-----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, FzcNsHiPp5CnenSjfu+b2T+j6RTn1Vg0TDDMNegRxir7x9cgdGKEcUtnWCz0t9ay vBwbpyCq3GHPeztP+DlcpQ== /in/edgar/work/0000950124-00-007015/0000950124-00-007015.txt : 20001116 0000950124-00-007015.hdr.sgml : 20001116 ACCESSION NUMBER: 0000950124-00-007015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 20001001 FILED AS OF DATE: 20001115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAKES GAMING INC CENTRAL INDEX KEY: 0001071255 STANDARD INDUSTRIAL CLASSIFICATION: [7990 ] IRS NUMBER: 411913991 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24993 FILM NUMBER: 769879 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-Q 1 c58465e10-q.txt FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------------- FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE -------- SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 1, 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. 1-12962 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) (Zip Code) (952) 449-9092 (Registrant's telephone number, including area code) 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 --- --- As of November 8, 2000, there were 10,637,953 shares of Common Stock, $0.01 par value per share, outstanding. 2 LAKES GAMING, INC. AND SUBSIDIARIES INDEX
PAGE OF FORM 10-Q --------- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets as of 3 October 1, 2000 and January 2, 2000 Consolidated Statements of Earnings for 4 the three months ended October 1, 2000 and October 3, 1999 Consolidated Statements of Comprehensive 5 Earnings for the three months ended October 1, 2000 and October 3, 1999 Consolidated Statements of Earnings for the 6 nine months ended October 1, 2000 and October 3, 1999 Consolidated Statements of Comprehensive 7 Earnings for the nine months ended October 1, 2000 and October 3, 1999 Consolidated Statements of Cash Flows for the 8 nine months ended October 1, 2000 and October 3, 1999 Notes to Consolidated Financial Statements 9 ITEM 2. MANAGEMENT'S DISCUSSION AND 15 ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 25 ITEM 5. OTHER INFORMATION 31 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 33
2 3 LAKES GAMING, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
OCTOBER 1, 2000 JANUARY 2, 2000 --------------- ---------------- ASSETS Current Assets: Cash and cash equivalents $ 21,295 $ 24,392 Short-term investments 32,549 27,433 Current installments of notes receivable 15,100 15,406 Accounts receivable 4,712 5,613 Other current assets 7,810 7,380 --------- --------- Total Current Assets 81,466 80,224 --------- --------- Property and Equipment-Net 1,102 1,888 --------- --------- Other Assets: Land held for development 57,639 54,812 Notes receivable-less current installments 28,133 20,022 Cash and cash equivalents-restricted 30,153 12,149 Investments in and notes from unconsolidated affiliates 8,823 8,446 Other long-term assets 4,656 5,997 --------- --------- Total Other Assets 129,404 101,426 --------- --------- TOTAL ASSETS $ 211,972 $ 183,538 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 167 $ 488 Income taxes payable 1,830 6,385 Litigation and claims accrual 25,479 8,419 Other accrued expenses 6,532 6,099 --------- --------- Total Current Liabilities 34,008 21,391 --------- --------- Long-term Liabilities: Long-term debt 1,500 1,500 Deferred income taxes 731 786 --------- --------- Total Long-Term Liabilities 2,231 2,286 --------- --------- TOTAL LIABILITIES 36,239 23,677 --------- --------- COMMITMENTS AND CONTINGENCIES - NOTE 6 Shareholders' Equity: Capital stock, $.01 par value; authorized 100,000 shares; 10,638 and 10,629 common shares issued and outstanding at October 1, 2000, and January 2, 2000, respectively 106 106 Additional paid-in-capital 131,485 131,406 Accumulated other comprehensive earnings (loss) (466) (478) Retained earnings 44,608 28,827 --------- --------- Total Shareholders' Equity 175,733 159,861 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 211,972 $ 183,538 ========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL statements. 3 4 LAKES GAMING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
THREE MONTHS ENDED ---------------------------------- OCTOBER 1, 2000 OCTOBER 3, 1999 --------------- --------------- REVENUES: Management fee income $ 10,684 $ 14,440 COSTS AND EXPENSES: Selling, general and administrative 2,647 849 Depreciation and amortization 329 480 -------- -------- Total Costs and Expenses 2,976 1,329 -------- -------- EARNINGS FROM OPERATIONS 7,708 13,111 -------- -------- OTHER INCOME (EXPENSE): Interest income 2,040 1,781 Interest expense (24) (24) Equity in loss of unconsolidated affiliates (797) (1,408) Other 61 129 -------- -------- Total other income, net 1,280 478 -------- -------- Earnings before income taxes 8,988 13,589 Provision for income taxes 4,012 6,149 -------- -------- NET EARNINGS $ 4,976 $ 7,440 ======== ======== BASIC EARNINGS PER SHARE $ 0.47 $ 0.70 ======== ======== DILUTED EARNINGS PER SHARE $ 0.46 $ 0.68 ======== ======== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 10,638 10,606 Dilutive Effect of Stock Compensation Programs 74 330 -------- -------- Weighted Average Common and Diluted SHARES OUTSTANDING 10,712 10,936 ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 4 5 LAKES GAMING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (IN THOUSANDS)
THREE MONTHS ENDED ------------------------------------- OCTOBER 1, 2000 OCTOBER 3, 1999 ----------------- ----------------- NET EARNINGS $4,976 $7,440 OTHER COMPREHENSIVE EARNINGS, NET OF TAX: Unrealized losses on securities: Unrealized holding losses during the period (8) (20) Less: reclassification adjustment for gains included in net earnings 36 81 ----------------- ----------------- COMPREHENSIVE EARNINGS $5,004 $7,501 ================= =================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 5 6 LAKES GAMING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
NINE MONTHS ENDED --------------------------------- OCTOBER 1, 2000 OCTOBER 3, 1999 --------------- --------------- REVENUES: Management fee income $ 52,392 $ 44,441 COSTS AND EXPENSES: Selling, general and administrative 7,447 5,451 Depreciation and amortization 2,578 1,435 -------- -------- Total Costs and Expenses 10,025 6,886 -------- -------- EARNINGS FROM OPERATIONS 42,367 37,555 -------- -------- OTHER INCOME (EXPENSE): Interest income 5,786 5,839 Interest expense (73) (73) Equity in loss of unconsolidated affiliates (2,003) (1,771) Other 63 1,417 Provision for litigation loss (18,000) -- -------- -------- Total other income (expense), net (14,227) 5,412 -------- -------- Earnings before income taxes 28,140 42,967 Provision for income taxes 12,359 18,343 -------- -------- NET EARNINGS $ 15,781 $ 24,624 ======== ======== BASIC EARNINGS PER SHARE $ 1.48 $ 2.33 ======== ======== DILUTED EARNINGS PER SHARE $ 1.48 $ 2.28 ======== ======== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 10,633 10,590 Dilutive Effect of Stock Compensation Programs 25 215 -------- -------- Weighted Average Common and Diluted SHARES OUTSTANDING 10,658 10,805 ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL statements. 6 7 LAKES GAMING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (IN THOUSANDS)
NINE MONTHS ENDED ------------------------------------- OCTOBER 1, 2000 OCTOBER 3, 1999 ----------------- ----------------- NET EARNINGS $15,781 $24,624 OTHER COMPREHENSIVE EARNINGS (LOSS), NET OF TAX: Unrealized losses on securities: Unrealized holding losses during the period (24) (852) Less: reclassification adjustment for gains included in net earnings 36 633 ----------------- ----------------- COMPREHENSIVE EARNINGS $15,793 $24,405 ================= =================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 7 8 LAKES GAMING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
NINE MONTHS ENDED ------------------------------------ OCTOBER 1, 2000 OCTOBER 3, 1999 -------------- --------------- OPERATING ACTIVITIES: Net earnings $ 15,781 $ 24,624 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 2,578 1,435 Gain on sale of investment (61) (875) Equity in loss of unconsolidated affiliates 2,003 1,771 Provision for litigation loss 18,000 -- Changes in operating assets and liabilities: Accounts receivable 1,065 8,637 Income taxes (4,555) (2,856) Accounts payable (321) 215 Accrued expenses (59) (2,111) Other (511) (439) -------- -------- Net Cash Provided by Operating Activities 33,920 30,401 -------- -------- INVESTING ACTIVITIES: Short-term investments, purchases (52,795) -- Short-term investments, sales/maturities 47,850 -- Payments for land held for development (2,977) (21,868) Payments for notes receivable (24,511) (6,763) Proceeds from repayment of notes receivable 15,188 8,521 Investment in and notes receivable from unconsolidated affiliates (1,787) (7,592) (Increase) decrease in restricted cash, net (18,004) 343 Increase in other long-term assets (18) (6,191) Payments for property and equipment, net (42) (230) -------- -------- Net Cash Used in Investing Activities (37,096) (33,780) -------- -------- FINANCING ACTIVITIES: Proceeds from issuance of common stock 79 354 -------- -------- Net Cash Provided by Financing Activities 79 354 -------- -------- Net decrease in cash and cash equivalents (3,097) (3,025) Cash and cash equivalents - beginning of period 24,392 56,774 -------- -------- CASH AND CASH EQUIVALENTS - END OF PERIOD $ 21,295 $ 53,749 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 73 $ 73 Income taxes 16,717 18,202
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL statements. 8 9 LAKES GAMING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BUSINESS 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 of one share 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. The Merger and Distribution received all necessary 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 currently manages the largest casino resort in Louisiana and has entered into development and management agreements with three separate tribes for three new casino operations, one in Michigan and two in California. The Company also has agreements for the development of two additional casinos on Indian owned land in California through a joint venture, and has entered into a joint venture agreement for the development of land on the Las Vegas strip. 2. PRINCIPLES OF CONSOLIDATION The accompanying unaudited 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 23 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. 9 10 LAKES GAMING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) The consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting principles for interim financial information, in accordance with the rules and regulations of the Securities and Exchange Commission. Pursuant to such rules and regulations, certain financial information and footnote disclosures normally included in the consolidated financial statements have been condensed or omitted. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for fair presentation have been included. Operating results for the nine months ended October 1, 2000, are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended January 2, 2000. 3. 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 ("IGRA") from having an ownership interest in any casino it manages for Indian tribes. On March 31, 2000 the Company announced that it had reached an agreement with the Tunica-Biloxi Tribe of Louisiana, effective March 31, 2000, for the early buyout of the management contract for Grand Casino Avoyelles. The Tunica-Biloxi Tribe of Louisiana elected to exercise its option for the early buyout of the contract, which was scheduled to expire on June 3, 2001. The early buyout of the contract was provided for in the original seven-year management agreement and, under the agreement, Lakes was compensated for the management fees the Company would have received had it managed Grand Casino Avoyelles through the original contract expiration date of June 3, 2001, discounted to their present value. Included in management fee income for the nine months ended October 1, 2000 is approximately $16 million relating to the early buyout. Lakes was also repaid all amounts owing to it under its loan agreements with the Tribe. The management contract for Grand Casino Coushatta expires January 16, 2002. 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 Louisiana management contract will be renewed upon expiration or approved by the NIGC upon any such renewal. The failure to obtain approval of the renewed management contract would result in the loss of revenues to the Company derived from such contract, which would have a material adverse effect on the Company's results of operations. 10 11 LAKES GAMING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) The Coushatta Tribe entered into a tribal-state compact with the State of Louisiana on September 29, 1992. This compact was approved in November 1992 by the Secretary of the Interior. The compact for the Coushatta Tribe expired 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 second six-month extension which will expire November 17, 2000. The Coushatta Tribe is actively negotiating with the State of Louisiana terms for a new compact. In the event the compact is not renewed, it is possible that gaming may not be permitted at Grand Casino Coushatta. There can be no assurance that this compact will be renewed on acceptable terms and conditions. See Part II, Item 5. Other Information. 4. NOTES RECEIVABLE Notes receivable consist of the following (in thousands):
October 1, 2000 January 2, 2000 --------------- --------------- Notes from the Coushatta Tribe with variable interest rates (10.5% at October 1, 2000), receivable in 84 monthly installments through January 2002 $15,078 $22,484 Notes from the Tunica-Biloxi Tribe with variable interest rates - 6,196 Notes from the Pokagon Band of Potawatomi Indians with variable interest rates (10% at October 1, 2000), receivable in 60 monthly installments subsequent to commencement date 15,442 2,035 Notes from the Shingle Springs Band of Miwok Indians with variable interest rates (11.5% at October 1, 2000), receivable in 12 monthly installments subsequent to commencement date 4,020 1,559 Notes from the Jamul Indian Village with variable interest rates (11.5% at October 1, 2000), receivable in 12 monthly installments subsequent to commencement date 2,233 859 Other 6,460 2,295 -------- -------- Total notes receivable 43,233 35,428 Less - current installments of notes receivable (15,100) (15,406) -------- -------- Notes receivable, less current installments $ 28,133 $ 20,022 ======== ========
11 12 LAKES GAMING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 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 are 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 October 1, 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 October 1, 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. 5. LITIGATION SETTLEMENT A settlement agreement was reached in June 2000 regarding both the Stratosphere shareholders' litigation and the Grand Casinos, Inc. shareholders' litigation. The agreement required Lakes to pay $9 million to the Grand Casinos, Inc. shareholders and $9 million to the Stratosphere shareholders for a total of $18 million, which has been reflected as a non-operating expense in the second quarter of 2000. The $18 million has been placed by Lakes into escrow accounts on behalf of the recipients. The settlement agreement is subject to final approval by the respective courts, which is expected to occur later this year. The net income impact of the litigation loss was $10.6 million or $1.00 per diluted share. Adjusted net income, for the nine months ended October 1, 2000, excluding the provision for litigation loss was $26.4 million or $2.48 per diluted share. The complaints by the shareholder groups were originally filed in 1996 against various defendants including Grand Casinos, Inc. The complaints included allegations of misrepresentations, federal and state securities law violations and various other claims in connection with the Stratosphere project. As part of the transaction establishing Lakes as a separate public company on December 31, 1998, Lakes agreed to indemnify Grand for all obligations arising out of these lawsuits. 12 13 LAKES GAMING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 6. COMMITMENTS AND CONTINGENCIES: LEASES The Company leases certain property and equipment under non-cancelable operating leases. Future minimum lease payments, excluding contingent rentals, due under non-cancelable operating leases as of October 1, 2000 are as follows (in thousands):
Operating Leases ---------------- 2000 725 2001 2,978 2002 3,109 2003 3,176 2004 3,246 Thereafter 44,179 ------- $57,413 =======
PURCHASE OPTION AGREEMENTS 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 later than January 10, 2001. The option purchase price will be approximately $10 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 options to purchase the Cable property in Las Vegas, Nevada for the purchase price of up to approximately $39 million any time prior to January 2, 2003. LOAN GUARANTY AGREEMENTS 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 October 1, 2000, the amount outstanding was $14.6 million. INDEMNIFICATION AGREEMENT As a part of the Distribution Agreement and the Agreement and Plan of Merger, dated as of June 30, 1998, by and among Hilton Hotels Corporation, Park Place, Gaming Acquisition Corporation, Lakes and Grand (the "Merger Agreement"), 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. 13 14 LAKES GAMING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 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. See Part II, Item 1. Legal Proceedings. 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 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 Merger. 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 sheets as of October 1, 2000 and 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. 7. SUBSEQUENT EVENTS On October 16, 2000, the Company and the Pokagon Band of Potawatomi Indians entered into Amended and Restated Development and Management Agreements which extended those agreements from five to seven years from the commencement of gaming. The agreements are subject to various regulatory approvals. 14 15 LAKES GAMING, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW 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, to the shareholders of Grand Casinos, Inc. ("Grand"). Pursuant to the terms of the Distribution Agreement entered into between Grand and Lakes dated as of December 31, 1998 (the "Distribution Agreement"), Grand shareholders received .25 of one share 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 (the "Merger"). 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 a land-based, Indian-owned casino in Louisiana: Grand Casino Coushatta, in Kinder, Louisiana ("Grand Casino Coushatta"), owned by the Coushatta Tribe of Louisiana (the "Coushatta Tribe"). The management contract expires seven years from the date the casino opened. 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 Company also managed a second land-based, Indian-owned casino in Marksville, Louisiana ("Grand Casino Avoyelles"), owned by the Tunica-Biloxi Tribe of Louisiana (the "Tunica-Biloxi Tribe") through March 31, 2000. On March 31, 2000 the Company announced that it had reached an agreement with the Tunica-Biloxi Tribe of Louisiana, effective March 31, 2000 for the early buyout of the management contract for Grand Casino Avoyelles. The Tunica-Biloxi Tribe of Louisiana elected to exercise its option for the early buyout of the contract, which was scheduled to expire on June 3, 2001. The early buyout of the contract was provided for in the original seven-year management agreement and, under the agreement, Lakes was compensated for the management fees the company would have received had it managed Grand Casino Avoyelles through the original contract expiration date of June 3, 2001, discounted to their present value. Lakes was also repaid all amounts owing to it under its loan agreements with the Tribe. 15 16 LAKES GAMING, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) 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 Coushatta. 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. 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 Coushatta management contract, Lakes receives a fee based on the net distributable profits (as defined in the contracts) generated by 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 Jamul Indian Village in California. The contract is subject to approval by NIGC. In March of 2000, California voters 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 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. 16 17 LAKES GAMING, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) (UNAUDITED) 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"). In March of 2000, California voters 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 (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 in the process of being dissolved. Lakes' investments in unconsolidated affiliates include a 23 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. On June 19, 2000, the Company announced that a settlement agreement had been reached regarding both the Stratosphere shareholders' litigation and the Grand Casinos, Inc. shareholders' litigation. The agreement required Lakes to pay $9 million to the Grand Casinos, Inc. shareholders and $9 million to the Stratosphere shareholders for a total of $18 million, which has been reflected as a non-operating expense in the second quarter of 2000. This amount was paid into escrow and related accounts in July 2000 for full and final settlement for all federal and state related actions. The settlement is subject to final approval by the respective courts, which is expected to occur later this year. On July 31, 2000, the Company announced that it had formed a joint venture, Metroplex-Lakes, LLC, with Metroplex, LLC to develop Las Vegas real estate now controlled by Lakes. Metroplex, LLC is owned by Las Vegas based real estate developer Brett Torino who will manage the joint venture. 17 18 LAKES GAMING, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) Metroplex-Lakes, LLC plans to develop an upscale retail, commercial, hotel and entertainment complex on approximately 16 acres surrounding the corner of Harmon Avenue and Las Vegas Boulevard (the "Strip") in Las Vegas. The joint venture has a two-year option to buy the majority of the site from Lakes at a price that will approximately equal Lakes' investment in the property plus the assumption of Lakes' future obligations under a long-term ground lease. The joint venture will also assume Lakes' option to purchase the remainder of the site from a third party. Lakes will have voting control of the joint venture, however, development decisions affecting the real estate purchased by the joint venture must be mutually agreed upon. Lakes and Metroplex will share results from the joint venture equally. On August 10, 2000, the Company announced that it had agreed to form a joint venture for the purpose of developing two new gaming facilities on Indian owned land in California. Under the agreement, Lakes formed two separate limited liability companies with MRD Gaming, a limited liability company. MRD and its affiliates have successfully developed two other Indian casinos, one in Arizona and one in Kansas. The partnership between Lakes and MRD holds contracts to develop two casino facilities with two separate American Indian Tribes in California. One such tribe is the Cloverdale Rancheria of Pomo Indians. The planned site for the potential new casino development is located on Highway 101 in Cloverdale, California, approximately 60 miles north of San Francisco. The second tribe is the Paskenta Band of Nomlaki Indians with a planned casino site located on Highway 5 near Chico, California and approximately 100 miles north of Sacramento. Development at each casino location will start as soon as various regulatory approvals are obtained by each applicable tribe. Development is also subject to completion of definitive financing arrangements. On August 10, 2000, the Company announced that it is actively negotiating agreements with prospective partners that would result in two additional new business ventures. One potential new business venture that Lakes is actively exploring involves the life settlement industry. Lakes has currently agreed to provide up to $3 million in bridge loans to a participant in the industry. Lakes has also agreed in principle to form a wholly-owned subsidiary for the purpose of making a $22.5 million subordinated term loan to the same company which would include the $3 million in bridge loans. A portion of the term loan is convertible at Lakes' option into a majority ownership interest in the borrower. Lakes' commitment to proceed with the term loan is subject to the borrower's securing a $150 million revolving warehouse credit facility to enable the borrower to purchase and then securitize pools of life settlement policies. The borrower will use the Lakes' loan proceeds as equity support for the warehouse facility. The proceeds of the warehouse facility will be used to purchase existing life insurance policies from persons 65 years or older. The life settlement business through such a purchase provides liquidity to the holder of the policy during his or her lifetime. The company that Lakes is negotiating the subordinated borrowing with expects to receive a funding commitment from a warehouse lender in the near future. This transaction is subject to negotiation and execution of definitive documents, due diligence, regulatory approvals and other conditions. 18 19 LAKES GAMING, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) (UNAUDITED) Another business opportunity involves international internet gaming. Lakes is considering establishing one or more web sites to conduct online gaming in a regulated country, taking wagers placed from only outside the United States. Lakes has identified an experienced provider of online gaming technology and is negotiating a contract under which Lakes would license the provider's technology for the new gaming web sites. The provider would create and maintain the gaming web sites under a proposed two year service agreement. Any transaction is subject to negotiation and execution of definitive documents, due diligence, regulatory approvals and other conditions. Lakes' limited operating history may not be indicative of Lakes' future performance. In addition, a comparison of results from year to year may not be meaningful due to the opening of new facilities during each year and the buy-out and/or cessation of other casino management contracts. Lakes' growth strategy contemplates the expansion of existing operations, the pursuit of opportunities to develop and manage additional gaming facilities and the pursuit of new business opportunities. The successful implementation of this growth strategy is contingent upon the satisfaction of various conditions, including obtaining governmental approvals, the impact of increased competition, and the occurrence of certain events, many of which are beyond the control of Lakes. The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended January 2, 2000. 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 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 the IGRA from having an ownership interest in any casino it manages for Indian tribes. The management contract for Grand Casino Coushatta expires 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. There can be no assurance that the Grand Casino Coushatta extension will be approved by NIGC. The failure to obtain approval of the renewed management contract would result in the loss of revenues to Lakes derived from such contract, which would have a material, adverse effect on Lakes' results of operations. The Coushatta Tribe entered into a tribal-state compact with the State of Louisiana on September 29, 1992. This compact was approved in November 1992 by the Secretary of the Interior. The compact for the Coushatta Tribe expired November 4, 1999, and the State of Louisiana has delivered a written notice of non-renewal. The Governor and the Coushatta Tribe have agreed on a second six-month extension, which will expire November 17, 2000. 19 20 LAKES GAMING, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) (UNAUDITED) The Coushatta Tribe is actively negotiating with the State of Louisiana terms for a new compact. In the event the compact is not renewed, gaming may not be permitted at Grand Casino Coushatta. There can be no assurance that this compact will be renewed on terms and conditions acceptable to the Coushatta Tribe. See Part II, Item 5. Other Information. NINE MONTHS ENDED OCTOBER 1, 2000 COMPARED TO THE NINE MONTHS ENDED OCTOBER 3, 1999 Revenues Total revenues were $52.4 million for the nine months ended October 1, 2000, compared to $44.4 million for the same period in the prior year. Grand Casino Avoyelles and Grand Casino Coushatta generated approximately $52.2 million and $44.4 million in management fee income during the nine months ended October 1, 2000 and October 3, 1999, respectively. The increase is due primarily to the inclusion of approximately $16.0 million in management fee income relating to the early buyout of the management contract for Grand Casino Avoyelles in the first quarter of 2000, which is partially offset by the inclusion of no management fees from Grand Casino Avoyelles during the second and third quarters of 2000. Costs and Expenses Total costs and expenses were $10.0 million for the nine months ended October 1, 2000, compared to $6.9 million for the same period in the prior year. Depreciation and amortization expense increased from $1.4 million for the nine months ended October 3, 1999 to $2.6 million for the nine months ended October 1, 2000, due to increased amortization in the current year period related to the early buyout of the management contract for Grand Casino Avoyelles at the end of the first quarter of 2000. Selling, general and administrative expenses increased from $5.5 million for the nine months ended October 3, 1999 to $7.4 million for the nine months ended October 1, 2000, due primarily to increased costs relating to development costs of new casino projects. Other Provision for litigation loss was $18 million for the nine months ended October 1, 2000. This amount relates to a settlement agreement reached in June 2000 regarding both the Stratosphere shareholders' litigation and the Grand Casinos, Inc. shareholders' litigation. The agreement required Lakes to pay a total of $18 million, which has been reflected as a non-operating expense in the second quarter of 2000. This amount was paid into escrow and related accounts in July 2000 for full and final settlement for all federal and state related actions. The settlement agreement is subject to final approval by the respective courts. Equity in loss of unconsolidated affiliates increased to $2.0 million for the nine months ended October 1, 2000 from $1.8 million for the nine months ended October 3, 1999, due primarily to investments in Interactive Learning Group, Fanball.com and Trak 21. Other income was $.1 million and $1.4 million for the nine months ended October 1, 2000 and October 3, 1999, respectively, due to the inclusion of a gain on sale of stock in the prior year period. 20 21 LAKES GAMING, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) (UNAUDITED) Earnings per Common Share and Net Earnings For the nine months ended October 1, 2000, basic and diluted earnings per common share were $1.48. This compares to basic and diluted earnings of $2.33 and $2.28 per common share, respectively, for the nine months ended October 3, 1999. Earnings decreased $8.8 million to $15.8 million for the nine months ended October 1, 2000 compared to the same period in the prior year. This decrease is primarily due to the provision for litigation loss of $18 million, which is partially offset by the early buyout of the Company's management contract of Grand Casino Avoyelles by the Tunica-Biloxi Tribe of Louisiana at the end of the first quarter of 2000. Total management fees under this expired contract were $19.8 million and $11.7 million, during the periods ended October 1, 2000 and October 3, 1999, respectively. THREE MONTHS ENDED OCTOBER 1, 2000 COMPARED TO THE THREE MONTHS ENDED OCTOBER 3, 1999 Revenues Total revenues were $10.7 million for the three months ended October 1, 2000 compared to $14.4 million for the same period in the prior year. Grand Casino Coushatta generated approximately $10.5 million in management fee income during the three months ended October 1, 2000. Grand Casino Avoyelles and Grand Casino Coushatta generated approximately $14.4 million in management fee income during the three months ended October 3, 1999. The overall decrease is due to the early buyout of the Company's management contract of Grand Casino Avoyelles by the Tunica-Biloxi Tribe of Louisiana at the end of the first quarter of 2000. The Company's current year period revenues do not include contributions from this operation. Costs and Expenses Total costs and expenses were $3.0 million for the three months ended October 1, 2000, compared to $1.3 million for the same period in the prior year. Selling, general, and administrative expenses increased in comparison with the prior year period, primarily due to increased costs related to development costs of new casino projects and to the reversal of a bad debt allowance in the prior year period. Other Interest income was $2.0 million for the three months ended October 1, 2000, compared to $1.8 million for the same period in the prior year. Equity in loss of unconsolidated affiliates decreased to $.8 million for the three months ended October 1, 2000 from $1.4 million for the three months ended October 3, 1999 due primarily to investments in Interactive Learning Group, Trak 21, and Nevada Resort Properties' Polo Plaza Limited Partnership. 21 22 LAKES GAMING, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) (UNAUDITED) Earnings per Common Share and Net Earnings For the three months ended October 1, 2000 basic and diluted earnings per common share were $.47 and $.46, respectively. This compares to basic and diluted earnings of $.70 and $.68 per common share, respectively, for the three months ended October 3, 1999. Earnings totaled $5.0 million for the three months ended October 1, 2000 compared to earnings of $7.4 million for the same prior year period. Contributing to the decrease in earnings was the early buyout of the management contract for Grand Casino Avoyelles by the Tunica-Biloxi Tribe of Louisiana, which occurred at the end of the first quarter of 2000. The Company's current year period earnings do not include contributions from this operation. Third quarter diluted earnings per common share for 1999, when excluding results related to Grand Casino Avoyelles, were $.46 compared to $.46 for the third quarter of 2000. CAPITAL RESOURCES, CAPITAL SPENDING, AND LIQUIDITY At October 1, 2000, Lakes had $51.4 million in restricted and unrestricted cash and cash equivalents. At October 1, 2000, the Company also had $32.5 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 balances are planned to be used for loans to current tribal partners to help develop operations, the pursuit of additional gaming and non-gaming opportunities, and potential settlement of pending litigation matters. For the nine months ended October 1, 2000 and October 3, 1999, net cash provided by operating activities totaled $33.9 million and $30.4 million, respectively. For the same periods, net cash used in investing activities totaled $37.1 million and $33.8 million, respectively. Included in these investing activities for the nine months ended October 1, 2000 and October 3, 1999, are proceeds, primarily from repayment of notes receivable from Indian-owned casinos, which amounted to $15.2 million and $8.5 million, respectively. Advances under notes receivable, primarily related to the Company's development and management agreements, amounted to $24.5 million and $6.8 million for the nine months ended October 1, 2000 and October 3, 1999, respectively. Also during these periods, payments for land in Las Vegas, Nevada, held for development amounted to $3.0 million and $21.9 million, respectively, and short-term investments increased $4.9 million and $0, respectively. As a part of the Distribution Agreement and the Agreement and Plan of Merger, dated as of June 30, 1998, by and among Hilton Hotels Corporation, Park Place, Gaming Acquisition Corporation, Lakes and Grand (the "Merger Agreement"), 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. See Part II, Item 1. Legal Proceedings. 22 23 LAKES GAMING, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) (UNAUDITED) 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 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 sheets as of October 1, 2000 and January 2, 2000. SEASONALITY The Company believes that the operation of 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 Quarterly Report on Form 10-Q 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. 23 24 LAKES GAMING, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) (UNAUDITED) 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 these risks and uncertainties, see the "Business -- Risk Factors" section of the Company's Annual Report on Form 10-K for the year ended January 2, 2000. 24 25 LAKES GAMING, INC. AND SUBSIDIARIES PART II OTHER INFORMATION ITEM 1. 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. 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. 25 26 LAKES GAMING, INC. AND SUBSIDIARIES PART II OTHER INFORMATION (CONTINUED) 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. The parties have reached a conditional settlement covering the Stratosphere shareholders litigation. A stipulation of settlement has been preliminarily approved by the court. The Stratosphere state and federal settlement will be $9 million, if approved, inclusive of all plaintiffs fees and costs. The $9 million was placed into an account by Lakes on behalf of the recipients in July 2000. A final hearing on this proposed settlement is scheduled for December 4, 2000. 26 27 LAKES GAMING, INC. AND SUBSIDIARIES PART II OTHER INFORMATION (CONTINUED) 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. As described under "Stratosphere Shareholders Litigation - Federal Court" above, the parties have reached a $9 million settlement covering the Stratosphere shareholders litigation in federal and state courts. 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. The consolidated complaint sought class action treatment for a class comprising all persons (other than the defendants) who purchased Grand common stock during the period from December 19, 1995 through July 19, 1996. 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. On March 28, 2000, the court granted the motion in part, and denied the motion in part. The court dismissed, with prejudice, all claims against the defendants as to the members of the putative class who did not purchase Grand common stock during the period from December 19, 1995 through June 6, 1996, inclusive. 27 28 LAKES GAMING, INC. AND SUBSIDIARIES PART II OTHER INFORMATION (CONTINUED) 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. On June 19, 2000, the Company announced that a settlement agreement had been reached regarding the litigation. The agreement called for the Company to pay $9 million to the Grand shareholders for full and final settlement of all claims covering the original class period. The settlement agreement is subject to final approval by the U.S. District Court for the District of Minnesota. The $9 million was placed into an escrow account by Lakes on behalf of the recipients in July 2000. 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. 28 29 LAKES GAMING, INC. AND SUBSIDIARIES PART II OTHER INFORMATION (CONTINUED) 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, portions of the Motions for Summary Judgment by both parties were denied in part. The Court has subsequently denied Grand's request for expedited appellate court review as to the portions of Motions that were denied. Thereafter, the parties jointly sought the Court's consideration of a subsequent summary judgment motion. During the August 30, 2000 scheduled pretrial conference call, the court and the parties agreed to try the action upon an amended joint pre-trial order and a series of post-trial briefs. The Plaintiff's opening brief was filed on September 25, 2000 and Grand's answering brief was filed on October 31, 2000. The briefing schedule allows for reply and surreply briefs, with the last brief to be filed no later than November 30, 2000. The parties have requested oral argument. Lakes will defend the lawsuit diligently. 29 30 LAKES GAMING, INC. AND SUBSIDIARIES PART II OTHER INFORMATION (CONTINUED) 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 October 1, 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. 30 31 LAKES GAMING, INC. AND SUBSIDIARIES PART II OTHER INFORMATION (CONTINUED) ITEM 5. OTHER INFORMATION Status of Compact with Louisiana The Coushatta Tribe entered into a Tribal-State compact with the State of Louisiana on September 29, 1992. This compact was approved in November 1992 by the Secretary of the Interior. The compact for the Coushatta Tribe expired November 4, 1999. The compact would have automatically renewed for an additional seven year term if neither the Tribe nor the State of Louisiana had delivered to the other written notice of non-renewal at least 180 days prior to the applicable expiration date. On April 7, 1999, the State of Louisiana provided written notice to the Coushatta Tribe of Louisiana of the State's intent not to renew the Tribal-State compact. The State further extended an invitation to the Tribe to continue to discuss mutually advantageous terms and conditions under which the State and the Tribe can enter into a new gaming compact. The Governor and the Tribe have agreed on a second six-month extension which will expire November 17, 2000. IGRA requires that for Class III gaming to occur on Indian land, it must be conducted in accord with an effective state compact. IGRA further imposes an obligation on state governments, upon the request of a Tribe, to negotiate with Indian Tribes regarding the operation of gaming activities which are otherwise allowable within the state "by any person, organization or entity". Louisiana currently permits various forms of legalized, non-Indian gaming. The Tribe is actively negotiating with the State to establish a suitable alternative compact. It is unclear what consequences, if any, might result, in the event the Tribe and the State are unable to either negotiate a suitable alternative compact or agree to an extension of the existing compact. To the knowledge of the Company, there has been no prior instance where an existing compact has expired without either a replacement compact in place or an extension (temporary or permanent) of the present compact. Nonetheless, the Company's Management Agreement with the Tribe provides that, absent a determination by (i) NIGC, (ii) the Congress of the United States, (iii) the Department of the Interior or (iv) a final judgment from a court of competent jurisdiction, that the operation of Grand Casino Coushatta would be unlawful under either federal or state law, Lakes and the Tribe are obligated in their duties to each other, as set forth in the Management Agreement. As outlined above, in the absence of a determination by (i) NIGC, (ii) the Congress of the United States, (iii) the Department of the Interior or (iv) a final judgment from a court of competent jurisdiction, that the operation of Grand Casino Coushatta would be unlawful under either federal or state law, so long as the Tribe continues to conduct gaming activities at Grand Casino Coushatta, Lakes intends to continue to operate and manage the casino and to abide by the terms and obligations of the Management Agreement. 31 32 LAKES GAMING, INC. AND SUBSIDIARIES PART II OTHER INFORMATION (CONTINUED) If the terms of the current Tribal-State compact expire, without the execution of a new compact or the extension of the current compact, there is a risk that (i) NIGC, (ii) the Congress of the United States, (iii) the Department of the Interior, (iv) the United States Department of Justice or (v) a court of competent jurisdiction could take action against the Tribe and Grand Casino Coushatta resulting in the cessation of gaming operations at the casino and the inability of Lakes to manage the casino. The cessation of gaming operations at Grand Casino Coushatta or the inability of Lakes to manage the gaming operations at the casino would result in the loss of revenues to Lakes derived from the contract, which would have a material adverse effect on Lakes' results of operations. Currently, the management contract for Grand Casino Coushatta generates substantially all of Lakes' operating revenues. Without the realization of new business opportunities or new management contracts, the cessation of gaming operations at the casino or the inability of Lakes to manage the operations, would have a material adverse impact on Lakes' results of operations and financial condition. Additional Information Regarding Joint Venture for California Gaming Facilities On August 10, 2000, the Company announced that it had agreed to form a joint venture for the purpose of developing two new gaming facilities on Indian owned land in California. Under the agreement, Lakes formed two separate limited liability companies with MRD Gaming, a limited liability company. MRD and its affiliates have successfully developed two other Indian casinos, one in Arizona and one in Kansas. The partnership between Lakes and MRD holds contracts to develop two casino facilities with two separate American Indian Tribes in California. One such tribe is the Cloverdale Rancheria of Pomo Indians. The planned site for the potential new casino development is located on Highway 101 in Cloverdale, California, approximately 60 miles north of San Francisco. The second tribe is the Paskenta Band of Nomlaki Indians with a planned casino site located on Highway 5 near Chico, California and approximately 100 miles north of Sacramento. Development at each casino location will start as soon as various regulatory approvals are obtained by each applicable tribe. Development is also subject to completion of definitive financing arrangements. 32 33 LAKES GAMING, INC. AND SUBSIDIARIES PART II OTHER INFORMATION (CONTINUED) ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 Acquisition and Participation Agreement, dated as of August 7, 2000, by and between MRD Gaming, LLC, a Nevada limited liability company, and Lakes Gaming and Resorts, LLC, a Minnesota limited liability company 10.2 First Amendment to Acquisition and Participation Agreement, dated as of October 12, 2000, by and between MRD Gaming, LLC, a Nevada limited liability company, and Lakes Gaming and Resorts, LLC, a Minnesota limited liability company 10.3 Member Control Agreement of Pacific Coast Gaming - Corning, LLC 10.4 Member Control Agreement of Pacific Coast Gaming - Santa Rosa, LLC 10.5 Promissory Note, dated as of October 12, 2000, by and between Pacific Coast Gaming - Corning, LLC, a Minnesota limited liability company, and Lakes Corning, LLC, a Minnesota limited liability company 10.6 Promissory Note, dated as of October 12, 2000, by and between Pacific Coast Gaming - Santa Rosa, LLC, a Minnesota limited liability company, and Lakes Cloverdale, LLC, a Minnesota limited liability company 10.7 Assignment and Assumption Agreement, dated as of October 16, 2000, by and among Great Lakes of Michigan, LLC, a Minnesota limited liability company, Lakes Gaming, Inc., a Minnesota corporation, and Pokagon Band of Potawatomi Indians 10.8 First Amended and Restated Development Agreement, dated as of October 16, 2000, by and between the Pokagon Band of Potawatomi Indians and Great Lakes Gaming of Michigan, LLC, a Minnesota limited liability company (f/k/a Great Lakes of Michigan, LLC) 10.9 First Amended and Restated Management Agreement, dated as of October 16, 2000, by and between the Pokagon Band of Potawatomi Indians and Great Lakes Gaming of Michigan, LLC, a Minnesota limited liability company (f/k/a Great Lakes of Michigan, LLC) 10.10 First Amended and Restated Lakes Note, dated as of October 16, 2000, by and between the Pokagon Band of Potawatomi Indians and Great Lakes of Michigan, LLC, a Minnesota limited liability company 33 34 LAKES GAMING, INC. AND SUBSIDIARIES PART II OTHER INFORMATION (CONTINUED) (a) Exhibits (continued) 10.11 First Amended and Restated Non-Gaming Land Acquisition Line of Credit, dated as of October 16, 2000, by and between the Pokagon Band of Potawatomi Indians and Great Lakes of Michigan, LLC, a Minnesota limited liability company 10.12 Amended and Restated Transition Loan Note, dated as of October 16, 2000, by and between the Pokagon Band of Potawatomi Indians and Great Lakes of Michigan, LLC, a Minnesota limited liability company 10.13 Amendment to Account Control Agreement, dated as of October 16, 2000, by and among Great Lakes of Michigan, LLC, a Minnesota limited liability company, Lakes Gaming, Inc., a Minnesota corporation, the Pokagon Band of Potawatomi Indians, and Firstar Bank, N.A. f/k/a Firstar Bank of Minnesota, N.A. 10.14 Unlimited Guaranty, dated as of October 16, 2000, from Lakes Gaming, Inc., a Minnesota corporation, and Great Lakes of Michigan, LLC, a Minnesota limited liability company, to the Pokagon Band of Potawatomi Indians 10.15 Amendment to Pledge and Security Agreement, dated as of October 16, 2000, by and among the Great Lakes of Michigan, LLC, a Minnesota limited liability company, Lakes Gaming, Inc., a Minnesota corporation, and the Pokagon Band of Potawatomi Indians 27 Financial Data Schedule (for SEC use only) (b) Reports on Form 8-K (i) A Form 8-K, Item 5. Other Events, was filed on August 4, 2000. (ii) A Form 8-K, Item 5. Other Events, was filed on August 17, 2000. (iii) A Form 8-K, Item 5. Other Events, was filed on October 24, 2000. 34 35 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: November 15, 2000 LAKES GAMING, INC. ----------------------------- Registrant /s/ LYLE BERMAN ----------------------------- Lyle Berman Chairman of the Board, Chief Executive Officer and President /s/ TIMOTHY J. COPE ----------------------------- Timothy J. Cope Executive Vice President and Chief Financial Officer 35 EX-10.1 2 c58465ex10-1.txt ACQUISITION AND PARTICIPATION AGREEMENT 1 ACQUISITION AND PARTICIPATION AGREEMENT This Agreement is made this 7th day of August, 2000, by and between MRD Gaming, LLC, a Nevada limited liability company, 600 Whitney Ranch Drive, C-15, Henderson, NV 89014 ("MRD"); and Lakes Gaming and Resorts, LLC, 130 Cheshire Lane, Minnetonka, MN 55305, a Minnesota limited liability company ("Lakes"). PRELIMINARY STATEMENT AND CERTAIN DEFINITIONS A. MRD'S BUSINESS, THE TRIBES AND THE PROJECTS. MRD is in the business of financing, developing, equipping, constructing and starting-up casino projects for Indian tribes in the State of California (MRD's "Business"). MRD and its affiliates have secured written agreements (the Project Contracts") with the Paskenta Band of Nomlaki Indians, Corning, California; and the Cloverdale Rancheria of Pomo Indians, Cloverdale, California (the "Tribes"); for the development of casino projects on Indian lands for each of the Tribes (each a "Project", or collectively, the "Projects") following the passage of Proposition 1 A in California permitting Class III Indian Gaming (as defined in the National Indian Gaming Regulatory Act, or "IGRA"). The Project being developed with the Paskenta Band is hereinafter called the "Paskenta Project" and the Project being developed with the Cloverdale Rancheria is hereinafter called the "Cloverdale Project." MRD has filed a certificate of conversion with the California Secretary of State, to convert to a California limited liability company, but the conversion is not complete. B. THE BUSINESS OF LAKES. Lakes is engaged, in part, in the business of developing and managing casino projects for Indian tribes. C. EXISTING PROJECT COMPANIES AND ASSETS. United Gaming Holding Co., LLC is a Maryland limited liability company ("United"), which is owned by SCG Gaming Enterprises, LLC, which is controlled by Franklin Capital Group and its affiliated investors (collectively, except for United, "Franklin"). United has formed and now owns two Maryland limited liability companies, Pacific Coast Gaming - Santa Rosa, LLC and Pacific Coast Gaming - Corning, LLC, which hold the Project Contracts for the Cloverdale Project and the Paskenta Project, respectively (each a "Project Company and, collectively, the Project Companies"), and are managed by MRD. Pursuant to the Project Contracts, the Project Companies hold the development rights granted by the Tribes with respect to each of the Projects (the "Development Rights"), some of which were acquired on July 6, 2000, from Ruth Michels and her affiliated entities ("Michels"). Prior to the date of this Agreement, Franklin, United and Michels have provided funds, in the amount of $1,121,811, to MRD and to the Tribes for development of the Projects pursuant to the Project Contracts (the "Advanced Funds"). D. PURPOSES AND CERTAIN CONDITIONS OF AGREEMENT. Lakes and MRD have negotiated certain terms and conditions under which Lakes is willing to provide limited financing for the Projects in the form of loans to MRD and each of the Project Companies after they are acquired by MRD and Lakes. Except for temporary lending to be provided by Lakes to MRD under Section 17, certain specific conditions of Lakes' participation as the new provider of funding for the Projects are that MRD: (1) acquire all right, title and interest to the equity interests in the 2 Project Companies; (2) the assets of the Project Companies must include at least all right, title and interest to the Development Rights, the Project Contracts and any other assets of the Project Companies (the "Other Assets"), including the Development Rights and Other Assets acquired by Franklin and/or United from Pacific Coast Gaming, LLC, a Wisconsin limited liability company owned by Michels; (3) assign to Lakes an interest in each of the Project Companies in accordance with the provisions of Section 7, and (4) contribute to the appropriate Project Company all of MRD's interests (if any) in such Development Rights, Project Contracts, Other Assets, and other rights MRD may have in the Projects in accordance with the provisions of Section 7. All of the Development Rights, Project Contracts and Other Assets held by the Project Companies, including without limitation those acquired or held by MRD and contributed to the Project Companies hereunder, and any other rights of MRD and its subsidiaries and affiliates with respect to the Projects are hereinafter collectively referred to as the "Project Assets." The purpose of this Agreement is to set forth the specific terms and conditions of that business relationship between the parties. AGREEMENT Now, therefore, in consideration of the facts and intentions recited above (which are a part of this Agreement) and the mutual agreements hereinafter set forth, the adequacy and sufficiency of which, as adequate legally binding consideration, are acknowledged by Lakes and MRD, the parties agree as follows: 1. ACQUISITION OF PROJECT COMPANIES, DEVELOPMENT RIGHTS, PROJECT CONTRACTS AND OTHER ASSETS. As an express condition of any lending under this Agreement, except for temporary funding to be provided by Lakes under Section 17, Lakes requires MRD to purchase from Franklin and United 100% of the equity interests in the Project Companies (the "Franklin Buy-out"), subject to the condition that the Project Companies which shall then hold all of the Project Assets not already held by MRD or its subsidiaries (including without limitation those acquired from Michels), pursuant to a detailed written agreement (a true and complete copy of which shall be delivered to Lakes when it is fully executed), which shall contain the material terms and conditions set forth in the brief letter agreement between MRD and Franklin attached hereto as Exhibit A and hereby made a part hereof (the "Buy-out Terms"), the terms and conditions set forth in the following paragraph and such other terms and conditions as Franklin and MRD shall mutually agree (with the approval of Lakes, which shall not be unreasonably withheld or conditioned, or unduly delayed), and subject to the terms of this Agreement. The Buy-out Terms include reimbursement to Franklin of the actual amount of funds Franklin and Michels have advanced to MRD and the Tribes for the Projects to the date of this Agreement (the "Advanced Funds"), and a premium amount due Franklin for having taken the initial investment risk in the Projects (the "Premium"). When MRD purchases the equity interests in the Project Companies in the Franklin Buy-out, and when a portion of such interests are thereafter assigned by MRD to Lakes (or its subsidiaries) hereunder, such interests shall be free and clear of all liens and encumbrances; -2- 3 and the Project Companies shall not have any debts or other liabilities or obligations, except for any loans and funding commitments owed to the Tribes under the Project Contracts. This condition shall be supported by warranties, representations, and covenants of indemnification, to the extent customary in equity purchases, either given by Franklin to MRD and its assigns or, to the extent it is not appropriate for Franklin to do so (because MRD has had the entire control or knowledge of the matter), by MRD to Lakes in a supplement to this Agreement. MRD represents and warrants to Lakes that Exhibit B attached hereto contains a complete listing of all written (and a written summary of any oral) Project Contracts and no others exist except as described therein. On and after the closing of the Franklin Buy-out in accordance with the Buy-out Terms, Lakes shall loan to MRD funds sufficient to fund a part of the cost of the Franklin Buy-out, subject to the limitations set forth below. Lakes will make two loans to MRD for this purpose. The first loan shall be called the "Cloverdale Premium Loan," the proceeds of which shall be used exclusively by MRD to pay Franklin the agreed upon Premium (and any interest due thereon) for having taken the initial investment risk in the Cloverdale Project. The second loan shall be called the "Buy-out Reimbursement Loan," the proceeds of which shall be used exclusively by MRD to (a) reimburse Franklin for the Advanced Funds expended by Franklin and Michels to the date the Franklin Buy-out has been consummated with respect to both of the Projects, and (b) to fund any amounts advanced by Lakes to MRD pursuant to Section 17. The amount of the Buy-out Reimbursement Loan shall not exceed $1,121,811, plus (a) any amounts advanced by Franklin for the Projects with the approval of Lakes (which approval shall not be unreasonably withheld, conditioned or unduly delayed) between July 15, 2000, and the date Lakes first begins to lend funds to the Project Companies hereunder; and (b) any amounts advanced by Lakes to MRD pursuant to Section 17. The amount of the Cloverdale Premium Loan shall not exceed $2,200,000, plus interest accrued and paid to Franklin on the unpaid balance of its Premium after the opening of the temporary casino of the Cloverdale Project. Except as otherwise provided in Section 17, the Buy-out Reimbursement Loan and the Cloverdale Premium Loan will be funded by Lakes only as and when the funds are required by MRD to perform its related payment obligations to Franklin under the Buy-Out Terms. The Buy-out Reimbursement Loan and the Cloverdale Premium Loan shall be subject to the terms and conditions set forth in Sections 4 and 5. 2. PROJECT DEVELOPMENT LOANS. If MRD successfully completes the Franklin Buy-out in accordance with the Buy-out Terms, Lakes further agrees to loan to each of the Project Companies funds in the amounts set forth in Exhibit C attached hereto and hereby made a part of this Agreement (the "Project Development Loans"), which loans shall not exceed $23,500,000 in the aggregate. That limit includes any amounts advanced by Lakes to MRD under the Buy-out Reimbursement Loan, including without limitation any advances under the first paragraph of Section 17, but excludes the Cloverdale Premium Loan. The terms of each of the Project Development Loans shall be as set forth in Section 3. 3. PROJECT DEVELOPMENT LOAN TERMS. Each of the Project Development Loans shall bear -3- 4 simple interest on any unpaid principal balance at an annual rate of 1% over the "High Wall Street Journal Prime Lending Rate" as defined in the money rate section of the Wall Street Journal (the "Prime Rate"), compounded annually if not paid earlier. Interest on each Project Development Loan shall accrue only on funds actually advanced by Lakes to the borrowing Project Company, beginning when such funds are advanced. The interest rate shall be adjusted monthly, based upon the Prime Rate on the first business day of each month; and that interest rate shall apply to all advances and loan balances remaining unpaid by the borrower during that month. The principal balance of the Project Development Loan made to each Project Company shall be amortized over sixty (60) months from the date when the Project is first open for gaming to the general public. If any advances occur on a Project Development Loan after that date, the new principal balance shall be re-amortized over the balance of that period. Subject to any such re-amortization, each Project Development Loan shall be repaid in equal monthly payments of principal, plus accrued interest. The first payment on the Project Development Loan made to each Project Company shall be due and shall be made on the 20th day of the first full month beginning after the date the Tribe involved with that Project Company makes its first payment of variable lease fees (as defined in its Project Contracts) to the Project Company. Each Project Company shall grant Lakes a security interest in all of the assets of the Project Company, including without limitation all of its Project Assets and all loan payments and lease fees due to the Project Company from the Tribe involved with that Project Company, to secure payment of the Project Development Loan and that portion of the Buy-out Reimbursement Loan assumed by that Project Company pursuant to Section 5. Each of such loan obligations of a Project Company shall also be cross-collateralized by the assets of the other Project Company. Except as otherwise set forth below in this Section 4 or in Section 10, the loan payments on each Project Development Loan shall be made after the payment of Overhead Fees (as defined in Section 10) to both parties. If Net Cash Flows (as defined in Section 9) of one Project Company are insufficient to make the full Project Development Loan payment due from such Project Company, the unpaid amount shall be paid first from Net Cash Flows of the other Project Company and second, in subsequent months, from Net Cash Flows of both Project Companies available after the payment of Overhead Fees to MRD and Lakes. Any loan payments made by one Project Company on behalf of the other Project Company shall be treated as an inter-company loan to the Project Company whose obligation was satisfied, with interest to accrue at the same rate due on the Project Development Loans; and any such inter-company loan shall be repaid from Net Cash Flows of the creditor Project Company before any further distribution of Net Cash Flows to the equity members of that Project Company. 4. CLOVERDALE PREMIUM LOAN TERMS. The Cloverdale Premium Loan shall bear simple interest on any unpaid principal balance at an annual rate of 1% over the "High Wall Street Journal Prime Lending Rate" as defined in the money rate section of the Wall Street Journal ("Prime Rate"), compounded annually if not paid earlier. Interest on such loan shall accrue only -4- 5 on funds actually advanced by Lakes to MRD, beginning when such funds are advanced. The interest rate shall be adjusted monthly, based upon the Prime Rate on the first business day of each month; and that interest rate shall apply to all loan balances and advances unpaid during that month. The Cloverdale Premium Loan shall be amortized over sixty (60) months from the first date when the Cloverdale Project is first open for gaming to the general public and, if any advances occur on the Cloverdale Premium Loan after that date, the new principal balance shall be re-amortized over the balance of that period. Subject to any such re-amortization, the Cloverdale Premium Loan shall be repaid in equal monthly payments of principal and accrued interest. The first payment by MRD on the Cloverdale Premium Loan shall be due and shall be made no later than the 20th day of the first full month beginning after MRD begins receiving its share of Net Cash Flows (as defined in Section 9) from the Project Company engaged in the Cloverdale Project. To secure MRD's obligation to repay the Cloverdale Premium Loan, MRD shall grant Lakes a first priority security interest in: (a) MRD's Overhead Fees (as defined in Section 10), (b) MRD's share of Net Cash Flows from the Project Companies, (c) all Project Assets, (d) MRD's equity interests in the Project Companies, and (f) any other assets hereafter acquired by MRD that relate to the Projects (collectively, the "MRD Permanent Collateral"); provided, however, that the security interest granted to Lakes with respect to MRD's share of Net Cash Flows from the Project Company engaged in the Paskenta Project may be subject to any first priority security interest granted by MRD (not to exceed 50% of such share) to Franklin to secure the deferred payment obligation due Franklin from MRD with respect to the Premium payable to Franklin by MRD with respect to the Franklin Buy-out of interests in the Project Company involved in the Paskenta Project. During the Cloverdale Premium Loan payment period, MRD shall pay fifty per cent (50%) of its share of Net Cash Flows it becomes entitled to receive each month from the Project Company involved with the Cloverdale Project, up to the amount of principal and accrued interest due in that month (or remaining unpaid for any prior month) under the Cloverdale Premium Loan. Any payment deficiencies in amounts due on the Cloverdale Premium Loan as a result of the foregoing provision or otherwise shall be paid from the first Net Cash Flows distributable to MRD in any subsequent month, subject to that fifty percent (50%) limitation. Payments shall be credited first to collection costs, if any, second to interest and then to principal. Any payment deficiency under this paragraph shall not be a default of the terms of this Agreement. 5. BUY-OUT REIMBURSEMENT LOAN TERMS. The Buy-out Reimbursement Loan shall bear simple interest on any unpaid principal balance at an annual rate of 1% over the "High Wall Street Journal Prime Lending Rate" as defined in the money rate section of the Wall Street Journal ("Prime rate"), compounded annually if not paid earlier. Interest on such loan shall accrue only on funds actually advanced by Lakes to MRD beginning when such funds are advanced. The interest rate shall be adjusted monthly, based upon the Prime Rate on the first business day of each month; and that interest rate shall apply to all loan balances and advances -5- 6 unpaid during that month. The portion of the Buy-out Reimbursement Loan pertaining to each Project (which amount for each Project is set forth on Exhibit D attached hereto and hereby made a part hereof) shall be amortized over sixty (60) months from the first date when that Project first opens for gaming to the general public. The Buy-out Reimbursement Loan for each Project shall be repaid in equal monthly payments of principal, plus accrued interest. The first payment on the portion of the Buy-out Reimbursement Loan related to each Project shall be due and shall be made on the 20th day of the first full month beginning after the date on which the Tribe involved with such Project makes its first payment of variable lease fees (as defined in its Project Contracts) to the Project Company involved with that Tribe. Upon the acquisition of each Project Company, MRD shall assign to such Project Company all of MRD's obligations and rights under the Buy-out Reimbursement Loan, to the extent such obligations and rights pertain to the Project to be engaged in by such Project Company; and such Project Company shall assume such obligations, relieving MRD of all liability for such portion of the Buy-out Reimbursement Loan. After the acquisition of both Project Companies, they alone shall be jointly and severally liable for repayment of the Buy-out Reimbursement Loan Amount to Lakes. To secure MRD's obligation to repay the Buy-out Reimbursement Loan before it is assumed by the Project Companies, MRD shall grant Lakes a first priority security interest in: (a) MRD's Overhead Fees (as defined in Section 10), (b) any and all Project Assets held by MRD or any of its subsidiaries, (c) MRD's equity interests (if any) in the Project Companies, and (d) any and all other assets now held or hereafter acquired by MRD (collectively, the "MRD Temporary Collateral" and together with, the MRD Permanent Collateral, hereinafter the "MRD Collateral"); provided, however, that the security interest granted to Lakes with respect to MRD's equity interest (if any) in the Project Company engaged in the Paskenta Project may be subject to any first priority security interest granted by MRD (not to exceed 50% of such interest) to Franklin to secure the deferred payment obligation due Franklin or United from MRD with respect to the Premium payable to Franklin by MRD with respect to the Franklin Buy-out of interests in the Project Company involved in the Paskenta Project; and provided further that the security interest granted to Lakes with respect to MRD's interests in Pacific Coast Gaming - Fresno, LLC, any other entity engaged in a casino development project for the Big Sandy Band of Western Mono Indians, Auberry, California, and any project contracts and other assets related thereto may be subject to any first priority security interest granted by MRD to Franklin, United and/or any third party to secure the deferred payment obligation due Franklin from MRD with respect to MRD's purchase of such interests and/or the financing of such development. To secure payment of the Buy-out Reimbursement Loan after it is assumed by the Project Companies, each Project Company shall grant Lakes a security interest in all of the Project Company's assets, including without limitation all of its Project Assets, and all loan payments and lease fees that become due to such Project Company from the Tribe involved in its Project. The Buy-out Reimbursement Loan shall be cross-collateralized by such assets of each Project -6- 7 Company. 6. STRUCTURE OF PROJECT COMPANIES. After MRD purchases the Project Companies, MRD and Lakes shall merge each of them into a separate Project Company for each Project, which shall be a Minnesota limited liability company organized generally as set forth below and in the second paragraph of Section 17; provided, however, that doing so will not unduly interfere with securing approvals required by Lakes from the Tribes. If merging the Project Companies into new Project Companies would unduly interfere with securing Tribal approvals required by Lakes, then MRD and Lakes shall amend and restate the organizational documents of each of the Project Companies to conform in so far as possible to the following forms of organizational documents. The Articles of Organization, Member Control Agreement and Bylaws of each Project Company shall include the applicable provisions of this Agreement (including without limitation those set forth in the second paragraph of Section 17) and such other provisions as are customary for Minnesota (or, if applicable, Maryland) limited liability companies organized to conduct similar ventures; and shall be substantially in the forms to be prepared and approved in good faith by the parties (which approval shall not be unreasonably withheld or conditioned or unduly delayed) and attached hereto as Exhibits E, F and G within ten (10) ten days after the date of this Agreement (the "Project Company Documents"). 7. ASSIGNMENTS OF INTERESTS IN PROJECT COMPANIES. Upon completion of the Franklin Buy-out, (a) MRD shall assign to Lakes a 65% equity interest in the profits, losses and distributions of Net Cash Flows (as defined in Section 9) of each of the Project Companies (with the other rights set forth in Sections 8, 9 and 10), in partial satisfaction of MRD's obligations to pay principal to Lakes under the Cloverdale Premium Loan, which satisfaction shall be in an amount equal to 50% of the Premium ultimately payable to Franklin and allocable to the Cloverdale Project; (b) MRD shall contribute its right, title and interest (if any) in any Project Assets not held by the Project Companies to the capital of the Project Company involved in the Project that relates to such Project Assets; (c) MRD shall retain a 35% equity interest in the profits, losses and distributions of Net Cash Flows of each of the Project Companies (with the other rights set forth in Sections 8, 9, 10 and 12); (d) Lakes and MRD shall adopt the Project Company Documents with respect to each Project Company pursuant to Section 6; and (e) the Project Companies shall assume the Buy-out Reimbursement Loan pursuant to Section 5. 8. MANAGEMENT. Lakes and MRD shall each have a 50% voting interest with respect to each Project Company. Lakes and MRD, or their designated representatives, will each have an equal vote on key decisions that must be made with respect to each Project Company. In the event that the parties cannot reach agreement on a key decision, the parties agree to mediate the dispute as set forth in Section 21, and if resolution still cannot be reached, to arbitrate the dispute as set forth in Section 22. Both parties shall make every reasonable effort to capitalize on the other's expertise in the operation of each Project Company and in the development of the Projects. 9. ALLOCATION OF PROFITS AND DISTRIBUTION OF NET CASH FLOWS. In consideration of the Buy-out Reimbursement Loan, the release by Lakes of 50% of the principal balance otherwise payable by MRD under the Cloverdale Premium Loan, and Lakes' future assistance in the planning, development and start-up of each Project, Lakes shall receive a 65% interest in the profits and Net Cash Flows (as defined below) of each Project Company. For MRD's efforts prior to this -7- 8 date in securing the Projects, for MRD's purchase of the equity interests in the Project Companies, and for MRD's future management of the Projects, MRD shall receive the remaining 35% interest in the profits and Net Cash Flows of each Project Company. "Net Cash Flows" with respect to a Project Company are defined as: gross variable and fixed lease fees (as defined in the Project Contracts) received by the Project Company, plus loan payments and all other fees, amounts and payments received by the Project Company from the applicable Tribe under the Project Contract or otherwise with respect to the Project, less Overhead Fees described in Section 10, Project Manager Costs described in Section 11, franchise fees, third party financing costs and payments of amortized amounts due Lakes on the Project Development Loan and that portion of the Buy-out Reimbursement Loan assumed by the Project Company. Attached hereto as Exhibit H and hereby incorporated herein is an example showing the determination of Net Cash Flows for the first 12 months of the each Project. 10. OVERHEAD FEES. MRD and Lakes shall each receive an aggregate amount of $80,000 each month (the "Overhead Fees"), which shall be paid from and allocated between the two Project Companies as the parties may agree, to cover their respective overhead expenses during the entire period in which any Project Contract remains in effect with a Tribe. If the parties do not agree otherwise, Overhead Fees shall be allocated equally between each Project Company in existence at the time of payment. Except as otherwise set forth below, Overhead Fees shall be paid before Project Manager Costs described in Section 11, payments by the Project Companies of the Project Development Loans and Buy-out Reimbursement Loan and any distributions of Net Cash Flows. Payment of the Overhead Fees shall commence as of the date this Agreement is executed by the parties and continue on the first day of every month thereafter until both Project Contracts terminate. In the event that the Project Companies have not been formed by that commencement date, and until they are formed, Lakes shall make the Overhead Fee payments on behalf of the Project Companies pursuant to Section 17. Any amounts paid by Lakes pursuant to this sentence shall be added to the Buy-out Reimbursement Loan to be assumed by the Project Companies. During the first six (6) consecutive months after commencement of payment of the Overhead Fees, if the Net Cash Flows are insufficient to pay the entire Overhead Fees for both Lakes and MRD, MRD's fees shall be paid first, and any difference between such Net Cash Flows and MRD's Overhead Fees shall be paid by Lakes and added to the Buy-out Reimbursement Loan or, if applicable, the Project Development Loan for each Project. If, after the first six (6) months, Net Cash Flows are insufficient to pay all of the Overhead Fees in any given month, the Overhead Fees payable to each of Lakes and MRD shall be limited to a partial payment that is the greater of $30,000 or the available Net Cash Flow from both Project Companies, with the remainder of the unpaid Overhead Fees for that month to be forfeited. Notwithstanding the foregoing, upon the occurrence of any payment default under the Cloverdale Premium Loan, Buy-out Reimbursement Loan or any Project Development Loan, any Overhead Fees or other amounts thereafter payable to MRD by the Project Companies shall be paid to Lakes as payment on such loans until the payment defaults have been cured. -8- 9 Payment of Lakes' Overhead Fees shall commence at the same time as those due MRD. Lakes' Overhead Fees shall be paid after all Overhead Fees due to MRD are paid and to the extent that Net Cash Flows are available. All unpaid Overhead Fees due Lakes shall be paid before any further distributions of Net Cash Flows are made. 11. BUDGETS, PROJECT MANAGER COSTS AND CASH FLOW PROJECTIONS. MRD represents and warrants to Lakes that attached hereto as Exhibit I are construction, development and equipment budgets for each Project; that such budgets contain MRD's best estimate, as of the date of this Agreement, of all costs and expenses necessary to develop, construct, equip and open each of the Projects; and that MRD is not aware of any other costs or expenses except as expressly set forth therein. MRD represents and warrants to Lakes that MRD has included in the budgets for each Project certain Project costs payable to parties independent of MRD or Lakes, including a full-time on-site lender representative for each Project (who will be an employee of the Project Companies), rent for office space, third party consulting fees and other overhead payable to such independent third parties and directly related to each Project, as more specifically described on Exhibits J and K attached hereto (the "Project Manager Costs"), which contain MRD's best estimates of such costs as of the date of this Agreement. The Project Manager Costs, subject to the approval of Lakes as to the amount thereof, shall be initially paid by advances from Lakes under the Project Development Loans until Tribal loan payments or any lease fees are received from each Project. MRD also represents and warrants to Lakes that attached hereto as Exhibit L are MRD's most recent projections for the gross cash flows and Net Cash Flows with respect to each of the Projects, which projections contain MRD's best estimate of all such amounts; and MRD is not aware of any other revenues or related costs and expenses necessary to complete the Projects, except as expressly set forth therein and in the related Project Manager Costs budgets also attached hereto as Exhibits J and K. 12. BONUS PAYMENT TO MRD ON OPENING OF GAMING FACILITIES. Lakes agrees to pay MRD certain bonus payments as follows: (a) $500,000 after the opening of the temporary facility for the Cloverdale Project; and (b) $1,000,000 after the opening of the permanent casino for each Project. These bonus payments shall be paid only from Lake's share of Net Cash Flows from the Project Company that opened the gaming facility, after any portion of such share that must be paid to Franklin with respect to the Premium. If Net Cash Flows of a Project Company are insufficient to pay the entire bonus amount, the unpaid balance shall be paid from the share of Net Cash Flows payable to Lakes from that Project Company in subsequent months. 13. THIRD PARTY DEBT FINANCING AND NIGC APPROVAL OF CLOVERDALE. Lakes and MRD shall cooperate fully to negotiate and secure third party debt financing for each of the Projects (a) in such amounts as they may mutually agree in good faith are required, and (b) on such terms as they may mutually accept in good faith, which acceptance shall not be unreasonably withheld or conditioned or unduly delayed. If such financing cannot be obtained on mutually acceptable terms for a specific Project, or the -9- 10 NIGC or the BIA shall have determined at any time that Class III Indian Gaming (as defined in IGRA) cannot be lawfully conducted pursuant to IGRA at the proposed location of the Cloverdale Project's casino on land being leased from an individual member of the Cloverdale Tribe, then in either case Lakes shall have the option, in its sole discretion, to cease further funding of that Project, cause the liquidation of the Project Company responsible for that Project, accelerate payment of the Buy-out Reimbursement Loan and Project Development Loan applicable to that Project and, if the Project is the Cloverdale Project, accelerate payment of the Cloverdale Premium Loan. The parties agree and understand that Lakes' shall subordinate its security interests in the Project Assets (excluding any other MRD Collateral), which secure the various loans to be made pursuant to this Agreement, to the rights of any senior third party lenders if so required by any such lender; provided, however, that such subordination is upon such terms that are reasonably acceptable to Lakes. If Lakes ceases funding and causes the liquidation of any Project Company pursuant to this Section 13 (a "Terminated Project Company"), neither MRD nor any of its affiliates shall thereafter be involved, directly or indirectly, as developers, managers, financiers, consultants or otherwise, with respect to any gaming activities (a "New Project") of the Tribe involved in the Project that had been assigned to the Terminated Project Company, unless Lakes is offered the first right of refusal to participate in such New Project on terms and conditions similar to those provided in this Agreement, or other terms and conditions as are offered to any proposed third party investor with MRD in the New Project. If Lakes does not exercise such right of first refusal, MRD shall, upon or before entering into any contract to develop a New Project with that Tribe, cause the repayment in full of any unpaid balance on each of the following loans made by Lakes: (a) that portion of the Buy-out Reimbursement Loan due from the Terminated Project Company, (b) the Project Development Loan made to the Terminated Project and (c) if the Terminated Project Company was responsible for the Cloverdale Project, the Cloverdale Premium Loan. 14. TIMING. Time is of the essence in completing the transactions that are the subject of this Agreement. The parties agree to fully cooperate and to use their best efforts to obtain all necessary consents of the Tribes to the transfer of ownership of the Project Companies, to acquire the Project Companies, complete the Project Company Documents and re-organize the Project Companies no later than August 31, 2000, or such additional time as may be reasonably required to meet scheduling requirements for each of the Tribes to give its consent to the involvement of Lakes hereunder, in lieu of Franklin and United. 