 961-3366 Fax: (713) 961-3938 Notices shall be effective when sent, if sent by facsimile, or upon receipt, if given by overnight courier, certified mail or personal delivery. Any Member may change such Person's address by notice to the Company and each other Member. 14.9 COSTS. If the Company or any Member retains counsel for the purpose of enforcing or preventing the breach or any threatened breach of any provision of this Agreement or for any other remedy relating to it, then each party shall bear its own costs and expenses, including attorney's fees. 14.10 INDEMNIFICATION. Each Member hereby indemnifies and agrees to hold harmless the Company and each other Member from any liability, cost or expense arising from or related to any act or failure to act of such Member which is in violation of this Agreement. 14.11 PARTIAL INVALIDITY. Wherever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law. However, if for any reason any one or more of the provisions of this Agreement are held to be invalid, illegal or unenforceable in any respect, such action will not affect any other provision of this Agreement. In such event, this Agreement will be construed as if such invalid, illegal or unenforceable provision had never been contained in it. 14.12 ENTIRE AGREEMENT. This Agreement, together with the Letter Agreement, Development Agreement, Tribe Management Agreement, Assignment and Assumption Agreement, and the LASS Management Agreement, contains the entire agreement and understanding of the Members with respect to its subject matter, and it supersedes all prior written and oral agreements. No amendment of this Agreement will be effective for any purpose unless it is made in accordance with Section 14.1. 14.13 BENEFIT. The obligations of each Member will inure solely to the benefit of the other Members and the Company and their permitted successors and assigns, without conferring on any other Person any rights of enforcement or other rights. 14.14 BINDING EFFECT. This Agreement is binding upon, and inures to the benefit of, the Members and their permitted successors and assigns; provided that, any Transferee will have only the rights specified in Section 13.6 unless admitted as a substitute Member in accordance 26 27 with this Agreement. 14.15 FURTHER ASSURANCES. Each Member agrees, without further consideration, to sign and deliver such other documents of further assurance as may reasonably be necessary to effectuate the provisions of this Agreement. 14.16 HEADINGS. Article and section titles have been inserted for convenience of reference only. They are not intended to affect the meaning or interpretation of this Agreement. 14.17 TERMS. Terms used with initial capital letters will have the meanings specified, applicable to both singular and plural forms, for all purposes of this Agreement. All pronouns (and any variation) will be deemed to refer to the masculine, feminine or neuter, as the identity of the Person may require. The singular or plural include the other, as the context requires or permits. The word "include" (and any variation) is used in an illustrative sense rather than a limiting sense. 14.18 GOVERNING LAW; CONFLICTS. This Agreement will be governed by, and construed in accordance with, the laws of the State of Delaware (except to the extent preempted by any federal law or the gaming laws of any State or governmental agency having jurisdiction over the affairs of the Company or any Member). Any conflict or apparent conflict between this Agreement and the Act will be resolved in favor of this Agreement except as otherwise required by the Act. The Members and the Company have entered into the Letter Agreement, which contains certain provisions as to the affairs of the Company and the conduct of its business and which, for purposes of the Act, shall be considered, together with this Agreement, as an "operating agreement" of the Company; provided that in the event of any conflict between the terms of the Letter Agreement and this Agreement, the terms of the Letter Agreement shall control. 14.19 REPRESENTATIONS. Each Member represents and warrants to each other Member that, as of the signing of this Agreement: (a) Such Member is duly organized, validly existing and in good standing as a corporation or company under the laws of the jurisdiction where it purports to be organized, and is a United States Person; (b) Such Member has full power and authority to enter into and perform this Agreement and the Letter Agreement; (c) All actions necessary to authorize the signing and delivery of this Agreement and the Letter Agreement, and the performance of their respective obligations under each of them, have been duly taken; (d) This Agreement and the Letter Agreement have been duly signed and delivered by a duly authorized officer or other representative of such Member, and constitutes the legal, valid and binding obligation of such Member enforceable in accordance with its terms (except as such 27 28 enforceability may be affected by applicable bankruptcy, insolvency or other similar laws effecting creditors' rights generally, and except that the availability of equitable remedies is subject to judicial discretion); (e) No consent or approval of any other Person is required in connection with the signing, delivery and performance of this Agreement or the Letter Agreement by such Member; and (f) The signing, delivery and performance of this Agreement and the Letter Agreement do not violate the organizational documents of such Member, or any agreement to which such Member is a party or by which such Member is bound. 14.20 CONFIDENTIALITY. Subject to the next sentence, the Members will use their respective best efforts to keep all matters pertaining to the Project confidential except as required by law, or to the extent necessary to complete the Project or to carry on their other businesses and comply with requirements applicable to them. A Member may make such announcements, file such documents (including this Agreement) with the Securities and Exchange Commission, and other regulatory authorities, and otherwise take such actions to comply with the requirements of federal and state securities laws as it deems appropriate. To the extent reasonably practicable, each Member will provide the other with the portion of any such announcement or filing that refers to this Agreement and the transactions contemplated by it no later than concurrently with releasing or filing the same. ARTICLE 15: DISPUTE RESOLUTION 15.1 DISPUTES. Except as to any disputes for which injunctive relief may be available, in the event a dispute of any kind arises in connection with this Agreement or the Letter Agreement (including any dispute concerning the construction, performance or breach of either agreement), the parties to the dispute (who may be any combination of the Company and any one or more of the Members) will attempt to resolve the dispute as set forth in Section 15.2 before proceeding to arbitration as provided in Section 15.3. All documents, discovery and other information related to any such dispute, and the attempts to resolve or arbitrate such dispute, will be kept confidential to the fullest extent possible. This Article shall not apply to disputes arising under the LASS Management Agreement. 15.2 NEGOTIATION. If a dispute arises, any party to the dispute will give notice to each other party. After notice has been given, the parties in good faith will attempt to negotiate or mediate a resolution of the dispute. 15.3 APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California. Any action shall be commenced in California Superior Court. If any of the terms and provisions hereof shall be held invalid or unenforceable for any reason, such validity or unenforceability shall in no event affect any of the other terms or provisions hereof, all such other terms and provisions to be held valid and enforceable to the 28 29 fullest extent permitted by law. IN WITNESS WHEREOF, the initial Members have signed this Operating Agreement of Lakes KAR- Shingle Springs, L.L.C. as of the date first set forth above. LAKES SHINGLE SPRINGS, INC. a Minnesota corporation By: /s/ Timothy Cope ----------------------------- Name: Timothy Cope --------------------------- Title: Executive Vice President -------------------------- KEAN ARGOVITZ RESORTS- SHINGLE SPRINGS, L.L.C. a Nevada limited liability company By: /s/ Kevin M. Kean ----------------------------- Name: Kevin M. Kean --------------------------- Title: President -------------------------- APPENDIX I
MEMBER OWNERSHIP INTEREST INITIAL CONTRIBUTION - ------ ------------------ -------------------- Kean Argovitz Resorts- 40% $500 Shingle Springs, L.L.C. Lakes Shingle Springs, Inc. 60% $500
