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FIRST AMENDED AND RESTATED
MANAGEMENT AGREEMENT
BETWEEN THE
POKAGON BAND OF POTAWATOMI INDIANS
AND
GREAT LAKES GAMING OF MICHIGAN, LLC,
(F/K/A GREAT LAKES OF MICHIGAN, LLC)
DATED AS OF OCTOBER 16, 2000
<PAGE> 2
TABLE OF CONTENTS
1 RECITALS...................................................................1
2 DEFINITIONS................................................................2
3 ENGAGEMENT; BUSINESS BOARD; COMPLIANCE....................................16
Engagement of Manager................................................16
Term.................................................................16
Status of Gaming Site................................................17
Dominion and Operation of Business Board.............................17
Manager Compliance with Law; Licenses................................17
Compliance with Compact..............................................17
Fire and Safety......................................................18
Compliance with the National Environmental Policy Act................18
Commencement Date....................................................18
4 BUSINESS AND AFFAIRS OF THE ENTERPRISE....................................18
Manager's Authority and Responsibility...............................18
Duties of Manager....................................................18
Physical Duties......................................................18
Compliance with Band Ordinances......................................19
Required Filings.....................................................19
Contracts in Band's Name Doing Business as the Enterprise and at
Arm's Length.........................................................19
Enterprise Operating Standards.......................................19
Security.............................................................19
Damage, Condemnation or Impossibility of the Enterprise..............20
Alcoholic Beverages and Tobacco Sales................................20
Employees............................................................20
Manager's Responsibility.............................................20
Enterprise Employee Policies.........................................20
Senior Employees.....................................................20
Enterprise Employees.................................................21
Removal of Employees.................................................21
No Manager Internal Expenses; Limitation on Manager Payments.........21
GRA Expenses.........................................................21
Employee Background Checks...........................................22
Indian Preference: Recruiting and Training...........................22
Pre-Opening..........................................................23
Operating Budget and Annual Plan.....................................24
Adjustments to Operating Budget and Annual Plan and Capital Budget...26
<PAGE> 3
Capital Budgets......................................................26
Capital Replacements.................................................27
Capital Replacement Reserve..........................................28
Periodic Contributions to Capital Replacement Reserve................28
Use and Allocation of Capital Replacement Reserve....................28
Indian Preference: Vendors and Contractors...........................29
Internal Control Systems.............................................29
Banking and Bank Accounts............................................30
Enterprise Accounts..................................................30
Daily Deposits to Depository Account.................................30
Disbursement Accounts................................................31
No Cash Disbursements................................................31
Transfers Between Accounts...........................................31
Insurance............................................................32
Transfers from Creation Account to Disbursement Accounts.............31
Accounting and Books of Account......................................32
Statements...........................................................32
Books of Account.....................................................32
Accounting Standards.................................................33
Annual Audit.........................................................33
Manager's Contractual Authority......................................33
Retail Shops and Concessions.........................................34
Entertainment Approvals..............................................34
Litigation...........................................................34
5 MANAGEMENT FEE, DISBURSEMENTS, AND OTHER
PAYMENTS BY MANAGER..................................................35
Management Fee.......................................................35
Fee Subordinated.....................................................35
Disbursements........................................................35
Adjustment to Bank Account...........................................36
Payment of Fees and Band Disbursement................................36
Minimum Guaranteed Monthly Payment...................................37
Payment of Net Revenues..............................................38
Harrah's Termination Agreement.......................................39
6 ENTERPRISE NAME; MARKS...............................................39
Enterprise Name......................................................39
Marks................................................................39
Signage..............................................................40
7 TAXES................................................................40
<PAGE> 4
State and Local Taxes................................................40
Band Taxes...........................................................40
Compliance with Internal Revenue Code................................41
8 BUY-OUT OPTION.......................................................41
9 EXCLUSIVITY; NON-COMPETITION.........................................41
Exclusivity in Michigan..............................................41
Indiana Casino.......................................................41
Non-Competition......................................................41
Permitted Assignment; Change of Control..............................42
Restrictions on Collateral Development...............................44
10 REPRESENTATIONS, WARRANTIES, AND COVENANTS...........................45
Representations and Warranties of the Band...........................45
Due Authorization....................................................45
Valid and Binding....................................................45
Pending Litigation...................................................45
Band Covenants.......................................................45
No Impairment of Contract............................................45
Waiver of Sovereign Immunity.........................................45