15. CONFIDENTIALITY OF NEGOTIATIONS. Lakes and MRD agree to keep the fact of their discussions and negotiations confidential until otherwise mutually agreed in writing or unless in the reasonable opinion of counsel to Lakes disclosure is required under any applicable securities laws or under the applicable rules of the NASDAQ market system or any other listing or stock exchange. 16. REPRESENTATIONS AND WARRANTIES OF MRD. MRD represents and warrants to Lakes that the -10- 11 statements contained in this Section 16 are correct as of the date of this Agreement and will be correct and complete as of the date on which each of the Project Companies has assumed its share of the Buy-out Reimbursement Loan (the "Closing Date"), as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 16, except as otherwise set forth in the disclosure schedule delivered by MRD to Lakes on the date hereof and attached hereto (the "MRD Disclosure Schedule"). The MRD Disclosure Schedule will be arranged in Sections and paragraphs corresponding to the numbered and lettered Sections and paragraphs contained in this Agreement. (a) Organization and Good Standing of MRD. MRD is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Nevada, with all requisite power and authority to carry on the business described in paragraph A of the Preliminary Statement (the "Business") and to own any Project Assets it now owns, the equity interests in the Project Companies to be acquired hereunder, and any other properties it owns. MRD is owned by Matthew R. Daly, a resident of the State of Nevada, and Robert Daly, a resident of the State of Minnesota; and is duly authorized to conduct the Business and is in good standing under the laws of each jurisdiction where such qualification is required, except to the extent that the failure to do so would not have a material adverse effect on MRD. MRD has full corporate power and authority and all licenses, permits, and other governmental authorizations necessary to carry on the Business and to own an equity interest in the Project Companies, except to the extent that the failure to do so would not have a Material Adverse Effect with respect to MRD or either of the Project Companies. All licenses and permits held by MRD and material to the Business, the Project Assets or either of the Project Companies are valid and in full force and effect and no proceedings which could result in the termination or impairment of any such license or permit are pending or, to the knowledge of MRD, threatened. Except as set forth in Section 16(a) of the MRD Disclosure Schedule, neither MRD nor any of the Project Companies is not in violation of, nor has MRD received any notice of any violation of, nor does any state of facts exist that could reasonably be expected to lead to a penalty or termination of, any license or permit which could reasonably be expected to have a material adverse effect on the Business, the Project Assets, either of the Project Companies or any other MRD Collateral. (b) Authorization of Transaction. MRD has the legal power, authority and capacity to execute and deliver this Agreement, and the agreements and instruments to be executed and delivered by MRD in connection herewith, and to perform its obligations hereunder and thereunder. This Agreement has been, and the agreements and instruments to be executed and delivered by MRD in connection herewith will be, on or prior to the Closing Date, duly executed and delivered, and constitute or upon execution and delivery will constitute the valid and legally binding obligations, of MRD, enforceable in accordance with their terms, except as enforcement may be limited by general principles of equity whether applied in a court of law or a court of equity and by bankruptcy, insolvency and similar laws affecting creditors' rights and remedies generally. No authorization, consent, approval, permit or license of, or filing with, any governmental or public body or authority, any lender or lessor or any other person is required to authorize, or is required in connection with, the execution, delivery and performance of this Agreement or the agreements contemplated hereby on the part of MRD with Lakes, United or -11- 12 Franklin, except those forth in Section 16(b) of the MRD Disclosure Schedule, which shall be obtained by MRD on or prior to the Closing Date, except to the extent that the failure to do so would not have a material adverse effect with respect to the Business, the Project Assets, either of the Project Companies or any other MRD Collateral. (c) Non-contravention; Defaults. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) assuming the receipt of all required regulatory approvals referred to in Section 16(b), violate any constitution, statute, regulation or rule; (ii) to the knowledge of MRD, violate any injunction, judgment, order, decree, ruling or other restriction of any government, governmental agency, or court to which MRD or either of the Project Companies is subject; or (iii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license or instrument to which MRD or either Project Company is a party or by which MRD or either Project Company is bound or to which any Project Assets, either of the Project Companies or any other MRD Collateral are subject, except for any such matter that would not have a material adverse effect with respect to MRD, any Project Assets, either of the Project Companies or any other MRD Collateral. There is no pending or, to the knowledge of MRD, threatened action, suit, claim, proceeding, inquiry or investigation before or by any governmental authority against or affecting MRD or either of the Project Companies, involving or to restrain or prevent the consummation of the transactions contemplated by this Agreement, that might reasonably be expected to materially and adversely affect the right of MRD or Lakes to acquire either of the Project Companies or the rights of the Project Companies to own the Project Assets, the right of MRD to acquire or own an equity interest in the Project Companies or any other MRD Collateral, the right of MRD to operate the Business or the rights of the Project Companies to utilize the Development Rights and perform the Project Contracts in substantially the manner in which they are currently utilized or performed or contemplated to be utilized or performed under this Agreement or the Project Contracts. (d) Title to MRD Collateral. Except as shown in Section 16(d) of the MRD Disclosure Schedule, MRD is the true and lawful owner of the Project Assets held in its name on the date of this Agreement and, immediately after MRD acquires the Project Companies in the Franklin Buy-out, and before Lakes acquires its equity interest in the Project Companies, MRD will be true and lawful owner of all of the equity of the Project Companies and any other Project Assets held by MRD. If and when MRD acquires the Project Companies in the Franklin Buy-out, (i) MRD will then have all necessary power and authority to assign an equity interest in the Project Companies to Lakes (to the extent provided hereunder), free and clear of any taxes, security interests, contracts, commitments, equities, claims and demands (other than the rights of the Tribes under the Project Contracts); (ii) MRD will transfer to Lakes good title to the equity interest in the Project Companies specified in Section 7, free and clear of any security interests, contracts, commitments, equities, claims and demands (other than the rights of the Tribes under the Project Contracts; (iii) MRD will transfer to the Project Companies its remaining interest (if any) in the Project Assets, free and clear of any security interests, contracts, commitments, equities, claims and demands (other than the rights of the Tribes under the Project Contracts); -12- 13 and (iv) MRD will grant to Lakes a security interest in all of the MRD Collateral, free and clear of any security interests, contracts, commitments, equities, claims and demands (other than the rights of the Tribes under the Project Contracts), except as otherwise expressly provided in Section 5. (e) Financial Statements. Attached hereto as part of Exhibit M are the unaudited balance sheet and income statements for MRD and each of the Project Companies (the "Financial Statements") as of and for the six (6) months ended June 30, 2000 (the "Most Recent Fiscal Month End"). The Financial Statements (excluding any notes) are true, correct and complete, have been prepared in accordance with GAAP (except with regard to notes) applied on a consistent basis throughout the period covered thereby, and present fairly the financial condition of MRD or the respective Project Company as of such date and the results of its operations for such period, and is consistent with its books and records (which books and records are correct and complete). Except as shown in Section 13(e) of the MRD Disclosure Schedule, since the Most Recent Fiscal Month End, there has not been any event or occurrence that could reasonably be expected to result in a material adverse effect on the Business. The Project Assets or either of the Project Companies. (f) Undisclosed Liabilities. Except as shown in Section 16(f) to the MRD Disclosure Schedule (which shall include all existing liabilities of the Project Companies and MRD under the Project Contracts), MRD does not have any material liabilities with respect to the Business and the Project Companies do not have any material liabilities other than their respective obligations for future performance under the Project Contracts; and, to the knowledge of MRD there is no basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against MRD or either Project Company giving rise to any liability, except for (i) liabilities set forth on the balance sheets contained in the Financial Statements and (ii) liabilities that have arisen after the Most Recent Fiscal Month End in the ordinary course of business (none of which results from, arises out of, relates to, is in the nature of, or was caused by any material breach of contract, breach of warranty, tort, infringement, or violation of law. (g) Legal Compliance. Except as shown in Section 16() of the MRD Disclosure Schedule, neither of the Project Companies nor MRD (with respect to its Business), (i) has complied in all material respects with all applicable gaming laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of federal, state and local governments (and all agencies thereof); (ii) has had any action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice filed or commenced against it alleging any failure so to comply and, to the knowledge of MRD, no such actions have been threatened, or (iii) is subject to or in default with respect to any judgment, writ, injunction, decree, rule or regulation of any governmental entity. (h) Tax Matters. Except as described in Section 16(h) of the MRD Disclosure Schedule, MRD and each of the Project Companies has timely and properly filed all federal, state, local and foreign Tax returns and reports and forms that it is or has been required to file, -13- 14 either on its own behalf or on behalf of its employees or other persons or entities, including but not limited to income, profits, franchise, sales, use, occupation, property, excise, ad valorem and payroll (including employee taxes withheld) taxes ("Taxes" or each a "Tax"), all such returns, reports and forms being true and complete in all material respects; and has paid all material Taxes, including penalties and interest, if any, that have become due pursuant to such returns or reports or forms or pursuant to assessments received by MRD or a Project Company. No Tax deficiencies have been determined nor, to MRD's knowledge, proposed tax assessments charged against MRD or either of the Project Companies and, to MRD's knowledge, there exists no basis for any such deficiencies. No Internal Revenue Service or other governmental Tax authority audit of MRD or either of the Project Companies is pending nor, to MRD's knowledge, threatened against MRD, any of its subsidiaries or either of the Project Companies; and the results of any completed Tax audits of such entities are properly reflected in the Financial Statements. Neither MRD nor any of the Project Companies has granted any extension to any Tax authority of the limitation period during which any Tax Liability may be asserted. (i) Project Contracts. Except as described in Section 16(i) of the MRD Disclosure Schedule, with respect to each of the Project Contracts, (i) such contract is legal, valid, binding, enforceable and in full force and effect; (ii) such contract will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the consummation of the transactions contemplated hereby, subject to the receipt of any consent required to assign equity interests in the Project Companies or merge them into Minnesota limited liability companies; (iii) neither MRD nor any of the Project Companies is, nor to MRD's knowledge is any other party to such contract, in breach or default; nor, to MRD's knowledge has any event occurred that, with notice or lapse of time, would constitute a breach or default or permit termination, modification, or acceleration thereunder; (iv) to MRD's knowledge no party to such contract has repudiated any provision thereof; (v) to MRD's knowledge there are no disputes, oral agreements, or forbearance programs in effect as to such contract; (vii) neither MRD nor the Project Company holding such contract has assigned, transferred, conveyed, mortgaged, deeded in trust, nor encumbered any interest in such contract; and (viii) such contract has received all approvals of governmental authorities (including licenses and permits) required to be obtained by MRD, the Project Company holding such Contract or any Tribe in connection with the performance thereof; and has been performed by MRD and the Project Company holding such contract in accordance therewith and with applicable laws, rules, and regulations, except where any failure to do so would not result in any material adverse effect with result to MRD, either of the Project Companies, any of the Project Assets or any other MRD Collateral. (j) Commitments. Except as set forth in Section 16(j) of the MRD Disclosure Schedule or in the Financial Statements, with respect to the Business, the Project Assets, either of the Project Company or any other MRD Collateral, MRD has not entered into nor is any of the MRD Collateral or MRD's Business or the business or any Project Assets of either of the Project Companies bound by, whether or not in writing, any: (i) partnership or joint venture agreement; (ii) deed of trust or other security agreement; (iii) guaranty or suretyship, indemnification or contribution agreement or performance bond; (iv) employment, consulting or compensation agreement or arrangement, including agreements arising as a result of the election or retention in -14- 15 office of any director or officer; (v) debt instrument, loan agreement or other obligation relating to indebtedness for borrowed money or money lent to another; (vi) any agreement relating to any matter or transaction in which an interest is held by a person or entity which is an "affiliate" of MRD as that term is defined in Rule 144(a)(i) under the Securities Act of 1933, as amended, or any "associate" of any such affiliate as that term is defined in Regulation 14A of the general rules and regulations under the Securities Exchange Act of 1934, as amended; (vii) any contract containing non-competition covenants that would affect the Business, any of the Project Assets or either of the Project Companies; or (viii) any other agreement or commitment not made in the ordinary course of business or that would have a materially adverse effect on or is otherwise material to the Business or the financial condition of MRD or either of the Project Companies (all of the foregoing are hereinafter collectively referred to as the "Commitments"). True, correct and complete copies of the written Commitments, and true, correct and complete written descriptions of the oral Commitments, have heretofore been delivered to Lakes. There are no existing defaults, events of default or events, occurrences or acts that, with the giving of notice or lapse of time or both, would constitute defaults by MRD or either of the Project Companies or, to the knowledge of MRD any other party thereto; and no penalties have been incurred by MRD or either of the Project Companies (or, to the knowledge of MRD by any other person), nor to the knowledge of MRD are any amendments pending with respect to the Commitments, except as described in Section 16(j) of the MRD Disclosure Schedule or in the Financial Statements. The Commitments are in full force and effect and are valid and enforceable obligations of MRD or a Project Company (as applicable) and, to the knowledge of MRD the other parties thereto, in accordance with their terms, except as enforcement may be limited by general principles of equity whether applied in a court of law or a court of equity and by bankruptcy, insolvency and similar laws affecting creditors' rights and remedies generally; and to the knowledge of MRD no defenses, off-sets or counterclaims have been asserted, or may be made by any party thereto; nor has MRD or either of the Project Companies waived any rights thereunder, except as described in Section 16(j) of the MRD Disclosure Schedule. Except as contemplated herein, MRD has no knowledge of any plan or intention of any other party to any Commitment to exercise any right to cancel or terminate any material Commitment or agreement, or of any fact that would justify the exercise of such a right. Except as described in Section 16(j) of the MRD Disclosure Schedule, MRD does not currently contemplate, nor have any knowledge that any other person or entity currently contemplates, any amendment or change to any Commitment. (k) Insurance. MRD is not required to maintain any insurance at the present time pursuant to any Project Contract or other Commitment. Any Project Assets owned by MRD are not insured. Each of the Project Companies currently maintains all insurance it is required to maintain pursuant to its Project Contracts, and such other liability and property insurance as is reasonably necessary to protect its insurable interests. (l) Litigation. Except as set forth in Section 16(l) of the MRD Disclosure -15- 16 Schedule or claims for which MRD or a Project Company is fully insured, with respect to the Project Companies, any other MRD Collateral and the Business, neither MRD nor either of the Project Companies is: (i) subject to any outstanding injunction, judgment, order, decree, ruling, or charge naming MRD or a Project Company; or (ii) a party or, to the knowledge of MRD threatened to be made a party to any action, suit, proceeding, hearing, or investigation of, in, or before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator. None of the actions, suits, proceedings, hearings, and investigations set forth in Section 16(l) of the MRD Disclosure Schedule, if any, could reasonably be expected to result in any material adverse effect on MRD, its Business, either of the Project Companies or any other MRD Collateral. (m) Books of Account. The books of account of MRD and each of the Project Companies have been kept accurately in all material respects and in the ordinary course of business. In all material respects, the transactions entered therein represent bona fide transactions and the revenues, expenses, assets (and, to the knowledge of MRD) all liabilities of MRD and each of the Project Companies have been properly recorded in its respective books. (n) Disclosure. All information that is described herein or in the MRD Disclosure Schedule and has been furnished to Lakes by MRD in connection herewith, is true, correct and complete in all material respects. The representations and warranties contained in this Section 16 and the information in the MRD Disclosure Schedule do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained in this Section 16 and the MRD Disclosure Schedule not misleading. 17. COMMENCEMENT OF FUNDING/ADDITIONAL TRANSACTION DOCUMENTS. Upon (a) execution of this Agreement; (b) the execution of the letter agreement between MRD and Franklin attached hereto as Exhibit A, as described in Section 1; and (c) the execution by MRD of loan agreements, security agreements and promissory notes for funds to be advanced pursuant to this paragraph, Lakes shall begin funding Overhead Fees due MRD and advances to the Tribes and MRD (including reimbursement of MRD for past advances) for expenses of the Projects (except for money to be paid to Franklin for the Cloverdale Premium and for reimbursement of Franklin's costs), to the extent actually needed to meet payment obligations to the Tribes or governmental authorities under the Project Contracts, irrespective of whether any other documents have been completed for this transaction; provided, however, at the time of each such -16- 17 requested advance: (i) no event of default, material breach or material misrepresentation by MRD under this Agreement or any related document or agreement shall be in existence; (ii) MRD shall provide to Lakes a written summary of the types and amounts of costs to be paid therefrom, together with copies of any related invoices and other documents as may be requested by Lakes; (iii) the maximum aggregate amount of all such advances shall not exceed $1,000,000; and (iv) no such advance under this paragraph shall be made after August 31, 2000. Any such advances shall be added to and included in the Buy-out Reimbursement Loan and, upon completion of the Franklin Buy-out, shall be assumed by the Project Company that receives the benefit of such advance. Following August 31, 2000, Lakes' obligation to continue to advance funds pursuant to the previous sentence, and MRD's obligations to manage the Projects pursuant to this Agreement are subject to the satisfaction of the following conditions and, in the case of documentary conditions, such documents shall each be in form and substance reasonably acceptable to Lakes and MRD: (1) the completion of the Franklin Buy-out by MRD in accordance with the requirements of this Agreement, including any necessary consent of the Tribes; (2) the assignment by MRD of equity interests in the Project Companies to Lakes, as provided herein; (3) the execution (and filing with government authorities, as required by law) of appropriate Project Company Documents acceptable to the parties with respect to each Project Company, embodying the material terms of this Agreement and standard and customary provisions, including without limitation equity transfer restrictions, rights of first refusal and equity redemption provisions to take effect in the event of a member's withdrawal and other events, generally for fair market value (except as otherwise provided in Section 20), as determined pursuant to a reasonable mechanism absent agreement of the parties, by taking into account all relevant facts including the present value of the affected member's share of future Net Cash Flows from each Project for the remaining term of the Project Contracts; (4) the execution by each Project Company of loan agreements, promissory notes and security agreements reasonably acceptable to the parties, providing for the Project Development Loans and its assumption of the applicable portion of the Buy-out Reimbursement Loan; and (5) the execution by the parties and the Project Companies of such additional documents as the parties mutually agree are reasonably necessary to accomplish the objectives of this Agreement (all of the documents described in this paragraph being hereinafter collectively referred to as the "Additional Transaction Documents"). Upon the execution of this Agreement, the parties agree to promptly negotiate in good faith and enter into the Additional Transaction Documents. From the date of this Agreement, and until this Agreement is terminated or the Franklin Buyout is completed and the Project Companies have become obligated to repay the Buy-out Reimbursement Loan and the Project Development Loan, (a) MRD shall continue to act as the manager of each Project Company, to work with the Tribes and to perform all of the obligations of the developer and lender under the Project Contracts; provided, however, that all of such actions of MRD during such period shall be subject to the approval of Lakes as if Lakes were a member of each of the Project Companies under the Project Company Documents; and (b) MRD shall remain liable for repayment of all funds advanced by Lakes to MRD under the first paragraph of this Section 17, and shall remain liable for such repayment even if this Agreement -17- 18 is terminated and the Franklin Buy-out does not occur. 18. MRD EVENT OF DEFAULT; TERMINATION OF MRD FROM PROJECTS. The occurrence of any of the following events shall be considered an "MRD Event of Default" under this Agreement: (a) loss by MRD or Matthew R. Daly ("Daly") of any gaming license for any Project, if such license is not reinstated following the exhaustion of all legal remedies; (b) the conviction of MRD or Daly of criminal misconduct directly related to gaming activities or related to MRD's relationship with Lakes or the any of the Tribes; (c) the death, resignation or disability of Daly or any other key employee of MRD to the extent such death, resignation or disability prevents MRD from performing its day-to-day Project management duties and obligations under this Agreement, the Project Company Documents of either of the Project Companies or any Project Contract; and, if such key employee is not Daly, he or she is not replaced within sixty (60) days following the event in question; (d ) intentional misconduct of Daly or MRD that unreasonably threatens or jeopardizes the continued payment or performance by any Tribe of its obligations under its agreements with the applicable Project Company, if such misconduct is not cured, before or following written notice from Lakes, within thirty (30) days or such lesser time as may be necessary to avoid any interruption of such continued payments or performance by any Tribe (the "MRD Cure Period"); (e) any fraud or dishonesty of MRD or Daly with respect to either of the Projects or either of the Project Companies that does or reasonably could be expected to have a material adverse effect on such Project Company or Project; (f) a material breach of this Agreement or the Project Company Documents of either Project Company by MRD that does or reasonably could be expected to deprive Lakes of a significant benefit under this Agreement or such Project Company Documents, if such breach is not cured before the end of the MRD Cure period; or (g) the substantial failure or refusal by MRD to perform any of its obligations under this Agreement or its management obligations under the Project Company Documents of either Project Company if such failure or refusal has or reasonably could be expected to have a material adverse effect on Lakes or any Project, or is or reasonably could be expected to constitute a material breach of any agreement to which any Project Company is a party, and such refusal or failure is not cured before the end of the MRD Cure Period. Within sixty (60) days following the occurrence of an MRD Event of Default, Lakes, notwithstanding any other provision of this Agreement, any related loan documents, any Project Company Documents with respect to a Project Company, or any Additional Transaction Documents, may unilaterally terminate this Agreement and, if MRD and Lakes have become members of the Project Companies, may also unilaterally terminate the management positions of MRD and its representatives with respect to either or both of the Project Companies, by giving MRD a written notice of such MRD Event of Default; and may thereafter proceed to redeem MRD's equity interests in either or both of the Project Companies under Section 20. No termination of this Agreement by Lakes shall release MRD or the Project Companies of their respective obligations to repay any loans made to them by Lakes. 19. LAKES EVENT OF DEFAULT; TERMINATION OF LAKES FROM PROJECTS. The occurrence of any of the following events shall be considered a "Lakes Event of Default" under this Agreement: (a) any failure by Lakes to provide any material amount of funding under any of its lending commitments under this Agreement if such failure is not cured, before or following written -18- 19 notice from MRD, within either thirty (30) days or such lesser time as may be necessary to prevent MRD or any of the Project Companies from defaulting in any material financial obligation that was to have been met with such funding (the "Lakes Cure Period"); (b) the conviction of Lakes of criminal misconduct directly relating to gaming activities or related to Lakes' relationship with MRD; (c) intentional misconduct of Lakes that unreasonably threatens or jeopardizes the continued payment by the Tribes of their respective obligations under their agreements with each Project Company, if such misconduct is not cured before the end of the Lakes Cure Period; or (d) a material breach by Lakes of this Agreement or the Project Company Documents of either Project Company that deprives MRD of a significant benefit under this Agreement or such Project Company Documents, if such breach is not cured before the end of the Lakes Cure Period. Within sixty (60) days following the occurrence of a Lakes Event of Default, MRD may cause unilaterally terminate this Agreement and, if Lakes has advanced any funds to MRD and/or the Project Companies, MRD and the Project Companies may also suspend any payment obligations to Lakes until MRD obtains an alternate investor to replace Lakes, by giving Lakes a written notice of such Lakes Event of Default; provided, however, that if an alternative investor has not been found within ninety (90) days, Lakes may require the suspended payments to recommence until such time as MRD obtains an alternative investor to replace Lakes. If MRD exercises its option to suspend such payments, and does not elect to terminate this Agreement, MRD shall not relieve Lakes of any obligation to continue providing any previously agreed funding during that period, unless and until MRD notifies Lakes that it has obtained an alternate investor. Once MRD obtains an alternate investor, MRD shall terminate this Agreement (if not previously terminated) and relieve Lakes of any further financing obligations, and MRD shall, at its option, either prepay Lakes the unpaid balance on any or all outstanding notes for prior financing to MRD and the Project Companies hereunder, or bring current all payments owed to Lakes with respect to such financing, and continue meeting those obligations in accordance with the terms of the note obligations to Lakes. No termination of this Agreement by MRD shall release MRD or the Project Companies of their respective obligations to repay any loans made to them by Lakes. 20. REDEMPTION OF PROJECT COMPANY EQUITY IN CERTAIN EVENTS. In the event Lakes and MRD have become equity members of the Project Companies, and either (a) Lakes exercises its option under Section 18 to terminate this Agreement and relieve MRD of its management duties with respect to one or both of the Project Companies, or (b) MRD exercises its option under Section 19 to replace Lakes as financier for the Projects, then either party shall have the right to require the Project Companies to redeem the equity interests of the terminated party in the Project Companies. The terms of such redemption, including the manner of calculating the redemption price, shall be mutually agreed and incorporated into the Project Company Documents for the Project Companies, and shall limit the redemption price due to an MRD Event of Default or Lakes Event of Default (other than a person's death or disability), as applicable, to the terminated party's capital account balance in each Project Company, less any actual damages (not including any consequential or punitive damages) due to such default. If MRD's equity interests in the Project Companies are being redeemed solely as the result of the death or disability of Daly or another key employee of MRD, the redemption price shall be based -19- 20 on the fair market value of such equity interests, determined pursuant to the Project Company Documents in accordance with the standards set forth in the second paragraph of Section 17. In the event of any redemption of the equity interest of MRD in either or both of the Project Companies, pursuant to this Section 20 or otherwise, Lakes will be entitled to cause each Project Company to offset against the redemption price any amount remaining due Lakes from MRD with respect to the Cloverdale Premium Loan. MRD acknowledges that the primary business of Lakes and certain of its affiliates is the operation and management of gaming facilities; and that Lakes and certain of its affiliates must obtain and maintain in effect various approvals, findings of suitability, licenses, permits and registrations (collectively "Gaming Licenses") from various gaming authorities. Likewise, Lakes recognizes that MRD and certain of its affiliates may be subject to similar regulations. The remaining provisions of this Section 20, as they apply to MRD, its owners and each of their affiliates other than Lakes or any of its affiliates (a "Non-Lakes Party"), shall also apply in the same manner to any other successor to MRD that is a Non-Lakes Party. The remaining provisions of this Section 20, as they apply to Lakes, its officers and directors and each of their affiliates, other than MRD or any of its affiliates (a "Non-MRD Party"), shall also apply in the same manner to any other successor to Lakes that is Non-MRD Party. If (a) any Non-Lakes Party or any of its affiliates, or any other individual or entity who directly or indirectly owns or has any interest in a Non-Lakes Party or is otherwise affiliated with a Non-Lakes Party, is found by any gaming authority with competent jurisdiction to be unsuitable or unqualified to be associated with Lakes or any affiliate of Lakes; or (b) Lakes determines in good faith that the continued association of Lakes with the Non-Lakes Party may reasonably be expected to result in (i) the disapproval, adverse modification or non-renewal of any contract or agreement under which Lakes or any subsidiary or other affiliate of Lakes has sole or shared authority to manage any gaming facility; or (ii) the loss or non-reinstatement of any Gaming License, then Lakes shall give the Non-Lakes Party written notice of such finding or determination. Such notice shall describe the situation or relationship that is the basis for such finding or determination. Such Non-Lakes Party shall, promptly after its receipt of the written notice from Lakes specifying such finding or determination, take all actions required to terminate or discontinue or otherwise cure, to the satisfaction of Lakes and any gaming authority having jurisdiction over Lakes or any affiliate of Lakes, the situation or relationship described in the notice given by Lakes. If, within thirty (30) days after such Non-Lakes Party's receipt of the notice given by Lakes (or such shorter period of time as may be required or requested by any gaming authority), such Non-Lakes Party fails or is unable to take such actions to the satisfaction of Lakes and any gaming authority having jurisdiction, such Non-Lakes Party may at any time within such period give Lakes written notice of such failure or inability or, if such Non-Lakes Party has not already given such notice, Lakes may at the end of such period give a notice of such failure or inability to such Non-Lakes Party and each of the Project Companies in which such Non-Lakes Party has any interest. In the event any notice of such failure or inability is given (whether or not on a timely basis), then each Project Company shall then have the right and option to purchase such Non-Lakes Party's entire -20- 21 interest in the Project at a redemption price based upon the fair market value of such interest, as determined pursuant to the applicable Project Company Documents or, if applicable, pursuant to the first paragraph of this Section 20; and, if a Project Company does not exercise such option, Lakes shall have the right and option to purchase such interest at the same price available to the Project Company. All of the foregoing provisions regarding any Non-Lakes Party shall also apply to any Non-MRD Party, and MRD shall have the same rights as Lakes with respect to determinations relating to, and actions resulting from, conduct and activities of a Non-MRD Party. 21. MEDIATION. Except with respect to matters for which either party believes it necessary to seek equitable relief permitted under a written agreement, or otherwise to prevent irreparable harm to such party, each party agrees to enter into mediation of all disputes involving this Agreement or any aspect of their relationship, for a minimum of four (4) hours, prior to the initiation of any legal action or claim against the other. Upon written notice by either party to the other of the initiating party's desire to mediate, the party receiving the notice shall select an independent entity that provides mediation services to select a mediator in the proceeding. The mediator selected must have knowledge and experience of gaming activities, and must have at least ten (10) years' experience in real estate development and financing matters. If the party receiving the notice of intent to mediate does not provide the name of such an organization within ten (10) days from the date the notice of intention to mediate is received, then the other party may forego mediation of the issue(s) and commence legal action or, at its option, select the organization to provide mediation services. If one party selects an organization that is unwilling to serve as mediator, or cannot provide a mediator with the required expertise, then the other party may select the organization. Once the organization is designated and agrees to accept the appointment as mediator, the organization shall be directed to schedule a mediation proceeding at a time mutually convenient to both parties. The mediation shall be held within thirty (30) days following receipt by the mediation organization of notification that its services shall be retained. If the parties cannot agree on a date for mediation, then the mediation organization shall select a date it believes is reasonable for the parties, given all of the alleged conflicts in dates. The parties shall equally share the cost of the mediator. The mediator shall select the location for the mediation, but unless otherwise agreeable to each party, the mediation shall take place at a site the mediator believes to be a neutral site in terms of its proximity to each party. If any default notice has been issued by either party, and such default is subject to cure before becoming an Event of Default on the part of such party, the period for cure shall be tolled until the mediation is complete if the request for mediation is made at least ten (10) days before such action or event shall become an Event of Default. Such tolling shall not, however, apply to any payments owed to third parties if the failure to make such payment would result in any significant penalties to any of the parties or either of the Project Companies. 22. CONFIDENTIAL ARBITRATION. Except with respect to matters for which either party believes it necessary to seek equitable relief permitted under a written agreement, any dispute arising directly or indirectly out of, pursuant to, or under this Agreement, and any other dispute between -21- 22 any of the parties hereto, however arising, which the parties are not able to resolve on their own or through mediation, shall be resolved by arbitration in Minneapolis, Minnesota, which arbitration shall be administered by the American Arbitration Association in accordance with its Commercial Arbitration Rules then in effect, except that (a) the question whether or not a dispute is arbitrable under this Agreement shall be a matter for binding arbitration by the arbitrators, such question shall not be determined by any court and, in determining any such question, all doubts shall be resolved in favor of arbitrability; (b) discovery shall be permitted in accordance with the Minnesota Rules of Civil Procedure, subject to supervision as to scope and appropriateness by the arbitrators; and (c) judgment on the award may be entered in any court of competent jurisdiction. All aspects of such arbitration shall be conducted in the strictest confidence, and each party agrees not to disclose any information concerning any dispute or arbitration hereunder to any person except as may be required by law or this Agreement. 23. INDEPENDENT CONTRACTORS. Each of the parties recognize that they are independent contractors vis-a-vis each other, and neither party shall be bound by any agreement, representation or warranty made by the other party except as is specifically contemplated by any of the agreements between the parties. Further, neither party shall have any responsibility or liability for any of the businesses of the other party. 24. REPRESENTATIONS OF LAKES. Lakes represents and warrants to MRD that the statements contained in this Section 24 are correct and complete, as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 24 except as otherwise set forth in the disclosure schedule delivered by Lakes to MRD on the date hereof and attached hereto (the "Lakes Disclosure Schedule"). The Lakes Disclosure Schedule will be arranged in Sections and paragraphs corresponding to the numbered and lettered Sections and paragraphs contained in this Agreement. (a) Organization of Lakes and Project Subsidiaries. Lakes is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Minnesota. Lakes is a wholly owned subsidiary of Lakes Gaming, Inc. Lakes has formed wholly owned limited liability companies under the laws of the State of Minnesota to perform its obligations under this Agreement with respect to each of the Projects and, as of the Closing Date, each such subsidiary will be duly organized, validly existing, and in good standing under the laws of the State of Minnesota (the "Lakes Subsidiaries"). (b) Authorization of Transaction. Lakes has the legal power, authority and capacity to execute and deliver this Agreement, and the agreements and instruments to be executed and delivered by Lakes in connection herewith, and to perform its obligations hereunder and thereunder; and as of the Closing Date, each of the Lakes Subsidiaries will have such legal power, authority and capacity with respect to the Project Company in which it will invest. This Agreement has been, and the agreements and instruments to be executed and delivered by Lakes and the Lakes Subsidiaries in connection herewith will be, duly executed and delivered by Lakes and the Lakes Subsidiaries, and constitute or upon execution and delivery will constitute the valid and legally binding obligations of Lakes and the Lakes Subsidiaries, as applicable, enforceable in accordance with its terms, except as enforcement may be limited by general -22- 23 principles of equity whether applied in a court of law or a court of equity and by bankruptcy, insolvency and similar laws affecting creditors' rights and remedies generally. Lakes need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement. (c) Noncontravention; Defaults. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, or rule; (ii) violate any injunction, judgment, order, decree, ruling or other restriction of any government, governmental agency, or court to which Lakes or any of the Lakes Subsidiaries is subject or any provision of its charter or bylaws; or (iii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license or instrument to which Lakes or any of the Lakes Subsidiaries is a party or by which it is bound or to which any of its assets is subject. (d) Legal Compliance. Lakes (i) has complied in all material respects with all applicable gaming laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings and charges thereunder) of federal, state and local governments (and all agencies thereof); (ii) has had no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice filed or commenced against it alleging any failure so to comply and, to the knowledge of Lakes, no such actions have been threatened, and (iii) is not subject to or in default with respect to any judgment, writ, injunction, decree, rule or regulation of any government entity that is likely to have a material adverse effect on Lakes' ability to consummate the transactions contemplated by this Agreement and to provide the financing required under this Agreement. (e) Capabilities. Except as disclosed in Section 24(e) of the Lakes Disclosure Schedule, Lakes is not subject to any actions, suits, proceedings, hearings or investigations, and is not subject to any other restrictions, either by nature of its contractual obligations or otherwise, that are likely to have a material adverse effect on Lakes' ability to consummate the transactions contemplated by this Agreement and to provide the financing required under this Agreement. (f) Due Diligence. Lakes represents and warrants that it has done extensive due diligence with respect to the Projects and their prospects, and is not relying upon any representation or warranty of MRD with respect to the potential gaming revenues, potential Net Cash Flows and projected expenses for any Project Company, except for the projections expressly required to be delivered by MRD to Lakes hereunder. Lakes further acknowledges that all projections prepared by MRD with respect to the Projects or their potential are only good faith estimates of what MRD believes to be practical, based on its present knowledge and the market studies for each Project commissioned by MRD from Urban Systems, Inc. (true and complete copies of which have been delivered to Lakes). Lakes acknowledges that it is relying upon its own evaluation of the potential for the Projects based upon its own experience in Indian gaming. Lakes further warrants that it has had adequate time to conduct its due diligence and to review all projections given to Lakes by MRD and believes those projections to be reasonable based on information available to Lakes. 25. INDEMNIFICATION. Each of the parties hereby indemnify and hold the other party, and its -23- 24 members, directors, officers, employees and agents (the "Indemnified Parties"), harmless, at all times against and with respect of any and all damages, costs, liabilities, losses, judgments, penalties, fines, expenses or other costs (including reasonable attorneys' fees, costs of defense and cost of collection) (collectively, "Losses") arising from or relating to (i) any breach by any party (the "Indemnifying Party") of any of its representations, warranties, covenants or agreements made in this Agreement or in any other agreement, document or instrument delivered by the Indemnifying Party in connection with this transaction, and (ii) any Losses the Indemnified Parties will suffer as a result of any other business activities of the Indemnifying Party unrelated to the Projects. Any party asserting a right of indemnification provided for under this Agreement in respect of, or arising out of or involving a claim or demand made by an unrelated person, firm, governmental authority or entity against the Indemnified Parties (a "Third Party Claim") shall notify the Indemnifying Party in writing of the Third Party Claim, and shall furnish the Indemnifying Party with copies of any pleadings, correspondence or other documents relating thereto that are in the Indemnified Parties' possession from time to time. The Indemnifying Party shall then defend against, settle or compromise such Third Party Claim at the expense of such Indemnifying Party, except that the Indemnified Party shall have the right (but not the obligation) to participate in the defense of any such claim through counsel selected by it and at the Indemnifying Party's expense. The obligation to indemnify shall arise upon assertion of any Third Party Claim that, if proven to be correct, would result in an obligation on the part of the Indemnifying Party to indemnify the Indemnified Parties, even if either the Indemnifying Party or the Indemnified Parties dispute the merits of the claim. For any indemnification other than a Third Party Claim, the Indemnified Parties shall provide to the Indemnifying Party a statement of the claim, stating the nature and basis of such claim. The Indemnified Parties shall, on request, provide all information and documentation reasonably necessary to support and verify any Losses which such person believes gives rise to a claim for indemnification and shall give the Indemnifying Party reasonable access to its books, records and personnel for the purpose of investigating and verifying any such claim. MRD acknowledges and agrees that none of the terms and provisions of this Section 25 (excluding the terms of the first paragraph of this Section 25) shall apply to the exercise of rights and remedies that Lakes shall have with respect to the enforcement and collection of the Project Development Loans, the Cloverdale Premium Loan or the Buy-out Reimbursement Loan under terms and provisions of this Agreement or any applicable promissory note or other related loan documents. 26. GENERAL PROVISIONS. (a) Attorneys Fees and Other Costs. If any legal action, including arbitration, is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default, misrepresentation in connection with any of the provisions of this Agreement or the relationship between the parties, the successful or prevailing party shall be entitled to recover reasonable attorneys' fees and other reasonable costs incurred in that action or proceeding, in addition to any -24- 25 other relief to which it may be entitled. (b) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. (c) Assignability. Neither the rights nor the obligations of any party to this Agreement may be transferred or assigned without the consent of the other party. Either party may assign or pledge as security its economic rights under this Agreement or in a Project Company with the consent of the other party, which consent shall not be unreasonably withheld, conditioned, or unduly delayed. MRD expressly consents to Lakes assigning its rights and obligations to any of its wholly owned subsidiaries (which shall then be bound by all of the terms, conditions, guaranties and representations contained in this Agreement); provided, however, that Lakes shall retain the responsibility for providing all financing required under this Agreement, and shall guarantee the performance of any of its subsidiaries to which this Agreement may be assigned, with respect to the provision of such financing. (d) Benefit. This Agreement shall be binding upon and inure to the benefit of each of the parties hereto, and their permitted successors and assigns, and the parties hereby agree for themselves and their permitted successors and assigns to execute any instrument and to perform any acts which may be necessary or proper to carry out the purposes of this Agreement. (e) Notices. All notices, requests or demands and other communication from either of the parties hereto to the other shall be in writing and shall be considered to have been duly given (i) when delivered personally, (ii) twenty-four (24) hours after sent by telephone facsimile transmission, (iii) the next business day when sent via a nationally recognized overnight courier for next business day delivery to the recipient and (iv) four (4) business days after sent by certified, or registered mail, postage prepaid, to the other party. Such notices, requests, demands and other communication may be sent by any of the foregoing means, but if faxed, mailed, or sent by overnight courier, shall be directed to the addresses (or fax) indicated below, or such other addresses (or fax) as may be provided in writing to each party from time to time: (1) If to Lakes: Lakes Gaming & Resorts, LLC 130 Cheshire Lane Minnetonka, MN 55305 Attention: Tim Cope Fax: 612 449-7064 with a copy to: Maslon Edelman Borman & Brand, LLP 3300 Wells Fargo Center 90 South 7th Street Minneapolis, MN 55402 Attention: Brian J. Klein Fax: 612 672-8397 (2) If to MRD: MRD Gaming, LLC 600 Whitney Ranch Drive, C- - 15 Henderson, NV, 89014 -25- 26 Attention: Matthew R. Daly Fax: 702 547-9015 with a copy to: Larkin, Hoffman, Daly & Lindgren, Ltd. 1500 Norwest Financial Center 7900 Xerxes Avenue South Bloomington, Minnesota 55431 Attention: Charles S. Modell Fax: 952 896-1511 (f) Publicity. All notices to third parties and all other publicity concerning the transactions contemplated by this Agreement, and the execution of this Agreement, shall be jointly planned and coordinated by and between MRD and Lakes (and by any Tribe referred to in the publicity), and shall not be released by either party without consent of the other, subject to any disclosure rights of Lakes set forth in Section 15. (g) Governing Law. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Minnesota, without giving effect to any choice of law provision or rule (whether of the State of Minnesota or any other jurisdiction) that would cause application of the laws of any jurisdiction other than the State of Minnesota. (h) Venue. Any dispute concerning the interpretation of this Agreement, or the performance or breach thereof, shall be exclusively venued in the state or federal courts located in Hennepin County, Minnesota, and each of the parties agrees to submit to personal jurisdiction in such venue for a resolution of such dispute. (i) Entire Agreement. This Agreement, the exhibits attached hereto and any other instruments executed pursuant hereto shall constitute the entire agreement between the parties with respect to the subject matter of this Agreement and shall supersede any prior agreement or understanding, whether written or oral, between the parties. Any waiver of any rights or obligations of the parties shall not be binding upon the other party unless given in writing. This Agreement may only be amended by a writing signed by the party against whom enforcement is sought. [The remainder of this page has been intentionally left blank.] -26- 27 [Signature page of Acquisition and Participation Agreement between Lakes Gaming and Resorts, LLC and MRD Gaming, LLC] This Agreement has been executed on the date first written above. MRD GAMING, LLC /s/ Matthew R. Daley ------------------------------------------- By: Matthew R. Daly Its: Manager/ Member LAKES GAMING AND RESORTS, LLC /s/ Timothy J. Cope ------------------------------------------- By: Timothy J. Cope Its Manager: -27- EX-10.2 3 c58465ex10-2.txt FIRST AMENDMENT TO ACQUISITION & PARTICIPATION AGR 1 FIRST AMENDMENT TO ACQUISITION AND PARTICIPATION AGREEMENT THIS FIRST AMENDMENT is made and entered into effective this 12th day of October, 2000, by and between MRD GAMING, LLC, a California limited liability company, 600 Whitney Ranch Drive, C-15, Henderson, NV 89014 ("MRD"); and LAKES GAMING AND RESORTS, LLC, a Minnesota limited liability company, 130 Cheshire Lane, Minnetonka, MN 55305 ("Lakes"). RECITALS: WHEREAS, MRD and Lakes are parties to that certain Acquisition and Participation Agreement made August 7, 2000, providing for certain transactions including, but not limited to, MRD's purchase of all of the membership interests in Pacific Cost Gaming - Santa Rosa, L.L.C. and Pacific Coast Gaming - Corning, L.L.C. from United Gaming Holding Co., L.L.C. (the "Acquisition Agreement"); WHEREAS, MRD has filed with the California Secretary of State a form of Articles of Conversion intended to change the state of MRD's organization from Nevada to California; and WHEREAS, Lakes and MRD desire to amend the terms of the Acquisition Agreement as provided herein, primarily to reflect certain changes in the terms of the Franklin Buy-out described therein, which has not yet occurred, as set forth in a written Membership Purchase Agreement among United Gaming Holding Co., L.L.C., certain of its affiliates and MRD, dated September 21, 2000; NOW, THEREFORE, in consideration of the mutual promises of the parties hereto, and the mutual benefits to be gained by the performance hereof, the parties hereto agree to amend the Acquisition Agreement as follows: Status of MRD and Identification of Tribes - Throughout the Acquisition Agreement, all references to MRD's status as a "Nevada limited liability company" are hereby changed to read "California limited liability company". The last sentence of Section A of the Preliminary Statement and Certain Definitions is hereby deleted in its entirety. - Throughout the Acquisition Agreement, each reference to the "Paskenta Tribe" shall mean the Paskenta Band of Nomlaki Indians, located in Corning, California; and each reference to the "Cloverdale Tribe" shall mean the Cloverdale Rancheria of Pomo Indians, located in Cloverdale, California, which is near Santa Rosa, California. Section C - The first sentence of Section C of the Preliminary Statement and Certain Definitions is hereby amended to read as follows: United Gaming Holding Co., L.L.C. is a Maryland limited liability company ("United"), which is owned and controlled by FCG Gaming Enterprise, L.L.C., a Maryland limited liability company that is owned and controlled by both Franklin Capital Advisors Limited Partnership, a Maryland limited partnership, and Franklin Capital G.P. Corp., a Maryland corporation (collectively, except for 2 United, "Franklin"). The last sentence of the same Section C is hereby amended to read as follows: Prior to the date of this Agreement, United has provided funds in the amount of $1,115,737 to the Project Companies for development of the Projects pursuant to the Project Contracts (the "Advanced Funds"). Section D - The first sentence of Section D of the Preliminary Statement and Certain Definitions is hereby amended to read as follows: Lakes and MRD have negotiated certain conditions under which Lakes will provide certain financing for the Projects in the form of loans to MRD and the Project Companies contemporaneous with and after the acquisition by MRD of United's membership interests in the Project Companies. Section 1 - Section 1 is hereby deleted in its entirety and replaced with the following: ACQUISITION OF PROJECT COMPANIES, DEVELOPMENT RIGHTS, PROJECT CONTRACTS AND OTHER ASSETS. As an express condition of any lending under this Agreement, except for temporary funding to be provided by Lakes under Section 17, Lakes requires MRD to purchase from United 100% of the equity interests in the Project Companies (the "Franklin Buy-out"), subject to the condition that the Project Companies shall then hold all of the Project Assets not already held by MRD (including without limitation those acquired from Michels), pursuant to the Membership Purchase Agreement, dated September 21, 2000, among MRD, United, Franklin and the Project Companies (the "the Membership Purchase Agreement"), which is attached hereto (including its Exhibits) as Exhibit A, is hereby represented by MRD to be true and complete, and contains the terms and conditions of the Franklin Buy-out (the "Buy-out Terms"). The Buy-out Terms include the payment by MRD of $200,000 to United in exchange for United's transfer of its membership interests in the Project Companies to MRD. The amounts to be loaned by Lakes to MRD pursuant to Section 17 (and evidenced by that certain promissory note dated August 8, 2000 and issued to Lakes by MRD in the maximum principal amount of $1,000,000 (the "MRD Interim Note")) shall be loaned by MRD to the Project Companies (the "Interim Amounts") for the purposes set forth in Section 17. As part of the closing of the Franklin Buy-out, Lakes will also loan to the Project Companies an amount equal to the Advanced Funds (the "Advanced Funds Loan"), which shall be used by the Project Companies to repay the Advanced Funds loaned to the Project Companies by United. Pursuant to the Membership Purchase Agreement, MRD and United have agreed to execute a consulting agreement that documents the ongoing consulting arrangement between them (the "Consulting Agreement"), a copy of which has been delivered to Lakes as part of Exhibit A and is represented by MRD to be true 2 3 and complete. In consideration of services rendered by United to MRD under the Consulting Agreement, MRD will: (a) issue to United a contingent promissory note in the principal amount of $2,000,000 (the "United Consulting Note"), which will be payable, if at all, at the times set forth in the United Consulting Note; and (b) pay to United an additional contingent fee described in the Consulting Agreement and relating to the Paskenta Project. MRD acknowledges and agrees that it shall not agree or consent to any modifications to the Membership Purchase Agreement, the Consulting Agreement, the United Consulting Note or any other documents, agreements or instruments with or in favor of United or Franklin and related to the transactions contemplated thereby without the prior written consent of Lakes, which consent will not be unreasonably withheld. When MRD purchases the equity interests in the Project Companies in the Franklin Buy-out, and when a portion of such interests are thereafter assigned by MRD to Lakes (or its subsidiaries) hereunder, such interests shall be free and clear of all liens and encumbrances; the Project Assets then held by the Project Companies shall also be free and clear of all liens and encumbrances, and the Project Companies shall not have any debts or other liabilities or obligations, except for (a) their obligations to repay the Advanced Funds loaned to them by United, (b) any loans and funding commitments owed to the Tribes under the Project Contracts and (c) their debts to MRD under the Project Interim Notes defined in the following paragraph. The parties acknowledge that the warranties, representations, and covenants of indemnification given by Franklin to MRD under the Membership Purchase Agreement are incomplete, because it was not appropriate for Franklin to make representations with respect to matters controlled by or known only to MRD or Matthew R. Daly and, therefore, MRD hereby makes the additional representations and warranties set forth in Supplement 1 attached to this Agreement. MRD also represents and warrants to Lakes that Exhibit B attached hereto contains a complete listing of all written (and a written summary of any oral) Project Contracts and no others exist except as described therein. Before the closing of the Franklin Buy-out, MRD shall have caused the Project Companies to issue to MRD promissory notes in the form attached hereto as Exhibit N, pursuant to which each of the Project Companies have agreed to repay its share of the Interim Amounts loaned to the Project Companies by MRD, with interest as provided in Section 5 (the "Project Interim Notes"). To facilitate the Franklin Buy-out, and subject to the closing thereof, Lakes hereby agrees to lend to MRD (a) $200,000, which shall be used by MRD only to purchase United's membership interests in the Project Companies (the "Purchase Loan"); and (b) upon MRD's request, up to 50% of any amounts due from MRD to United under the United Consulting Note (excluding the Lakes Consulting Note Payments to be paid by Lakes as the other 50% of such amounts pursuant to the next paragraph of this Section 1), in the event and to the extent that (i) MRD is required to make any such payment under the United Consulting Note, and (ii) 3 4 MRD's share of Net Cash Flows (as defined in Section 9) distributed to MRD on or prior to the date thereof are insufficient to permit MRD to make such payment when due (the "Consulting Loan Commitment"). If MRD obtains any advances from Lakes pursuant to the Consulting Loan Commitment (the "Consulting Loan"), such funds may only be used by MRD to make payments to United pursuant to the United Consulting Note. Lakes shall have the right at its option to make any advance under the Consulting Loan Commitment directly to United together with the Lakes Consulting Note Payment. The Purchase Loan and any Consulting Loan amounts advanced to MRD under the Consulting Loan Commitment shall be referred to collectively as the "MRD Loans." The net amount of the MRD Loans, after the release given MRD by Lakes pursuant to Section 7(a), shall not exceed $1,100,000, plus any loan made by Lakes to MRD to pay MRD's share of any interest accrued and paid to United on the unpaid balance of the United Consulting Note. The MRD Loans shall be subject to the terms and conditions set forth in Section 4. As part of the closing of the Franklin Buy-out: (a) Lakes shall make the Purchase Loan to MRD; (b) Lakes shall deliver a written guaranty in favor of United (in the form attached as an Exhibit to the Membership Purchase Agreement) whereby Lakes Gaming, Inc., the sole owner of Lakes, will guaranty MRD's payment of the United Consulting Note to United; (c) Lakes shall make the $1,115,737 Advanced Funds Loan to the Project Companies, which amount MRD shall cause the Project Companies to pay to United in satisfaction of the Project Companies' obligations to repay the Advanced Funds; and (d) subject to such closing and MRD's assignment of an interest in each of the Project Companies to Lakes pursuant to Section 7, Lakes hereby agrees to (i) pay to United 50% of each of MRD's payments due under the United Consulting Note, if the United Consulting Note becomes due and payable (the "Lakes Consulting Note Payments"); and (ii) defend, indemnify and hold MRD harmless from and against all liability of MRD to United for payment of such 50%. The obligation of Lakes under the preceding clause (d) will be separate and apart from Lakes' obligation to lend MRD the other 50% due United under the United Consulting Note, pursuant to the Consulting Loan Commitment. As part of the closing of the Franklin Buy-out, the following additional steps shall be taken: (a) the Project Companies shall issue to Lakes promissory notes in the form attached hereto as Exhibit O, pursuant to which each of the Project Companies will repay its share of the Advanced Funds Loan to Lakes; (b) the Project Interim Notes shall be assigned by MRD to Lakes in full satisfaction of MRD's obligations to Lakes under the MRD Interim Note; (c) MRD shall issue to Lakes a promissory note in the form attached hereto as Exhibit P, which shall evidence the Purchase Loan and any Consulting Loan advances included in the MRD Loans, and contain the terms and conditions required by the Purchase Loan, the Consulting Loan Commitment and Section 4; and (d) MRD shall execute and deliver to Lakes a written security agreement in the form attached hereto as 4 5 Exhibit Q and a written pledge agreement in the form attached hereto as Exhibit R, each securing the MRD Loans and containing the terms and conditions required by Section 4. The Advanced Funds Loan and each loan evidenced by the Project Interim Notes (collectively, the "Project Companies Loan"), and the MRD Interim Note issued to Lakes by MRD before the Franklin Buy-out pursuant to Section 17, shall be subject to the terms and conditions set forth in Section 5, to the extent provided therein. Section 2 - The second sentence of Section 2 is hereby amended to read as follows: This limit includes the Project Companies Loan, but excludes the MRD Loans. Section 4 - Throughout the Acquisition Agreement, all references to the "Cloverdale Premium Loan" shall be deleted and replaced with the phrase "MRD Loans". The third and fourth paragraphs of Section 4 are hereby deleted in their entirety and replaced with the following: Subject to the payment deferral provisions of the last paragraph of this Section 4, the first payment by MRD on the MRD Loans shall be due and shall be made no later than the 20th day of the first full month beginning after the month in which both of the following events have occurred: (a) MRD begins receiving its share of Net Cash Flows (as defined in Section 9) from the Project Company engaged in the Cloverdale Project; and (b) that share first exceeds the amount MRD is obligated to pay United on the United Consulting Note for that month, reduced by the amount Lakes is obligated to pay United on the United Consulting Note for that month pursuant to clause (d) of the third paragraph of Section 1, and continuing each month thereafter in which such conditions have been met. To secure MRD's obligation to repay the MRD Loans, MRD shall grant Lakes a first priority security interest in: (a) MRD's Overhead Fees (as defined in Section 10), (b) MRD's share of Net Cash Flows from the Project Companies, (c) all Project Assets, (d) MRD's equity interests in the Project Companies, and (e) any other assets hereafter acquired by MRD that relate to the Projects (collectively, the "MRD Permanent Collateral"); provided, however, that the security interest granted to Lakes with respect to MRD's share of Net Cash Flows (as defined in Section 9) from the Project Company engaged in the Paskenta Project may be subject to the first priority security interest granted by MRD to United in the form of the Security Agreement attached as an Exhibit to the Membership Purchase Agreement, which secures MRD's deferred fee obligation (other than the United Consulting Note) under Section 4(b) of the Consulting Agreement to pay United a certain fraction of any distributions paid to MRD with respect to the membership interest MRD will acquire and retain in the Project Company involved in the Paskenta Project. MRD shall have the right to prepay any and all amounts owed 5 6 to Lakes under the MRD Loans without premium or penalty. Section 5 - Throughout the Acquisition Agreement, all references to the "Buy-out Reimbursement Loan" shall be deleted and replaced with the phrase "Project Companies Loan", except such reference in the fifth paragraph of Section 5 shall be replaced with the phrase "loan of Interim Amounts to MRD under Section 17". The second sentence of the first paragraph of Section 5 is hereby deleted in its entirety and replaced with the following two sentences: After the Franklin Buy-out and as a condition to Lakes' obligation to make any Project Companies Loan, both Project Companies shall agree to be jointly and severally liable for repayment of the Project Companies Loan to Lakes and, in connection therewith, each of them shall execute and deliver to Lakes its written guaranty (in the form attached hereto as Exhibit S) of the other Project Company's obligations under the Project Companies Loan and the other Project Company's Project Development Loan. Interest on the Interim Amounts loaned to MRD and in turn to the Project Companies, and interest on the Project Companies Loan, shall accrue only on funds actually advanced by Lakes to MRD or the Project Companies, or by MRD to the Project Companies, as applicable, beginning when such funds are advanced. The fourth paragraph of Section 5 is hereby deleted in its entirety. The phrase "after it is assumed" found in the first sentence of the sixth paragraph of Section 5 is hereby deleted in its entirety. Section 7 - Section 7 shall be deleted in its entirety and replaced with the following: Upon completion of the Franklin Buy-out and in consideration of (a) Lakes' written release (in the form attached as Exhibit T) of MRD's obligation to repay one-half of the Purchase Loan; (b) Lakes' agreement herein to make each of the Lakes Consulting Note Payments to United; and to defend, indemnify and hold MRD harmless from and against all liability of MRD to United for payment of such amounts; (c) Lakes' Consulting Loan Commitment; (d) Lakes' agreement herein to make the Project Companies Loans and the Project Development Loans and (e) Lakes' future assistance in the planning, development and start-up of each Project, MRD shall assign to Lakes a 65% equity interest in the profits, losses and distributions of Net Cash Flows (as defined in Section 9) of each of the Project Companies (with the other rights set forth in Sections 8, 9 and 10). Upon completion of the Franklin Buy-out, MRD shall contribute its right, title and interest (if any) in any Project Assets not held by the Project Companies to the capital of the Project Company involved in the Project that relates to such Project Assets. MRD shall retain a 35% equity interest in the profits, losses and distributions of Net Cash Flows of each of the Project Companies (with the other rights set forth in Sections 8, 9, 10 and 12); and Lakes and MRD shall adopt the 6 7 Project Company Documents with respect to each Project Company pursuant to Section 6. Section 9 - The first sentence of Section 9 is hereby amended to read as follows: For the consideration described in Section 7, Lakes shall receive a 65% interest in the profits, losses and distributions of Net Cash Flows (as defined below) of each Project Company. The second paragraph of Section 9 is hereby deleted in its entirety and replaced by the following: "Net Cash Flows" with respect to a Project Company shall mean the net sum of the following, as reasonably determined in good faith by the governing body of the Project Company: (a) gross variable and fixed lease fees (as defined in its Project Contracts) received by the Project Company; plus (b) loan payments and all other fees, amounts and payments received by the Project Company from the applicable Tribe under its Project Contract or otherwise with respect to its Project; plus (c) repayments received by the Project Company on any advances it made to the other Project Company in the form of payments to Lakes of amortized loan amounts due from the other Project Company to Lakes under the Project Companies Loan or a Project Development Loan; plus (d) any other cash revenues received by the Project Company without any obligation to repay; less (e) franchise fees, third party financing costs and other expenses paid to third parties; less (f) Overhead Fees paid as described in Section 10; less (g) Project Manager Costs paid as described in Section 11; less (h) payments of amortized amounts due Lakes on the Project Development Loan and that portion of the Project Companies Loan due Lakes from the Project Company; and less (i) repayments made by the Project Company on any advances it received from the other Project Company in the form of payments to Lakes of amortized loan amounts due from the Project Company to Lakes under the Project Companies Loan or a Project Development Loan. "Net Cash Flows" shall not be reduced by depreciation, amortization, cost recovery deductions or similar non-cash expense allowances. Attached hereto as Exhibit H and hereby incorporated herein is an example showing the determination of Net Cash Flows for the first 12 months of the each Project. Section 10 - The second sentence of the third paragraph of Section 10 is hereby deleted in its entirety and replaced with the following two sentences: If, during the second six (6) months after commencement of payment of Overhead Fees, Net Cash Flows are insufficient to pay all of the Overhead Fees in any given month, the aggregate amount of Overhead Fees payable to Lakes and 7 8 MRD by both of the Project Companies shall be limited to partial payments that are equal to the greater of $30,000 or the available Net Cash Flow from both Project Companies, with the remainder of the unpaid Overhead Fees for that month to be forfeited. If, at any time after such first twelve (12) months, Net Cash Flows from both of the Project Companies are insufficient to pay all of the Overhead Fees in any given month, the aggregate amount of Overhead Fees payable to Lakes and MRD by both of the Project Companies shall be limited to partial payments that are equal to the available Net Cash Flow from both Project Companies, with the remainder of the unpaid Overhead Fees for that month to be forfeited. * Section 13 - The title and the first two paragraphs of Section 13 are hereby deleted in their entirety and replaced with the following four paragraphs: * OUTSIDE FINANCING/GOVERNMENTAL APPROVALS/MATERIAL ADVERSE EVENTS. MRD shall exert its reasonable best efforts, and Lakes and MRD shall cooperate fully, to negotiate and secure third party debt financing for each of the Projects, (a) in such amounts as they may mutually agree in good faith are required; and (b) on such terms as they may mutually accept in good faith, which acceptance shall not be unreasonably withheld or conditioned or unduly delayed (the "Outside Financing"); provided, however, that neither Lakes nor MRD shall be required to guarantee any such Outside Financing. * The placement in trust of all land that is necessary for a Project, and also required by applicable law to be placed in trust, is hereinafter referred to as a "Trust Designation." MRD shall also exert its reasonable efforts to assist the Paskenta Tribe to complete its Trust Designation (the "Paskenta Trust Designation"); and with respect to both Projects, to obtain all necessary approvals (if any) of the NIGC, the BIA, the Tribes and the State of California with respect to such land, the Project Contracts, the Projects and their respective gaming compacts under California and federal laws, including without limitation a determination, if required under applicable law, that Class III Indian Gaming (as defined in IGRA) may be lawfully conducted pursuant to IGRA at (a) the proposed location of the Cloverdale Project's casino on land being leased from an individual member of the Cloverdale Tribe and subject to a Trust Designation, or (b) the proposed location of the Paskenta Project's casino on land to be subject to the Paskenta Trust Designation (collectively, the "Gaming Approvals"). * During the period before all required Gaming Approvals (if any) are received by the Paskenta Tribe and the Paskenta Trust Designation is completed, Lakes shall not be required to advance under the Project Development Loan for the Paskenta Project more than the sum of (a) any Overhead Fees due MRD under this Agreement, and (b) up to $742,500 for expenses of the Project Company and advances to the Paskenta Tribe by the applicable Project Company pursuant to and for the purposes set forth in Section 8.8.13 of its Project Funding and Loan 8 9 Agreement, which is one of its Project Contracts. During the period before all required Gaming Approvals (if any) are received by the Cloverdale Tribe, the Cloverdale Tribe's compact is adopted and approved under applicable laws, and a Trust Designation is completed for any additional land to be acquired by the Cloverdale Tribe and necessary for the Cloverdale Project (to the extent that a Trust Designation is required by applicable law for such land), Lakes shall not be required to advance under the Project Development Loan for the Cloverdale Project more than the sum of (a) any Overhead Fees due MRD under this Agreement, (b) up to $700,000 to be used by the Cloverdale Project Company to make advances to the Cloverdale Tribe (under the Project Funding and Loan Agreement) for acquisition of additional land for the Cloverdale Project, and (c) up to $1,310,000 for expenses of the Project Company and additional loan advances to the Cloverdale Tribe for Cloverdale Project expenses, in the amounts specifically listed on Exhibit U attached hereto; provided, however, that $750,000 of such $1,310,000 is contingent upon Gaming Approvals as described in such Exhibit U. * With respect to either of the Projects, Lakes shall have the option, in its sole discretion, to cease further funding of that Project, cause the liquidation of the Project Company responsible for that Project, accelerate payment of the Project Companies Loans, the Project Development Loan and any of the MRD Loans applicable to that Project if any of the following events occurs with respect to that Project: (a) any Gaming Approval required by applicable law for the Paskenta Project shall not have been received by the Paskenta Tribe by May 1, 2001; (b) the Paskenta Trust Designation shall not have been completed by May 1, 2001, and Lakes shall have determined (in its sole discretion) that the Paskenta Trust Designation is not reasonably expected to be completed within a short time thereafter on terms reasonably acceptable to Lakes; (c) any Gaming Approval required by applicable law for the Cloverdale Project shall not have been received by the Cloverdale Tribe by December 31, 2001; (d) a Trust Designation shall not have been completed by December 31, 2001, for any additional land that is to be acquired by the Cloverdale Tribe, is necessary for the Cloverdale Project and is required by applicable law to be subject to a Trust Designation; (e) a legally binding commitment for Outside Financing, subject only to conditions mutually acceptable to Lakes and MRD (as provided above), is not obtained on the terms specified above for the Project within six (6) months after the later of (i) the completion of all Trust Designations required by applicable law for land necessary for the Project, and (ii) the Tribe's receipt of all Gaming Approvals required by applicable law for the Project; (f) any such commitment for Outside Financing has been obtained, but is terminated for any reason other than a Lakes Default (as defined in Section 19), before the permanent Project casino is substantially completed and equipped, unless substitute Outside Financing is obtained before any material Project Company default occurs under the Project Contracts and is not waived by the Tribe; (g) the Tribe terminates any of its Project Contracts, or fails or refuses to perform any material obligation thereunder, for any reason other 9 10 than a Lakes Default (as defined in Section 19), with the result that the Project is no longer commercially feasible for the applicable Project Company; or (h) the Project's temporary casino is not opened for public gaming by December 31, 2001. If Lakes elects to liquidate a Project Company and accelerate the related portion of the MRD Loans and other loans as provided in this paragraph, Lakes agrees that it shall not have the right to foreclose on MRD's membership interest in such Project Company during or subsequent to the process of such liquidation unless an MRD Event of Default (other than any failure to repay such portion of the MRD Loans, or any other MRD Event of Default that occurs as a direct result of such election) has already occurred or occurs during or subsequent to that process. * Section 14 - The reference to "August 31, 2000" found in Section 14 is hereby deleted and replaced with "September 29, 2000". * Section 16 - The first sentence of Section 16 is hereby deleted in its entirety and replaced with the following: * MRD represents and warrants to Lakes that the statements contained in this Section 16 are correct as of the date of this Agreement and will be correct and complete as of the date on which MRD acquires United's membership interests in the Project Companies (the "Closing Date"), as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 16, except as otherwise set forth in the disclosure schedule delivered by MRD to Lakes on the date hereof and attached hereto (the "MRD Disclosure Schedule"). * Section 16(a) - The reference to the "State of Nevada" contained in Section 16(a) is hereby deleted and replaced with the phrase "State of California". * Section 17 - The references to "August 31, 2000," found in Section 17 are hereby deleted and replaced with the date "September 29, 2000". In clause (c) of the first paragraph of Section 17, the parenthetical phrase "(except for money to be paid to Franklin for the Cloverdale Premium and for reimbursement of Franklin's costs)" is hereby deleted and replaced with the parenthetical phrase "(except for money to be paid to United upon or after the Franklin Buy-out)": * Amendment - Except as expressly amended hereby, the Acquisition Agreement shall continue in full force and effect. Counterparts - This First Amendment may be executed in one or more counterparts, each of which shall be deemed part of the original document, but all of which shall constitute one and the same instrument. [SIGNATURE PAGE FOLLOWS] 10 11 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed effective as of the day and year first above written. MRD GAMING, LLC LAKES GAMING AND RESORTS, LLC, By: /s/ Matthew R. Daly By: /s/ Timothy J. Cope ------------------------- ---------------------------- Its: Manager Its:CFO -------- --- 11 12 SUPPLEMENT 1 TO ACQUISITION AND PARTICIPATION AGREEMENT (AS AMENDED) MRD hereby represents to Lakes that the representations and warranties (modified to substitute "the Buyer" (MRD) for "the Sellers" and/or "the Companies", and otherwise to the extent set forth below) made in the following numbered Sections of the Membership Purchase Agreement by the parties identified therein as "the Sellers" and/or "the Companies" are true, except as otherwise disclosed to Lakes by MRD in the Disclosure Schedule attached to this Supplement: Section 3.3 (Membership Interest), which is also modified to (a) delete the phrase "Subject to any claims Buyer and/or its members, managers, officers, employees or other affiliates (including relatives of any such persons, if individuals) may have in and to any of the Interests" and (b) to add, at the end of each sentence, the phrase "of which Buyer has Knowledge". Section 3.4 (No Liabilities, etc.), which is modified to read as follows: "Neither Buyer nor any of its agents (excluding the Sellers), including without limitation Buyer's managers, members, officers and employees, has taken any action, directly or indirectly whether on their own behalf or on behalf of the Companies or the Sellers, under which the Companies have incurred any commitment, entered into any contract or incurred any liability, except as disclosed in Exhibit O hereto." Section 3.5 (Proceedings), which is also modified to (a) delete the exceptions reading "Except as may already known to Buyer" and (b) delete the third sentence. Section 3.6 (Absence of Certain Changes and Events)), which is also modified to (a) delete the phrase "Subject to any claims Buyer and/or its members, managers, officers, employees or other affiliates (including relatives of any such persons, if individuals) may have in and to any of the Interests," and (b) to replace it with the phrase "To Buyer's Knowledge,". Section 3.9 (Brokers or Finders), which is modified to read as follows: "Neither Buyer nor any of its agents (excluding the Sellers), including without limitation Buyer's managers, members, officers and employees, has incurred any obligation or liability on their own behalf or on behalf of the Companies or the Sellers, contingent or otherwise, for any brokerage or finders' fees or agents' commissions or other similar payments in connection with this Agreement." 