29 30 APPENDIX II DEFINITIONS In addition to the terms that are expressly defined in the Operating Agreement, the following terms shall have the following meanings: ACT: The Delaware Limited Liability Company Act, as amended from 30 31 time to time. ANNUAL BUDGET: The Operating Budget and Annual Plan, as provided and defined in the Tribe Management Agreement. AFFILIATE: An "Affiliate" of a Person means a Person directly or indirectly controlling, controlled by or under common control with such Person. For this purpose and for purposes of the use of the term "Control" in this Agreement, Control means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. AGREEMENT: This Operating Agreement, as amended from time to time. CAPITAL ACCOUNT: The book value capital account maintained under Section 3.6. CAPITAL CONTRIBUTION: The aggregate amount of cash and the Fair Market Value of property (less the amount of indebtedness, if any, of such Member which is assumed by the Company and/or the amount of indebtedness, if any, to which such property is subject, as of the date of contribution, without regard to the provisions of Code Section 7701(g)), or services rendered or a promissory note or other obligation to contribute cash or property or to perform services, which a Person contributes to the Company in his capacity as a Member. CAPITAL TRANSACTION: Any sale, exchange, condemnation (including any eminent domain or similar transaction), casualty, financing, refinancing or other disposition with respect to any real or personal property owned by the Company which is not in the ordinary course of business. CASH FLOW: For any period, the amount by which (a) the gross cash receipts of the Company from any source for such period (including, but not limited to, Capital Contributions, loans, repayments of monies advanced and payments of principal or interest with respect to the Interim Promissory Note or the Project Loan, distributions received by the Company in respect of any stock, partnership interest or other equity interest owned by the Company, and proceeds from the sale, financing, refinancing or other disposition of all or any portion of the Company property), exceed (b) the sum of (i) the aggregate cash disbursements for such period (including, but not limited to, the Company administrative costs, fees paid by the Company under the LASS Management Agreement, principal and interest payable on the Company debt to non-Members and capital expenditures), and (ii) amounts previously set aside as reserves as determined by the 31 32 Managers in their discretion. CODE: The Internal Revenue Code of 1986, as amended from time to time (including corresponding provisions of subsequent revenue laws). COMPANY: LAKES KAR Shingle Springs, L.L.C., as formed under the Certificate and as operating under this Agreement. DEVELOPMENT LOAN: A loan from LACO to the Company as provided and defined in the Letter Agreement. DEVELOPMENT PLAN: The plan for the development of the Project, as adopted by the Company. DISSOLUTION: The dissolution of the Company as provided in Section 11.1. DISTRIBUTION: A distribution of money or other property made by the Company with respect to an Ownership Interest. EQUITY ADVANCE: A commitment from LACO to loan or contribute capital to the Company, in an amount of 25% of the Project Loan not to exceed $25,000,000.00 as provided and defined in the Letter Agreement. FAIR MARKET VALUE: As to any property, the price at which a willing seller would sell and a willing buyer would buy such property having full knowledge of the relevant facts, in an arm's-length transaction without time constraints, and without being under any compulsion to buy or sell, or the value otherwise agreed by the Members to be the Fair Market Value. FISCAL YEAR: The fiscal and taxable year of the Company as determined under this Agreement, including both 12-month and short taxable years. INITIAL OWNERSHIP: The relative Ownership Interest of the Members existing upon the execution of this Agreement entitling the holders thereof to all the benefits of ownership in the Company, but which Ownership Interests may be changed from time to time as set forth in this Agreement. INTEREST: The Prime Rate as reported, at the time such rate is to be calculated, by the Chase Manhattan Bank, N.A., or any successor, plus two percent (2 %). KARSS: Kean Argovitz Resorts-Shingle Springs, L.L.C., a Nevada limited liability company, and its Permitted Transferees (provided that any Transferee will become a substitute Member only in accordance with the 32 33 Agreement). KARSS ADVANCES: The sum of $585,000 expended by KARSS with respect to the Project as of the date of this Agreement, as provided and defined in Section 5(c) of the Letter Agreement. KARSS LOAN: A loan of $970,000.00 from LACO to KARSS, as provided and defined in the Letter Agreement. LASS: Lakes Shingle springs, Inc. a Minnesota corporation, and its Permitted Transferees (provided that any Transferee will become a substitute Member only in accordance with the Agreement). LIABILITY: The obligation to pay any judgment, settlement, penalty, fine or expense (including reasonable attorneys' fees, experts' expenses and court costs) incurred with respect to any Proceeding. LIQUIDATION: The process of terminating the Company and winding up its business under Article 12 after its Dissolution. LOSSES: The Company's net loss (including deductions) for any Fiscal Year, determined under Section 5.1. MAJORITY IN INTEREST: More than 50% of the Ownership Interests. MANAGER: Those Persons designated or appointed as Managers pursuant to this Agreement, and any other Person who becomes a successor or additional Manager of the Company pursuant to this Agreement. MEMBER: A person who is an initial Member of the Company, or who is subsequently admitted as a substitute or an additional Member as provided in this Agreement. NET SALES CASH: Cash receipts of the Company from a Capital Transaction, less payment of fees or expenses related to the Capital Transaction. NOTICE: Written notice (including any communication or delivery), actually given pursuant to Section 14.8. OWNERSHIP INTEREST: With respect to each Person owning an interest in the Company, all of the interests of such Person in the Company (including, without limitation, an interest in Profits and Losses of the Company, the right to receive Distributions, a Capital Account interest, and all other rights and obligations of such Person under this Agreement), expressed as a percentage (carried to the nearest one-thousandth of a percent, if other than an even percentage), as initially set forth in Section 1.2 33 34 and as subsequently changed in accordance with this Agreement. PERMITTED TRANSFEREE: A person described in Section 13.3 to whom an Ownership Interest may be transferred without compliance with a right of first refusal. PERSON: An individual, corporation, trust, partnership, limited liability company, limited liability association, unincorporated organization, association or other entity. PROCEEDING: Any threatened, pending or completed claim, action, suit or proceeding, whether formal or informal, and whether civil, administrative, investigative or criminal. PROFITS: The Company's net profit (including income and gains) for any Fiscal Year, determined under Section 5.1. PROJECT LOAN: A loan of in the principal amount of up to $60 Million from a financial institution or institutions, as provided and defined in the Letter Agreement. REGULATIONS: The Treasury Regulations (including temporary regulations) promulgated under the Code, as amended from time to time (including corresponding provisions of succeeding regulations). TAX LIABILITY: A Member's tax liability as defined in Section 9(b) of the Letter Agreement. THIRD PARTY: With respect to any Member, a Person other than an Affiliate. THIRD PARTY OFFER: A bonafide, non-collusive, binding, arm's-length written offer from a Third Party stated in terms of U.S. dollars. TRANSFER: A sale, exchange, assignment or other disposition, whether voluntary or by operation of law. TRANSFEREE: A person to whom an Ownership Interest is transferred. TRANSFEROR: A person who transfers an Ownership Interest. WITHDRAWAL: The occurrence of an event with respect to a Member which terminates membership in the Company, as provided in Section 11.2. 34 EX-10.76 17 ASSIGNMENT AND ASSUMPTION AGREEMENT 1 EXHIBIT 10.76 ASSIGNMENT AND ASSUMPTION AGREEMENT This Assignment and Assumption Agreement is between Kean Argovitz Resorts-Shingle Springs, L.L.C. ("KARSS"), a Nevada limited liability company, and LAKES KAR-Shingle Springs, L.L.C., a Delaware limited liability company (the "Company"). WHEREAS, Lakes Gaming, Inc. and KARSS have entered into a Letter Agreement of even date, a copy of which is attached hereto as Exhibit A, (the "Letter Agreement"), which sets forth the terms under which they formed the Company for the purpose of developing and operating a gaming facility and related facilities (the "Project") for the Shingle Springs Band of Miwok Indians (the "Tribe"); WHEREAS, KARSS is a party with the Tribe to a certain Development Agreement dated June 11, 1999, a copy of which is attached hereto as Exhibit B (the "Development Agreement"); WHEREAS, KARSS is a party with the Tribe to a certain Management Agreement dated June 11, 1999, a copy of which is attached hereto as Exhibit C (the "Management Agreement"); WHEREAS, KARSS desires to assign to the Company all its rights and interest in, to and under the Development Agreement, the Management Agreement and the Project; WHEREAS, the Company has agreed to assume all of KARSS'S obligations under each of the Agreements. NOW THEREFORE, for $10.00 and other good and valuable consideration, the receipt and sufficiency of which the parties hereby acknowledge, the parties agree as follows: 1. KARSS hereby conveys, assigns and transfers to the Company all of KARSS's rights and interest in, to and under the Development Agreement (including the Interim Promissory Note and the Security and Reimbursement Agreement, as defined in the Development Agreement), the Management Agreement and the Project, including all applications, permits, approvals, plans, drawings, reports or other matters pertaining to the Project. 2. The Company hereby agrees to assume all of KARSS's obligations under the Development Agreement and the Management Agreement. 