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World Poker Tour LLC Agreement 03-04-2002

WORLD POKER TOUR, LLC

 

LIMITED LIABILITY COMPANY AGREEMENT

 

DATED AS OF MARCH 4, 2002

 

THE LIMITED LIABILITY COMPANY INTERESTS AND UNITS CREATED HEREBY HAVE NOT BEEN

REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR UNDER ANY STATE

SECURITIES STATUTE. CONSEQUENTLY, THE LIMITED LIABILITY COMPANY INTERESTS AND

UNITS MAY NOT BE SOLD OR TRANSFERRED UNLESS SUBSEQUENTLY REGISTERED AND

QUALIFIED UNDER SUCH LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION AND

QUALIFICATION IS THEN AVAILABLE. OTHER RESTRICTIONS ON TRANSFER APPLY, AS

HEREINAFTER SET FORTH.

 

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TABLE OF CONTENT

 

 

 

Page

 

ARTICLE 1...................................................................... 1

 

FORMATION OF LIMITED LIABILITY COMPANY.................................... 1

 

1.1 Formation............................................... 1

1.2 Term.................................................... 2

1.3 Name.................................................... 2

 

ARTICLE 2...................................................................... 2

 

PLACE OF BUSINESS AND AGENT FOR PROCESS................................... 2

 

2.1 Place of Business....................................... 2

2.2 Agent for Process....................................... 2

 

ARTICLE 3...................................................................... 2

 

GENERAL DEFINITIONS....................................................... 2

 

ARTICLE 4...................................................................... 7

 

PURPOSES.................................................................. 7

 

4.1 Purpose................................................. 7

 

ARTICLE 5...................................................................... 8

 

MEMBERS AND NEW MEMBERS................................................... 8

 

5.1 Members................................................. 8

5.2 Terms of Units of Membership Interest................... 8

5.3 Additional Units........................................ 9

5.4 Additional Members...................................... 9

 

ARTICLE 6...................................................................... 10

 

MEMBERS' CAPITAL.......................................................... 10

 

6.1 Definitions Relating to Capital......................... 10

6.2 Capital and Interests of Members........................ 13

6.3 Additional Capital Contributions........................ 14

6.4 Other Capital Matters................................... 14

6.5 Default by Member....................................... 15

6.6 Transferee Succeeds to Transferor's Capital Account..... 15

6.7 Loans to Company........................................ 15

 

ARTICLE 7...................................................................... 15

 

 

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ALLOCATIONS............................................................... 15

 

7.1 Definitions of Profits and Losses....................... 15

7.2 Allocation of Profits................................... 16

7.3 Allocation of Losses.................................... 16

7.4 Pro-ration of Allocations............................... 17

7.5 Special Allocations..................................... 17

7.6 Curative Allocations.................................... 18

7.7 Other Allocation Rules.................................. 18

7.8 Tax Allocations under Code Section 704(c)............... 19

7.9 Special Fee Allocation.................................. 19

 

ARTICLE 8...................................................................... 20

 

DISTRIBUTIONS............................................................. 20

 

8.1 Distributions of Net Cash From Operations............... 20

8.2 Other Cash Distributions................................ 20

8.3 Management Fee.......................................... 20

 

ARTICLE 9...................................................................... 20

 

MANAGEMENT AND OPERATION OF BUSINESS...................................... 20

 

9.1 Management and Control of the Company................... 20

9.2 Authority of Board...................................... 21

9.3 Restrictions on Authority of Board...................... 21

9.4 Obligations of the Board................................ 21

9.5 Reimbursement of Expenses............................... 22

9.6 "Tax Matters Partner"................................... 22

9.7 Conflicts of Interest................................... 22

9.8 Other Activities........................................ 23

9.9 Liability Under Other Agreements........................ 23

9.10 Execution of Instruments................................ 23

9.11 Advances................................................ 23

 

ARTICLE 10..................................................................... 23

 

APPOINTMENT, RESIGNATION OR REMOVAL OF THE GOVERNORS; ADDITIONAL OR

SUCCESSOR GOVERNORS....................................................... 23

 

10.1 Appointment of Governors................................ 24

10.2 First Governors......................................... 24

10.3 Removal, Resignation and Replacement of Governors....... 24

10.4 Term.................................................... 24

10.5 Place of Meetings....................................... 24

10.6 Regular Meetings........................................ 24

10.7 Special Meetings........................................ 24

 

 

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10.8 Waiver of Notice; Previously Scheduled Meetings......... 24

10.9 Quorum.................................................. 25

10.10 Acts of Board........................................... 25

10.11 Participation by Electronic Communications.............. 25

10.12 Absent Governors........................................ 25

10.13 Action Without a Meeting................................ 25

10.14 Committees.............................................. 25

10.15 Special Litigation Committee............................ 26

10.16 Compensation............................................ 26

10.17 Compensation Committee.................................. 26

10.18 Incapacity.............................................. 26

 

ARTICLE 11..................................................................... 26

 

MANAGERS.................................................................. 26

 

11.1 Number and Designation.................................. 26

11.2 Chief Executive Manager................................. 27

11.3 Chief Financial Manager................................. 27

11.4 President............................................... 27

11.5 Vice Presidents......................................... 27

11.6 Secretary............................................... 27

11.7 Authority and Duties.................................... 28

11.8 Term.................................................... 28

11.9 Initial Manager......................................... 28

 

ARTICLE 12..................................................................... 28

 

MEETING OF MEMBERS........................................................ 28

 

12.1 Place of Meetings....................................... 28

12.2 Regular Meetings........................................ 28

12.3 Special Meetings........................................ 28

12.4 Meetings Held Upon Member Demand........................ 29

12.5 Adjournments............................................ 29

12.6 Notice of Meetings...................................... 29

12.7 Waiver of Notice........................................ 29

12.8 Voting Rights........................................... 29

12.9 Proxies................................................. 29

12.10 Quorum.................................................. 30

12.11 Acts of Members......................................... 30

12.12 Action Without a Meeting................................ 30

 

ARTICLE 13..................................................................... 30

 

BOOKS OF ACCOUNT AND REPORTS.............................................. 30

 

 

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13.1 Books of Account........................................ 30

13.2 Accounting Practices.................................... 30

13.3 Bank Accounts........................................... 30

13.4 Reports................................................. 30

13.5 Partnership Tax Status and Information.................. 31

13.6 Tax Basis Elections..................................... 31

 

ARTICLE 14..................................................................... 32

 

TRANSFER OF MEMBERSHIP INTERESTS.......................................... 32

 

14.1 Transfer Restrictions and Exceptions.................... 32

14.2 Documents and Expenses.................................. 33

14.3 Acquit Company.......................................... 34

14.4 Prohibited Transfers.................................... 34

14.5 Limited Rights of Unadmitted Transferees................ 34

 

ARTICLE 15..................................................................... 34

 

AMENDMENT OF AGREEMENT.................................................... 34

 

 

ARTICLE 16..................................................................... 35

 

DISSOLUTION............................................................... 35

 

16.1 Liquidating Events...................................... 35

16.2 Distributions on Liquidation............................ 35

 

ARTICLE 17..................................................................... 36

 

RIGHTS, OPTIONS AND VALUATION RESULTING FROM TRANSFERS OR WITHDRAWALS..... 36

 

17.1 Tag-Along Rights........................................ 36

17.2 Preemptive Rights....................................... 37

17.3 Unit Purchase Options................................... 38

17.4 Purchase Price and Terms................................ 43

17.5 Closing Date and Terms of Purchase...................... 44

 

ARTICLE 18..................................................................... 45

 

MISCELLANEOUS............................................................. 45

 

18.1 Notices................................................. 45

18.2 Partition............................................... 45

18.3 Consent and Waiver...................................... 45

18.4 Entire Agreement........................................ 46

18.5 Governing Law........................................... 46

18.6 Binding Effect.......................................... 46

 

 

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18.7 Number and Gender....................................... 46

18.8 Interpretation.......................................... 46

18.9 Severability............................................ 46

18.10 Counterparts............................................ 46

18.11 Right to Specific Performance........................... 46

18.12 Additional Documents and Acts........................... 47

18.13 No Third Party Beneficiary.............................. 47

 

 

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LIMITED LIABILITY COMPANY AGREEMENT

OF

WORLD POKER TOUR, LLC

 

THIS LIMITED LIABILITY COMPANY AGREEMENT is entered into effective as

of March 1, 2002 (the "Effective Date"), by and between Lakes Poker Tour, LLC, a

Minnesota limited liability company, and Steven Lipscomb, an individual resident

of the state of California (together, the "Members"), who will constitute the

initial members of World Poker Tour, LLC, a Delaware limited liability company

(the "Company").

 

RECITALS

 

A. The Members have organized the Company as of March 1, 2002

pursuant to the Delaware Limited Liability Company Act, 6 Del. C. Sections

18-101, et. seq. (the "LLC Act") by filing a Certificate of Formation (the

"Certificate") with the Delaware Secretary of State.

 

B. 6 Del. C. Sections 18-101, et. seq. of the LLC Act authorizes

a limited liability company agreement.

 

C. The Members desire to enter into a limited liability company

agreement, in the form of this Agreement, with respect to the Company.

 

NOW, THEREFORE, in consideration of the foregoing facts which are

hereby incorporated herein, the mutual promises of the Members and the mutual

benefits to be gained by the performance hereof, the Members hereby agree as

follows:

 

AGREEMENT

ARTICLE 1.