12 EX-10.3 4 c58465ex10-3.txt MEMBER CONTROL AGREEMENT -CORNING, LLC 1 MEMBER CONTROL AGREEMENT OF PACIFIC COAST GAMING - CORNING, LLC THIS MEMBER CONTROL AGREEMENT is made and entered into on this 12th day of October, 2000, but is effective as of the 12th day of October, 2000 (the "Effective Date"), by and between LAKES CORNING, LLC, a Minnesota limited liability company ("Lakes Corning"); and MRD GAMING, LLC, a California limited liability company ("MRD") (collectively, the "Members"), with respect to PACIFIC COAST GAMING - CORNING, LLC, a Minnesota limited liability company (the "Company"). INTRODUCTION AND CERTAIN DEFINITIONS A. Participation Agreement. The Company is being formed pursuant to a written Acquisition and Participation Agreement between MRD and Lakes Gaming and Resorts, LLC, a Minnesota limited liability company ("LGR"), dated August 7, 2000, and amended by a First Amendment thereto, dated October 12, 2000, copies of which Agreement and Amendment are attached hereto as part of EXHIBIT A (collectively, the "Participation Agreement"). B. Predecessor Company. As of the Effective Date and pursuant to the Participation Agreement, MRD acquired 100% of the membership interests of a Maryland limited liability company called Pacific Coast Gaming - Corning, L.L.C. (the "Predecessor Company"), which holds certain rights and contracts to develop a gaming casino on Indian land in Corning, California, more fully described in the Participation Agreement as the "Paskenta Project" (and herein called the "Corning Project"). MRD made that acquisition in exchange for (1) a $100,000 cash payment funded by a loan from Lakes Corning to MRD; and (2) MRD causing Lakes Corning to loan $759,098 to the Predecessor Company, which it used to satisfy certain advances made by its former owners (the "Advanced Funds Loan"). MRD also entered into a written Consulting Agreement with the former owner of the Predecessor Company, providing for MRD's obligation to pay consulting fees equal to the greater of (1) approximately 50% of MRD's share of certain cash distributions paid by the Company, or (2) approximately 17.5% of all such distributions (the "MRD Consulting Obligation"). Prior to the Effective Date and pursuant to the Participation Agreement, LGR has loaned $789,317.03 to MRD, which MRD has in turn loaned to the Predecessor Company on the same terms and conditions, which are set forth in promissory notes issued by MRD to LGR (the "Interim MRD Loan") and by the Predecessor Company to MRD (the "Interim Predecessor Company Loan"). C. Formation of Company and Merger. As of the Effective Date, MRD assigned to Lakes Corning 65% of the economic interests in the Predecessor Company, and 50% of the voting interests therein, in exchange for (1) the release of MRD from its obligation to repay $50,000 of the $100,000 loan made to MRD by Lakes Corning for the acquisition of the Predecessor Company; and (2) Lakes Corning's Advanced Funds Loan to the Predecessor 2 Company. As of the Effective Date, MRD has assigned to Lakes Corning the Interim Predecessor Company Loan, and Lakes Corning has accepted such assignment in satisfaction of the Interim MRD Loan. Upon the merger of the Predecessor Company into the Company, the Company shall become obligated to repay the Interim Predecessor Company Loan and the Advanced Funds Loan, which represent a part of the Project Companies Loan described in the Participation Agreement. The Members then organized the Company as of the Effective Date pursuant to Minnesota Statutes, Chapter 322B (the "LLC Act"), by adopting the Articles of Organization described in Section 1.1, and agreeing to make capital contributions to the Company, which agreements have been accepted by a unanimous action of the Company's Board of Governors dated as of the Effective Date. The capital contributions of MRD and Lakes Corning to the Company were made as of the Effective Date by completing the merger of the Predecessor Company into the Company. The Members constitute all of the initial members of the Company. Such Members and any Members admitted to the Company after the Effective Date shall be identified in Section 6.2. D. Certain Affiliated Parties. LGR is the sole member of Lakes Corning, and is a wholly-owned subsidiary of Lakes Gaming, Inc., a publicly held Minnesota corporation. LGR has assigned all of its rights under the Participation Agreement to Lakes Corning, which has assumed the obligations of LGR under the Participation Agreement. The Corning Project is being carried out for the Paskenta Band of Nomlaki Indians, in Corning, California (the "Paskenta Tribe"). The only members of MRD are Matthew R. Daly, a Nevada resident; and his father, Robert Daly, who is a Minnesota resident. Pursuant to the Participation Agreement, MRD and Lakes Cloverdale, LLC, another subsidiary of LGR ("Lakes Cloverdale"), have also formed Pacific Coast Gaming - Santa Rosa, LLC, a Minnesota limited liability company (the "Cloverdale Joint Venture"), to carry out a casino development project similar to the Corning Project, for the Cloverdale Rancheria of Pomo Indians, in Cloverdale, California (the "Cloverdale Project"). E. This Agreement. Section 322B.37 of the LLC Act authorizes a member control agreement for a limited liability company. Each of the Members desires to enter into such an agreement, in the form of this Agreement, with respect to the Company. AGREEMENT NOW, THEREFORE, in consideration of the foregoing facts, the mutual promises of the Members and the mutual benefits to be gained by the performance of this Agreement, the Members hereby agree as follows: 3 ARTICLE 1 FORMATION OF LIMITED LIABILITY COMPANY 1.1 Formation and Articles. As of the Effective Date, the Members have formed the Company as a limited liability company under the provisions of the LLC Act. The Company's business shall be conducted to comply with the LLC Act. The Members hereby adopt and approve the Amended and Restated Articles of Organization of the Company, as filed by the Company's organizer in the office of the Secretary of State of the State of Minnesota on June 12, 2000, and amended by the organizer on September 25, 2000, to and change the Company's name from "Lakes Auberry, LLC" to "Pacific Coast Gaming - Corning, LLC" (the "Articles"). A copy of the Articles, as so amended, is attached hereto as EXHIBIT B and hereby made a part of this Agreement. The Company's Board shall promptly cause to be executed and so filed any further amendments of such Articles that may be adopted by the Members or required by law. Except as otherwise provided in this Agreement, the Articles and the Company's Bylaws, the rights and liabilities of the Members shall be as provided in the LLC Act. The purpose of the Company is set forth in Article 4. 1.2 Term. The term of the Company shall begin on the Effective Date and shall continue until the Company is dissolved upon a Liquidation Event as provided in Article 15. 1.3 Name. The business of the Company shall be conducted under the name of "Pacific Coast Gaming - Corning, LLC" or such other name as the Board (as defined in Article 3) may hereafter designate. ARTICLE 2 PLACE OF BUSINESS AND AGENT FOR PROCESS 2.1 Place of Business. The principal executive office of the Company shall be located at 600 Whitney Ranch Drive, Suite C-15, Henderson, Nevada 89014. The Board may from time to time change the location of the principal office of the Company and, in such event, the Chief Manager shall give notice to the Members within twenty (20) days of the effective date of such change. The Board may in its discretion establish additional places of business of the Company. 2.2 Agent for Process. The name and address of the agent for service of process in the State of Minnesota shall be Lakes Corning, LLC, located at 130 Cheshire Lane, Minnetonka, Minnesota 55305. The Board may from time to time replace such agent and, in such event, the Chief Manager shall give notice to the Members and the appropriate state authorities within twenty (20) days of the effective date of such change. ARTICLE 3 GENERAL DEFINITIONS 4 Wherever used in this Agreement, unless another meaning is explicitly indicated by the context, the following terms shall have the meanings set forth below: 3.1 "Affiliate" means, with respect to a specific Person, any of the following other Persons: (a) any Person directly or indirectly controlling, controlled by, or under common control with such Person; (b) any Person owning or controlling ten percent (10%) or more of the outstanding voting interest of such Person; (c) any officer, director or general partner of such Person; (d) any Person who is an officer, director, general partner, trustee or holder of ten percent (10%) or more of the voting interest of any Person described in clauses (a) through (c) of this sentence; or (e) any member of the Family or sibling of the specified Person or member of the sibling's Family. For purposes of this definition, the terms "control," "is controlled by" or "is under common control with" shall mean 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. 3.2 "Agreement" or "Member Control Agreement" means this Member Control Agreement (including all of its Exhibits and Schedules, if any), as amended from time to time. 3.3 "Articles" shall mean the Articles described in Section 1.1, as they may be amended from time to time by Members holding at least two-thirds of the Voting Interests, pursuant to the LLC Act and the Bylaws. 3.4 "Appointing Member" shall mean each Member that is entitled to appoint one or more Governors pursuant to Article 10, without an election by all of the Members otherwise entitled to vote with respect to Company matters; and includes each of its successors and assigns that becomes a Member hereunder with respect to all of the Voting Interest held by the Appointing Member. 3.5 "Board" means the Board of Governors of the Company, as appointed by the Appointing Members pursuant to Article 10 and the Bylaws. 3.6 "Bankruptcy" means, with respect to any Person, a "Voluntary Bankruptcy" or an "Involuntary Bankruptcy." (a) "Voluntary Bankruptcy" means, with respect to any Person, the inability of such Person generally to pay his, her or its debts as such debts become due or an admission in writing by such Person of his, her or its inability to pay such debts generally or a general assignment by such Person for the benefit of creditors; the filing of any petition or answer by such Person seeking to adjudicate it a bankrupt or insolvent or seeking for such Person any liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of such Person or the debts of such Person under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking, consenting to or acquiescing in the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for such Person or for any 5 substantial part of such Person's property; or corporate action taken by such Person to authorize any of the actions set forth above. (b) "Involuntary Bankruptcy" means, with respect to any Person, without the consent or acquiescence of such Person, the entering of an order for relief or approving a petition for relief or reorganization or any other petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or other similar relief under any present or future bankruptcy, insolvency or similar statute, law or regulation; or the filing of any such petition against such Person which petition shall not be dismissed within ninety (90) days; or, without the consent or acquiescence of such Person, the entering of any order appointing a trustee, custodian, receiver or liquidator of such Person or of all or any substantial part of the property of such Person, which order shall not be dismissed within ninety (90) days. 3.7 "Bylaws" means the Bylaws of the Company, as adopted by the Board under the LLC Act and hereafter amended from time to time by the Board. The initial Bylaws are attached hereto as EXHIBIT C. 3.8 "Capital Account" shall have the meaning set forth in Section 6.1(b). 3.9 "Capital Contribution" shall have the meaning set forth in Section 6.1(c). 3.10 "Cloverdale Joint Venture" shall have meaning set forth in paragraph D of the Introduction to this Agreement. 3.11 "Cloverdale Project" shall have meaning set forth in paragraph D of the Introduction to this Agreement. 3.12 "Code" means the Internal Revenue Code of 1986, as amended from time to time (and any corresponding provisions of succeeding law). 3.13 "Company" means "Pacific Coast Gaming - Corning, LLC, the Minnesota limited liability company formed as of the Effective Date pursuant to the Participation Agreement, this Agreement and the Articles. 3.14 "Company Property" means the Corning Development Rights, the Corning Project Contracts and the Corning Other Assets, which have been contributed to the Company by the Members as a result of the merger of the Predecessor Company into the Company pursuant to the Participation Agreement as of the Effective Date; and all other real and personal property acquired and held from time to time by the Company and any improvements thereto, and shall include both tangible and intangible property. 3.15 "Contribution Agreement" means the Participation Agreement and any other agreement in writing, executed by the Company and a Person desiring to become a Member, setting forth the terms of such Person's admission as a Member including, but not limited to, the 6 agreed value of the contribution that shall be made by such Person to the capital of the Company, and the Percentage Interest and Voting Interest to be issued by the Company to such Person. 3.16 "Corning Development Rights" shall mean the Development Rights defined in the Participation Agreement and relating to the Corning Project. 3.17 "Corning Other Assets" shall mean those Other Assets defined in the Participation Agreement and relating to the Corning Project. 3.18 "Corning Project" shall have the meaning set forth in paragraph D of the Introduction to this Agreement, which includes the development, construction, equipment and start-up of a gaming casino on Indian land pursuant to the Corning Project Contracts. In the Participation Agreement, the Corning Project is referred to as the "Paskenta Project." 3.19 "Corning Project Companies Loan" means the Interim Predecessor Company Loan and the Advanced Funds Loan, which together represent a part of the Project Companies Loan described in the Participation Agreement. 3.20 "Corning Project Contracts" means the Company's Project Contracts (as that term is defined in the Participation Agreement) with the Paskenta Tribe, including any amendments or restatements of such Project Contracts, which provide for completion of the Corning Project. The Corning Project Contracts have become part of the Company Property as a result of the merger of the Predecessor Company, as part of the Capital Contributions by the Members. 3.21 "Corning Project Development Loan" means the Project Development Loan (as defined in the Participation Agreement) to be made to the Company by Lakes Corning on behalf of LGR. 3.22 "Depreciation" shall have the meaning set forth in Section 6.1(d). 3.23 "Development Rights" shall have the meaning given that term in the Participation Agreement. 3.24 "Direct Lineal Descendants" means children, grandchildren, great grandchildren and so on, by natural birth or legal adoption, including any illegitimate child (if acknowledged by the child's parent) and any of the direct lineal descendants of any such child. 3.25 "Distribution" means any distribution to the Members of cash or other assets of the Company made from time to time pursuant to the provisions of this Agreement. 3.26 "Effective Date" means October , 2000, the effective date of this Agreement and the formation of the Company. 3.27 "Event of Default" shall have the meaning set forth in Section 6.6, and may be either an MRD Event of Default or a Lakes Event of Default (as those terms are defined in 7 Section 6.6), as the context requires. 3.28 "External Net Cash Flows" with respect to the Company shall mean the net sum of the following, as reasonably determined in good faith by the Board: (a) gross variable and fixed lease fees (as defined in the Corning Project Contracts) received by the Company; plus (b) loan payments and all other fees, amounts and payments received by the Company from the Paskenta Tribe under the Corning Project Contracts or otherwise with respect to the Corning Project; plus (c) repayments received by the Company on any advances it made to the Cloverdale Joint Venture in the form of payments to Lakes Cloverdale of amortized loan amounts due from the Cloverdale Joint Venture to Lakes Cloverdale under the Cloverdale Joint Venture's share of the Project Companies Loan or its Project Development Loan (as such loans are defined in the Participation Agreement); plus (d) any other cash revenues received by the Company without any obligation to repay; and less (e) franchise fees, third party financing costs and other expenses paid to third parties. "External Net Cash Flows" shall not be reduced by depreciation, amortization, cost recovery deductions or similar non-cash expense allowances; or any items deducted from External Cash Flows in determining Internal Cash Flows. 3.29 "Family" means an individual, his or her spouse (but only if he or she and his or her spouse are not separated), his or her Direct Lineal Descendants and his or her direct ancestors. 3.30 "Financial Rights" means a Member's rights to (a) a Capital Account; (b) a Percentage Interest in Company Profits, Losses and Distributions; (c) payments (if any) under the terms and conditions of Article 13 upon the Member's termination or other withdrawal and (d) the Member's limited right to Transfer such rights according to Article 12. 3.31 "Fiscal Year" means (a) the period commencing on the Effective Date and ending on December 31, 2000, (b) any subsequent calendar year, or (c) any portion of either of the periods described in clauses (a) and (b) for which the Company is required to close its books and allocate Profits, Losses and other Company items pursuant to Article 7. 3.32 "Gaming Licenses" shall have the meaning set forth in Section 5.5. 3.33 "Governance Rights" means all of a Member's rights as a Member, other than the Member's Financial Rights. Governance Rights specifically include (without limitation) the rights of Appointing Members to appoint Governors pursuant to Article 10 and the right of each Member to vote its Voting Interest. 3.34 "Governor" shall mean any individual appointed under Section 10.1 to serve on the Board. The first Governors are the two (2) individuals named in Section 10.2. 3.35 "Interest" shall have the same meaning as Membership Interest (defined below). 3.36 "Internal Net Cash Flows" with respect to the Company shall mean the net sum of the following, as reasonably determined in good faith by the Board: (a) External Net Cash Flows, 8 less (b) Overhead Fees paid as described in Section 8.1, less (c) Project Manager Costs paid as described in Section 11 of the Participation Agreement; less (d) payments of amortized amounts due Lakes Corning on the Corning Project Development Loan and the Corning Project Companies Loan, and less (e) repayments made by the Company on any advances it received from the Cloverdale Joint Venture in the form of payments to Lakes Corning of amortized amounts due from the Company to Lakes Corning under the Corning Project Companies Loan or the Corning Project Development Loan. "Internal Net Cash Flows" shall not be reduced by depreciation, amortization, cost recovery deductions or similar non-cash expense allowances. 3.37 "Lakes Cloverdale" shall have the meaning set forth in paragraph D of the Introduction to this Agreement. 3.38 "Lakes Corning" shall have the meaning set forth in the first paragraph this Agreement. 3.39 "Lakes Event of Default" shall have meaning set forth in Section 6.6(b) of this Agreement. 3.40 "LGR" shall have the meaning set forth in paragraph A of the Introduction to this Agreement. 3.41 "LLC Act" means the Minnesota Limited Liability Company Act, as set forth in Minnesota Statutes, Chapter 322B, as amended from time to time (or any corresponding provisions of succeeding law). 3.42 "Liquidating Event" shall have the meaning set forth in Section 15.1. 3.43 "Loss" and "Losses" shall have the meaning set forth in Section 7.1. 3.44 "Managers" means the Chief Manager and the Treasurer elected by the Board and each other individual who shall hereafter be elected, appointed, or otherwise designated as a Manager by the Board pursuant to Section 9.1 and the Bylaws, and any other person considered elected as a manager pursuant to the LLC Act. 3.45 "Member" or "Members" shall have the meaning set forth in Section 5.1. 3.46 "Membership Interest" or "Interest" means the Percentage Interest and Voting Interest of a Member in the Company and the appurtenant rights, powers and privileges, including both the Financial Rights and Governance Rights of such Member with respect to the Company. 3.47 "MRD" shall have the meaning set forth in the first paragraph of this Agreement. 3.48 "MRD Event of Default" shall have meaning set forth in Section 6.6(a) of this Agreement. 9 3.49 "Participation Agreement" shall have the meaning set forth in paragraph A of the Introduction to this Agreement. In the event of any inconsistency or conflict between the Participation Agreement and this Agreement, the provisions of this Agreement shall govern. 3.50 "Paskenta Tribe" shall have the meaning set forth in paragraph D of the Introduction to this Agreement. 3.51 "Percentage Interest" means the percentage interest of a Member in the Profits, Losses and Distributions of the Company and shall be the percentage set forth as its Percentage Interest in Section 6.2, subject to adjustment in accordance with Section 6.3. 3.52 "Person" means any individual, partnership, limited liability company, corporation, trust or other entity. 3.53 "Predecessor Company" shall have the meaning set forth in paragraph A of the Introduction to this Agreement. 3.54 "Profits" shall have the meaning set forth in Section 7.1. 3.55 "Regulations" means the Income Tax Regulations, including Temporary Regulations, promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). 3.56 "Required Records" are the financial records and other records (including this Agreement) required to be kept at the principal executive office of the Company under Section 322B.373 of the LLC Act. 3.57 "Transfer" means, as a noun, any voluntary or involuntary transfer (by operation of law, Bankruptcy, court order or otherwise), sale, exchange, assignment, pledge or other encumbrance, foreclosure of a security interest upon, or other disposition of an item; or, as a verb, to voluntarily or involuntarily cause a Transfer of an item. "Transferred" means, as an adjective, that an item has been the subject of a Transfer. 3.58 "Voting Interest" means a Member's relative voting power as a Member and shall be the percentage set forth as such Member's Voting Interest in Section 6.2, as amended from to time pursuant hereto. ARTICLE 4 PURPOSES The Company has been formed for the purposes of (a) acquiring the Corning Development Rights, the Corning Project Contracts and the Corning Other Assets from the Predecessor Company and MRD; and (b) completing the Corning Project by assuming and performing the existing obligations of the Predecessor Company and MRD under the Corning 10 Project Contracts, as more fully set forth in the Participation Agreement; and for those purposes may, subject to the limitations set forth in Article 9: (a) finance, acquire, manage and hold property, real or personal, in fee or by lease (including without limitation the Company Property being contributed as Capital Contributions), and lend money or arrange for other financing as required by the Corning Project Contracts, to the extent the Board determines that such investments are in the best interests of the Company; (b) exercise any rights therein as may be necessary or appropriate for such purposes; (c) borrow funds for such purposes and to mortgage or otherwise encumber any or all of the Company Property to secure such borrowings; (d) sell or otherwise dispose of the Company's rights or ownership interests in such Company Property; and (e) undertake and carry on all activities necessary or advisable in connection with such purposes, all subject to the limitations set forth in Article 9. The Company may not engage in any other business incompatible with the Corning Project without the consent of Members holding at least two-thirds of the Voting Interests. ARTICLE 5 MEMBERS, NEW MEMBERS AND GAMING LICENSES 5.1 Members. The current names and addresses of the Members are set forth in the following table:
Name of Member Address of Member Lakes Corning, LLC 130 Cheshire Lane Minnetonka, Minnesota 55305 MRD Gaming, LLC 600 Whitney Ranch Drive, Suite C-15, Henderson, Nevada 89014
Hereafter, any new addresses of each of the Members shall be set forth in the Company's Required Records, pursuant to notice given to the Company as provided in Section 16.1. For all purposes of this Agreement, the terms "Member" or "Members" means the Persons initially signing this Agreement as Members of the Company under the LLC Act, in their capacity as Members; and each other Person who shall hereafter be admitted to the Company as a Member, or is otherwise reflected in the Required Records of the Company as the owner of any Governance Rights of a Membership Interest of the Company. 11 5.2 Terms of Membership Interests. The original Membership Interests reflected in the Section 6.2 are ordinary membership interests of one class, without series, and shall have the rights provided by the LLC Act, subject to any statements and limitations in the Articles or this Agreement of the specific rights or terms of such Membership Interests. The Original Capital Contribution (as defined in Section 6.1), Percentage Interest and Voting Interest of each of the Members are set forth in Section 6.2, as amended from time to time pursuant hereto. Each Member shall be entitled to vote on all matters in proportion to its Voting Interest, except as may be provided otherwise in this Agreement or pursuant to the following paragraph. A Member's right to vote is a Governance Right. With the consent of Members holding at least two-thirds of the Voting Interests, the Board may enter into Contribution Agreements with prospective Members providing for one or more classes of Interests having either Governance Rights that are limited (as compared with the original Interests) or Financial Rights that are limited or preferred (as compared with the original Interests), or any combination of such rights. If any such new class of Interests is issued, this Agreement shall be amended to state the rights of such Interests. 5.3 Additional Members. Additional Members may be admitted to the Company only upon such terms and conditions as may be established by written approval of Members holding at least two-thirds of the Voting Interests, effective as of any prospective date established by such consent or, if none is stated, by the Board. The Company may not issue additional Membership Interests without the prior written consent of Members holding at least two-thirds of the Voting Interests. Upon such consent and issuance of additional Membership Interests, Section 6.2 shall be appropriately amended. Nothing in this Section 5.3 shall be construed to limit the effect of Articles 12 and 13 with respect to the Transfer of Membership Interests by Members. Each additional Member admitted to the Company shall execute this Agreement and, if making a Capital Contribution, shall execute and perform a Contribution Agreement delivered to and accepted on behalf of the Company by the Managers pursuant to the terms and conditions approved by the Members. Any Person who is admitted to the Company as a Member shall be subject to and bound by all the provisions of this Agreement as if originally a party to this Agreement, including specifically the requirements of Article 6 relating to Capital Contributions. Subject to the Member consent requirements of this Section 5.2, the Board may authorize the Managers to enter into contribution allowance agreements with current Members or prospective Members pursuant to section 322B.43 of the LLC Act, providing for the right, but not the obligation, to make a specified Capital Contribution in the future and thereby purchase a specified Percentage Interest and Voting Interest, upon such terms and conditions as may be established by the Board. 12 5.4 Agreement Not to Resign. Until all of the Corning Project Contracts are performed or terminated, each Appointing Member agrees not to withdraw or otherwise voluntarily resign from membership in the Company for any reason whatsoever without the consent of each remaining Appointing Member; provided, however, that Lakes Corning may nevertheless exercise its right to dissolve the Company pursuant to Section 13 of the Participation Agreement, at any time permitted thereby. If an Appointing Member nevertheless withdraws or otherwise voluntarily resigns from membership in the Company in violation of the preceding paragraph, the resigning Appointing Member shall be liable to the Company for any damages (excluding consequential or punitive damages) resulting from that action, and the purchase price for any purchase of the terminating Appointing Member's Interest under Article 13 shall be limited to the extent provided in Section 13.8 under such circumstances. Such damages shall nevertheless include, without limitation, (a) any damages for which the Company becomes liable under the Corning Project Contracts as a direct result of such withdrawal; and (b) the expenses (including reasonable attorneys' fees) of (i) admitting a new Member, if necessary; and (ii) if applicable, purchasing the terminating Member's Membership Interest under Article 13 (excluding the purchase price and any interest payable thereunder). 5.5 Gaming Licenses and Effect of Adverse Finding. MRD acknowledges that the primary business of LGR and certain of its Affiliates is the operation and management of gaming facilities; and that LGR and those of its Affiliates must obtain and maintain in effect various approvals, findings of suitability, licenses, permits and registrations (collectively "Gaming Licenses") from various gaming authorities. Likewise, Lakes Corning recognizes that MRD and certain of its Affiliates may be subject to similar regulations. The remaining provisions of this Section 5.5, as they apply to MRD, its owners and each of their Affiliates other than LGR and its Affiliates (a "Non-Lakes Party"), shall also apply in the same manner to any other Member that is a successor to MRD and is a Non-Lakes Party. The remaining provisions of this Section 5.5, as they apply to LGR, its managers and governors and each of their Affiliates, other than MRD or any of its Affiliates (a "Non-MRD Party"), shall also apply in the same manner to any other Member that is a successor to Lakes Corning and is a Non-MRD Party. If (a) any Non-Lakes Party or any of its Affiliates, or any other individual or entity that directly or indirectly owns or has any interest in a Non-Lakes Party or is otherwise affiliated with a Non-Lakes Party, is found by any gaming authority with competent jurisdiction to be unsuitable or unqualified to be associated with LGR or any Affiliate of LGR; or (b) LGR determines in good faith that the continued association of LGR with the Non-Lakes Party may reasonably be expected to result in (i) the disapproval, adverse modification or non-renewal of any contract or agreement under which LGR or any Affiliate of LGR has sole or shared authority to manage any gaming facility; or (ii) the loss or non-reinstatement of any Gaming License, then LGR shall give the Non-Lakes Party written notice of such finding or determination. Such notice shall describe the situation or relationship that is the basis for such finding or determination. Such Non-Lakes Party shall, promptly after its receipt of the written notice from LGR specifying such finding or determination, take all actions required to terminate or discontinue or 13 otherwise cure, to the satisfaction of LGR and any gaming authority having jurisdiction over LGR or any Affiliate of LGR, the situation or relationship described in the notice given by LGR. If, within thirty (30) days after such Non-Lakes Party's receipt of the notice given by LGR (or such shorter period of time as may be required or requested by any gaming authority), such Non-Lakes Party fails or is unable to take such actions to the satisfaction of LGR and any gaming authority having jurisdiction, such Non-Lakes Party may at any time within such period give LGR written notice of such failure or inability or, if such Non-Lakes Party has not already given such notice, LGR may at the end of such period give a notice of such failure or inability to such Non-Lakes Party and the Company. In the event any notice of such failure or inability is given (whether or not on a timely basis), the Company shall then have the right and option to purchase such Non-Lakes Party's entire Interest in the Company at a redemption price determined under Section 13.8, based the fair market value of such Interest or, if applicable, the lower price applicable upon an Event of Default; and, if the Company does not exercise such option, Lakes Corning shall have the right and option to purchase such Interest at the same price available to the Company. All of the foregoing provisions of this Section 5.5 regarding any Non-Lakes Party shall also apply to any Non-MRD Party; and MRD shall have the same rights as LGR and/or Lakes Corning with respect to determinations relating to, and actions resulting from, conduct and activities of a Non-MRD Party. ARTICLE 6 MEMBERS' CAPITAL, LOANS AND EVENTS OF DEFAULT 6.1 Definitions Relating to Capital. (a) "Additional Capital Contributions" means, with respect to each Member, the Capital Contributions made by such Member pursuant to Section 6.3, reduced by the amount of any liabilities of such Member assumed by the Company in connection with such Capital Contribution or which are secured by any property contributed by such Member as a part of such Capital Contribution. (b) "Capital Account" means, with respect to any Member, the Capital Account maintained for such Member in accordance with the following provisions: (i) To each Member's Capital Account there shall be credited such Member's Capital Contributions, such Member's distributive share of Profits and any items in the nature of income or gain which are specially allocated pursuant to Section 7.5 or Section 7.6, and the amount of any Company liabilities assumed by such Member or which are secured by any Company Property distributed to such Member. (ii) To each Member's Capital Account there shall be debited the amount of cash and the Gross Asset Value of any Company Property distributed to such Member pursuant to any provision of this Agreement, such Member's 14 distributive share of Losses and any items in the nature of deductions or expenses that are specially allocated pursuant to Section 7.5 or Section 7.6, and the amount of any liabilities of such Member that are assumed by the Company or secured by any property contributed by such Member to the Company. (iii) In the event all or any portion of an Interest is Transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the Transferred Interest. (iv) In determining the amount of any liability for purposes of Sections 6.1(a), 6.1(b)(i), 6.1(b)(ii), and 6.1(f), there shall be taken into account Code section 752(c) and any other applicable provisions of the Code and Regulations. The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner consistent with such Regulations. In the event the Board shall determine that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto (including, without limitation, debits or credits relating to liabilities that are secured by contributed or distributed property, or are assumed by the Company or any Member), are computed in order to comply with such Regulations, the Board may make such modification; provided however, that it is not likely to have a material effect on the amounts distributable to any Member pursuant to Article 15 upon the dissolution of the Company. The Board also shall (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Members and the amount of capital reflected on the Company's balance sheet, as computed for book purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q); and (ii) make any appropriate modifications in the event unanticipated events (for example, the acquisition by the Company of oil or gas properties) might otherwise cause this Agreement not to comply with Regulations Section 1.704-1(b). (c) "Capital Contribution" means, with respect to any Member, the amount of money and the initial Gross Asset Value of any property (other than money) contributed to the Company with respect to the Interest held by such Member, and includes an Original Capital Contribution under Section 6.1(f) and any Additional Capital Contribution under Section 6.1(a). The principal amount of a promissory note that is not readily traded on an established securities market and is contributed to the Company by the maker of the note (or a Member related to the maker of the note within the meaning of Regulations Section 1.704-1(b)(2)(ii)(c)) shall not be included in the Capital Account of any Member until the Company makes a taxable disposition of the note or until (and to the extent) principal payments are made on the note, all in accordance with Regulations Section 1.704-1(b)(2)(iv)(d)(2). (d) "Depreciation" means, for each Fiscal Year, an amount equal to the depreciation, amortization or other cost recovery deduction allowable with respect to an 15 asset for such Fiscal Year, except that (i) with respect to any asset whose Gross Asset Value differs from its adjusted basis for Federal income tax purposes at the beginning of such Fiscal Year and which difference is being eliminated by use of the "remedial method" defined by Regulations Section 1.704-3(d), Depreciation for that Fiscal year shall be the amount of book basis recovered for the Fiscal Year under the rules prescribed by Regulations Section 1.704-3(d)(2); and (ii) with respect to any other asset whose Gross Asset Value differs from its adjusted basis for Federal income tax purposes at the beginning of such Fiscal Year, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the Federal income tax depreciation, amortization or other cost recovery deduction for such Fiscal Year bears to such beginning adjusted tax basis; provided, however, that if the adjusted basis for Federal income tax purposes of an asset at the beginning of such Fiscal Year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Board. (e) "Gross Asset Value" means, with respect to any asset, the asset's adjusted basis for Federal income tax purposes, except as follows: (i) The initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset, as determined by the contributing Member and the Board; (ii) The Gross Asset Values of all items of Company Property shall be adjusted to equal their respective gross fair market values, as determined by the Board, as of one of the following times: (A) the acquisition of an additional Interest by any new or existing Member in exchange for more than a de minimis Capital Contribution; (B) the Distribution by the Company to a Member of more than a de mini mis amount of Company Property as consideration for an Interest; and (C) the liquidation of the Company within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g); provided, however, that adjustments pursuant to clauses (A) and (B) above shall be made only if the Board reasonably determines that such adjustments are necessary or appropriate to reflect the relative economic interest of the Members in the Company; (iii) The Gross Asset Value of any item of Company Property (other than cash) distributed to any Member shall be adjusted to equal the gross fair market value of such asset on the date of Distribution as determined by the distributee and the Board; and (iv) The Gross Asset Values of Company Property shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code section 734(b) or Code section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulation Section 1.704-1(b)(2)(iv)(m) and Sections 7.1(f) and 7.5(a); provided, however, that Gross Asset Values shall not be adjusted pursuant to this 16 paragraph (iv) to the extent the Board determines that an adjustment pursuant to 6.1(e)(ii) is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this paragraph. If the Gross Asset Value of an asset has been determined or adjusted pursuant to Section 6.1(e)(i), Section 6.1(e)(ii), or this Section 6.1(e)(iv), such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Profits and Losses. (f) "Original Capital Contribution" means, with respect to each Member, the Capital Contribution made by such Member pursuant to Section 6.2, reduced by the amount of any liabilities of such Member that are (i) assumed by the Company in connection with such Capital Contribution or (ii) secured by any property contributed by such Member to the Company as a part of such Capital Contribution. 6.2 Capital and Interests of Members. The capital of the Company shall be contributed by the Members and has been accepted by the Board at the respective values set forth in the following table:
Member's Name Agreed Form of Contribution Agreed Value Percentage Voting of Interest Interest Contribution Lakes Corning, 65% per cent economic interest, $ 65,000.00 65% 50% LLC and 50% voting interest, in the Predecessor Company* MRD Gaming, 35% per cent economic interest, $ 35,000.00 35% 50% LLC and 50% voting interest, in the Predecessor Company; and all rights of MRD in the Corning Project Contracts, the Corning Development Rights and the Corning Other Assets** Totals $ 100,000.00 100% 100%
* Plus the obligation of Lakes Corning to provide services and lend money to the Company, to the extent required of LGR under the Participation Agreement. ** Plus the obligation to provide services to the Company, to the extent required of MRD under the Participation Agreement. As of the Effective Date, each Member shall contribute to the capital of the Company the amount of property specified following its name in the table above as its Original Capital Contribution; and shall be credited with the Percentage Interest and Voting Interest set forth therein. The Original Capital Contribution, Percentage Interest and Voting Interest of each of the Members shall be set forth in the table above. In addition, each of the Members agrees to 17 provide loans and/or services to the Company to the extent either it or any of its Affiliates is obligated to do so under the Participation Agreement. 6.3 Additional Capital Contributions. Each Member may contribute from time to time as an Additional Capital Contribution such additional money or other property as may be approved by the Board and other Members holding at least two-thirds of the Voting Interests not held by the contributing Member; provided, however, that any Additional Capital Contribution of property (other than money) made pursuant to this Section 6.3 shall be subject to the terms and provisions of a Contribution Agreement to be executed by the contributing Member and the Company prior to delivery of such property, subject to the approval of the Board and each of the other Members holding at least a majority of the Voting Interests. If Additional Capital Contributions are not made equally by all Members, the Board shall equitably adjust the Percentage Interests and Capital Accounts of each Member to account for any non-pro-rata Additional Capital Contributions on terms that shall be set forth in a Contribution Agreement approved and signed as provided in the preceding paragraph, which agreement shall serve as an amendment to Section 6.2. Any such agreement may also equitably adjust the Members' Voting Interests. Additional Membership Interests may be granted only as permitted by Section 5.3. If an additional Membership Interest is granted, Section 6.2 shall be appropriately amended. 6.4 Other Capital Matters. (a) Except as otherwise provided in this Agreement, no Member shall demand or receive a return of the Member's Capital Contributions or withdraw them from the Company without the consent of the Board and each other Member. Under circumstances allowing or requiring a return of any Capital Contributions, no Member shall have the right to receive Company Property other than cash except as may be specifically provided herein. (b) Except as expressly provided herein, no Member shall receive any interest or draw with respect to the Member's Capital Contributions or the Member's Capital Account. (c) Except as otherwise provided by any other agreements among the Members or mandatory provisions of applicable state law, a Member shall be liable only to make the Member's Capital Contributions and shall not be required to lend any funds to the Company or, after the Member's Original Capital Contribution has been made, to make any Additional Capital Contributions to the Company. 6.5 Loans to the Company. If authorized by the Board and permitted under Section 9.7, a Member may lend money to the Company from time to time, in excess of the Member's Capital Contributions. 18 Notwithstanding anything to the contrary in this Agreement, by virtue of assuming the obligations of LGR under the Participation Agreement, Lakes Corning shall be obligated to lend money to the Company, but only to the extent that LGR is expressly required by the Participation Agreement to make such loans. The Company hereby confirms its obligations to pay the Project Companies Loan described in the Participation Agreement, pursuant to the terms of the promissory notes evidencing the loans included therein. No loan obligation due a Member by the Company may be treated as a Capital Contribution for any purpose or entitle any such Member to any increase in the Member's Financial Rights or Governance Rights (if any) or any other share in any Profits, Losses, deductions, credits or Distributions of the Company, except as otherwise expressly provided in this Agreement or the Participation Agreement. The Company shall be obligated to any Member for the amount of any loan made to the Company by the Member, or any debt owed to a Member and assumed by the Company with interest thereon at such rate as may have been agreed upon by such Member and the Company and authorized by the Board or, if applicable, specified by the Participation Agreement. 6.6 Events of Default by a Member. In the event that a Member fails to make any payment, or any installment thereof, when due, of any Capital Contribution or other obligation hereunder or under a Contribution Agreement, the Board may cause the Company to enforce such obligation in such manner as may be permitted by law, subject to any enforcement limitations expressly provided in this Agreement or the Participation Agreement; and each other Member may enforce such obligation in such manner as may be provided in this Agreement and the Participation Agreement. For purposes of this Section 6.6, the term "Tribes" means, collectively, the Paskenta Tribe and the Cloverdale Rancheria of Pomo Indians, in Cloverdale, California; the term "Daly" means Matthew R. Daly; and the term "Project Contracts" means, collectively, the Corning Project Contracts and the Project Contracts (as defined in the Participation Agreement) held by the Cloverdale Joint Venture. In particular, the following events of default with respect to a designated Appointing Member (each, an "Event of Default") shall have the respective consequences specified below: (a) MRD Event of Default; Termination of MRD from Projects. The occurrence of any of the following events shall be considered an "MRD Event of Default" under this Agreement: (i) loss by MRD or Matthew R. Daly ("Daly") of any gaming license for the Corning Project or the Cloverdale Project, if such license is not reinstated following the exhaustion of all legal remedies; (ii) the conviction of MRD or Daly of criminal misconduct directly related to gaming activities or related to MRD's relationship with LGR, Lakes Corning, Lakes Cloverdale or either of the Tribes; 19 (iii) the death, resignation or disability of Daly or any other key employee of MRD, to the extent such death, resignation or disability prevents MRD from performing its day-to-day project management duties and obligations under the Participation Agreement, this Agreement, the Member Control Agreement of the Corning Joint Venture or any of the Project Contracts; and, if such key employee is not Daly, he or she is not replaced within sixty (60) days following the event in question; (iv) intentional misconduct of Daly or MRD that unreasonably threatens or jeopardizes the continued payment or performance by either of the Tribes of its obligations under its Project Contracts, if such misconduct is not cured, before or following written notice from Lakes Cloverdale or Lakes Corning, within thirty (30) days or such lesser time as may be necessary to avoid any interruption of such continued payments or performance by either of the Tribes (the "MRD Cure Period"); (v) any fraud or dishonesty of MRD or Daly with respect to the Company, the Corning Joint Venture or either of the Projects, that does or could have a material adverse effect on such company or such Project; (vi) a material breach of the Participation Agreement, this Agreement or the Member Control Agreement of the Corning Joint Venture by MRD that does or could deprive LGR, Lakes Cloverdale or Lakes Corning of a significant benefit under the Participation Agreement, this Agreement or such Member Control Agreement, if such breach is not cured before the end of the MRD Cure period; or (vii) the substantial failure or refusal by MRD to perform any of its obligations under the Participation Agreement, this Agreement or the Member Control Agreement of the Corning Joint Venture, including without limitation MRD's management obligations thereunder, if such failure or refusal has or could have a material adverse effect on LGR, Lakes Cloverdale, Lakes Corning or either of the Projects, or is or could constitute a material breach of any agreement to which the Company or the Corning Joint Venture is a party, and such refusal or failure is not cured before the end of the MRD Cure Period. Within sixty (60) days following the occurrence of an MRD Event of Default, after taking into account any extension of a cure period during mediation pursuant to Section 16.13, Lakes Corning, notwithstanding any other provision of the Participation Agreement, this Agreement, any related loan and security documents, the Member Control Agreement of the Corning Joint Venture, or any other Additional Transaction Documents (as defined in the Participation Agreement), may unilaterally terminate the management positions of Daly, MRD and its other representatives (including without limitation, their positions as Governors and Managers) with respect to either or both of 20 the Company or the Corning Joint Venture, by giving MRD a written notice of such MRD Event of Default; and may thereafter proceed to redeem MRD's equity interests in either or both of the Company or the Corning Joint Venture under Section 13 and the corresponding provision of the Member Control Agreement of the Corning Joint Venture. (b) Lakes Event of Default; Termination of Lakes Corning from Projects. The occurrence of any of the following events shall be considered a "Lakes Event of Default" under this Agreement: (i) any failure by LGR or Lakes Corning to provide any material amount of funding required under any of their lending commitments under the Participation Agreement if such failure is not cured, before or following written notice from MRD, within either thirty (30) days or such lesser time as may be necessary to prevent MRD, the Company or the Corning Joint Venture from defaulting in any material financial obligation that was to have been met with such funding (the "Lakes Cure Period"); (ii) the conviction of LGR, Lakes Corning or Lakes Cloverdale of criminal misconduct directly relating to gaming activities or related to the relationship of LGR, Lakes Corning or Lakes Cloverdale with MRD; (iii) intentional misconduct of LGR, Lakes Corning or Lakes Cloverdale that unreasonably threatens or jeopardizes the continued payment by either of the Tribes of its obligations under its Project Contracts, if such misconduct is not cured before the end of the Lakes Cure Period; or (iv) a material breach by LGR, Lakes Corning or Lakes Cloverdale of the Participation Agreement, this Agreement or the Member Control Agreement of the Corning Company that deprives MRD of a significant benefit under the Participation Agreement, this Agreement or such Member Control Agreement, if such breach is not cured before the end of the Lakes Cure Period. Within sixty (60) days following the occurrence of a Lakes Event of Default, MRD may cause either the Company or the Corning Joint Venture to suspend any payment obligations to Lakes Corning or Lakes Cloverdale until MRD obtains an alternate investor to replace Lakes Corning and/or Lakes Cloverdale, by giving Lakes Corning and, if applicable, Lakes Cloverdale, a written notice of such Lakes Event of Default; provided, however, that if an alternative investor has not been found within ninety (90) days, Lakes Corning and Lakes Cloverdale may require any suspended payments to recommence until such time as MRD obtains an alternative investor to replace Lakes Corning and Lakes Cloverdale. MRD's exercise of this option shall not relieve LGR, Lakes Corning or Lakes Cloverdale of any obligation to continue providing any previously agreed funding during that period unless and until MRD notifies Lakes Corning and, if applicable, Lakes Cloverdale that MRD has obtained an alternate investor. Once MRD obtains an alternate investor, MRD shall relieve LGR, Lakes 21 Corning and, if applicable, Lakes Cloverdale of any further financing obligations, and MRD shall, at its option, either prepay Lakes Corning the unpaid balance on any or all outstanding notes for prior financing to MRD, the Company and the Corning Joint Venture under the Participation Agreement, or bring current all payments owed to Lakes Corning and Lakes Cloverdale with respect to such financing, and continue meeting those obligations in accordance with the terms of the note obligations to Lakes Corning and Lakes Cloverdale. MRD may also thereafter proceed to cause the redemption of Lakes Corning's Interest in the Company under Section 13, and/or Lakes Cloverdale's equity interest in the Cloverdale Joint Venture under the corresponding provision of the Member Control Agreement of the Cloverdale Joint Venture. 6.7 Transferee Succeeds to Transferor's Capital Account. If any Member Transfers all or a part of its Financial Rights in the Company, whether or not such Transfer is permitted under Article 12, any transferee from the Member shall succeed to the Capital Account (including any remaining Capital Contributions) of the transferor Member to the extent of the Interest Transferred, in accordance with Regulations Section 1.704-1(b)(2)(iv)(1). ARTICLE 7 ALLOCATIONS 7.1 Definitions of Profits and Losses. "Profits" and "Losses," respectively, shall mean, for each Fiscal Year, an amount equal to the Company's taxable income or loss (as the case may be) for such Fiscal Year, determined in accordance with Code section 703(a) (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code section 703(a)(1) shall be included in taxable income or loss) with the following adjustments: (a) any income of the Company that is exempt from Federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this Section 7.1 shall be added to such taxable income or loss; (b) any nondeductible expenditures of the Company described in Code section 705(a)(2)(B) or treated as Code section 705(a)(2)(B) expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Profits or Losses pursuant to this Section 7.1, shall be subtracted from such taxable income or loss; (c) in the event the Gross Asset Value of any Company asset is adjusted pursuant to Section 6.1(e)(ii) or Section 6.1(e)(iii), the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Profits or Losses; (d) gain or loss resulting from any disposition of Company Property with respect to which gain or loss is recognized for Federal income tax purposes shall be computed by reference to the Gross Asset Value of the Company Property disposed of, 22 notwithstanding that the adjusted tax basis of such Company Property differs from its Gross Asset Value; (e) in lieu of the depreciation, amortization and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Fiscal Year, computed in accordance with Section 6.1(d); (f) to the extent an adjustment to the adjusted tax basis of any Company Property pursuant to Code section 734(b) or Code section 743(b) is required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result of a Distribution other than in liquidation of a Member's Interest, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for purposes of computing Profits or Losses; and (g) Notwithstanding any other provisions of this Section 7.1, any items that are specially allocated pursuant to Section 7.5 or Section 7.6 shall not be taken into account in computing Profits or Losses. The amounts of the items of Company income, gain, loss or deduction available to be specially allocated pursuant to Sections 7.5 and 7.6 shall be determined by applying rules analogous to those set forth in Sections 7.1(a) through 7.1(f) above. 7.2 Allocation of Profits. After giving effect to the special allocations set forth in Sections 7.5 and 7.6, the Profits of the Company for each Fiscal Year for book purposes, whether taxable or nontaxable, shall be allocated to the Members and their Capital Accounts shall be increased in accordance with Section 6.1(b), ratably in proportion to their Percentage Interests, subject to any reallocation of Lakes Corning's share of Profits as Opening Bonuses due MRD pursuant to Sections 7.9 and 8.2(b). 7.3 Allocation of Losses. After giving effect to the special allocations set forth in Sections 7.5 and 7.6, the Losses, deductions and credits of the Company for each Fiscal Year for book purposes, whether taxable or nontaxable, shall be allocated to the Members and their Capital Accounts shall be reduced in accordance with Section 6.1(b), ratably in proportion to their Percentage Interests. 7.4 Pro-ration of Allocations. All Profits, Losses, deductions and credits for a Fiscal Year allocable with respect to any Member whose Interest may have been Transferred, forfeited, reduced or changed during such year shall be allocated based upon the varying Interests of the Members throughout the year. The precise manner in which such allocation shall be made shall be determined by the Board and shall be a manner of allocation permitted to be used for Federal income tax purposes under the Code. 7.5 Special Allocations. Notwithstanding anything to the contrary in this Article 7, 23 the following special allocations shall be made in the following order: (a) Section 754 Adjustments. To the extent an adjustment to the adjusted tax basis of any Company Property pursuant to Code section 734(b) or Code section 743(b) is required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as the result of a Distribution to a Member in complete liquidation of the Member's Interest, the amount of such adjustment to Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Members in accordance with their Percentage Interests in the Company in the event Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Member to whom such Distribution was made in the event Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies. (b) Minimum Gain Charge-back. "Partnership Minimum Gain" within the meaning of Regulations Section 1.704-2(b)(2) means an amount of gain that would be realized by the Company on the disposition of Company property subject to nonrecourse indebtedness (within the meaning of Regulation Section 1.704-2(b)(3)), equal to the amount by which such nonrecourse indebtedness exceeds the adjusted tax basis (or book value, if the property has been properly entered on the books of the Company at a value different from its then adjusted tax basis) of such property. If for any Fiscal Year, there is a net decrease in Partnership Minimum Gain, each Member shall be allocated items of Company income and gain in accordance with Regulations Section 1.704-2(f)(1) (a "Minimum Gain Charge-back") for such year (and, if necessary, for subsequent years) in an amount equal to such Member's share of such net decrease of Partnership Minimum Gain. For this purpose, a Member's share of the net decrease in Partnership Minimum Gain shall be determined under Regulations Section 1.704-2(g)(2). This paragraph is intended to comply with Regulations Section 1.704-2(f)(1) and shall be interpreted consistently therewith. (c) Qualified Income Offset. If any Member at any time unexpectedly receives any adjustment, allocation or Distribution described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), and if such adjustment, allocation or Distribution results in a negative balance in such Member's Capital Account in excess of the sum of (i) the amount such Member is obligated to restore to the Company under this Agreement or the LLC Act and (ii) the amount such Member is deemed to be obligated to restore to the Company pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1)(ii) and 1.704-2(i)(5), then items of Company income and gain shall be specially allocated to such Member so as to eliminate, to the extent required by Regulations Section 1.704-1(b)(2)(ii)(d), such negative balance in his or her Capital Account as quickly as possible. (d) Gross Income Allocation. If any Member would have a negative balance in its Capital Account at the end of any Fiscal Year in excess of the sum of (i) the amount such Member is obligated to restore to the Company under this Agreement and (ii) the 24 amount such Member is deemed to be obligated to restore to the Company pursuant to the penultimate sentences of Treasury Regulations Sections 1.704-2(g)(1)(ii) and 1.704-2(i)(5), then such Member shall be specially allocated items of Company income (including gross income) in the amount of such excess as quickly as possible. (e) Allocations Relating to Taxable Issuance of Interests. Any income, gain, loss or deduction realized as a direct or indirect result of the issuance of an Interest by the Company to a Member (the "Issuance Items") shall be allocated among the Members so that, to the extent possible, the net amount of such Issuance Items, together with all other allocations under this Agreement to each Member, shall be equal to the net amount that would have been allocated to each such Members if the Issuance Items had not been realized. 7.6 Curative Allocations. The allocations set forth in paragraphs (a) through (d) of Section 7.5 (the "Regulatory Allocations") are intended to comply with certain requirements of the Regulations. It is the intent of the Members that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Company income, gain, loss or deduction pursuant to this Section 7.6. Therefore, notwithstanding any other provision of this Article 7 (other than the Regulatory Allocations), the Board shall make such offsetting special allocations of Company income, gain, loss or deduction in whatever manner the Board determines appropriate so that, after such offsetting allocations are made, each Member's Capital Account balance is, to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not part of the Agreement and all Company items were allocated pursuant to Sections 7.2, 7.3 and 7.5(e). 7.7 Other Allocation Rules. (a) For purposes of determining the Profits, Losses or any other items allocable to any period, those Profits, Losses and any such other items shall be determined on a daily, monthly or other basis, as determined by the Board using any permissible method under Code section 706 and the Regulations thereunder. (b) The Members are aware of the income tax consequences of the allocations made by this Article 7 and hereby agree to be bound by the provisions of this Article 7 in reporting their shares of Company Profit and Loss for income tax purposes. (c) Solely for purposes of determining a Member's proportionate share of the "excess nonrecourse liabilities" of the Company within the meaning of Section 1.752-3(a)(3) of the Regulations, the Members' interests in Company Profits are in proportion to their Percentage Interests. 7.8 Tax Allocations under Code Section 704(c). In accordance with Code section 704(c) and the Regulations thereunder, income, gain, loss and deduction with respect to any property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such 25 property to the Company for Federal income tax purposes and its initial Gross Asset Value (computed in accordance with Section 6.1(e)(i). In the event the Gross Asset Value of any Company Property is adjusted pursuant to Section 6.1(e)(ii), subsequent allocations of income, gain, loss and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for Federal income tax purposes and its Gross Asset Value in the same manner as under Code section 704(c) and the Regulations thereunder. Such allocation shall be made in accordance with the remedial method described by Regulations Section 1.704-3(d). Any elections or other decisions relating to such allocations shall be made by the Board in any manner that reasonably reflects the purpose and intention of this Agreement. Allocations pursuant to this Section 7.8 are solely for purposes of Federal, state and local taxes and shall not affect, or in any way be taken into account in computing, any Member's Capital Account or share of Profits, Losses, other items or Distributions pursuant to any provision of this Agreement. 7.9 Special Fee Allocation. If any Overhead Fee or Opening Bonus (as those terms are defined in Sections 8.1 and 8.2), or any other fee or other amount payable to a Member, is determined for income tax purposes to be a payment to such Member of a distributive share of Company income or gain (rather than being a fee or expenditure in the nature of an amount payable to a Person who is not a Member or other than in such Person's capacity as a Member), then such amount shall be treated (for income tax purposes and for purposes of determining Capital Accounts) as an allocation of gross income to such Member in the year such amount is accrued, and a Distribution in the year such amount is paid. However, the priority of payment of any such item shall be unaffected by such treatment. ARTICLE 8 DISTRIBUTIONS 8.1 Guaranteed Payments to Appointing Members. (a) Overhead Fees. In consideration of the services to be provided to the Company by the Appointing Members pursuant to the Participation Agreement, and their respective overhead expenses relating to the Company, the Company shall distribute to each of the Appointing Members (without regard to the Profits, other income or Losses of the Company) a monthly "guaranteed payment" equal to $40,000 (or any greater or lesser amount that may be agreed between the Appointing Members), payable as of the first day of August, 2000 and each month thereafter until both Project Contracts have terminated, subject to the limitation and deferral provisions of the following paragraphs of this Section 8.1 ("Overhead Fees"); provided, however, that no such payments shall be made to a Appointing Member after an Event of Default has occurred with respect to the obligations of such Appointing Member. (b) Guaranteed Payment and Advances by Lakes Corning. The term "guaranteed payment" refers only to the treatment of such Overhead Fees under Code 26 Section 707(c); and does not mean that any Member or Manager is personally liable for any such payment, except for any temporary obligation of LGR or Lakes Corning (under the following paragraph) to advance Overhead Fees to MRD, subject to repayments required to be made by the Company on the Corning Project Companies Loan or, if applicable, the Corning Project Development Loan. (c) Limitations on Overhead Fees. Except as otherwise set forth below, Overhead Fees shall be paid from External Cash Flows before any of the other deductions made from External Cash Flows in the definition of Internal Cash Flows in Article 3, or any Distributions of Internal Net Cash Flows to the Members under Section 8.2. If External Net Cash Flows are insufficient to pay the entire Overhead Fees for both Lakes Corning and MRD for any month during the first six (6) consecutive months for which Overhead Fees are payable, MRD's Overhead Fees shall be paid first, and any difference between External Net Cash Flows and MRD's Overhead Fees shall be paid by LGR or Lakes Corning and added to the Corning Project Companies Loan or, if such month begins after the Effective Date, the Corning Project Development Loan. If, during the second six (6) consecutive months for which Overhead Fees are payable, External Net Cash Flows available for that purpose from both the Company and the Cloverdale Joint Venture (collectively, the "Project Companies") for that month (defining External Net Cash Flows in a similar way for both companies) are insufficient for the Project Companies to pay all of the Overhead Fees otherwise due their members in any given month, the aggregate Overhead Fees payable by the Project Companies to their members shall be limited to partial payments that are equal to the greater of $30,000 or the External Net Cash Flows available for that purpose from both of the Project Companies for that month, with the remainder of the unpaid Overhead Fees for that month to be forfeited. If Overhead Fees payable by both of the Project Companies are limited hereunder to $30,000 for any month, such amount shall be payable first by the Project Companies from their External Net Cash Flows available for that purpose (in proportion to such External Net Cash Flows, unless only one of them has External Net Cash Flows) and, secondly, one-half of the balance, if any, shall be payable by each of the Project Companies, such balance to be funded (to the extent necessary) by Project Development Loans to the Project Companies. If, at any time after such twelve (12) month period, External Net Cash Flows available for that purpose from both Project Companies for that month are insufficient for the Project Companies to pay all of the Overhead Fees otherwise due their members in any given month, the Overhead Fees payable by the Project Companies to their members shall be limited to partial payments that are equal to their External Net Cash Flows available for that purpose, with the remainder of the unpaid Overhead Fees for that month to be forfeited. Notwithstanding the foregoing, upon the occurrence of any payment default under the MRD Loans, the Project Companies Loan or any Project Development Loan (as those loans are defined in the Participation Agreement), then any Overhead Fees or other 27 amounts thereafter payable to MRD by the Company shall be paid by the Company to Lakes Corning as payment on such loans until the payment defaults have been cured. Payment of the Overhead Fees due Lakes Corning shall commence at the same time as those due MRD. The Overhead Fees due Lakes Corning shall be paid after all Overhead Fees due MRD are paid and only to the extent that External Net Cash Flows are available. All unpaid Overhead Fees due Lakes Corning shall be paid before any further Distributions of Internal Net Cash Flows are made under Section 8.2. 8.2 Other Distributions. The following other Distributions shall be made to Members, but only to the extent such a Distribution is legally permitted: (a) Internal Net Cash Flows. Distributions of Internal Net Cash Flows, if any, shall be made as of the end of each month, and before the end of the next month, to the Members in proportion to their Percentage Interests, except as otherwise provided in the following paragraph, but only to the extent such Distributions are legally permitted. (b) Opening Bonuses. Lakes Corning agrees that a portion of its share of any Distributions of Internal Net Cash Flows shall be payable to MRD as bonus payments in the amount of $1,000,000 after the opening of the permanent casino for the Corning Project; provided, however, that these bonus payments shall be paid to MRD only when and to the extent Lakes Corning's share of Internal Net Cash Flows is sufficient to pay such amounts to MRD. If Lakes Corning's share of Internal Net Cash Flows is insufficient to pay the entire bonus amount in a single month, the unpaid balance shall be paid from Lakes Corning's share of Internal Net Cash Flows in subsequent months. (c) Excess Cash. Except as otherwise provided in the following paragraph, if and to the extent the Company has any excess cash on hand that is not distributable as Internal Net Cash Flows, not committed to payments that are deductions from External Net Cash Flows or Internal Net Cash Flows, nor currently included in a cash reserve reasonably determined in good faith by the Board for other Company expenses, debt payments, capital improvements, replacements and contingencies, then Distributions of such excess cash shall be made from time to time, but no less frequently than annually, to the Members in proportion to their Percentage Interests. (d) Sale of Substantially All Company Property. Distribution of any net proceeds upon the sale, exchange or other disposition of all or substantially all of the Company Property shall be made in accordance with Section 15.3. ARTICLE 9 MANAGEMENT AND OPERATION OF BUSINESS 9.1 Management and Control of the Company. The Appointing Members shall appoint the Board, and Governors shall be removed or replaced, all pursuant to Article 10 and the Bylaws. Except as otherwise provided in this Agreement, the Board shall have the sole and 28 exclusive control of the conduct, operations and management of the business of the Company, subject to the results of any mediation or arbitration required under Section 9.6 in event of a deadlock of the Board. The Board shall manage the affairs of the Company in a prudent and businesslike fashion and shall use its best efforts to carry out the purposes and the business of the Company. The Board shall carry out its duties through a Chief Manager, a Manager acting as Treasurer and such other Managers as it shall deem necessary or desirable. The Managers shall be elected and removed by the Board, and their duties shall be established by the Board, all as provided in the Bylaws. The Board and the Managers shall devote such of their time as the Board deems necessary to the management of the business of the Company. 9.2 Authority of Board. The Board shall have all necessary powers to carry out the purposes and business of the Company, including without limitation the power to delegate appropriate authority to the Company's Managers; provided, however, that the Managers shall at all times remain subject to the supervision of the Board. Without limiting the foregoing, in addition to any other rights and powers that the Board may possess, the Board shall have all specific rights and powers required or appropriate in the management of the business of the Company, and only the Board shall have these rights and powers, including the following, any of which may be exercised only in furtherance of the purposes set forth in Article 4, as amended from time to time: (a) To acquire, own, hold and dispose of items of the Company Property, any interest therein or appurtenant thereto, whether real, personal or mixed, including the purchase, lease, development, improvement, maintenance, exchange, trade or sale of any Company Property at such price, rental or amount for cash, securities or other property and upon such other terms as the Board, in its sole discretion, may deem to be in the best interest of the Company, but limited to the extent set forth in Section 9.3; (b) To the extent of Company assets, to prosecute, defend, settle or compromise actions or claims at law or in equity at the Company's expense as may be necessary or proper to enforce or protect the Company's interests; and to satisfy any judgment, decree, decision or settlement of any such suit or claim; first, out of any insurance proceeds available therefor, and next, out of the Company's assets and income; (c) To enter into and carry out contracts and agreements and to do and perform all such other things as may be in furtherance of Company purposes; and to cause the Managers to execute, acknowledge and deliver any and all instruments that may be deemed necessary or convenient to effect the foregoing; (d) To acquire and enter into any contract of insurance that the Board may deem necessary and proper for the protection of the Company or for any purpose beneficial to the Company; 29 (e) To employ, engage or retain, at the expense of the Company, such Persons to perform such services as the Board may deem necessary or advisable for the efficient operation of the business of the Company and to pay to such Persons such compensation as the Board shall determine; provided, however, that such compensation is at the then prevailing rate for the type of services and materials provided; (f) To cause the Managers to execute and deliver on behalf of the Company, leases, contracts or agreements of any nature and any or all instruments necessary or desirable to effectuate the foregoing powers; and (g) To accept and value the Capital Contributions made to the Company by Members pursuant to this Agreement. 9.3 Restrictions on Authority of Board. In addition to other acts expressly prohibited or restricted by this Agreement or by law, the Board shall have no authority to act on behalf of the Company and is expressly prohibited from the following: (a) Doing any act in contravention of this Agreement; (b) Doing any act that would make it impossible to carry on the ordinary business of the Company, other than as permitted in this Agreement; (c) Seizing Company Property or assigning the rights of the Company and specific Company Property for other than a Company purpose; (d) Admitting any Person as a Member except as provided in this Agreement; (e) Performing any act (other than an act required by this Agreement or an act taken in good faith or in reliance upon counsel's opinion) that would, at the time such act occurred, subject any Member to liability as a general partner in any jurisdiction; (f) Selling, exchanging or otherwise disposing of all or substantially all of the Company's assets; or (g) Taking any action that, in the prudent exercise of business discretion, could reasonably be expected to have a material adverse effect on the Company or the assets or operations thereof. All such actions shall require the approving vote of Members holding at least two-thirds of the Voting Interests or such larger proportion of the Voting Interests or other Interests as may be required by the LLC Act or another provision of this Agreement in a particular case; including in any event, however, the approving vote of the Board. 