3. The parties agree to execute such other documents or take such other action as may be necessary to implement the foregoing. -1- 2 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of this 29th day of July, 1999. KEAN ARGOVITZ RESORTS- SHINGLE SPRINGS, L.L.C. By: /s/ Kevin M. Kean ---------------------------- Kevin M. Kean, President LAKES KAR-SHINGLE SPRINGS, L.L.C. By: Kean Argovitz Resorts-Shingle Springs, L.L.C. By: /s/ Kevin M. Kean ---------------------------- Kevin M. Kean, Chief Executive Officer By: Lakes Shingle Springs, Inc. By: /s/ Timothy Cope ---------------------------- Name: Timothy Cope -------------------------- Title: Executive Vice President ------------------------- -2- EX-10.77 18 ASSIGNMENT AND ASSUMPTION AGREEMENT AND CONSENT 1 EXHIBIT 10.77 ASSIGNMENT AND ASSUMPTION AGREEMENT and CONSENT TO ASSIGNMENT AND ASSUMPTION This Assignment and Assumption Agreement and Consent to Assignment and Assumption, is made among and between Lakes Gaming, Inc., a Minnesota corporation, and Lakes Shingle Springs, Inc., a Minnesota corporation, and Kean Argovitz Resorts-Shingle Springs, L.L.C. ("KARSS"), a Nevada limited liability company. WHEREAS, Lakes Gaming, Inc. and KARSS have entered into a Letter Agreement of even date, a copy of which is attached hereto as Exhibit A, (the "Letter Agreement"), which sets forth the terms under which they formed LAKES KAR-Shingle Springs, L.L.C., a Delaware limited liability company ("the Company"), for the purpose of developing and operating a gaming facility and related facilities (the "Project") for the Shingle Springs Band of Miwok Indians (the "Tribe"); WHEREAS, KARSS is a party with the Tribe to a certain Development Agreement dated June 11, 1999, a copy of which is attached hereto as Exhibit B (the "Development Agreement"); WHEREAS, KARSS is a party with the Tribe to a certain Management Agreement dated June 11, 1999, a copy of which is attached hereto as Exhibit C (the "Management Agreement"); WHEREAS, KARSS has assigned to the Company all its rights and interest in, to and under the Development Agreement, the Management Agreement and the Project; WHEREAS, the Company has agreed to assume all of KARSS'S obligations under each of the Agreements. WHEREAS, Lakes Gaming, Inc. desires to assign to Lakes Shingle Springs, Inc. all its rights and interest in, to and under the Letter Agreement; WHEREAS, Lakes Shingle Springs, Inc. has agreed to assume all of Lakes Gaming, Inc.'s obligations under the Letter Agreement; WHEREAS, KARSS has no objection to Lakes Gaming, Inc. assigning its rights under the Letter Agreement to Lakes Shingle Springs, Inc. so long as Lakes Gaming, Inc. guarantees the performance of all duties and obligations of Lakes Shingle Springs, Inc and enters into that certain Guaranty Agreement attached hereto as Exhibit D ., and to Lakes Shingle Springs, Inc. assuming Lakes Gaming, Inc.'s obligations under the Letter Agreement; NOW THEREFORE, for $10.00 and other good and valuable consideration, the receipt 2 and sufficiency of which the parties hereby acknowledge, the parties agree as follows: 1. Lakes Gaming, Inc. hereby conveys, assigns and transfers to Lakes Shingle Springs, Inc. all of Lakes Gaming, Inc.'s rights and interest in, to and under the Letter Agreement. 2. Lakes Shingle Springs, Inc. hereby agrees to assume all of Lakes Gaming, Inc.'s obligations under the Letter Agreement. 3. Lakes Gaming, Inc. and Lakes Shingle Springs, Inc. agree to execute such other documents or take such other action as may be necessary to implement the foregoing. 4. KARSS agrees to and consents to Lakes Gaming, Inc. assigning its rights under the Letter Agreement to Lakes Shingle Springs, Inc., and to Lakes Shingle Springs, Inc. assuming Lakes Gaming, Inc.'s obligations under the Letter Agreement; IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of this 29th day of July, 1999. LAKES GAMING, INC. By: /s/ Timothy Cope ----------------------------- Name: Timothy Cope --------------------------- Title: Executive Vice President -------------------------- LAKES SHINGLE SPRINGS, INC. By: /s/ Timothy Cope ----------------------------- Name: Timothy Cope --------------------------- Title: Executive Vice President -------------------------- KEAN ARGOVITZ RESORTS- SHINGLE SPRINGS, L.L.C. By: /s/ Kevin M. Kean, President --------------------------- Kevin M. Kean, President EX-10.78 19 SECURITY AGREEMENT 1 EXHIBIT 10.78 SECURITY AGREEMENT THIS AGREEMENT is made as of the 29th day of July, 1999, by and between Lakes Shingle Springs, Inc., a Minnesota corporation (the "Secured Party"), located at 130 Cheshire Lane, Minnetonka, Minnesota 55305 and LAKES KAR-Shingle Springs, L.L.C., a Delaware limited liability company (the "Debtor") located at 130 Cheshire Lane, Minnetonka, Minnesota 55305. W I T N E S S E T H: WHEREAS, Lakes Gaming, Inc and Kean Argovitz Resorts- Shingle Springs, LLC have entered into a Letter Agreement, a copy of which is attached hereto as Exhibit 1 (the "Letter Agreement"), which sets forth terms under which those parties agreed to form Debtor for the purpose of developing and operating a gaming facility and related facilities ( the "Enterprise") for the Shingle Springs Band of Miwok Indians (the "Tribe"); WHEREAS, under Section 5 and Section 6 of the Letter Agreement Lakes Gaming, Inc. agreed that upon Debtor's formation it would make certain advances to Debtor identified in the Letter Agreement as the "Development Loan" and "Equity Advance"; WHEREAS, Lakes Shingle Springs, Inc. has agreed to assume all of Lakes Gaming Inc.'s rights and obligations under the Letter Agreement and Lakes Gaming Inc. Guarantys all duties and obligations of Lakes Shingle Springs, Inc. and enters into that certain Guaranty Agreement of even date herewith; WHEREAS, Debtor desires to receive the Development Loan and Equity Advance from Lakes Shingle Springs, Inc. pursuant to the terms of the Letter Agreement; WHEREAS, Debtor understands that it is a condition precedent to Lakes Shingle Springs, Inc. making the Development Loan and Equity Advance to Debtor that Debtor agree to secure repayment of the Development Loan and Equity Advance by granting to Lakes Shingle Springs, Inc. a security interest in all of Debtor's assets as hereinafter provided; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows: 1. Definitions. When used herein, the following terms shall have the following meanings: (a) "Accounts" means any and all rights to payment now owned or possessed or hereafter acquired by the Debtor for goods sold or leased or for services rendered, whether or 2 not they have been earned by performance and all other property of the Debtor now or hereafter classified as accounts under the California UCC. (b) "California UCC" means the Uniform Commercial Code as adopted in the State of California. (c) "Chattel Paper" means a writing or writings which evidence both a monetary obligation and a security interest in or a lease of specific goods as well as all other property of the Debtor now or hereafter classified as chattel paper under the California UCC. When a transaction is evidenced both by such a security agreement or a lease and by an instrument or series of instruments, the group of writings taken together constitutes Chattel Paper. (d) "Collateral" means all assets of the Debtor including Accounts, Inventory, Equipment, Chattel Paper, Instruments, and General Intangibles of the Debtor, whether now owned or possessed or hereafter acquired by the Debtor, all additions and accessories thereto, cash and cash equivalents and all proceeds, including insurance proceeds, from the sale or other disposition of such assets. Without limitation of the foregoing, Collateral includes all rights to payment under the Interim Promissory Note (the "Interim Promissory Note") and the Security and Reimbursement Agreement executed, or to be executed, pursuant to the Development Agreement dated June 11, 1999 between Kean Argovitz Resorts-Shingle Springs, L.L.C. and the Shingle Springs Band of Miwok Indians (the "Tribe"). (e) "Equipment" means all goods, machinery, furniture, furnishings, fixtures, tools, supplies, motor vehicles and all other property used or useful in the business of the Debtor, now or hereafter owned or possessed or hereafter acquired by the Debtor, together with all additions, accessions and replacements thereto and all other property of the Debtor now or hereafter classified as equipment under the California UCC. (f) "Event of Default" has the meaning given to that term in Section 5. (g) "General Intangibles" means any personal property (including, without limitation, things in action, contracts, patent rights, trade secrets, copyrights, licenses, know how and all trade names and trademarks) other than Inventory, Equipment, Accounts, Chattel Paper, Instruments and money. (h) "Instrument" means a negotiable instrument or any other writing which evidences a right to the payment of money and is not itself a security agreement or lease and is of a type which is in the ordinary course of business transferred by delivery with any necessary endorsement or assignment. (i) "Inventory" means all raw materials, work in process, finished products, materials used or consumed in the Debtor's business and all property of every kind and description (including, without limitation, software and computer programs of every kind) 3 intended for sale, lease or license or to be furnished under contracts of service in the Debtor's business, now owned or possessed or at any time hereafter acquired by the Debtor, including such property repossessed by or returned to the Debtor, and all other property of the Debtor now or hereafter classified as inventory under the California UCC. (j) "Loan Documents" means this Agreement, one or more Promissory Notes executed by and between Secured Party and Debtor evidencing any advance of funds under the Development Loan or Equity Advance, UCC Financing Statements and the other agreements or documents executed by Debtor hereunder or thereunder. (k) "Obligations" means (1) Any and all indebtedness or liabilities, of whatever kind, nature and description, now existing or hereafter arising, of the Debtor to the Secured Party, whether direct or indirect, absolute or contingent, joint or several, arising out of or relating to the Development Loan or the Equity Advance, the Note or any evidence of indebtedness relating to the Equity Advance, and any other indebtedness or liabilities of the Debtor to the Secured Party; and (2) Any and all liabilities of the Debtor to the Secured Party incurred under this Agreement. (l) "Permitted