Most Popular

Business Contracts
Forms
Immigration
Mock Trial

General Business Contracts

Free Featured LLC Forms

Pacific Coast Gaming - Santa Rosa LLC Agreement

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

 

 

<PAGE> 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

 

 

 

 

<PAGE> 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.

 

 

<PAGE> 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

 

 

 

<PAGE> 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.

 

 

 

<PAGE> 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

 

 

<PAGE> 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

 

 

<PAGE> 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.

 

 

<PAGE> 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

 

 

 

 

<PAGE> 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:

 

 

<CAPTION>

 

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

 

 

 

 

 

 

 

<PAGE> 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

 

 

 

 

 

<PAGE> 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

 

 

 

 

<PAGE> 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

 

 

 

 

 

<PAGE> 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

 

 

<PAGE> 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

 

 

 

 

 

<PAGE> 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:

 

 

<CAPTION>

 

 

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.

 

 

 

 

<PAGE> 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

 

 

 

 

<PAGE> 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"

 

 

 

 

<PAGE> 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.

 

 

 

 

 

<PAGE> 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

 

 

 

 

<PAGE> 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;

 

 

 

 

 

<PAGE> 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.

 

 

 

 

<PAGE> 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

 

 

 

 

<PAGE> 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.

 

 

 

 

 

 

<PAGE> 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

 

 

 

 

 

<PAGE> 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

 

 

 

 

 

 

 

 

 

<PAGE> 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

 

<PAGE> 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;

 

 

 

 

 

 

 

 

<PAGE> 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;

 

<PAGE> 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

 

 

 

 

 

 

 

<PAGE> 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

 

 

 

 

<PAGE> 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

 

 

 

 

 

 

 

<PAGE> 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.

 

 

 

 

 

 

 

<PAGE> 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

 

 

 

 

 

<PAGE> 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

 

 

 

 

 

 

<PAGE> 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

 

 

 

 

 

 

 

<PAGE> 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.

 

 

 

 

 

 

 

 

 

 

<PAGE> 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.

 

 

 

 

 

 

 

 

 

<PAGE> 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,

 

 

 

 

 

 

 

 

 

<PAGE> 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