9.4 Obligations of the Board. In addition to the obligations expressly provided by law 30 or this Agreement, the Board, to the extent of Company assets, shall: (a) Perform or cause the Managers to perform all acts necessary or desirable, with respect to the purposes of the Company, to lease, sublease and operate any real estate acquired by the Company; (b) Cause to be filed and published all certificates, statements and other instruments required by law for the formation, qualification and operation of the Company and for the conduct of its business in all appropriate jurisdictions; (c) Cause the Company to prepare or have prepared all financial and tax statements and reports required under Article 11; and (d) Cause the Company to keep the Required Records at its principal office. 9.5 Reimbursement of Expenses. The Members, the Governors and the Managers shall be reimbursed for all expenses incurred on behalf of the Company only to the extent approved by the Board and permitted by Section 9.8. In general, the Overhead Fees described in Section 8.1 are intended to cover all but extraordinary expenses of the Members and the Governors. 9.6 Mediation and Arbitration in the Event of Board or Member Deadlock. If the Board is deadlocked with respect to a substantial issue involving management of the Company's affairs after negotiating in good faith for a period of at least ten (10) days and the Members are unable to break the deadlock, or if the Members are deadlocked after negotiating in good faith for a period of at least ten (10) days with respect to any substantial issue properly put to a vote of Members, the Members hereby agree that such issue shall be mediated as set forth in Section 16.13 and, if a resolution of the issue still cannot be reached, that such issue shall be arbitrated as set forth in Section 16.14. 9.7 "Tax Matters Partner". If required by the Code, Lakes Corning shall serve as "Tax Matters Partner," as defined for Federal income tax purposes under section 6231(a)(7) of the Code, until a new Tax Matters Partner is appointed by the remaining Appointing Members. If on advice of counsel, the Tax Matters Partner determines that is in the best interests of the Members that the final results of any administrative proceeding be appealed by the institution of legal proceedings, the Tax Matters Partner is hereby authorized to commence such legal proceedings in such forum as it, on advice of counsel, determines to be appropriate. In the event the Tax Matters Partner selects a forum for appeal in which it is required to deposit a proportionate share of any disputed tax before making such appeal, it must obtain the consent of the Board and Members holding at least two-thirds of the Voting Interests. If such consent is obtained, each of the Members will be required to deposit and pay its proportionate share of such disputed tax before participating in such appeal. The Members acknowledge that such deposit under current law does not earn interest and that a failure to make such a deposit may preclude a Member from pursuing any other sort of appeal by court action. 31 The Tax Matters Partner shall not be liable to any other Member for any action taken with respect to any such administrative proceeding or appeal, so long as the Tax Matters Partner is not grossly negligent or guilty of willful misconduct. Any costs paid or incurred by the Tax Matters Partner in connection with its activities in such capacity shall be reimbursed by the Company. Each Member acknowledges that any cost it may incur in connection with an audit of such Member's income tax return, including any audit relating to its investment in this Company, is such Member's sole responsibility and obligation; and neither the Company, the Board, the Managers, nor the Tax Matters Partner shall be liable to any Member for reimbursement or sharing of any such costs. 9.8 Conflicts of Interest. Any Person, whether a Member, Manager, Governor, any of their Affiliates or otherwise, may be employed or engaged by the Board to render to the Company any services that such Person is not already required to perform hereunder or under the Participation Agreement, including, but not limited to, consulting, building, financing, constructing, leasing, property management, brokerage, accounting and legal services. If such Person is a Member or an Affiliate of a Member, then such Person must have been previously engaged in the business of rendering such services or selling or leasing such goods, independent of the Company and as an ordinary and on-going business; and such Person shall be entitled to, and shall be paid, compensation for such services to the extent permitted by the Board. The fact that a Member, Governor, Manager or any of their Affiliates is employed by, or is directly or indirectly interested in or connected with any Person from whom or which the Company may buy services, merchandise or other property, shall not prohibit the Board from employing such Person or from otherwise dealing with such Person to the extent permitted under the preceding paragraph. 9.9 Other Activities. Any of the Members, Governors, Managers and their Affiliates may engage in, possess and acquire interests in other business ventures of any nature and description independently or with others, including, but not limited to, the ownership, financing, leasing, operation, management, brokerage and development of gaming and real estate development activities, except as otherwise provided in Section 13 of the Participation Agreement. Except in the case of any activities that violate any applicable restrictions in Section 13 of the Participation Agreement, neither the Company nor the Members shall have any right by virtue of this Agreement in and to such independent ventures or to the income or profits derived therefrom. 9.10 Indemnification. The Company shall indemnify the Members, Governors and Managers against any loss, claim or liability incurred by any of them in connection with the business of the Company, to the greatest extent permitted by the Articles and the LLC Act. However, any amount paid to indemnify a Person shall be paid only out of Company assets; and Members shall not be liable for any amount to be paid to indemnify a Person, except to the extent of any amount of the Capital Contribution of a Member that is due and owing to the Company and remains unpaid. Neither the Company nor any Member shall have any claim against any of the Governors or Managers based upon or arising out of any act or omission of such Governor or 32 Manager; provided, however, that such Manager or Governor acted in good faith and was not grossly negligent or guilty of willful misconduct. 9.11 Liability Under Other Agreements. The obligations of the Members, Managers and Governors or their Affiliates, pursuant to any agreement or contract entered into in their personal capacity with the Company (whether or not such agreements are referred to herein) shall be separate and distinct from their obligations hereunder. Any default or failure of performance with respect to such separate agreements or contracts, unless otherwise specified in this Agreement, shall have the consequences provided for in such separate agreements or contracts or by applicable law and shall not constitute a breach hereunder. ARTICLE 10 GOVERNORS 10.1 Appointment and Election of Governors. The Board shall consist of two (2) individuals serving as Governors. MRD shall appoint one (1) Governor to serve on the Board and Lakes Corning shall appoint one (1) Governor to serve on the Board. 10.2 First Governors. The initial Governors appointed by each of the Appointing Members are the individuals designated in the following table opposite the Appointing Member's name, as follows: Appointed by Lakes Corning Appointed by MRD Timothy Cope Matthew R. Daly The individual listed in the above table under the name of an Appointing Member is hereby confirmed and appointed by such Appointing Member, to hold office until their successors are appointed and qualified pursuant to this Agreement; or removed pursuant to this Agreement. 10.3 Removal, Resignation and Replacement of Governors. The Appointing Member who appointed any Governor under this Article 10 shall have the power to remove and replace that Governor, without the consent of any other Member. Any Governor may resign at any time by giving written notice to the Board and each Member appointing the Governor. In the event of an MRD Event of Default, Lakes Corning may remove any Governor appointed by MRD, pursuant to Section 6.6(a); and thereafter appoint such Governor's successors. ARTICLE 11 BOOKS OF ACCOUNT AND REPORTS 11.1 Books of Account. The Board shall cause to be kept complete and accurate accounts of all transactions of the Company in proper books of account and shall enter or cause to be entered therein a full and accurate account of each and every Company transaction in accordance with accounting principles as set forth in Section 11.2. The books and records of the Company shall be closed and balanced as of the end of each Fiscal Year. The books of account 33 and other records of the Company shall at all times be kept at the place of business of the Company. Each of the Members and Governors shall have access to and may inspect and copy any of such books and records at all reasonable times. 11.2 Accounting Practices. The books of account of the Company shall be kept on the cash or accrual basis, as determined by the Board and consistent with the applicable requirements of the Code, according to generally accepted accounting principles consistently applied. Such principles shall be applied by the Board upon the advice of the Company's accountants. The Board shall have the authority to designate and retain a firm of independent certified public accountants to assist in the maintenance and preparation of such books, records and reports as the Board deems desirable and, if requested by either of the Appointing Members, to review or audit such books and records and the annual financial statements of the Company. 11.3 Bank Accounts. The Company shall maintain bank accounts in such bank or banks as may be selected by the Board. All withdrawals from such bank accounts shall be made by check or other instrument, signed by such Person or Persons as the Board may designate. 11.4 Reports to Members. Not later than seven (7) days after the end of each month and the end of each Fiscal Year of the Company, the Chief Manager shall caused to be delivered to the Board and each Member a report of the business and operations of the Company during such month, which report shall constitute the accounting of the Board to the Members for such month and such Fiscal Year. The report shall contain financial statements, including statements of assets and liabilities, income and expenses, Members' equity and Distributions, changes in financial position, External Net Cash Flows, Internal Net Cash Flows, Overhead Fees, comparisons of actual results to budgets determined pursuant to the Participation Agreement, and the amount and nature of any other compensation paid to the Members, Governors, Managers or their Affiliates during the period, including a description of the services performed in relation thereto; and shall otherwise be in such form and have such content as the Board and each Appointing Member deems proper. Such report shall state income and receipts from every source, including net gains from disposition or sale of Company assets. 11.5 Partnership Tax Status and Information. The Members acknowledge that the Company will be treated as a "partnership" for income tax purposes. Not later than seventy-five (75) days after the end of each Fiscal Year of the Company, the Manager acting as Treasurer shall cause to be delivered to each Person who was a Member at any time during such Fiscal Year, a Form K-1 and such other information, if any, with respect to the Company as may be necessary for the preparation of such Person's Federal, state and local income tax (or information) returns, including a statement showing such Person's share of income, gain or loss and credits for such Fiscal Year, as determined for Federal, state and local income tax purposes. In addition, the Chief Manager shall from time to time cause to be delivered to each Member adequate information relating to the Company's operations to enable each Member to complete and file all Federal, state and local estimated tax returns for which the Member may be 34 liable. 11.6 Tax Basis Elections. In the event of a Transfer or a repurchase by the Company or Distribution of Company Property by the Company in exchange for all or part of the Interest of any Member, the Company may elect, pursuant to Section 754 of the Code (or any successor provision), to adjust the basis of the assets of the Company. Such election must be agreed to by Members holding at least two-thirds of the Voting Interests. ARTICLE 12 RESTRICTIONS ON TRANSFERS OF MEMBERSHIP INTERESTS 12.1 General Restriction. Except to the limited extent permitted under this Article 12, no part of a Member's Interest may be Transferred during lifetime or at death, whether voluntarily or involuntarily, and whether with or without consideration; nor may a Member enter into a binding agreement to Transfer all or any part of the Member's Interest. Any Transfer or attempted Transfer of all or any portion of an Interest in violation of this Agreement shall nevertheless be subject to the applicable purchase options and rights of Article 13. The Required Records and other appropriate records of the Company shall be noted to prevent the Transfer of Interests except in accordance with this Article 12 and Article 13. 12.2 Permitted Transfers. The following Transfers are permitted to the extent provided in this Section 12.2 (a "Permitted Transfer"); provided, however, that any such Transfer and the parties thereto comply with all of the applicable conditions pertaining to Permitted Transfers under this Article 12: (a) All of any portion of a Member's Interest may be Transferred to the extent permitted by Section 12.3, but only if any consent required for such Transfer is obtained pursuant to Section 12.3. (b) Subject to Section 12.4, Lakes Corning may Transfer all or any portion of its Interest to any wholly-owned direct or indirect subsidiary of LGR (which subsidiary shall then be bound by all of the terms, conditions, guaranties and representations contained in the Participation Agreement and applicable to LGR); provided, however, that LGR shall retain the responsibility for providing all financing required of LGR under the Participation Agreement, and LGR shall have guaranteed the performance of any such subsidiary to which such Interest may be assigned, with respect to the provision of such financing. (c) Subject to Section 12.4, MRD may: (i) grant a collateral security interest in MRD's Financial Rights and Governance Rights to any subsidiary of LGR to which the Interest of Lakes Corning may be Transferred pursuant to the preceding paragraph (b) of this Section 12.2), to the extent permitted or required by the Participation Agreement; and (ii) Transfer to the former owner of the Predecessor Company (as collateral security or directly) from MRD's Financial Rights a portion equal to the greater of (A) approximately 50% of MRD's Financial Rights, or (B) 17.5% of all Financial Rights of the Members, to 35 secure or satisfy the deferred payments due such former owner from MRD under the MRD Consulting Obligation (as defined in part B of the Introduction to this Agreement). (d) Either Appointing Member may Transfer all or any portion of its Interest to the other Appointing Member. (e) All or any portion of a Member's Interest may be Transferred to the extent permitted under Section 13.7, if the proposed or attempted Transfer is subject to a purchase option under Article 13; and neither the Company nor any of the Members purchase the Interest pursuant to Article 13. 12.3 Consent to Certain Transfers. (a) Consent Required for Transfer of Governance Rights. Subject to Section 12.4, a Member's Governance Rights may be Transferred, in whole or in part, only if: (i) all the Appointing Members, other than the Member seeking to make the Transfer, approve the Transfer by unanimous written consent, which consent may be granted or withheld, as the remaining Appointing Members may determine in their sole discretion; and (ii) the assignee executes this Agreement, as amended to reflect such assignee's interest in the Company, and any other instrument or instruments that the Board may reasonably deem necessary or desirable to effect such Transfer. Notwithstanding the prior sentence, no consent is required for a Transfer pursuant to Section 13.7. If the Company has no Appointing Members, such consent may be given by Members holding at least two-thirds of the Voting Interests, excluding the Member seeking to make the Transfer. (b) Consent Required for Transfer of Financial Rights. The consent rules of the preceding paragraph (a) shall also apply to any Transfer of a Member's Financial Rights, except that such consent may not be unreasonably withheld or conditioned or unduly delayed. If a Member obtains the foregoing consent and Transfers all or any portion of the Member's Financial Rights, the transferee shall thereafter continue to be subject to all of the terms and conditions of this Agreement; and any foreclosure of Financial Rights so Transferred as collateral security for a debt of a Member shall be subject to Section 12.2 and Article 13. (c) Request for Consent. Any Member desiring to Transfer, in whole or in part, any Financial or Governance Rights pursuant to this Section 12.3, shall notify the Board of such desire. (d) Member Approval. In the event that the Interest sought to be Transferred requires the consent of any Member or Members other than Appointing Members, and the Board decides not to exercise the Company's purchase option under Section 13.5 (if applicable), the Board shall so notify the Members and, by special meeting called on ten (10) days' written notice, or by solicitation of signatures on ten (10) days' written notice or, if applicable, during the thirty (30) day period specified in Section 13.6, shall request 36 in writing the decision of each Member whether or not to exercise the Members' purchase option under Section 13.6 (if applicable) and, if such decision is negative or does not apply, to grant or withhold consent pursuant to paragraph (a) or (b) of this Section 12.3, as applicable. If a Member does not grant any consent requested pursuant to Section 12.3(b), the Member shall provide to the Member requesting a Transfer of Financial Rights a written statement of the reason for that refusal. 12.4 Conditions to Permitted Transfers. Any Permitted Transfer of all or any portion of a Member's Membership Interest under this Agreement shall be effective only if each of the following conditions is satisfied: (a) Governance Rights. If the Transfer will include any Governance Rights, the Member shall Transfer all such Governance Rights, coupled with a simultaneous Transfer to the same transferee of all of the Member's Financial Rights relating to such Interest. (b) Investment Representations. The Member or the proposed transferee shall provide the following documentation to the Board: (i) an opinion of counsel (whose fees and expenses shall be borne by such Member or transferee), satisfactory in form and substance to the Board, to the effect that either (1) the Transfer constitutes an exempt transaction and does not require registration under applicable securities laws, or (2) the Interest to be Transferred is duly and properly registered under all applicable securities laws; (ii) evidence satisfactory to the Board that the transferee is eligible to become a Member pursuant to this Article 12 and of the transferee's agreement to comply with and be bound by the terms of this Agreement and to execute any and all documents that the Board may deem necessary in connection with his, her or its becoming a Member; (iii) evidence satisfactory to the Board that the Transfer will not impair the ability of the Company to be taxed as a partnership for Federal income tax purposes under the Code or to take advantage of accelerated depreciation under the Code; (iv) representations in form and substance satisfactory to the Board that the transferee is acquiring the Interest for his, her or its own account for investment and not with a view to the distribution thereof; and (v) a written agreement signed by the transferee that the Interest being acquired will in no event be resold unless properly registered under all applicable securities laws or exempt therefrom. (c) Other Documents and Expenses. As a condition to admission as a Member, any transferee of all or part of the Interest of any Member, or the legatee or distributee of all or any part of the Interest of any Member, shall execute and acknowledge such instruments, in form and substance satisfactory to the Board, as the Board shall reasonably deem necessary or advisable to effect such admission and to confirm the agreement of the Person being admitted as such Member to be bound by all the terms and provisions of this Agreement. Such transferee, legatee or distributee shall also pay all reasonable expenses in connection with such admission as a Member, including, but not limited to, legal fees and costs of the preparation of any amendment to this Member Control Agreement that the Board finds to be reasonably necessary or 37 desirable in connection therewith. (d) Effective Date of Transfer. All Transfers of Interests occurring during any month shall be deemed effected on the first day of the month next following the month in which the Transfer occurs. 12.5 Acquit Company. In the absence of written notice to the Company of any Transfer of a Membership Interest, any payment by the Company to the transferring Member or his or its executors, administrators or representatives shall acquit the Company of liability, to the extent of such payment, to any other Person who may have an interest in such payment by reason of a Transfer by the Member or by reason of such Member's death or otherwise. 12.6 Prohibition of Involuntary Transfers. Except as expressly permitted by the LLC Act, a Member's Governance Rights shall not be subject to involuntary Transfer (as that term is defined in Article 13), by operation of law or otherwise, and any attempted involuntary Transfer shall be void and of no effect. If such a Transfer is attempted, whether or not permitted by applicable law, the affected portion of the Member's Interest shall thereupon be subject to the options and rights of first refusal set forth in Article 13. If all or any portion of a Member's Financial Rights are the subject of a foreclosure of pledge or an involuntary Transfer (as those terms are defined in Article 13), or if the Member becomes insolvent (as that term is defined in Article 13), the affected portion of the Member's Financial Rights shall thereupon be subject to the options and rights of first refusal set forth in Article 13. 12.7 Effect of Attempts to Make Prohibited Transfers. Any purported Transfer (of all or any portion of an Interest) that is not permitted under this Article 12 shall be null and void and of no force or effect whatever; provided, however, that, if the Company is required by applicable law to recognize a Transfer that is not so permitted (or if the Board, in its sole discretion, elects to recognize a Transfer that is not so permitted), the Transferred Interest shall be strictly limited to the transferor's Financial Rights as provided by this Agreement with respect to the Transferred Interest, which may be applied (without limiting any other legal or equitable rights of the Company) to satisfy any debts, obligations or liabilities for damages that the transferor or transferee of such Interest may have to the Company. In the case of a Transfer or attempted Transfer of an Interest that is not permitted hereunder, the parties engaging or attempting to engage in such Transfer shall be liable to indemnify and hold harmless the Company and the other Members from all cost, liability and damage that any of such indemnified Persons may incur (including, without limitation, incremental tax liabilities, lawyers' fees and expenses) as a result of such Transfer or attempted Transfer and efforts to enforce the indemnity required hereby. 12.8 Limited Rights of Unadmitted Transferees. A Person who acquires any part of an Interest, but is not admitted as a substitute Member: (a) shall be subject to the restrictions of 38 Section 12.1, (b) shall be entitled only to Profit and Loss allocations and Distributions with respect to such Interest in accordance with this Agreement, (c) shall have no right to any information or accounting of the affairs of the Company, (d) shall not be entitled to inspect the books or records of the Company, (e) shall not be entitled to exercise any Governance Rights and (f) shall not have any of the other rights of a Member under the LLC Act or this Agreement. ARTICLE 13 RIGHTS, OPTIONS AND VALUATION RESULTING FROM TRANSFERS OR EVENTS OF DEFAULT 13.1 Definitions. Wherever used in this Article 13, unless another meaning is explicitly indicated by the context, the following terms shall have the meanings set forth below: (a) "Affected Interests" shall mean any of the following: (i) all or any portion of a Member's Financial Rights Transferred (including proposed or attempted Transfers) by any Person in violation of this Agreement; (ii) a Member's entire Membership Interest in the event of either (A) a Transfer (including a proposed or attempted Transfer) by any Person of all or any portion of the Member's Governance Rights in violation of this Agreement; or (B) a termination of the Member's membership in the Company, unless a dissolution of the Company occurs in connection with such termination; or (iii) a Member's entire Membership Interest in the event such Interest becomes subject to the right of the Company or any other Member to purchase such Interest under this Article 13 for any other reason. (b) "Transferring Holder" shall mean any of the following Persons: (i) a Member whose Affected Interest is being terminated or is the subject of any other event that caused such Interest to become an Affected Interest; (ii) any non-Member transferee holding an Affected Interest as a result of a Transfer or attempted Transfer that made it an Affected Interest; and (iii) any legal representative of either. Additional definitions used in this Article 13 are set forth below. 13.2 Events Creating Option To Buy. If any of the following events occurs or is attempted or proposed, the Company and the Members shall have the option and the right to buy the Affected Interest of the Transferring Holder and that Transferring Holder shall be obligated to sell the Affected Interest pursuant to the terms and conditions of this Article 13: (a) "Death" The death of any Member who is an individual. (b) "Event of Default Termination." If an Appointing Member elects to 39 terminate the Participation Agreement pursuant to Section 6.6 upon an Event of Default with respect to the other Appointing Member, the defaulting Member's Interest shall become an Affected Interest as provided in Section 6.6 and the holder thereof shall become a Transferring Holder obligated to sell such Affected Interest pursuant to the applicable terms and conditions of this Article 13. (c) "Foreclosure of Pledge." Foreclosure of a pledge shall occur if (i) any Person attempts to gain absolute rights to an Affected Interest as a result of default under a security interest, whether pursuant to the Uniform Commercial Code or otherwise and regardless of whether the security interest is termed as a pledge, collateral, a conditional assignment, an outright assignment, or in any equivalent manner, and regardless of whether the security interest is perfected; (ii) an agreement is entered into to do any of the foregoing except as permitted by Section 12.2; or (iii) the foreclosure is otherwise treated under applicable law as a repossession, cancellation, enforcement, foreclosure or similar action. (d) "Gaming Rights Purchase Option." If an Appointing Member becomes entitled to purchase the Interest of any Member under Section 5.5, the Interest subject to such purchase options shall be an Affected Interest and the holder thereof shall become a Transferring Holder obligated to sell such Affected Interest pursuant to the applicable terms and conditions of this Article 13. (e) "Insolvency." A Transferring Holder shall be considered insolvent upon filing a petition for Voluntary Bankruptcy or being the subject of a petition for Involuntary Bankruptcy (which involuntary petition is not dismissed within ninety (90) days of filing), or if a receiver, whether permanent or temporary, of a Transferring Holder's property or any part thereof, shall be appointed by a court of competent authority, or if a Transferring Holder shall make a general assignment for the benefit of creditors, or if any material judgment against a Transferring Holder remains unsatisfied or unbonded of record for thirty (30) days or longer. (f) "Involuntary Transfer." An involuntary Transfer shall occur if any Person attempts to gain absolute rights to an Affected Interest by any of the following means (other than the foreclosure of a pledge as described above): (i) sale pursuant to a levy of execution; (ii) garnishment; (iii) attachment; (iv) property division or settlement in a marriage dissolution proceeding; (v) the dissolution of a Member that is a corporation, partnership, limited liability company, trust or other business entity or (vi) other legal process, including without limitation Bankruptcy or receivership proceedings, that is intended to Transfer the Affected Interest. (g) "Voluntary Transfer." A voluntary Transfer shall occur if (i) an Affected Interest is sold, exchanged, pledged, encumbered, given, gifted or otherwise voluntarily Transferred, with or without full consideration; or (ii) an agreement is entered into to do any of the foregoing; provided, however, that if a Transfer is permitted by Section 12.2, the Transfer shall not be an event creating an immediate option to buy the Affected 40 Interest. (h) "Withdrawal." A withdrawal shall occur if a Member resigns or otherwise declares in writing an intention to withdraw from active participation, including without limitation any withdrawal prohibited by Section 5.4. 13.3 Right to Require Company Purchase after Event of Default. If an Appointing Member terminates the Participation Agreement pursuant to Section 6.6 upon an Event of Default with respect to the other Appointing Member (the "Defaulting Member"), then either of the Appointing Members (an "Electing Member") may elect to require the Company to purchase the entire Affected Interest of the Defaulting Member, unless the non-defaulting Appointing Member purchases the entire Affected Interest pursuant to Section 13.6. Any such election shall be made in a written notice delivered by the Electing Member to the other Appointing Member within thirty (30) days after the notice of such termination is given pursuant to Section 6.6. If such an election is made and the non-defaulting Appointing Member does not purchase the Affected Interest, the Company shall purchase and the Defaulting Member (who shall thereupon become a Transferring Holder) shall sell the entire Affected Interest of such Transferring Holder to the Company, pursuant to the applicable terms and conditions of this Agreement. Under no other circumstances shall the Company or any Member be required to purchase any part of the Interest of any Member, except as may be expressly required by the LLC Act or upon the exercise of an option to purchase such Interest pursuant to this Article 13. 13.4 Notices To Company and Members. Except as otherwise provided below, each Transferring Holder shall give written notice to the Company and to the other Members within thirty (30) days after any event described in Section 13.2. If an Appointing Member gives a notice of its election to require the Company to purchase an Affected Interest pursuant to Section 13.3, that Member shall also give a copy of that notice to the Company at the same time. Any such notice sent to the Company shall be directed to a Manager who is not employed by the Transferring Holder, at the Company's office where such Manager receives mail. Such Manager shall also send a copy of each such notice to each Member who did not send the original notice, at the most recent address reflected on the Company's Required Records or such other address as the Manager giving notice has reason to know is more current. If the Transferring Holder or another Member required to give any such notice fails or refuses to give such notice, the Company or any other Member may do so as soon as it has the information required to be given in such notice. Each such notice shall contain the following information: (a) Notice of Death. Any notice of death shall state the date of death and give the name and address of the personal representative, if one has been appointed, or the proposed personal representative if known. A copy of the order appointing the personal representative, if any, shall be attached to the notice. (b) Notice of Event of Default Termination. Any notice of a termination of 41 the Participation Agreement upon an Event of Default shall be given by the Appointing Member who determines that such Event of Default has occurred with respect to the other Appointing Member. Any such notice shall be given at the time provided in Section 6.6, shall set forth the facts alleged to constitute the Event of Default and shall state the sender's intention to terminate the Participation Agreement. (c) Notice of Election of Mandatory Purchase. Any notice of an election by an Appointing Member to require a mandatory purchase under Section 13.3 shall state such intention. (d) Notice of Foreclosure of Pledge. The notice of foreclosure of pledge of an Affected Interest shall identify to whom the Member pledged the Affected Interest, a description of the Affected Interest, the reason for the foreclosure, and shall identify all material terms of the pledge agreement and the foreclosure. A copy of all agreements and documents relating to the pledge shall be attached to the notice. (e) Notice of Gaming Rights Purchase Option. If an Appointing Member becomes entitled to purchase the Interest of any other Member under Section 5.5, the notice provisions of Section 5.5 shall apply. (f) Notice of Insolvency. Any notice of insolvency shall identify the manner in which the Transferring Holder is deemed insolvent (as defined in Section 13.2) and shall identify any trustee or fiduciary appointed with regard to the Transferring Holder. A copy of any petition for bankruptcy, petition for involuntary bankruptcy, order appointing a receiver, whether permanent or temporary, order creating an assignment for the benefit of the Transferring Holder's creditors, and/or any judgment against the Transferring Holder that has remained unsatisfied or unbonded for a period of thirty (30) days or longer shall be attached to the notice. (g) Notice of Involuntary Transfer. Any notice of involuntary Transfer shall identify: the order, decree or directive requiring the involuntary Transfer of an Affected Interest, a description of the Affected Interest, the reason for the involuntary Transfer, and the pertinent terms of the involuntary Transfer. A copy of the relevant order, decree or directive shall be attached to the notice. (h) Notice of Voluntary Transfer. Any notice of voluntary Transfer shall identify the transferee to whom the Transferring Holder desires to sell, exchange or give an Affected Interest, a description of the Affected Interest and the consideration, if any, for the Transfer. The notice shall also identify all pertinent terms of the Transfer. A copy of all agreements and documents pertinent to the Transfer shall be attached to the notice. (i) Notice of Withdrawal. A notice of withdrawal shall identify all pertinent details a Member's withdrawal described in Section 13.2. If a Member withdraws from the Company without giving such a notice, the Board or any other Member may give such a notice to the withdrawing Member; provided, however, that the Member alleged to be 42 withdrawing shall be permitted to continue as a Member if he, she or it demonstrates reasonable cause for the lack of participation and promptly resumes such participation. 13.5 Company's Option To Purchase. For the period commencing upon the occurrence of an event giving rise to an option to buy, as specified in Section 13.2, and continuing thereafter until thirty (30) days after the Company's receipt of notice of the event giving rise to the option, which notice is in substantial compliance with the provisions of Section 13.4, the Company shall have the option to purchase all, but not less than all, of the Affected Interest of a Transferring Holder, which option and right to purchase are at the applicable price and according to the terms and conditions provided in this Article 13. The Company may exercise its right and option to purchase by giving written notice to the Transferring Holder and to the other Members of its intention to exercise its right and option before the expiration of such thirty (30) day period. In no event shall the Transferring Holder vote, either by its appointed Governor or as a Member, on the question of whether the Company will elect to exercise its option. 13.6 Members' Option To Purchase. If the Company does not exercise its option to purchase as provided for in Section 13.5, then after the expiration of the thirty (30) days provided for in Section 13.5, the remaining Members of the Company shall have, for a period of thirty (30) days thereafter, the option and right to collectively purchase all, but not less than all, of the Affected Interest, which option and right to purchase are at the applicable price and according to the terms and conditions provided in this Article 13. Each Member (other than the Transferring Holder) shall have the option and right to purchase that fraction of the Affected Interest, which the Percentage Interest owned by each bears to the total Percentage Interests owned by all such other Members (excluding any Interest held by the Transferring Holder); provided, however, that any Appointing Member or Appointing Members participating in such purchase shall have the right to exclude any other Members from such purchase. Members shall exercise their right and option to purchase by giving written notice to the Transferring Holder and to the other Members and the Company of their intention to exercise their right and option within such thirty (30) day period. In the event that one or more Members elect to purchase their proportionate part of the Affected Interest and one or more Members do not so elect, the electing Members shall be required to purchase that fraction of the Affected Interest not purchased by such non-electing Members, which the Percentage Interest owned by each bears to the total Percentage Interests of all such Members who have elected to exercise their option. 13.7 Failure of Company and Members To Exercise Option. In the event that the Company does not exercise its option to purchase the Affected Interest as provided for in Section 13.5 in the time period provided therein, the Members do not exercise their option to purchase the Affected Interest pursuant to Section 13.6 in the time period provided therein, and neither of the Appointing Members has elected to require the Company to purchase the Affected Interest pursuant to Section 13.3, then: 43 (a) the Transferring Holder shall be free to retain the Financial Rights and any Governance Rights included in the Affected Interest or, if applicable, to Transfer such Financial Rights to any Person identified as a transferee in the notice given pursuant to Section 13.4, within ninety (90) days of the date of such notice; (b) any attempted or purported Transfer of any Governance Rights shall be disregarded as provided in Subdivision 5 of Section 322B.313 of the Act and Sections 12.7 and 12.8 of this Agreement, unless the remaining Members consent to such Transfer and admit the transferee as a new Member pursuant to Section 5.3, in which case such transferee must execute this Agreement; and (c) if any actual, attempted or purported Transfer giving rise to such options is found by a court of competent jurisdiction to be an event causing a dissolution of the Company under this Agreement or the Act, whether or not such Transfer is prohibited under this Agreement or the Act, then the Company shall thereupon be dissolved and liquidated pursuant to Article 15, unless its dissolution is avoided by one or more Members under Section 322B.80, clause (5), Subdivision 1 of the LLC Act. In the event that any proposed Transfer of the Affected Interest is not made in accordance with the notice given pursuant to Section 13.4, within ninety (90) days of the date of such notice, and the Company is not liquidated under Article 15 during that period, then the provisions and conditions of this Agreement (including, without limitation, Section 12.1 and this Article 13) shall continue to apply to the Affected Interest. If a proposed Transfer of the Affected Interest is completed in accordance with the notice provided given pursuant to Section 13.4, the Affected Interest and such transferee shall be subject to the provisions and conditions of this Agreement (including, without limitation, Section 12.1 and this Article 13), even if such transferee has not executed this Agreement. 13.8 Purchase Price. Subject to the offset provisions of Section 13.9(b), in the event of a purchase of an Affected Interest pursuant to this Article 13, the purchase price of the Affected Interest shall be equal to its fair market value, determined by agreement or appraisal as follows; provided, however, that if the event giving rise to the purchase is an Event of Default (other than the death or disability of any individual), the purchase price of the Affected Interest shall not exceed the balance of the terminated Appointing Member's Capital Account balance as of the effective date of such purchase. If the purchase of an Affected Interest pursuant to this Article 13 is due to an Event of Default solely caused by the death or disability of an individual, the purchase price of the Affected Interest shall nevertheless be its fair market value determined under this Section 13.8. The purchase price of the Affected Interest, as finally agreed or determined by appraisal or arbitration hereunder, is hereinafter referred to as the "Final Price." (a) Agreement. The parties to the purchase and sale shall attempt to agree upon the fair market value of the Affected Interest, within fifteen (15) days of the date of notice of exercise of the option to purchase or, if no option to purchase is exercised and an Appointing Member has elected to require a mandatory purchase pursuant to Section 13.3, within fifteen (15) days after the later of (i) the date of such mandatory purchase 44 election or the (ii) date on which the last such purchase option expires. If the parties do not agree on a purchase price within the applicable period, they shall mediate the dispute pursuant to Section 16.13. (b) Appraisal. If the parties are unable to agree upon a valuation within the applicable period, including any period of mediation provided hereunder, the value of the Affected Interest shall be determined by appraisal as follows. Such parties shall first attempt to agree upon a qualified independent business appraiser (an "Appraiser"). If they are unable to do so within ten (10) days of the date of notice of exercise of the option to purchase, then the Transferring Holder shall name one Appraiser, and the acquiring party (the Company or other Members, as the case may be) shall collectively name another Appraiser. The two Appraisers shall within five (5) business days after their appointment appoint a third Appraiser who, within thirty (30) days after its appointment, shall make a determination of the fair market value of the Affected Interest, and such determination shall be final and binding on all parties to such determination in the same manner as an arbitration award under Section 16.14. (c) Valuation Standard. For purposes of this Agreement, the fair market value of an Affected Interest shall be the cash price that would be payable to a reasonable seller by an unrelated reasonable buyer for such Interest, taking into account all relevant facts including without limitation the present value of the Transferring Holder's share of future Overhead Fees (if any) and Internal Net Cash Flows from the Company for the remaining term of the Project Contracts, without any discount for minority Voting or Percentage Interests or any premium for majority Voting or Percentage Interests (except that an appropriate discount shall be applied if the Affected Interest does not include any Governance Rights). 13.9 Closing Date and Terms of Purchase. (a) Purchaser; Closing or Expedited Closing to Protect Gaming Rights. For purposes of this Section 13.9, the Person or Persons purchasing an Affected Interest (who may be the Company, one Member or several Members) shall be collectively referred to as the "Purchaser" unless the context indicates otherwise. Ordinarily, in the event of any sale and purchase of an Affected Interest pursuant to the terms of this Agreement, the sale and purchase shall close on a reasonable date, at a reasonable place and at a reasonable time to be selected by the Purchaser, which shall be no later than thirty (30) days after the Final Price is determined pursuant to Section 13.8. However, the Members acknowledge that it is likely that, if the Purchaser is an Appointing Member who has exercised its right and option to purchase the Affected Interest pursuant to Section 5.5, such Purchaser will exercise that option to protect the ability of the Purchaser (or any of its subsidiaries or other Affiliates) to obtain or maintain a Gaming License (as defined in Section 5.5) or a contract or agreement to manage a gaming facility. Accordingly, such Purchaser may need to exercise its option and right to 45 purchase such Affected Interest and close such purchase (an "Expedited Closing") before the Final Price of such Affected Interest is determined under Section 13.8. Therefore, any Purchaser under Section 5.5 shall have the right to require the Transferring Holder to assign the Affected Interest to the Purchaser pursuant to subsection (e) of this Section 13.9, at any time after the event giving rise to the option under Section 5.5, and before its Final Price is determined, by giving the Transferring Holder written notice of the Purchaser's exercise of such purchase option and its election to require an Expedited Closing. If the Purchaser elects an Expedited Closing, then (i) the Transferring Holder and the Purchaser shall complete the conveyance of the Affected Interest to the Purchaser at a closing within five (5) business days after the Transferring Holder's receipt of notice of the Expedited Closing election; (ii) the Purchaser shall pay to the Transferring Holder at such closing an amount of cash equal to the amount in the Transferring Holder's Capital Account as of the first date the Company becomes entitled to the purchase option under Section 5.5, which amount shall be deducted from the Final Price when paid by the Purchaser; (iii) the Purchaser shall pay the balance (if any) of the Final Price (less the advance payment made under the preceding clause) to the Transferring Holder pursuant to the following provisions of this Section 13.9, on a closing date within thirty (30) days after such Final Price is determined; and (iv) if the amount of any such advance payment exceeds the Final Price, the Transferring Holder shall repay the excess amount to the Purchaser on such closing date. (b) Offset of Final Price. Any Purchaser may offset the Final Price of an Affected Interest (or any advance payment under the preceding paragraph) by any debts due from the Transferring Holder to the Purchaser or the Company, including without limitation any actual damages (not including any consequential or punitive damages) due to (i) an Event of Default with respect to the Transferring Holder, (ii) a Transfer or attempted Transfer in violation of this Agreement, or (iii) the withdrawal of the Transferring Holder as a Member (for any reason other than the death or disability of an individual) in violation of Section 5.4, and to the extent that such debts are due the Company and it is not the Purchaser, such offset shall be treated as a reduction of the Final Price. Any such offset may, at the election of the Purchaser, be used first to reduce amounts due at any closing under subsection (a) above, second to reduce any amount due at the closing under the following paragraph (c), and then to reduce the first payments due on any promissory note delivered under paragraph (d) below. (b) Cash Payment at Closing. Subject to any offset pursuant to paragraph (b) above, on the date of closing the Purchaser shall pay to the Transferring Holder an amount of cash equal to 25% of the Final Price of the Affected Interest. The remaining amount owing shall be paid to the Transferring Holder annually in three (3) equal installments together with interest at a rate equal to the applicable Federal rate in effect under Code section 1274(d) as of the closing date, commencing on the first anniversary of the closing date. (c) Promissory Note (or Notes) at Closing. In the case of a single Purchaser, 46 the Purchaser shall execute a promissory note for the remaining balance of the purchase price, which note shall contain the provisions of and be in the form of that note attached hereto as EXHIBIT D. In the event of a purchase by more than one Purchaser, the purchasing parties shall execute separate notes for their proportionate shares of the unpaid purchase price, which notes shall be pursuant to the terms of and in the form of the note attached hereto as EXHIBIT D. (d) Transfer and Pledge of Affected Interest. Upon delivery of the cash payment at closing and delivery of the installment note or notes specified in the preceding paragraph, the Affected Interest shall be assigned to the Purchaser with all necessary instruments required to complete the Transfer of the Affected Interest on the Company's Required Records. Once the Affected Interest has been Transferred, the portion of the Affected Interest received by each Purchaser shall be pledged by that Purchaser to the Transferring Holder, to be held as collateral security for the payment of the note issued by that Purchaser, pursuant to the provisions of the Pledge Agreement attached hereto as EXHIBIT E, which each Purchaser shall execute on the date of closing. Each Purchaser shall have the right, while such pledge is effective, to vote any Governance Rights pledged by that Purchaser and to receive Distributions with respect to the Financial Rights pledged by that Purchaser (other than liquidating Distributions under Section 15.3, which shall be subject to the terms of the Pledge Agreement). (e) Guaranty Contribution Agreement. In the event a Member's entire Membership Interest is purchased under this Article 13, and the former Member is required to pay a Company debt because of the former Member's guaranty of the debt, each remaining Member or Members who also guaranteed such debt shall contribute toward that payment by reimbursing such former Member for their respective shares of such payment, reduced by any amounts due the Company under Section 13.9(b) that have not been paid or offset against the Final Price. The share of such payment due from each remaining Member that guaranteed such debt shall be that fraction of such payment which the Percentage Interest held by each remaining Member who guaranteed such debt bears to the total of Percentage Interests owned by all remaining Members who guaranteed such debt. ARTICLE 14 AMENDMENT OF AGREEMENT 14.1 Amendment Procedure. When circumstances require amendment of this Agreement to comply with any law, or at any time the Members holding thirty percent (30%) or more of the aggregate Voting Interests may propose an amendment to this Agreement, in such event the Chief Manager shall call a special meeting of all Members for the purpose of considering such proposed amendment. At least thirty (30) days prior to such meeting, the Board 47 shall deliver to each Member written notice of the meeting and a statement of the purposes of the amendment and such other matters as the Board deems material to consideration of the amendment. The amendment so proposed shall be adopted if unanimously approved by the Appointing Members and other Members holding at least two-thirds (2/3) of the Voting Interests held by such Members. Alternatively, this Agreement may be amended by a written action signed by each of the Members. 14.2 Limitation on Amendments. Notwithstanding the foregoing, this Agreement shall not be amended without the consent of each Member adversely affected if such amendment would (a) adversely affect the limited liability of a Member or (b) adversely affect the Governance or Financial Rights of a Member. ARTICLE 15 DISSOLUTION 15.1 Liquidating Events. (a) The Company shall be dissolved upon the occurrence of any of the following events (a "Liquidating Event"): (i) by the unanimous written agreement of the Appointing Members; (ii) upon the vote of Members holding at least two-thirds of the Voting Interests of the Company, in favor of a proposal to dissolve the Company, at a meeting held pursuant to Section 322B.806 of the LLC Act; (iii) upon any election by Lakes Corning to exercise its option, as set forth in Section 13 of the Participation Agreement, to cease further funding of the Corning Project, cause the liquidation of the Company, accelerate payment of the Corning Project Companies Loan and the Corning Project Development Loan and accelerate payment of that $50,000 portion of the remaining balance of the MRD Loans (as defined in the Participation Agreement) relating to the Company; or (iv) any other event described in Section 322B.80 of the LLC Act, excluding clause (5) of Subdivision 1 thereof (concerning termination of the continued membership of a Member). (b) As soon as possible following the occurrence of any Liquidating Event that causes the dissolution of the Company, the appropriate representative of the Company shall give all of the Members a written notice of such Liquidating Event and execute a notice of dissolution in such form as shall be prescribed by the Secretary of State of Minnesota, setting forth the information required under Subdivision 1 of Section 322B.81 of the LLC Act and shall file that notice with the Secretary of State's office. (c) If the Company is dissolved, the Company shall cease to carry on its 48 business upon filing a notice of dissolution with the Minnesota Secretary of State, except insofar as may be necessary for the winding up of the Company's business and any Distributions under Section 15.3, but its separate existence shall continue until a certificate of termination has been issued by such Secretary of State or until a decree dissolving the Company has been entered by a court of competent jurisdiction. 15.2 Agreement to Avoid Dissolution. Each Member specifically acknowledges and agrees that the Company shall not be dissolved upon the withdrawal of any Member or other termination of any Member's Interest in the Company. 15.3 Distributions on Liquidation. Upon liquidation of the Company, its business shall be wound up, the Board (or other Person designated by all of the Members) shall take full account of the Company assets and liabilities, and all assets (tangible and intangible) shall be liquidated as promptly as is consistent with obtaining the fair value thereof. If any assets are not sold, gain or loss shall be allocated to the Members in accordance with Article 7 as if such assets had been sold at their fair market value at the time of the liquidation. If any assets are distributed to a Member, rather than sold, the Distribution shall be treated as a Distribution equal to the fair market value of the assets at the time of the liquidation. The assets of the Company shall be applied and distributed in the following order of priority: (a) To the payment of all debts and liabilities of the Company, including without limitation all debts due the Members, Governors, Managers and their Affiliates, in the order of priority as provided by law; (b) To the establishment of any reserves deemed necessary by the Board or other Person winding up the affairs of the Company for any contingent liabilities or obligations of the Company; and (c) To the Members, ratably in proportion to the credit balances in their respective Capital Accounts, in an amount equal to the aggregate credit balances in the Capital Accounts after and including all allocations to the Members under Article 7, including the allocation of any Profit or Loss from the sale, exchange or other disposition (including a deemed sale pursuant to this Section 15.3) of the Company's assets. (d) Last, to the Members in proportion to their Percentage Interests. The Company may offset any amount due a Member under this Section 15.3 by the amounts of (i) any debts owed the Company by the Member, and (ii) any damages suffered by the Company as a result of an Event of Default with respect to that Member, or that Member's other breach (if any) of this Agreement or any Contribution Agreement by which such Member is bound. ARTICLE 16 MISCELLANEOUS 49 16.1 Notices. All notices, requests or demands and other communication from any party hereto to another shall be in writing and shall be considered to have been duly given (i) when delivered personally, (ii) twenty-four (24) hours after sent by telephone facsimile transmission, (iii) the next business day when sent via a nationally recognized overnight courier for next business day delivery to the recipient or (iv) four (4) business days after sent by certified or registered mail, postage prepaid, to the other party. Such notices, requests, demands and other communication may be sent by any of the foregoing means, but if faxed, mailed or sent by overnight courier, shall be directed to the addresses (or fax number) indicated below, or such other address (or fax number) as may be provided in writing to each party from time to time: (a) If to Lakes Corning: Lakes Corning, LLC (or any of its Affiliates) 130 Cheshire Lane Minnetonka, MN 55305 Attention: Tim Cope Fax: (952) 449-7064 with a copy to: Maslon Edelman Borman & Brand, LLP 3300 Wells Fargo Center 90 South 7th Street Minneapolis, MN 55402-4140 Attention: Mark Baumann, Esq. Fax: (612) 672-8397 (b) If to MRD: MRD Gaming, LLC (or any of its Affiliates) 600 Whitney Ranch Drive, C - 15 Henderson, NV 89014 Attention: Matthew R. Daly Fax: (702) 547-9015 with a copy to: Larkin, Hoffman, Daly & Lindgren, Ltd. 1500 Wells Fargo Financial Center 7900 Xerxes Avenue South Bloomington, Minnesota 55431 Attention: Charles S. Modell, Esq. Fax: (952) 896-1511 (c) If to the Company: Pacific Coast Gaming - Corning, LLC 600 Whitney Ranch Drive, C - 15 Henderson, NV, 89014 Attention: Matthew R. Daly Fax: (702) 547-9015 with a copy to: Lakes Corning, LLC 130 Cheshire Lane Minnetonka, MN 55305 Attention: Tim Cope Fax: (952) 449-7064
Such notices may be given to a Member at the latest address specified in the Company's Required Records, if different than those specified above. Any Member or the Company may, at any time by giving five (5) days' prior written notice to the other Members and the Company, designate any other address in substitution of the foregoing address to which such notice will be 50 given. All notices, offers, demands, certificates or other communications required or permitted under this Agreement shall be in writing, signed by the Person giving the same. 16.2 Consent and Waiver. No consent under and no waiver of any provision of this Agreement on any one occasion shall constitute a consent under or waiver of any other provision on such occasion or on any other occasion, nor shall it constitute a consent under or waiver of the consented-to or waived provision on any other occasion. No consent or waiver shall be enforceable unless it is in writing and signed by the party against whom such consent or waiver is sought to be enforced. 16.3 Entire Agreement. Except for the Articles, the Company's Bylaws, the Participant Agreement and the promissory notes and loan and security agreements executed and delivered pursuant to the Participant Agreement, this Agreement constitutes the entire agreement among the parties with respect to the Company, supersedes any prior agreement or understanding among them, and may not be modified or amended in any manner other than as set forth herein. 16.4 Governing Law. This Agreement and the rights of the parties hereunder shall be governed by, interpreted and enforced in accordance with the laws of the State of Minnesota. 16.5 Binding Effect. Except as herein otherwise specifically provided, this Agreement shall be binding upon and inure to the benefit of the Members and their legal representatives, heirs, administrators, executors, successors and permitted assigns, as the case may be. 16.6 Number and Gender. Wherever from the context it appears appropriate, each term stated in either the singular or the plural shall include the singular and the plural and pronouns stated in either the masculine, the feminine or the neuter gender shall include the masculine, feminine and neuter. 16.7 Interpretation. Except as otherwise indicated by the context, all references herein to Articles, Sections and paragraphs refer to Articles, Sections and paragraphs of this Agreement. All such Article, Section and paragraph headings are for reference purposes only and shall not affect the interpretation of this Agreement. 16.8 Severability. If any provision of this Agreement or the application of such provision to any Person or circumstances, shall be held invalid, the remainder of the Agreement, or the application of such provision to Persons or circumstances other than those to which it is held invalid, shall not be affected thereby. 16.9 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement binding on all Members and the Company. Each Member shall become bound by this Agreement immediately upon signing any counterpart, independently of the signature of any other Member. However, in making proof of this Agreement, it will be necessary to produce only one copy signed by the party to be charged. 51 16.10 Right to Specific Performance. In view of the fact that the Membership Interests subject to this Agreement are of a closely-held limited liability company, and in view of the purposes of this Agreement, it is agreed that the remedy at law for failure of any party to perform would be inadequate and that the injured party or parties, at his, her or their option, shall have the right to compel the specific performance of this Agreement in a court of competent jurisdiction, to the extent permitted by the LLC Act and other applicable law, and not expressly prohibited by this Agreement. 16.11 Additional Documents and Acts. Each Member agrees to execute and deliver such additional documents and instruments and to perform such additional acts as may be necessary or appropriate to effectuate, carry out and perform all of the terms, provisions, and conditions of this Agreement and the transactions contemplated hereby. 16.12 No Third Party Beneficiary. This Agreement is made solely and specifically among and for the benefit of the parties hereto, and their respective successors and permitted assigns; and no other Person will have any rights, interest, or claims hereunder or be entitled to any benefits under or on account of this Agreement as a third party beneficiary or otherwise. 16.13 Non-binding Mediation. Except with respect to matters for which a Member or the Company believes it necessary to seek equitable relief permitted under a written agreement, or otherwise to prevent irreparable harm to such party, each party to this Agreement agrees to enter into mediation and to cause the Governors appointed by the Appointing Members agrees to enter into mediation, of all disputes involving this Agreement or any aspect of their business relationship (including without limitation any deadlock of the Board or the Members required by Section 9.6 to be mediated, and including any failure to agree on a Final Price under Section 13.8), for a minimum of four (4) hours of mediation, prior to the initiation of any arbitration, legal action or claim against any other party. Such mediation shall be conducted pursuant to Section 21 of the Participation Agreement. Any decision or other actions of a mediator under this Agreement or the Participation Agreement shall not be binding upon the Board, any Member or the Company; and no such mediator shall have the authority to impose a settlement upon the Board, any Member or the Company. Rather any mediator shall attempt to assist the Board, the Members and the Company (as applicable) to reach a satisfactory resolution of such matter. If a notice of any action, inaction, condition or event alleged to be a default by an Appointing Member has been issued by the other Appointing Member pursuant to Section 6.6, and such default is subject to cure before actually becoming an Event of Default, the period for cure shall be tolled until the mediation under this Section 16.13 is complete; provided, however, that the request for mediation was made at least ten (10) days before such action, inaction, condition or event shall become an Event of Default. However, such tolling shall not apply to any payments owed to third parties if the failure to make such payment would result in any significant penalties to any Member, the Company or the Paskenta Tribe. 16.14 Confidential Arbitration. Except with respect to matters for which a party to this Agreement believes it necessary to seek equitable relief permitted under a written agreement, any 52 dispute among or between any of the parties hereto or between the Governors (the "disputants") arising directly or indirectly out of, pursuant to or under this Agreement, and any other dispute among or between any such disputants, however arising (including without limitation any deadlock of the Board or the Members required by Section 9.6 to be arbitrated, but excluding any purchase price appraisal under Section 13.8), which they are not able to resolve on their own or through mediation hereunder, shall be resolved by binding arbitration in Minneapolis, Minnesota. The Appointing Members agree to cause the Governors appointed by them to submit any such deadlock to arbitration hereunder. Any such arbitration shall be administered by the American Arbitration Association in accordance with its Commercial Arbitration Rules then in effect, except that: (a) the question whether or not a dispute is arbitrable under this Agreement shall be a matter for binding arbitration by the arbitrators, such question shall not be determined by any court and, in determining any such question, all doubts shall be resolved in favor of arbitrability; (b) discovery shall be permitted in accordance with the Minnesota Rules of Civil Procedure, subject to supervision as to scope and appropriateness by the arbitrators; (c) judgment on the award may be entered in any court of competent jurisdiction; and (d) each of the disputants shall be entitled to present evidence and argument to the arbitrator. The arbitrator shall have the right only to interpret and apply the provisions of this Agreement (including other applicable agreements) and may not change any of such provisions. The arbitrator shall give written notice to the disputants stating the arbitrator's determination, and shall furnish to each disputant a signed copy of such determination. The expenses of arbitration shall be borne equally by the opposing disputants or as the arbitrator shall otherwise equitably determine under Section 16.15. All aspects of such arbitration shall be conducted in the strictest confidence, and each party agrees not to disclose any information concerning any dispute or arbitration hereunder to any person except as may be required by law or this Agreement. 16.15 Litigation Expense. If any disputant (as defined in Section 16.15, and including all disputants opposing one or more other disputants as one party) is made or shall become a party to any litigation (including arbitration) commenced by or against another disputant involving the enforcement of any of the rights or remedies of such disputant, or arising on account of a default of the other disputant in its performance of any of the other disputant's obligations hereunder, then the prevailing disputant in such litigation shall receive from the other disputant all costs incurred by the prevailing disputant in such litigation, plus reasonable attorneys' fees to be fixed by the court or arbitrator (as applicable), with interest thereon from the date of judgment or arbitrator's decision at the rate specified in Section 13.9(c) or, if less, the maximum rate permitted by law. IN WITNESS WHEREOF, the undersigned Members have duly executed this Member Control Agreement, with respect to Pacific Coast Gaming - Corning, LLC, on the day and year first above written, to be effective as of the Effective Date. LAKES CORNING, LLC 53 By /s/ Timothy J. Cope ------------------------------------------------------- Its Chief Financial Manager, Timothy Cope MRD GAMING, LLC By /s/ Matthew R. Daly ------------------------------------------------------ Its Manager/Member, Matthew R. Daly MEMBERS The Company hereby accepts the foregoing Agreement as a party thereto and agrees to perform its obligations thereunder, including without limitation those set forth in Article 13. PACIFIC COAST GAMING - CORNING, LLC By /s/ Matthew R. Daly -------------------------------------------------------- Its Chief Manager, Matthew R. Daly As parties to the Participation Agreement described in paragraph A of the Introduction to the foregoing Member Control Agreement, Lakes Gaming & Resorts, LLC ("LGR") and MRD Gaming, LLC ("MRD") hereby accept the foregoing Agreement as an amendment of the Participation Agreement, to the extent provided in Section 3.50 of the foregoing Member Control Agreement. LAKES GAMING AND RESORTS, LLC By /s/ Timothy J. Cope -------------------------------------------------------- Its Chief Financial Manager, Timothy Cope MRD GAMING, LLC By /s/ Matthew R. Daly -------------------------------------------------------- Its Manager/Member, Matthew R. Daly EX-10.4 5 c58465ex10-4.txt MEMBER CONTROL AGREEMENT - SANTA ROSA, LLC 1 MEMBER CONTROL AGREEMENT OF PACIFIC COAST GAMING -- SANTA ROSA, LLC THIS MEMBER CONTROL AGREEMENT is made and entered into on this 12th day of October, 2000, but is effective as of the 12th day of October, 2000 (the "Effective Date"), by and between LAKES CLOVERDALE, LLC, a Minnesota limited liability company ("Lakes Cloverdale"); and MRD GAMING, LLC, a California limited liability company ("MRD") (collectively, the "Members"), with respect to PACIFIC COAST GAMING -- SANTA ROSA, LLC, a Minnesota limited liability company (the "Company"). INTRODUCTION AND CERTAIN DEFINITIONS A. Participation Agreement. The Company is being formed pursuant to a written Acquisition and Participation Agreement between MRD and Lakes Gaming and Resorts, LLC, a Minnesota limited liability company ("LGR"), dated August 7, 2000, and amended by a First Amendment thereto, dated October 12, 2000, copies of which Agreement and Amendment are attached hereto as part of EXHIBIT A (collectively, the "Participation Agreement"). B. Predecessor Company. As of the Effective Date and pursuant to the Participation Agreement, MRD acquired 100% of the membership interests of a Maryland limited liability company called Pacific Coast Gaming -- Santa Rosa, L.L.C. (the "Predecessor Company"), which holds certain rights and contracts to develop a gaming casino on Indian land in Cloverdale, California, more fully described in the Participation Agreement as the "Cloverdale Project." MRD made that acquisition in exchange for (1) a $100,000 cash payment funded by a loan from Lakes Cloverdale to MRD; and (2) MRD causing Lakes Cloverdale to loan $356,639 to the Predecessor Company, which it used to satisfy certain advances made by its former owners (the "Advanced Funds Loan"). MRD also issued to the former owner of the Predecessor Company a promissory note in the principal amount of $2,000,000, to secure MRD's obligation to pay consulting fees (the "MRD Consulting Note"),which note has been guaranteed in writing by Lakes Gaming, Inc., a publicly held Minnesota corporation that is the sole owner of LGR. Prior to the Effective Date and pursuant to the Participation Agreement, LGR has loaned $210,682.97 to MRD, which MRD has in turn loaned to the Predecessor Company on the same terms and conditions, which are set forth in promissory notes issued by MRD to LGR (the "Interim MRD Loan") and by the Predecessor Company to MRD (the "Interim Predecessor Company Loan"). C. Formation of Company and Merger. As of the Effective Date, MRD assigned to Lakes Cloverdale 65% of the economic interests in the Predecessor Company, and 50% of the voting interests therein, in exchange for (1) the release of MRD from its obligation to repay $50,000 of the $100,000 loan made to MRD by Lakes Cloverdale for the acquisition of the Predecessor Company; (2) Lakes Cloverdale's promise, set forth in the Participation Agreement, to pay 50% of MRD's obligations under the $2,000,000 MRD Consulting Note; (3) Lakes 2 Cloverdale's promise, set forth in the Participation Agreement, to loan MRD the other 50% of MRD's obligations under the $2,000,000 MRD Consulting Note, if necessary to satisfy such obligations; and (4) Lakes Cloverdale's Advanced Funds Loan to the Predecessor Company. As of the Effective Date, MRD has assigned to Lakes Cloverdale the Interim Predecessor Company Loan, and Lakes Cloverdale has accepted such assignment in satisfaction of the Interim MRD Loan. Upon the merger of the Predecessor Company into the Company, the Company shall become obligated to repay the Interim Predecessor Company Loan and the Advanced Funds Loan, which represent a part of the Project Companies Loan described in the Participation Agreement. The Members then organized the Company as of the Effective Date pursuant to Minnesota Statutes, Chapter 322B (the "LLC Act"), by adopting the Articles of Organization described in Section 1.1, and agreeing to make capital contributions to the Company, which agreements have been accepted by a unanimous action of the Company's Board of Governors dated as of the Effective Date. The capital contributions of MRD and Lakes Cloverdale to the Company were made as of the Effective Date by completing the merger of the Predecessor Company into the Company. The Members constitute all of the initial members of the Company. Such Members and any Members admitted to the Company after the Effective Date shall be identified in Section 6.2. D. Certain Affiliated Parties. LGR is the sole member of Lakes Cloverdale, and is a wholly-owned subsidiary of Lakes Gaming, Inc., a publicly held Minnesota corporation. LGR has assigned all of its rights under the Participation Agreement to Lakes Cloverdale, which has assumed the obligations of LGR under the Participation Agreement. The Cloverdale Project is being carried out for the Cloverdale Rancheria of Pomo Indians, in Cloverdale, California (the "Cloverdale Tribe"). The only members of MRD are Matthew R. Daly, a Nevada resident; and his father, Robert Daly, who is a Minnesota resident. Pursuant to the Participation Agreement, MRD and Lakes Corning, LLC, another subsidiary of LGR ("Lakes Corning"), have also formed Pacific Coast Gaming -- Corning, LLC, a Minnesota limited liability company (the "Corning Joint Venture"), to carry out a casino development project similar to the Cloverdale Project, for the Paskenta Band of Nomlaki Indians, in Corning, California (the "Corning Project"). The Corning Project is referred to in the Participation Agreement as the "Paskenta Project." E. This Agreement. Section 322B.37 of the LLC Act authorizes a member control agreement for a limited liability company. Each of the Members desires to enter into such an agreement, in the form of this Agreement, with respect to the Company. AGREEMENT 3 NOW, THEREFORE, in consideration of the foregoing facts, the mutual promises of the Members and the mutual benefits to be gained by the performance of this Agreement, the Members hereby agree as follows: ARTICLE 1 FORMATION OF LIMITED LIABILITY COMPANY 1.1 Formation and Articles. As of the Effective Date, the Members have formed the Company as a limited liability company under the provisions of the LLC Act. The Company's business shall be conducted to comply with the LLC Act. The Members hereby adopt and approve the Amended and Restated Articles of Organization of the Company, as filed by the Company's organizer in the office of the Secretary of State of the State of Minnesota on June 12, 2000, and amended by the organizer on September 25, 2000, to and change the Company's name from "Lakes Pauma Valley, LLC" to "Pacific Coast Gaming -- Santa Rosa, LLC" (the "Articles"). A copy of the Articles, as so amended, is attached hereto as EXHIBIT B and hereby made a part of this Agreement. The Company's Board shall promptly cause to be executed and so filed any further amendments of such Articles that may be adopted by the Members or required by law. Except as otherwise provided in this Agreement, the Articles and the Company's Bylaws, the rights and liabilities of the Members shall be as provided in the LLC Act. The purpose of the Company is set forth in Article 4. 1.2 Term. The term of the Company shall begin on the Effective Date and shall continue until the Company is dissolved upon a Liquidation Event as provided in Article 15. 1.3 Name. The business of the Company shall be conducted under the name of "Pacific Coast Gaming -- Santa Rosa, LLC" or such other name as the Board (as defined in Article 3) may hereafter designate. ARTICLE 2 PLACE OF BUSINESS AND AGENT FOR PROCESS 2.1 Place of Business. The principal executive office of the Company shall be located at 600 Whitney Ranch Drive, Suite C-15, Henderson, Nevada 89014. The Board may from time to time change the location of the principal office of the Company and, in such event, the Chief Manager shall give notice to the Members within twenty (20) days of the effective date of such change. The Board may in its discretion establish additional places of business of the Company. 2.2 Agent for Process. The name and address of the agent for service of process in the State of Minnesota shall be Lakes Cloverdale, LLC, located at 130 Cheshire Lane, Minnetonka, Minnesota 55305. The Board may from time to time replace such agent and, in such event, the Chief Manager shall give notice to the Members and the appropriate state authorities within twenty (20) days of the effective date of such change. 4 ARTICLE 3 GENERAL DEFINITIONS Wherever used in this Agreement, unless another meaning is explicitly indicated by the context, the following terms shall have the meanings set forth below: 3.1 "Affiliate" means, with respect to a specific Person, any of the following other Persons: (a) any Person directly or indirectly controlling, controlled by, or under common control with such Person; (b) any Person owning or controlling ten percent (10%) or more of the outstanding voting interest of such Person; (c) any officer, director or general partner of such Person; (d) any Person who is an officer, director, general partner, trustee or holder of ten percent (10%) or more of the voting interest of any Person described in clauses (a) through (c) of this sentence; or (e) any member of the Family or sibling of the specified Person or member of the sibling's Family. For purposes of this definition, the terms "control," "is controlled by" or "is under common control with" shall mean 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. 3.2 "Agreement" or "Member Control Agreement" means this Member Control Agreement (including all of its Exhibits and Schedules, if any), as amended from time to time. 3.3 "Articles" shall mean the Articles described in Section 1.1, as they may be amended from time to time by Members holding at least two-thirds of the Voting Interests, pursuant to the LLC Act and the Bylaws. 3.4 "Appointing Member" shall mean each Member that is entitled to appoint one or more Governors pursuant to Article 10, without an election by all of the Members otherwise entitled to vote with respect to Company matters; and includes each of its successors and assigns that becomes a Member hereunder with respect to all of the Voting Interest held by the Appointing Member. 3.5 "Board" means the Board of Governors of the Company, as appointed by the Appointing Members pursuant to Article 10 and the Bylaws. 3.6 "Bankruptcy" means, with respect to any Person, a "Voluntary Bankruptcy" or an "Involuntary Bankruptcy." (a) "Voluntary Bankruptcy" means, with respect to any Person, the inability of such Person generally to pay his, her or its debts as such debts become due or an admission in writing by such Person of his, her or its inability to pay such debts generally or a general assignment by such Person for the benefit of creditors; the filing of any petition or answer by such Person seeking to adjudicate it a bankrupt or insolvent or seeking for such Person any liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of such Person or the debts of such Person 5 under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking, consenting to or acquiescing in the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for such Person or for any substantial part of such Person's property; or corporate action taken by such Person to authorize any of the actions set forth above. (b) "Involuntary Bankruptcy" means, with respect to any Person, without the consent or acquiescence of such Person, the entering of an order for relief or approving a petition for relief or reorganization or any other petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or other similar relief under any present or future bankruptcy, insolvency or similar statute, law or regulation; or the filing of any such petition against such Person which petition shall not be dismissed within ninety (90) days; or, without the consent or acquiescence of such Person, the entering of any order appointing a trustee, custodian, receiver or liquidator of such Person or of all or any substantial part of the property of such Person, which order shall not be dismissed within ninety (90) days. 3.7 "Bylaws" means the Bylaws of the Company, as adopted by the Board under the LLC Act and hereafter amended from time to time by the Board. The initial Bylaws are attached hereto as EXHIBIT C. 3.8 "Capital Account"shall have the meaning set forth in Section 6.1(b) 3.9 "Capital Contribution" shall have the meaning set forth in Section 6.1(c). 