Encumbrances" means (1) Liens imposed by law, which were incurred in the ordinary course of business, and (x) which do not in the aggregate materially detract from the value of the property or assets to which such liens attach or materially impair the use thereof in the operation of the business of the Debtor or (y) which are being contested in good faith by appropriate proceedings which have the effect of preventing the forfeiture or sale of the property or assets subject to any such lien; and (2) Liens created pursuant to this Agreement. (m) "Person" means any individual, partnership, joint venture, firm, corporation, association, trust or other enterprise or any government or political subdivision or any agency, department or instrumentality thereof. (n) "Subsidiary" means a corporation in which the Debtor owns, directly or indirectly through one or more subsidiaries, a majority of shares ordinarily, in the absence of contingencies, having the right to elect at least a majority of the members of the board of directors. (o) "UCC" means the Uniform Commercial Code as adopted in the relevant 4 jurisdiction and any other applicable commercial code in such jurisdiction. Unless otherwise defined herein, all other capitalized terms contained in this Agreement shall have the meanings provided by the Letter Agreement and the California UCC. 2. Security Interest. To secure the performance by the Debtor of its Obligations, the Debtor hereby grants to the Secured Party a first priority security interest in and to the Collateral. 3. Debtor's Representations and Warranties. The Debtor hereby represents and warrants, which representations and warranties will survive the execution and delivery of this Agreement, to the Secured Party as follows: (a) Ownership of Collateral. Except for Permitted Encumbrances, the Debtor is the owner of all of the Collateral free and clear of any lien, security interest, encumbrance or other right, title or interest of any Person. (b) Necessary Filings. All filings, registrations and recordings necessary or appropriate to create, preserve, protect and perfect the security interests granted by the Debtor to the Secured Party pursuant to this Agreement have been accomplished and the security interests granted to the Secured Party pursuant to this Agreement in and to the Collateral constitute perfected security interests therein which are, subject to the Permitted Encumbrances, superior and prior to the rights of all other persons therein. (c) Financing Statements. There is no financing statement (or similar statement or instrument of registration under the law of any jurisdiction) now on file (other than those filed in connection with this Agreement or the Permitted Encumbrances) or registered in any public office covering or purporting to cover any interest of any kind in the Collateral. (d) Binding Agreement. Debtor has the corporate power to execute, deliver and perform its obligations under the Loan Documents. Debtor has duly executed and delivered this Agreement and the Note, and this Agreement and the Notes each constitutes its legal, valid and binding obligation enforceable against Debtor in accordance with their respective terms. (e) No Conflicts. Neither the execution, delivery or performance by Debtor of this Agreement or any of the other Loan Documents, nor compliance by it with the terms and provisions hereof or thereof, (i) will contravene any provision of any law, statute, rule or regulation or any order, writ, injunction or decree of any court or governmental instrumentality or (ii) will conflict or be inconsistent with or result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any lien upon any of its property or assets pursuant to the terms of any indenture, mortgage, deed of trust, credit agreement, security agreement or any other agreement, contract or instrument to which it is a party or by which it or any of its property or assets is bound or to which it may be subject. 5 (f) No Consents. No order, consent, approval, license, authorization or validation of, or filing, recording or registration with (except as have been obtained or made prior to the date of this Agreement), or exemption by, any governmental or public body or authority, or any subdivision thereof, is required to authorize, or is required in connection with (i) Debtor's execution, delivery and performance of the Loan Documents or (ii) the legality, validity, binding effect or enforceability of the Loan Documents. 4. Debtor's Covenants. The Debtor covenants and agrees that until all Obligations have been paid in full: (a) Sale and Use of Collateral. The Debtor will not sell, offer to sell, assign, lease, rent, or otherwise transfer or dispose of any Collateral. (b) Liens. Except as permitted under the terms of this Agreement, the Debtor will not (i) create, incur, assume or permit to exist any lien, security interest or encumbrance on any existing or future item of Collateral, other than Permitted Encumbrances and interests in favor of the Secured Party as contemplated hereunder, or (ii) enter into or assume any agreement containing a negative pledge which would require a sharing of an interest in the Collateral or which prohibits or limits the grant of any such interest. (c) Financing Statements. The Debtor will not execute or authorize to be filed (except in connection with this Agreement or the Permitted Encumbrances) or registered in any public office any financing statement (or similar statement or instrument of registration under the law of any jurisdiction) covering or purporting to cover any interest of any kind in the Collateral. (d) Defense of Collateral. The Debtor will defend the Collateral and proceeds thereof against all claims and demands of all Persons other than the Secured Party at any time claiming any interest therein and will save and hold the Secured Parries harmless from all such claims and demands. (e) Execution of Other Documents. The Debtor will, at its own expense, make, execute, endorse, acknowledge, file and deliver to the Secured Party from time to time such financing statements, lists, descriptions and designations of its Collateral, conveyances, transfer endorsements, powers of attorney, certificates, reports and other assurances or instruments and take such further steps relating to the Collateral and other property or rights covered by the security interests hereby granted, which the Secured Party may reasonably request, in a form satisfactory to the Secured Party to create, preserve, protect and perfect the security interests and the priority thereof granted by the Debtor to the Secured Party in and to the Collateral. The Debtor will pay any applicable filing fees and related expenses. The Debtor authorizes the Secured Party at any time and from time to time to file any financing statements related to the Collateral without the signature of the Debtor and to file a copy of this Agreement as a financing statement. 5. Events of Default. The Debtor shall be in default under this Agreement and an 6 event of default (an "Event of Default") shall exist hereunder upon the occurrence of any of the following events or conditions: (a) The Debtor shall be in default in the payment or performance of any Obligations. (b) The Debtor shall be in default pursuant to the terms of any Note(s) executed in connection with either the Development Loan or the Equity Advance. (c) The Debtor shall breach any warranty, representation, covenant or agreement made herein. (d) The occurrence of any liquidation, dissolution, termination of existence, insolvency (failure to pay its debts as they mature or the failure to maintain its assets value in excess of its liabilities), business failure, appointment of a trustee, custodian or receiver of any part of the property of, assignment for the benefit of creditors by, or the commencement of any bankruptcy or insolvency proceeding by or against the Debtor or any action taken by the Debtor for the purpose of effecting any of the foregoing. (e) One or more judgments or decrees are entered against the Debtor involving in the aggregate for the Debtor a liability, not paid or fully covered by insurance (other than the insurance policy' reasonable deductible), of $10,000 or more, and all such judgments or decrees have not been vacated, discharged, stayed or bonded pending appeal within 60 days after the entry thereof. (f) A notice of lien, levy or assessment, other than a Permitted Encumbrances is filed of record with respect to all or any part of the Collateral by any party, including the United States or any department, agency or instrumentally thereof or by any state, county, municipal or other governmental agency. (g) There is an event of default under the Interim Promissory Note executed by the Tribe. 