FORMATION OF LIMITED LIABILITY COMPANY

 

1.1 Formation.

 

1.1.1 The Members have formed the Company as a limited

liability company under the provisions of the LLC Act. The Company's business,

as described in Section 4.1.1 hereof, shall be conducted to comply with the LLC

Act.

 

1.1.2 A copy of the Certificate is attached hereto as

SCHEDULE 1.1.2 and hereby made a part hereof. The Company's Board shall promptly

cause to be executed and so filed any amendments of such Certificate that may be

adopted by the Members or required by law.

 

1.1.3 Except as otherwise provided in this Agreement, the

Contribution Agreements, and the Certificate, the rights and liabilities of the

Members shall be as provided in the LLC Act. The purposes of the Company are set

forth in Article 4 of this Agreement.

 

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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 16 of this Agreement.

 

1.3 Name. The business of the Company shall be conducted under the

name of "World Poker Tour, LLC," or such other name as the Board 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 1041 North Formosa Avenue, Suite 100, West

Hollywood, California 90046. The Board may from time to time change the location

of the principal office of the Company and, in such event, the Chief Executive

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 on the Company shall be The Corporation Trust Company,

located at 1209 Orange Street, Wilmington, DE 19801.

 

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; or (d)

any Person who is an officer, director, general partner, trustee or holder of

fifty percent (50%) or more of the voting interest of any Person described in

clauses (a) through (c) of this sentence. 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 "LLC Agreement" means this Limited Liability

Company Agreement (including all of its Exhibits and Schedules, if any), as

amended from time to time.

 

3.3 "Appointing Member" shall mean any 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.

 

3.4 "Bankruptcy" means, with respect to any Person, a "Voluntary

Bankruptcy" or an "Involuntary Bankruptcy."

 

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3.4.1 "Voluntary Bankruptcy" means, with respect to any

Person, the inability of such Person generally to pay his, her, or its debts as

such debts become due or an admission in writing by such Person of his, her, or

its inability to pay such debts generally or a general assignment by such Person

for the benefit of creditors; the filing of any petition or answer by such

Person seeking to adjudicate it a bankrupt or insolvent or seeking for such

Person any liquidation, winding up, reorganization, arrangement, adjustment,

protection, relief or composition of such Person or the debts of such Person

under any law relating to bankruptcy, insolvency or reorganization or relief of

debtors, or seeking, consenting to or acquiescing in the entry of an order for

relief or the appointment of a receiver, trustee, custodian or other similar

official for such Person or for any substantial part of such Person's property;

or corporate action taken by such Person to authorize any of the actions set

forth above.

 

3.4.2 "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 sixty (60) days.

 

3.5 "Board" means the Board of Governors of the Company, elected

by the Members or appointed by an Appointing Member, pursuant to Article 10 of

this Agreement.

 

3.6 "Capital Account" shall have the meaning set forth in Section

6.1.2.

 

3.7 "Capital Contribution" shall have the meaning set forth in

Section 6.1.3.

 

3.8 "Certificate" shall mean the Certificate of Formation filed on

behalf of the Company with the Delaware Secretary of State on March 1, 2002, and

attached hereto as SCHEDULE 1.1.2, as it may be amended from time to time by

Members pursuant to the LLC Act.

 

3.9 "Change of Control" shall mean (i) any "Person" or "Persons"

(as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act

of 1934 (the "Act")) (other than the Company, any present owner, any employee

benefit plan of the Company, any employee stock ownership plan or similar plan,

or Lyle Berman, any of his Family members, or any trust or entity controlled by

or having as a beneficiary, Lyle Berman or any of his Family members) becomes a

beneficial owner of membership interests of the Company representing 50% or more

of the voting power of all of the Company's then outstanding membership

interests; or a transaction is consummated pursuant to which the sale of all, or

substantially all, of the assets of the Company or the liquidation or

dissolution of the Company is effected; (ii) any "Person" or "Persons" (other

than Lyle Berman, any of his Family members, or any trust or entity controlled

by or having as a beneficiary, Lyle Berman or any of his Family members) becomes

a beneficial owner of units or membership interests of Lakes representing 50% or

more of the voting power of all of Lakes then

 

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outstanding units or membership interests; or the members of Lakes approve the

sale of all, or substantially all, of the assets of Lakes or the liquidation or

dissolution of Lakes and such transaction is consummated; or (iii) the merger,

consolidation or reorganization of the Company or Lakes with any other entity

other than an entity in which Lyle Berman, any of his Family members, or any

trust or entity controlled by or having as a beneficiary, Lyle Berman or any of

his Family members. For purposes of this Section, beneficial ownership by a

person or group of persons shall be determined in accordance with Regulation 13D

(or similar successor regulation) promulgated by the Securities and Exchange

Commission pursuant to the 1934 Act. "Family" means an individual, his or her

spouse, his or her Direct Lineal Descendants and his or her direct ancestors.

For purposes of this Agreement "direct ancestors" means parents, grandparents,

great grandparents and so on, by natural birth or legal adoption including any

illegitimate child (if acknowledged by the child's parent). "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 of the foregoing.

 

3.10 "Class A Members" means the Members holding Class A Units.

 

3.11 "Class A Units" means a class of Units issued by the Company

under this Agreement as of the Effective Date, which is the only class of Units

possessing Voting Rights with respect to Company matters, except as may

otherwise be expressly required by the LLC Act.

 

3.12 "Class B Units" means a class of Units issued or issuable by

the Company, which does not have any Voting Rights with respect to any Company

matters, except as otherwise expressly required by the LLC Act or this

Agreement.

 

3.13 "Code" means the Internal Revenue Code of 1986, as amended

from time to time (and any corresponding provisions of succeeding law).

 

3.14 "Company" means World Poker Tour, LLC, the Delaware limited

liability company formed as of the Effective Date pursuant to this Agreement and

the Certificate.

 

3.15 "Company Property" or "Property" means all of the property,

whether real, personal or mixed, owned by the Company as of the Effective Date

or acquired and held from time to time by the Company and any improvements

thereto, and shall include both tangible and intangible property.

 

3.16 "Compensation Committee" shall mean the compensation committee

appointed by the Board of Governors pursuant to Section 10.17 hereof.

 

3.17 "Contribution Agreement" means an 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 number of Units to be issued by the Company to

such Person. A Contribution shall also include an Option Agreement as defined in

Section 3.37 hereof.

 

3.18 "Depreciation" shall have the meaning set forth in Section

6.1.4.

 

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3.19 "Distribution" means any distribution to the Members of cash

or other assets of the Company made from time to time pursuant to the provisions

of this Agreement.

 

3.20 "Effective Date" means March 1, 2002, the effective date of

this Agreement and the formation of the Company.

 

3.21 "Estimated Member Tax Liability" means the percentage of the

taxable income and gains of the Company as reported on the Company's Federal

income tax return for the Fiscal Year equal to the federal, state and local

income tax liability of the Member reasonably believed by the Board to be taxed

at the highest effective rate.

 

3.22 "Financial Rights" means a Member's rights to (a) a Capital

Account; (b) a Percentage Interest in Company Profits, Losses and Distributions;

(c) a Member's limited right (if any) to transfer such rights according to

Article 14 of this Agreement; and (d) a Member's rights and options (if any) to

purchase Membership Interests according to Article 17 of this Agreement.

 

3.23 "Fiscal Year" means (a) the period commencing on the Effective

Date and ending on December 31, 2002, (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 of this Agreement.

 

3.24 "Governor" shall mean any individual appointed or elected

pursuant to Article 10 to serve on the Board. The first Governors are the

individuals named in Section 10.2.

 

3.25 "Interest" shall have the same meaning as Membership Interest

(defined below).

 

3.26 "Lakes" shall mean Lakes Poker Tour, LLC, a Member of the

Company with the membership interest set forth on the Schedule of Members and

Units. 3.27 "Lipscomb" shall mean Steven Lipscomb, a Member of the Company with

the membership interest set forth on Schedule of Members and Units.

 

3.28 "LLC Act" means the Delaware Limited Liability Company Act, 6

Del. C. Sections 18-101, et. seq., as amended from time to time (or any

corresponding provisions of succeeding law).

 

3.29 "Liquidating Event" shall have the meaning set forth in

Section 16.1.

 

3.30 "Loan Agreement" shall mean that certain Loan Agreement

between the Company and Lakes, dated as of February 25, 2002.

 

3.31 "Loss" and "Losses" shall have the meaning set forth in

Section 7.1.

 

3.32 "Gaming Licenses" shall have the meaning set forth in Section

5.5.

 

3.33 "Management Contract" shall mean that certain Management

Contract and Contribution Agreement between Lipscomb and the Company, dated as

of the Effective Date.

 

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3.34 "Managers" means the Chief Executive Manager and the Chief

Financial Manager 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 any other person considered elected as a

manager pursuant to the LLC Act. The first Managers are the individuals named in

Section 11.10.

 

3.35 "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.

 

3.36 "Membership Interest" or "Interest" means the entire interest

of a Member in the Company and the appurtenant rights, powers and privileges of

such Member with respect to the Company.

 

3.37 "Net Cash From Operations" means the gross cash proceeds from

Company operations, less the portion thereof used to pay or establish reasonable

reserves for all Company expenses, debt payments, capital improvements,

replacements and contingencies, all as determined by the Board. "Net Cash From

Operations" shall not be reduced by depreciation, amortization, cost recovery

deductions or similar allowances, but shall be increased by any reduction of

reserves previously established pursuant to the preceding sentence.