Valid and Binding....................................................45
Legal Compliance.....................................................46
No Termination.......................................................46
Representations and Warranties of Manager............................46
Due Authorization....................................................46
Valid and Binding....................................................46
Litigation...........................................................46
Certifications.......................................................47
Manager Covenants....................................................47
Noninterference in Band Affairs......................................47
Prohibition of Payments to Members of Band Government................47
Prohibition of Hiring Members of Band Government.....................47
Prohibition of Financial Interest in Enterprise......................48
No Amendment.........................................................48
CRC..................................................................48
No Liens.............................................................49
Permitted Liens......................................................49
Authority to Execute and Perform Agreement...........................49
Brokerage............................................................50
<PAGE> 5
11 DEFAULT..............................................................50
Events of Default by the Band........................................50
Events of Default by Manager.........................................50
Material Breach; Right to Cure.......................................51
12 TERMINATION..........................................................51
Voluntary Termination................................................51
Termination if No NIGC Approval......................................52
Manager Right to Terminate on Band Event of Default..................52
Band Right to Terminate on Manager Event of Default..................52
Band Right to Terminate for Material Adverse Change..................52
Termination if Manager License Withdrawn or on Conviction............53
Termination on Buy-Out...............................................54
Involuntary Termination Due to Changes in Legal Requirements.........54
Setoff; Recoupment...................................................55
13 DISPUTE RESOLUTION; LIQUIDATED DAMAGES...............................55
Band's Waiver of Sovereign Immunity and Consent to Suit..............55
Arbitration..........................................................56
Choice of Law........................................................57
Place of Hearing.....................................................57
Confidentiality......................................................57
Limitation of Actions................................................57
Damages..............................................................57
Consents and Approvals...............................................58
Injunctive Relief and Specific Performance...........................58
Action to Compel Arbitration.........................................58
Damages on Termination for Failure to Obtain NIGC Approval...........58
Liquidated Damages and Limitations on Remedies.......................58
Liquidated Damages Payable by Manager................................59
Liquidated Damages Payable by the Band...............................59
Manager Continuing Obligations.......................................59
Termination of Exclusivity...........................................59
Remedies.............................................................59
Band Injunctive Relief...............................................60
No Setoff Against Payments to Band...................................60
Indemnification on Termination.......................................60
Fees not Damages.....................................................60
Undistributed Net Revenues...........................................60
<PAGE> 6
14 CONSENTS AND APPROVALS...............................................61
Band.................................................................61
Manager..............................................................61
15 DISCLOSURES..........................................................61
Shareholders and Directors...........................................61
Warranties...........................................................61
Disclosure Amendments................................................62
Breach of Manager's Warranties and Agreements........................63
16 NO PRESENT LIEN, LEASE OR JOINT VENTURE..............................63
17 CONCLUSION OF THE MANAGEMENT TERM....................................63
18 MISCELLANEOUS........................................................64
Situs of the Contracts...............................................64
Notice...............................................................64
Relationship.........................................................65
Further Actions......................................................65
Waivers..............................................................65
Captions.............................................................66
Severability.........................................................66
Advances.............................................................66
Third Party Beneficiary..............................................66
Survival of Covenants................................................66
Estoppel Certificate.................................................66
Periods of Time; Time of Essence.....................................66
Exhibits.............................................................67
Successors and Assigns...............................................67
Confidential and Proprietary Information.............................67
Patron Dispute Resolution............................................67
Modification.........................................................67
Entire Agreement.....................................................67
Government Savings Clause............................................68
Preparation of Agreement.............................................68
Consents.............................................................68
Execution............................................................68
<PAGE> 7
LIST OF EXHIBITS
Exhibit A Manager's Affiliates, Principal Shareholders, Officers and
Directors
Exhibit A-1 Dominion Agreement
Exhibit B Pending Band Litigation
<PAGE> 8
FIRST AMENDED AND RESTATED MANAGEMENT AGREEMENT
THIS FIRST AMENDED AND RESTATED MANAGEMENT AGREEMENT has been entered
into as of October 16, 2000, by and between the POKAGON BAND OF POTAWATOMI (the
"Band"), and GREAT LAKES GAMING OF MICHIGAN, LLC, a Minnesota limited liability
company (f/k/a Great Lakes of Michigan, LLC) ("Manager") for the operation of a
gaming facility in the State of Michigan.