6. Remedies. (a) Generally. Upon the occurrence of any such Event of Default and the expiration of any applicable cure period, any and all Obligations secured hereby shall, at the option of the Secured Party, become immediately due and payable without notice, presentation, demand for payment or protest, all of which are expressly waived by the Debtor, and the Secured Party, at its option, shall have, in addition to any other rights and remedies which the Secured Party may have hereunder, any and all of the rights and remedies of a secured creditor under the California UCC and the UCC in the state where the Collateral is located. Without limiting the generality of the foregoing, the Secured Party shall have the following rights, remedies and obligations: (1) The Secured Party shall be entitled to take possession of, hold, 7 maintain, preserve and prepare the Collateral for sale until it is disposed of, or may propose to retain the Collateral, subject to the Debtor's right of redemption in satisfaction of the Debtor's obligations as provided in the California UCC and the UCC. (2) The Secured Party may require the Debtor to assemble the Collateral and make it available to the Secured Party for possession at a place or places to be designated by the Secured Party. (3) Unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, the Secured Party will give the Debtor at least five business days notice of the time and place of any public sale thereof or of the time after which any private sale or other intended disposition thereof is to be made. The requirements of reasonable notice shall be met if such notice is mailed, postage prepaid, to the Debtor at its address specified in accordance with Section 14 at least five business days before the time of the sale or disposition. (4) Any and all expenses of the Secured Party incurred in the taking, holding, preparing for sale and selling of the Collateral, including the Secured Party's reasonable attorneys fees and legal expenses, shall become additional Obligations of the Debtor, payable on demand and secured by the Collateral. (5) The Secured Party may buy at any public sale and, if the Collateral is of a type customarily sold on a recognized market or is of a type which is subject to widely distributed, standard price quotations, the Secured Party may buy at private sale. The net proceeds realized upon any such disposition of the Collateral, after deduction for the expenses of retaking, holding, preparing for sale or lease, selling, leasing and the like, and the reasonable attorneys fees and legal expenses incurred by the Secured Party in connection therewith, shall be applied in satisfaction of the Obligations. The Secured Party will account to the Debtor for any surplus realized on such disposition and the Debtor shall remain liable for any deficiency. (6) The remedies of the Secured Party hereunder are cumulative and the exercise of any one or more of the remedies provided for herein or under the California UCC or any other UCC shall not be construed as a waiver of any of the other remedies of the Secured Party, so long as any part of the Debtor's obligations secured hereby shall remain unsatisfied. (b) Maintenance of Collateral Accounts. At the request of the Secured Party upon the occurrence of an Event of Default, the Debtor agrees to deliver to the Secured Party, or, at the Secured Party's option, to deposit in one or more special collateral accounts maintained for the Secured Party by any bank reasonably satisfactory to the Secured Party, all collections on General Intangibles, Chattel Paper and other rights to payment constituting Collateral, and all other cash proceeds of Collateral, immediately upon receipt thereof, in the form received, except for the Debtor's endorsement when necessary. Amounts deposited in a collateral account shall 8 not bear interest and shall not be subject to withdrawal by the Debtor, except after full payment and discharge of all Obligations. 7. Indemnities. (a) General Indemnity. The Debtor agrees to indemnity, pay and hold the Secured Party and its officers, directors, employees. agents, and affiliates (collectively, the "Indemnitees") harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatever (including, without limitation. the fees and disbursements of counsel for such Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not such Indemnitees are designated parties thereto) that may be imposed on, incurred by, or asserted against the Indemnitees, in any manner relating to or arising out of the Agreement (the "Indemnified Liabilities"); provided, however, that the Debtor shall have no obligation to an Indemnitee hereunder with respect to Indemnified Liabilities arising from the negligence or willful misconduct of that Indemnitee. (b) Liens. Without limiting the generality of the foregoing, the Debtor agrees to pay or reimburse the Secured Party for any and all fees, costs and expenses of any kind or nature whatsoever (including, without limitation, fees and disbursements of counsel) incurred in connection with the creation, preservation or protection of the Secured Party's liens on, and security interest in, the Collateral, including, without limitation, all fees and taxes in connection with the recording or filing of instruments and documents in public offices, payment or discharge of any taxes (excluding income or similar taxes) or liens upon or in respect of the Collateral, premiums for insurance with respect to the Collateral and all other fees, costs and expenses in connection with protecting, maintaining or preserving the Collateral and the Secured Party's interest therein, whether through judicial proceedings or otherwise, or in defending or prosecuting any actions, suits or proceedings arising out of or relating to the Collateral. (c) Unenforceability. To the extent that the undertaking to indemnify, pay and hold harmless set forth in this Section may be unenforceable because it is vocative of any law or public policy, the debtor shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by the Indemnitees or any of them. (d) Indemnity Obligation Secured by Collateral. Any amounts paid by any Indemnitee hereunder as to which such Indemnitee has the right to reimbursement shall constitute Obligations secured by the Collateral. (c) Survival. The provisions of this Section shall survive the termination of this Agreement and the discharge of the Debtor's other obligations hereunder. 8. Waiver. No delay an the part of the Secured Party in the exercise of any right, power or remedy shall operate as a waiver thereof, nor shall any single or partial exercise by the Secured Party of any right, power or remedy preclude the further exercise thereof, or the exercise 9 of any other right, power or remedy. 9. Benefit. This Agreement shall be binding upon, and inure to the benefit of, the Debtor and the Secured Party and their respective successors and assigns; provided, however, that the Debtor may not assign its rights or obligations hereunder or in connection herewith or any interest herein (voluntarily, by operation of law or otherwise) without the prior written consent of the Secured Party. The Secured Party may assign their rights and obligations under this Agreement to the same extent as they may assign their rights and obligations under the Note, in which event, upon notice thereof by the Secured Party to the Debtor, the assignee shall have, to the extent of such assignment (unless otherwise provided therein), the same rights and benefits as it would have if it were a secured party hereunder and shall be deemed a secured party for all purposes of this Agreement. Except as provided in this Section, this Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns. 10. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California, and for all purposes shall be construed in accordance with the laws of said state, without regard to principles of conflicts of law, except for the perfection and enforcement of security interests and liens in other jurisdictions, which shall be governed by the laws of those jurisdictions. 11. Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be ineffective or invalid, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions or this Agreement. 12. Headings. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. 13. Amendment. This Agreement embodies the entire agreement and undertaking between the Secured Party and the Debtor and supersedes all prior agreements and understandings between the Secured Party and the Debtor relating to the subject matter hereof. The terms of this Agreement may not he modified or amended except by an agreement in writing signed by the parties hereto or their assignees. 14. Notices. All notices, requests and other communications to any party hereto shall be in writing (including telegram, telecopier, telex or similar writing) and shall be given to such party, addressed to it at its address or telecopier or telex number as set forth on the signature page hereof or such other address or telecopier or telex number as such party may hereafter specify for the purpose of notice to the other party. Each such notice, request or communication shall be effective (a) if given by telex or telecopy, when such telex or telecopy is transmitted to the telex or telecopy number specified above, (b) if given by mail, three business days after such 10 communication is deposited in the United States mails with first class postage prepaid, addressed as aforesaid, or (c) if given by any other means, when delivered at the address specified herein. 15. Effectiveness/Counterparts. This Agreement shall be effective upon its signing by the Debtor and may be signed in counterparts by the Debtor and the Secured Party, the counterparts together constituting the Agreement. Copies of this Agreement may be filed by the Secured Party in the appropriate officers in each jurisdiction where the Collateral is located to perfect the Secured Party's security interest. 