 

3.38 "Net Cash From Sales or Re-financing" means the net cash

proceeds from (a) all sales and other dispositions of Company Property, other

than (i) a sale of all or substantially all of the Company Property or (ii)

sales and other dispositions in the ordinary course of business; and (b) all

re-financing of Company Property; less any portion of either used to establish

reasonable reserves, all as determined by the Board.

 

3.39 "Option Agreement" means an agreement between the Company and

any Person providing that such Person shall have the right to make a Capital

Contribution in exchange for a certain number of Class B Units at some future

time.

 

3.40 "Person" means any individual, partnership, limited liability

company, corporation, trust or other entity.

 

3.41 "Profits" shall have the meaning set forth in Section 7.1.

 

3.42 "Profits Interest" shall have the meaning set forth in Revenue

Procedures 93-27 and 20021-43.

 

3.43 "Pro Rata Share" means, with reference to any Member at any

time, a fraction, the numerator of which is the number of Units then held by

such Member and the denominator of which is the aggregate number of Units held

by all of the Members taken together.

 

3.44 "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).

 

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3.45 "Schedule of Members and Units" means the Schedule of Members

and Units attached hereto as Exhibit A, amended from time to time pursuant

hereto and hereby made a part of this Agreement.

 

3.46 "Securities Act" means the Securities Act of 1933, as amended,

and the rules and regulations promulgated thereunder.

 

3.47 "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.

 

3.48 "Unit" or "Membership Unit" means a quantitative measurement

of a Membership Interest. The Company shall initially have two classes of Units

with the rights and preferences set forth herein. The number of Units to which

the Member is entitled shall not be affected by either (a) any issuance of new

Units to new or existing Members, or (b) any change in the Capital Account of

the Member (other than the effect of an Additional Capital Contribution made by

the Member in exchange for new Units). The number and class of Units allocated

to each of the Members is set forth in the Schedule of Members and Units. A

Member's relative voting rights as a Member shall be based on the number of

Class A Units to which the Member is entitled.

 

3.49 "Unit Options" means a Person's right to purchase Class B

Units pursuant to the terms set forth in an Option Agreement between such Person

and the Company.

 

3.50 "Voting Interest" means a Member's relative voting power as a

Member. Each Member holding Class A Units shall be entitled to one vote per

Class A Unit of Membership Interest.

 

3.51 "Voting Rights" means all of a Member's rights to vote such

Member's Voting Interest pursuant to this Agreement and the LLC Act.

 

ARTICLE 4.

PURPOSES

 

4.1 Purpose. The Company may in the sole discretion of the Board,

limited to the extent set forth in Article 9 hereof:

 

4.1.1 launch the "World Poker Tour" and work to

establish poker as the next significant televised mainstream

sport; and engage in any other business that may be lawfully

conducted by a limited liability company under the LLC Act, to

the extent the Board determines that such business is in the

best interests of the Company;

 

4.1.2 finance, acquire, manage and hold business

and investment property, real or personal, in fee or by lease,

and to exercise any rights therein as may be necessary or

appropriate for such purposes;

 

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4.1.3 borrow funds for such purposes and to

mortgage or otherwise encumber any or all of the Company

Property to secure such borrowings; to sell or otherwise

dispose of the Company's rights or ownership interests in such

Company Property; and

 

4.1.4 undertake and carry on all activities

necessary or advisable in connection with such purposes.

 

ARTICLE 5.

MEMBERS AND NEW MEMBERS

 

5.1 Members. The names of the Members are set forth on the

Schedule of Members and Units. The addresses of the Members are set forth in the

Company's records. 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 pursuant to the terms

of this Agreement.

 

5.2 Terms of Units of Membership Interest.

 

5.2.1 The original Membership Interests reflected in the

Schedule of Members and Units are Membership Interests consisting of

Class A Units and shall have the rights provided by this Agreement,

subject to any statements or limitations in the Certificate or the LLC

Act. The Company may also issue Option Agreements with respect to Class

B Units, as described in Section 5.4.2 below. The Original Capital

Contribution (as defined in Section 6.1) and the number and class of

the Units held by each of the Members are set forth in the Schedule of

Members and Units.

 

5.2.2 A Member's right to vote is a Voting Right. Each

Member shall be entitled to one (1) vote on all Company matters for

each Class A Unit owned. Class B Units shall have no Voting Rights and

shall not entitle the holder thereof to vote on any matter, except as

otherwise provided in the LLC Act.

 

5.2.3 All Class A Units and Class B Units shall have equal

Financial Rights, except as otherwise set forth in Articles 7, 8, 16

and 17.

 

5.2.4 Subject to Section 17.2, the Board may enter into

Contribution Agreements with prospective Members providing for one or

more classes or types of Units having either Voting Rights that are

limited or preferred (as compared with the original Class A Units or

Class B Units), or Financial Rights that are limited or preferred (as

compared with the original Class A Units or Class B Units), or any

combination of such rights. If any such new class or type of Units is

issued, this Agreement shall be amended to state the rights of such

Units.

 

5.2.5 All Units held by Lipscomb, as set forth on the

Schedule of Members and Units, shall be a Profits Interest in the

Company and shall be subject to the vesting and forfeiture provisions

set forth in the Management Contract.

 

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5.3 Additional Units. Subject to Section 17.2 hereof, the Board

may issue additional Units to Members on such terms and conditions as the Board

shall determine. The Chief Executive Manager shall amend the Schedule of Members

and Units as a result of such additional Units of Membership Interest and attach

the revised Schedule hereto.

 

5.4 Additional Members.

 

5.4.1 Subject to Section 17.2, additional Members may be

admitted to the Company upon such terms and conditions as may be

established by approval of the Board.

 

5.4.2 The Compensation Committee may authorize the Managers

to enter into Option Agreements with employees and Managers of the

Company providing for the right, but not the obligation, to make a

specified Capital Contribution in the future, and thereby purchase a

specified number of Class B Units, upon such terms and conditions as

are set forth herein and, if not so specified, as may be established by

the Committee, provided that any Option Agreements entered into on or

prior to September 30, 2002 shall have a purchase price per Unit equal

to Lake's purchase price per Unit for its initial 78,000 Units. Such

Option Agreements shall provide that one-quarter of the Unit Options

granted shall vest at each of the first four anniversaries of the date

of the grant and such vesting shall be accelerated in the event of a

Change of Control. Such Unit Options may be exercised at any time

within six (6) years of the date of grant to the extent vested. All

unexercised Unit Options, whether vested or otherwise, granted pursuant

to this Section 5.4.2 shall expire three (3) months after the

termination of the employee or Manager with the Company. All vested and

non-vested Unit Options held by an employee or Manager shall be

immediately forfeited upon violation of any non-competition provision

contained in the Option Agreement between the Company and such employee

or Manager. All non-vested Unit Options held by an employee or Manager

shall be immediately forfeited upon receipt of written notice from

Lakes of a Gaming Violation (as defined in Section 5.5 hereof) with

respect to such employee or Manager. In no event shall the Compensation

Committee issue more than seven thousand (7,000) Class B Units in the

aggregate to Company employees and Managers pursuant to this Section

5.4.2, or issue such Class B Units on terms different than those set

forth herein, without the approval of the Board. Units issued pursuant

to this Section 5.4.2 are not subject to the terms of Sections 5.3 or

17.2 of this Agreement.

 

5.4.3 Each additional Member admitted to the Company, or

its duly authorized attorney-in-fact, shall execute this Agreement and

shall have executed and shall perform a Contribution Agreement

delivered to and accepted on behalf of the Company by the Managers.

 

5.4.4 Any Person who is admitted to the Company as a Member

shall be subject to and bound by all the provisions of this Agreement

and any amendments hereto or restatements hereto approved as provided

herein as if originally a party to this Agreement, including,

specifically, the requirements of Article 6 of this Agreement relating

to Capital Contributions.

 

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5.5 Gaming Licenses and Effect of Adverse Finding. Each Member

acknowledges that the primary business of Lakes Gaming, Inc., the parent

corporation of Lakes, and Lakes Gaming, Inc.'s other subsidiaries and Affiliates

is the operation and management of gaming facilities; and that Lakes Gaming,

Inc. and its subsidiaries and Affiliates must obtain and maintain in effect

various approvals, findings of suitability, licenses, permits and registrations

(collectively "Gaming Licenses") from various gaming authorities. The provisions

of this Section 5.5, as they apply to each Member other than Lakes or any of

Lakes Gaming, Inc.'s Affiliates (a "Non-Lakes Member"), shall also apply in the

same manner to any other additional or substituted Member that becomes a

Non-Lakes Member.