1. RECITALS
1.1 The Band, pursuant to 25 U.S.C. ss.ss. 1300j et seq. (the
"Restoration Act"), is a federally recognized Indian tribe
recognized as eligible by the Secretary of the Interior for
the special programs and services provided by the United
States to Indians because of their status as Indians and is
recognized as possessing powers of self-government.
1.2 As authorized by the Restoration Act, the Band intends to
acquire the Gaming Site in the State of Michigan, to be held
by the federal government in trust for the Band, on which the
Band intends to construct and operate a permanent Class III
gaming facility (the "Facility"); and the Band will possess
sovereign governmental powers over the Gaming Site pursuant to
the Band's recognized powers of self government, and the Band
desires to use the Gaming Site to improve the economic
conditions of its members.
1.3 Upon the transfer of the Gaming Site to the United States in trust
for the Band, the Band will possess sovereign powers over the
Gaming Site pursuant to the Band's recognized powers of
self-government.
1.4 The Band desires to use the Gaming Site and the Facility to
improve the economic conditions of its members, to enable it to
serve the social, economic, educational and health needs of the
Band, to increase the revenues of the Band and to enhance the
Band's economic self sufficiency and self determination.
1.5 The Band wishes to establish an Enterprise, as hereinafter defined,
to conduct Class II and Class III Gaming as hereinafter defined on
the Gaming Site. This Agreement sets forth the manner in which the
Enterprise will be managed.
<PAGE> 9
1.6 Manager has agreed to certain terms and has represented to the Band
that it has the managerial and financial capacity to provide and to
secure financing for the funds necessary to develop and construct
the Facility, as defined herein, and to commence the operation of
the Enterprise on the Gaming Site.
1.7 The Band is seeking technical experience and expertise for the
operation of the Enterprise and instruction for members of the
Band in the operation of the Enterprise. Manager is willing,
and has represented to the Band that it is able, to provide
such experience, expertise and instruction.
1.8 The Band desires to grant Manager the exclusive right and
obligation to develop, manage, operate and maintain the
Enterprise as described in this Agreement and to train Band
members and others in the operation and maintenance of the
Enterprise during the term of this Agreement. Manager wishes
to perform these functions for the Band.
1.9 The Band and Lakes Gaming, Inc. ("Lakes") entered into a Management
Agreement dated as of July 8, 1999 (the "Management Agreement").
1.10 Lakes has assigned its rights and obligations under the Management
Agreement to Great Lakes pursuant to an Assignment and Assumption
Agreement of near or even date, subject to certain terms and
conditions.
1.11 This Agreement is entered into pursuant to the Indian Gaming
Regulatory Act of 1988, PL 100-497, 25 U.S.C.ss.2701 et seq. (the
"IGRA") as that statute may be amended. All gaming conducted at the
Facility will at all times comply with the IGRA, applicable Band
law and the Compact.
1.12 This First Amended and Restated Management Agreement
incorporates certain amendments to the Management Agreement
agreed to by the parties pursuant to a First Amendment to
Management Agreement dated as of October 16, 2000.
2 DEFINITIONS
As they are used in this Agreement, the terms listed below shall have
the meaning assigned to them in this Section:
<PAGE> 10
"AGREEMENT" shall mean this Management Agreement.
"AGREEMENTS" shall mean this Agreement and the Development Agreement.
"AFFILIATE" means as to Manager or the Band, any corporation,
partnership, limited liability company, joint venture, trust department or
agency or individual controlled by, under common control with, or which directly
or indirectly controls, Manager or the Band.