16. Submission to Jurisdiction. Debtor hereby irrevocably submits to the non-exclusive jurisdiction of any California state or federal court sitting in California over any action or proceeding arising out of or relating to this Agreement, the Note or any other Loan Document, and hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such California state or federal court. Debtor hereby irrevocably waives, to the fullest extent permitted by law, any objection it may now or hereafter have to the laying of venue in any such action or proceeding in any such court as well as any right it may now or hereafter have, to remove any such action or proceeding, once commenced, to another court on the grounds of forum non convenient or otherwise. IN WITNESS WHEREOF, the undersigned have executed and delivered this Agreement as of the date first written above. Secured Party: LAKES SHINGLE SPRINGS, INC. 130 Cheshire Lane Minnetonka, Minnesota Telephone No. (612) 449-7030 Telecopy No. (612) 449-7064 By: /s/ Timothy Cope ---------------------------- Its: Executive Vice President --------------------------- Debtor: LAKES KAR-Shingle Springs, L.L.C. 130 Cheshire Lane Minnetonka, Minnesota Telephone No. (612) 449-7030 Telecopy No. (612) 449-7064 By: /s/ Kevin M. Kean ---------------------------- Its: President --------------------------- EX-10.79 20 PROMISSORY NOTE 1 EXHIBIT 10.79 PROMISSORY NOTE $970,000.00 Houston, Texas July 29, 1999 FOR VALUE RECEIVED, KEAN ARGOVITZ RESORTS-SHINGLE SPRINGS, L.L.C., A NEVADA LIMITED LIABILITY COMPANY ("MAKER"), promises to pay to the order of LAKES SHINGLE SPRINGS, INC., A MINNESOTA CORPORATION ("LENDER"), in the United States of America, in immediately available funds, at such place as the holder hereof may from time to time designate, or in the absence of such designation, at the office of the Lender, 130 Cheshire Lane, Minnetonka, Minnesota 55305, the principal sum of NINE-HUNDRED SEVENTY THOUSAND DOLLARS ($970,000.00), or the aggregate unpaid principal amount of all advances made to Maker pursuant to Section 4 of that certain Letter Agreement dated as of the date hereof among Lakes Gaming, Inc. and Kean Argovitz Resorts-Shingle Springs, L.L.C. (the "Letter Agreement"), a copy of which is attached hereto as Exhibit A, whichever is less, plus interest thereon from the date of such advances, in like money, in accordance with the following terms and provisions: 1. Capitalized terms used herein and not defined shall have the meanings given them in the Letter Agreement. 2. Lender hereby agrees to loan to Maker up to $970,000.00 to be loaned in more than one advances (each, an "Advance") as entered on the Schedule of Advances attached hereto as Schedule I (such borrowing , in the aggregate, the "Loan"). Each Advance shall bear interest at the Interest Rate from and including the date the proceeds of such Advance are advanced (such date the "Funding Date" of such Advance) through the date of payment. 3. Maker shall repay the loan solely from the Cash Flow (as defined in the Letter Agreement) of Lakes KAR-Shingle Springs, L.L.C. (the "Company"), as provided in paragraph 9 of the Letter Agreement and the Operating Agreement of the Company. There shall be no recourse against Maker for any deficiency in the payment of principal or interest of the Loan. 4. The Interest Rate means, as to each Advance, an interest rate equal to the prime rate of Chase Manhattan Bank, NA. (or any successor Bank), fixed as of the first business day of each calendar month, plus one percent (1%), per annum. Interest at the foregoing rate shall accrue and be compounded monthly and shall be payable from the Cash Flow of the Company as provided in paragraph 9 of the Letter Agreement and the Operating Agreement of the Company. Interest shall be computed for the actual number of days elapsed on the basis of a year consisting of 360 days. It is intended that the rate of interest hereon shall never exceed the maximum rate, if any, which may be legally charged on the Loan evidenced by this Note ("Maximum Rate"), 2 and if the provisions for interest contained in this Note would result in a rate higher than the Maximum Rate, interest shall nevertheless be limited to the Maximum Rate and any amounts which may be paid toward interest in excess of the Maximum Rate shall be applied to the reduction of principal, or, at the lawfully exercised option of the Lender, returned to Maker. 5 Maker hereby authorizes Lender to endorse on the Schedule of Advances annexed to this Note all Advances made to the Maker and all payments of principal amounts in respect of such Advances, which endorsements shall, in the absence of manifest error, be conclusive as to the outstanding principal amount of all Advances; provided, however, that the failure to make such notation with respect to any Advance or payments shall not limit or otherwise affect the obligations of Maker. 6. This Note is secured by a Pledge Agreement of even date herewith (the "PLEDGE") given by Maker for the benefit of the holder hereof encumbering all of Maker's interest in the Company. This Note and the Pledge and any other documents or instruments evidencing or securing the Loan are collectively referred to herein as the "LOAN DOCUMENTS." 7. If any default occurs in the payment of any principal, interest or any other sums when due hereunder, or in the performance of any covenant or agreement hereunder or in any of the other Loan Documents, and such default continues for a period of thirty (30) days after written notice thereof to Maker, then the outstanding principal amount of the Loan, any interest accrued thereon from time to time, and any other sums then remaining unpaid hereunder, at the option of the holder hereof and without notice, shall become immediately due and payable. Failure to exercise any such option shall not constitute a waiver of the right to exercise the same at a later time or in the event of any subsequent default. 8. Maker and all endorsers, guarantors hereby waive to the fullest extent permitted by law presentment, demand, protest, notice of protest, notice of dishonor and notice of any other kind (except as specifically required herein or in the other Loan Documents) in connection with this Note. 9. Maker agrees to pay all costs and out-of-pocket expenses (including, but not limited to, reasonable attorneys' fees and expenses) incurred by Lender in connection with the collection or enforcement of this Note, the Pledge or any other Loan Documents. 10. This Note shall be construed in accordance with and governed by the internal laws and decisions of California, without giving effect to California choice of law principles. 11. The parties hereto intend and believe that each provision of this Note comports with all applicable local, state and federal laws and judicial decisions. However, if any provision or provisions, or if any portion of any provision or provisions of this Note or the other Loan Documents is found by a court of law to be in violation of any applicable local, state or federal ordinance, statute law, administrative or judicial decision, or public policy, and if such court should declare such portion, provision or provisions of this Note or other Loan Documents to be 3 illegal, invalid, unlawful, void or unenforceable as written, then it is the intent of all parties hereto that such portion, provision or provisions shall be given force to the fullest possible extent that it or they are legal, valid and enforceable, that the remainder of this Note and other Loan Documents shall be construed as if such illegal, invalid, unlawful, void or unenforceable portion, provision or provisions were not contained herein, and that the rights, obligations and interest of Maker and holder hereof under the remainder of this Note shall continue in full force and effect. 12. No modification, waiver, amendment, discharge or change of this Note shall be valid unless the same is in writing and signed by the party against which the enforcement of such modification, waiver, amendment, discharge or change is sought. 13. Time is hereby declared to be of the essence of this Note and of every part hereof. 14. This Note shall inure to the benefit of and shall be binding on the parties hereto and their respective successors and assigns. Any reference to the Lender shall be deemed to include and apply to every subsequent holder of this Note. 15. Any notice, demand, request or other communication which any party hereto may be required or may desire to give hereunder shall be given in accordance with Section 17 of the Pledge Agreement. IN WITNESS WHEREOF, Maker has caused this Note to be executed and delivered as of the date first above written. MAKER: KEAN ARGOVITZ RESORTS- SHINGLE SPRINGS, L.L.C. By: __________________________________ Name: ________________________________ Title:________________________________ EX-10.80 21 PLEDGE AGREEMENT 1 EXHIBIT 10.80 PLEDGE AGREEMENT THIS PLEDGE AGREEMENT ("Agreement") entered into this 29th day of July, 1999, by and between Kean Argovitz Resorts-Shingle Springs, L.L.C., a Nevada limited liability company ("Pledgor"), in favor of Lakes Shingle Springs, Inc., a Minnesota corporation ("Pledgee"). W I T N E S S E T H: WHEREAS, Pledgor has executed a promissory note in the original principal amount of $970,000.00 (the "Note") in favor of Pledgee; WHEREAS, Pledgor has agreed to secure the Note by pledging and granting a security interest in the Pledgor's Ownership Interest in Lakes KAR-Shingle Springs, L.L.C., a Delaware limited liability company (the "Company"); WHEREAS, Pledgor has agreed to assign its rights to receive certain distributions from the Company in respect to Pledgor's Ownership Interest pursuant to the terms of a Letter Agreement, dated of even date herewith, among Pledgor and Pledgee (the "Letter Agreement"). NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Pledgor and Pledgee agree as follows: All capitalized terms not otherwise defined herein shall have the respective meanings ascribed to them in the Letter Agreement. 1. Pledge. 1.1 As security for the prompt and complete payment and performance of the obligations of Pledgor under the Note and this Agreement (the "Liabilities"), Pledgor hereby delivers, pledges and grants a security interest to Pledgee in the following: (a) All Ownership Interests in the Company now or hereafter acquired by Pledgor, and all certificates or other indicia of ownership representing such Ownership Interests referred to together with all rights to the proceeds thereof as the "Units"; (b) All dividends and other distributions received by Pledgor in accordance with Section 6 hereof; and (c) All "Proceeds", as such term is defined in the Uniform Commercial Code as the same may from time-to-time be in effect in the State of California 2 (the "Code"). The Units, powers and Proceeds thereof, together with the Property and interests in Property described in Section 6 below, are hereinafter collectively referred to as the "Collateral". Pledgor hereby appoints Pledgee its attorney-in-fact to arrange at Pledgee's option for the transfer upon or at any time after the existence or occurrence of an "Event of Default" of the Collateral on the books of the Company to the name of Pledgee or to the name of Pledgee's nominee. For purposes of this Agreement, an "Event of Default" shall mean any failure of Pledgor to perform, comply with or observe any material obligation, covenant or agreement under the Note or of Pledgor to perform, comply with or observe any obligation, covenant or agreement under this Agreement. 