 

If (a) any Non-Lakes Member or any of its Affiliates, or any other

Person who directly or indirectly owns or has any interest in a Non-Lakes Member

or is otherwise affiliated with a Non-Lakes Member, is found unsuitable or

unqualified by any gaming authority to be associated with Lakes or Lakes Gaming,

Inc. or any subsidiary or other Affiliate of Lakes Gaming, Inc.; or (b) the

Board of Directors of Lakes Gaming, Inc. determines in good faith that the

continued association of Lakes or Lakes Gaming, Inc. with such Non-Lakes Member

may result in (i) the disapproval, modification or non-renewal of any contract

or agreement under which Lakes Gaming, Inc. or any subsidiary or other Affiliate

of Lakes Gaming, Inc. has sole or shared authority to manage any gaming

facility; or (ii) the loss or non-reinstatement of any Gaming License (both (a)

and (b) above shall be referred to as a "Gaming Violation"), then Lakes shall

give such Non-Lakes Member 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 Member shall, promptly after its receipt of the written

notice from Lakes specifying such finding or determination, take all actions

required to terminate or discontinue or otherwise cure, to the satisfaction of

the Board of Directors of Lakes Gaming, Inc. and any gaming authority having

jurisdiction over Lakes Gaming, Inc. or any subsidiary or other Affiliate of

Lakes Gaming, Inc., the situation or relationship described in the notice given

by Lakes. If, within thirty (30) days after such Non-Lakes Member's receipt of

the notice given by Lakes (or such shorter period of time as may be required or

requested by any gaming authority), such Non-Lakes Member fails or is unable to

take such actions to the satisfaction of the Board of Directors of Lakes Gaming,

Inc. and any gaming authority having jurisdiction, such Non-Lakes Member may at

any time within such period give Lakes and the Company written notice of such

failure or inability or, if such Non-Lakes Member has not already given such

notice, but if Lakes knows of such failure or inability, Lakes may before the

end of such period give a notice of such failure or inability to such Non-Lakes

Member and the Company. In the event any notice of such failure or inability is

given, the Company shall then have the right and option (whether or not such

notice is timely given) to purchase such Non-Lakes Member's entire Interest in

the Company pursuant to the applicable provisions of Article 17 and, if the

Company does not exercise such option, Lakes shall have such right and option

pursuant to the applicable provisions of Article 17.

 

ARTICLE 6.

MEMBERS' CAPITAL

 

6.1 Definitions Relating to Capital.

 

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6.1.1 "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.

 

6.1.2 "Capital Account" means, with respect to any Member,

the Capital Account maintained for such Member in accordance with the

following provisions:

 

6.1.2.1 To each Member's Capital Account there shall

be credited such Member's Capital Contributions, such Member's

distributive share of Profits and any items in the nature of

income or gain which are specially allocated pursuant to

Section 7.5 or Section 7.6, and the amount of any Company

liabilities assumed by such Member or which are secured by any

Company Property distributed to such Member.

 

6.1.2.2 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.

 

6.1.2.3 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.

 

6.1.2.4 In determining the amount of any liability

for purposes of Section 6.1.2.1, 6.1.2.2 and 6.1.6, there

shall be taken into account Code Section 752(c) and any other

applicable provisions of the Code and Regulations.

 

6.1.2.5 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 16

of this Agreement 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

 

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Regulations Section 1.704-1(b)(2)(iv)(g); 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).

 

6.1.3 "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 6.2 and any Additional Capital Contribution

under Section 6.3. The principal amount of a promissory note that is

not readily traded on an established securities market and is

contributed to the Company by the maker of the note (or a Member

related to the maker of the note within the meaning of Regulations

Section 1.704-1(b)(2)(ii)(c)) shall not be included in the Capital

Account of any Member until the Company makes a taxable disposition of

the note or until (and to the extent) principal payments are made on

the note, all in accordance with Regulations Section

1.704-1(b)(2)(iv)(d)(2).

 

6.1.4 "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 if the Gross Asset Value of an asset 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.

 

6.1.5 "Gross Asset Value" means, with respect to any asset,

the asset's adjusted basis for Federal income tax purposes, except as

follows:

 

6.1.5.1 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;

 

6.1.5.2 The Gross Asset Values of all items of

Company Property shall be adjusted to equal their respective

gross fair market values, as determined by the Board, as of

one of the following times: (A) the acquisition of an

additional Interest by any new or existing Member in exchange

for more than a de minimis Capital Contribution; (B) the

Distribution by the Company to a Member of more than a de

minimis 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;

and

 

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6.1.5.3 The Gross Asset Value of any item of Company

Property (other than cash) distributed to any Member shall be

adjusted to equal the gross fair market value of such asset on

the date of Distribution as determined by the distributee and

the Board.

 

6.1.5.4 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 7.1.1.6 and 7.5.1; provided, however, that Gross

Asset Values shall not be adjusted pursuant to this Section

6.1.5.4 to the extent the Board determines that an adjustment

pursuant to Section 6.1.5.2 is necessary or appropriate in

connection with a transaction that would otherwise result in

an adjustment pursuant to this paragraph.

 

6.1.5.5 If the Gross Asset Value of an asset has been

determined or adjusted pursuant to Section 6.1.5.1, Section

6.1.5.2 or Section 6.1.5.5, 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.

 

6.1.6 "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.

 

6.1.7 "Adjusted Capital Contribution" means, with respect

to a Member, the total contribution (in cash or other property)

required of such Member pursuant to Sections 6.2 and 6.3 and actually

or deemed (pursuant to a revaluation under Section 704(b) of the Code)

contributed by such Member, reduced by any Distribution to such Member

pursuant to Section 8.2.2.

 

6.2 Capital and Interests of Members.

 

6.2.1 The capital of the Company shall be contributed by

the Members and accepted by the Board at the respective values set

forth on the Schedule of Members and Units. Upon executing this

Agreement, each Member shall contribute to the capital of the Company

the amount specified following his or her name on the Schedule of

Members and Units as his or her Original Capital Contribution, and

shall be credited with the number and class of Units and Voting

Interest (if any) set forth therein.

 

6.2.2 The Original Capital Contribution and Units of

Membership Interest of each of the Members shall be set forth in the

Schedule of Members and Units, as amended from time to time in

accordance with the terms of this Agreement.

 

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6.2.3 Each Member shall contribute from time to time such

money and property as such Member shall be required to contribute

pursuant to any Contribution Agreement or other written agreement

between the Member and the Company.

 

6.3 Additional Capital Contributions.

 

6.3.1 Each Member may contribute from time to time as an

Additional Capital Contribution such additional money or other property

for such number of additional Units as the Board may approve; provided,

however, that any Additional Capital Contribution of property (other

than money) made pursuant to this Section shall be subject to the terms

and provisions of a Contribution Agreement to be prepared and executed

by the contributing Member and the Company prior to delivery of such

property.

 

6.3.2 The Board shall equitably adjust the Units 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 signed as provided in the preceding paragraph,

which agreement shall serve as an amendment to the Schedule of Members

and Units.

 

6.3.3 Additional Units of Membership Interests may be

granted under this Section 6.3 only as permitted by Sections 5.3 and

5.4. If additional Units of Membership Interest are granted, the

Schedule of Members and Units shall be appropriately amended without

the need for any amendment to this Agreement.

 

6.3.4 Except as expressly provided herein, or in a

Contribution Agreement signed by a Member, no Member shall be required

to make any Additional Capital Contributions.

 

6.4 Other Capital Matters.

 

6.4.1 Return of Capital Contributions. 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 affirmative vote of all of the Members. 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.

 

6.4.2 Interest, Draw. No Member shall receive any interest

or draw with respect to the Member's Capital Contributions or the

Member's Capital Account.

 

6.4.3 Limited Liability. If the Members act in compliance

with the LLC Act and the terms of this Agreement, they shall not be

liable for the debts, liabilities, contracts or any other obligations

of the Company. Except as otherwise provided by any other agreements

among the Members or mandatory provisions of applicable state law, a

Member shall be liable only to make the Member's Capital Contributions

and shall not be required to lend any funds to the Company or, after

the Member's Original Capital Contribution has been made, to make any

Additional Capital Contributions to the Company.

 

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6.5 Default by 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

enforce such obligation in such manner as may be permitted by law.

 

6.6 Transferee Succeeds to Transferor's Capital Account. If any

Member transfers all or a part of such Member's Financial Rights in the Company,

whether or not such transfer is permitted under Article 14, 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 Units transferred,

in accordance with Regulations Section 1.704-1(b)(2)(iv)(1).

 

6.7 Loans to Company. If authorized by the Board, a Member may

lend money to the Company from time to time, in excess of the Member's Capital

Contributions; provided, that no such loan may be treated as a Capital

Contribution for any purpose or entitle such Member to any increase in the

Member's Units or share of the Profits, Losses, deductions, credits or

Distributions of the Company. The Company shall be obligated to such Member for

the amount of any such loan, with interest thereon at such rate as may have been

agreed upon by such Member and the Board or with respect to the loans by Lakes

at the rate set forth in the Loan Agreement.

 

ARTICLE 7.

ALLOCATIONS

 

7.1 Definitions of Profits and Losses.

 

7.1.1 "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:

 

7.1.1.1 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 shall be

added to such taxable income or loss.

 

7.1.1.2 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, shall be subtracted from such taxable income or loss.

 

7.1.1.3 In the event the Gross Asset Value of any

Company Property is adjusted pursuant to Section 6.1.5, the

amount of such adjustment shall be taken into account as a

gain or loss from the disposition of such asset for purposes

of computing Profits or Losses.

 

7.1.1.4 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

 

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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.

 

7.1.1.5 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 6.1.4.

 

7.1.1.6 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 Units,

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.

 

7.1.2 Notwithstanding any other provisions of this Section,

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.

 

7.1.3 The amounts of the items of Company income, gain,

loss or deduction available to be specially allocated pursuant to

Section 7.5 or Section 7.6 shall be determined by applying rules

analogous to those set forth in Sections 7.1.1.1 through 7.1.1.6 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 6.1.2, as follows:

 

7.2.1 First, to each Member to whom Losses have been

previously allocated pursuant to Section 7.3, to the extent that such

Losses have not been fully offset by allocations of Profits pursuant to

this Section 7.2.1 ("Unrecovered Losses"), until the cumulative amount

of Profits allocated to each such Member pursuant to this Section 7.2.1

is equal to the cumulative amount of Losses allocated to such Member

pursuant to Section 7.3; and Profits allocated pursuant to this

paragraph 7.2.1 shall be allocated to the Members in proportion to

their respective Unrecovered Losses;

 

7.2.2 Thereafter, to the Members, ratably in proportion to

their respective number of Units.