"BAND EVENT OF DEFAULT" has the meaning described in ss. 11.1.
"BAND GAMING ORDINANCE" shall mean the ordinance and any amendments
thereto to be enacted by the Band, which authorizes and regulates Class II and
Class III Gaming on Indian lands subject to the governmental power of the Band.
"BAND INTEREST RATE" shall mean the lesser of (i) Wall Street Journal
prime rate as of the Bank Closing plus 1%, or (ii) 10%.
"BAND REPRESENTATIVES" shall mean the persons designated by the
Pokagon Council to sit on the Business Board.
"BANK CLOSING" means the closing on the Bank Loan.
"BANK LENDER" shall mean the financial institution agreed upon by the
parties to provide certain funding necessary to design, construct, and equip the
Facility, and provide start-up capital for the Enterprise.
"BANK LOAN" shall have the meaning defined in the Development
Agreement.
"BIA" shall mean the Bureau of Indian Affairs of the Department of the
Interior of the United States of America.
"BUSINESS BOARD" shall mean the decision making body created pursuant
to ss. 3.4 of this Agreement.
"BUY-OUT OPTION" shall mean the Band's option to buy out this
Agreement under ss. 8.
"CAPITAL BUDGET" shall mean the capital budget described in ss. 4.12.
"CAPITAL REPLACEMENT(S)" shall mean any alteration or rebuilding or
renovation of the Facility, and any replacement of Furnishings and Equipment,
the
<PAGE> 11
cost of which is capitalized and depreciated rather than being expensed
under GAAP.
"CAPITAL REPLACEMENT RESERVE" shall mean the reserve described in ss.
4.14, into which periodic contributions are paid pursuant to ss. 4.15.
"CHANGE OF CONTROL" shall have the meaning set out in ss. 9.4.3.
"CLASS II GAMING" shall mean Class II Gaming as defined in the IGRA.
"CLASS III GAMING" shall mean Class III Gaming as defined in the IGRA.
"COLLATERAL AGREEMENTS" shall mean any agreements defined as
collateral agreements under 25 USC ss. 2711(a)(3) and regulations issued thereto
at 25 C.F.R. ss. 502.5.
"COMMENCEMENT DATE" shall mean the first date that Gaming is conducted
pursuant to the terms of the Management Agreement in a Facility, including
Gaming conducted on completion of the Initial Phase of the Facility.
"COMPACT" shall mean the Compact between the Band and the State dated
December 3, 1998 and approved in 64 Fed.Reg. No. 32, Thursday, February 18,
1999, at 8111, as the same may, from time to time, be amended; or such other
compact or consent decree that may be substituted therefor.
"COMPENSATION" shall mean the direct salaries and wages paid to, or
accrued for the benefit of, any employee, including incentive compensation,
together with all fringe benefits payable to or accrued for the benefit of such
executive or other employee, including employer's contribution under F.I.C.A.,
unemployment compensation or other employment taxes, pension fund contributions,
workers' compensation, group life, accident and health insurance premiums and
costs, and profit sharing, severance, retirement, disability, relocation,
housing and other similar benefits.
"CONFIDENTIAL INFORMATION" shall mean the information described in ss.
18.15.
"CONSTITUTION" shall mean the document or documents which govern the
actions of the Band and, upon enactment, the Constitution of the Pokagon Band of
Potawatomi Indians as ultimately approved by the Band and approved by the
Secretary of the Interior.
"CORPORATE COMMISSION" shall mean a body corporate and politic
established, at the Band's discretion, by the Pokagon Council to own the
Enterprise and such other businesses and assets as the Band may deem
appropriate.
<PAGE> 12
"CRC" means Casino Resource Corporation, a Minnesota corporation and
its Insiders.
"DEVELOPMENT AGREEMENT" shall mean the agreement of even date between
Manager and the Band, as amended by First Amendment dated October 16, 2000.
"DEPOSITORY ACCOUNT" shall mean the bank account described in ss.
4.19.2.
"DISBURSEMENT ACCOUNTS" shall mean the bank account or accounts
described in ss. 4.19.3.