3.10 "Cloverdale Development Rights" shall mean the Development Rights defined in the Participation Agreement and relating to the Cloverdale Project. 3.11 "Cloverdale Other Assets" shall mean those Other Assets defined in the Participation Agreement and relating to the Cloverdale Project. 3.12 "Cloverdale Project" shall have the meaning set forth in the Participation Agreement, which includes the development, construction, equipment and start-up of a gaming casino on Indian land pursuant to the Cloverdale Project Contracts. 3.13 "Cloverdale Project Companies Loan" means the Interim Predecessor Company Loan and the Advanced Funds Loan, which together represent a part of the Project Companies Loan described in the Participation Agreement. 3.14 "Cloverdale Project Contracts" means the Company's Project Contracts (as that term is defined in the Participation Agreement) with the Cloverdale Tribe, including any amendments or restatements of such Project Contracts, which provide for completion of the Cloverdale Project. The Cloverdale Project Contracts have become part of the Company Property as a result of the merger of the Predecessor Company, as part of the Capital Contributions by the Members. 6 3.15 "Cloverdale Project Development Loan" means the Project Development Loan (as defined in the Participation Agreement) to be made to the Company by Lakes Cloverdale on behalf of LGR. 3.16 "Cloverdale Tribe" shall have the meaning set forth in paragraph B of the Introduction to this Agreement. 3.17 "Code" means the Internal Revenue Code of 1986, as amended from time to time (and any corresponding provisions of succeeding law). 3.18 "Company" means "Pacific Coast Gaming -- Santa Rosa, LLC, the Minnesota limited liability company formed as of the Effective Date pursuant to the Participation Agreement, this Agreement and the Articles. 3.19 "Company Property" means the Cloverdale Development Rights, the Cloverdale Project Contracts and the Cloverdale Other Assets, which have been contributed to the Company by the Members as a result of the merger of the Predecessor Company into the Company pursuant to the Participation Agreement as of the Effective Date; and all other real and personal property acquired and held from time to time by the Company and any improvements thereto, and shall include both tangible and intangible property. 3.20 "Corning Joint Venture" shall have meaning set forth in paragraph D of the Introduction to this Agreement. 3.21 "Corning Project" shall have meaning set forth in paragraph B of the Introduction to this Agreement. The Corning Project is referred to in the Participation Agreement as the "Paskenta Project." 3.22 "Contribution Agreement" means the Participation Agreement and any other agreement in writing, executed by the Company and a Person desiring to become a Member, setting forth the terms of such Person's admission as a Member including, but not limited to, the agreed value of the contribution that shall be made by such Person to the capital of the Company, and the Percentage Interest and Voting Interest to be issued by the Company to such Person. 3.23 "Depreciation" shall have the meaning set forth in Section 6.1(d). 3.24 "Development Rights" shall have the meaning given that term in the Participation Agreement. 3.25 "Direct Lineal Descendants" means children, grandchildren, great grandchildren and so on, by natural birth or legal adoption, including any illegitimate child (if acknowledged by the child's parent) and any of the direct lineal descendants of any such child. 3.26 "Distribution" means any distribution to the Members of cash or other assets of the 7 the Company made from time to time pursuant to the provisions of this Agreement. 3.27 "Effective Date" means October __, 2000, the effective date of this Agreement and the formation of the Company. 3.28 "Event of Default" shall have the meaning set forth in Section 6.6, and may be either an MRD Event of Default or a Lakes Event of Default (as those terms are defined in Section 6.6), as the context requires. plus (c) repayments received by the Project Company on any advances it made to the other Project Company in the form of payments to Lakes of amortized loan amounts due from the other Project Company to Lakes under the Project Companies Loan or a Project Development Loan 3.29 "External Net Cash Flows" with respect to the Company shall mean the net sum of the following, as reasonably determined in good faith by the Board: (a) gross variable and fixed lease fees (as defined in the Cloverdale Project Contracts) received by the Company; plus (b) loan payments and all other fees, amounts and payments received by the Company from the Cloverdale Tribe under the Cloverdale Project Contract or otherwise with respect to the Cloverdale Project; plus (c) repayments received by the Company on any advances it made to the Corning Joint Venture in the form of payments to Lakes Corning of amortized loan amounts due from the Corning Joint Venture to Lakes Corning under the Corning Joint Venture's share of the Project Companies Loan or its Project Development Loan (as such loans are defined in the Participation Agreement); plus (d) any other cash revenues received by the Company without any obligation to repay; and less (e) franchise fees, third party financing costs and other expenses paid to third parties. "External Net Cash Flows" shall not be reduced by depreciation, amortization, cost recovery deductions or similar non-cash expense allowances; or any items deducted from External Cash Flows in determining Internal Cash Flows. 3.30 "Family" means an individual, his or her spouse (but only if he or she and his or her spouse are not separated), his or her Direct Lineal Descendants and his or her direct ancestors. 3.31 "Financial Rights" means a Member's rights to (a) a Capital Account; (b) a Percentage Interest in Company Profits, Losses and Distributions; (c) payments (if any) under the terms and conditions of Article 13 upon the Member's termination or other withdrawal and (d) the Member's limited right to Transfer such rights according to Article 12. 3.32 "Fiscal Year" means (a) the period commencing on the Effective Date and ending on December 31, 2000, (b) any subsequent calendar year, or (c) any portion of either of the periods described in clauses (a) and (b) for which the Company is required to close its books and allocate Profits, Losses and other Company items pursuant to Article 7. 3.33 "Gaming Licenses" shall have the meaning set forth in Section 5.5. 3.34 "Governance Rights" means all of a Member's rights as a Member, other than 8 Member's Financial Rights. Governance Rights specifically include (without limitation) the rights of Appointing Members to appoint Governors pursuant to Article 10 and the right of each Member to vote its Voting Interest. 3.35 "Governor" shall mean any individual appointed under Section 10.1 to serve on the Board. The first Governors are the two (2) individuals named in Section 10.2. 3.36 "Interest" shall have the same meaning as Membership Interest (defined below). 3.37 "Internal Net Cash Flows" with respect to the Company shall mean the net sum of the following, as reasonably determined in good faith by the Board: (a) External Net Cash Flows, less (b) Overhead Fees paid as described in Section 8.1, less (c) Project Manager Costs paid as described in Section 11 of the Participation Agreement; less (d) payments of amortized amounts due Lakes Cloverdale on the Cloverdale Project Development Loan and the Cloverdale Project Companies Loan; and less (e) repayments made by the Company on any advances it received from the Corning Joint Venture in the form of payments to Lakes Cloverdale of amortized amounts due from the Company to Lakes Cloverdale under the Cloverdale Project Companies Loan or the Cloverdale Project Development Loan. "Internal Net Cash Flows" shall not be reduced by depreciation, amortization, cost recovery deductions or similar non-cash expense allowances. 3.38 "Lakes Cloverdale" shall have the meaning set forth in the first paragraph of this Agreement. 3.39 "Lakes Corning" shall have the meaning set forth in paragraph D of the Introduction to this Agreement. 3.40 "Lakes Event of Default" shall have meaning set forth in Section 6.6(b) of this Agreement. 3.41 "LGR" shall have the meaning set forth in paragraph A of the Introduction to this Agreement. 3.42 "LLC Act" means the Minnesota Limited Liability Company Act, as set forth in Minnesota Statutes, Chapter 322B, as amended from time to time (or any corresponding provisions of succeeding law). 3.43 "Liquidating Event" shall have the meaning set forth in Section 15.1. 3.44 "Loss" and "Losses" shall have the meaning set forth in Section 7.1. 3.45 "Managers" means the Chief Manager and the Treasurer elected by the Board and each other individual who shall hereafter be elected, appointed, or otherwise designated as a Manager by the Board pursuant to Section 9.1 and the Bylaws, and any other person considered elected as a manager pursuant to the LLC Act. 9 3.46 "Member" or "Members" shall have the meaning set forth in Section 5.1. 3.47 "Membership Interest" or "Interest" means the Percentage Interest and Voting Interest of a Member in the Company and the appurtenant rights, powers and privileges, including both the Financial Rights and Governance Rights of such Member with respect to the Company. 3.48 "MRD" shall have the meaning set forth in the first paragraph of this Agreement. 3.49 "MRD Event of Default" shall have meaning set forth in Section 6.6(a) of this Agreement. 3.50 "Participation Agreement" shall have the meaning set forth in paragraph A of the Introduction to this Agreement. In the event of any inconsistency or conflict between the Participation Agreement and this Agreement, the provisions of this Agreement shall govern. 3.51 "Percentage Interest" means the percentage interest of a Member in the Profits, Losses and Distributions of the Company and shall be the percentage set forth as its Percentage Interest in Section 6.2, subject to adjustment in accordance with Section 6.3. 3.52 "Person" means any individual, partnership, limited liability company, corporation, trust or other entity. 3.53 "Predecessor Company" shall have the meaning set forth in paragraph A of the Introduction to this Agreement. 3.54 "Profits" shall have the meaning set forth in Section 7.1. 3.55 "Regulations" means the Income Tax Regulations, including Temporary Regulations, promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). 3.56 "Required Records" are the financial records and other records (including this Agreement) required to be kept at the principal executive office of the Company under Section 322B.373 of the LLC Act. 3.57 "Transfer" means, as a noun, any voluntary or involuntary transfer (by operation of law, Bankruptcy, court order or otherwise), sale, exchange, assignment, pledge or other encumbrance, foreclosure of a security interest upon, or other disposition of an item; or, as a verb, to voluntarily or involuntarily cause a Transfer of an item. "Transferred" means, as an adjective, that an item has been the subject of a Transfer. 3.58 "Voting Interest" means a Member's relative voting power as a Member and shall be the percentage set forth as such Member's Voting Interest in Section 6.2, as amended from to 10 time pursuant hereto. ARTICLE 4 PURPOSES The Company has been formed for the purposes of (a) acquiring the Cloverdale Development Rights, the Cloverdale Project Contracts and the Cloverdale Other Assets from the Predecessor Company and MRD; and (b) completing the Cloverdale Project by assuming and performing the existing obligations of the Predecessor Company and MRD under the Cloverdale Project Contracts, as more fully set forth in the Participation Agreement; and for those purposes may, subject to the limitations set forth in Article 9: (a) finance, acquire, manage and hold property, real or personal, in fee or by lease (including without limitation the Company Property being contributed as Capital Contributions), and lend money or arrange for other financing as required by the Cloverdale Project Contracts, to the extent the Board determines that such investments are in the best interests of the Company; (b) exercise any rights therein as may be necessary or appropriate for such purposes; (c) borrow funds for such purposes and to mortgage or otherwise encumber any or all of the Company Property to secure such borrowings; (d) sell or otherwise dispose of the Company's rights or ownership interests in such Company Property; and (e) undertake and carry on all activities necessary or advisable in connection with such purposes, all subject to the limitations set forth in Article 9. The Company may not engage in any other business incompatible with the Cloverdale Project without the consent of Members holding at least two-thirds of the Voting Interests. ARTICLE 5 MEMBERS, NEW MEMBERS AND GAMING LICENSES 5.1 Members. The current names and addresses of the Members are set forth in the following table:
Name of Member Address of Member Lakes Cloverdale, LLC 130 Cheshire Lane Minnetonka, Minnesota 55305 MRD Gaming, LLC 600 Whitney Ranch Drive, Suite C-15, Henderson, Nevada 89014
11 Hereafter, any new addresses of each of the Members shall be set forth in the Company's Required Records, pursuant to notice given to the Company as provided in Section 16.1. For all purposes of this Agreement, the terms "Member" or "Members" means the Persons initially signing this Agreement as Members of the Company under the LLC Act, in their capacity as Members; and each other Person who shall hereafter be admitted to the Company as a Member, or is otherwise reflected in the Required Records of the Company as the owner of any Governance Rights of a Membership Interest of the Company. 5.2 Terms of Membership Interests. The original Membership Interests reflected in the Section 6.2 are ordinary membership interests of one class, without series, and shall have the rights provided by the LLC Act, subject to any statements and limitations in the Articles or this Agreement of the specific rights or terms of such Membership Interests. The Original Capital Contribution (as defined in Section 6.1), Percentage Interest and Voting Interest of each of the Members are set forth in Section 6.2, as amended from time to time pursuant hereto. Each Member shall be entitled to vote on all matters in proportion to its Voting Interest, except as may be provided otherwise in this Agreement or pursuant to the following paragraph. A Member's right to vote is a Governance Right. With the consent of Members holding at least two-thirds of the Voting Interests, the Board may enter into Contribution Agreements with prospective Members providing for one or more classes of Interests having either Governance Rights that are limited (as compared with the original Interests) or Financial Rights that are limited or preferred (as compared with the original Interests), or any combination of such rights. If any such new class of Interests is issued, this Agreement shall be amended to state the rights of such Interests. 5.3 Additional Members. Additional Members may be admitted to the Company only upon such terms and conditions as may be established by written approval of Members holding at least two-thirds of the Voting Interests, effective as of any prospective date established by such consent or, if none is stated, by the Board. The Company may not issue additional Membership Interests without the prior written consent of Members holding at least two-thirds of the Voting Interests. Upon such consent and issuance of additional Membership Interests, Section 6.2 shall be appropriately amended. Nothing in this Section 5.3 shall be construed to limit the effect of Articles 12 and 13 with respect to the Transfer of Membership Interests by Members. Each additional Member admitted to the Company shall execute this Agreement and, if making a Capital Contribution, shall execute and perform a Contribution Agreement delivered to and accepted on behalf of the Company by the Managers pursuant to the terms and conditions approved by the Members. Any Person who is admitted to the Company as a Member shall be subject to and bound by all the provisions of this Agreement as if originally a party to this Agreement, including 12 specifically the requirements of Article 6 relating to Capital Contributions. Subject to the Member consent requirements of this Section 5.2, the Board may authorize the Managers to enter into contribution allowance agreements with current Members or prospective Members pursuant to section 322B.43 of the LLC Act, providing for the right, but not the obligation, to make a specified Capital Contribution in the future and thereby purchase a specified Percentage Interest and Voting Interest, upon such terms and conditions as may be established by the Board. 5.4 Agreement Not to Resign. Until all of the Cloverdale Project Contracts are performed or terminated, each Appointing Member agrees not to withdraw or otherwise voluntarily resign from membership in the Company for any reason whatsoever without the consent of each remaining Appointing Member; provided, however, that Lakes Cloverdale may nevertheless exercise its right to dissolve the Company pursuant to Section 13 of the Participation Agreement, at any time permitted thereby. If an Appointing Member nevertheless withdraws or otherwise voluntarily resigns from membership in the Company in violation of the preceding paragraph, the resigning Appointing Member shall be liable to the Company for any damages (excluding consequential or punitive damages) resulting from that action, and the purchase price for any purchase of the terminating Appointing Member's Interest under Article 13 shall be limited to the extent provided in Section 13.8 under such circumstances. Such damages shall nevertheless include, without limitation, (a) any damages for which the Company becomes liable under the Cloverdale Project Contracts as a direct result of such withdrawal; and (b) the expenses (including reasonable attorneys' fees) of (i) admitting a new Member, if necessary; and (ii) if applicable, purchasing the terminating Member's Membership Interest under Article 13 (excluding the purchase price and any interest payable thereunder). 5.5 Gaming Licenses and Effect of Adverse Finding. MRD acknowledges that the primary business of LGR and certain of its Affiliates is the operation and management of gaming facilities; and that LGR and those of its Affiliates must obtain and maintain in effect various approvals, findings of suitability, licenses, permits and registrations (collectively "Gaming Licenses") from various gaming authorities. Likewise, Lakes Cloverdale recognizes that MRD and certain of its Affiliates may be subject to similar regulations. The remaining provisions of this Section 5.5, as they apply to MRD, its owners and each of their Affiliates other than LGR and its Affiliates (a "Non-Lakes Party"), shall also apply in the same manner to any other Member that is a successor to MRD and is a Non-Lakes Party. The remaining provisions of this Section 5.5, as they apply to LGR, its managers and governors and each of their Affiliates, other than MRD or any of its Affiliates (a "Non-MRD Party"), shall also apply in the same manner to any other Member that is a successor to Lakes Cloverdale and is a Non-MRD Party. If (a) any Non-Lakes Party or any of its Affiliates, or any other individual or entity that directly or indirectly owns or has any interest in a Non-Lakes Party or is otherwise affiliated with a Non-Lakes Party, is found by any gaming authority with competent jurisdiction to be unsuitable or unqualified to be associated with LGR or any Affiliate of LGR; or (b) LGR determines in 13 good faith that the continued association of LGR with the Non-Lakes Party may reasonably be expected to result in (i) the disapproval, adverse modification or non-renewal of any contract or agreement under which LGR or any Affiliate of LGR has sole or shared authority to manage any gaming facility; or (ii) the loss or non-reinstatement of any Gaming License, then LGR shall give the Non- Lakes Party written notice of such finding or determination. Such notice shall describe the situation or relationship that is the basis for such finding or determination. Such Non-Lakes Party shall, promptly after its receipt of the written notice from LGR specifying such finding or determination, take all actions required to terminate or discontinue or otherwise cure, to the satisfaction of LGR and any gaming authority having jurisdiction over LGR or any Affiliate of LGR, the situation or relationship described in the notice given by LGR. If, within thirty (30) days after such Non-Lakes Party's receipt of the notice given by LGR (or such shorter period of time as may be required or requested by any gaming authority), such Non-Lakes Party fails or is unable to take such actions to the satisfaction of LGR and any gaming authority having jurisdiction, such Non-Lakes Party may at any time within such period give LGR written notice of such failure or inability or, if such Non-Lakes Party has not already given such notice, LGR may at the end of such period give a notice of such failure or inability to such Non-Lakes Party and the Company. In the event any notice of such failure or inability is given (whether or not on a timely basis), the Company shall then have the right and option to purchase such Non-Lakes Party's entire Interest in the Company at a redemption price determined under Section 13.8, based the fair market value of such Interest or, if applicable, the lower price applicable upon an Event of Default; and, if the Company does not exercise such option, Lakes Cloverdale shall have the right and option to purchase such Interest at the same price available to the Company. All of the foregoing provisions of this Section 5.5 regarding any Non-Lakes Party shall also apply to any Non-MRD Party; and MRD shall have the same rights as LGR and/or Lakes Cloverdale with respect to determinations relating to, and actions resulting from, conduct and activities of a Non-MRD Party. ARTICLE 6 MEMBERS' CAPITAL, LOANS AND EVENTS OF DEFAULT 6.1 Definitions Relating to Capital. (a) "Additional Capital Contributions" means, with respect to each Member, the Capital Contributions made by such Member pursuant to Section 6.3, reduced by the amount of any liabilities of such Member assumed by the Company in connection with such Capital Contribution or which are secured by any property contributed by such Member as a part of such Capital Contribution. (b) "Capital Account" means, with respect to any Member, the Capital Account maintained for such Member in accordance with the following provisions: (i) To each Member's Capital Account there shall be credited such 14 Member's Capital Contributions, such Member's distributive share of Profits and any items in the nature of income or gain which are specially allocated pursuant to Section 7.5 or Section 7.6, and the amount of any Company liabilities assumed by such Member or which are secured by any Company Property distributed to such Member. (ii) To each Member's Capital Account there shall be debited the amount of cash and the Gross Asset Value of any Company Property distributed to such Member pursuant to any provision of this Agreement, such Member's distributive share of Losses and any items in the nature of deductions or expenses that are specially allocated pursuant to Section 7.5 or Section 7.6, and the amount of any liabilities of such Member that are assumed by the Company or secured by any property contributed by such Member to the Company. (iii) In the event all or any portion of an Interest is Transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the Transferred Interest. (iv) In determining the amount of any liability for purposes of Sections 6.1(a), 6.1(b)(i), 6.1(b)(ii), and 6.1(f), there shall be taken into account Code section 752(c) and any other applicable provisions of the Code and Regulations. The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner consistent with such Regulations. In the event the Board shall determine that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto (including, without limitation, debits or credits relating to liabilities that are secured by contributed or distributed property, or are assumed by the Company or any Member), are computed in order to comply with such Regulations, the Board may make such modification; provided however, that it is not likely to have a material effect on the amounts distributable to any Member pursuant to Article 15 upon the dissolution of the Company. The Board also shall (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Members and the amount of capital reflected on the Company's balance sheet, as computed for book purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q); and (ii) make any appropriate modifications in the event unanticipated events (for example, the acquisition by the Company of oil or gas properties) might otherwise cause this Agreement not to comply with Regulations Section 1.704-1(b). (c) "Capital Contribution" means, with respect to any Member, the amount of money and the initial Gross Asset Value of any property (other than money) contributed to the Company with respect to the Interest held by such Member, and includes an Original Capital Contribution under Section 6.1(f) and any Additional Capital Contribution under Section 6.1(a). The principal amount of a promissory note that is not 15 readily traded on an established securities market and is contributed to the Company by the maker of the note (or a Member related to the maker of the note within the meaning of Regulations Section 1.704-1 (b)(2)(ii)(c)) shall not be included in the Capital Account of any Member until the Company makes a taxable disposition of the note or until (and to the extent) principal payments are made on the note, all in accordance with Regulations Section 1.704-1(b)(2)(iv)(d)(2). (d) "Depreciation" means, for each Fiscal Year, an amount equal to the depreciation, amortization or other cost recovery deduction allowable with respect to an asset for such Fiscal Year, except that (i) with respect to any asset whose Gross Asset Value differs from its adjusted basis for Federal income tax purposes at the beginning of such Fiscal Year and which difference is being eliminated by use of the "remedial method" defined by Regulations Section 1.704-3(d), Depreciation for that Fiscal year shall be the amount of book basis recovered for the Fiscal Year under the rules prescribed by Regulations Section 1.704-3(d)(2); and (ii) with respect to any other asset whose Gross Asset Value differs from its adjusted basis for Federal income tax purposes at the beginning of such Fiscal Year, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the Federal income tax depreciation, amortization or other cost recovery deduction for such Fiscal Year bears to such beginning adjusted tax basis; provided, however, that if the adjusted basis for Federal income tax purposes of an asset at the beginning of such Fiscal Year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Board. (e) "Gross Asset Value" means, with respect to any asset, the asset's adjusted basis for Federal income tax purposes, except as follows: (i) The initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset, as determined by the contributing Member and the Board; (ii) The Gross Asset Values of all items of Company Property shall be adjusted to equal their respective gross fair market values, as determined by the Board, as of one of the following times: (A) the acquisition of an additional Interest by any new or existing Member in exchange for more than a de minimis Capital Con tribution; (B) the Distribution by the Company to a Member of more than a de mini mis amount of Company Property as consideration for an Interest; and (C) the liquidation of the Company within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g); provided, however, that adjustments pursuant to clauses (A) and (B) above shall be made only if the Board reasonably determines that such adjustments are necessary or appropriate to reflect the relative economic interest of the Members in the Company; (iii) The Gross Asset Value of any item of Company Property (other than cash) distributed to any Member shall be adjusted to equal the gross fair 16 market value of such asset on the date of Distribution as determined by the distributee and the Board; and (iv) The Gross Asset Values of Company Property shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code section 734(b) or Code section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulation Section 1.704-1(b)(2)(iv)(m) and Sections 7.1(f) and 7.5(a); provided, however, that Gross Asset Values shall not be adjusted pursuant to this paragraph (iv) to the extent the Board determines that an adjustment pursuant to 6.1(e)(ii) is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this paragraph. If the Gross Asset Value of an asset has been determined or adjusted pursuant to Section 6.1(e)(i), Section 6.1(e)(ii), or this Section 6.1(e)(iv), such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Profits and Losses. (f) "Original Capital Contribution" means, with respect to each Member, the Capital Contribution made by such Member pursuant to Section 6.2, reduced by the amount of any liabilities of such Member that are (i) assumed by the Company in connection with such Capital Contribution or (ii) secured by any property contributed by such Member to the Company as a part of such Capital Contribution. 6.2 Capital and Interests of Members. The capital of the Company shall be contributed by the Members and has been accepted by the Board at the respective values set forth in the following table:
Member's Name Agreed Form of Contribution Agreed Value Percentage Voting of Interest Interest Contribution Lakes Cloverdale, 65% per cent economic interest, $ 1,430,000.00 65% 50% LLC and 50% voting interest, in the Predecessor Company* MRD Gaming, 35% per cent economic interest, $ 770,000.00 35% 50% LLC and 50% voting interest, in the Predecessor Company; and all rights of MRD in the Cloverdale Project Contracts, the Cloverdale Development Rights and the Cloverdale Other Assets** Totals $ 2,200,000.00 100% 100%
* Plus the obligation of Lakes Cloverdale to provide services and lend money to the Company, to the extent required of LGR under the Participation Agreement. 17 ** Plus the obligation to provide services to the Company, to the extent required of MRD under the Participation Agreement. As of the Effective Date, each Member shall contribute to the capital of the Company the amount of property specified following its name in the table above as its Original Capital Contribution; and shall be credited with the Percentage Interest and Voting Interest set forth therein. The Original Capital Contribution, Percentage Interest and Voting Interest of each of the Members shall be set forth in the table above. In addition, each of the Members agrees to provide loans and/or services to the Company to the extent either it or any of its Affiliates is obligated to do so under the Participation Agreement. 6.3 Additional Capital Contributions. Each Member may contribute from time to time as an Additional Capital Contribution such additional money or other property as may be approved by the Board and other Members holding at least two-thirds of the Voting Interests not held by the contributing Member; provided, however, that any Additional Capital Contribution of property (other than money) made pursuant to this Section 6.3 shall be subject to the terms and provisions of a Contribution Agreement to be executed by the contributing Member and the Company prior to delivery of such property, subject to the approval of the Board and each of the other Members holding at least a majority of the Voting Interests. If Additional Capital Contributions are not made equally by all Members, the Board shall equitably adjust the Percentage Interests and Capital Accounts of each Member to account for any non-pro-rata Additional Capital Contributions on terms that shall be set forth in a Contribution Agreement approved and signed as provided in the preceding paragraph, which agreement shall serve as an amendment to Section 6.2. Any such agreement may also equitably adjust the Members' Voting Interests. Additional Membership Interests may be granted only as permitted by Section 5.3. If an additional Membership Interest is granted, Section 6.2 shall be appropriately amended. 6.4 Other Capital Matters. (a) Except as otherwise provided in this Agreement, no Member shall demand or receive a return of the Member's Capital Contributions or withdraw them from the Company without the consent of the Board and each other Member. Under circumstances allowing or requiring a return of any Capital Contributions, no Member shall have the right to receive Company Property other than cash except as may be specifically provided herein. (b) Except as expressly provided herein, no Member shall receive any interest or draw with respect to the Member's Capital Contributions or the Member's Capital Account. (c) Except as otherwise provided by any other agreements among the 18 Members or mandatory provisions of applicable state law, a Member shall be liable only to make the Member's Capital Contributions and shall not be required to lend any funds to the Company or, after the Member's Original Capital Contribution has been made, to make any Additional Capital Contributions to the Company. 6.5 Loans to the Company. If authorized by the Board and permitted under Section 9.7, a Member may lend money to the Company from time to time, in excess of the Member's Capital Contributions. Notwithstanding anything to the contrary in this Agreement, by virtue of assuming the obligations of LGR under the Participation Agreement, Lakes Cloverdale shall be obligated to lend money to the Company, but only to the extent that LGR is expressly required by the Participation Agreement to make such loans. The Company hereby confirms its obligations to pay the Project Companies Loan described in the Participation Agreement, pursuant to the terms of the promissory notes evidencing the loans included therein. No loan obligation due a Member by the Company may be treated as a Capital Contribution for any purpose or entitle any such Member to any increase in the Member's Financial Rights or Governance Rights (if any) or any other share in any Profits, Losses, deductions, credits or Distributions of the Company, except as otherwise expressly provided in this Agreement or the Participation Agreement. The Company shall be obligated to any Member for the amount of any loan made to the Company by the Member, or any debt owed to a Member and assumed by the Company with interest thereon at such rate as may have been agreed upon by such Member and the Company and authorized by the Board or, if applicable, specified by the Participation Agreement. 6.6 Events of Default by a Member. In the event that a Member fails to make any payment, or any installment thereof, when due, of any Capital Contribution or other obligation hereunder or under a Contribution Agreement, the Board may cause the Company to enforce such obligation in such manner as may be permitted by law, subject to any enforcement limitations expressly provided in this Agreement or the Participation Agreement; and each other Member may enforce such obligation in such manner as may be provided in this Agreement and the Participation Agreement. For purposes of this Section 6.6, the term "Tribes" means, collectively, the Cloverdale Tribe and the Paskenta Band of Nomlaki Indians, in Corning, California; the term "Daly" means Matthew R. Daly; and the term "Project Contracts" means, collectively, the Cloverdale Project Contracts and the Project Contracts (as defined in the Participation Agreement) held by the Corning Joint Venture. In particular, the following events of default with respect to a designated Appointing Member (each, an "Event of Default") shall have the respective consequences specified below: (a) MRD Event of Default; Termination of MRD from Projects. The occurrence of any of the following events shall be considered an "MRD Event of Default" 19 under this Agreement: (i) loss by MRD or Matthew R. Daly ("Daly") of any gaming license for the Cloverdale Project or the Corning Project, if such license is not reinstated following the exhaustion of all legal remedies; (ii) the conviction of MRD or Daly of criminal misconduct directly related to gaming activities or related to MRD's relationship with LGR, Lakes Cloverdale, Lakes Corning or either of the Tribes; (iii) the death, resignation or disability of Daly or any other key employee of MRD, to the extent such death, resignation or disability prevents MRD from performing its day-to-day project management duties and obligations under the Participation Agreement, this Agreement, the Member Control Agreement of the Corning Joint Venture or any of the Project Contracts; and, if such key employee is not Daly, he or she is not replaced within sixty (60) days following the event in question; (iv) intentional misconduct of Daly or MRD that unreasonably threatens or jeopardizes the continued payment or performance by either of the Tribes of its obligations under its Project Contracts, if such misconduct is not cured, before or following written notice from Lakes Cloverdale or Lakes Corning, within thirty (30) days or such lesser time as may be necessary to avoid any interruption of such continued payments or performance by either of the Tribes (the "MRD Cure Period"); (v) any fraud or dishonesty of MRD or Daly with respect to the Company, the Corning Joint Venture or either of the Projects, that does or could have a material adverse effect on such company or such Project; (vi) a material breach of the Participation Agreement, this Agreement or the Member Control Agreement of the Corning Joint Venture by MRD that does or could deprive LGR, Lakes Cloverdale or Lakes Corning of a significant benefit under the Participation Agreement, this Agreement or such Member Control Agreement, if such breach is not cured before the end of the MRD Cure period; or (vii) the substantial failure or refusal by MRD to perform any of its obligations under the Participation Agreement, this Agreement or the Member Control Agreement of the Corning Joint Venture, including without limitation MRD's management obligations thereunder, if such failure or refusal has or could have a material adverse effect on LGR, Lakes Cloverdale, Lakes Corning or either of the Projects, or is or could constitute a material breach of any agreement to which the Company or the Corning Joint Venture is a party, and such refusal or failure is not cured before the end of the MRD Cure Period. 20 Within sixty (60) days following the occurrence of an MRD Event of Default, after taking into account any extension of a cure period during mediation pursuant to Section 16.13, Lakes Cloverdale, notwithstanding any other provision of the Participation Agreement, this Agreement, any related loan and security documents, the Member Control Agreement of the Corning Joint Venture, or any other Additional Transaction Documents (as defined in the Participation Agreement), may unilaterally terminate the management positions of Daly, MRD and its other representatives (including without limitation, their positions as Governors and Managers) with respect to either or both of the Company or the Corning Joint Venture, by giving MRD a written notice of such MRD Event of Default; and may thereafter proceed to redeem MRD's equity interests in either or both of the Company or the Corning Joint Venture under Section 13 and the corresponding provision of the Member Control Agreement of the Corning Joint Venture. (b) Lakes Event of Default; Termination of Lakes Cloverdale from Projects. The occurrence of any of the following events shall be considered a "Lakes Event of Default" under this Agreement: (i) any failure by LGR, Lakes Cloverdale or Lakes Corning to provide any material amount of funding under any of their lending commitments under the Participation Agreement if such failure is not cured, before or following written notice from MRD, within either thirty (30) days or such lesser time as may be necessary to prevent MRD, the Company or the Corning Joint Venture from defaulting in any material financial obligation that was to have been met with such funding (the "Lakes Cure Period"); (ii) the conviction of LGR, Lakes Cloverdale of Lakes Corning of criminal misconduct directly relating to gaming activities or related to the relationship of LGR, Lakes Cloverdale or Lakes Corning with MRD; (iii) intentional misconduct of LGR, Lakes Cloverdale or Lakes Corning that unreasonably threatens or jeopardizes the continued payment by either of the Tribes of its obligations under its Project Contracts, if such misconduct is not cured before the end of the Lakes Cure Period; or (iv) a material breach by LGR, Lakes Cloverdale or Lakes Corning of the Participation Agreement, this Agreement or the Member Control Agreement of the Corning Company that deprives MRD of a significant benefit under the Participation Agreement, this Agreement or such Member Control Agreement, if such breach is not cured before the end of the Lakes Cure Period. Within sixty (60) days following the occurrence of a Lakes Event of Default, MRD may cause either the Company or the Corning Joint Venture to suspend any payment obligations to Lakes Cloverdale or Lakes Corning until MRD obtains an alternate investor to replace Lakes Cloverdale and/or Lakes Corning, by giving Lakes 21 Cloverdale and, if applicable, Lakes Corning a written notice of such Lakes Event of Default; provided, however, that if an alternative investor has not been found within ninety (90) days, Lakes Cloverdale and Lakes Corning may require any suspended payments to recommence until such time as MRD obtains an alternative investor to replace Lakes Cloverdale and Lakes Corning. MRD's exercise of this option shall not relieve LGR, Lakes Cloverdale or Lakes Corning of any obligation to continue providing any previously agreed funding during that period unless and until MRD notifies Lakes Cloverdale and, if applicable, Lakes Corning that MRD has obtained an alternate investor. Once MRD obtains an alternate investor, MRD shall relieve LGR, Lakes Cloverdale and, if applicable, Lakes Corning of any further financing obligations, and MRD shall, at its option, either prepay Lakes Cloverdale the unpaid balance on any or all outstanding notes for prior financing to MRD, the Company and the Corning Joint Venture under the Participation Agreement, or bring current all payments owed to Lakes Cloverdale and Lakes Corning with respect to such financing, and continue meeting those obligations in accordance with the terms of the note obligations to Lakes Cloverdale and Lakes Corning. MRD may also thereafter proceed to cause the redemption of Lakes Cloverdale's Interest in the Company under Section 13, and/or Lakes Corning's equity interest in the Corning Joint Venture under the corresponding provision of the Member Control Agreement of the Corning Joint Venture. 6.7 Transferee Succeeds to Transferor's Capital Account. If any Member Transfers all or a part of its Financial Rights in the Company, whether or not such Transfer is permitted under Article 12, any transferee from the Member shall succeed to the Capital Account (including any remaining Capital Contributions) of the transferor Member to the extent of the Interest Transferred, in accordance with Regulations Section 1.704-1(b)(2)(iv)(1). ARTICLE 7 ALLOCATIONS 7.1 Definitions of Profits and Losses. "Profits" and "Losses," respectively, shall mean, for each Fiscal Year, an amount equal to the Company's taxable income or loss (as the case may be) for such Fiscal Year, determined in accordance with Code section 703(a) (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code section 703(a)(1) shall be included in taxable income or loss) with the following adjustments: (a) any income of the Company that is exempt from Federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this Section 7.1 shall be added to such taxable income or loss; (b) any nondeductible expenditures of the Company described in Code section 705(a)(2)(B) or treated as Code section 705(a)(2)(B) expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Profits or Losses pursuant to this Section 7.1, shall be subtracted from such taxable income or loss; 22 (c) in the event the Gross Asset Value of any Company asset is adjusted pursuant to Section 6.1(e)(ii) or Section 6.1(e)(iii), the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Profits or Losses; (d) gain or loss resulting from any disposition of Company Property with respect to which gain or loss is recognized for Federal income tax purposes shall be computed by reference to the Gross Asset Value of the Company Property disposed of, notwithstanding that the adjusted tax basis of such Company Property differs from its Gross Asset Value; (e) in lieu of the depreciation, amortization and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Fiscal Year, computed in accordance with Section 6.1(d); (f) to the extent an adjustment to the adjusted tax basis of any Company Property pursuant to Code section 734(b) or Code section 743(b) is required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result of a Distribution other than in liquidation of a Member's Interest, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for purposes of computing Profits or Losses; and (g) Notwithstanding any other provisions of this Section 7.1, any items that are specially allocated pursuant to Section 7.5 or Section 7.6 shall not be taken into account in computing Profits or Losses. The amounts of the items of Company income, gain, loss or deduction available to be specially allocated pursuant to Sections 7.5 and 7.6 shall be determined by applying rules analogous to those set forth in Sections 7.1(a) through 7.1(f) above. 7.2 Allocation of Profits. After giving effect to the special allocations set forth in Sections 7.5 and 7.6, the Profits of the Company for each Fiscal Year for book purposes, whether taxable or nontaxable, shall be allocated to the Members and their Capital Accounts shall be increased in accordance with Section 6.1(b), ratably in proportion to their Percentage Interests, subject to any reallocation of Lakes Cloverdale's share of Profits as Opening Bonuses due MRD pursuant to Sections 7.9 and 8.2(b). 7.3 Allocation of Losses. After giving effect to the special allocations set forth in Sections 7.5 and 7.6, the Losses, deductions and credits of the Company for each Fiscal Year for book purposes, whether taxable or nontaxable, shall be allocated to the Members and their Capital Accounts shall be reduced in accordance with Section 6.1(b), ratably in proportion to their Percentage Interests. 23 7.4 Pro-ration of Allocations. All Profits, Losses, deductions and credits for a Fiscal Year allocable with respect to any Member whose Interest may have been Transferred, forfeited, reduced or changed during such year shall be allocated based upon the varying Interests of the Members throughout the year. The precise manner in which such allocation shall be made shall be determined by the Board and shall be a manner of allocation permitted to be used for Federal income tax purposes under the Code. 7.5 Special Allocations. Notwithstanding anything to the contrary in this Article 7, the following special allocations shall be made in the following order: (a) Section 754 Adjustments. To the extent an adjustment to the adjusted tax basis of any Company Property pursuant to Code section 734(b) or Code section 743(b) is required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as the result of a Distribution to a Member in complete liquidation of the Member's Interest, the amount of such adjustment to Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Members in accordance with their Percentage Interests in the Company in the event Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Member to whom such Distribution was made in the event Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies. (b) Minimum Gain Charge-back. "Partnership Minimum Gain" within the meaning of Regulations Section 1.704-2(b)(2) means an amount of gain that would be realized by the Company on the disposition of Company property subject to nonrecourse indebtedness (within the meaning of Regulation Section 1.704-2(b)(3)), equal to the amount by which such nonrecourse indebtedness exceeds the adjusted tax basis (or book value, if the property has been properly entered on the books of the Company at a value different from its then adjusted tax basis) of such property. If for any Fiscal Year, there is a net decrease in Partnership Minimum Gain, each Member shall be allocated items of Company income and gain in accordance with Regulations Section 1.704-2(f)(1) (a "Minimum Gain Charge-back") for such year (and, if necessary, for subsequent years) in an amount equal to such Member's share of such net decrease of Partnership Minimum Gain. For this purpose, a Member's share of the net decrease in Partnership Minimum Gain shall be determined under Regulations Section 1.704-2(g)(2). This paragraph is intended to comply with Regulations Section 1.704-2(f)(1) and shall be interpreted consistently therewith. (c) Qualified Income Offset. If any Member at any time unexpectedly receives any adjustment, allocation or Distribution described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), and if such adjustment, allocation or Distribution results in a negative balance in such Member's Capital Account in excess of the sum of (i) the amount such Member is obligated to restore to the Company under this Agreement or the LLC Act and (ii) the amount such Member is deemed to be obligated to 24 restore to the Company pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1)(ii) and 1.704- 2(i)(5), then items of Company income and gain shall be specially allocated to such Member so as to eliminate, to the extent required by Regulations Section 1.704-1(b)(2)(ii)(d), such negative balance in his or her Capital Account as quickly as possible. (d) Gross Income Allocation. If any Member would have a negative balance in its Capital Account at the end of any Fiscal Year in excess of the sum of (i) the amount such Member is obligated to restore to the Company under this Agreement and (ii) the amount such Member is deemed to be obligated to restore to the Company pursuant to the penultimate sentences of Treasury Regulations Sections 1.704-2(g)(1)(ii) and 1.704-2(i)(5), then such Member shall be specially allocated items of Company income (including gross income) in the amount of such excess as quickly as possible. (e) Allocations Relating to Taxable Issuance of Interests. Any income, gain, loss or deduction realized as a direct or indirect result of the issuance of an Interest by the Company to a Member (the "Issuance Items") shall be allocated among the Members so that, to the extent possible, the net amount of such Issuance Items, together with all other allocations under this Agreement to each Member, shall be equal to the net amount that would have been allocated to each such Members if the Issuance Items had not been realized. 7.6 Curative Allocations. The allocations set forth in paragraphs (a) through (d) of Section 7.5 (the "Regulatory Allocations") are intended to comply with certain requirements of the Regulations. It is the intent of the Members that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Company income, gain, loss or deduction pursuant to this Section 7.6. Therefore, notwithstanding any other provision of this Article 7 (other than the Regulatory Allocations), the Board shall make such offsetting special allocations of Company income, gain, loss or deduction in whatever manner the Board determines appropriate so that, after such offsetting allocations are made, each Member's Capital Account balance is, to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not part of the Agreement and all Company items were allocated pursuant to Sections 7.2, 7.3 and 7.5(e). 7.7 Other Allocation Rules. (a) For purposes of determining the Profits, Losses or any other items allocable to any period, those Profits, Losses and any such other items shall be determined on a daily, monthly or other basis, as determined by the Board using any permissible method under Code section 706 and the Regulations thereunder. (b) The Members are aware of the income tax consequences of the allocations made by this Article 7 and hereby agree to be bound by the provisions of this Article 7 in reporting their shares of Company Profit and Loss for income tax purposes. 25 (c) Solely for purposes of determining a Member's proportionate share of the "excess nonrecourse liabilities" of the Company within the meaning of Section 1.752-3(a)(3) of the Regulations, the Members' interests in Company Profits are in proportion to their Percentage Interests. 7.8 Tax Allocations under Code Section 704(c). In accordance with Code section 704(c) and the Regulations thereunder, income, gain, loss and deduction with respect to any property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property to the Company for Federal income tax purposes and its initial Gross Asset Value (computed in accordance with Section 6.1(e)(i). In the event the Gross Asset Value of any Company Property is adjusted pursuant to Section 6.1(e)(ii), subsequent allocations of income, gain, loss and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for Federal income tax purposes and its Gross Asset Value in the same manner as under Code section 704(c) and the Regulations thereunder. Such allocation shall be made in accordance with the remedial method described by Regulations Section 1.704-3(d). Any elections or other decisions relating to such allocations shall be made by the Board in any manner that reasonably reflects the purpose and intention of this Agreement. Allocations pursuant to this Section 7.8 are solely for purposes of Federal, state and local taxes and shall not affect, or in any way be taken into account in computing, any Member's Capital Account or share of Profits, Losses, other items or Distributions pursuant to any provision of this Agreement. 7.9 Special Fee Allocation. If any Overhead Fee or Opening Bonus (as those terms are defined in Sections 8.1 and 8.2), or any other fee or other amount payable to a Member, is determined for income tax purposes to be a payment to such Member of a distributive share of Company income or gain (rather than being a fee or expenditure in the nature of an amount payable to a Person who is not a Member or other than in such Person's capacity as a Member), then such amount shall be treated (for income tax purposes and for purposes of determining Capital Accounts) as an allocation of gross income to such Member in the year such amount is accrued, and a Distribution in the year such amount is paid. However, the priority of payment of any such item shall be unaffected by such treatment. ARTICLE 8 DISTRIBUTIONS 8.1 Guaranteed Payments to Appointing Members. (a) Overhead Fees. In consideration of the services to be provided to the Company by the Appointing Members pursuant to the Participation Agreement, and their respective overhead expenses relating to the Company, the Company shall distribute to each of the Appointing Members (without regard to the Profits, other income or Losses of the Company) a monthly "guaranteed payment" equal to $40,000 (or any greater or lesser 26 amount that may be agreed between the Appointing Members), payable as of the first day of August, 2000 and each month thereafter until both Project Contracts have terminated, subject to the limitation and deferral provisions of the following subsections of this Section 8.1 ("Overhead Fees"); provided, however, that no such payments shall be made to a Appointing Member after an Event of Default has occurred with respect to the obligations of such Appointing Member. (b) Guaranteed Payment and Advances by Lakes Cloverdale. The term "guaranteed payment" refers only to the treatment of such Overhead Fees under Code Section 707(c); and does not mean that any Member or Manager is personally liable for any such payment, except for any temporary obligation of LGR or Lakes Cloverdale (under the following subsection) to advance Overhead Fees to MRD, subject to repayments required to be made by the Company on the Cloverdale Project Companies Loan or, if applicable, the Cloverdale Project Development Loan. (c) Limitations on Overhead Fees. Except as otherwise set forth below, Overhead Fees shall be paid from External Cash Flows before any of the other deductions made from External Cash Flows in the definition of Internal Cash Flows in Article 3, or any Distributions of Internal Net Cash Flows to the Members under Section 8.2. If External Net Cash Flows are insufficient to pay the entire Overhead Fees for both Lakes Cloverdale and MRD for any month during the first six (6) consecutive months for which Overhead Fees are payable, MRD's Overhead Fees shall be paid first, and any difference between External Net Cash Flows and MRD's Overhead Fees shall be paid by LGR or Lakes Cloverdale and added to the Cloverdale Project Companies Loan or, if such month begins after the Effective Date, the Cloverdale Project Development Loan. If, during the second six (6) consecutive months for which Overhead Fees are payable, External Net Cash Flows available for that purpose from both the Company and the Corning Joint Venture (collectively, the "Project Companies") for that month (defining External Net Cash Flows in a similar way for both companies) are insufficient for the Project Companies to pay all of the Overhead Fees otherwise due their members in any given month, the aggregate Overhead Fees payable by the Project Companies to their members shall be limited to partial payments that are equal to the greater of $30,000 or the External Net Cash Flows available for that purpose from both of the Project Companies for that month, with the remainder of the unpaid Overhead Fees for that month to be forfeited. If Overhead Fees payable by both of the Project Companies are limited hereunder to $30,000 for any month, such amount shall be payable first by the Project Companies from their External Net Cash Flows available for that purpose (in proportion to such External Net Cash Flows, unless only one of them has External Net Cash Flows) and, secondly, one-half of the balance, if any, shall be payable by each of the Project Companies, such balance to be funded (to the extent necessary) by Project Development Loans to the Project Companies. If, at any time after such twelve (12) month period, External Net Cash Flows available for that purpose from both Project Companies for that month are insufficient for 27 the Project Companies to pay all of the Overhead Fees otherwise due their members in any given month, the Overhead Fees payable by the Project Companies to their members shall be limited to partial payments that are equal to their External Net Cash Flows available for that purpose, with the remainder of the unpaid Overhead Fees for that month to be forfeited. Notwithstanding the foregoing, upon the occurrence of any payment default under the MRD Loans, the Project Companies Loan or any Project Development Loan (as those loans are defined in the Participation Agreement), then any Overhead Fees or other amounts thereafter payable to MRD by the Company shall be paid by the Company to Lakes Cloverdale as payment on such loans until the payment defaults have been cured. Payment of the Overhead Fees due Lakes Cloverdale shall commence at the same time as those due MRD. The Overhead Fees due Lakes Cloverdale shall be paid after all Overhead Fees due MRD are paid and only to the extent that External Net Cash Flows are available. All unpaid Overhead Fees due Lakes Cloverdale shall be paid before any further Distributions of Internal Net Cash Flows are made under Section 8.2. 8.2 Other Distributions. The following other Distributions shall be made to Members,but only to the extent such a Distribution is legally permitted: (a) Internal Net Cash Flows. Distributions of Internal Net Cash Flows, if any, shall be made as of the end of each month, and before the end of the next month, to the Members in proportion to their Percentage Interests, except as otherwise provided in the following paragraph, but only to the extent such Distributions are legally permitted. (b) Opening Bonuses. Lakes Cloverdale agrees that a portion of its share of any Distributions of Internal Net Cash Flows shall be payable to MRD as bonus payments in the following amounts: (a) $500,000 after the opening of the temporary gaming facility for the Cloverdale Project; and (b) $1,000,000 after the opening of the permanent casino for the Cloverdale Project; provided, however, that these bonus payments shall be paid to MRD only when and to the extent Lakes Cloverdale's share of Internal Net Cash Flows is sufficient to pay such amounts to MRD, after deducting any portion of such share that must be used by Lakes Cloverdale to pay its 50% share of the payments due under the Consulting Note (as defined in part B of the Introduction to this Agreement) to the former owner of the Predecessor Company, as required by the Participation Agreement. If Lakes Cloverdale's share of Internal Net Cash Flows is insufficient to pay the entire bonus amount in a single month, the unpaid balance shall be paid from Lakes Cloverdale's share of Internal Net Cash Flows in subsequent months. (c) Excess Cash. Except as otherwise provided in the following paragraph, if and to the extent the Company has any excess cash on hand that is not distributable as Internal Net Cash Flows, not committed to payments that are deductions from External Net Cash Flows or Internal Net Cash Flows, nor currently included in a cash reserve reasonably determined in good faith by the Board for other Company expenses, debt 28 payments, capital improvements, replacements and contingencies, then Distributions of such excess cash shall be made from time to time, but no less frequently than annually, to the Members in proportion to their Percentage Interests. (d) Sale of Substantially All Company Property. Distribution of any net proceeds upon the sale, exchange or other disposition of all or substantially all of the Company Property shall be made in accordance with Section 15.3. ARTICLE 9 MANAGEMENT AND OPERATION OF BUSINESS 9.1 Management and Control of the Company. The Appointing Members shall appoint the Board, and Governors shall be removed or replaced, all pursuant to Article 10 and the Bylaws. Except as otherwise provided in this Agreement, the Board shall have the sole and exclusive control of the conduct, operations and management of the business of the Company, subject to the results of any mediation or arbitration required under Section 9.6 in event of a deadlock of the Board. The Board shall manage the affairs of the Company in a prudent and businesslike fashion and shall use its best efforts to carry out the purposes and the business of the Company. The Board shall carry out its duties through a Chief Manager, a Manager acting as Treasurer and such other Managers as it shall deem necessary or desirable. The Managers shall be elected and removed by the Board, and their duties shall be established by the Board, all as provided in the Bylaws. The Board and the Managers shall devote such of their time as the Board deems necessary to the management of the business of the Company. 9.2 Authority of Board. The Board shall have all necessary powers to carry out the purposes and business of the Company, including without limitation the power to delegate appropriate authority to the Company's Managers; provided, however, that the Managers shall at all times remain subject to the supervision of the Board. Without limiting the foregoing, in addition to any other rights and powers that the Board may possess, the Board shall have all specific rights and powers required or appropriate in the management of the business of the Company, and only the Board shall have these rights and powers, including the following, any of which may be exercised only in furtherance of the purposes set forth in Article 4, as amended from time to time: (a) To acquire, own, hold and dispose of items of the Company Property, any interest therein or appurtenant thereto, whether real, personal or mixed, including the purchase, lease, development, improvement, maintenance, exchange, trade or sale of any Company Property at such price, rental or amount for cash, securities or other property and upon such other terms as the Board, in its sole discretion, may deem to be in the best interest of the Company, but limited to the extent set forth in Section 9.3; 29 (b) To the extent of Company assets, to prosecute, defend, settle or compromise actions or claims at law or in equity at the Company's expense as may be necessary or proper to enforce or protect the Company's interests; and to satisfy any judgment, decree, decision or settlement of any such suit or claim; first, out of any insurance proceeds available therefor, and next, out of the Company's assets and income; (c) To enter into and carry out contracts and agreements and to do and perform all such other things as may be in furtherance of Company purposes; and to cause the Managers to execute, acknowledge and deliver any and all instruments that may be deemed necessary or convenient to effect the foregoing; (d) To acquire and enter into any contract of insurance that the Board may deem necessary and proper for the protection of the Company or for any purpose beneficial to the Company; (e) To employ, engage or retain, at the expense of the Company, such Persons to perform such services as the Board may deem necessary or advisable for the efficient operation of the business of the Company and to pay to such Persons such compensation as the Board shall determine; provided, however, that such compensation is at the then prevailing rate for the type of services and materials provided; (f) To cause the Managers to execute and deliver on behalf of the Company, leases, contracts or agreements of any nature and any or all instruments necessary or desirable to effectuate the foregoing powers; and (g) To accept and value the Capital Contributions made to the Company by Members pursuant to this Agreement. 9.3 Restrictions on Authority of Board. In addition to other acts expressly prohibited or restricted by this Agreement or by law, the Board shall have no authority to act on behalf of the Company and is expressly prohibited from the following: (a) Doing any act in contravention of this Agreement; (b) Doing any act that would make it impossible to carry on the ordinary business of the Company, other than as permitted in this Agreement; (c) Seizing Company Property or assigning the rights of the Company and specific Company Property for other than a Company purpose; (d) Admitting any Person as a Member except as provided in this Agreement; (e) Performing any act (other than an act required by this Agreement or an act taken in good faith or in reliance upon counsel's opinion) that would, at the time such act occurred, subject any Member to liability as a general partner in any jurisdiction; 30 (f) Selling, exchanging or otherwise disposing of all or substantially all of the Company's assets; or (g) Taking any action that, in the prudent exercise of business discretion, could reasonably be expected to have a material adverse effect on the Company or the assets or operations thereof. All such actions shall require the approving vote of Members holding at least two-thirds of the Voting Interests or such larger proportion of the Voting Interests or other Interests as may be required by the LLC Act or another provision of this Agreement in a particular case; including in any event, however, the approving vote of the Board. 9.4 Obligations of the Board. In addition to the obligations expressly provided by law or this Agreement, the Board, to the extent of Company assets, shall: (a) Perform or cause the Managers to perform all acts necessary or desirable, with respect to the purposes of the Company, to lease, sublease and operate any real estate acquired by the Company; (b) Cause to be filed and published all certificates, statements and other instruments required by law for the formation, qualification and operation of the Company and for the conduct of its business in all appropriate jurisdictions; (c) Cause the Company to prepare or have prepared all financial and tax statements and reports required under Article 11; and (d) Cause the Company to keep the Required Records at its principal office. 9.5 Reimbursement of Expenses. The Members, the Governors and the Managers shall be reimbursed for all expenses incurred on behalf of the Company only to the extent approved by the Board and permitted by Section 9.8. In general, the Overhead Fees described in Section 8.1 are intended to cover all but extraordinary expenses of the Members and the Governors. 9.6 Mediation and Arbitration in the Event of Board or Member Deadlock. If the Board is deadlocked with respect to a substantial issue involving management of the Company's affairs after negotiating in good faith for a period of at least ten (10) days and the Members are unable to break the deadlock, or if the Members are deadlocked after negotiating in good faith for a period of at least ten (10) days with respect to any substantial issue properly put to a vote of Members, the Members hereby agree that such issue shall be mediated as set forth in Section 16.13 and, if a resolution of the issue still cannot be reached, that such issue shall be arbitrated as set forth in Section 16.14. 9.7 "Tax Matters Partner". If required by the Code, Lakes Cloverdale shall serve as 31 "Tax Matters Partner," as defined for Federal income tax purposes under section 6231(a)(7) of the Code, until a new Tax Matters Partner is appointed by the remaining Appointing Members. If on advice of counsel, the Tax Matters Partner determines that is in the best interests of the Members that the final results of any administrative proceeding be appealed by the institution of legal proceedings, the Tax Matters Partner is hereby authorized to commence such legal proceedings in such forum as it, on advice of counsel, determines to be appropriate. In the event the Tax Matters Partner selects a forum for appeal in which it is required to deposit a proportionate share of any disputed tax before making such appeal, it must obtain the consent of the Board and Members holding at least two-thirds of the Voting Interests. If such consent is obtained, each of the Members will be required to deposit and pay its proportionate share of such disputed tax before participating in such appeal. The Members acknowledge that such deposit under current law does not earn interest and that a failure to make such a deposit may preclude a Member from pursuing any other sort of appeal by court action. The Tax Matters Partner shall not be liable to any other Member for any action taken with respect to any such administrative proceeding or appeal, so long as the Tax Matters Partner is not grossly negligent or guilty of willful misconduct. Any costs paid or incurred by the Tax Matters Partner in connection with its activities in such capacity shall be reimbursed by the Company. Each Member acknowledges that any cost it may incur in connection with an audit of such Member's income tax return, including any audit relating to its investment in this Company, is such Member's sole responsibility and obligation; and neither the Company, the Board, the Managers, nor the Tax Matters Partner shall be liable to any Member for reimbursement or sharing of any such costs. 9.8 Conflicts of Interest. Any Person, whether a Member, Manager, Governor, any of their Affiliates or otherwise, may be employed or engaged by the Board to render to the Company any services that such Person is not already required to perform hereunder or under the Participation Agreement, including, but not limited to, consulting, building, financing, constructing, leasing, property management, brokerage, accounting and legal services. If such Person is a Member or an Affiliate of a Member, then such Person must have been previously engaged in the business of rendering such services or selling or leasing such goods, independent of the Company and as an ordinary and on-going business; and such Person shall be entitled to, and shall be paid, compensation for such services to the extent permitted by the Board. The fact that a Member, Governor, Manager or any of their Affiliates is employed by, or is directly or indirectly interested in or connected with any Person from whom or which the Company may buy services, merchandise or other property, shall not prohibit the Board from employing such Person or from otherwise dealing with such Person to the extent permitted under the preceding paragraph. 9.9 Other Activities. Any of the Members, Governors, Managers and their Affiliates may engage in, possess and acquire interests in other business ventures of any nature and description independently or with others, including, but not limited to, the ownership, financing, leasing, operation, management, brokerage and development of gaming and real estate 32 development activities, except as otherwise provided in Section 13 of the Participation Agreement. Except in the case of any activities that violate any applicable restrictions in Section 13 of the Participation Agreement, neither the Company nor the Members shall have any right by virtue of this Agreement in and to such independent ventures or to the income or profits derived therefrom. 9.10 Indemnification. The Company shall indemnify the Members, Governors and Managers against any loss, claim or liability incurred by any of them in connection with the business of the Company, to the greatest extent permitted by the Articles and the LLC Act. However, any amount paid to indemnify a Person shall be paid only out of Company assets; and Members shall not be liable for any amount to be paid to indemnify a Person, except to the extent of any amount of the Capital Contribution of a Member that is due and owing to the Company and remains unpaid. Neither the Company nor any Member shall have any claim against any of the Governors or Managers based upon or arising out of any act or omission of such Governor or Manager; provided, however, that such Manager or Governor acted in good faith and was not grossly negligent or guilty of willful misconduct. 9.11 Liability Under Other Agreements. The obligations of the Members, Managers and Governors or their Affiliates, pursuant to any agreement or contract entered into in their personal capacity with the Company (whether or not such agreements are referred to herein) shall be separate and distinct from their obligations hereunder. Any default or failure of performance with respect to such separate agreements or contracts, unless otherwise specified in this Agreement, shall have the consequences provided for in such separate agreements or contracts or by applicable law and shall not constitute a breach hereunder. ARTICLE 10 GOVERNORS 10.1 Appointment and Election of Governors. The Board shall consist of two (2) individuals serving as Governors. MRD shall appoint one (1) Governor to serve on the Board and Lakes Cloverdale shall appoint one (1) Governor to serve on the Board. 10.2 First Governors. The initial Governors appointed by each of the Appointing Members are the individuals designated in the following table opposite the Appointing Member's name, as follows: Appointed by Lakes Cloverdale Appointed by MRD Timothy Cope Matthew R. Daly The individual listed in the above table under the name of an Appointing Member is hereby confirmed and appointed by such Appointing Member, to hold office until their successors are appointed and qualified pursuant to this Agreement; or removed pursuant to this Agreement. 10.3 Removal, Resignation and Replacement of Governors. The Appointing Member 33 who appointed any Governor under this Article 10 shall have the power to remove and replace that Governor, without the consent of any other Member. Any Governor may resign at any time by giving written notice to the Board and each Member appointing the Governor. In the event of an MRD Event of Default, Lakes Cloverdale may remove any Governor appointed by MRD, pursuant to Section 6.6(a); and thereafter appoint such Governor's successors. ARTICLE 11 BOOKS OF ACCOUNT AND REPORTS 11.1 Books of Account. The Board shall cause to be kept complete and accurate accounts of all transactions of the Company in proper books of account and shall enter or cause to be entered therein a full and accurate account of each and every Company transaction in accordance with accounting principles as set forth in Section 11.2. The books and records of the Company shall be closed and balanced as of the end of each Fiscal Year. The books of account and other records of the Company shall at all times be kept at the place of business of the Company. Each of the Members and Governors shall have access to and may inspect and copy any of such books and records at all reasonable times. 11.2 Accounting Practices. The books of account of the Company shall be kept on the cash or accrual basis, as determined by the Board and consistent with the applicable requirements of the Code, according to generally accepted accounting principles consistently applied. Such principles shall be applied by the Board upon the advice of the Company's accountants. The Board shall have the authority to designate and retain a firm of independent certified public accountants to assist in the maintenance and preparation of such books, records and reports as the Board deems desirable and, if requested by either of the Appointing Members, to review or audit such books and records and the annual financial statements of the Company. 11.3 Bank Accounts. The Company shall maintain bank accounts in such bank or banks as may be selected by the Board. All withdrawals from such bank accounts shall be made by check or other instrument, signed by such Person or Persons as the Board may designate. 11.4 Reports to Members. Not later than seven (7) days after the end of each month and the end of each Fiscal Year of the Company, the Chief Manager shall caused to be delivered to the Board and each Member a report of the business and operations of the Company during such month, which report shall constitute the accounting of the Board to the Members for such month and such Fiscal Year. The report shall contain financial statements, including statements of assets and liabilities, income and expenses, Members' equity and Distributions, changes in financial position, External Net Cash Flows, Internal Net Cash Flows, Overhead Fees, comparisons of actual results to budgets determined pursuant to the Participation Agreement, and the amount and nature of any other compensation paid to the Members, Governors, Managers or their Affiliates during the period, including a description of the services performed in relation thereto; and shall otherwise be in such form and have such content as the Board and each Appointing Member deems proper. Such report shall state income and receipts from every source, including net gains from disposition or sale of Company assets. 34 11.5 Partnership Tax Status and Information. The Members acknowledge that the Company will be treated as a "partnership" for income tax purposes. Not later than seventy-five (75) days after the end of each Fiscal Year of the Company, the Manager acting as Treasurer shall cause to be delivered to each Person who was a Member at any time during such Fiscal Year, a Form K-1 and such other information, if any, with respect to the Company as may be necessary for the preparation of such Person's Federal, state and local income tax (or information) returns, including a statement showing such Person's share of income, gain or loss and credits for such Fiscal Year, as determined for Federal, state and local income tax purposes. In addition, the Chief Manager shall from time to time cause to be delivered to each Member adequate information relating to the Company's operations to enable each Member to complete and file all Federal, state and local estimated tax returns for which the Member may be liable. 11.6 Tax Basis Elections. In the event of a Transfer or a repurchase by the Company or Distribution of Company Property by the Company in exchange for all or part of the Interest of any Member, the Company may elect, pursuant to Section 754 of the Code (or any successor provision), to adjust the basis of the assets of the Company. Such election must be agreed to by Members holding at least two-thirds of the Voting Interests. ARTICLE 12 RESTRICTIONS ON TRANSFERS OF MEMBERSHIP INTERESTS 12.1 General Restriction. Except to the limited extent permitted under this Article 12, no part of a Member's Interest may be Transferred during lifetime or at death, whether voluntarily or involuntarily, and whether with or without consideration; nor may a Member enter into a binding agreement to Transfer all or any part of the Member's Interest. Any Transfer or attempted Transfer of all or any portion of an Interest in violation of this Agreement shall nevertheless be subject to the applicable purchase options and rights of Article 13. The Required Records and other appropriate records of the Company shall be noted to prevent the Transfer of Interests except in accordance with this Article 12 and Article 13. 12.2 Permitted Transfers. The following Transfers are permitted to the extent provided in this Section 12.2 (a "Permitted Transfer"); provided, however, that any such Transfer and the parties thereto comply with all of the applicable conditions pertaining to Permitted Transfers under this Article 12: (a) All of any portion of a Member's Interest may be Transferred to the extent permitted by Section 12.3, but only if any consent required for such Transfer is obtained pursuant to Section 12.3. (b) Subject to Section 12.4, Lakes Cloverdale may Transfer all or any portion of its Interest to any wholly-owned direct or indirect subsidiary of LGR (which subsidiary 35 shall then be bound by all of the terms, conditions, guaranties and representations contained in the Participation Agreement and applicable to LGR); provided, however, that LGR shall retain the responsibility for providing all financing required of LGR under the Participation Agreement, and LGR shall have guaranteed the performance of any such subsidiary to which such Interest may be assigned, with respect to the provision of such financing. (c) Subject to Section 12.4, MRD may grant a collateral security interest in MRD's Financial Rights and Governance Rights to any subsidiary of LGR to which the Interest of Lakes Cloverdale may be Transferred pursuant to the preceding paragraph (b) of this Section 12.2), to the extent permitted or required by the Participation Agreement. (d) Either Appointing Member may Transfer all or any portion of its Interest to the other Appointing Member. (e) All or any portion of a Member's Interest may be Transferred to the extent permitted under Section 13.7, if the proposed or attempted Transfer is subject to a purchase option under Article 13; and neither the Company nor any of the Members purchase the Interest pursuant to Article 13. 