 

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 as follows and the Capital

Accounts reduced in accordance with Section 6.1.2:

 

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7.3.1 First, to the Members, ratably in proportion to their

respective number of Units, except as otherwise provided in Section

7.3.2;

 

7.3.2 The Losses allocated pursuant to the preceding

Section 7.3.1 shall not exceed the maximum amount of Losses that can be

so allocated without causing any Member to have deficit balance in his,

her or its Capital Account at the end of any Fiscal Year. If one or

more, but not all, of the Members would have a deficit balance in his,

her or its Capital Account as a result of any allocation of Losses

pursuant to the preceding Section 7.3.1, the limit set forth in the

preceding sentence shall be applied on a Member-by-Member basis, so as

to allocate the maximum possible amount of Losses to each Member under

Regulations Section 1.704-1(b)(2)(ii)(d). All Losses in excess of the

limits set forth in this Section 7.3.2 shall be allocated to the

Members in proportion to their respective positive Capital Account

balances (if any) until no Member has a negative Capital Account; and

thereafter to all of the Members, as set forth in Section 7.3.1.

 

7.4 Pro-ration of Allocations. All Profits, Losses, deductions and

credits for a Fiscal Year allocable with respect to any Member whose Units may

have been transferred, forfeited, reduced or changed during such year shall be

allocated based upon the varying Units 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:

 

7.5.1 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 Units, 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 Units 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.

 

7.5.2 Allocations Relating to Taxable Issuance of Units.

Any income, gain, loss or deduction realized as a direct or indirect

result of the issuance of a Unit 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

Member if the Issuance Items had not been realized.

 

7.5.3 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

 

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realized by the Company on the disposition of Company property subject

to nonrecourse indebtedness (within the meaning of Regulations 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.

 

7.5.4 Qualified Income Offset. If any Member at any time

unexpectedly receives any adjustment, allocation or Distribution

described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6),

and if such adjustment, allocation or Distribution results in a

negative balance in such Member's Capital Account in excess of the sum

of (i) the amount such Member is obligated to restore to the Company

under this Agreement or the LLC Act and (ii) the amount such Member is

deemed to be obligated to restore to the Company pursuant to the

penultimate sentences of Regulations Sections 1.704-2(g)(1) 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.

 

7.5.5 Gross Income Allocation. If any Member would have a

negative balance in such Member's 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 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.

 

7.6 Curative Allocations. The allocations set forth in Sections

7.5.1, 7.5.3, 7.5.4 and 7.5.5 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. 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 7.5.2.

 

7.7 Other Allocation Rules.

 

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7.7.1 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.

 

7.7.2 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.

 

7.7.3 Solely for purposes of determining a Member's

proportionate share of the "excess nonrecourse liabilities" of the

Company within the meaning of Regulations Section 1.752-3(a)(3), the

Members' interests in Company Profits are in proportion to their Units.

 

7.8 Tax Allocations under Code Section 704(c).

 

7.8.1 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 6.1.5.1).

 

7.8.2 In the event the Gross Asset Value of any Company

Property is adjusted pursuant to Section 6.1.5.2, 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.

 

7.8.3 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 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 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.

 

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ARTICLE 8.

DISTRIBUTIONS

 

8.1 Distributions of Net Cash From Operations. Except for a

reasonable cash reserve determined by the Board, and subject to Section 8.3 and

the terms of the Loan Agreement, Distributions of Net Cash from Operations for

each Fiscal Year shall be made from time to time, but no less frequently than

annually:

 

8.1.1 to the Members in proportion to their Units, but only

after all loans due from the Company to Lakes and its Affiliates have

been paid in full;

 

8.1.2 provided, however, that whether or not the Lakes Loan

has been paid the Company shall annually distribute cash to the

Members, in proportion to their allocated shares of the Company's net

income and gains taxable under the Code for the Fiscal Year, in an

amount equal to the Estimated Member Tax Liability, to the extent such

a distribution is legally permitted.

 

8.2 Other Cash Distributions.

 

8.2.1 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 16.2, subject

to the same limitation set forth in Section 8.1.1.

 

8.2.2 Distributions of Net Cash from Sales or Re-financing

shall be made to the Members in accordance with Sections 8.1.1 hereof.

 

8.3 Management Fee. In no event shall this Agreement be construed

to prevent the payment (i) to Lipscomb of the Management Fee (as defined in the

Management Contract) or any bonus pursuant to the Management Contract, or (ii)

to any other employee or Manager of any salary due such employee or Manager from

the Company. Such Management Fee shall be deemed a guaranteed payment to a

partner pursuant to the Regulations.

 

ARTICLE 9.

MANAGEMENT AND OPERATION OF BUSINESS

 

9.1 Management and Control of the Company.

 

9.1.1 The Governors shall be appointed by the Members

pursuant to Article 10. 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. 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. Except as otherwise provided herein, all

actions to be taken by the Board shall be approved or consented to by a

majority vote of the Governors and, subject to obtaining any required

approval of the Members hereunder or under applicable law, only actions

taken in such manner shall be binding upon the Company.

 

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9.1.2 The Board shall carry out its duties through a Chief

Executive Manager, a Chief Financial Manager 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 this Agreement and the Management Contract.

 

9.1.3 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. 9.2.1 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.

 

9.3 Restrictions on Authority of Board.

 

9.3.1 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:

 

9.3.1.1 Doing any act in contravention of this

Agreement or for which approval of the Members is required

under the LLC Act;

 

9.3.1.2 Admitting any Person as a Member except as

provided in this Agreement;

 

9.3.1.3 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;

 

9.3.1.4 Taking any action that would prevent the

Company from being taxed as a partnership under the Code.

 

9.3.2 All actions prohibited under Section 9.3.1 shall

require the affirmative vote of all Members and the approving vote of

all governors of the Board. Such approving vote may be given at either

a special meeting called by the Managers or the Board on at least ten

days' prior written notice to all Members or by written action signed

by all Members specified above.

 

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

Property, shall:

 

9.4.1 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;

 

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9.4.2 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;

 

9.4.3 Cause the Company to prepare or have prepared all

financial and tax statements and reports required under Article 13; and

 

9.4.4 Cause the Company to keep its records at its

principal office.

 

9.5 Reimbursement of Expenses. The Members, Governors, Managers

and their Affiliates shall be reimbursed for all reasonable expenses incurred on

behalf of the Company.

 

9.6 "Tax Matters Partner".

 

9.6.1 If required by the Code, the Chief Financial Manager

shall serve as "Tax Matters Partner," as defined for Federal income tax

purposes under Code Section 6231(a)(7), until a new Tax Matters Partner

is elected by a vote of the Members holding at least a majority of the

Units.

 

9.6.2 If, on advice of counsel, the Tax Matters Partner

determines that it 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 he, on

advice of counsel, determines to be appropriate. In the event the Tax

Matters Partner selects a forum for appeal in which he is required to

deposit a proportionate share of any disputed tax before making such

appeal, he must obtain the consent of the Board and of the Members

holding a majority of the Class A Units. If such consent is obtained,

each of the Members will be required to deposit and pay such Member's

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.

 

9.6.3 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

reasonable costs paid or incurred by the Tax Matters Partner in

connection with his activities in such capacity shall be reimbursed by

the Company. Each Member acknowledges that any cost he, she or it may

incur in connection with an audit of such Member's income tax return,

including an audit of such Member's investment in the 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.

 

9.7 Conflicts of Interest. The Members, Managers, Governors and

their Affiliates may deal with, perform other services for and sell goods or

services to the Company without limitation. The fact that a Member, 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,

 

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merchandise or other property, shall not prohibit the Managers from employing

such Person or from otherwise dealing with such Person. Notwithstanding the

foregoing, in the event that Lakes or its parent company Lakes Gaming, Inc. or

any of its Affiliates perform any services on behalf of the Company, the Company

shall only pay reasonable and competitive fair market rates for such services

and such rates shall not include any payment of the general overhead costs of

Lakes or of Lakes Gaming, Inc. or any of its Affiliates.

 

9.8 Other Activities. Except as otherwise provided in the

Management Contract, the Members, Governors, Managers and their Affiliates may,

during the term of this Agreement, engage in and possess an interest for their

own accounts in other business ventures of every nature and description,

independently or with others, including, but not limited to, investment

activities involving securities and other investments; and neither the Company

nor any Member, by virtue of this Agreement shall have any right in and to such

independent venture or any income or profit derived therefrom.

 

9.9 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 and 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.

 

9.10 Execution of Instruments.

 

9.10.1 All deeds, mortgages, bonds, checks, contracts and

other instruments pertaining to the business and affairs of the Company

shall be signed on behalf of the Company by the Chief Executive Manager

(President), any Vice President, the Chief Financial Manager

(Treasurer), the Secretary or by such other person or persons as may be

designated from time to time by the Board.

 

9.10.2 If a document must be executed by persons holding

different positions or functions and one person holds such positions or

exercises such functions, that person may execute the document in more

than one capacity if the document indicates each such capacity.