2. Voting Rights. 2.1 During the term of this Pledge Agreement, and so long as there shall not occur or exist an Event of Default, Pledgor shall have the right to vote the Units on all Company questions; provided, however, that no action shall be taken that would impair the value of the Collateral or be inconsistent with or violate any provision of this Pledge Agreement or the Note. Upon the existence or occurrence of an Event of Default, Pledgee shall thereafter be entitled to exercise all voting powers pertaining to the Collateral. 3. Representations. 3.1 Pledgor represents, warrants and agrees as follows: (a) Pledgor holds Ownership Interests in the Company, representing 50.0% of all the outstanding Ownership Interests in the Company; (b) Pledgor has full power and authority to enter into this Pledge Agreement; (c) Pledgor has the right to vote, pledge and grant a security interest in or otherwise transfer such Collateral free of any liens, claims and encumbrances; and (d) The Powers are duly executed and give the legal holder thereof the authority they purport to confer. 4. Limitation on Liens and Dispositions. 4.1 Except for the lien created under this Pledge Agreement, Pledgor agrees that it will not create, permit or suffer to exist, and will defend the Collateral against and take such other action as is necessary to remove, any lien, encumbrance, charge or right (a "Lien") on or against the Collateral and will defend the right, title and interest of Pledgee in and to any of Pledgor's right, title and interest in and to the Collateral against the claims and demands of all 3 other Persons. Except for the lien created under this Pledge Agreement, Pledgor will not sell, assign, exchange, grant a security interest in, transfer, encumber, or otherwise dispose of, any of the Collateral, or attempt or contract to do so. 5. Subsequent Changes Affecting Collateral. 5.1 Pledgor represents to Pledgee that Pledgor has made its own arrangements for keeping informed of changes or potential changes affecting the Collateral, and Pledgor agrees that, except as may be provided in any other agreement between the parties, Pledgee shall not have any responsibility or liability for informing Pledgor of any such changes or potential changes or for taking any action or omitting to take any action with respect thereto. Pledgee may, upon or at any time after the occurrence of an Event of Default, without notice and at its option, transfer or register the Collateral or any part thereof into its or its nominee's name with or without any indication that such Collateral is subject to the security interest hereunder. 6. Distributions. 6.1 If at any time this Pledge Agreement is effective, Pledgor, by reason of its ownership of the Units, shall become entitled to receive, or shall receive, any Ownership Interest (including, without limitation, any Ownership Interest from any reclassification, increase or reduction of capital, or reorganization), option, warrant, or other rights, whether as an addition to, in substitution of, or in exchange for any Units, whether by declared dividend, stock split, or other method, Pledgor agrees it shall accept the same as Pledgee's agent and hold the same in trust for Pledgee and deliver the same forthwith to Pledgee in the exact form received, with the endorsement of Pledgor when requested by Pledgee and/or appropriate undated stock powers duly executed in blank, to be held by Pledgee as additional collateral security for the Liabilities. Any sums or property paid upon or in respect of the Units or any other securities received under this section upon the reorganization, liquidation (whether complete or partial), or dissolution of the issuer of any of the Units or any such other securities shall immediately be paid over to Pledgee to be held by Pledgee as additional collateral security for the Liabilities. All sums of money and property so paid or distributed in respect of the Units, upon the reorganization, liquidation or dissolution of the issuer of the Units, which are received by Pledgor shall, until paid or delivered to Pledgee, be segregated from the other property of funds of Pledgor and held by Pledgor in trust as additional collateral security of the Liabilities. 6.2 Except as provided in the Letter Agreement, Pledgor shall be entitled to receive all cash dividends or distributions declared and paid with respect to any Units, free of any security interest in favor of Pledgee hereunder, provided that no uncured Event of Default exists at the time of such dividend or distribution or will exist as a result of such dividend or distribution. To the extent provided in the Letter Agreement, or upon the occurrence and continuance of any Event of Default, Pledgee shall be entitled to receive any and all such cash dividends or distributions, and Pledgor shall immediately deliver to Pledgee any such cash dividends or distributions which it receives. 4 7. Power of Attorney. 7.1 Pledgor does hereby irrevocably constitute and appoint Pledgee its true and lawful attorney, with full power of substitution, for them and in their name, place and stead, to ask, demand, collect, receive, receipt for, sue for, compound and give acquittance for any and all sums or properties which may be or become due, payable or distributable on or in respect of the Collateral or which constitute a part thereof, with full power to settle, adjust or compromise any claim thereunder or therefor as fully as Pledgor could themselves do, and to endorse or sign the names of Pledgor on all commercial paper given in payment or in part payment thereof and on all documents of satisfaction, discharge or receipt required or requested in connection therewith, and in its discretion, to file any claim or take any other action or proceeding, either in its own name or in the names of Pledgor, or otherwise, which Pledgee may deem necessary or appropriate to collect or otherwise realize upon any and all of the Collateral, or effect a transfer thereof, or which may be necessary or appropriate to protect and preserve the right, title and interest of Pledgee in and to such Collateral and the security intended to be afforded hereby. Pledgee shall not exercise its rights under this Section 7 unless and until there exists an Event of Default and all applicable cure periods have expired. 8. Remedies. 8.1 Upon the occurrence or existence of an Event of Default, which remains uncured after the expiration of any applicable cure period, Pledgee shall have, in addition to any other rights given by law or hereunder, all of the rights and remedies with respect to the Collateral of a secured party under the Uniform Commercial Code in effect in the State of California. 8.2 Pledgor shall have thirty (30) days after written notice of an Event of Default to cure such Default. Pledgee will give Pledgor reasonable notice of the time and place of any public sale thereof, or of the time after which any private sale or other intended disposition is to be made. Any sale of the Collateral conducted in conformity with reasonable commercial practices of banks, commercial finance companies, insurance companies or other financial institution disposing of property similar to the Collateral shall be deemed to be commercially reasonable. Notwithstanding any provisions to be contrary contained herein any requirements of reasonable notice of such sale shall be met if such notice is received by Pledgor as provided in Section 17 below, at least five (5) days before the time of the sale or disposition. Any other requirement of notice, demand or advertisement for sale is, to the extent permitted by law, waived. 8.3 In view of the fact that federal and state security laws may impose certain restrictions on the method by which a sale of the Collateral may be effected after an Event of Default, Pledgor agrees that, upon the occurrence or existence of an Event of Default, Pledgee may, from time-to-time, attempt to sell all or any part of the Collateral by means of a private placement qualifying the bidder and prospective purchasers to those who will represent and agree that they are purchasing for investment only and not for distribution. In so doing, Pledgee may 5 solicit offers to buy the Collateral, or any part of it, for cash, from a limited number of investors deemed by Pledgee, in its reasonable judgment, to be acceptable parties who might be interested in purchasing the Collateral, and if Pledgee solicits such offers from not less than two (2) such investors, then the acceptance by Pledgee of the highest offer obtained therefrom shall be deemed to be a commercially reasonable method of disposition of such Collateral. 8.4 Notwithstanding anything to the contrary in this Pledge Agreement, any transfer of the Units will be subject to licensing and other regulatory review and approval requirements and procedures of any Regulatory Authority (as defined in Section 13.8 of the Operating Agreement of the Company). 9. Waivers and Consents. 