"DOMINION ACCOUNT" means the collateral account in favor of Lakes
established under ss.4.19.6.
"DOMINION AGREEMENT" means the collateral agreement granting and
perfecting Lakes a security interest in the Dominion Account, a true copy of
which is attached as Exhibit A-1.
"EFFECTIVE DATE" shall have the meaning provided in ss. 18.22.
"EMERGENCY CONDITION" shall have the meaning set forth in ss. 4.13.
"ENTERPRISE" shall mean the enterprise of the Band created by the Band
to engage in Class II and Class III Gaming at the Facility, and which shall
include all gaming at the Facility and any other lawful commercial activity
allowed in the Facility, including but not limited to the sale of alcohol,
tobacco, gifts and souvenirs; provided, however, the Enterprise shall only
include any hotel operated by the Band, ancillary non-Gaming activity within the
Facility, or other commercial enterprise conducted by the Band which is not
generally related to Class II or Class III Gaming if such hotel, non-Gaming
activity or other commercial enterprise (a) is financed by, or through the
guaranty of, Manager, (b) is specifically included within the Initial Scope of
Work or is not a material expansion of the Initial Scope of Work, or (c) is
specified by the Business Board and the Pokagon Council as being included in the
Enterprise, in which case depreciation and other expenses relating to such
hotel, non-Gaming activity or other commercial enterprise shall be an Operating
Expense, all related revenues shall be included in Gross Revenues, and interest
on all related financing shall be paid by the Enterprise; and provided further
that the Enterprise shall not include a tribal gift/craft business which the
Band may elect to operate, rent free, on an area of about 2,400 square feet at
the Facility. The design and operation of such gift/craft shop shall be
consistent with the theme and quality of the Facility, and the location of such
gift/craft shop shall be approved by the Business Board.
<PAGE> 13
"ENTERPRISE ACCOUNTS" shall mean those accounts described in ss.
4.19.1.
"ENTERPRISE EMPLOYEE" shall mean all employees who work at the
Facility.
"ENTERPRISE EMPLOYEE POLICIES" shall mean those employee policies
described in ss. 4.5.2.
"ENTERPRISE INVESTMENT POLICY" shall have the meaning described in ss.
4.19.1.
"EQUIPMENT LENDER" shall mean the entity making the Equipment Loan.
"EQUIPMENT LOAN" shall have the meaning provided in the Development
Agreement.
"FACILITY" shall mean all buildings, structures, and improvements
located on the Gaming Site and all fixtures, Furnishings and Equipment attached
to, forming a part of, or necessary for the operation of the Enterprise.
"FISCAL YEAR" shall mean the 12-month period commencing on the first
day of the month next following the Commencement Date, and each succeeding
12-month period, or such other period as the Pokagon Council and Manager may
agree. The Band and Manager agree to take such actions as are necessary to
implement this Fiscal Year promptly after the Commencement Date.
"FURNISHINGS AND EQUIPMENT" shall mean all furniture, furnishings and
equipment required for the operation of the Enterprise in accordance with the
standards set forth in this Agreement, including, without limitation:
(i) cashier, money sorting and money counting equipment,
surveillance and communication equipment, and security
equipment;
(ii) slot machines, video games of chance, table games, keno
equipment and other gaming equipment;
(iii) office furnishings and equipment;
(iv) hotel equipment (to the extent a hotel is included in the
Enterprise);
<PAGE> 14
(v) specialized equipment necessary for the operation of any portion
of the Enterprise for accessory purposes, including equipment for
kitchens, laundries, dry cleaning, cocktail lounges, restaurants,
public rooms, commercial and parking spaces, and recreational
facilities; and
(vi) all other furnishings and equipment hereafter located and
installed in or about the Facility which are used in the
operation of the Enterprise in accordance with the standards set
forth in this Agreement.
"GAMING" shall mean any and all activities defined as Class II and
Class III Gaming.
"GAMING REGULATORY AUTHORITY" or "GRA" shall mean the Band body
created pursuant to the Band Gaming Ordinance to regulate the Class II and Class
III Gaming of the Band in accordance with the Compact, the IGRA and the Band
Gaming Ordinance.