 

9.11 Advances. The Company may, without a vote of the Governors,

advance money to its Governors, Managers or employees to cover reasonable

expenses that can reasonably be anticipated to be incurred by them in the

performance of their duties and for which they would be entitled to

reimbursement in the absence of an advance.

 

ARTICLE 10.

APPOINTMENT, RESIGNATION OR REMOVAL OF THE GOVERNORS;

ADDITIONAL OR SUCCESSOR GOVERNORS

 

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10.1 Appointment of Governors. The Board shall consist of three (3)

individuals. Lakes shall appoint two (2) Governors to serve on the Board and

Lipscomb shall appoint one (1) Governor to serve on the Board. Governors shall

be natural persons.

 

10.2 First Governors. The initial Governors appointed by each of

the Appointing Members are the individuals designated below opposite the

Appointing Member's name, as follows:

 

Lipscomb: Steven Lipscomb

 

Lakes: Lyle Berman

 

Timothy Cope

 

10.3 Removal, Resignation and Replacement of Governors. The

Appointing Member who appointed any Governor under this Article 10 shall have

the power to remove and replace that Governor, without the consent of the other

Members. Any Governor may resign at any time by giving written notice to the

Board and the Member appointing the Governor.

 

10.4 Term. Each appointed Governor shall hold office until his or

her death, resignation, removal or disqualification.

 

10.5 Place of Meetings. Each meeting of the Board shall be held at

the principal executive office of the Company or at such other place as may be

designated from time to time by a majority of the Governors or by the Chief

Executive Manager.

 

10.6 Regular Meetings. Regular meetings of the Board for the

election of Managers and the transaction of any other business shall be held

without notice at the place of and immediately after each regular meeting of the

Members.

 

10.7 Special Meetings. A special meeting of the Board may be called

for any purpose or purposes at any time by any Governor by giving not less than

two days' notice to all Governors of the date, time and place of the meeting;

provided, however, that when notice is mailed, at least four days' notice shall

be given. The notice need not state the purpose of the meeting.

 

10.8 Waiver of Notice; Previously Scheduled Meetings.

 

10.8.1 A Governor of the Company may waive notice of the

date, time and place of a meeting of the Board. A waiver of notice by a

Governor entitled to notice is effective whether given before, at or

after the meeting, and whether given in writing, orally or by

attendance. Attendance by a Governor at a meeting is a waiver of notice

of that meeting, unless the Governor objects at the beginning of the

meeting to the transaction of business because the meeting is not

lawfully called or convened and thereafter does not participate in the

meeting.

 

10.8.2 If the date, time and place of a meeting of the Board

have been provided herein or announced at a previous meeting of the

Board, no notice is required. Notice of an

 

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adjourned meeting need not be given other than by announcement at the

meeting at which adjournment is taken of the date, time and place at

which the meeting will be reconvened.

 

10.9 Quorum. A majority of the Governors currently holding office

shall be necessary to constitute a quorum for the transaction of business;

provided, however, that at least one Governor appointed by each Appointing

Member must be in attendance. In the absence of a quorum, a majority of the

Governors present may adjourn a meeting from time to time without further notice

until a quorum is present. If a quorum is present when a duly called or held

meeting is convened, the Governors present may continue to transact business

until adjournment, even though the withdrawal of a number of the Governors

originally present leaves less than the proportion or number otherwise required

for a quorum.

 

10.10 Acts of Board. Except as otherwise required by law or

specified in the Certificate or this Agreement, the Board shall take action by

the affirmative vote of a majority of the Governors present, in person or by

telephone, at a duly held meeting.

 

10.11 Participation by Electronic Communications. A Governor may

participate in a meeting of the Board by any means of communication through

which the Governor, other Governors so participating and all Governors

physically present at the meeting may simultaneously hear each other during the

meeting. A Governor so participating shall be deemed present in person at the

meeting.

 

10.12 Absent Governors. A Governor of the Company may give advance

written consent or opposition to a proposal to be acted on at a meeting of the

Board. If the Governor is not present at the meeting, consent or opposition to a

proposal does not constitute presence for purposes of determining the existence

of a quorum, but consent or opposition shall be counted as a vote in favor of or

against the proposal and shall be entered in the minutes or other record of

action at the meeting, if the proposal acted on at the meeting is substantially

the same or has substantially the same effect as the proposal to which the

Governor has consented or objected.

 

10.13 Action Without a Meeting. Any action required or permitted to

be taken at a meeting of the Board may be taken without a meeting by written

action signed by all of the Governors. The written action is effective when

signed by the required number of Governors, unless a different effective time is

provided in the written action.

 

10.14 Committees.

 

10.14.1 A resolution approved by the Board may establish

committees having the authority of the Board in the management of the

business of the Company only to the extent provided in the resolution.

Committees shall be subject at all times to the direction and control

of the Board, except as provided in Section 10.15.

 

10.14.2 A committee shall consist of one or more natural

persons, who need not be Governors, appointed by the Board.

 

10.14.3 Section 10.6 and Sections 10.8 to 10.14 hereof shall

apply to committees and members of committees to the same extent as

those sections apply to the Board and

 

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Governors; provided, however, that a majority of the committee members

currently appointed by the Board shall constitute a quorum for the

transaction of business.

 

10.14.4 Minutes, if any, of committee meetings shall be made

available upon request to members of the committee and to any Governor.

 

10.15 Special Litigation Committee. Pursuant to the procedure set

forth in Section 10.14, the Board may establish a committee composed of one or

more independent Governors or other independent persons to determine whether it

is in the best interests of the Company to pursue a particular legal right or

remedy of the Company and whether to cause, to the extent permitted by law, the

dismissal or discontinuance of a particular proceeding that seeks to assert a

right or remedy on behalf of the Company. The committee, once established, is

not subject to the direction or control of, or termination by, the Board. A

vacancy on the committee may be filled by a majority vote of the remaining

committee members. The good faith determinations of the committee are binding

upon the Company and its Governors, Managers and Members to the extent permitted

by law. The committee terminates when it issues a written report of its

determinations to the Board.

 

10.16 Compensation. Governors will not be entitled to any

compensation for their service on the Board.

 

10.17 Compensation Committee. The Board shall establish a

Compensation Committee consisting of two Governors, one appointed by Lakes and

one appointed by Lipscomb. Except as otherwise set forth under the Management

Contract, the Compensation Committee shall determine the salaries, benefits, and

bonuses of all employees and Managers of the Company. During the first five (5)

Fiscal Years, the Compensation Committee shall, unless the Committee unanimously

determines otherwise, distribute annual bonuses equal in the aggregate to ten

percent (10%) of the Company's Profits for such Fiscal Year.

 

10.18 Incapacity. If any Member, Governor or Manager is

incapacitated, such Member, Governor or Manager may act through its duly

authorized attorney-in-fact who is authorized to act notwithstanding such

incapacity, provided however, that nothing contained in this Section shall

prevent the Members from removing such incapacitated Governor nor the Governors

from removing such incapacitated Manager as and to the extent provided in this

Agreement.

 

ARTICLE 11.

MANAGERS

 

11.1 Number and Designation. The Company shall have one or more

natural persons exercising the functions of the position of Chief Executive

Manager and Chief Financial Manager. The Board may elect or appoint such other

Managers or agents as it deems necessary for the operation and management of the

Company, with such powers, rights, duties and responsibilities as may be

determined by the Board, each of whom shall have the powers, rights, duties and

responsibilities set forth in this Agreement unless otherwise determined by the

Board. Any of the positions or functions of those positions may be held by the

same person.

 

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11.2 Chief Executive Manager. Unless provided otherwise by a

resolution adopted by the Board, or this Agreement, the Chief Executive Manager,

who may also be known as the Chief Executive Officer, shall be the chief

executive officer of the Company and (a) shall have general active management of

the business of the Company; (b) shall, when present, preside at all meetings of

the Members and Board; (c) shall see that all orders and resolutions of the

Board are carried into effect; (d) may maintain records of and certify

proceedings of the Board and Members; and (e) shall perform such other duties as

may from time to time be prescribed by the Board.

 

11.3 Chief Financial Manager.

 

11.3.1 Unless provided otherwise by a resolution adopted by

the Board, the Chief Financial Manager, who may also be known as the

Chief Financial Officer, shall be the chief financial officer of the

Company and shall act as the Company's treasurer and (a) shall keep

accurate financial records for the Company; (b) shall deposit all

monies, drafts and checks in the name of and to the credit of the

Company in such banks and depositories as the Board shall designate

from time to time; (c) shall endorse for deposit all notes, checks and

drafts received by the Company as ordered by the Board, making proper

vouchers therefor; (d) shall disburse Company funds and issue checks

and drafts in the name of the Company, as ordered by the Board; (e)

shall render to the Chief Executive Manager and the Board, whenever

requested, an account of all of such Manager's transactions as

treasurer and of the financial condition of the Company; and (f) shall

perform such other duties as may be prescribed by the Board or the

Chief Executive Manager from time to time. Timothy Cope shall be the

Chief Financial Manager of the Company.

 

11.3.2 Unless otherwise determined by the Board, the Chief

Financial Manager shall also be the treasurer of the Company. If a

Manager other than the Chief Financial Manager is designated treasurer,

the treasurer shall perform such duties as may from time to time be

assigned by the Board.

 

11.4 President. Unless otherwise determined by the Board, the Chief

Executive Manager shall also be the president of the Company. If a Manager other

than the Chief Executive Manager is designated president, the president shall

perform such duties as may from time to time be assigned by the Board or the

Chief Executive Manager.