12.3 Consent to Certain Transfers. (a) Consent Required for Transfer of Governance Rights. Subject to Section 12.4, a Member's Governance Rights may be Transferred, in whole or in part, only if: (i) all the Appointing Members, other than the Member seeking to make the Transfer, approve the Transfer by unanimous written consent, which consent may be granted or withheld, as the remaining Appointing Members may determine in their sole discretion; and (ii) the assignee executes this Agreement, as amended to reflect such assignee's interest in the Company, and any other instrument or instruments that the Board may reasonably deem necessary or desirable to effect such Transfer. Notwithstanding the prior sentence, no consent is required for a Transfer pursuant to Section 13.7. If the Company has no Appointing Members, such consent may be given by Members holding at least two-thirds of the Voting Interests, excluding the Member seeking to make the Transfer. (b) Consent Required for Transfer of Financial Rights. The consent rules of the preceding paragraph (a) shall also apply to any Transfer of a Member's Financial Rights, except that such consent may not be unreasonably withheld or conditioned or unduly delayed. If a Member obtains the foregoing consent and Transfers all or any portion of the Member's Financial Rights, the transferee shall thereafter continue to be subject to all of the terms and conditions of this Agreement; and any foreclosure of Financial Rights so Transferred as collateral security for a debt of a Member shall be subject to Section 12.2 and Article 13. (c) Request for Consent. Any Member desiring to Transfer, in whole or in 36 part, any Financial or Governance Rights pursuant to this Section 12.3,shall notify the Board of such desire. (d) Member Approval. In the event that the Interest sought to be Transferred requires the consent of any Member or Members other than Appointing Members, and the Board decides not to exercise the Company's purchase option under Section 13.5 (if applicable), the Board shall so notify the Members and, by special meeting called on ten (10) days' written notice, or by solicitation of signatures on ten (10) days' written notice or, if applicable, during the thirty (30) day period specified in Section 13.6, shall request in writing the decision of each Member whether or not to exercise the Members' purchase option under Section 13.6 (if applicable) and, if such decision is negative or does not apply, to grant or withhold consent pursuant to paragraph (a) or (b) of this Section 12.3, as applicable. If a Member does not grant any consent requested pursuant to Section 12.3(b), the Member shall provide to the Member requesting a Transfer of Financial Rights a written statement of the reason for that refusal. 12.4 Conditions to Permitted Transfers. Any Permitted Transfer of all or any portion of a Member's Membership Interest under this Agreement shall be effective only if each of the following conditions is satisfied: (a) Governance Rights. If the Transfer will include any Governance Rights, the Member shall Transfer all such Governance Rights, coupled with a simultaneous Transfer to the same transferee of all of the Member's Financial Rights relating to such Interest. (b) Investment Representations. The Member or the proposed transferee shall provide the following documentation to the Board: (i) an opinion of counsel (whose fees and expenses shall be borne by such Member or transferee), satisfactory in form and substance to the Board, to the effect that either (1) the Transfer constitutes an exempt transaction and does not require registration under applicable securities laws, or (2) the Interest to be Transferred is duly and properly registered under all applicable securities laws; (ii) evidence satisfactory to the Board that the transferee is eligible to become a Member pursuant to this Article 12 and of the transferee's agreement to comply with and be bound by the terms of this Agreement and to execute any and all documents that the Board may deem necessary in connection with his, her or its becoming a Member; (iii) evidence satisfactory to the Board that the Transfer will not impair the ability of the Company to be taxed as a partnership for Federal income tax purposes under the Code or to take advantage of accelerated depreciation under the Code; (iv) representations in form and substance satisfactory to the Board that the transferee is acquiring the Interest for his, her or its own account for investment and not with a view to the distribution thereof; and (v) a written agreement signed by the transferee that the Interest being acquired will in no event be resold unless properly registered under all applicable securities laws or exempt therefrom. (c) Other Documents and Expenses. As a condition to admission as a 37 Member, any transferee of all or part of the Interest of any Member, or the legatee or distributee of all or any part of the Interest of any Member, shall execute and acknowledge such instruments, in form and substance satisfactory to the Board, as the Board shall reasonably deem necessary or advisable to effect such admission and to confirm the agreement of the Person being admitted as such Member to be bound by all the terms and provisions of this Agreement. Such transferee, legatee or distributee shall also pay all reasonable expenses in connection with such admission as a Member, including, but not limited to, legal fees and costs of the preparation of any amendment to this Member Control Agreement that the Board finds to be reasonably necessary or desirable in connection therewith. (d) Effective Date of Transfer. All Transfers of Interests occurring during any month shall be deemed effected on the first day of the month next following the month in which the Transfer occurs. 12.5 Acquit Company. In the absence of written notice to the Company of any Transfer of a Membership Interest, any payment by the Company to the transferring Member or his or its executors, administrators or representatives shall acquit the Company of liability, to the extent of such payment, to any other Person who may have an interest in such payment by reason of a Transfer by the Member or by reason of such Member's death or otherwise. 12.6 Prohibition of Involuntary Transfers. Except as expressly permitted by the LLC Act, a Member's Governance Rights shall not be subject to involuntary Transfer (as that term is defined in Article 13), by operation of law or otherwise, and any attempted involuntary Transfer shall be void and of no effect. If such a Transfer is attempted, whether or not permitted by applicable law, the affected portion of the Member's Interest shall thereupon be subject to the options and rights of first refusal set forth in Article 13. If all or any portion of a Member's Financial Rights are the subject of a foreclosure of pledge or an involuntary Transfer (as those terms are defined in Article 13), or if the Member becomes insolvent (as that term is defined in Article 13), the affected portion of the Member's Financial Rights shall thereupon be subject to the options and rights of first refusal set forth in Article 13. 12.7 Effect of Attempts to Make Prohibited Transfers. Any purported Transfer (of all or any portion of an Interest) that is not permitted under this Article 12 shall be null and void and of no force or effect whatever; provided, however, that, if the Company is required by applicable law to recognize a Transfer that is not so permitted (or if the Board, in its sole discretion, elects to recognize a Transfer that is not so permitted), the Transferred Interest shall be strictly limited to the transferor's Financial Rights as provided by this Agreement with respect to the Transferred Interest, which may be applied (without limiting any other legal or equitable rights of the Company) to satisfy any debts, obligations or liabilities for damages that the transferor or transferee of such Interest may have to the Company. 38 In the case of a Transfer or attempted Transfer of an Interest that is not permitted hereunder, the parties engaging or attempting to engage in such Transfer shall be liable to indemnify and hold harmless the Company and the other Members from all cost, liability and damage that any of such indemnified Persons may incur (including, without limitation, incremental tax liabilities, lawyers' fees and expenses) as a result of such Transfer or attempted Transfer and efforts to enforce the indemnity required hereby. 12.8 Limited Rights of Unadmitted Transferees. A Person who acquires any part of an Interest, but is not admitted as a substitute Member: (a) shall be subject to the restrictions of Section 12.1, (b) shall be entitled only to Profit and Loss allocations and Distributions with respect to such Interest in accordance with this Agreement, (c) shall have no right to any information or accounting of the affairs of the Company, (d) shall not be entitled to inspect the books or records of the Company, (e) shall not be entitled to exercise any Governance Rights and (f) shall not have any of the other rights of a Member under the LLC Act or this Agreement. ARTICLE 13 RIGHTS, OPTIONS AND VALUATION RESULTING FROM TRANSFERS OR EVENTS OF DEFAULT 13.1 Definitions. Wherever used in this Article 13, unless another meaning is explicitly indicated by the context, the following terms shall have the meanings set forth below: (a) "Affected Interests" shall mean any of the following: (i) all or any portion of a Member's Financial Rights Transferred (including proposed or attempted Transfers) by any Person in violation of this Agreement; (ii) a Member's entire Membership Interest in the event of either (A) a Transfer (including a proposed or attempted Transfer) by any Person of all or any portion of the Member's Governance Rights in violation of this Agreement; or (B) a termination of the Member's membership in the Company, unless a dissolution of the Company occurs in connection with such termination; or (iii) a Member's entire Membership Interest in the event such Interest becomes subject to the right of the Company or any other Member to purchase such Interest under this Article 13 for any other reason. (b) "Transferring Holder" shall mean any of the following Persons: (i) a Member whose Affected Interest is being terminated or is the subject of any other event that caused such Interest to become an Affected Interest; (ii) any non-Member transferee holding an Affected Interest as a result of a Transfer or attempted Transfer that made it an Affected Interest; and (iii) any legal representative of either. Additional definitions used in this Article 13 are set forth below. 39 13.2 Events Creating Option To Buy. If any of the following events occurs or is attempted or proposed, the Company and the Members shall have the option and the right to buy the Affected Interest of the Transferring Holder and that Transferring Holder shall be obligated to sell the Affected Interest pursuant to the terms and conditions of this Article 13: (a) "Death" The death of any Member who is an individual. (b) "Event of Default Termination." If an Appointing Member elects to terminate the Participation Agreement pursuant to Section 6.6 upon an Event of Default with respect to the other Appointing Member, the defaulting Member's Interest shall become an Affected Interest as provided in Section 6.6 and the holder thereof shall become a Transferring Holder obligated to sell such Affected Interest pursuant to the applicable terms and conditions of this Article 13. (c) "Foreclosure of Pledge." Foreclosure of a pledge shall occur if (i) any Person attempts to gain absolute rights to an Affected Interest as a result of default under a security interest, whether pursuant to the Uniform Commercial Code or otherwise and regardless of whether the security interest is termed as a pledge, collateral, a conditional assignment, an outright assignment, or in any equivalent manner, and regardless of whether the security interest is perfected; (ii) an agreement is entered into to do any of the foregoing except as permitted by Section 12.2; or (iii) the foreclosure is otherwise treated under applicable law as a repossession, cancellation, enforcement, foreclosure or similar action. (d) "Gaming Rights Purchase Option." If an Appointing Member becomes entitled to purchase the Interest of any Member under Section 5.5, the Interest subject to such purchase options shall be an Affected Interest and the holder thereof shall become a Transferring Holder obligated to sell such Affected Interest pursuant to the applicable terms and conditions of this Article 13. (e) "Insolvency." A Transferring Holder shall be considered insolvent upon filing a petition for Voluntary Bankruptcy or being the subject of a petition for Involuntary Bankruptcy (which involuntary petition is not dismissed within ninety (90) days of filing), or if a receiver, whether permanent or temporary, of a Transferring Holder's property or any part thereof, shall be appointed by a court of competent authority, or if a Transferring Holder shall make a general assignment for the benefit of creditors, or if any material judgment against a Transferring Holder remains unsatisfied or unbonded of record for thirty (30) days or longer. (f) "Involuntary Transfer." An involuntary Transfer shall occur if any Person attempts to gain absolute rights to an Affected Interest by any of the following means (other than the foreclosure of a pledge as described above): (i) sale pursuant to a levy of execution; (ii) garnishment; (iii) attachment; (iv) property division or settlement in a marriage dissolution proceeding; (v) the dissolution of a Member that is a corporation, 40 partnership, limited liability company, trust or other business entity or (vi) other legal process, including without limitation Bankruptcy or receivership proceedings, that is intended to Transfer the Affected Interest. (g) "Voluntary Transfer." A voluntary Transfer shall occur if (i) an Affected Interest is sold, exchanged, pledged, encumbered, given, gifted or otherwise voluntarily Transferred, with or without full consideration; or (ii) an agreement is entered into to do any of the foregoing; provided, however, that if a Transfer is permitted by Section 12.2, the Transfer shall not be an event creating an immediate option to buy the Affected Interest. (h) "Withdrawal." A withdrawal shall occur if a Member resigns or otherwise declares in writing an intention to withdraw from active participation, including without limitation any withdrawal prohibited by Section 5.4. 13.3 Right to Require Company Purchase after Event of Default. If an Appointing Member terminates the Participation Agreement pursuant to Section 6.6 upon an Event of Default with respect to the other Appointing Member (the "Defaulting Member"), then either of the Appointing Members (an "Electing Member") may elect to require the Company to purchase the entire Affected Interest of the Defaulting Member, unless the non-defaulting Appointing Member purchases the entire Affected Interest pursuant to Section 13.6. Any such election shall be made in a written notice delivered by the Electing Member to the other Appointing Member within thirty (30) days after the notice of such termination is given pursuant to Section 6.6. If such an election is made and the non-defaulting Appointing Member does not purchase the Affected Interest, the Company shall purchase and the Defaulting Member (who shall thereupon become a Transferring Holder) shall sell the entire Affected Interest of such Transferring Holder to the Company, pursuant to the applicable terms and conditions of this Agreement. Under no other circumstances shall the Company or any Member be required to purchase any part of the Interest of any Member, except as may be expressly required by the LLC Act or upon the exercise of an option to purchase such Interest pursuant to this Article 13. 13.4 Notices To Company and Members. Except as otherwise provided below, each Transferring Holder shall give written notice to the Company and to the other Members within thirty (30) days after any event described in Section 13.2. If an Appointing Member gives a notice of its election to require the Company to purchase an Affected Interest pursuant to Section 13.3, that Member shall also give a copy of that notice to the Company at the same time. Any such notice sent to the Company shall be directed to a Manager who is not employed by the Transferring Holder, at the Company's office where such Manager receives mail. Such Manager shall also send a copy of each such notice to each Member who did not send the original notice, at the most recent address reflected on the Company's Required Records or such other address as the Manager giving notice has reason to know is more current. If the Transferring Holder or another Member required to give any such notice fails or refuses to give such notice, the Company or any other Member may do so as soon as it has the information required to be given in such notice. 41 Each such notice shall contain the following information: (a) Notice of Death. Any notice of death shall state the date of death and give the name and address of the personal representative, if one has been appointed, or the proposed personal representative if known. A copy of the order appointing the personal representative, if any, shall be attached to the notice. (b) Notice of Event of Default Termination. Any notice of a termination of the Participation Agreement upon an Event of Default shall be given by the Appointing Member who determines that such Event of Default has occurred with respect to the other Appointing Member. Any such notice shall be given at the time provided in Section 6.6, shall set forth the facts alleged to constitute the Event of Default and shall state the sender's intention to terminate the Participation Agreement. (c) Notice of Election of Mandatory Purchase. Any notice of an election by an Appointing Member to require a mandatory purchase under Section 13.3 shall state such intention. (d) Notice of Foreclosure of Pledge. The notice of foreclosure of pledge of an Affected Interest shall identify to whom the Member pledged the Affected Interest, a description of the Affected Interest, the reason for the foreclosure, and shall identify all material terms of the pledge agreement and the foreclosure. A copy of all agreements and documents relating to the pledge shall be attached to the notice. (e) Notice of Gaming Rights Purchase Option. If an Appointing Member becomes entitled to purchase the Interest of any other Member under Section 5.5, the notice provisions of Section 5.5 shall apply. (f) Notice of Insolvency. Any notice of insolvency shall identify the manner in which the Transferring Holder is deemed insolvent (as defined in Section 13.2) and shall identify any trustee or fiduciary appointed with regard to the Transferring Holder. A copy of any petition for bankruptcy, petition for involuntary bankruptcy, order appointing a receiver, whether permanent or temporary, order creating an assignment for the benefit of the Transferring Holder's creditors, and/or any judgment against the Transferring Holder that has remained unsatisfied or unbonded for a period of thirty (30) days or longer shall be attached to the notice. (g) Notice of Involuntary Transfer. Any notice of involuntary Transfer shall identify: the order, decree or directive requiring the involuntary Transfer of an Affected Interest, a description of the Affected Interest, the reason for the involuntary Transfer, and the pertinent terms of the involuntary Transfer. A copy of the relevant order, decree or directive shall be attached to the notice. (h) Notice of Voluntary Transfer. Any notice of voluntary Transfer shall 42 identify the transferee to whom the Transferring Holder desires to sell, exchange or give an Affected Interest, a description of the Affected Interest and the consideration, if any, for the Transfer. The notice shall also identify all pertinent terms of the Transfer. A copy of all agreements and documents pertinent to the Transfer shall be attached to the notice. (i) Notice of Withdrawal. A notice of withdrawal shall identify all pertinent details a Member's withdrawal described in Section 13.2. If a Member withdraws from the Company without giving such a notice, the Board or any other Member may give such a notice to the withdrawing Member; provided, however, that the Member alleged to be withdrawing shall be permitted to continue as a Member if he, she or it demonstrates reasonable cause for the lack of participation and promptly resumes such participation. 13.5 Company's Option To Purchase. For the period commencing upon the occurrence of an event giving rise to an option to buy, as specified in Section 13.2, and continuing thereafter until thirty (30) days after the Company's receipt of notice of the event giving rise to the option, which notice is in substantial compliance with the provisions of Section 13.4, the Company shall have the option to purchase all, but not less than all, of the Affected Interest of a Transferring Holder, which option and right to purchase are at the applicable price and according to the terms and conditions provided in this Article 13. The Company may exercise its right and option to purchase by giving written notice to the Transferring Holder and to the other Members of its intention to exercise its right and option before the expiration of such thirty (30) day period. In no event shall the Transferring Holder vote, either by its appointed Governor or as a Member, on the question of whether the Company will elect to exercise its option. 13.6 Members' Option To Purchase. If the Company does not exercise its option to purchase as provided for in Section 13.5, then after the expiration of the thirty (30) days provided for in Section 13.5, the remaining Members of the Company shall have, for a period of thirty (30) days thereafter, the option and right to collectively purchase all, but not less than all, of the Affected Interest, which option and right to purchase are at the applicable price and according to the terms and conditions provided in this Article 13. Each Member (other than the Transferring Holder) shall have the option and right to purchase that fraction of the Affected Interest, which the Percentage Interest owned by each bears to the total Percentage Interests owned by all such other Members (excluding any Interest held by the Transferring Holder); provided, however, that any Appointing Member or Appointing Members participating in such purchase shall have the right to exclude any other Members from such purchase. Members shall exercise their right and option to purchase by giving written notice to the Transferring Holder and to the other Members and the Company of their intention to exercise their right and option within such thirty (30) day period. In the event that one or more Members elect to purchase their proportionate part of the Affected Interest and one or more Members do not so elect, the electing Members shall be required to purchase that fraction of the Affected Interest not purchased by such non-electing Members, which the Percentage Interest owned by each bears to the total Percentage Interests of all such Members who have elected to exercise 43 their option. 13.7 Failure of Company and Members To Exercise Option. In the event that the Company does not exercise its option to purchase the Affected Interest as provided for in Section 13.5 in the time period provided therein, the Members do not exercise their option to purchase the Affected Interest pursuant to Section 13.6 in the time period provided therein, and neither of the Appointing Members has elected to require the Company to purchase the Affected Interest pursuant to Section 13.3, then: (a) the Transferring Holder shall be free to retain the Financial Rights and any Governance Rights included in the Affected Interest or, if applicable, to Transfer such Financial Rights to any Person identified as a transferee in the notice given pursuant to Section 13.4, within ninety (90) days of the date of such notice; (b) any attempted or purported Transfer of any Governance Rights shall be disregarded as provided in Subdivision 5 of Section 322B.313 of the Act and Sections 12.7 and 12.8 of this Agreement, unless the remaining Members consent to such Transfer and admit the transferee as a new Member pursuant to Section 5.3, in which case such transferee must execute this Agreement; and (c) if any actual, attempted or purported Transfer giving rise to such options is found by a court of competent jurisdiction to be an event causing a dissolution of the Company under this Agreement or the Act, whether or not such Transfer is prohibited under this Agreement or the Act, then the Company shall thereupon be dissolved and liquidated pursuant to Article 15, unless its dissolution is avoided by one or more Members under Section 322B.80, clause (5), Subdivision 1 of the LLC Act. In the event that any proposed Transfer of the Affected Interest is not made in accordance with the notice given pursuant to Section 13.4, within ninety (90) days of the date of such notice, and the Company is not liquidated under Article 15 during that period, then the provisions and conditions of this Agreement (including, without limitation, Section 12.1 and this Article 13) shall continue to apply to the Affected Interest. If a proposed Transfer of the Affected Interest is completed in accordance with the notice provided given pursuant to Section 13.4, the Affected Interest and such transferee shall be subject to the provisions and conditions of this Agreement (including, without limitation, Section 12.1 and this Article 13), even if such transferee has not executed this Agreement. 13.8 Purchase Price. Subject to the offset provisions of Section 13.9(b), in the event of a purchase of an Affected Interest pursuant to this Article 13, the purchase price of the Affected Interest shall be equal to its fair market value, determined by agreement or appraisal as follows; provided, however, that if the event giving rise to the purchase is an Event of Default (other than the death or disability of any individual), the purchase price of the Affected Interest shall not exceed the balance of the terminated Appointing Member's Capital Account balance as of the effective date of such purchase. If the purchase of an Affected Interest pursuant to this Article 13 is due to an Event of Default solely caused by the death or disability of an individual, the 44 purchase price of the Affected Interest shall nevertheless be its fair market value determined under this Section 13.8. The purchase price of the Affected Interest, as finally agreed or determined by appraisal or arbitration hereunder, is hereinafter referred to as the "Final Price." (a) Agreement. The parties to the purchase and sale shall attempt to agree upon the fair market value of the Affected Interest, within fifteen (15) days of the date of notice of exercise of the option to purchase or, if no option to purchase is exercised and an Appointing Member has elected to require a mandatory purchase pursuant to Section 13.3, within fifteen (15) days after the later of (i) the date of such mandatory purchase election or the (ii) date on which the last such purchase option expires. If the parties do not agree on a purchase price within the applicable period, they shall mediate the dispute pursuant to Section 16.13. (b) Appraisal. If the parties are unable to agree upon a valuation within the applicable period, including any period of mediation provided hereunder, the value of the Affected Interest shall be determined by appraisal as follows. Such parties shall first attempt to agree upon a qualified independent business appraiser (an "Appraiser"). If they are unable to do so within ten (10) days of the date of notice of exercise of the option to purchase, then the Transferring Holder shall name one Appraiser, and the acquiring party (the Company or other Members, as the case may be) shall collectively name another Appraiser. The two Appraisers shall within five (5) business days after their appointment appoint a third Appraiser who, within thirty (30) days after its appointment, shall make a determination of the fair market value of the Affected Interest, and such determination shall be final and binding on all parties to such determination in the same manner as an arbitration award under Section 16.14. (c) Valuation Standard. For purposes of this Agreement, the fair market value of an Affected Interest shall be the cash price that would be payable to a reasonable seller by an unrelated reasonable buyer for such Interest, taking into account all relevant facts including without limitation the present value of the Transferring Holder's share of future Overhead Fees (if any) and Internal Net Cash Flows from the Company for the remaining term of the Project Contracts, without any discount for minority Voting or Percentage Interests or any premium for majority Voting or Percentage Interests (except that an appropriate discount shall be applied if the Affected Interest does not include any Governance Rights). 13.9 Closing Date and Terms of Purchase. (a) Purchaser; Closing or Expedited Closing to Protect Gaming Rights. For purposes of this Section 13.9, the Person or Persons purchasing an Affected Interest (who may be the Company, one Member or several Members) shall be collectively referred to as the "Purchaser" unless the context indicates otherwise. Ordinarily, in the event of any sale and purchase of an Affected Interest pursuant to the terms of this Agreement, the sale and purchase shall close on a reasonable date, at a 45 reasonable place and at a reasonable time to be selected by the Purchaser, which shall be no later than thirty (30) days after the Final Price is determined pursuant to Section 13.8. However, the Members acknowledge that it is likely that, if the Purchaser is an Appointing Member who has exercised its right and option to purchase the Affected Interest pursuant to Section 5.5, such Purchaser will exercise that option to protect the ability of the Purchaser (or any of its subsidiaries or other Affiliates) to obtain or maintain a Gaming License (as defined in Section 5.5) or a contract or agreement to manage a gaming facility. Accordingly, such Purchaser may need to exercise its option and right to purchase such Affected Interest and close such purchase (an "Expedited Closing") before the Final Price of such Affected Interest is determined under Section 13.8. Therefore, any Purchaser under Section 5.5 shall have the right to require the Transferring Holder to assign the Affected Interest to the Purchaser pursuant to subsection (e) of this Section 13.9, at any time after the event giving rise to the option under Section 5.5, and before its Final Price is determined, by giving the Transferring Holder written notice of the Purchaser's exercise of such purchase option and its election to require an Expedited Closing. If the Purchaser elects an Expedited Closing, then (i) the Transferring Holder and the Purchaser shall complete the conveyance of the Affected Interest to the Purchaser at a closing within five (5) business days after the Transferring Holder's receipt of notice of the Expedited Closing election; (ii) the Purchaser shall pay to the Transferring Holder at such closing an amount of cash equal to the amount in the Transferring Holder's Capital Account as of the first date the Company becomes entitled to the purchase option under Section 5.5, which amount shall be deducted from the Final Price when paid by the Purchaser; (iii) the Purchaser shall pay the balance (if any) of the Final Price (less the advance payment made under the preceding clause) to the Transferring Holder pursuant to the following provisions of this Section 13.9, on a closing date within thirty (30) days after such Final Price is determined; and (iv) if the amount of any such advance payment exceeds the Final Price, the Transferring Holder shall repay the excess amount to the Purchaser on such closing date. (b) Offset of Final Price. Any Purchaser may offset the Final Price of an Affected Interest (or any advance payment under the preceding paragraph) by any debts due from the Transferring Holder to the Purchaser or the Company, including without limitation any actual damages (not including any consequential or punitive damages) due to (i) an Event of Default with respect to the Transferring Holder, (ii) a Transfer or attempted Transfer in violation of this Agreement, or (iii) the withdrawal of the Transferring Holder as a Member (for any reason other than the death or disability of an individual) in violation of Section 5.4, and to the extent that such debts are due the Company and it is not the Purchaser, such offset shall be treated as a reduction of the Final Price. Any such offset may, at the election of the Purchaser, be used first to reduce amounts due at any closing under subsection (a) above, second to reduce any amount due at the closing under the following paragraph (c), and then to reduce the first payments due on any promissory note delivered under paragraph (d) below. 46 (b) Cash Payment at Closing. Subject to any offset pursuant to paragraph (b) above, on the date of closing the Purchaser shall pay to the Transferring Holder an amount of cash equal to 25% of the Final Price of the Affected Interest. The remaining amount owing shall be paid to the Transferring Holder annually in three (3) equal installments together with interest at a rate equal to the applicable Federal rate in effect under Code section 1274(d) as of the closing date, commencing on the first anniversary of the closing date. (c) Promissory Note (or Notes) at Closing. In the case of a single Purchaser, the Purchaser shall execute a promissory note for the remaining balance of the purchase price, which note shall contain the provisions of and be in the form of that note attached hereto as EXHIBIT D. In the event of a purchase by more than one Purchaser, the purchasing parties shall execute separate notes for their proportionate shares of the unpaid purchase price, which notes shall be pursuant to the terms of and in the form of the note attached hereto as EXHIBIT D. (d) Transfer and Pledge of Affected Interest. Upon delivery of the cash payment at closing and delivery of the installment note or notes specified in the preceding paragraph, the Affected Interest shall be assigned to the Purchaser with all necessary instruments required to complete the Transfer of the Affected Interest on the Company's Required Records. Once the Affected Interest has been Transferred, the portion of the Affected Interest received by each Purchaser shall be pledged by that Purchaser to the Transferring Holder, to be held as collateral security for the payment of the note issued by that Purchaser, pursuant to the provisions of the Pledge Agreement attached hereto as EXHIBIT E, which each Purchaser shall execute on the date of closing. Each Purchaser shall have the right, while such pledge is effective, to vote any Governance Rights pledged by that Purchaser and to receive Distributions with respect to the Financial Rights pledged by that Purchaser (other than liquidating Distributions under Section 15.3, which shall be subject to the terms of the Pledge Agreement). (e) Guaranty Contribution Agreement. In the event a Member's entire Membership Interest is purchased under this Article 13, and the former Member is required to pay a Company debt because of the former Member's guaranty of the debt, each remaining Member or Members who also guaranteed such debt shall contribute toward that payment by reimbursing such former Member for their respective shares of such payment, reduced by any amounts due the Company under Section 13.9(b) that have not been paid or offset against the Final Price. The share of such payment due from each remaining Member that guaranteed such debt shall be that fraction of such payment which the Percentage Interest held by each remaining Member who guaranteed such debt bears to the total of Percentage Interests owned by all remaining Members who guaranteed such debt. 47 ARTICLE 14 AMENDMENT OF AGREEMENT 14.1 Amendment Procedure. When circumstances require amendment of this Agreement to comply with any law, or at any time the Members holding thirty percent (30%) or more of the aggregate Voting Interests may propose an amendment to this Agreement, in such event the Chief Manager shall call a special meeting of all Members for the purpose of considering such proposed amendment. At least thirty (30) days prior to such meeting, the Board shall deliver to each Member written notice of the meeting and a statement of the purposes of the amendment and such other matters as the Board deems material to consideration of the amendment. The amendment so proposed shall be adopted if unanimously approved by the Appointing Members and other Members holding at least two-thirds (2/3) of the Voting Interests held by such Members. Alternatively, this Agreement may be amended by a written action signed by each of the Members. 14.2 Limitation on Amendments. Notwithstanding the foregoing, this Agreement shall not be amended without the consent of each Member adversely affected if such amendment would (a) adversely affect the limited liability of a Member or (b) adversely affect the Governance or Financial Rights of a Member. ARTICLE 15 DISSOLUTION 15.1 Liquidating Events. (a) The Company shall be dissolved upon the occurrence of any of the following events (a "Liquidating Event"): (i) by the unanimous written agreement of the Appointing Members; (ii) upon the vote of Members holding at least two-thirds of the Voting Interests of the Company, in favor of a proposal to dissolve the Company, at a meeting held pursuant to Section 322B.806 of the LLC Act; (iii) upon any election by Lakes Cloverdale to exercise its option, as set forth in Section 13 of the Participation Agreement, to cease further funding of the Cloverdale Project, cause the liquidation of the Company, accelerate payment of the Company's share of the Project Companies Loan (as defined in the Participation Agreement) and the Cloverdale Project Development Loan and accelerate payment of that portion of the remaining balance of the MRD Loans (as defined in the Participation Agreement) relating to the Company; or (iv) any other event described in Section 322B.80 of the LLC Act, excluding clause (5) of Subdivision 1 thereof (concerning termination of the 48 continued membership of a Member). (b) As soon as possible following the occurrence of any Liquidating Event that causes the dissolution of the Company, the appropriate representative of the Company shall give all of the Members a written notice of such Liquidating Event and execute a notice of dissolution in such form as shall be prescribed by the Secretary of State of Minnesota, setting forth the information required under Subdivision 1 of Section 322B.81 of the LLC Act and shall file that notice with the Secretary of State's office. (c) If the Company is dissolved, the Company shall cease to carry on its business upon filing a notice of dissolution with the Minnesota Secretary of State, except insofar as may be necessary for the winding up of the Company's business and any Distributions under Section 15.3, but its separate existence shall continue until a certificate of termination has been issued by such Secretary of State or until a decree dissolving the Company has been entered by a court of competent jurisdiction. 15.2 Agreement to Avoid Dissolution. Each Member specifically acknowledges and agrees that the Company shall not be dissolved upon the withdrawal of any Member or other termination of any Member's Interest in the Company. 15.3 Distributions on Liquidation. Upon liquidation of the Company, its business shall be wound up, the Board (or other Person designated by all of the Members) shall take full account of the Company assets and liabilities, and all assets (tangible and intangible) shall be liquidated as promptly as is consistent with obtaining the fair value thereof. If any assets are not sold, gain or loss shall be allocated to the Members in accordance with Article 7 as if such assets had been sold at their fair market value at the time of the liquidation. If any assets are distributed to a Member, rather than sold, the Distribution shall be treated as a Distribution equal to the fair market value of the assets at the time of the liquidation. The assets of the Company shall be applied and distributed in the following order of priority: (a) To the payment of all debts and liabilities of the Company, including without limitation all debts due the Members, Governors, Managers and their Affiliates, in the order of priority as provided by law; (b) To the establishment of any reserves deemed necessary by the Board or other Person winding up the affairs of the Company for any contingent liabilities or obligations of the Company; and (c) To the Members, ratably in proportion to the credit balances in their respective Capital Accounts, in an amount equal to the aggregate credit balances in the Capital Accounts after and including all allocations to the Members under Article 7, including the allocation of any Profit or Loss from the sale, exchange or other disposition (including a deemed sale pursuant to this Section 15.3) of the Company's assets. (d) Last, to the Members in proportion to their Percentage Interests. 49 The Company may offset any amount due a Member under this Section 15.3 by the amounts of (i) any debts owed the Company by the Member, and (ii) any damages suffered by the Company as a result of an Event of Default with respect to that Member, or that Member's other breach (if any) of this Agreement or any Contribution Agreement by which such Member is bound. ARTICLE 16 MISCELLANEOUS 16.1 Notices. All notices, requests or demands and other communication from any party hereto to another shall be in writing and shall be considered to have been duly given (i) when delivered personally, (ii) twenty-four (24) hours after sent by telephone facsimile transmission, (iii) the next business day when sent via a nationally recognized overnight courier for next business day delivery to the recipient or (iv) four (4) business days after sent by certified or registered mail, postage prepaid, to the other party. Such notices, requests, demands and other communication may be sent by any of the foregoing means, but if faxed, mailed or sent by overnight courier, shall be directed to the addresses (or fax number) indicated below, or such other address (or fax number) as may be provided in writing to each party from time to time: (a) If to Lakes Cloverdale: Lakes Cloverdale, LLC (or any of its Affiliates) 130 Cheshire Lane Minnetonka, MN 55305 Attention: Tim Cope Fax: (952) 449-7064 with a copy to: Maslon Edelman Borman & Brand, LLP 3300 Wells Fargo Center 90 South 7th Street Minneapolis, MN 55402-4140 Attention: Mark Baumann, Esq. Fax: (612) 672-8397 (b) If to MRD: MRD Gaming, LLC (or any of its Affiliates) 600 Whitney Ranch Drive, C - 15 Henderson, NV 89014 Attention: Matthew R. Daly Fax: (702) 547-9015 with a copy to: Larkin, Hoffman, Daly & Lindgren, Ltd. 1500 Wells Fargo Financial Center 7900 Xerxes Avenue South Bloomington, Minnesota 55431 Attention: Charles S. Modell, Esq. Fax: (952) 896-1511 (c) If to the Company: Pacific Coast Gaming - Santa Rosa, LLC 600 Whitney Ranch Drive, C - 15 Henderson, NV, 89014 50 Attention: Matthew R. Daly Fax: (702) 547-9015 with a copy to: Lakes Cloverdale, LLC 130 Cheshire Lane Minnetonka, MN 55305 Attention: Tim Cope Fax: (952) 449-7064 Such notices may be given to a Member at the latest address specified in the Company's Required Records, if different than those specified above. Any Member or the Company may, at any time by giving five (5) days' prior written notice to the other Members and the Company, designate any other address in substitution of the foregoing address to which such notice will be given. All notices, offers, demands, certificates or other communications required or permitted under this Agreement shall be in writing, signed by the Person giving the same. 16.2 Consent and Waiver. No consent under and no waiver of any provision of this Agreement on any one occasion shall constitute a consent under or waiver of any other provision on such occasion or on any other occasion, nor shall it constitute a consent under or waiver of the consented-to or waived provision on any other occasion. No consent or waiver shall be enforceable unless it is in writing and signed by the party against whom such consent or waiver is sought to be enforced. 16.3 Entire Agreement. Except for the Articles, the Company's Bylaws, the Participant Agreement and the promissory notes and loan and security agreements executed and delivered pursuant to the Participant Agreement, this Agreement constitutes the entire agreement among the parties with respect to the Company, supersedes any prior agreement or understanding among them, and may not be modified or amended in any manner other than as set forth herein. 16.4 Governing Law. This Agreement and the rights of the parties hereunder shall be governed by, interpreted and enforced in accordance with the laws of the State of Minnesota. 16.5 Binding Effect. Except as herein otherwise specifically provided, this Agreement shall be binding upon and inure to the benefit of the Members and their legal representatives, heirs, administrators, executors, successors and permitted assigns, as the case may be. 16.6 Number and Gender. Wherever from the context it appears appropriate, each term stated in either the singular or the plural shall include the singular and the plural and pronouns stated in either the masculine, the feminine or the neuter gender shall include the masculine, feminine and neuter. 16.7 Interpretation. Except as otherwise indicated by the context, all references herein to Articles, Sections and paragraphs refer to Articles, Sections and paragraphs of this Agreement. All such Article, Section and paragraph headings are for reference purposes only and shall not affect the interpretation of this Agreement. 51 16.8 Severability. If any provision of this Agreement or the application of such provision to any Person or circumstances, shall be held invalid, the remainder of the Agreement, or the application of such provision to Persons or circumstances other than those to which it is held invalid, shall not be affected thereby. 16.9 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement binding on all Members and the Company. Each Member shall become bound by this Agreement immediately upon signing any counterpart, independently of the signature of any other Member. However, in making proof of this Agreement, it will be necessary to produce only one copy signed by the party to be charged. 16.10 Right to Specific Performance. In view of the fact that the Membership Interests subject to this Agreement are of a closely-held limited liability company, and in view of the purposes of this Agreement, it is agreed that the remedy at law for failure of any party to perform would be inadequate and that the injured party or parties, at his, her or their option, shall have the right to compel the specific performance of this Agreement in a court of competent jurisdiction, to the extent permitted by the LLC Act and other applicable law, and not expressly prohibited by this Agreement. 16.11 Additional Documents and Acts. Each Member agrees to execute and deliver such additional documents and instruments and to perform such additional acts as may be necessary or appropriate to effectuate, carry out and perform all of the terms, provisions, and conditions of this Agreement and the transactions contemplated hereby. 16.12 No Third Party Beneficiary. This Agreement is made solely and specifically among and for the benefit of the parties hereto, and their respective successors and permitted assigns; and no other Person will have any rights, interest, or claims hereunder or be entitled to any benefits under or on account of this Agreement as a third party beneficiary or otherwise. 16.13 Non-binding Mediation. Except with respect to matters for which a Member or the Company believes it necessary to seek equitable relief permitted under a written agreement, or otherwise to prevent irreparable harm to such party, each party to this Agreement agrees to enter into mediation and to cause the Governors appointed by the Appointing Members agrees to enter into mediation, of all disputes involving this Agreement or any aspect of their business relationship (including without limitation any deadlock of the Board or the Members required by Section 9.6 to be mediated, and including any failure to agree on a Final Price under Section 13.8), for a minimum of four (4) hours of mediation, prior to the initiation of any arbitration, legal action or claim against any other party. Such mediation shall be conducted pursuant to Section 21 of the Participation Agreement. Any decision or other actions of a mediator under this Agreement or the Participation Agreement shall not be binding upon the Board, any Member or the Company; and no such mediator shall have the authority to impose a settlement upon the Board, any Member or the Company. Rather any mediator shall attempt to assist the Board, the Members and the Company (as applicable) to reach a satisfactory resolution of such matter. If a notice of any action, inaction, condition or event alleged to be a default by an 52 Appointing Member has been issued by the other Appointing Member pursuant to Section 6.6, and such default is subject to cure before actually becoming an Event of Default, the period for cure shall be tolled until the mediation under this Section 16.13 is complete; provided, however, that the request for mediation was made at least ten (10) days before such action, inaction, condition or event shall become an Event of Default. However, such tolling shall not apply to any payments owed to third parties if the failure to make such payment would result in any significant penalties to any Member, the Company or the Cloverdale Tribe. 16.14 Confidential Arbitration. Except with respect to matters for which a party to this Agreement believes it necessary to seek equitable relief permitted under a written agreement, any dispute among or between any of the parties hereto or between the Governors (the "disputants") arising directly or indirectly out of, pursuant to or under this Agreement, and any other dispute among or between any such disputants, however arising (including without limitation any deadlock of the Board or the Members required by Section 9.6 to be arbitrated, but excluding any purchase price appraisal under Section 13.8), which they are not able to resolve on their own or through mediation hereunder, shall be resolved by binding arbitration in Minneapolis, Minnesota. The Appointing Members agree to cause the Governors appointed by them to submit any such deadlock to arbitration hereunder. Any such arbitration shall be administered by the American Arbitration Association in accordance with its Commercial Arbitration Rules then in effect, except that: (a) the question whether or not a dispute is arbitrable under this Agreement shall be a matter for binding arbitration by the arbitrators, such question shall not be determined by any court and, in determining any such question, all doubts shall be resolved in favor of arbitrability; (b) discovery shall be permitted in accordance with the Minnesota Rules of Civil Procedure, subject to supervision as to scope and appropriateness by the arbitrators; (c) judgment on the award may be entered in any court of competent jurisdiction; and (d) each of the disputants shall be entitled to present evidence and argument to the arbitrator. The arbitrator shall have the right only to interpret and apply the provisions of this Agreement (including other applicable agreements) and may not change any of such provisions. The arbitrator shall give written notice to the disputants stating the arbitrator's determination, and shall furnish to each disputant a signed copy of such determination. The expenses of arbitration shall be borne equally by the opposing disputants or as the arbitrator shall otherwise equitably determine under Section 16.15. All aspects of such arbitration shall be conducted in the strictest confidence, and each party agrees not to disclose any information concerning any dispute or arbitration hereunder to any person except as may be required by law or this Agreement. 16.15 Litigation Expense. If any disputant (as defined in Section 16.15, and including all disputants opposing one or more other disputants as one party) is made or shall become a party to any litigation (including arbitration) commenced by or against another disputant involving the enforcement of any of the rights or remedies of such disputant, or arising on account of a default of the other disputant in its performance of any of the other disputant's obligations hereunder, then the prevailing disputant in such litigation shall receive from the other disputant all costs incurred by the prevailing disputant in such litigation, plus reasonable 53 attorneys' fees to be fixed by the court or arbitrator (as applicable), with interest thereon from the date of judgment or arbitrator's decision at the rate specified in Section 13.9(c) or, if less, the maximum rate permitted by law. IN WITNESS WHEREOF, the undersigned Members have duly executed this Member Control Agreement, with respect to Pacific Coast Gaming - Santa Rosa, LLC, on the day and year first above written, to be effective as of the Effective Date. LAKES CLOVERDALE, LLC By /s/ Timothy J. Cope ----------------------------------------------- Its Chief Financial Manager, Timothy Cope MRD GAMING, LLC By /s/ Matthew R. Daly ----------------------------------------------- Its Manager/Member, Matthew R. Daly MEMBERS The Company hereby accepts the foregoing Agreement as a party thereto and agrees to perform its obligations thereunder, including without limitation those set forth in Article 13. PACIFIC COAST GAMING - SANTA ROSA, LLC By /s/ Matthew R. Daly ----------------------------------------------- Its Chief Manager, Matthew R. Daly As parties to the Participation Agreement described in paragraph A of the Introduction to the foregoing Member Control Agreement, Lakes Gaming & Resorts, LLC ("LGR") and MRD Gaming, LLC ("MRD") hereby accept the foregoing Agreement as an amendment of the Participation Agreement, to the extent provided in Section 3.50 of the foregoing Member Control Agreement. LAKES GAMING AND RESORTS, LLC By /s/ Timothy J. Cope ---------------------------------------------- Its Chief Financial Manager, Timothy Cope MRD GAMING, LLC By /s/ Matthew R. Daly ---------------------------------------------- Its Manager/Member, Matthew R. Daly EX-10.5 6 c58465ex10-5.txt PROMISSORY NOTE, DATED AS OF OCTOBER 12, 2000 1 PROMISSORY NOTE (Corning Project Development Loan) $9,200,000.00 Minneapolis, Minnesota Dated as of October 12, 2000 FOR VALUE RECEIVED, PACIFIC COAST GAMING--CORNING, LLC, a Minnesota limited liability company ("Maker"), promises to pay to the order of LAKES CORNING, LLC, a Minnesota 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 of Nine Million Two Hundred Thousand and 00/100 Dollars ($9,200,000.00), or the aggregate unpaid principal amount of all advances made to Maker with respect to the "Project Development Loan" subject and pursuant to the terms of Sections 2 and 3 (which are hereby incorporated in all respects) of the Participation Agreement (as hereinafter defined, plus interest thereon from the date of such advances, in like money, in accordance with the following terms and provisions: 1. MRD Gaming, LLC, a Nevada limited liability company ("MRD"), and Lakes Gaming and Resorts, LLC, a Minnesota limited liability company ("Lakes"), previously entered into that certain Acquisition and Participation Agreement dated as of August 7, 2000, as amended October 11, 2000 and as assigned by Lakes to the Lender pursuant to that certain Assignment Agreement dated October 11, 2000 (the "Participation Agreement"), providing for certain transactions including Project Development Loans. Capitalized terms used herein and not defined shall have the meanings given them in the Participation Agreement. 2. This Note evidences the advances by the Lender to Maker of the Project Development Loan, the proceeds of which are to be used by the Maker for project development costs of the Paskenta Project . This Note has been issued pursuant to and entitled to all of the terms, rights and benefits provided under the Participation Agreement. In addition to each of the terms and conditions of Sections 2, 3 and 13 of the Participation Agreement, Lender may also suspend the making of any advances under this Note or with respect to the Project Development Loan upon the occurrence of any Event of Default (as defined herein) or the occurrence of any event, circumstance or condition which with the giving of notice or the passage of time or both would constitute an Event of Default. 3. Simple interest on the unpaid principal balance of this Note shall accrue at the per annum rate of 1% over the "High Wall Street Journal Prime Lending Rate" as defined in the money rate section of the Wall Street Journal ("Prime rate"), compounded annually on the anniversary date of this Note if not paid earlier. Interest on such loan shall accrue only on funds actually advanced by Lender to Maker beginning when such funds are advanced. The interest rate shall be adjusted monthly, based upon the Prime Rate on the first business day of each month; and that interest rate shall apply to all loan balances and advances unpaid during that month. 1 2 After the occurrence and during the continuance of an Event of Default (as hereinafter defined), the principal indebtedness evidenced by this Note shall bear interest at the floating rate of two percent (2.0%) per annum greater than the otherwise applicable rate. Interest shall be computed for the actual number of days elapsed on the basis of a year consisting of 365 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. 4. Subject to the terms of Section 7 hereof, the principal balance of this Note, together with accrued interest thereon shall be due and payable as and when required under the terms of the Participation Agreement; provided however that in any event this Note shall mature and the principal balance hereof (together with accrued interest hereon) shall be due and payable in full on the sixty (60) month anniversary of the date that the gaming facility to be located at the Paskenta Project first opens for gaming to the general public. 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 material 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 Security Agreement of even date herewith (the "Collateral Document") given by Maker for the benefit of the Lender hereof encumbering Maker's assets as provided therein. This Note and the Collateral Document and any other documents or instruments evidencing or securing this Note, together with the Participation Agreement are collectively referred to herein as the "Loan Documents." 7. The occurrence of any of the following events and the expiration of any applicable cure periods set forth herein shall each be referred to herein as an "Event of Default": (a) any default in the payment of any principal, interest or any other sums when due hereunder, or in the performance of any covenant or agreement hereunder, referenced herein or otherwise related hereto, or in any other document, agreement or instrument now or hereafter executed or entered into by Maker with or for the benefit of Lender or any subsequent holder of this Note (collectively, the "Loan Documents"), (b) any MRD Event of Default (as defined in the Participation Agreement), (c) Maker shall admit in writing its or his inability to pay its or his debts as they mature, or make an assignment for the benefit of creditors, or Maker shall apply for or consent to the appointment of any receiver, trustee, or similar officer for it or him or for all or any substantial part of its or his property; or such receiver, trustee or similar officer shall be appointed without the application or consent of Maker, or Maker shall institute (by 2 3 petition, application, answer, consent or otherwise) any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar proceeding relating to it or him under the laws of any jurisdiction; or any such proceeding shall be instituted (by petition, application or otherwise) against Maker (each being referred to herein as a "Bankruptcy Event of Default"); or (d) any judgment, writ, warrant of attachment or execution or similar process shall be issued or levied upon Maker or against a substantial part of the property of Maker. Upon the occurrence of an Event of Default and at any other time permitted by the terms of the Participation Agreement, including, without limitation, Section 13 thereof, the outstanding principal amount of this Note, any interest accrued thereon from time to time, and any other sums then remaining unpaid hereunder, at the option of the Lender 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 Event of Default. If (i) default shall occur in the payment of any sums due on this Note or any Loan Documents, Maker shall have a period of fifteen (15) days after written notice from the Lender to the undersigned to make the payment that is due together with any accrued interest and any amounts due under Section 9 hereof, or (ii) a Bankruptcy Event of Default shall occur in connection with an involuntary bankruptcy filing and so long as the Maker is diligently contesting the same, Maker shall have a period of sixty (60) days to obtain the dismissal of the same, or (iii) if an Event of Default other than non-payment or a Bankruptcy Event of Default shall occur, Maker shall have a period of thirty (30) days after written notice from the Lender to the undersigned to cure any default that can be cured within thirty (30) days, or a reasonable period of time not to exceed ninety (90) days after written notice by Lender to Maker to cure a default not reasonably capable of cure within thirty (30) days (provided Maker diligently commences and continues a course of action to so cure); provided however that the foregoing shall not in any event prevent the Lender from exercising its rights and remedies under the Loan Documents to the extent it deems reasonably necessary to protect or preserve any collateral or the Lender's rights therein. 8. Maker, all endorsers and 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 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 or any other Loan Documents. 10. Reserved. 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 3 4 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 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. Time is hereby declared to be of the essence of this Note and of every part hereof. 13. This Note shall inure to the benefit of and shall be binding on the parties hereto and their respective successors and assigns; provided, however, that the Maker shall not be entitled to assign its rights or obligations under this Note without the prior written consent of the Lender. Any reference to the Lender shall be deemed to include and apply to every subsequent Holder of this Note. 14. Except for disputes requiring injunctive relief, all disputes, controversies or claims arising out of or relating to this Note, the Collateral Documents, the Participation Agreement and any other Loan Documents shall be settled by mediation and/or binding arbitration in accordance with Sections 21 and 22 of the Participation Agreement; provided however that the foregoing shall not in any event prevent the Lender after the occurrence of an Event of Default from exercising any rights or remedies necessary for the protection and preservation of any collateral under the Collateral Documents. 15. Maker shall have the right to prepay this Note without penalty or premium. 16. THE VALIDITY OF THIS NOTE, ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MINNESOTA. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF HENNEPIN, STATE OF MINNESOTA OR, AT THE SOLE OPTION OF THE LENDER, IN ANY OTHER COURT IN WHICH THE LENDER SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. MAKER WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 16. 17. Any notices required hereunder shall be given in accordance with the applicable terms of the Loan Documents. [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.] 4 5 IN WITNESS WHEREOF, Maker has caused this Note to be executed and delivered as of the date first above written. MAKER: PACIFIC COAST GAMING--CORNING, LLC By: /s/ Matthew R. Daly -------------------- Name: Matthew R. Daly Title: Manager/Member STATE OF NV ) ------- ) ss. COUNTY OF Clark ) ------- Subscribed and sworn to before me this 12th day of October, 2000, by Matthew R. Daly the manager and a member of Pacific Coast Gaming - Corning, LLC, a Minnesota limited liability company, for and on behalf of such company. /s/ Donna Lynn Wittman ----------------------- Notary Public EX-10.6 7 c58465ex10-6.txt PROMISSORY NOTE, DATED AS OF OCTOBER 12, 2000 1 PROMISSORY NOTE (Cloverdale Project Development Loan) $12,184,263.00 Minneapolis, Minnesota Dated as of October 12, 2000 FOR VALUE RECEIVED, PACIFIC COAST GAMING--SANTA ROSA, LLC, a Minnesota limited liability company ("Maker"), promises to pay to the order of LAKES CLOVERDALE, LLC, a Minnesota 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 of Twelve Million One Hundred Eighty-Four Thousand Two Hundred Sixty-Three and 00/100 Dollars ($12,184,263.00), or the aggregate unpaid principal amount of all advances made to Maker with respect to the "Project Development Loan" subject and pursuant to the terms of Sections 2 and 3 (which are hereby incorporated in all respects) of the Participation Agreement (as hereinafter defined, plus interest thereon from the date of such advances, in like money, in accordance with the following terms and provisions: 1. MRD Gaming, LLC, a Nevada limited liability company ("MRD"), and Lakes Gaming and Resorts, LLC, a Minnesota limited liability company ("Lakes"), previously entered into that certain Acquisition and Participation Agreement dated as of August 7, 2000, as amended October 12, 2000 and as assigned by Lakes to the Lender pursuant to that certain Assignment Agreement dated October 12, 2000 (the "Participation Agreement"), providing for certain transactions including, but not limited to Project Development Loans. Capitalized terms used herein and not defined shall have the meanings given them in the Participation Agreement. 2. This Note evidences the advances by the Lender to Maker of the Project Development Loan, the proceeds of which are to be used by the Maker for project development costs of the Cloverdale Project. This Note has been issued pursuant to and entitled to all of the terms, rights and benefits provided under the Participation Agreement. In addition to each of the terms and conditions of Sections 2, 3 and 13 of the Participation Agreement, Lender may also suspend the making of any advances under this Note or with respect to the Project Development Loan upon the occurrence of any Event of Default (as defined herein) or the occurrence of any event, circumstance or condition which with the giving of notice or the passage of time or both would constitute an Event of Default. 3. Simple interest on the principal balance of this Note shall accrue at the per annum rate of 1% over the "High Wall Street Journal Prime Lending Rate" as defined in the money rate section of the Wall Street Journal ("Prime Rate"), compounded annually on the anniversary date of this Note if not paid earlier. Interest on such loan shall accrue only on funds actually advanced by Lender to Maker beginning when such funds are advanced. The interest rate shall be adjusted monthly, based upon the Prime Rate on the first business day of each month; 1 2 and that interest rate shall apply to all loan balances and advances unpaid during that month. After the occurrence and during the continuance of an Event of Default (as hereinafter defined), the principal indebtedness evidenced by this Note shall bear interest at the floating rate of two percent (2.0%) per annum greater than the otherwise applicable rate. Interest shall be computed for the actual number of days elapsed on the basis of a year consisting of 365 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. 4. Subject to the terms of Section 7 hereof, the principal balance of this Note, together with accrued interest thereon shall be due and payable as and when required under the terms of the Participation Agreement; provided however that in any event this Note shall mature and the principal balance hereof (together with accrued interest hereon) shall be due and payable in full on the sixty (60) month anniversary of the date that the gaming facility to be located at the Cloverdale Project first opens for gaming to the general public. 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 material 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 Security Agreement of even date herewith (the "Collateral Document") given by Maker for the benefit of the Lender hereof encumbering Maker's assets as provided therein. This Note and the Collateral Document and any other documents or instruments evidencing or securing this Note, together with the Participation Agreement are collectively referred to herein as the "Loan Documents." 7. The occurrence of any of the following events and the expiration of any applicable cure periods set forth herein shall each be referred to herein as an "Event of Default": (a) any default in the payment of any principal, interest or any other sums when due hereunder, or in the performance of any covenant or agreement hereunder, referenced herein or otherwise related hereto, or in any other document, agreement or instrument now or hereafter executed or entered into by Maker with or for the benefit of Lender or any subsequent holder of this Note (collectively, the "Loan Documents"), (b) any MRD Event of Default (as defined in the Participation Agreement), (c) Maker shall admit in writing its or his inability to pay its or his debts as they mature, or make an assignment for the benefit of creditors, or Maker shall apply for or consent to the appointment of any receiver, trustee, or similar officer for it or him or for all or any substantial part of its or his property; or such receiver, trustee or similar officer shall be 2 3 appointed without the application or consent of Maker, or Maker shall institute (by petition, application, answer, consent or otherwise) any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar proceeding relating to it or him under the laws of any jurisdiction; or any such proceeding shall be instituted (by petition, application or otherwise) against Maker (each being referred to herein as a "Bankruptcy Event of Default"); or (d) any judgment, writ, warrant of attachment or execution or similar process shall be issued or levied upon Maker or against a substantial part of the property of Maker. Upon the occurrence of an Event of Default and at any other time permitted by the terms of the Participation Agreement, including, without limitation, Section 13 thereof, the outstanding principal amount of this Note, any interest accrued thereon from time to time, and any other sums then remaining unpaid hereunder, at the option of the Lender 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 Event of Default. If (i) default shall occur in the payment of any sums due on this Note or any Loan Documents, Maker shall have a period of fifteen (15) days after written notice from the Lender to the undersigned to make the payment that is due together with any accrued interest and any amounts due under Section 9 hereof, or (ii) a Bankruptcy Event of Default shall occur in connection with an involuntary bankruptcy filing and so long as the Maker is diligently contesting the same, Maker shall have a period of sixty (60) days to obtain the dismissal of the same, or (iii) if an Event of Default other than non-payment or a Bankruptcy Event of Default shall occur, Maker shall have a period of thirty (30) days after written notice from the Lender to the undersigned to cure any default that can be cured within thirty (30) days, or a reasonable period of time not to exceed ninety (90) days after written notice by Lender to Maker to cure a default not reasonably capable of cure within thirty (30) days (provided Maker diligently commences and continues a course of action to so cure); provided however that the foregoing shall not in any event prevent the Lender from exercising its rights and remedies under the Loan Documents to the extent it deems reasonably necessary to protect or preserve any collateral or the Lender's rights therein. 8. Maker, endorsers and 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 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 or any other Loan Documents. 10. Reserved. 11. The parties hereto intend and believe that each provision of this Note comports with 3 4 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 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. Time is hereby declared to be of the essence of this Note and of every part hereof. 13. This Note shall inure to the benefit of and shall be binding on the parties hereto and their respective successors and assigns; provided, however, that the Maker shall not be entitled to assign its rights or obligations under this Note without the prior written consent of the Lender. Any reference to the Lender shall be deemed to include and apply to every subsequent Holder of this Note. 14. Except for disputes requiring injunctive relief, all disputes, controversies or claims arising out of or relating to this Note, the Collateral Documents, the Participation Agreement and any other Loan Documents shall be settled by mediation and/or binding arbitration in accordance with Sections 21 and 22 of the Participation Agreement; provided however that the foregoing shall not in any event prevent the Lender after the occurrence of an Event of Default from exercising any rights or remedies necessary for the protection and preservation of any collateral under the Collateral Documents. 15. Maker shall have the right to prepay this Note without penalty or premium. 16. THE VALIDITY OF THIS NOTE, ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MINNESOTA. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF HENNEPIN, STATE OF MINNESOTA OR, AT THE SOLE OPTION OF THE LENDER, IN ANY OTHER COURT IN WHICH THE LENDER SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. MAKER WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 16. 17. Any notices required hereunder shall be given in accordance with the applicable terms of the Loan Documents. [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.] 4 5 IN WITNESS WHEREOF, Maker has caused this Note to be executed and delivered as of the date first above written. MAKER: PACIFIC COAST GAMING--SANTA ROSA, LLC By: /s/ Matthew R. Daly --------------------- Name: Matthew R. Daly Title: Manager/Member STATE OF NV ) ----------------- ) ss. COUNTY OF Clark ) ----------------- Subscribed and sworn to before me this 12th day of October, 2000, by Matthew R. Daly the manager and a member of Pacific Coast Gaming - Santa Rosa, LLC, a Minnesota limited liability company, for and on behalf of such company. Donna Lynn Wittman ------------------- Notary Public EX-10.7 8 c58465ex10-7.txt ASSIGNMENT AND ASSUMPTION AGREEMENT, 10/16/2000 1 ASSIGNMENT AND ASSUMPTION AGREEMENT This Agreement is made the 16th day of October, 2000, by and among Great Lakes of Michigan, LLC, a Minnesota limited liability company ("Great Lakes"), Lakes Gaming, Inc., a Minnesota corporation ("Lakes"), and the Pokagon Band of Potawatomi Indians (the "Band"). W I T N E S S E T H: WHEREAS, the Band and Lakes have entered into a Development Agreement dated as of July 8, 1999 (the "Development Agreement") and a Management Agreement dated as of July 8, 1999 (the "Management Agreement"; collectively, with the Development Agreement, the "Agreements"), pursuant to which the Band has engaged the Lakes to, among other things, assist the Band in the design, development, construction and management of a gambling casino and certain related amenities (as defined in the Development Agreement, the "Facility"); and WHEREAS, pursuant to the Development Agreement Lakes has agreed to make certain payments and advances to the Band, including without limitation the Transition Loan, the Lakes Development Loan and the Non-Gaming Land Acquisition Line of Credit (collectively the "Lakes Loans"), and the Scholarship Program Fee, and has agreed to perform development services with regard to the Facility, all on the terms set out in that Agreement; and WHEREAS, pursuant to the Management Agreement Lakes has agreed to manage the Facility on the terms set out in that Agreement; and WHEREAS, Lakes has informed the Band that it wishes to restructure its corporate organization by forming a first tier subsidiary, Lakes Gaming and Resorts, LLC, a Minnesota limited liability company ("LG&R"), to own the equity in second-tier subsidiaries, including Great Lakes, that will be engaged in gaming and gaming-related businesses, and to assign its rights and obligations under the Agreements to Great Lakes as set out in this Agreement (the "Restructuring"); and WHEREAS, in connection with such Restructuring Lakes has requested that the Band consent to (i) the assignment of Lakes' rights and obligations under the Agreements, the Lakes Loans and all related documentation, including without limitation the documents listed on the attached Schedule A (the "Related Documents"; collectively, with the Agreements and the Lake Loans, the "Obligations") to Great Lakes, and (ii) the release of Lakes as primary obligor under the Obligations, in exchange for the execution by Lakes and LG&R of unconditional guarantees of the 2 obligations of Great Lakes under the Obligations; and WHEREAS, it is the intent of the parties that the Restructuring not affect or impair the Band's rights and remedies under the Obligations, other than the conversion of Lakes from primary obligor to unlimited guarantor; WHEREAS, under the Agreements Lakes cannot carry out such Restructuring without the Band's consent; and WHEREAS, the Band is willing to so consent, but only on the terms and conditions set out in this Agreement; NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Recitals True. The above recitals are true. 2. Defined Terms. Capitalized terms used but not otherwise defined herein and defined in the Development Agreement or the Management Agreement shall have the same meaning herein as therein. 3. Assignment of Lakes' Rights Under the Obligations. Lakes grants, bargains, sells, conveys, assigns and transfers to Great Lakes, without recourse, all of Lakes's right, title and interest, legal and equitable, in, to and under the Obligations. 4. Transfer of Lakes Notes. Lakes agrees to endorse the Lakes Notes in favor of Great Lakes. Great Lakes agrees that it is the assignee of the Lakes Notes, but not a holder in due course. 5. Assignment of Account. Lakes hereby assigns and transfers to Great Lakes all rights of Lakes in and to the Account and all cash, financial assets and investment property in the Account, subject to the Band's first perfected security interest, and agrees that the Account shall secure all obligations of Great Lakes and Lakes to the Band in accordance with the terms of the Pledge and Security Agreement and the Control Agreement. 6. Assumption of Obligations. Great Lakes accepts assignment of Lakes' rights and obligations under the Obligations. Great Lakes assumes and agrees to perform and discharge all of the obligations and liabilities of Lakes arising under or relating to the Obligations in accordance with the terms thereof, as if -2- 3 Great Lakes had originally been a party thereto. The liabilities so assumed by Great Lakes include any obligations or liabilities of Lakes which have accrued under the Obligations as of the date hereof, as well as those subsequently accruing. All references to Lakes in the Obligations shall, except as set out in ss. 10 or in a certain Amendment of Account Control Agreement or Amendment to Pledge and Security Agreement of near or even date, be deemed to refer to Great Lakes. 7. Band Consent. The Band consents to this Assignment, recognizes Great Lakes as a substituted party under the Obligations, and agrees that Great Lakes shall be a party to such Obligations to the same extent as if Great Lakes had originally been a party thereto; without prejudice, however, to Lakes' continued obligations to the Band under the Obligations as provided in ss. 10, under its Guaranty, the Account Control Agreement, as amended, the Amendment to Pledge and Security Agreement, as amended, and under this Agreement. 8. Release of Lakes. The Band releases and forever discharges Lakes of any and all liabilities or obligations under the Obligations except as specifically set out in ss. 10 below, and except as provided in ss. 10 agrees to look solely to Great Lakes for performance of all obligations of Lakes under the Obligations; conditioned on, however, the execution by Lakes and LG&R of the unlimited guarantee attached hereto as Exhibit B (the "Guarantee"), and without prejudice to the Band's rights under such Guarantee, under the provisions of the Obligations specified in ss. 10, or under this Agreement. 9. Release of the Band. Lakes agrees that, given the assignment of its rights under the Obligations to Great Lakes, Lakes has and shall have no claims against the Band under or relating to such Obligations; reserving, however, any rights or remedies, if any, which (a) Lakes may now have or may in the future acquire under the Indemnity Agreement referred to in ss. 10(b) below, (b) Lakes may in the future acquire under the specific provisions of the Obligations described in ss. 10(c), or (c) Lakes or LG&R may have under this Agreement or the Guarantee. 10. Lakes Continuing Obligations. Notwithstanding any other provision of this Agreement: a. Lakes shall continue to be bound by, and shall remain subject to and (where applicable) liable for breach of, the following provisions of the -3- 4 Obligations, and any reference to Lakes in such provisions (whether in its own name or as Manager) shall be deemed to be references to each of Lakes and Great Lakes. The reference to captions is for convenience only, and does not substitute for or affect the terms of the indicated sections.