"GAMING SITE" shall mean any parcel of land in the State identified by
the Band, after consultation with Manager, as suitable for development of the
Facility and operation of the Enterprise which meets the requirements of United
States of America to be accepted in trust for the Band for Gaming purposes.
"GENERAL MANAGER" shall mean the person employed by the Band to direct
the operation of the Enterprise.
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" or "GAAP" shall mean the
principles defined by the Financial Accounting Standards Board.
"GREAT LAKES" means Great Lakes Gaming of Michigan, LLC, a Minnesota
limited liability company (f/k/a Great Lakes of Michigan, LLC).
"GROSS GAMING REVENUE (WIN)" shall mean the net win from gaming
activities which is the difference between gaming wins and losses before
deducting costs and expenses.
"GROSS REVENUES" shall mean all revenues of any nature derived
directly or indirectly from the Enterprise including, without limitation, Gross
Gaming Revenue (Win), food and beverage sales and other rental or other receipts
from lessees, sublessees, licensees and concessionaires (but not the gross
receipts of such lessees, sublessees, licensees and concessionaires provided
that such lessees, sublessees,
<PAGE> 15
licensees and concessionaires are not Affiliates or Insiders of Manager), and
revenue recorded from Promotional Allowances, but excluding any Permitted Taxes.
"HOUSE BANK" shall mean the amount of cash, chips, tokens and plaques
that Manager from time to time determines necessary to have at the Facility
daily to meet its cash needs.
"IGRA" shall mean the Indian Gaming Regulatory Act of 1988, PL
100-497, 25 U.S.C.ss.2701 et seq. as it may from time to time be amended.
------
"INSIDER" has the meaning defined in 11 U.S.C. ss. 101(31), assuming
Manager were the debtor in that definition, and shall include persons or
entities that become Insiders after the date of this Agreement, whether as the
result of a merger, acquisition. restructuring or otherwise.
"INTERNAL CONTROL SYSTEMS" shall mean the systems described in ss.
4.18.
"LAKES" shall mean either Great Lakes or both Great Lakes and Lakes
Gaming, Inc., to the extent provided in the Assignment and Assumption Agreement
among Great Lakes, Lakes Gaming, Inc. and the Band of near or even date.
"LAKES DEVELOPMENT LOAN" shall have the meaning defined in the
Development Agreement.
"LEGAL REQUIREMENTS" shall mean any and all present and future
judicial, administrative, and tribal rulings or decisions, and any and all
present and future federal, state, local and tribal laws, ordinances, rules,
regulations, permits, licenses and certificates, in any way applicable to the
Band, Manager, the Gaming Site, the Facility and the Enterprise, including
without limitation, the IGRA, the Compact, and the Band Gaming Ordinance.
"LIMITED RECOURSE" shall mean that all Loans and all liabilities of
the Band under or related to the Agreements, the Enterprise or the Gaming
Regulatory Authority, and any related awards, judgments or decrees, shall be
payable solely out of undistributed or future Net Revenues of the Enterprise and
shall be a limited recourse obligation of the Band, with no recourse to tribal
assets other than such Net Revenues (except (i), as to the Equipment Loan, a
security interest in the Furnishings and Equipment purchased with Equipment Loan
proceeds, (ii), if the Commencement Date does not occur, Subsequent Gaming
Facility Revenues to the extent provided in this Agreement, (iii) mortgages on
the Gaming Site and Non-Gaming Lands prior to their transfer into trust, and
(iv) after the Commencement Date occurs, funds on deposit in the Dominion
Account to the extent provided in ss.9.2.1(x) of the
<PAGE> 16
Development Agreement and the Dominion Agreement, or in any other dominion
agreement executed by the Band). In no event shall Lakes or any lender or other
claimant have recourse to (a) the physical property of the Facility (other than
Furnishings and Equipment subject to the security interest securing the
Equipment Loan), (b) Tribal Distributions, (c) assets of the Band purchased with
Tribal Distributions, (d) revenues or assets of any other gaming facility owned
or operated by the Band, or (e) any other asset of the Band (other than (i) as
to the Transition Loan and the Non-Gaming Acquisition Line of Credit, if the
Commencement Date does not occur, Subsequent Gaming Facility Revenues to the
extent provided in this Agreement, (ii) as to the Lakes Note and the Non-Gaming
Acquisition Line of Credit, mortgages on the Gaming Site and Non-Gaming Lands
prior to their transfer into trust, (iii) funds on deposit in the Dominion
Account to the extent provided in the Agreements, the Dominion Agreement and any
other dominion agreement executed by the Band, and (iv) such Net Revenues of the
Enterprise).