 

11.5 Vice Presidents. Any one or more vice presidents, if any, may

be designated by the Board as executive vice president or senior vice president.

During the absence or disability of the President, it shall be the duty of the

highest ranking executive vice president, and, in the absence of any such

executive vice president, it shall be the duty of the highest ranking senior

vice president or other vice president, who shall be present at the time and

able to act, to perform the duties of the president. The determination of who is

the highest ranking of two or more persons holding the same position shall, in

the absence of specific designation of order of rank by the Board, be made on

the basis of the earliest date of appointment or election, or, in the event of

simultaneous appointment or election, on the basis of the longest continuous

employment by the Company.

 

11.6 Secretary. The secretary, unless otherwise determined by the

Board, shall attend all meetings of the Members and all meetings of the Board,

shall record or cause to be recorded all

 

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proceedings thereof in a book to be kept for that purpose, and may certify such

proceedings. Except as otherwise required or permitted by law or by this

Agreement, the secretary shall give or cause to be given notice of all meetings

of the Members and all meetings of the Board. Timothy Cope shall be the

secretary of the Company.

 

11.7 Authority and Duties. In addition to the foregoing authority

and duties, all Managers of the Company shall respectively have such authority

and perform such duties in the management of the business of the Company as may

be designated from time to time by the Board. Unless prohibited by a resolution

of the Board, a Manager elected or appointed by the Board may, without the

approval of the Board, delegate some or all of the duties and powers of a

position to other persons.

 

11.8 Term.

 

11.8.1 All Managers of the Company shall hold office until

their respective successors are chosen and have qualified or until

their earlier death, resignation or removal.

 

11.8.2 A Manager may resign at any time by giving written

notice to the Company. The resignation is effective without acceptance

when the notice is given to the Company, unless a later effective date

is specified in the notice.

 

11.8.3 A Manager may be removed at any time, with or without

cause, by a resolution of the Board, subject to the provisions of this

Agreement and any other agreement with the Manager.

 

11.8.4 A vacancy in a position because of death,

resignation, removal, disqualification or other cause may, or in the

case of a vacancy in the position of Chief Executive Manager or Chief

Financial Manager shall, be filled for the unexpired portion of the

term by the Board.

 

11.9 Initial Manager. The Members hereby agree that Lipscomb shall

initially serve as the Chief Executive Manager and Timothy Cope shall initially

serve as the Chief Financial Manager of the Company.

 

ARTICLE 12.

MEETING OF MEMBERS

 

12.1 Place of Meetings. Each meeting of the Company's Members shall

be held at the principal executive office of the Company or at such other place

as may be designated by the Chief Executive Manager or the Company's Board.

 

12.2 Regular Meetings. Regular meetings of the Members may be held

on an annual or less frequent basis.

 

12.3 Special Meetings. A special meeting of the Members may be

called for any purpose or purposes at any time by the Chief Executive Manager;

by the Chief Financial Manager; by the Board; or by one or more Members owning

not less than ten percent (10%) of the Voting Interests,

 

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who shall demand such special meeting by written notice given to the Chief

Executive Manager or the Chief Financial Manager of the Company specifying the

purposes of such meeting.

 

12.4 Meetings Held Upon Member Demand. Within fifteen (15) days

after receipt of a demand by the Chief Executive Manager or the Chief Financial

Manager from any Member or Members entitled to call a meeting of the Members, it

shall be the duty of the Board to cause a special or regular meeting of Members,

as the case may be, to be duly called and held on notice no later than thirty

(30) days after receipt of such demand. If the Board fails to cause such a

meeting to be called and held as required by this Section 12.4, the Member or

Members making the demand may call the meeting by giving notice as provided in

Section 12.6 hereof at the expense of the Company.

 

12.5 Adjournments. Any meeting of the Members may be adjourned from

time to time to another date, time and place. If any meeting of the Members is

so adjourned, no notice as to such adjourned meeting need be given if the date,

time and place at which the meeting will be reconvened are announced at the time

of adjournment.

 

12.6 Notice of Meetings. Unless otherwise required by law, written

notice of each meeting of the Members, stating the date, time and place and, in

the case of a special meeting, the purpose or purposes, shall be given at least

five (5) days and not more than thirty (30) days prior to the meeting to every

Member holding a Voting Interest except as specified in Section 12.5. The

business transacted at a special meeting of Members is limited to the purposes

stated in the notice of the meeting.

 

12.7 Waiver of Notice. A Member may waive notice of the date, time,

place and purpose or purposes of a meeting of the Members. A waiver of notice by

a Member entitled to notice is effective whether given before, at or after the

meeting, and whether given in writing, orally or by attendance. Attendance by a

Member at a meeting is a waiver of notice of that meeting, unless the Member

objects at the beginning of the meeting to the transaction of business because

the meeting is not lawfully called or convened, or objects before a vote on an

item of business because the item may not lawfully be considered at that meeting

and does not participate in the consideration of the item at that meeting.

 

12.8 Voting Rights. Except as otherwise provided in this Agreement,

a Member shall have one vote for each Class A Unit of Membership Interest. If a

Member votes without designating the proportion of his, hers or its Voting

Interest voted in a particular way, the Member is deemed to have voted all of

such Voting Interest in that way.

 

12.9 Proxies. A Member may cast or authorize the casting of a vote

by filing a written appointment of a proxy with a Manager of the Company at or

before the meeting at which the appointment is to be effective. The Member may

sign or authorize the written appointment by telegram, cablegram or other means

of electronic transmission setting forth or submitted with information

sufficient to determine that the Member authorized such transmission. Any copy,

facsimile, telecommunication or other reproduction of the original of either the

writing or transmission may be used in lieu of the original; provided, however,

that it is a complete and legible reproduction of the entire original.

 

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12.10 Quorum. Members holding a majority of the Voting Interests

shall constitute a quorum for the transaction of business, unless otherwise

provided in the Certificate or this Agreement. If a quorum is present when a

duly called or held meeting is convened, the Members present may continue to

transact business until adjournment, even though the withdrawal of Members

originally present leaves less than the proportion otherwise required for a

quorum.

 

12.11 Acts of Members. Except as otherwise required by law or

specified in the Certificate or this Agreement, the Members shall take action by

the affirmative vote of the Members holding a majority of the Voting Interests.

 

12.12 Action Without a Meeting.

 

12.12.1 Any action required or permitted to be taken at a

meeting of the Members of the Company may be taken without a meeting by

written action signed by all of the Members holding Class A Units.

 

12.12.2 A written action is effective when signed by the

required Members, unless a different effective time is provided in the

written action.

 

ARTICLE 13.

BOOKS OF ACCOUNT AND REPORTS

 

13.1 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 13.2. 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 130

Cheshire Lane, Minnetonka Minnesota and 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 and upon reasonable notice as required under the LLC Act.

 

13.2 Accounting Practices. The books of account of the Company

shall be kept on the cash or accrual basis, as determined by the Board,

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.

 

13.3 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.

 

13.4 Reports.

 

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13.4.1 Report to the Board. The Company's Chief Executive

Manger shall submit a prospective 12-month budget to the Board for

approval within 30 days prior to the beginning of each Fiscal Year. In

addition, the Company's CFM will, within 30 days prior to the beginning

of each Fiscal quarter, submit a quarterly report refining such

12-month budget to the Board for approval.

 

13.4.2 Report to Members. Not later than ninety days after

the end of each Fiscal Year of the Company, the Chief Executive Manager

shall furnish to each Member a report of the business and operations of

the Company during such Fiscal Year, which report shall constitute the

accounting of the Board for such fiscal year. The report shall contain

financial statements, including statements of assets and liabilities,

of income and expenses, of Members' equity and changes in financial

position, of cash flow and of the amount and nature of any 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 deems proper. Such report shall state income from every

source, including net gains from disposition or sale of Company

Property.

 

13.4.3 Report to Lakes. The Company's CFM will submit

reports to Lakes within 10 days after each month-end tracking all

spending from the prior month against funds received under the loan

documents for such month.

 

13.5 Partnership Tax Status and Information.

 

13.5.1 The Members acknowledge that at any time that the

Company has more than one member it will be treated as a "partnership"

for income tax purposes.

 

13.5.2 Not later than ninety days after the end of each

Fiscal Year of the Company, the Chief Financial Manager 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.

 

13.5.3 In addition, the Chief Executive 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.

 

13.6 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 Code Section 754 (or any successor provision), to adjust the basis

of the Property of the Company. Such election must be agreed to by Members

holding at least a majority of the Units.

 

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ARTICLE 14.

TRANSFER OF MEMBERSHIP INTERESTS

 

14.1 Transfer Restrictions and Exceptions.

 

14.1.1 General Restriction and Related Definitions. Except

as permitted under this Article 14, no part of a Member's Interest or

any Unit Options may be assigned or otherwise transferred, whether

voluntarily or involuntarily, nor may a Member enter into a binding

agreement to assign or otherwise transfer all or any part of the

Member's Interest or any Unit Options. The records required to be kept

by the Company under the LLC Act and other appropriate records of the

Company shall be noted to prevent the sale or assignment of Interests

except in accordance with this Article 14 and Article 17.

 

For purposes of this Article 14, the following terms shall have the

definitions set forth below:

 

(a) "Member Trust Beneficiary" means any individual who

is a beneficiary of a Trust that is a Member.