AGREEMENT SECTION CAPTION Development Agreement 1.1 Definition of Insider 1.1 Definition of Lakes Internal Expenses 1.1 Definition of Limited Recourse 1.1 Definition of Material Adverse Change 1.1 Definition of NIGC Approval 2.1.1 Option 2.3 Confidentiality 2.4 Assignment of Other Options 10.4 Non-Competition 10.5(c) Change of Control; provided that in the second paragraph of that subsection the term "Lakes" shall not include Great Lakes as to clauses II, III and IV. 10.6 Restrictions on Collateral Development 11.3 Representations and Warranties of Lakes 11.4 Lakes Covenants 12.2 Events of Defaults by Lakes 13.5 Band Right to Terminate for Material Adverse
-4- 5 Change 14.2 Arbitration 14.3 Limitation of Actions 14.5(i)(C), (D) and (E) Liquidated Damages Payable by Lakes 14.6 Lakes Continuing Obligations 14.9 Fees not Damages 15.13 Confidentiality Management Agreement 2 Definition of Affiliate 2 Definition of Gross Revenues 2 Definition of Insider 2 Definition of Limited Recourse 2 Definition of Manager's Internal Expenses 2 Definition of NIGC Approval 3.5 Manager Compliance with Law; Licenses 4.2.2 Compliance with Band Ordinances 4.6 No Manager Internal Expenses; Limitation on Manager Payments 4.8 Employee Background Checks 9.3 Non-Competition 9.4.3 Change of Control; provided that in the second paragraph of that subsection the term "Lakes" shall only include Great Lakes as to
-5- 6 clause I of the definition of Change of Control, and shall not include Great Lakes as to clauses II, III and IV. 9.5 Restrictions on Collateral Development 10.3 Representations and Warranties of Manager 10.4 Manager Covenants 10.5 No Liens 10.7 Authority to Execute and Perform Agreement 10.8 Brokerage 11.2 Events of Default by Manager 12.5 Band Right to Terminate for Material Adverse Change 12.6 Termination if Manager License Withdrawn or on Conviction 13.2 Arbitration 13.3 Limitation of Actions 13.6 Manager Continuing Obligations 13.10 No Setoff 13.11 Indemnification on Termination 13.12 Fees not Damages 15.2 Warranties 15.3 Disclosure Amendments 15.4 Breach of Manager's Warranties and Agreements
-6- 7 18.4 Further Actions 18.15 Confidential and Proprietary Information 18.19 Government Savings Clause
b. Lakes shall continue to be a Hazardous Waste Indemnitee under ss. 4 of the Indemnity Agreement between the Band and Lakes dated March 10, 2000 and shall have the benefit of, and be bound by, ss.ss. 4, 6, 7, 8, 9 and 10 of that Indemnity Agreement. c. Lakes shall continue to have the benefit of its right and remedies, if any, under the following provisions of the Agreements:
AGREEMENT SECTION CAPTION Development Agreement 10.3 Indiana Casino 11.1 Representations and Warranties of the Band 12.3 Right to Cure 13.5 Band Right to Terminate for Material Adverse Change 14.8 Remedies; provided that the remedies of Lakes shall be limited to claims for breach of its retained rights under this ss. 10(c). 15.4 Notice 15.7 Waiver 15.10 Survival of Covenants 15.12 Periods of Time; Time of the Essence 15.13 Confidential and Proprietary
-7- 8 Information 15.18(a) Consent - Band; provided that the rights of Lakes under this subsection shall be limited to claims relating to consent of the Band with regard to sections specified in this ss. 10(c). Management Agreement 9.2 Indiana Casino 10.1 Representations and Warranties of the Band 11.3 Right to Cure 12.5 Band Right to Terminate for Material Adverse Change 13.8 Remedies; provided that the remedies of Lakes shall be limited to claims for breach of its retained rights under this ss. 10(c). 13.11(ii) Indemnity of Manager by Band, provided that such indemnity shall be limited to claims relating to the period prior to the date of this Agreement. 14.1 Consents and Approvals - Band; provided that the rights of Lakes under this subsection shall be limited to claims relating to consent of the Band with regard to sections specified in this ss. 10(c). 18.2 Notice 18.5 Waiver 18.10 Survival of Covenants
-8- 9 18.12 Periods of Time; Time of the Essence 18.15 Confidential and Proprietary Information
d. Lakes and Great Lakes shall both be parties to, and bound by, the Account Control Agreement, as amended, and the Amendment to Pledge and Security Agreement, as amended, 11. Sovereign Immunity. Lakes agrees that all claims and causes of action it may in the future have against the Band, whether at law, in tort or otherwise, shall be subject to the Band's sovereign immunity, unless specifically waived by the Band in writing after the date of this Agreement or, as to disputes under this Agreement or as to sections specified in ss.10, as provided in ss.19 of this Agreement. Lakes shall, upon the execution of this Agreement, no longer have the benefit of any limited waiver of sovereign immunity provided in the Obligations. Nothing in this Agreement waives or prejudices any rights Lakes or LG&R may have under the terms of their Guaranty, or affects any limited waiver of sovereign immunity in such Guaranty. 12. Covenants and Representations of Lakes and Great Lakes a. Great Lakes is, and at all times during the Term of the Development Agreement and the Term of the Management Agreement shall be, the wholly owned subsidiary of LG&R, which in turn is and shall remain during such Terms the wholly owned subsidiary of Lakes. b. The Chief Manager and Chief Financial Manager of Great Lakes are, and at all times during the Term of the Development Agreement and the Term of the Management Agreement shall be, the Chief Executive Officer and Treasurer, respectively, of Lakes. c. Lyle Berman is and at all times during the Term of the Development Agreement and the Term of the Management Agreement shall be the Chief Manager of Great Lakes, unless (i) Mr. Berman dies or becomes disabled, or (ii) Mr. Berman is replaced as Chief Executive Officer of Lakes with the consent of the Band as provided in ss. 10.5(c) of the Development Agreement. In the event of such replacement, Mr. -9- 10 Berman's replacement as approved by the Band shall be the Chief Manager of Great Lakes. d. Great Lakes is a duly organized Minnesota limited liability company. e. This Agreement constitutes the legal, valid and binding obligation of Great Lakes and Lakes, and is fully enforceable in accordance with its terms. f. The Obligations constitute the legal, valid and binding obligation of Great Lakes, and are fully enforceable in accordance with their terms. g. Neither the execution or delivery of this Agreement nor fulfillment of or compliance with the terms and provisions hereof, will conflict with, or result in a breach of the terms, conditions or provisions of, constitute a default under or result in the creation of any lien, charge or encumbrance upon any property or assets of Lakes or Great Lakes under any agreement or instrument to which either of them is now a party or by which either of them is or may in the future be bound. h. The fulfillment of and compliance with the terms and provisions of the Obligations will not conflict with, result in a breach of the terms, conditions or provisions of, constitute a default under, or result in the creation of any lien, charge or encumbrance upon any property or assets of Great Lakes under any agreement or instrument to which it is now a party or by which it is or may in the future be bound. i. The Band has, and shall have until the termination of the Pledge Agreement in accordance with ss. 12 thereof, a first perfected security interest in the Account. 13. Amendment of Related Documents. The following Related Documents shall be amended as provided in the indicated exhibits: a. Account Control Agreement (Exhibit C) b. Pledge and Security Agreement (Exhibit D) i. UCC-1 Financing Statements (1) Minnesota Secretary of State (Exhibit E-1) -10- 11 (2) Michigan Secretary of State (Exhibit E-2) ii. UCC-3 Financing Statements (1) Minnesota Secretary of State (Exhibit E-3) (2) Michigan Secretary of State (Exhibit E-4) c. Assignment of Mortgage (Exhibit F) 14. Further Assurances. From time to time hereafter, Lakes, Great Lakes and/or the Band will execute and deliver, or will cause to be executed and delivered, such additional instruments, certificates or documents, and will take all such actions, as may reasonably be requested by the other party or parties, for the purpose of implementing or effectuating the provisions of this Agreement. 15. Governing Law; Severability. This Agreement shall be interpreted in accordance with the law of Michigan. 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 provisions of this Agreement shall be prohibited by, unenforceable or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition, unenforceability or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 16. Amendments, Assignments, Etc. Any provision of this Agreement may be amended if, but only if, such amendment is in writing and is signed by each of the parties hereto. No modification shall be implied from course of conduct. Great Lakes may not further assign its rights and obligations hereunder and under the Obligations without the written consent of the Band. 17. Gender and Number; Counterparts. Whenever the context so requires the masculine gender shall include the feminine and/or neuter and the singular number shall include the plural, and conversely in each case. This Agreement may be executed in separate counterparts and said counterparts shall be deemed to constitute one binding document. 18. Notices. Great Lakes agrees that any notice or demand upon it shall be deemed to be sufficiently given or served if it is in writing and is personally served or in lieu of personal service is mailed by first class certified mail, postage -11- 12 prepaid, or be overnight mail or courier service, addressed to Great Lakes at the address of Lakes and with copies as set forth in Section 15.4 of the Development Agreement. Notice to the Band shall be given as provided in Section 15.4 of the Development Agreement. Any notice or demand so mailed shall be deemed received on the date of actual receipt, on the third business day following mailing as herein set forth or one day following delivery to a courier service, whichever first occurs. 19. Arbitration; Limited Waiver of Sovereign Immunity. Any disputes under this Agreement or under the sections of the Agreements specified in ss.10 shall be subject to arbitration as provided in ss.14.2 of the Development Agreement; provided that any demand for arbitration shall be made within 30 days after a notice of default, denominated as such, is given under this Agreement. The Band's limited waiver of sovereign immunity in ss.ss.14.1 and 14.3 of the Development Agreement shall apply to this Agreement; provided that the 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) of the Development Agreement. 20. Ratification. Great Lakes and the Band, and Lakes (to the extent provided in ss.10) each ratify and confirm the Obligations. 21. Interpretation. This Agreement, the related amendments to a Pledge and Security Agreement and Account Control Agreement (the "Amendments") and the Obligations shall be interpreted in favor of the Band so as to ensure for the Band the full benefit of its rights, powers and remedies under the Obligations notwithstanding the Restructuring, this Agreement and the Amendments; and to fully implement the intent of the parties that the Restructuring, this Agreement and the Amendments not affect or impair the Band's rights, powers and remedies under the Obligations, other than the conversion of Lakes from primary obligor to unlimited guarantor. IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Assumption Agreement to be executed as of the day first above written. -12- 13 WITNESS: GREAT LAKES OF MICHIGAN, LLC BY: NAME: Timothy J. Cope ITS: Chief Financial Officer LAKES GAMING, INC. BY: NAME: Timothy J. Cope ITS: Chief Financial Officer THE POKAGON BAND OF POTAWATOMI INDIANS By: ------------------------------------ Its: Council Chairman By: ------------------------------------- Its: Secretary Seen and agreed: LAKES GAMING AND RESORTS, LLC BY: NAME: Timothy J. Cope ITS: Chief Financial Officer -13- 14 SCHEDULE A TO ASSIGNMENT AND ASSUMPTION AGREEMENT 1. Development Agreement between the Pokagon Band of Potawatami Indians (the "Band") and Lakes Gaming, Inc. ("Lakes") dated July 8, 1999. 2. Management Agreement between the Band and Lakes dated July 8, 1999. 3. Account Control Agreement by and among the Band, Lakes and Firstar Bank of Minnesota, N.A. dated July 8, 1999. 4. Pledge and Security Agreement by and between Lakes and the Band dated July 8, 1999. 5. Transition Loan Note dated July 8, 1999 made payable by the Band to the order of Lakes in the original principal amount of $7,500,000. 6. Lakes Note dated July 8, 1999 made payable by the Band to the order of Lakes in the original principal amount of $43,000,000. 7. Non-Gaming Land Acquisition Line of Credit Agreement dated July 8, 1999 by and between the Band and Lakes. 8. Guaranty by Pokagon Properties, LLC ("Pokagon Properties") in favor of Lakes dated March 9, 2000. 9. Mortgage covering properties in Berrien County, Michigan dated March 9, 2000 executed by Pokagon Properties in favor of Lakes, as amended. 10. Mortgage covering properties in VanBuren County, Michigan dated March 9, 2000 executed by Pokagon Properties in favor of Lakes, as amended. 11. Mortgage covering properties in Cass County, Michigan dated September 25, 2000 executed by Pokagon Properties in favor of Lakes. -14- EX-10.8 9 c58465ex10-8.txt FIRST AMENDED AND RESTATED DEVELOPMENT AGREEMENT 1 FIRST AMENDED AND RESTATED DEVELOPMENT AGREEMENT BETWEEN THE POKAGON BAND OF POTAWATOMI INDIANS AND GREAT LAKES GAMING OF MICHIGAN, LLC (f/k/a GREAT LAKES OF MICHIGAN, LLC) DATED AS OF OCTOBER 16, 2000 2 TABLE OF CONTENTS RECITALS .........................................................................................................1 ARTICLE 1 - DEFINITIONS AND OBJECTIVES............................................................................2 Definitions...................................................................................................2 Independent Agreement........................................................................................13 ARTICLE 2 - ACQUISITION OF GAMING SITE AND NON-GAMING LANDS........................................................................................................14 Selection of Gaming Site.....................................................................................14 Option..............................................................................................14 Purchase Agreement..................................................................................14 Closing on Gaming Site; Funding..............................................................................15 Funding where Gaming Site Acquired by Band Designee..........................................................15 Confidentiality..............................................................................................15 Assignment of Other Options..................................................................................15 Selection of Non-Gaming Lands................................................................................16 Closing on Non-Gaming Lands; Funding.........................................................................16 Funding where Non-Gaming Land Acquired by Band Designee......................................................16 Mortgages Prior to Transfer into Trust.......................................................................17 ARTICLE 3 - FEASIBILITY STUDY....................................................................................17 Initial Phase................................................................................................17 Final Scope of Work..........................................................................................17 Modification of Final Scope of Work..........................................................................18 Bank Loans and Equipment Loans...............................................................................18 ARTICLE 4 - DESIGN PHASE.........................................................................................18 Employment of Architect......................................................................................18 Design and Construction Budgets..............................................................................19 Gaming Regulatory Authority Expenses.........................................................................19 Concept Design and Engineering...............................................................................19 Preliminary Program Evaluation...............................................................................20 Design Development...........................................................................................20 Plans and Specifications.....................................................................................20 Compliance with Construction Standards, Environmental Laws and Regulations..............................................................................................21 Advance of Funds for Design Work.............................................................................21 ARTICLE 5 - CONSTRUCTION PHASE...................................................................................21
3 Selection of Contractor or Construction Lakes................................................................21 Vendor Preferences...........................................................................................22 Proposal Review..............................................................................................22 Contracts....................................................................................................22 Construction Document Provisions.............................................................................22 Construction Administration..................................................................................23 Construction Commencement and Completion.....................................................................23 Determination of Approved Construction Costs; Cost Overruns..................................................24 ARTICLE 6 - FURNISHINGS AND EQUIPMENT............................................................................24 Selection of Furnishings and Equipment.......................................................................24 ARTICLE 7 - TERM.................................................................................................24 Term.........................................................................................................24 ARTICLE 8 - PAYMENTS AND COMMITMENTS BY LAKES BEFORE APPROVAL OF MANAGEMENT AGREEMENT......................................................................25 Fees Payable By Lakes to the Band............................................................................25 Initial Fee.........................................................................................25 Signing Fee.........................................................................................25 Monthly Payments....................................................................................25 Deposit into Account.........................................................................................26 Transition Loan..............................................................................................26 Advances on Lakes Development Loan...........................................................................27 Gaming Site Acquisition Funds.......................................................................27 Site Planning and Design Development................................................................27 Advances to the Band for Gaming Ordinance...........................................................27 Non-Gaming Land Acquisition Line of Credit...................................................................27 ARTICLE 9 - PAYMENTS AND COMMITMENTS BY LAKES AFTER APPROVAL OF MANAGEMENT AGREEMENT.......................................................................28 Scholarship Program Fee......................................................................................28 Development and Equipment Loans..............................................................................28 Lakes Development Loan..............................................................................29 Bank Development Loan...............................................................................33 Equipment Loan......................................................................................35 Terms Applicable to all Loans.......................................................................38 ARTICLE 10 - EXCLUSIVITY; NON-COMPETITION........................................................................39 Exclusivity Regarding Facility...............................................................................39 Exclusivity in Michigan......................................................................................39 Indiana Casino...............................................................................................41
4 Non-Competition..............................................................................................41 Assignment; Change of Control................................................................................42 Restrictions on Collateral Development.......................................................................44 ARTICLE 11 - REPRESENTATIONS, WARRANTIES, AND COVENANTS..........................................................44 Representations and Warranties of the Band...................................................................44 Band Covenants...............................................................................................44 Representations and Warranties of Lakes......................................................................46 Lakes Covenants..............................................................................................46 ARTICLE 12 - EVENTS OF DEFAULT...................................................................................47 Events of Default by the Band................................................................................47 Events of Default by Lakes...................................................................................48 Material Breach; Right to Cure...............................................................................49 ARTICLE 13 - TERMINATION.........................................................................................49 Voluntary Termination........................................................................................49 Termination if No NIGC Approval..............................................................................50 Lakes Right to Terminate on Band Event of Default............................................................50 Band Right to Terminate on Lakes Event of Default............................................................50 Band Right to Terminate for Material Adverse Change..........................................................50 Termination on Buyout........................................................................................51 Involuntary Termination Due to Changes in Legal Requirements.................................................51 Repair or Replacement........................................................................................52 Setoff; Recoupment...........................................................................................53 ARTICLE 14 - DISPUTE RESOLUTION; LIQUIDATED DAMAGES..............................................................53 Band's Waiver of Sovereign Immunity and Consent to Suit......................................................53 Arbitration..................................................................................................53 Choice of Law.......................................................................................54 Place of Hearing....................................................................................54 Confidentiality.....................................................................................54 Limitation of Actions........................................................................................54 Damages.............................................................................................54 Consents and Approvals..............................................................................54 Injunctive Relief and Specific Performance..........................................................55 Action to Compel Arbitration........................................................................55 Damages on Termination for Failure to Obtain NIGC Approval...................................................55 Liquidated Damages and Limitations on Remedies...............................................................55 Liquidated Damages Payable by Lakes.................................................................55 Liquidated Damages Payable by the Band..............................................................56 Lakes Continuing Obligations.................................................................................56
5 Termination of Exclusivity...................................................................................57 Remedies ....................................................................................................57 Fees not Damages.............................................................................................57 ARTICLE 15 - GENERAL.............................................................................................57 Nature of Agreement..........................................................................................57 Lakes's Interest.............................................................................................57 Situs of the Agreement.......................................................................................57 Notice.......................................................................................................57 Relationship.................................................................................................59 Further Actions..............................................................................................59 Waivers......................................................................................................59 Captions.....................................................................................................59 Third Party Beneficiary......................................................................................59 Survival of Covenants........................................................................................60 Estoppel Certificate.........................................................................................60 Periods of Time; Time of the ................................................................................60 Confidential and Proprietary Information.....................................................................60 Government Savings Clause....................................................................................60 Successors and Assigns.......................................................................................61 Severability.................................................................................................61 Entire Agreement.............................................................................................61 Consents ....................................................................................................61 Ratification.................................................................................................62 Execution Page...............................................................................................63
6 EXHIBIT LIST EXHIBIT A Control Agreement EXHIBIT A-1 Dominion Agreement EXHIBIT B First Amended and Restated Non-Gaming Lakes Note EXHIBIT B-1 Description of Gaming Site EXHIBIT C-1 First Amended and Restated Non-Gaming Land Acquisition Line of Credit Agreement EXHIBIT D Amended and Restated Non-Gaming 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 7 FIRST AMENDED AND RESTATED DEVELOPMENT AGREEMENT This First Amended and Restated Development Agreement is made as of the 16th day of October, 2000 by and between the POKAGON BAND OF POTAWATOMI INDIANS (the "Band"), and GREAT LAKES GAMING OF MICHIGAN, LLC, a Minnesota limited liability company (f/k/a Great Lakes of Michigan, LLC) ("Great 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 and Lakes Gaming, Inc. ("Lakes") entered into a Development Agreement dated as of July 8, 1999 (the "Development Agreement") which contains provisions relating to the development of the Facility. D. The Band has ratified the Development Agreement and the Development Agreement is now in full force and effect. E. Lakes has assigned its rights and obligations under the Development Agreement to Great Lakes pursuant to an Assignment and Assumption Agreement of near or even date, subject to certain terms and conditions. F. At the request of the Band, Lakes has agreed to loan the Band an additional $8 million for immediate use by the Band in acquiring both gaming and non-gaming land. The Band and Lakes have agreed to construct the Facility in a phased approach. Lakes has also agreed, due to uncertainty in the capital markets over the availability of financing for Facility, to provide a greater proportion of the initial phase of project financing from its own funds, and affirmed its commitment to finance all phases of the project entirely from its own funds if financing at an interest 8 rate of 13% or less is not available from the capital markets. The Band has in turn agreed to extend the term of the Management Agreement and to enter into a Dominion Agreement granting Lakes a security interest in the Dominion Account as defined in the Management Agreement. G. The cost of developing, constructing and equipping the Initial Phase of the Project is understood as totaling approximately $97 million, which will be financed as follows: the Lakes Development Loan in the amount of $46 million; the Bank Loan in the amount of $28 million (subject to increase to not more than $36 million, plus accrued interest thereon, to refinance funds advanced by Lakes from the Land Acquisition Reserve for Gaming Site Acquisition and Non-Gaming Land Acquisition); and the Equipment Loan in the amount of $22.75 million. H. This First Amended and Restated Development Agreement incorporates certain amendments to the Development Agreement agreed to by the parties pursuant to a First Amendment to Development Agreement dated as of October 16, 2000. 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 Great 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. 9 "Approved Development Budget" has the meaning set out in ss. 4.2. "Architect" shall have the meaning described in ss. 4.1. "Band Designee" shall mean Pokagon Properties, LLC, a Delaware limited liability company, Northern Indiana Holdings, LLC, an Indiana limited liability company, or such other entities as may be designated by the Band in writing. "Band Designee Guarantee" shall mean the guarantee by the Band Designee to Lakes of amounts advanced by Lakes or Great Lakes under the Lakes Note and the Non- Gaming Land Acquisition Line of Credit, which shall be substantially in the form of the guaranty executed by Pokagon Properties, LLC in favor of Lakes dated March 9, 2000. "Band Designee Mortgage" means the mortgage granted by the Band Designee to Lakes securing the Lakes Note Guarantee, which shall be substantially in the form of the mortgage granted by Pokagon Properties, LLC to Lakes dated March 9, 2000. "Band Event of Default" has the meaning described in ss. 12.1. "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 Mortgage" means the mortgage granted by the Band to Lakes securing the Lakes Note and the Non-Gaming Land Acquisition Line of Credit, which shall be substantially in the form of the mortgage granted by Pokagon Properties, LLC to Lakes dated March 9, 2000, with appropriate changes reasonably acceptable to Lakes and the Band reflecting the change to the Band as mortgagor and to Great Lakes as mortgagee. "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 (a) the capital lease, loan agreement and/or bond indenture to be entered into between the Band and the Bank Lender for the Initial Phase in a principal amount, not to exceed $36,000,000 plus accrued interest with respect to advances on the Second Tranche - Lakes Note and the Second Tranche - Non-Gaming, which will (i), when added to the Lakes Development Loan, 10 finance all Development Expenditures for the Initial Phase (other than acquisition of Furnishings and Equipment) and (ii) refinance all amounts advanced by Lakes from the Land Acquisition Reserve; and (b) the subsequent or amended capital lease, loan agreement and/or bond indenture in an amount which will finance all Development Expenditures associated with the expansion of the Facility to the Final Scope of Work (other than acquisition of Furnishings and Equipment); provided that the aggregate principal amount of such capital lease, loan and/or indenture, when added to the Equipment Loan for that expansion, shall not exceed $100,000,000. "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 Gaming is conducted pursuant to the terms of the Management Agreement in a Facility, including Gaming conducted on completion of the Initial Phase of the 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. "Completion Date" shall mean the date upon which Great Lakes receives, as to the Initial Phase or the Final Scope of Work: (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 Initial Phase or the Final Scope of Work, as the case may be, has been fully constructed substantially in accordance with the Plans and Specifications; 11 (ii) certification from the division, department or designee of Great Lakes having responsibility to assure compliance with any operational standards stating that the Initial Phase or the Final Scope of Work, as the case may be, as completed, is in substantial compliance with any such standards; (iii) a permanent or temporary certificate of occupancy, if required, from the regulatory entity within the Band Government with authority to grant such a certificate, permitting the use and operation of the Initial Phase or the Final Scope of Work, as the case may be, in accordance with this Agreement; and (iv) certificates of such professional designers, inspectors or consultants or opinions of counsel, as Great Lakes may reasonably determine to be appropriate, verifying construction and furnishing of the Initial Phase or the Final Scope of Work, as the case may be, 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. "Design Agreement" shall have the meaning described in Section 4.1 12 "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. "Dominion Account" means the collateral account in favor of Lakes established under ss. 4.19.2 of the Management Agreement. "Dominion Agreement" means the collateral agreement granting and perfecting Lakes a security interest in the Dominion Account, which shall be in the form attached as Exhibit A-1. "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 13 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. "Equipment Lender" shall mean the financial institution described as the lender in the Equipment Loan Agreement. "Equipment Loan Agreement" shall mean (a) the bond indenture, loan agreement and/or equipment lease in a principal amount of up to $22,750,000 to be entered into between the Band and the Equipment Lender to finance acquisition of the Furnishings and Equipment for the Initial Phase, and (b) the subsequent or amended bond indenture, loan agreement and/or equipment lease which will finance the acquisition of the Furnishings and Equipment for expansion of the Facility to the Final Scope of Work; provided that the principal amount of such loan or lease, when added to the Bank Development Loan for that expansion, shall not exceed $100,000,000. "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. "Final Scope of Work" means the final gaming facility and associated amenities that the parties intend to complete, unless otherwise agreed by Great Lakes and the Band, no later than the third anniversary of the Commencement Date, which, together with the Initial Phase, shall include not less than 111,000 sq.ft. of gaming space, 100 gaming tables, 3,000 slot machines, 4,000 surface parking spaces for guests and a 2,000 car garage (unless, as to either the surface parking or the garage, a smaller number is approved by the Business Board), parking spaces for 45 buses and 600 employees, a 200 room hotel and a 2,500 seat bingo and events center, and which shall contain (excluding the hotel and bingo/events center) at least 304,000 sq. ft. of space. The Final Scope of Work will include and be integrated with the Initial Phase. "First Tranche - Lakes Note" means all amounts advanced under the Lakes Note other than the Second Tranche - Lakes Note. 14 "First Tranche - Non-Gaming" means all amounts advanced under the Non- Gaming Land Acquisition Line of Credit other than the Second Tranche - Non-Gaming. "Firstar" shall mean Firstar Bank 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; (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. 15 "Gaming Site" shall mean the parcels of land in New Buffalo, Michigan described on the attached Exhibit B-1, or such other parcels identified by the Band and approved by Great Lakes, as suitable for development of the Facility and operation of the Enterprise; all of which must meet 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 $11,000,000. "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. "Great Lakes" means Great Lakes Gaming of Michigan, LLC, a Minnesota limited liability company (f/k/a Great Lakes of Michigan, LLC). "Initial Phase" shall mean the first phase of the Facility, which shall (unless otherwise agreed by Great Lakes and the Band) have not less than 63,000 sq.ft. of gaming space, 50 table games, 1,750 slot machines and food and beverage facilities, and which shall contain at least 153,000 sq. ft. of space but shall not include a hotel. The Initial Phase shall be designed and constructed so that it will be an integral part of the Final Scope of Work. "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 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. 16 "Lakes" shall mean either Great Lakes or both Great Lakes and Lakes Gaming, Inc., to the extent provided in the Assignment and Assumption Agreement among Great Lakes, Lakes Gaming, Inc. and the Band of near or even date. "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 $ 46,000,000, comprised of (A) up to $ 11,000,000 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. "Land Acquisition Reserve" shall mean the sum of $8,000,000, of which $3,000,000 shall be allocated to Gaming Site Acquisition Advances under the Lakes Note and $5,000,000 shall be allocated to fund the acquisition of Non-Gaming Land under the Non-Gaming Acquisition Line of Credit. The Land Acquisition Reserve is to fund a portion of advances under the Non-Gaming Land Acquisition Line of Credit and the Lakes Note, as provided in ss.ss. 2.1, 2.2 and 2.6. "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 17 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, (iii) mortgages on the Gaming Site and Non-Gaming Lands prior to their transfer into trust, and (iv) after the Commencement Date occurs, funds on deposit in the Dominion Account to the extent provided in ss. 9.2(x) of the Development Agreement and the Dominion Agreement, or in any other dominion agreement executed by the Band). In no event shall Great 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 Lakes Note and the Non-Gaming Acquisition Line of Credit, mortgages on the Gaming Site and Non-Gaming Lands prior to their transfer into trust, (iii) funds on deposit in the Dominion Account to the extent provided in the Agreements, the Dominion Agreement and any other dominion agreement executed by the Band, 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, as amended by First Amendment dated October 16, 2000. "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. 18 "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. "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 Great Lakes in the amount of $15,000,000, pursuant to the Non-Gaming Land Acquisition Line of Credit Agreement in the form attached hereto as EXHIBIT C-1, 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. 19 "Preliminary Development Budget" shall have the meaning described in ss. 4.2. "Project" shall have the meaning described in ss. 4.1. "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. "Second Tranche - Lakes Note" means Gaming Site Acquisition Advances to the extent they exceed $8,000,000. "Second Tranche - Non-Gaming" means amounts advanced under the Non- Gaming Land Acquisition Line of Credit to the extent such advances exceed $10,000,000. "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. "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 20 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. 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 Great Lakes; provided that the purchase price for the Gaming Site and the cost of any related options shall not exceed $11,000,000. 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. At the Band's option, any Gaming Site Options may be obtained and held in the name of the Band 21 Designee. Section 2.1.2. Purchase Agreement. If Lakes does not hold or cannot acquire Gaming Site Options as to the entire Gaming Site, Lakes shall negotiate one or more purchase contracts (each, a "Gaming Site Purchase Agreement") for purchase of any remaining portions of the site by Lakes or its designee or nominee, or, at the Band's option, by the Band or the Band Designee. 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 Agreement to the Band or, at the Band's option, the Band Designee, 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 or the Band Designee 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 Options or Gaming Site Purchase Agreements, as the case may be, and this Agreement. Such purchase or purchases 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 the parties may otherwise agree. 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 $11,000,000. All amounts so advanced by Lakes, together with option or acquisition payments made by Lakes prior to assignment of the Gaming Site Options or Gaming Site Purchase Agreements to the Band, shall be Development Expenditures and shall be advanced under the Lakes Note. 2.2.1 Funding where Gaming Site Property Acquired by Band Designee. If the Band opts to have the Band Designee enter into Gaming Site Options or Gaming Site Purchase Agreements, or acquire any of the Gaming Site, the cost of obtaining such Options and Gaming Site Purchase Agreements, and of closing under such Options and Agreements, including all related fees, commissions and expenses, shall be advanced by Lakes to the Band under the Lakes Note as a Development Expenditure. The Band shall in turn advance or contribute such amounts to or for the benefit of the Band Designee. The Band 22 Designee shall execute and deliver the Band Designee Guarantee to Lakes. The Band Designee shall also execute and deliver to Lakes a Band Designee Mortgage (or an amendment of such mortgage, if one is already filed in the county in question) securing that guarantee. 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 or cause to be assigned to the Band or the Band Designee any or all options (other than the Gaming Site Option) it, or any other nominee, Insider or agent of Lakes may have on, or other interests in, the following properties: (a) all lands acquired by Lakes or any agent or Insider of Lakes relating to the development of the Facility and related amenities, and (b) any other land located within the 20-mile radius described in ss. 10.6 below, unless the Band consents in writing to their retention of specified options or interests for specified purposes. Any such consent given by the Band shall be irrevocable as to the specified property and purposes. Any such assignments shall be without warranty or other recourse. Option payments or acquisition payments made by Lakes or Lakes' other nominees or agents 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 or the Band Designee shall thereafter proceed to purchase the Non-Gaming Lands. Such purchase shall occur on or immediately following NIGC Approval; as may be required to avoid expiration of options or deadlines set in purchase agreements, as they may be extended with the consent of the owners of the proposed Non-Gaming Lands; or as otherwise agreed by the parties. 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 and transfer taxes, provided that the total amount Lakes shall be required to advance shall not exceed $15,000,000. 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 (except for the Second Tranche - Non-Gaming) in 60 equal monthly instalments of principal and interest 23 commencing on the 15th day of the month after the month in which the Commencement Date occurs. The Second Tranche - Non-Gaming shall be repaid as provided in ss. 9.2.1(iii) below. 2.6.1 Funding where Non-Gaming Land Acquired by Band Designee. If the Band opts to have the Band Designee enter into options or purchase agreements for Non- Gaming Lands, or acquire any of the Non-Gaming Lands, the cost of obtaining such options and agreements, and of closing under such options and agreements, including all related fees, commissions and expenses, shall be advanced by Lakes to the Band under the Non-Gaming Land Acquisition Line of Credit, through a designee other than Great Lakes, which designee shall be the nominee of and agent for Lakes. The Band shall in turn advance or contribute such amounts to or for the benefit of the Band Designee. The Band Designee shall execute and deliver to Lakes the Band Designee Guarantee. The Band Designee shall also execute and deliver to Lakes' nominee a Band Designee Mortgage securing that guarantee, or an amendment to such mortgage, upon each closing on the Band Designee's acquisition of any such real property. Lakes's Designee shall act solely as agent and nominee for Lakes in advancing funds under the Non-Gaming Land Acquisition Line of Credit and holding the Band Designee Mortgage, and shall not have any independent capacity; shall be subject to all claims and defenses of the Band and the Band Designee against Lakes, to the same extent as if the property in question had been acquired by the Band and mortgaged by the Band to Lakes; and shall be subject to the arbitration, limited waiver of immunity, Limited Recourse and other provisions of Article 14 of the Development Agreement. Lakes' designee shall only be entitled to enforce the Band Designee Mortgage against the Band Designee to the extent that, and in the same manner as, Lakes would be entitled to enforce a Band Mortgage against the Band. Any Lakes' designee shall execute and deliver to the Band an agency agreement reasonably acceptable to the Band and Lakes. Section 2.7. Mortgages Prior to Transfer into Trust. Prior to transfer of the Gaming Site or Non-Gaming Lands into trust, amounts advanced by Lakes under the Lakes Note and under the Non-Gaming Land Acquisition Line of Credit shall be secured by a Band Mortgage or Band Designee Mortgage on all such properties. Lakes and Great Lakes shall release such mortgages upon transfer of the respective lands subject to such mortgages into trust, or as otherwise provided in this Agreement. ARTICLE 3 CONSTRUCTION PHASES 24 Section 3.1. Initial Phase The Facility shall be constructed in two phases, the Initial Phase and the Final Scope of Work. Lakes and the Band agree to proceed with the Design Phase and the Construction Phase of the Initial Phase in accordance with Articles 4 and 5, and to equip the Initial Phase of the Facility in accordance with Article 6. The intent of the parties is to take all steps necessary in accordance with Articles 4 and 5 to permit the Band to commence construction of the Initial Phase immediately upon the taking into trust of the Gaming Site and receipt of NIGC Approval, and to complete construction of the Initial Phase, equip the Initial Phase of the Facility and commence Gaming as soon as reasonably practicable thereafter. Section 3.2. Final Scope of Work. No later than eighteen months after the Commencement Date, Lakes shall submit to the Band a proposed Preliminary Development Budget, plans and specifications for the Final Scope of Work. Upon approval of such budget, plans and specifications, Lakes and the Band shall proceed in accordance with Articles 4, 5 and 6 to design, construct and equip the Facility in accordance with the Final Scope of Work in a timely manner so as to permit opening of the Facility expansion no later than three years after the Commencement Date. Section 3.3. Modification of Final Scope of Work. Notwithstanding any provision of this Article, the Final Scope of Work may be reduced as follows: 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 Final Scope of Work not economically feasible. In that event both parties shall negotiate in good faith to determine what adjustments, if any, in the Final Scope of Work are appropriate in light of the changed local gaming market conditions; provided that such adjustments shall not result in a Facility smaller than the Initial Phase. The Band and Great Lakes shall mutually agree upon the final budget, plans and specifications for the Final Scope of Work. Section 3.4. Bank Loans and Equipment Loans. Any references in Articles 4, 5 and 6 to the Bank Loan, the Equipment Loan or the Bank Closing shall refer to such loans or closings as they pertain to the financing of the Initial Phase or the expansion to the Final Scope of Work, as appropriate. ARTICLE 4 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 25 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 Phase and the Final Scope of Work (subject to the provisions of ss. 3.3). 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 the Initial Phase and, as to the expansion to include the Final Scope of Work, the Final Scope of Work (subject to revision as provided in ss. 3.3), as well as any other planned phasing. 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 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 26 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; provided that the cost of final preparation and approval of the Gaming Ordinance shall not exceed $20,000. Section 4.4 [INTENTIONALLY DELETED]. 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. 27 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 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. 28 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. 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 29 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 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 30 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 Lakes as the Band and Lakes shall deem appropriate; shall provide that the construction of the Initial Phase 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. If the Band decides to proceed with an expansion to the Final Scope of Work, Lakes and the Band shall proceed in good faith with construction of a permanent Facility in accordance with the Final Scope of Work, as modified under ss. 3.3, with such construction to be completed no later than three years after the Commencement Date unless otherwise agreed by the Band. 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 of the Initial Phase and Final Scope of Work, respectively. 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 of the Initial Phase to the extent they exceed the lesser of (a) such Approved Construction Costs of the Initial Phase (including the approved contingency reserve), as such costs may change because of change orders approved by the Band and Lakes or amendments to the Approved Development Budget approved by the Band and Lakes, or (b) $100,000,000, 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 31 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 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: (a) seven years from the Commencement Date; or (b) the date on which 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 32 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; 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. 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) 33 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. 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 34 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 Sections 2.6 and 2.6.1, upon the terms set forth in the form of Non-Gaming Land Acquisition Line of Credit attached hereto as Exhibit C-1 (the "Non-Gaming Land Acquisition Line of Credit"); except that Lakes' obligation to fund any portion of the Second Tranche - Non-Gaming shall terminate on the earlier of (a) the Bank Closing, if the Bank Development Loan has been increased from $28,000,000 to $36,000,000 plus accrued interest on amounts advanced on the Second Tranche - -- Lakes Note and Second Tranche -- Non-Gaming, and such increment is available first to fund any undisbursed amounts of the Second Tranche -- Lakes Note and the Second Tranche -- Non-Gaming, and second to repay Lakes amounts advanced by Lakes under such Second Tranches; or (b) the Commencement Date. 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 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 (a) funds advanced under the Non-Gaming Land Acquisition Line of Credit shall at Lakes' request, prior to transfer of land into trust, be guaranteed by the Band Designee and secured by mortgages in favor of Lakes on any Non-Gaming Lands acquired by the Band or the Band Designee; and (b) principal and interest on the Second Tranche - -- Non-Gaming shall be repaid either (I) at Bank Closing, to the extent the Bank Development Loan has been increased from $28,000,000 to $36,000,000 plus accrued interest on such Second Tranches, and such increment is available first to fund any undisbursed amounts of the Second Tranche -- Lakes Note and the Second Tranche -- Non-Gaming, or (II) from distributions made under ss. 5.5.5 and 5.5.6 of the Management Agreement and, if not 35 sooner paid, shall be paid in full five years after the Commencement Date. 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 or the Band Designee. 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 for both the Initial Phase and the Final Scope of Work, provided that (a) the aggregate amount of Development Expenditures for the Initial Phase shall not exceed $100,0000, (b) the aggregate amount of additional Development Expenditures for the Final Scope of Work shall not exceed $100,000,000, and (c) the Bank Development Loan and Equipment Loan to fund the Final Scope of Work need not be obtained at the same time as such Loans are obtained for the Initial Phase. 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: $46,000,000 for the Initial Phase, comprised of (A) up to $11,000,000 for Gaming Site Acquisition Advances and (B) $35,000,000 for Development Expenditures other than acquisition of the Gaming Site. Lakes shall not be required to provide additional funding for the Initial Phase or for the expansion to the Final Scope of Work, except as provided under ss.ss.5.8, 9.2.2(vi) and 9.2.3(x). 36 ii. Five year term, plus the period of development and construction; except that the Second Tranche -- Lakes Note shall be repaid from the proceeds of the Bank Development Loan at the Bank Closing on the Initial Phase, to the extent such proceeds exceed $28,000,000 and such increment is available first to repay the Second Tranche -- Lakes Note and the Second Tranche -- Non-Gaming; and provided further that if the Bank Development Loan is less than the sum of (A) $28,000,000 plus (B) the amount of such Second Tranche, such Second Tranche shall be repaid as provided in ss. 5.5.5 and 5.5.6 of the Management Agreement and, if not sooner paid, in full at the end of the Term. iii. A. Interest at the Band Interest Rate shall accrue from date of advance until the Commencement Date; thereafter the Lakes Development Loan shall be payable as follows: (a) the amount outstanding under First Tranche -- Lakes Note as of such Commencement Date shall be repaid monthly in arrears, beginning on the 15th day of the month after the month in which the Commencement Date occurs, in equal monthly payments of principal and interest for the successive 60 months of the term; and (b) principal and interest on Second Tranche -- Lakes Note shall be repaid either (I) at Bank Closing, to the extent the Bank Development Loan has been increased from $28,000,000 to $36,000,000 plus accrued interest on such Second Tranches, and such increment is available first to fund any undisbursed amounts of the Second Tranche -- Lakes Note and the Second Tranche -- Non-Gaming, or (II) from distributions made underss.ss.5.5.5 and 5.5.6 of the Management Agreement and, if not sooner paid, in full at the end of the Term. B. 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 37 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 subordination agreements evidencing such subordination in form reasonably 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, unless otherwise agreed by Lake and the Band in writing, 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. ix. Lakes' obligation to fund any portion of the Second Tranche -- Lakes Note shall terminate on the earlier of (a) the Bank Closing, if the Bank Development Loan has been increased from $28,000,000 to $36,000,000 plus accrued interest on the Second Tranches, and such increment is available first to fund any undisbursed amounts of the Second Tranche -- Lakes Note and the Second Tranche -- Non-Gaming, and second to repay Lakes amounts 38 advanced by Lakes under such Second Tranches; or (b) the Commencement Date. x. The obligations of the Band to Lakes under the Lakes Note, the Non-Gaming Land Acquisition Line of Credit and the Transition Loan, and, under the Management Agreement, for Management Fees, shall be secured by a first security interest in the Dominion Account pursuant to the Dominion Agreement. Lake's security interest in the Dominion Account shall be subject to the following terms and conditions: A. Lakes may block payment to the Band of Monthly Distribution Payments and may foreclose on its security interest on the Dominion Account only on the occurrence of a Band Event of Default under the Development Agreement or the Management Agreement, if such default is not cured within any applicable cure period and, if arbitration is timely demanded, after entry of an arbitrator's award finding a Band Event of Default has occurred. B. Lake's security interest in the Dominion Account shall be subordinate to any security interests granted to the Bank Lender and the Equipment Lender, and shall be further subject to payment of (i) Operating Expenses; (ii) all Loans, as well any other third party loans to which Lakes has subordinated in writing; (iii) the Minimum Guaranteed Monthly Payment; (iv) deposits into the Capital Replacement Reserve pursuant to ss. 4.15 of the Management Agreement; (v) maintenance of the Minimum Balance, and any other reserves approved by the Business Board with the written consent of Lakes; and (vi) claims of third parties granted priority over Lakes under the Agreements, if the events occur which trigger that priority (see, e.g. ss. 13.8 below [priority of distributions from insurance proceeds, if casualty loss and Facility not rebuilt]. Terms in this subsection not defined in this Agreement shall have the meanings set forth in the Management Agreement. Lakes shall promptly 39 execute and deliver subordination agreements pertaining to the Dominion Agreement with regard to any Bank Lender or Equipment Lender, which agreements shall contain provisions reasonably acceptable to Lakes and such lenders. C. The Dominion Agreement shall be amended at the Band's request (i) to conform with requests of the Bank Lender and the Equipment Lender, to the extent needed to obtain the Bank Development Loan or the Equipment Loan, and (ii) to the extent reasonably necessary to provide for subordinate security interests for loans for the benefit of the Enterprise as provided in ss. 9.2.4(ii) below. D. The Dominion Agreement shall terminate as to Lakes, without prejudice to the Bank Lender, the Equipment Lender, or any other party that may have joined in, or be benefitted by, that agreement, and Lake's security interest in the Dominion Account shall be discharged, on termination of this Agreement pursuant to ss. 13.1, 13.2, 13.4 (prior to the Commencement Date), 13.5, or 13.6 hereof, or of the Management Agreement pursuant to ss. 12.1, 12.2, 12.4 (prior to the Commencement Date), 12.5, 12.6 (prior to the Commencement Date) or 12.7 thereof. On a termination under ss. 13.4 (after the Commencement Date) or 13.7 of the Development Agreement or ss. 12.4 (after the Commencement Date), 12.6 or 12.8 of the Management Agreement after the Commencement Date, such security interest shall remain in effect until amounts due Lakes have been paid in accordance with the Agreements, and shall thereafter be promptly discharged; provided that Lakes' right to payment and security interest in the Dominion Account after such termination under or pursuant to the Agreements shall be subordinate to (I) fees or other amounts due to any manager of the Enterprise and (II) any amounts due to lenders or lessors under loans for the benefit of the Enterprise, whether existing as of the termination or made thereafter, including without limitation the Bank 40 Loan and the Equipment Loan. Lakes shall promptly execute and deliver subordination agreements pertaining to the Dominion Agreement with regard to any such manager, lender or lessor, which agreements shall contain provisions reasonably acceptable to Lakes and the manager, lenders or lessors. E. Nothing in the Dominion Agreement shall alter the damages due Lakes (I) on a Band Event of Default, which shall continue to be controlled by Article 14 of this Agreement and Article 13 of the Management Agreement, and the amount which Lakes is entitled to obtain on foreclosure on the Dominion Account would be controlled by those Articles; or (ii) under any other provision of the Agreements or any related agreement. Upon payment in full of all amounts due Lakes under the Agreements, the Lakes Note, the Non-Gaming Acquisition Line of Credit and the Transition Loan, Lakes shall promptly terminate the Dominion Agreement and release any related security interest. Section 9.2.2 Bank Development Loan. i. Amount: I. For the Initial Phase, an amount (not to exceed $36,000,000 plus accrued interest on the Second Tranches) equal to the sum of (A) an amount which, when added to the Lakes Development Loan, will finance all Development Expenditures for the Initial Phase (other than acquisition of Furnishings and Equipment), plus (B) the amount by which Gaming Site Acquisition Advances exceed $8,000,000; II. For the expansion of the Facility to the Final Scope of Work, an amount which will finance all Development Expenditures associated with such expansion (other than acquisition of 41 Furnishings and Equipment); provided that the principal amount of such loan, capital lease and/or indenture, when added to the Equipment Loan for that expansion, shall not exceed $100,000,000. 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, no later than the earlier of (I) 120 days after NIGC Approval or (II) the date by which additional funding is needed to keep development and construction of the Initial Phase on schedule without slowdown or abatement, a bank commitment or firm underwriting commitment to provide the Bank Development Loan on the terms set forth in this 42 Agreement at an interest rate equal to or less than 13% in an amount not less than $28,000,000 for the Initial Phase, Lakes agrees that it will loan the Band such amount at a 13% interest rate and otherwise on the same terms as provided in this Agreement with regard to the Lakes Development Loan. Lakes further agrees that, if the Band, with Lakes' assistance, is unable to obtain an additional or increased bank commitment or firm underwriting commitment, no later than two years after the Commencement Date (or such later date as may be approved by the Business Board), to provide the Bank Development Loan to finance expansion to the Final Scope of Work on the terms set forth in this Agreement at an interest rate equal to or less than 13%, in an amount equal to the Approved Development Budget for such expansion, Lakes will loan the amount of such Approved Development Budget to the Band at a 13% interest rate on the same terms as provided in this Agreement with regard to the Lakes Development Loan; provided that (A) the sum of such loan and the Equipment Loan for such expansion shall not exceed $100,000,000, and (B) the loan shall be amortized beginning fifteen days after the Completion Date of the Final Scope of Work in equal monthly payments over five years, except that all amounts outstanding under such loan shall be due and payable seven years after the Commencement Date or upon any earlier buy- out of the Management Agreement by the Band. Section 9.2.3 Equipment Loan. i-iii. The Equipment Loan for the Initial Phase shall be in an amount, not to exceed $22,750,000, necessary to equip the Initial Phase of such Facility. The Equipment Loan for the expansion to the Final Scope of Work shall be in the amount necessary to equip the Facility to the Final Scope of Work, provided that the principal amount of such Equipment Loan, when added to the Bank Development Loan for such expansion, shall not exceed 43 $100,000,000. Interest shall accrue on the amount advanced for the Initial Phase until the Commencement Date; thereafter such advance shall be repayable monthly in arrears, beginning on the 15th day of the month after the month in which the Commencement Date occurs, in equal monthly payments of principal and interest for the successive 48 months of the term. The amount advanced to equip the expansion to the Final Scope of Work shall be repaid in equal monthly payments of principal and interest for the successive 60 months after Completion Date of such expansion, beginning 15 days after such Completion Date; or on such other terms as the Band may reasonably approve. 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 44 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. 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. x. If the Band, with Lakes' assitance, is unable to obtain, no later than the earlier of (I) 120 days after NIGC Approval or (II) the date by which additional funding is needed to keep development and construction of the Initial Phase on schedule without slowdown or abatement, a bank commitment or lessor commitment to provide the Equipment Loan in an amount (not to exceed $22,750,000) sufficient to finance acquisition of Furnishings and Equipment for the Initial Phase on the terms set forth in this Agreement at an interest rate equal to or less than 13% in an amount equal to the cost equipping the Initial Phase, Lakes agrees that it will loan the Band such amount at a 13% interest rate and otherwise on the same terms as provided in this Agreement with regard to the Equipment Loan. Lakes further agrees that, if the Band, with Lakes' assistance, is unable to obtain, no later than two years after the Commencement Date (or such later date as is approved by the Business Board), an additional or increased bank commitment or lessor commitment in an amount sufficient to finance acquisition of Furnishings and Equipment for the Final Scope of Work on the terms set forth in this Agreement at an interest rate equal to or less than 13%, Lakes will loan such amounts to the Band at a 13% interest rate on the same terms as provided in this Agreement with regard to the Equipment Loan; provided that (A) the sum of such loan and the Bank Development Loan (or the amount advanced by Lakes under ss. 9.2.2(vi)) for such expansion shall not exceed $100,000,000, and (B) the loan shall be amortized beginning on completion of the Final Scope of Work in equal monthly payments over four years, except that all amounts outstanding under such loan shall be due and payable seven years after the Commencement Date or upon any earlier buy- out of the Management Agreement by the Band. 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 45 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 44 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 interest 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. 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. vi. I. 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 for Phase I, 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 $46 million (less amounts previously advanced under the Lakes Development Loan). II. No later than two years after the Commencement Date (unless otherwise agreed by the Business Board), Lakes shall (a) deliver to the Band a proposed commitment from an Equipment Lender with regard to the Equipment Loan 46 for the expansion of the Facility to the Final Scope of Work, the terms of which shall be consistent with this Agreement and otherwise reasonably acceptable to the Band. vii. I. 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 for Phase I, the terms of which shall be consistent with this Agreement and otherwise reasonably acceptable to the Band. II. No later than two years after the Commencement Date (unless otherwise agreed by the Business Board), Lakes shall deliver to the Band a proposed commitment from a Lender with regard to the Bank Development Loan for the expansion of the Facility to the Final Scope of Work, 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 gran 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 increased by agreement of Lakes and the Band to the extent that the 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 47 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 against, or abstains from voting as to, any direct or indirect lobbying by Park Place Entertainment against a compact between 48 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 amount 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 49 of Change of Control, and within 30 days of Lake'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 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 50 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 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 51 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. 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 52 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, 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 53 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. (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 54 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. (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 55 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. 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 56 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. 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 it 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 SE filings that the Band may request; and shall furnish the Band with such other information concerning a Material Adverse Change a the Band may reasonably request. iii. If the Band believes that a Material Adverse Change has occurred, the Band 57 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 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 i 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. 58 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 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 it 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, Lakes' security interest in the Dominion Account (until all obligations of the Band to Lakes secured by that account are paid in full), and any other liens granted in accordance with the Development 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 59 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. 13.9 Upon termination of this Agreement any claim of Lakes against the ---- Band, or of the Band against Lakes, shall be subject to their respective rights of recoupment and setoff, if any. 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, the Dominion Agreement 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 on the Dominion Account, 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 60 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. (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 immunit 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 provide in this Agreement; (D) as to the Lakes Note and the Non-Gaming Acquisition Line of Credit, mortgages on the Gaming Site and Non-Gaming Lands prior to their transfer into trust; and (E) after the Commencement Date occurs, funds on deposit in the Dominion Account to the extent provided in ss. 9.2.1(x) of this Agreement and the Dominion Agreement, or in any other dominion agreement executed b the Band. In no 61 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 Enterpris or funds in the Dominion Account; and shall not related to any asset of the Band other than the Facility. (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: 62 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, 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 63 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 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 64 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: 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 with a copy to: Douglas S. Twait, Esq. Johnson Hamilton Quigley Twait & Foley, PLC First National Bank Building Suite W1450 332 Minnesota Street 65 Saint Paul, MN 55101-1314 and to: Brian J. Klein, Esq. Maslon Edelman Borman & Brand, LLP 3300 Norwest Center 90 South Seventh Street Minneapolis, MN 55402 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. 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. 66 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. Section 15.14. Government Savings Clause. Each of the parties agree to execute, deliver and, if necessary, record any and all additional instruments, 67 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 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. 68 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 the Control Agreement shall be discharged, and all property in the Account shall be released to Lakes. (balance of this page intentionally left blank) 69 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. The Pokagon Band of Potawatomi Great Lakes Gaming of Michigan, LLC Indians By: ----------------------------------- By: ---------------------------------- Its Council Chairman Its: Its Secretary EX-10.9 10 c58465ex10-9.txt FIRST AMENDED AND RESTATED MANAGEMENT AGREEMENT 1 FIRST AMENDED AND RESTATED MANAGEMENT AGREEMENT BETWEEN THE POKAGON BAND OF POTAWATOMI INDIANS AND GREAT LAKES GAMING OF MICHIGAN, LLC, (F/K/A GREAT LAKES OF MICHIGAN, LLC) DATED AS OF OCTOBER 16, 2000 2 TABLE OF CONTENTS 1 RECITALS...................................................................1 2 DEFINITIONS................................................................2 3 ENGAGEMENT; BUSINESS BOARD; COMPLIANCE....................................16 Engagement of Manager................................................16 Term.................................................................16 Status of Gaming Site................................................17 Dominion and Operation of Business Board.............................17 Manager Compliance with Law; Licenses................................17 Compliance with Compact..............................................17 Fire and Safety......................................................18 Compliance with the National Environmental Policy Act................18 Commencement Date....................................................18 4 BUSINESS AND AFFAIRS OF THE ENTERPRISE....................................18 Manager's Authority and Responsibility...............................18 Duties of Manager....................................................18 Physical Duties......................................................18 Compliance with Band Ordinances......................................19 Required Filings.....................................................19 Contracts in Band's Name Doing Business as the Enterprise and at Arm's Length.........................................................19 Enterprise Operating Standards.......................................19 Security.............................................................19 Damage, Condemnation or Impossibility of the Enterprise..............20 Alcoholic Beverages and Tobacco Sales................................20 Employees............................................................20 Manager's Responsibility.............................................20 Enterprise Employee Policies.........................................20 Senior Employees.....................................................20 Enterprise Employees.................................................21 Removal of Employees.................................................21 No Manager Internal Expenses; Limitation on Manager Payments.........21 GRA Expenses.........................................................21 Employee Background Checks...........................................22 Indian Preference: Recruiting and Training...........................22 Pre-Opening..........................................................23 Operating Budget and Annual Plan.....................................24 Adjustments to Operating Budget and Annual Plan and Capital Budget...26 3 Capital Budgets......................................................26 Capital Replacements.................................................27 Capital Replacement Reserve..........................................28 Periodic Contributions to Capital Replacement Reserve................28 Use and Allocation of Capital Replacement Reserve....................28 Indian Preference: Vendors and Contractors...........................29 Internal Control Systems.............................................29 Banking and Bank Accounts............................................30 Enterprise Accounts..................................................30 Daily Deposits to Depository Account.................................30 Disbursement Accounts................................................31 No Cash Disbursements................................................31 Transfers Between Accounts...........................................31 Insurance............................................................32 Transfers from Creation Account to Disbursement Accounts.............31 Accounting and Books of Account......................................32 Statements...........................................................32 Books of Account.....................................................32 Accounting Standards.................................................33 Annual Audit.........................................................33 Manager's Contractual Authority......................................33 Retail Shops and Concessions.........................................34 Entertainment Approvals..............................................34 Litigation...........................................................34 5 MANAGEMENT FEE, DISBURSEMENTS, AND OTHER PAYMENTS BY MANAGER..................................................35 Management Fee.......................................................35 Fee Subordinated.....................................................35 Disbursements........................................................35 Adjustment to Bank Account...........................................36 Payment of Fees and Band Disbursement................................36 Minimum Guaranteed Monthly Payment...................................37 Payment of Net Revenues..............................................38 Harrah's Termination Agreement.......................................39 6 ENTERPRISE NAME; MARKS...............................................39 Enterprise Name......................................................39 Marks................................................................39 Signage..............................................................40 7 TAXES................................................................40 4 State and Local Taxes................................................40 Band Taxes...........................................................40 Compliance with Internal Revenue Code................................41 8 BUY-OUT OPTION.......................................................41 9 EXCLUSIVITY; NON-COMPETITION.........................................41 Exclusivity in Michigan..............................................41 Indiana Casino.......................................................41 Non-Competition......................................................41 Permitted Assignment; Change of Control..............................42 Restrictions on Collateral Development...............................44 10 REPRESENTATIONS, WARRANTIES, AND COVENANTS...........................45 Representations and Warranties of the Band...........................45 Due Authorization....................................................45 Valid and Binding....................................................45 Pending Litigation...................................................45 Band Covenants.......................................................45 No Impairment of Contract............................................45 Waiver of Sovereign Immunity.........................................45 Valid and Binding....................................................45 Legal Compliance.....................................................46 No Termination.......................................................46 Representations and Warranties of Manager............................46 Due Authorization....................................................46 Valid and Binding....................................................46 Litigation...........................................................46 Certifications.......................................................47 Manager Covenants....................................................47 Noninterference in Band Affairs......................................47 Prohibition of Payments to Members of Band Government................47 Prohibition of Hiring Members of Band Government.....................47 Prohibition of Financial Interest in Enterprise......................48 No Amendment.........................................................48 CRC..................................................................48 No Liens.............................................................49 Permitted Liens......................................................49 Authority to Execute and Perform Agreement...........................49 Brokerage............................................................50 5 11 DEFAULT..............................................................50 Events of Default by the Band........................................50 Events of Default by Manager.........................................50 Material Breach; Right to Cure.......................................51 12 TERMINATION..........................................................51 Voluntary Termination................................................51 Termination if No NIGC Approval......................................52 Manager Right to Terminate on Band Event of Default..................52 Band Right to Terminate on Manager Event of Default..................52 Band Right to Terminate for Material Adverse Change..................52 Termination if Manager License Withdrawn or on Conviction............53 Termination on Buy-Out...............................................54 Involuntary Termination Due to Changes in Legal Requirements.........54 Setoff; Recoupment...................................................55 13 DISPUTE RESOLUTION; LIQUIDATED DAMAGES...............................55 Band's Waiver of Sovereign Immunity and Consent to Suit..............55 Arbitration..........................................................56 Choice of Law........................................................57 Place of Hearing.....................................................57 Confidentiality......................................................57 Limitation of Actions................................................57 Damages..............................................................57 Consents and Approvals...............................................58 Injunctive Relief and Specific Performance...........................58 Action to Compel Arbitration.........................................58 Damages on Termination for Failure to Obtain NIGC Approval...........58 Liquidated Damages and Limitations on Remedies.......................58 Liquidated Damages Payable by Manager................................59 Liquidated Damages Payable by the Band...............................59 Manager Continuing Obligations.......................................59 Termination of Exclusivity...........................................59 Remedies.............................................................59 Band Injunctive Relief...............................................60 No Setoff Against Payments to Band...................................60 Indemnification on Termination.......................................60 Fees not Damages.....................................................60 Undistributed Net Revenues...........................................60 6 14 CONSENTS AND APPROVALS...............................................61 Band.................................................................61 Manager..............................................................61 15 DISCLOSURES..........................................................61 Shareholders and Directors...........................................61 Warranties...........................................................61 Disclosure Amendments................................................62 Breach of Manager's Warranties and Agreements........................63 16 NO PRESENT LIEN, LEASE OR JOINT VENTURE..............................63 17 CONCLUSION OF THE MANAGEMENT TERM....................................63 18 MISCELLANEOUS........................................................64 Situs of the Contracts...............................................64 Notice...............................................................64 Relationship.........................................................65 Further Actions......................................................65 Waivers..............................................................65 Captions.............................................................66 Severability.........................................................66 Advances.............................................................66 Third Party Beneficiary..............................................66 Survival of Covenants................................................66 Estoppel Certificate.................................................66 Periods of Time; Time of Essence.....................................66 Exhibits.............................................................67 Successors and Assigns...............................................67 Confidential and Proprietary Information.............................67 Patron Dispute Resolution............................................67 Modification.........................................................67 Entire Agreement.....................................................67 Government Savings Clause............................................68 Preparation of Agreement.............................................68 Consents.............................................................68 Execution............................................................68 7 LIST OF EXHIBITS Exhibit A Manager's Affiliates, Principal Shareholders, Officers and Directors Exhibit A-1 Dominion Agreement Exhibit B Pending Band Litigation 8 FIRST AMENDED AND RESTATED MANAGEMENT AGREEMENT THIS FIRST AMENDED AND RESTATED MANAGEMENT AGREEMENT has been entered into as of October 16, 2000, by and between the POKAGON BAND OF POTAWATOMI (the "Band"), and GREAT LAKES GAMING OF MICHIGAN, LLC, a Minnesota limited liability company (f/k/a Great Lakes of Michigan, LLC) ("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 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. 