"LOANS" shall mean the Lakes Development Loan, the Bank Loan and the
Equipment Loan.
"LOCAL AGREEMENT" shall mean the agreement among the Band, the City of
New Buffalo and the Township of New Buffalo dated as of February 15, 2000.
"MANAGER" shall mean Lakes Gaming, Inc.
"MANAGER'S INTERNAL EXPENSES" shall mean Manager's corporate overhead,
including without limitation salaries or benefits of any of Manager's officers
and employees, whether or not they perform services for the Project or the
Enterprise, and any travel or other expenses of Manager's employees.
"MANAGER'S REPRESENTATIVES" shall mean the persons designated by
Manager to sit on the Business Board.
"MANAGEMENT AGREEMENT" shall mean this Agreement and may be referred
to herein as the "Agreement".
"MANAGEMENT FEE" shall mean the management fee described in ss. 5.1.
"MANAGER EVENT OF DEFAULT" has the meaning described in ss. 11.2.
"MANAGING OFFICER" shall mean the person designated by Manager to
serve as a liaison between Manager and the Band and to serve on the Business
Board.
"MARKS" means all trade names, trade marks and service marks used by
the
<PAGE> 17
Facility or the Enterprise.
"MATERIAL BREACH" means a failure of either party to perform any
material duty or obligation on its part, if such party fails to (i) cure the
specified default within thirty (30) days following receipt of the notice
provided under ss. 11.3, or (ii) if the default is not capable of being cured
within 30 days, commences such cure within 30 days, proceeds diligently to
complete the cure, and completes the cure no later than 90 days after receipt of
such notice.
"MEMBER OF THE BAND GOVERNMENT" shall mean any member of the Pokagon
Council, the GRA or any independent board or body created to oversee any aspect
of Gaming and any Pokagon court official.
"MINIMUM BALANCE" shall mean the amount described in ss. 4.19.1.
"MINIMUM GUARANTEED MONTHLY PAYMENT" shall mean the payment due the
Band each month commencing in the month after the Commencement Date occurs in
accordance with 25 U.S.C. ss. 2711(b)(3) and ss. 5.6 hereof.
"MONTHLY DISTRIBUTION PAYMENT" shall have the meaning set forth in ss.
5.5.
"NATIONAL INDIAN GAMING COMMISSION" OR "NIGC" means the commission
established pursuant to 25 U.S.C.ss.2704.
"NET REVENUES" shall mean the sum of "NET REVENUES (GAMING)" and "NET
REVENUES (OTHER)".
"NET REVENUES (GAMING)" shall mean the Gross Gaming Revenue (Win), of
the Enterprise from Class II or Class III gaming less all gaming related
Operating Expenses, excluding the Management Fee, and less the retail value of
any Promotional Allowances, and less the following revenues actually received by
the Enterprise and included in Gross Revenues:
(i) any gratuities or service charges added to a customer's
bill:
(ii) any credits or refunds made to customers, guests or patrons;
(iii) any sums and credits received by the Enterprise for lost or
damaged merchandise;
(iv) any sales taxes, excise taxes, gross receipt taxes,
admission taxes, entertainment taxes, tourist taxes or
charges received from
<PAGE> 18
patrons and passed on to a governmental or quasi
governmental entity, including without limitation any
Permitted Taxes;
(v) any proceeds from the sale or other disposition of
furnishings and equipment or other capital assets;
(vi) any fire and extended coverage insurance proceeds other than
for business interruption;
(vii) any condemnation awards other than for temporary
condemnation; and
(viii) any proceeds of financing or refinancing.