 

(b) "Trust" means, for purposes of this Agreement, (i) a

trust that is revocable under state law by the grantor or grantors

during the life of the grantor or grantors; (ii) a trust that is

irrevocable under state law; (iii) a custodial account established

under the Uniform Gifts to Minors Act, the Uniform Transfers to Minors

Act or the Uniform Custodial Trust Act, as in effect in the state that

has jurisdiction over the account; or (iv) a protective fiduciary

relationship under state law, such as a guardianship or conservatorship

of a legally incompetent individual.

 

(c) "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. For purposes

of this Agreement, "direct lineal descendants" means children,

grandchildren, great grandchildren and so on, by natural birth or legal

adoption; and "direct ancestors" means parents, grandparents, great

grandparents and so on, by natural birth or legal adoption

 

14.1.2 Exceptions for Vested Units. The following Transfers

of Units are not subject to the restrictions set forth in Section

14.1.1, but the following exceptions apply only to a Member's Units, if

any, that are not subject to forfeiture for any reason under the terms

of the Management Contract, an Option Agreement or any other written

agreement between the Company and the Member ("Vested Units"):

 

14.1.2.1 any Transfer of Vested Units to the Company

or another Member;

 

14.1.2.2 any Transfer of all or any portion of the

Membership Interest of Lakes, subject to the requirements of

Section 17.1;

 

14.1.2.3 any Transfer of Vested Units by Members

other than Lakes pursuant to Section 17.1;

 

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14.1.2.4 any Transfer of Vested Units pursuant to

Section 17.3;

 

14.1.2.5 by gift to a member of the Family of either

an individual Member or an individual Member Trust

Beneficiary;

 

14.1.2.6 by gift to a Trust for the primary benefit

of a Member or a member of the Family of either an individual

Member or an individual Member Trust Beneficiary; provided,

however, that any Transfer of Vested Units to a revocable

Trust for the primary benefit of a Member shall remain subject

to this Agreement as if it were held by the Member, except

that the trustee shall be substituted for the Member or the

Member's legal representative with respect to any notices,

payments or Transfer of Vested Units under this Agreement.

 

14.1.3 Exception for Unit Options. A Person holding Unit

Options may Transfer some or all of such Unit Options only to the

limited extent expressly set forth in the Option Agreement providing

for such Unit Options.

 

14.1.4 Assignment Rules. Any Transfer of all or any of the

Units of a Member's Interest permitted under this Agreement shall be

effective only if:

 

14.1.4.1 the Member assigns all of the Member's

Voting Rights relating to such Units, coupled with a

simultaneous assignment to the same transferee of all of the

Member's Financial Rights relating to such Units;

 

14.1.4.2 the transferee complies with the conditions

of Section 14.2; and

 

14.1.4.3 the Transfer is permitted under the

Securities Act of 1933, as amended, and other applicable

federal or state securities laws, and, if requested by the

Company, only upon delivery to the Company of an opinion of

counsel satisfactory to the Company in form and substance to

the effect that such Transfer may be effected without

registration under the Securities Act.

 

14.1.4.4 All Transfers of Interests occurring during

any month shall be deemed to be effected as of the first day

of the month next following the month in which the assignment

occurs.

 

14.2 Documents and Expenses. As a condition to admission as a

Member, an assignee 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 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 assignee, legatee

or distributee shall 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 Agreement, if necessary or desirable in

connection therewith.

 

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14.3 Acquit Company. In the absence of written notice to the

Company of any assignment of a Membership Interest, any payment by the Company

to the assigning 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.

 

14.4 Prohibited Transfers.

 

14.4.1 Any purported Transfer of all or any portion of an

Interest that is not permitted under this Article 14 shall be null and

void and of no force or effect whatsoever; 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.

 

14.4.2 Subject to Article 17, in the case of a Voluntary

Transfer (as defined in Section 17.3.2.5) or attempted Voluntary

Transfer of all or any portion 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 Voluntary Transfer or attempted Voluntary Transfer and efforts to

enforce the indemnity required hereby.

 

14.5 Limited Rights of Unadmitted Transferees. A Person who

acquires any part of an Interest, but is not admitted as a substitute Member

pursuant to Section 5.4: (a) shall be subject to the restrictions of Section

14.1.1, (b) shall be entitled only to 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 Voting Rights and (f) shall not have any of the other

rights of a Member under the LLC Act or this Agreement.

 

ARTICLE 15.

AMENDMENT OF AGREEMENT

 

When circumstances require amendment of this Agreement to comply with

any law, or at any time the Members holding ten percent (10%) or more of the

aggregate Class A Units propose an amendment to this Agreement, the Chief

Executive Manager shall call a special meeting of all Class A Members for the

purpose of considering such proposed amendment. At least thirty days prior to

such meeting, the Board shall deliver to each Class A Member written notice of

the meeting and a statement of the purposes of the amendment and such other

matters as the Board deems material to consideration of the amendment. The

amendment so proposed shall be adopted if approved by Members holding more than

seventy-five percent (75%) of the Class A Units, provided, however, no

 

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Amendment which affects the Financial Rights or Voting Rights or other rights or

obligations of a Member shall be effective unless such amendment is approved by

such Member. Alternatively, this Agreement may be amended by a written action

signed by all of the Members.

 

ARTICLE 16.

DISSOLUTION

 

16.1 Liquidating Events.

 

16.1.1 The Company shall be dissolved upon (i) the written

agreement of all Members holding at least seventy-five percent of the

outstanding Class A Units of the Company, provided that in the event

the Loan Agreement is in effect and the Early Termination Provisions

thereunder are not applicable the required percentage under clause (i)

of Section 16.1.1 shall be one hundred percent, or (ii) the entry of a

decree of judicial dissolution under Section 18-802 of the LLC Act (a

"Liquidating Event").

 

16.1.2 As soon as possible following the occurrence of a

Liquidating Event that causes the dissolution of the Company, the

appropriate representative of the Company shall execute a notice of

dissolution in such form as shall be prescribed by the Secretary of

State of Delaware, setting forth the information required under the LLC

Act and shall file that notice with such Secretary of State's office.

 

16.1.3 If the Company is dissolved, the Company shall cease

to carry on its business upon filing a notice of dissolution with the

Secretary of State of Delaware, except insofar as may be necessary for

the winding up of the Company's business, but its separate existence

shall continue until a certificate of termination has been issued by

such Secretary of State or until a decree dissolving the Company has

been entered by a court of competent jurisdiction.

 

16.2 Distributions on Liquidation.

 

16.2.1 Upon liquidation of the Company, its business shall

be wound up, the Board (or other Person designated by all of the

Members) shall take full account of the Company Property and

liabilities, and all Property (tangible and intangible) shall be

liquidated as promptly as is consistent with obtaining the fair value

thereof. If any Property is not sold, gain or loss shall be allocated

to the Members in accordance with Article 7 as if such Property had

been sold at its fair market value at the time of the liquidation. If

any Property is distributed to a Member, rather than sold, the

Distribution shall be treated as a Distribution equal to the fair

market value of the Property at the time of the liquidation. The

Property of the Company shall be applied and distributed in the

following order of priority:

 

First, to the payment of all debts and liabilities of

the Company, including all debts due the Members, Governors,

Managers and their Affiliates, and including all amounts

outstanding under the Loan Agreement and any other loans or

advances that may have been made by the Members of the

Company, in the order of priority as provided by law;

 

Second, to the establishment of any reasonable

reserves deemed necessary by

 

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the Board or other Person winding up the affairs of the

Company for any contingent liabilities or obligations of the

Company;

 

Third, to the Members, ratably, in proportion to the

extent of the excess of the Original Capital Contribution (as

defined in Section 6.1.6) in cash or property (if any) of each

Member over (i) all Distributions made to such Member pursuant

to Section 8.1.1 or 8.2 that are not in proportion to all

Members' Units; and (ii) all Losses allocated to such Member

pursuant to Section 7.3, which have not been offset by

allocations of Profits to such Member pursuant to Section

7.2.1;

 

Fourth, to the Members, ratably in proportion to the

credit balances in their respective Capital Accounts, in an

amount equal to the aggregate credit balances in the Capital

Accounts after and including all allocations to the Members

under Article 7, including the allocation of any Profit or

Loss from the sale, exchange or other disposition (including a

deemed sale pursuant to this Section) of the Company's

Property; and

 

Last, to the Members in accordance with their

respective number of Units; provided, however, that in no

event shall any Member receive any distribution pursuant to

this Section 16.2 with respect to any Units of Membership

Interest that are not vested (or are to become vested upon a

liquidation that would trigger this provision) pursuant to the

terms of the Management Contract or any other agreement

between such Member and the Company that restricts ownership

of some or all of such Member's Units.

 

16.2.2 The Company may offset any amount due a Member under

this Section 16.2 by the amounts of (i) any debts owed the Company by

the Member, and (ii) any damages suffered by the Company as a result of

that Member's breach (if any) of this Agreement.

 

ARTICLE 17.

RIGHTS, OPTIONS AND VALUATION RESULTING FROM TRANSFERS OR WITHDRAWALS

 

17.1 Tag-Along Rights.

 

17.1.1 If at any time Lakes intends to sell or exchange a

percentage of its Units to any Person or group of Persons, which sale

or exchange will result in Lakes owning less than a majority of the

Company's Units, then Lakes shall refrain from effecting such

transaction unless, prior to the consummation thereof, each other

Member shall have been afforded the opportunity to join in such sale or

exchange as hereinafter provided in this Section 17.1.

 

17.1.2 Prior to consummation of any sale or exchange of

Units described in Section 17.1.1, Lakes shall cause the Person or