1.4 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. 1.5 The Band wishes to establish an Enterprise, as hereinafter defined, to conduct Class II and Class III Gaming as hereinafter defined on the Gaming Site. This Agreement sets forth the manner in which the Enterprise will be managed. 9 1.6 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. 1.7 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. 1.8 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. 1.9 The Band and Lakes Gaming, Inc. ("Lakes") entered into a Management Agreement dated as of July 8, 1999 (the "Management Agreement"). 1.10 Lakes has assigned its rights and obligations under the Management Agreement to Great Lakes pursuant to an Assignment and Assumption Agreement of near or even date, subject to certain terms and conditions. 1.11 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. 1.12 This First Amended and Restated Management Agreement incorporates certain amendments to the Management Agreement agreed to by the parties pursuant to a First Amendment to Management Agreement dated as of October 16, 2000. 2 DEFINITIONS As they are used in this Agreement, the terms listed below shall have the meaning assigned to them in this Section: 10 "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. "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 11 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. "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 Gaming is conducted pursuant to the terms of the Management Agreement in a Facility, including Gaming conducted on completion of the Initial Phase of the 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. 12 "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, as amended by First Amendment dated October 16, 2000. "DEPOSITORY ACCOUNT" shall mean the bank account described in ss. 4.19.2. "DISBURSEMENT ACCOUNTS" shall mean the bank account or accounts described in ss. 4.19.3. "DOMINION ACCOUNT" means the collateral account in favor of Lakes established under ss.4.19.6. "DOMINION AGREEMENT" means the collateral agreement granting and perfecting Lakes a security interest in the Dominion Account, a true copy of which is attached as Exhibit A-1. "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. 13 "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. "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); 14 (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. "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. "GREAT LAKES" means Great Lakes Gaming of Michigan, LLC, a Minnesota limited liability company (f/k/a Great Lakes of Michigan, LLC). "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, 15 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" shall mean either Great Lakes or both Great Lakes and Lakes Gaming, Inc., to the extent provided in the Assignment and Assumption Agreement among Great Lakes, Lakes Gaming, Inc. and the Band of near or even date. "LAKES DEVELOPMENT LOAN" shall have the meaning defined in the Development Agreement. "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, (iii) mortgages on the Gaming Site and Non-Gaming Lands prior to their transfer into trust, and (iv) after the Commencement Date occurs, funds on deposit in the Dominion Account to the extent provided in ss.9.2.1(x) of the 16 Development Agreement and the Dominion Agreement, or in any other dominion agreement executed by the Band). 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 Lakes Note and the Non-Gaming Acquisition Line of Credit, mortgages on the Gaming Site and Non-Gaming Lands prior to their transfer into trust, (iii) funds on deposit in the Dominion Account to the extent provided in the Agreements, the Dominion Agreement and any other dominion agreement executed by the Band, and (iv) such Net Revenues of the Enterprise). "LOANS" shall mean the Lakes Development Loan, the Bank Loan and the Equipment Loan. "LOCAL AGREEMENT" shall mean the agreement among the Band, the City of New Buffalo and the Township of New Buffalo dated as of February 15, 2000. "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. "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 17 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, 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 18 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; (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 19 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; (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 20 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; (xviii) recruiting and training expenses; (xix) fees due to the NIGC under the IGRA; (xx) any required payments to or on behalf of the State, any local governments or the Pokagon Fund made by or on behalf of the Enterprise or the Band pursuant to the Compact or any related consent decree, or pursuant to the Local Agreement; (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; 21 (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. "POKAGON FUND" shall mean the non-profit corporation established pursuant to the Local Agreement. "PRE-OPENING BUDGET" shall have the meaning described in ss. 4.10. "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 22 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. "SECOND TRANCHE -- LAKES NOTE" shall have the meaning set out in the Development Agreement. "SECOND TRANCHE -- NON-GAMING LAND ACQUISITION" shall have the meaning set out in the Development Agreement. "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. "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. 3 ENGAGEMENT; BUSINESS BOARD; COMPLIANCE In consideration of the mutual covenants contained in this Agreement, the parties agree and covenant as follows: 23 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 (if required) and the Lakes Note are approved by the Chairman of the NIGC, and/or the BIA, if required, and continue until, unless earlier terminated in accordance with its terms, seven years from commencement of Gaming at the Initial Phase of the Facility. 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 with ss. 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 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 24 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 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. 25 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 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 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 26 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 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 27 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, 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. 28 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. 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 29 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, 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 30 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: 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; 31 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. 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 32 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 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 33 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. 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 34 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 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. 35 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 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, including the Dominion Account. 36 ("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 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 Dominion Account, which shall be subject to the lien and security interest of Manager to the extent provided in ss.9.2.1(x) of the Development Agreement and the Dominion Agreement. 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 Dominion 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 37 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. 4.19.6 Transfers from Dominion Account to Disbursement Accounts. Lakes agrees that, notwithstanding any provision of the Dominion Agreement or any Band Event of Default or any default by the Band under the Dominion Agreement, it shall make or permit timely transfers from the Dominion Account to Disbursement Accounts of all funds needed to pay (i) Operating Expenses; (ii) all Loans, as well any other third party loans to which Lakes has subordinated in writing; (iii) the Minimum Guaranteed Monthly Payment; (iv) deposits into the Capital Replacement Reserve pursuant to ss.4.15 of the Management Agreement; (v) maintenance of the Minimum Balance, and any other reserves approved by the Business Board with the written consent of Great Lakes; and (vi) claims of third parties granted priority over Lakes under the Agreements, if the events occur which trigger that priority. Lakes further agrees that, prior to any Band Event of Default, it shall make timely transfers to Disbursement Accounts to enable the Monthly Distribution Payment to be made to the Band when due, and otherwise in accordance with this Agreement. 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 38 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 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 39 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. 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 40 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 (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 subordination agreements evidencing such subordination in form reasonably 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 Dominion 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) in accordance with ss.4.19.6 of this Agreement 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 41 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 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. 5.5.5 Interest and principal on the Second Tranche -- Lakes Note and the Second Tranche - Non-Gaming Land, payable in 12 equal monthly payments of principal and interest commencing with distribution made after the first calendar month of operations; provided that if distributions under this subsection in any month are insufficient to fund such payment in full, the amount unpaid shall be deferred and paid, without compounding of interest, under ss.5.5.6. 5.5.6 Any amounts deferred under ss.5.5.5. 42 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 the Minimum Guaranteed Monthly Payments shall be reduced to $10,000 per month for the remaining months in a Fiscal Year after the Band has received in such Fiscal Year total Net Revenue distributions of $12,000,000. Manager shall be entitled to recoup from the Band's Monthly Distribution Payment in succeeding months of a Fiscal Year any deficiency payments made under this paragraph in that same Fiscal Year, but in no event shall this recoupment payment result in the Band's receiving less than its Minimum Guaranteed Monthly Payment in any month. 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, and shall not be entitled to charge any interest on any deficiency payments made hereunder. 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 43 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. 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. 5.10 The maximum dollar amount for recoupment of the development and construction costs of the Facility and the Enterprise shall be the aggregate amount of all Loans made under ss. 9.2 of the Development Agreement, including the Lakes Development Loan, Bank Development Loan and Equipment Loan, provided that such aggregate amount shall not exceed $200,000,000. 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"). 44 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 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 45 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. 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 46 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 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 47 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 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 48 circumstances of that breach. (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 49 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 Acquisition Line of Credit, and each other contract contemplated by this Agreement shall, once approved in accordance with Legal Requirements, be 50 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. 10.2.6 Title to Assets. During the Term of this Agreement the Band shall retain its interest in the title to (or the leasehold interest in) all Enterprise assets, including the Gross Revenues, the Gaming Site and any fixtures, supplies and equipment, subject to the purchase money security interest in equipment securing the Equipment Loan, Lakes' security interest in the Dominion Account (until all obligations of the Band to Lakes secured by that account are paid in full, to the extent provided in ss.9.2.1(x) of the Development Agreement), and any other liens granted in accordance with the Development Agreement. 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 " 51 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: 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, 52 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. 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, 53 directly or indirectly, to cause any person or entity to become an encumbrancer or lienholder of the Gaming Site or the Facility, 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. 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. 54 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"): 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. 55 11.2.5 Manager commits any Material Breach of the Development Agreement which is not cured within any applicable cure period. 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 56 entitled to terminate the Agreements (i) upon a Manager Event of Default or (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 57 Change has occurred but the requested further assurances are not 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. vi. 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 58 cease and the 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 Gross Revenues, the Gaming Site and any fixtures, supplies and equipment, subject to the purchase money security interest in equipment securing the Equipment Loan, Lakes' security interest in the Dominion Account (until all obligations of the Band to Lakes secured by that account are paid in full, to the extent provided in ss. 9.2.1(x) of the Development Agreement), 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. 12.9 Upon termination of this Agreement any claim of Manager against the Band, or of the Band against the Manager, shall be subject to their respective rights of recoupment and setoff, if any. 59 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 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, the Dominion Agreement 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 on the Dominion Account, 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 60 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. 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 (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 Lakes Note and the Non-Gaming Acquisition Line of Credit, mortgages on the Gaming Site and Non-Gaming Lands prior to their transfer into trust; and (E) after the Commencement Date occurs, funds on deposit in the Dominion Account to the extent provided in ss.9.2.1(x) of the Development Agreement and the Dominion Agreement, or in any other dominion agreement executed by the Band. 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 61 Recourse; shall not mandate, preclude or affect payment of any funds of the Band other than undistributed or future Net Revenues of the Enterprise or funds in the Dominion Account; and shall not relate to any asset of the Band other than the Enterprise. 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. 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. 62 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 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 63 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, 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. 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. 64 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 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 65 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 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; except, with regard to the Dominion Account, the security interest created by the Dominion Agreement. 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. 66 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 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: 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 67 South Portland, ME 04106 If to Manager: 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 and to: Brian J. Klein, Esq. Maslon Edelman Borman & Brand, LLP 3300 Norwest Center 90 South Seventh Street Minneapolis, MN 55402 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. 68 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 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 69 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 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 70 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 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"). 71 [The rest of this page is intentionally left blank. The next page is the signature page.] 72 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. The Pokagon Band of Potawatomi Indians Great Lakes Gaming of Michigan, LLC By: By: ------------------------------ ----------------------------------- Its Council Chairman Its: By: ------------------------------ Its Secretary Approved pursuant to 25 U.S.C.ss.2711 NATIONAL INDIAN GAMING COMMISSION By ------------------------------------- Print name: ---------------------------- Its Chairperson EX-10.10 11 c58465ex10-10.txt FIRST AMENDED AND RESTATED LAKES NOTE 1 FIRST AMENDED AND RESTATED LAKES NOTE $46,000,000 October 16, 2000 Dowagiac, Michigan FOR VALUE RECEIVED, the Pokagon Band of Potawatomi Indians (the "Band") promises to pay to Great Lakes of Michigan, LLC, a Minnesota limited liability company ("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 Gaming, Inc. dated as of July 8, 1999, as assigned by Lakes Gaming, Inc. to and assumed by Lakes pursuant to that certain Assignment and Assumption Agreement of even date herewith by and among the Band, Lakes Gaming, Inc. and Lakes (the "Assignment Agreement"), as amended by First Amendment of near or even date (the "Development Agreement"); provided that the principal amount due hereunder shall not exceed Forty-Six Million Dollars ($46,000,000.00). 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, (b) through a Draw Request approved by the Band pursuant to the Control Agreement, or (c) through advances by Lakes to the Enterprise Bank Accounts to pay Development Expenditures in accordance with either (I) the Approved Development Budget or, prior to the adoption of the Approved Development Budget, the approval of the Business Board or the Band; and (II) 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 or otherwise under the Development Agreement, 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: 2 (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"). 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. I. If the Commencement Date occurs, the Band shall repay the Lakes Development Loan as follows: (a) the amount outstanding under First Tranche - Lakes Note as of such Commencement Date shall be repaid monthly in arrears, beginning on the 15th day of the month after the month in which the Commencement Date occurs, in equal monthly payments of principal and interest for the successive 60 months of the term; and (b) principal and interest on Second Tranche - Lakes Note shall be repaid either (I) at Bank Closing, to the extent the Bank Development Loan has been increased from $28,000,000 to $36,000,000 plus accrued interest on such Second Tranches, and such increment is available first to fund any undisbursed amounts of the Second Tranche - Lakes Note and the Second Tranche - Non-Gaming, or (II) from distributions made under ss.ss.5.5.5 and 5.5.6 of the Management Agreement; and, if not sooner paid, in full at the end of the Term. II. 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 3 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 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 Opening Date - Non-Gaming does not occur, or to any loans relating to any other Gaming facility in Michigan owned by the Band. The holder of this Note agrees to execute and deliver subordination agreements evidencing such subordination in form reasonably acceptable to the Bank Lender, the Equipment Lender, or any other third-party lender or equipment lessor. 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 (i) such Net Revenues, (ii) mortgages, if any, held by Lakes to the extent that the mortgaged premises have not been transferred into trust, and (iii), after the Commencement Date occurs, funds on deposit in the Dominion Account to the extent provided in ss. 9.2.1(x) of the Development Agreement and the Dominion Agreement, or in any other dominion agreement executed by the Band (except that, if the Commencement Date does not 4 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, (iii) such mortgages on the Gaming Site prior to its transfer into trust and (iv) after the Commencement Date occurs, funds on deposit in the Dominion Account to the extent provided in ss. 9.2.1(x) of the Development Agreement and the Dominion Agreement, or in any other dominion agreement executed by the Band). 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 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 5 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, (iii) mortgages to the extent the mortgaged property has not been transferred into trust and (iv) after the Commencement Date occurs, funds on deposit in the Dominion Account to the extent provided in ss. 9.2.1(x) of the Development Agreement and the Dominion Agreement, or in any other dominion agreement executed by the Band). 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, as amended. 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. 6 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, as each has been amended to date, 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. e. This Note has been executed and delivered as a complete amendment and restatement in its entirety of that certain Lakes Note dated as of July 8, 1999 made payable by the Band to Lakes Gaming, Inc in the original principal amount of $43,000,000, as assigned by Lakes Gaming, Inc. to Lakes pursuant to the Assignment Agreement. THE POKAGON BAND OF POTAWATOMI INDIANS By: -------------------------------- Its: Council Chairman By: -------------------------------- Its: Secretary GREAT LAKES OF MICHIGAN, LLC By: ----------------------------- Timothy J. Cope Its Chief Financial Officer EX-10.11 12 c58465ex10-11.txt FIRST AMENDED AND RESTATED - LINE OF CREDIT 1 FIRST AMENDED AND RESTATED NON-GAMING LAND ACQUISITION LINE OF CREDIT THIS FIRST AMENDED AND RESTATED NON-GAMING LAND ACQUISITION LINE OF CREDIT AGREEMENT is dated as of the 16th day of October, 2000, by and between THE POKAGON BAND OF THE POTAWATOMI INDIANS (the "Band") and GREAT LAKES OF MICHIGAN, LLC, a Minnesota limited liability company ("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 Gaming, Inc. dated as of July 8, 1999, as assigned by Lakes Gaming, Inc. to and assumed by Lakes pursuant to that certain Assignment and Assumption Agreement of even date herewith by and among the Band, Lakes Gaming, Inc. and Lakes (the "Assignment Agreement"), as amended by First Amendment of near or even date, 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 Fifteen Million Dollars ($15,000,000). 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 Commencement Date; except that Lakes' obligation to fund any portion of the Second Tranche - Non-Gaming shall terminate on the earlier of (a) the Bank Closing, if the Bank Development Loan has been increased from $28,000,000 2 to $36,000,000 plus accrued interest on amounts advanced on the Second Tranche - Lakes Note and Second Tranche - Non-Gaming, and such increment is available first to fund any undisbursed amounts of the Second Tranche - Lakes Note and the Second Tranche - Non-Gaming, and second to repay Lakes amounts advanced by Lakes under such Second Tranches; or (b) the Commencement Date. 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 (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. (I) If the Commencement Date occurs, the Band shall (A), beginning on the 15th day of the month following the such Commencement Date, repay the amount outstanding under First Tranche -- Non-Gaming as of such Commencement Date in equal monthly payments of principal and interest in an amount sufficient to amortize the principal amount of the First Tranche -- Non-Gaming outstanding as of such 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 such Commencement Date; and (B) 3 repay principal and interest on Second Tranche - Non-Gaming either (I) at Bank Closing, to the extent the Bank Development Loan has been increased from $28,000,000 to $36,000,000 plus accrued interest on amounts advanced on the Second Tranche -- Lakes Note and Second Tranche -- Non-Gaming and such increment is available first to fund any undisbursed amounts of the Second Tranche -- Lakes Note and the Second Tranche -- Non-Gaming, or (II) through distributions made under ss.ss. 5.5.5 and 5.5.6 of the Management Agreement; provided that all remaining principal and interest shall in any event be due and payable on the fifteenth day of the sixtieth month following such Commencement Date. (II) 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 Agreement 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 instalment payment due. 7. Prepayment. This Line of Credit may be prepaid at any time without penalty. 4 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. Lakes agrees to execute and deliver subordination agreements evidencing such subordination in form reasonably acceptable to the Bank Lender, the Equipment Lender, or any other third-party lender or equipment lessor. 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 (i) such Net Revenues, (ii) mortgages, if any, held by Lakes to the extent that the mortgaged premises have not been transferred into trust, and (iii), after the Commencement Date occurs, funds on deposit in the Dominion Account to the extent provided in ss. 9.2.1(x) of the Development Agreement and the Dominion Agreement, or in any other dominion agreement executed by the Band (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, (iii) such mortgages on the Gaming Site prior to its transfer into trust and (iv) after the Commencement Date occurs, funds on deposit in the Dominion Account to the extent provided in ss. 9.2.1(x) of the Development Agreement and the Dominion Agreement, or in any other dominion agreement executed by the Band). 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. 11. Band's Waiver of Sovereign Immunity and Consent to Suit. The Band 5 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 abd 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, (iii) mortgages to the extent the mortgaged property has not been transferred into trust and (iv) after the Commencement Date occurs, funds on deposit in the Dominion Account to the extent provided in ss. 9.2.1(x) of the Development Agreement and the Dominion Agreement, or in any other dominion agreement executed by the Band). 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. 6 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, as amended. 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 Agreement, 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, as each has been amended to date, 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 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. 7 e. This Agreement has been executed and delivered as a complete amendment and restatement in its entirety of that certain Non-Gaming Land Acquisition Line of Credit dated as of July 8, 1999 by and between the Band and Lakes Gaming, Inc., as assigned by Lakes Gaming, Inc. to and assumed by Lakes pursuant to the Assignment Agreement. THE POKAGON BAND OF POTAWATOMI INDIANS By: -------------------------------- Its: Council Chairman By: -------------------------------- Its: Secretary GREAT LAKES OF MICHIGAN, LLC By: ------------------------------ Timothy J. Cope Its Chief Financial Officer EX-10.12 13 c58465ex10-12.txt AMENDED AND RESTATED TRANSITION LOAN NOTE 1 AMENDED AND RESTATED TRANSITION LOAN NOTE $7,500,000 October 16, 2000 Dowagiac, Michigan FOR VALUE RECEIVED, The Pokagon Band of Potawatomi Indians (the "Band") promises to pay to Great Lakes of Michigan, LLC, a Minnesota limited liability company ("Lakes"), such sums as may be advanced by Lakes to the Band under Section 8.3 of a Development Agreement between the Band and Lakes Gaming, Inc. dated as of July 8, 1999 (the "Development Agreement"), as assigned by Lakes Gaming, Inc. to and assumed by Lakes pursuant to that certain Assignment and Assumption Agreement of even date herewith by and among the Band, Lakes Gaming, Inc. and Lakes (the "Assignment Agreement"), as amended by First Amendment of near or even date (the "Development Agreement"); provided that the principal amount due hereunder shall not exceed Seven Million Five Hundred Thousand Dollars ($ 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, 2 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 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. Limited Recourse. The obligations of the Band under this Note and any 3 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, after the Commencement Date occurs, funds on deposit in the Dominion Account to the extent provided in ss. 9.2.1(x) of the Development Agreement and the Dominion Agreement, or in any other dominion agreement executed by the Band (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), after the Commencement Date occurs, funds on deposit in the Dominion Account to the extent provided in ss. 9.2.1(x) of the Development Agreement and the Dominion Agreement, or in any other dominion agreement executed by the Band, and (iii) 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. The holder of this Note agrees to execute and deliver subordination agreements evidencing such subordination in form reasonably acceptable to the Bank Lender, the Equipment Lender, or any other third-party lender or equipment lessor. 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 4 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), after the Commencement Date occurs, funds on deposit in the Dominion Account to the extent provided in ss. 9.2.1(x) of the Development Agreement and the Dominion Agreement, or in any other dominion agreement executed by the Band. 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. 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. 5 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. e. This Note has been executed and delivered as a complete amendment and restatement in its entirety of that certain Transition Loan Note dated as of July 8, 1999 made payable by the Band to Lakes Gaming, Inc in the original principal amount of $7,500,000, as assigned by Lakes Gaming, Inc. to Lakes pursuant to the Assignment Agreement. THE POKAGON BAND OF POTAWATOMI INDIANS By:________________________________ Its: Council Chairman By:________________________________ Its: Secretary GREAT LAKES OF MICHIGAN, LLC By:________________________________ Timothy J. Cope Its Chief Financial Officer EX-10.13 14 c58465ex10-13.txt AMENDMENT TO ACCOUNT CONTROL AGREEMENT 1 AMENDMENT TO ACCOUNT CONTROL AGREEMENT This Agreement is made the 16th day of October 2000, by and among Great Lakes of Michigan, LLC, a Minnesota limited liability company ("Great Lakes"), Lakes Gaming, Inc., a Minnesota corporation ("Lakes"), the Pokagon Band of Potawatomi Indians (the "Band") and Firstar Bank, N.A., f/k/a Firstar Bank of Minnesota, N.A. ("Firstar"). W I T N E S S E T H: WHEREAS, the Band and Lakes have entered into a Development Agreement dated as of July 8, 1999 (the "Development Agreement") and a Management Agreement dated as of July 8, 1999 (the "Management Agreement"; collectively, with the Development Agreement, the "Agreements"), pursuant to which the Band has engaged Lakes to, among other things, assist the Band in the design, development, construction and management of a gambling casino and certain related amenities (as defined in the Development Agreement, the "Facility"); and WHEREAS, pursuant to the Development Agreement Lakes has agreed to make certain payments and advances to the Band, including without limitation the Transition Loan, the Lakes Development Loan and the Non-Gaming Land Acquisition Line of Credit (collectively the "Lakes Loans"), and the Scholarship Program Fee, and has agreed to perform development services with regard to the Facility, all on the terms set out in that Agreement; and WHEREAS, pursuant to the Management Agreement Lakes has agreed to manage the Facility on the terms set out in that Agreement; and WHEREAS, the obligations of Lakes to the Band are secured by a Pledge and Security Agreement between Lakes and the Band (the "Pledge Agreement") and by an Account Control Agreement among Lakes, the Band and Firstar (the "Control Agreement"), each dated as of July 8, 1999; and WHEREAS, Lakes has informed the Band that it wishes to restructure its corporate organization by forming a first tier subsidiary, Lakes Gaming and Resorts, LLC, a Minnesota limited liability company ("LG&R"), to own the equity in second-tier subsidiaries, including Great Lakes, that will be engaged in gaming and gaming-related businesses (the "Restructuring"); and WHEREAS, in connection with such restructuring Lakes has requested that the Band consent to the assignment to Great Lakes of (i) Lakes' rights and obligations 2 under the Agreements, the Lakes Loans and all related documentation (the "Obligations") , and (ii) the Account, as defined in the Control Agreement, and related cash, financial assets and investment property credited thereto, subject to the continuing first perfected security interest of the Band; and WHEREAS, Lakes and LG&R have agreed, as a condition to the Band's consent, to unconditionally guaranty the Obligations, as assumed by Great Lakes, including without limitation the obligations of Great Lakes under the Pledge Agreement and the Control Agreement; and WHEREAS, it is the intent of the parties that the restructuring not affect or impair the Band's rights and remedies under the Obligations or the Band's first perfected security interest in the Account, other than the conversion of Lakes from primary obligor to unlimited guarantor; WHEREAS, under the Agreements Lakes cannot carry out such restructuring without the Band's consent; and WHEREAS, the Band is willing to so consent, but only on the terms and conditions set out in this Agreement and in a certain Assignment and Assumption Agreement of near or even date among the Band, Lakes, Great Lakes and LG&R (the "Assignment Agreement"); NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Recitals True. The above recitals are true. 2. Defined Terms. Capitalized terms used but not otherwise defined herein and defined in the Pledge Agreement shall have the same meaning herein as therein. 3. Assignment of Account. Lakes represents to Firstar that it has, pursuant to the Assignment Agreement, assigned and transferred to Great Lakes all rights of Lakes in and to the Account and all cash, financial assets and investment property credited to the Account, subject to the perfected first security interest of the Band. Firstar agrees to note that assignment on its records, but the name of the Account shall continue to be "Pokagon Collateral Account." 4. Acceptance of Assignment. Great Lakes accepts the assignment of the Account and related cash, financial assets and investment property, and agrees 3 to perform and discharge Lakes' obligations under the Control Agreement in accordance with the terms thereof as if Great Lakes had originally been a party thereto. The liabilities so assumed by Great Lakes include any obligations or liabilities of Lakes which have accrued under the Control Agreement as of the date hereof, as well as those subsequently accruing. Great Lakes recognizes and agrees that the Account and all cash, financial assets and investment property credited to the Account are and shall remain subject to the first perfected security interest of the Band in accordance with the Pledge Agreement and the Account Control Agreement. 5. Assets in Account. Firstar represents that the value and composition of the assets in the Account as of October 16, 2000 are as shown on the attached Schedule I. 6. Draws, etc. to be signed by Great Lakes. After the Effective Date all draw requests, entitlement orders, directions and notices to be given by Lakes under the Control Agreement shall be given by Great Lakes. 7. Amendment to Control Agreement. The Control Agreement is amended as follows: a. All references in the Control Agreement to Lakes, other than in ss. 1(b), shall be deemed to refer to Great Lakes for all purposes after the Effective Date unless otherwise stated in this section. b. Great Lakes is added as a party. Lakes is not deleted as a party. c. The section entitled "Background" is deleted and replaced in its entirety with the following: "Lakes and Great Lakes have granted Band a security interest pursuant to a Pledge and Security Agreement dated July 8, 1999, as amended by Amendment dated October 16, 2000 (the "Security Agreement"), in a securities account maintained by Bank for Great Lakes, and in all related property. Lakes entered into this Agreement, and Great Lakes is joining in this Agreement, to perfect Band's security interest in that account and those assets." d. The definition of Band Notification of Lakes Default is amended so that it reads in its entirety as follows: "'BAND NOTIFICATION OF LAKES DEFAULT' means notification by the 4 Band to Bank that either of the following conditions have been satisfied: (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; or (B) A Guaranty Event of Default, as defined in a Guaranty from Lakes and LG&R to the Band dated October 16, 2000, has occurred. The Band Notification of Lakes Default shall be in the form attached hereto as Exhibit A-1." e. Exhibit A to the Control Agreement is deleted and replaced by the attached Exhibit A-1. f. The definition of Joint Notice is amended so that it reads in its entirety as follows: "'JOINT NOTICE' means notification by the Band and Great Lakes to Bank (a) 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, or (b) that specified funds should be wired from the Account as indicated in the Joint Notice. The Joint Notice shall, as to termination of the Account, be in the form attached hereto as Exhibit C. Any other Joint Notice shall be sufficient if it is signed by both the Band and Great Lakes." g. Section 16(g) of the Control Agreement is amended so that it reads in its entirety as follows: "g. All income on property in the Account shall be for the account of Great Lakes. Great Lakes certifies that its IRS identification number is 41-1973426, and agrees that 5 income on the property in the Account shall be reported in its name." h. S. Eric Marshall is deleted from the list of persons to whom copies of notices to the Band must be given. i. The definition of "Secured Obligations" in ss.1(a) of the Pledge Agreement is amended so that it reads in its entirety as follows: "'Secured Obligations' includes (i) the obligations of Great Lakes and Lakes to the Band under or relating to the Agreements, and (ii) the obligations of Lakes and LG&R under their Guaranty to the Band dated October 16, 2000." j. The following person is added as a person to whom copies of notices to Great Lakes must be given: Brian J. Klein, Esq. Mason Edelman Borman & Brand, LLP 3300 Norwest Center 90 South Seventh Street Minneapolis, MN 55402-4140 8. Reservation of Rights. By entering into this Agreement, the Band does not waive or affect any rights against Lakes under the Pledge Agreement or the Control Agreement. 9. Warranties and Representations - Great Lakes and Lakes. Each of Great Lakes and Lakes warrants, represents and covenants to the Band that: a. The Agreement and the Pledge Agreement each constitute the legal, valid and binding obligation of Great Lakes and Lakes, and are fully enforceable in accordance with their terms; b. Neither the execution or delivery of this Agreement nor fulfillment of or compliance with the terms and provisions hereof will conflict with, or result in a breach of the terms, conditions or provisions of, constitute a default under or result in the creation of any lien, charge or encumbrance upon any property or assets of Lakes or Great Lakes under any agreement or instrument to which they or either of them is now a party or by which they may be bound; and 6 c. The Band has, and at all times until the termination of the Control Agreement in accordance with ss. 8 thereof shall have, a first perfected security interest in the Account and all cash, financial assets and investment property credited to the Account. 10. Warranties and Representations -- Bank. Bank represents to the Band that Bank's representations in ss.1 of the Control Agreement are true and correct as of the date of this Agreement. 11. Further Assurances. From time to time hereafter, Lakes, Great Lakes, the Band and Firstar will execute and deliver, or will cause to be executed and delivered, such additional instruments, certificates or documents, and will take all such actions, as may reasonably be requested by the other party or parties, for the purpose of implementing or effectuating the provisions of this Agreement. 12. Governing Law. This Agreement shall be interpreted in accordance with the law of the internal law of Minnesota. 13. Amendments, Assignments, Etc. Any provision of this Agreement may be amended if, but only if, such amendment is in writing and is signed by each of the parties hereto. No modification shall be implied from course of conduct. Great Lakes may not further assign its rights in the Account and its obligations under the Control Agreement without the written consent of the Band. 14. Gender and Number; Counterparts. Whenever the context so requires the masculine gender shall include the feminine and/or neuter and the singular number shall include the plural, and conversely in each case. This Agreement may be executed in separate counterparts and said counterparts shall be deemed to constitute one binding document. 15. Notices to Great Lakes. Great Lakes agrees that any notice or demand upon it shall be deemed to be sufficiently given or served if it is in writing and is personally served or in lieu of personal service is mailed by first class certified mail, postage prepaid, or be overnight mail or courier service, addressed to Great Lakes at the address of Lakes and with copies set forth in ss. 12 of the Control Agreement. 16. Arbitration; Limited Waiver of Sovereign Immunity. Any disputes under this Agreement shall be subject to arbitration as provided in ss.14.2 of the Development Agreement; provided that any demand for arbitration shall be made within 30 days after a notice of default, denominated as such, is given under this Agreement. The Band's limited waiver of sovereign immunity in ss.ss. 7 14.1 and 14.3 of the Development Agreement shall apply to this Agreement; provided that the 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) of the Development Agreement. 17. Ratification. Except as expressly modified in this Agreement, the Control Agreement is ratified and confirmed. 18. Interpretation. This Agreement, the related amendments to the Agreements and to the Pledge Agreement (the "Amendments") and the Obligations shall be interpreted in favor of the Band so as to ensure for the Band the full benefit of its rights, powers and remedies under the Obligations notwithstanding the Restructuring, this Agreement and the Amendments; and to fully implement the intent of the parties that the Restructuring, this Agreement and the Amendments not affect or impair the Band's rights, powers and remedies under the Obligations, other than the conversion of Lakes from primary obligor to unlimited guarantor, or the Band's continuing first security interest in the Account. 19. Effective Date; Prior Transactions not Affected: This Agreement shall be effective as of October 16, 2000 (the "Effective Date"). This Agreement shall not affect or impair any action taken under the Control Agreement prior to the Effective Date. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the 16th day of October, 2000. WITNESS: GREAT LAKES OF MICHIGAN, LLC BY: NAME: Timothy J. Cope ITS: Chief Financial Officer LAKES GAMING, INC. BY: NAME: Timothy J. Cope ITS: Chief Financial Officer 8 THE POKAGON BAND OF POTAWATOMI INDIANS BY: ------------------------------------- John Miller ITS: Council Chairman BY: ------------------------------------- Marie Manley ITS: Secretary FIRSTAR BANK, N.A. BY: ------------------------------------- NAME: ----------------------------------- ITS: ----------------------------------- Seen and consented to: LAKES GAMING AND RESORTS, LLC BY: NAME: Timothy J. Cope ITS: Chief Financial Officer EX-10.14 15 c58465ex10-14.txt UNLIMITED GUARANTY, DATED AS OF OCTOBER 16, 2000 1 UNLIMITED GUARANTY GUARANTY, dated as of the 16th day of October, 2000, from the undersigned LAKES GAMING, INC., a Minnesota corporation ("Lakes"), and LAKES GAMING AND RESORTS, LLC, a Minnesota limited liability company ("LG & R"; collectively with Lakes, and each of Lakes and LG&R individually, the "Guarantor") to the POKAGON BAND OF POTAWATOMI INDIANS, a federally recognized Indian tribe (the "Band"). W I T N E S S E T H : WHEREAS, the Band and Lakes have entered into a Development Agreement dated as of July 8, 1999 (the "Development Agreement") and a Management Agreement dated as of July 8, 1999 (the "Management Agreement"; collectively, with the Development Agreement, the "Agreements"), pursuant to which the Band has engaged the Lakes to, among other things, assist the Band in the design, development, construction and management of a gambling casino and certain related amenities (as defined in the Development Agreement, the "Facility"); and WHEREAS, pursuant to the Development Agreement Lakes has agreed to make certain payments and advances to the Band, including without limitation the Transition Loan, the Lakes Development Loan and the Non-Gaming Land Acquisition Line of Credit (collectively the "Lakes Loans"), and the Scholarship Program Fee, and has agreed to perform development services with regard to the Facility, all on the terms set out in that Agreement; and WHEREAS, pursuant to the Management Agreement Lakes has agreed to manage the Facility on the terms set out in that Agreement; and WHEREAS, Lakes has informed the Band that it wishes to restructure its corporate organization by forming a first tier subsidiary, LG&R, to own the equity in second-tier subsidiaries, including Great Lakes of Michigan, LLC, a Minnesota limited liability company ("Great Lakes"), that will be engaged in gaming and gaming-related businesses; and WHEREAS, in connection with such restructuring Lakes has requested that the Band consent to (i) the assignment of Lakes' rights and obligations under the Agreements, the Lakes Loans and all related documentation, including without 2 limitation the documents listed on the attached Schedule A (the "Related Documents"; collectively, with the Agreements and the Lake Loans, the "Obligations"), to Great Lakes, and (ii) the release of Lakes as primary obligor under the Obligations, in exchange for the execution by Lakes and LG&R of unconditional guarantees of the obligations of Great Lakes under the Obligations; and WHEREAS, under the Agreements Lakes cannot carry out such restructuring without the Band's consent; and WHEREAS, the Band is willing to so consent, but only if Lakes and LG&R execute and deliver this Guaranty and otherwise comply with the terms and conditions of an Assignment and Assumption Agreement among Lakes, Great Lakes, LG&R and the Band of near or even date (the "Assignment Agreement"); and WHEREAS, Lakes and LG&R each directly or indirectly own all the equity interests in Great Lakes, and will each materially and substantially benefit from the proposed restructuring and from the agreement of the Band set forth in the Assignment Agreement; NOW, THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the Guarantor, the Guarantor hereby agrees as follows: 1. Recitals True. The above recitals are true. 2. Guarantied Obligations. The undersigned Guarantor(s), jointly and severally, hereby irrevocably and unconditionally guarantee the full and punctual payment and performance by Great Lakes of all covenants, obligations and representations of Great Lakes under or relating to the Obligations, including without limitation the due and punctual payment by Great Lakes of all advances due under the Lakes Loans and the Scholarship Program Fee, as such Obligations may be amended, modified or renewed, as well as all substitutions therefor and renewals, extensions and rearrangements thereof, together with any and all costs incurred by Band (including, without limitation, reasonable attorneys' fees and disbursements) in enforcing this Guaranty or any security therefore (individually, a "Guarantied Obligation" and collectively, the "Guarantied Obligations"). 3. Demand by the Band; Performance by Guarantor. In the event of a Guaranty 3 Event of Default, the Band may make demand upon the Guarantor(s), or any one of them, for the payment or performance of the Guarantied Obligation, and each Guarantor binds and obliges it to make such payment or performance and to pay any related damages forthwith upon such demand. Each Guarantor further covenants and agrees that Band may upon a Guaranty Event of Default proceed first and directly against the Guarantor, without any action, proceeding or suit, whether against Great Lakes or against any security for the Guarantied Obligations (hereby intending, among other matters, to waive any defense to this Guaranty based on impairment of collateral), or any other party liable for the Guarantied Obligations. This Guaranty is not conditioned upon the genuineness, validity, or enforceability of the Agreements, the Related Documents or the Lakes Notes (collectively, the "Transaction Documents") or any other instruments relating to the creation or performance of the Guarantied Obligations, or the pursuit by the Band of any remedies which the Band has now or may hereafter have with respect thereto under the Transaction Documents. "Guaranty Event of Default" means (a) either (i) a Lakes Event of Default under the Development Agreement, (ii) a Manager Event of Default under the Management Agreement, or (iii) any other default or breach by Great Lakes under the Guaranteed Obligations; in each case after all cure periods have expired and either the time within which arbitration may be demanded has expired or, if arbitration has been timely demanded, the arbitrator has issued his award and the award determines that Great Lakes is in default or breach under a Guaranteed Obligation; or (b) the receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of, or any similar proceeding affecting Great Lakes or any Guarantor or any of its or their assets. 4. Waiver of Demands, Notices, Diligence, etc. Each Guarantor hereby assents to all the terms and conditions of the Guarantied Obligations and the related Transaction Documents and waives (a) demand for the payment or performance of any Guarantied Obligation (other than a demand under section 3 hereof); (b) notice of the occurrence of a default or an Event of Default under the Transaction Documents; (c) notice of acceptance of any guaranty herein provided for or of the terms and provisions thereof or hereof by the Band; (d) notice of any indulgences or extensions granted to Great Lakes or any successor to Great Lakes or any person or party which shall have assumed the obligations of Great Lakes or any other obligor in respect of any Guarantied Obligation; (e) any requirement of diligence or promptness on the part of the 4 Band in the enforcement of any of its rights under the provisions of any Guarantied Obligation or the Transaction Documents; (f) any enforcement of any Guarantied Obligation against any other party liable therefor; (g) any right which the Guarantor might have to require the Band to proceed against any other guarantor of the Guarantied Obligations or to realize on any collateral security therefor; (h) any and all notices of every kind and description which may be required to be given by any statute or rule of law in any jurisdiction (other than notices required hereunder), to the maximum extent permitted by applicable law; (i) any and all claims, defenses or objections based upon the failure of the Band to make demand upon the Guarantor for the payment or performance of any of the Guarantied Obligations (other than the demand provided for in section 3 hereof) under applicable law; and (j) any right to exoneration or marshaling, and, to the maximum extent permitted by applicable law, any defense based upon or arising from the Statute of Limitations, and other laws relating to stays of action or moratorium. Each Guarantor further hereby waives (solely as against Band) any right to contribution from co-guarantors as well as any right to exoneration, subrogation or reimbursement until all Guarantied Obligations are fully and indefeasibly paid or performed and until the expiration of any applicable preference periods. The Band and Great Lakes (or any other party to a Guaranteed Obligation) may modify, renew, waive or extend any Guaranteed Obligation or any provision thereof and may modify, waive or release any collateral therefor without the consent of any Guarantor and without altering or releasing the obligations of Guarantor hereunder. 5. Obligations of Guarantor Unconditional, etc. a. This Guaranty is a guaranty of payment not collection. This is a continuing Guaranty, which shall apply to the Guarantied Obligations which now exist or as the same may change over time, and to any successive transactions continuing, compromising, extending, increasing, modifying, releasing or renewing any Guaranteed Obligation, whether or not notice of any after-arising Guarantied Obligation or change to the Guarantied Obligation is given to Guarantor, and whether or not any and all prior Guarantied Obligations have been fully paid, performed or observed before a new Guarantied Obligation arose, and shall apply notwithstanding the dissolution of Great Lakes or dissolution of any other guarantor of any Guarantied Obligation. The obligations of the Guarantor upon a Guaranty Event of Default are and shall be unconditional, irrespective of the validity, regularity or 5 enforceability of any Guarantied Obligation or any of the Transaction Documents or of any claim or defense of any party relating thereto. This Guaranty shall not be affected by any action taken under or in respect of any Guarantied Obligation, in the exercise of any right or remedy therein or thereby conferred, or by any failure or omission on the part of the Band to enforce any right given thereunder or hereunder, or any remedy conferred thereby or hereby; or by any lack of diligence on the part of Band to enforce, assert or exercise any right, power or remedy granted hereunder, under the Agreements or any other Guarantied Obligation, or any documents relating thereto (including without limitation any failure to perfect a security interest in or lien on any security for any Guarantied Obligation); or by any release or surrender of any security or any other guaranty at any time existing for the benefit of Band or in respect of any Guarantied Obligation or any modification to any of the foregoing; or by any sale, lease or transfer by Great Lakes to any person of any and all of its properties; or by any action of the Band granting indulgence or extension or accommodations to, or waiving or acquiescing in any default by, Great Lakes or any successor to Great Lakes, or any person or party which shall have assumed its or their obligations or any other party liable for any Guarantied Obligation; or any compromise, settlement or other arrangement with Great Lakes or any other party liable for any Guarantied Obligation; or by the release or discharge by operation of law of Great Lakes from the performance or observance of any obligation, covenant or agreement contained in the Agreements or the Transaction Documents or any document relating to any Guaranteed Obligation or by reason of the dissolution of Guarantor or Great Lakes or any other defense of Great Lakes or any successor to Great Lakes; or by any modification or alteration of any Guarantied Obligation or by any circumstance whatsoever (with or without notice to or knowledge of the Guarantor) which could vary the risk of the Guarantor hereunder; it being the purpose, intent and agreement of the Guarantor that the obligations of the Guarantor hereunder are and shall upon a Guaranty Event of Default be absolute and unconditional under any and all circumstances and shall not be discharged except by payment or performance as herein provided, and then only to the extent of such payment or performance, subject, however, to renewal, extension or reinstatement pursuant to the provisions of Section 8 hereof. b. Any claim against Great Lakes to which the Guarantor may be or 6 become entitled (including, without limitation, claims by subrogation, reimbursement, contribution, indemnity, or otherwise) by reason of any payment or performance by the Guarantor in satisfaction and discharge, in whole or in part, of its obligations under this Guaranty and any other rights against Great Lakes shall be and hereby are made subject and subordinate to the prior payment or performance in full of the Guaranteed Obligations and until such time Guarantor shall not be entitled to and shall not claim any subrogation to any claim of Band, nor any right of set-off or counterclaim against Great Lakes. c. The Band shall have the right to seek recourse against Guarantor to the fullest extent provided for herein and no election by the Band to proceed against any party, or on any obligation, shall constitute a waiver of the Band's right to proceed against any Guarantor on obligations other than those set out herein, or against other parties, unless the Band has expressly waived such right in writing. Specifically, but without limiting the generality of the foregoing, no action or proceeding by the Band under any document or instrument evidencing the Guarantied Obligations shall serve to diminish the liability of Guarantor under this Guaranty except to the extent that the Band finally and unconditionally shall have realized indefeasible payment by such action or proceeding. All rights and remedies of the Band shall be cumulative. d. Guarantor represents and warrants that any and all information delivered to Band by Guarantor and Great Lakes is true, accurate and complete as of the date hereof and covenants and agrees to provide Band with such further information as is required under section 13.5(ii) of the Development Agreement and, after a default hereunder, such further information as to Guarantor's financial condition and affairs as the Band may require. 6. Direct Obligation. This Guaranty is a primary and original obligation of Guarantor, is not merely the creation of a surety relationship, and is an absolute, unconditional, and continuing guaranty of payment and performance which shall remain in full force and effect without respect to future changes in conditions. Each Guarantor agrees that it is directly, jointly and severally with any other guarantor of the Guarantied Obligations, liable to the Band, that the obligations of Guarantor hereunder are independent of the obligations of Great Lakes 7 or any other Guarantor, and that a separate action or proceeding may be brought against Guarantor, whether such action is brought against Great Lakes or any other guarantor or whether Great Lakes or any other guarantor is joined in such action or proceeding. Guarantor agrees that upon the occurrence of a Guaranty Event of Default its liability hereunder shall be immediate and shall not be contingent upon the exercise or enforcement by the Band of whatever remedies it may have against Great Lakes or any other guarantor, or the enforcement of any lien or realization upon any security the Band may at any time possess. Guarantor agrees that any release which may be given by the Band to Great Lakes or any other obligor or any other guarantor shall not release Guarantor. Guarantor consents and agrees that the Band shall be under no obligation to marshal any property or assets of Great Lakes or any other guarantor in favor of Guarantor, or against or in payment of any or all of the Guarantied Obligations. The Band shall upon a Guaranty Event of Default have the right to proceed first and directly against each Guarantor under this Guaranty. Guarantor acknowledges that there are no conditions precedent to the effectiveness of this Guaranty and that this Guaranty is in full force and effect and is binding on Guarantor upon execution and delivery to the Band. 7. Subordination. Guarantor hereby agrees that any and all present and future indebtedness of Great Lakes owing to Guarantor is subordinated to payment, in full, in cash, of the Guarantied Obligations. In this regard, no payment of any kind whatsoever shall be made with respect to such indebtedness after the occurrence and during the continuance of a Guaranty Event of Default until the Guarantied Obligations have been indefeasibly paid and performed in full. 8. Reinstatement. a. It is the intention of the parties hereto that this Guaranty shall remain in full force and effect until all of the Guarantied Obligations have been fully and indefeasibly paid, performed and satisfied; until Great Lakes is no longer obligated to the Band under or in respect of the Guarantied Obligations or any documents relating thereto; and until the expiration of any applicable preference periods. This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any amount received by the Band in payment of the Guarantied Obligations is rescinded or must otherwise be restored or returned upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of any Guarantor or Great Lakes or upon the appointment of any intervenor or conservator of, or trustee or similar official for any Guarantor or Great Lakes or any substantial part of either of their respective properties, or if any payment made in respect of any Guarantied Obligation is subsequently 8 invalidated, declared to be fraudulent or preferential, or otherwise returned for any reason, all as though such payments had not been made. b. The Guaranteed Obligations shall not be considered indefeasibly paid for purposes of this Guaranty unless and until all payments to the Band are no longer subject to any right on the part of any person, including Great Lakes, Great Lakes as debtor in possession, or any trustee (whether appointed under the Bankruptcy Code or otherwise) of Great Lakes' assets to invalidate or set aside such payments or to seek to recoup the amount of such payments or any portion thereof, or the declare the same to be fraudulent or preferential. Until such full and final performance and indefeasible payment of the Guaranteed Obligations whether by Guarantor or Great Lakes, the Band shall have no obligation whatsoever to transfer or assign its interest in the Transaction Documents to Guarantor. In the event that, for any reason, any portion of such payments to Band is set aside or restored, whether voluntarily or involuntarily, after the making thereof, then the obligation intended to be satisfied thereby shall be revived and continued in full force and effect as if said payment or payments had not been made, and Guarantor shall be liable for the full amount the Band is required to repay plus any and all costs and expenses (including attorneys' fees) paid by the Band in connection therewith. 9. Warranties and Representations. Each Guarantor hereby warrants and represents to the Band that: a. this Guaranty constitutes a legal, valid and binding obligation of each Guarantor, and is fully enforceable in accordance with its terms; and b. neither the execution or delivery of this Guaranty nor fulfillment of or compliance with the terms and provisions hereof, will conflict with, or result in a breach of the terms, conditions or provisions of, constitute a default under or result in the creation of any lien, charge or encumbrance upon any property or assets of any Guarantor under any agreement or instrument to which it is now a party or by which it may be bound. 10. Notices, etc. All notices, requests and other communications to any Guarantor hereunder shall be in writing and shall be sent to the address of Lakes and with the copies set forth in Section 15.4 of the Development Agreement. Any notice or demand so mailed shall be deemed received on the date of actual 9 receipt, on the third business day following mailing as herein set forth or one day following delivery to a courier service, whichever first occurs. 11. Multiple Debtors or Guarantors. If more than one Guarantor signs this Guaranty, or if there are multiple guarantors, as to any such circumstances, this Guaranty shall take effect as a separate guarantee on the same terms from each Guarantor to Band with respect to the Guarantied Obligations of each debtor, except as otherwise expressly provided in this section; and each such Guarantor identified on the signature page hereto is jointly and severally liable for the Guarantied Obligations. Each Guarantor's obligation under this Guaranty may be modified or released only by written agreement signed by the Band and such Guarantor, without the consent or agreement of any other Guarantor. No Guarantor's obligations under this Guarantee shall be impaired, reduced or otherwise affected by any such modification or release nor by the invalidity or unenforceability of the obligations of any other Guarantor. This Guaranty shall bind all signatories to this Guaranty, notwithstanding a failure by any party or entity named in this Guaranty as Guarantor to sign this or any Guaranty. All Guarantors of the Guarantied Obligations shall be and are jointly and severally liable under this Guaranty or their guaranties, as applicable, and default by any one guarantor shall constitute a default for all guarantors. A default by any one debtor of the Band or any Guarantor shall constitute default by all Guarantors with respect to all the Guarantied Obligations of all debtors of the Band. Suit may be brought against the Guarantors, jointly and severally, and against any one or more of them, or less than all of them, without impairing the rights of Band, its successors or assigns, against the other of the Guarantors; and Band may agree with any one or more of the Guarantors that such Guarantor or Guarantors shall be liable for such sum or sums as Band may see fit and may release any of such Guarantors from all further liability to Band for the Guaranteed Obligations guaranteed hereunder without impairing the right of Band to demand and collect the balance of the Guaranteed Obligations from the other Guarantors not so released. 12. Survival of Guaranty, etc. This Guaranty shall inure to the benefit of and be binding upon each Guarantor and the Band and their respective successors and assigns, including any subsequent assignees of any of the Guarantied Obligations permitted under the ss.10.5(b) of the Development Agreement. This Guaranty is intended to take effect as a sealed instrument. This Guaranty is for the benefit of Band and in the event the Agreement or any Guarantied Obligation are transferred or assigned in accordance with the Development 10 Agreement, said transferee or assignee shall be entitled to the benefits hereof and to enforce the performance and observance of the terms and provisions hereof to the same extent as if said transferee or assignee was a party or signatory hereto and any such transferee shall be recognized as the Band hereunder. 13. Gender and Number; Counterparts. Whenever the context so requires the masculine gender shall include the feminine and/or neuter and the singular number shall include the plural, and conversely in each case. This Guaranty may be executed in separate counterparts which together shall be deemed to constitute one binding document. 14. Severability. If any obligation or portion of this Guaranty is determined to be invalid or unenforceable under law, it shall not affect the validity or enforceability of any remaining obligations or portions hereof. 15. Amendments. This Guaranty may not be amended as to any Guarantor except by an agreement in writing signed by such Guarantor and the Band. 16. Additional Payment. All payments, advances, charges, costs and expenses, including reasonable attorneys' fees, made or incurred by Band in connection with the enforcement of this Guaranty shall be paid by Guarantor immediately without demand, together with interest at a rate per annum equal to the interest rate in effect for advances under the Lakes Loans, if (a) the Band makes demand on Guarantor under ss.3 above and Guarantor fails to timely demand arbitration under this Guaranty, or (b) Guarantor makes a timely demand for arbitration or the Band or Great Lakes demand arbitration, and the arbitration award in either case finds in the Band's favor on any issue being arbitrated. 17. Governing Law; Jurisdiction. This Guaranty shall be construed in accordance with and governed by the internal laws of the State of Minnesota. 18. Arbitration. Any disputes under this Guaranty shall be subject to arbitration as provided in ss.14.2 of the Development Agreement; provided that (a) any demand for arbitration shall be made by Guarantor within 30 days after the Band makes demand on Guarantor under ss.3 above, and (b) such arbitration shall determine only the liability of Guarantor under this Guaranty, and shall not extend to determination of liability of the Band to any Guarantor (whether in the form of setoff, recoupment or affirmative counterclaim). Guarantor shall be bound by any issue determined by an award in an arbitration between Great 11 Lakes and the Band, regardless of whether Lakes is a party to such arbitration. The Band may at its option join Guarantor as a party in an arbitration between Great Lakes and the Band prior to a Guaranty Event of Default, and such arbitration may determine the existence of a Guaranty Event of Default and Guarantor's liability hereunder. 19. Limited Waiver of Sovereign Immunity. The Band expressly waives its sovereign immunity from suit for the purpose of permitting or compelling arbitration as provided in ss.18; provided that such limited waiver extends only to arbitration of the liability of Guarantor under this Guaranty, and does not extend to determination of liability of the Band to any Guarantor (whether in the form of setoff, recoupment or affirmative counterclaim). The Band and Guarantor each consent 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 Guaranty, subject to the above limitation. If the United States District Court lacks jurisdiction, the Band and Guarantor consent 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 to give effect to any judgment entered for such limited purpose; provided, however, that in no instance shall any enforcement of any kind whatsoever be allowed against any assets of the Band. 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 this Guaranty. The Band agrees that service in hand or by certified mail, return receipt requested, shall be effective for all purposes under or relating to this Guaranty if served on such agents. The Guarantor irrevocably consents to the service of process in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the Guarantor in accordance with the provisions of ss.10. The foregoing, however, shall not limit the Band's rights to serve process in any other manner permitted by law or to bring any legal action or proceeding or to obtain execution of judgment in any other jurisdiction. The Guarantor irrevocably waives any objection which it may now have or may have to the laying of the venue of any suit, action or proceeding arising out of or relating to this Guaranty and hereby further 12 irrevocably waives any claim that the State of Michigan is not a convenient forum for any such suit, action or proceeding. 20. Definitions. Capitalized terms used herein without definition shall have the meanings assigned to them in the Agreements. IN WITNESS WHEREOF, the undersigned have executed this Guaranty as a sealed instrument by duly authorized officers of the undersigned as of the date first above written. LAKES GAMING, INC. BY: NAME: Timothy J. Cope ITS: Chief Financial Officer LAKES GAMING AND RESORTS, LLC BY: NAME: Timothy J. Cope ITS: Chief Financial Officer SEEN AND AGREED AS OF THE DATE ABOVE WRITTEN THE POKAGON BAND OF POTAWATOMI INDIANS BY: - --------------------------------------- John Miller ITS: Council Chairman BY: ----------------------------------------- Marie Manley ITS: Secretary EX-10.15 16 c58465ex10-15.txt AMENDMENT TO PLEDGE AND SECURITY AGREEMENT 1 AMENDMENT TO PLEDGE AND SECURITY AGREEMENT This Agreement is made the 16th day of October, 2000, by and among Great Lakes of Michigan, LLC, a Minnesota limited liability company ("Great Lakes"), Lakes Gaming, Inc., a Minnesota corporation ("Lakes"), and the Pokagon Band of Potawatomi Indians (the "Band"). W I T N E S S E T H: WHEREAS, the Band and Lakes have entered into a Development Agreement dated as of July 8, 1999 (the "Development Agreement") and a Management Agreement dated as of July 8, 1999 (the "Management Agreement"; collectively, with the Development Agreement, the "Agreements"), pursuant to which the Band has engaged Lakes to, among other things, assist the Band in the design, development, construction and management of a gambling casino and certain related amenities (as defined in the Development Agreement, the "Facility"); and WHEREAS, pursuant to the Development Agreement Lakes has agreed to make certain payments and advances to the Band, including without limitation the Transition Loan, the Lakes Development Loan and the Non-Gaming Land Acquisition Line of Credit (collectively the "Lakes Loans"), and the Scholarship Program Fee, and has agreed to perform development services with regard to the Facility, all on the terms set out in that Agreement; and WHEREAS, pursuant to the Management Agreement Lakes has agreed to manage the Facility on the terms set out in that Agreement; and WHEREAS, the obligations of Lakes to the Band are secured by a Pledge and Security Agreement between Lakes and the Band (the "Pledge Agreement") and by an Account Control Agreement among Lakes, the Band and Firstar Bank, N.A., f/k/a Firstar Bank of Minnesota, N.A. (the "Control Agreement"), each dated as of July 8, 1999; and WHEREAS, Lakes has informed the Band that it wishes to restructure its corporate organization by forming a first tier subsidiary, Lakes Gaming and Resorts, LLC, a Minnesota limited liability company ("LG&R"), to own the equity in second-tier subsidiaries, including Great Lakes, that will be engaged in gaming and gaming-related businesses (the "Restructuring"); and WHEREAS, in connection with such restructuring Lakes has requested that the Band consent to the assignment to Great Lakes of (i) Lakes' rights and obligations 2 under the Agreements, the Lakes Loans and all related documentation (the "Obligations") , and (ii) the Account and related cash, financial assets and investment property, as defined in the Control Agreement, subject to the continuing first perfected security interest of the Band; and WHEREAS, Lakes and LG&R have agreed, as a condition to the Band's consent, to unconditionally guaranty the Obligations, as assumed by Great Lakes, including without limitation the obligations of Great Lakes under the Pledge Agreement and the Control Agreement; and WHEREAS, it is the intent of the parties that the restructuring not affect or impair the Band's rights and remedies under the Obligations or the Band's first perfected security interest in the Account, other than the conversion of Lakes from primary obligor to unlimited guarantor; WHEREAS, under the Agreements Lakes cannot carry out such restructuring without the Band's consent; and WHEREAS, the Band is willing to so consent, but only on the terms and conditions set out in this Agreement and in a certain Assignment and Assumption Agreement of near or even date among the Band, Lakes, Great Lakes and LG&R (the "Assignment Agreement"); NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Recitals True. The above recitals are true. 2. Defined Terms. Capitalized terms used but not otherwise defined herein and defined in the Pledge Agreement shall have the same meaning herein as therein. 3. Assignment of Account. Lakes represents to the Band that it has, pursuant to the Assignment Agreement, assigned and transferred to Great Lakes all rights of Lakes in and to the Account and all cash, financial assets and investment property credited to the Account, subject to the first perfected security interest of the Band. 4. Acceptance of Assignment. Great Lakes accepts the assignment of the Account and all related cash, financial assets and investment property, and agrees to perform and discharge Lakes' obligations under the Pledge 3 Agreement in accordance with the terms thereof as if Great Lakes had originally been a party thereto. The liabilities so assumed by Great Lakes include any obligations or liabilities of Lakes which have accrued under the Pledge Agreement as of the date hereof, as well as those subsequently accruing. Great Lakes recognizes and agrees that the Account and all cash, financial assets and investment property credited to the Account are and shall remain subject to the first perfected security interest of the Band in accordance with the Pledge Agreement and the Account Control Agreement. 5. Amendment to Pledge Agreement. The Pledge Agreement is amended as follows: a. All references in the Pledge Agreement to Lakes (other than in the recitals) or to Pledgor shall be deemed to refer to each of Lakes and Great Lakes. b. S. Eric Marshall is deleted from the list of persons to whom copies of notices to the Band must be given. c. The definition of "Secured Obligations" in ss.1(a) of the Pledge Agreement is amended so that it reads in its entirety as follows: "'Secured Obligations' includes (i) the obligations of Great Lakes and Lakes to the Band under or relating to the Agreements, and (ii) the obligations of Lakes and LG&R under their Guaranty to the Band dated October 16, 2000." d. The following person is added as a person to whom copies of notices to Great Lakes must be given: Brian J. Klein, Esq. Mason Edelman Borman & Brand, LLP 3300 Norwest Center 90 South Seventh Street Minneapolis, MN 55402-4140 6. Reservation of Rights. The Band expressly reserves all rights against Lakes under the Pledge Agreement. 7. Warranties and Representations. Each of Great Lakes and Lakes warrants, represents and covenants to the Band that: 4 a. The Agreement and the Pledge Agreement each constitute the legal, valid and binding obligation of Great Lakes and Lakes, and are fully enforceable in accordance with their terms; and b. Neither the execution or delivery of this Agreement nor fulfillment of or compliance with the terms and provisions hereof will conflict with, or result in a breach of the terms, conditions or provisions of, constitute a default under or result in the creation of any lien, charge or encumbrance upon any property or assets of Lakes or Great Lakes under any agreement or instrument to which they or either of them is now a party or by which they may be bound; and c. The Band has, and at all times until the termination of the Control Agreement in accordance with ss. 8 thereof shall have, a first perfected security interest in the Account and all cash, financial assets and investment property credited to the Account. 8. Further Assurances. From time to time hereafter, Lakes, Great Lakes and/or the Band will execute and deliver, or will cause to be executed and delivered, such additional instruments, certificates or documents, and will take all such actions, as may reasonably be requested by the other party or parties, for the purpose of implementing or effectuating the provisions of this Agreement. 9. Governing Law. This Agreement shall be interpreted in accordance with the law of the internal law of Minnesota. 10. Amendments, Assignments, Etc. Any provision of this Agreement may be amended if, but only if, such amendment is in writing and is signed by each of the parties hereto. No modification shall be implied from course of conduct. Great Lakes may not further assign its rights in the Account and its obligations under the Control Agreement without the written consent of the Band. 11. Gender and Number; Counterparts. Whenever the context so requires the masculine gender shall include the feminine and/or neuter and the singular number shall include the plural, and conversely in each case. This Agreement may be executed in separate counterparts and said counterparts shall be deemed to constitute one binding document. 12. Notices to Great Lakes. Great Lakes agrees that any notice or demand upon it shall be deemed to be sufficiently given or served if it is in writing and is personally served or in lieu of personal service is mailed by first class certified mail, postage prepaid, or be overnight mail or courier service, addressed to 5 Great Lakes at the address of Lakes and with copies set forth in ss. 8 of the Pledge Agreement. 13. Arbitration; Limited Waiver of Sovereign Immunity. Any disputes under this Agreement shall be subject to arbitration as provided in ss.14.2 of the Development Agreement; provided that any demand for arbitration shall be made within 30 days after a notice of default, denominated as such, is given under this Agreement. The Band's limited waiver of sovereign immunity in ss.ss. 14.1 and 14.3 of the Development Agreement shall apply to this Agreement; provided that the 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) of the Development Agreement. 14. Ratification. Except as expressly modified in this Agreement, the Pledge Agreement is ratified and confirmed. 15. Interpretation. This Agreement, the related amendments to the Agreements and to the Control Agreement (the "Amendments") and the Obligations shall be interpreted in favor of the Band so as to ensure for the Band the full benefit of its rights, powers and remedies under the Obligations notwithstanding the Restructuring, this Agreement and the Amendments; and to fully implement the intent of the parties that the Restructuring, this Agreement and the Amendments not affect or impair the Band's rights, powers and remedies under the Obligations, other than the conversion of Lakes from primary obligor to unlimited guarantor, or the Band's continuing first security interest in the Account. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the 16th day of October, 2000 WITNESS: GREAT LAKES OF MICHIGAN, LLC BY: ------------------------------ NAME: Timothy J. Cope ITS: Chief Financial Officer LAKES GAMING, INC. BY: ------------------------------ NAME: Timothy J. Cope ITS: Chief Financial Officer 6 THE POKAGON BAND OF POTAWATOMI INDIANS BY: ------------------------------ NAME: --------------------------- ITS: Council Chairman BY: ------------------------------ NAME: --------------------------- ITS: Secretary Seen and consented to: LAKES GAMING AND RESORTS, LLC BY: ------------------------------ NAME: Timothy J. Cope ITS: Chief Financial Officer EX-27 17 c58465ex27.txt FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-2000 OCT-01-2000 21,295 32,549 4,712 0 0 81,466 2,408 1,306 211,972 34,008 1,500 0 0 106 175,627 211,972 52,392 52,392 0 10,025 20,003 0 73 28,140 12,359 15,781 0 0 0 15,781 1.48 1.48
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