9.1 Upon the occurrence or existence of an Event of Default, and after the expiration of any applicable cure period, Pledgee may enforce this Pledge Agreement independently of any other remedy or security Pledgee at any time may have or hold in connection with the Liabilities, and it shall not be necessary for Pledgee to marshal assets in favor of Pledgor or any other person or entity or to proceed upon or against and/or exhaust any other security or remedy before proceeding to enforce this Pledge Agreement. Pledgor expressly waives any right to required Pledgee to marshal assets in favor of Pledgor or any other person or entity or to proceed against any other person or entity or any Collateral provided by any other person or entity, and agrees that Pledgee may proceed against the Collateral in such order as it shall determine in its sole and absolute discretion. Pledgor expressly waives the benefit of any statute(s) of limitations affecting its liability hereunder or the enforcement of the Liabilities, or any Liens created or granted herein. Pledgee's rights hereunder shall be required to be restored or returned by Pledgee (whether as a "voidable preference", "fraudulent conveyance" or otherwise) upon the bankruptcy, insolvency or reorganization of Pledgor, or otherwise, all as though such amount had not been paid. Pledgor expressly waives any and all of the following defenses now or hereafter arising or asserted by reason of (a) any failure of Pledgee to marshal assets in favor of Pledgor or any other person or entity (except Pledgor) in connection with any sale or disposition of Collateral, (b) any failure of Pledgee to give notice of sale or other disposition of Collateral to any person or entity (except Pledgor), (c) any failure of Pledgee to file or enforce a claim in any bankruptcy or other proceeding with respect to any person or entity, (d) the election by Pledgee, in any bankruptcy proceeding of any person or entity of the application or non-application of Section 1111(b) (2) of the United States Bankruptcy Code, (e) any extension of credit or the grant of any Lien under Section 364 of the United States Bankruptcy Code, (f) any agreement or stipulation with respect to the provision of adequate protection in any bankruptcy proceeding of any person or entity, (g) any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, liquidation or dissolution proceeding commenced by or against any person or entirety, including any discharge of, or bar or stay against collecting, all or any of the Liabilities (or any interest thereon) in or as a result of any such proceeding, or (h) any action taken by Pledgee that is authorized by this Section 9 or any other provision of this Pledge Agreement or the Note. 10. Understanding With Respect to Waivers and Consents. 6 10.1 Pledgor warrants and agrees that each of the waivers and consents set forth herein are made after consultation with legal counsel and with full knowledge of their significance and consequences, with the understanding that events giving rise to any defense or right waived may diminish, destroy or otherwise adversely affect rights which Pledgor otherwise may have against Pledgee or others or against the Collateral, and that, under the circumstances, the waivers and consents herein given are reasonable and not contrary to public policy or law. Such waivers and consents shall be effective to the maximum extent permitted by law. 11. Term. 11.1 This Pledge Agreement shall remain in full force and effect until all the Liabilities have been fully paid and satisfied. This Pledge Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against Pledgor for liquidation or reorganization, should Pledgor become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of Pledgor's assets, and shall continue to be effective or be reinstated, as the case may be, if any time payment and performance of the Liabilities, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount or must otherwise be restored or returned by any obligee of the Liabilities, whether as a "voidable preference," "fraudulent conveyance," or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Liabilities shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. Upon the termination of the Pledge Agreement as provided above (other than as a result of the sale of the Collateral), Pledgee will promptly release the security interest and Lien created hereunder and will deliver the Collateral to Pledgor. 12. Terms. 12.1 The singular shall include plural and vice versa and any gender shall include any other gender as the text shall indicate. 13. Successor and Assigns. 13.1 This Pledge Agreement shall be binding upon and inure to the benefit of Pledgor, Pledgee and their respective successor and assigns. Pledgor's successors and assigns shall include, without limitation, a receiver, trustee to debtor in possession of or for the Pledgor. Without limiting the generality of the foregoing, Pledgee may assign or otherwise transfer its rights to receive payment or performance of the Liabilities (or any part thereof) to any other person or entity, and such other person or entity shall thereupon become vested with all of the rights in respect thereof granted to Pledgee herein or otherwise. 14. Applicable Law. 7 14.1 This Pledge Agreement shall be governed by and construed under the internal laws (as opposed to conflict of laws provisions) of the State of California. Whenever possible, each provision of this Pledge Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but, if any provision of this Pledge Agreement shall be held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Pledge Agreement. 15. Further Assurances. 15.1 Pledgor agrees that it will cooperate with Pledgee and will execute and deliver, or cause to be executed and delivered, all such other necessary stock powers, proxies, instruments and documents, and will take all such other necessary action, including, without limitation, the filing of financing statements, as Pledgee may reasonably request from time-to-time in order to carry out the provisions and purposes hereof. 16. Obligation. 16.1 Pledgee shall be under no obligation to take any steps necessary to preserve rights in the Collateral against any other parties but may do so at its option, and all expenses incurred in connection therewith shall be for the sole account of Pledgor. 17. Notices. 17.1 All notices and other communications provided for hereunder shall be in writing (including telegraphic communication) and mailed or telegraphed, telecopied or delivered, if to Pledgor, at: Kean Argovitz Resorts-Shingle Springs, L.L.C. 11999 Katy Freeway, Suite 322 Houston, Texas 77079 with a copy to: Darryl M. Burman, Esq. DiCecco, Fant & Burman, L.L.P. 1900 West Loop South, Suite 1100 Houston. Texas 77027 8 if to Pledgee, at: Lakes Shingle Springs, Inc. 130 Cheshire Lane Minnetonka, Minnesota 55305 Att.: Lyle Berman with a copy to: Doug Twait, Esq. Johnson Hamilton Quigley Twait, & Foley PLC West 1450 First National Bank Building 332 Minnesota Street Saint Paul, Minnesota 55101 or as to each party, at such other address as designated by such party in a written notice to the other party. All notices shall be in writing and shall be deemed to be validly served, given or delivered (i) three (3) days following deposit in the United States mail, with proper postage prepaid; (ii) upon delivery thereof if delivered by hand to the party to be notified as set forth above; or (iii) upon acknowledgment of receipt thereof if transmitted to a valid telecopier number for the party to be notified as set forth above. 18. Section Headings. 18.1 The section headings herein are for convenience of reference only, and shall not affect in any way the interpretation of any of the provisions hereof. IN WITNESS WHEREOF, Pledgor has executed and delivered this Pledge Agreement as of the date first written above. Pledgor: 9 Kean Argovitz Resorts-Shingle Springs, L.L.C. By: /s/ Kevin M. Kean ---------------------------------- Name: Kevin M. Kean --------------------------------- Title: President -------------------------------- AGREED TO AND ACCEPTED BY: Lakes Shingle Springs, Inc. By: /s/ Timothy Cope ---------------------------- Name: Timothy Cope -------------------------- Title: Executive Vice President ------------------------- EX-21 22 SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21 SUBSIDIARIES OF LAKES GAMING, INC. 1. Grand Casinos Nevada I, Inc., a Minnesota corporation 2. Grand Casinos Pechanga, Inc., a Minnesota corporation 3. Grand Casinos Washington, Inc., a Minnesota corporation 4. Grand Media & Electronics Distributing, Inc., a Minnesota corporation 5. Riverside Entertainment Corp., a Pennsylvania corporation 6. Grand Resorts de Mexico, S.A. de C.V., a Mexican corporation 7. Grand Casinos & Resorts of Canada, Inc., a Canadian corporation 8. Grand Casinos Ontario, Inc., a Canadian corporation 9. Mille Lacs Gaming, LLC, a Minnesota limited liability company (i) Mille Lacs Gaming, LLP, a Minnesota limited liability partnership 10. Grand Casinos of Louisiana, LLC - Tunica-Biloxi, a Minnesota limited liability company 11. Grand Casinos of Louisiana, LLC - Coushatta, a Minnesota limited liability company (i) Magnum Investments of Lake Charles, Inc., a Louisiana corporation (ii) R & W Investments of Lake Charles, Inc., a Louisiana corporation 12. Trak 21, LLC, a Minnesota limited liability company 13. Great Lakes of Michigan, LLC, a Minnesota limited liability company 14. Lakes Jamul, Inc., a Minnesota corporation (i) Lakes Kean Argovitz Resorts - California, LLC 15. Lakes Shingle Springs, Inc., a Minnesota corporation (i) Lakes Kean Argovitz Resorts - Shingle Springs, LLC 16. RFC Acquisition, Co., a Minnesota corporation EX-23 23 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Registration Statement File Nos. 333-77591, 333-77427, 333-77249. ARTHUR ANDERSEN LLP Minneapolis, Minnesota, March 24, 2000. EX-27 24 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS JAN-02-2000 JAN-02-2000 24,392 27,433 5,613 0 0 80,224 3,076 1,188 183,538 21,391 1,500 0 0 106 159,755 183,538 54,716 54,716 0 9,666 2,925 0 98 50,892 22,065 28,827 0 0 0 28,827 2.72 2.67
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