It is intended that this provision be consistent with 25
U.S.C.ss.2703(9).
"NET REVENUES (OTHER)" shall mean all Gross Revenues of the Enterprise
from all other sources in support of Class II or Class III gaming not included
in "Net Revenues (gaming)," such as food and beverage, entertainment, and
retail, less all Operating Expenses, excluding the Management Fee and less the
retail value of Promotional Allowances, if any, and less the following revenues
actually received by the Enterprise and included in Gross Revenues:
(i) any gratuities or service charges added to a customer's
bill;
(ii) any credits or refunds made to customer, guests or patrons;
(iii) any sums and credits received by the Enterprise for lost or
damaged merchandise;
(iv) any sales taxes, excise taxes, gross receipt taxes,
admission taxes, entertainment taxes, tourist taxes or
charges received from patrons and passed on to a
governmental or quasi governmental entity, including without
limitation any Permitted Taxes;
(v) any proceeds from the sale or other disposition of
furnishing and equipment or other capital assets;
(vi) any fire and extended coverage insurance proceeds other than
for business interruption;
(vii) any condemnation awards other than for temporary
<PAGE> 19
condemnation; and
(viii) any proceeds of financing or refinancing;
but excluding revenues from hotel, non-Gaming activity or other commercial
enterprises not included in the Enterprise.
It is intended that this provision be consistent with 25
U.S.C.ss.2703(9).
"NEW POKAGON COUNCIL" means the Pokagon Council elected at a Band
election scheduled for on or about July 10, 1999, which shall take office in
August, 1999.
"NIGC APPROVAL" means (a) a determination by NIGC that Lakes is
suitable for licensing and (b) approval by NIGC of the Agreements.
"NIGC DISAPPROVAL" means a determination by NIGC that Lakes is
unsuitable for licensing, if within 120 days after notification of the NIGC
decision Lakes has not cured the reason for such unsuitability and obtained a
statement of suitability from NIGC.
"OPERATING BUDGET AND ANNUAL PLAN" shall mean the operating budget and
plan described in ss. 4.11.
"OPERATING EXPENSES" shall mean all expenses of the operation of the
Enterprise, pursuant to GAAP, including but not limited to the following:
(i) the Compensation of Enterprise Employees;
(ii) Operating Supplies for the Enterprise;
(iii) utilities;
(iv) repairs and maintenance of the Facility (excluding Capital
Replacements)
(v) interest on the Loans and all other loans or capital leases
pertaining to the Facility and the Enterprise, but shall
exclude interest on the Non-Gaming Land Acquisition Line of
Credit and the Transition Loan;
(vi) interest on installment contract purchases or other interest
charges
<PAGE> 20
on debt approved by the Business Board;
(vii) insurance and bonding;
(viii) advertising and marketing, including busing and
transportation of patrons to the Facility;
(ix) accounting, audit, legal and other professional fees;
(x) security costs;
(xi) operating lease payments for Furnishings and Equipment to
the extent approved by the Business Board, and capital lease
payments to the extent approved by the Business Board and
properly expensed under GAAP;
(xiii) trash removal;
(xiv) cost of goods sold;
(xv) other expenses designated as Operating Expenses in
accordance with the accounting standards as referred to
in ss.4.21.3;
(xvi) expenses specifically designated as Operating Expenses in
this Agreement;
(xvii) depreciation and amortization of the Facility based on an
assumed 30 year life, and depreciation and amortization of
all other assets in accordance with GAAP;
(xviii) recruiting and training expenses;
(xix) fees due to the NIGC under the IGRA;
(xx) any required payments to or on behalf of the State, any
local governments or the Pokagon Fund made by or on behalf
of the Enterprise or the Band pursuant to the Compact or any
related consent decree, or pursuant to the Local Agreement;
(xxi) any budgeted charitable contributions by the Enterprise for
the benefit of charities located or providing services in
the vicinity of the Gaming Site which are approved by the
Business Board;
<PAGE> 21
(xxii) Pre-opening expenses shall be capitalized and treated as an
expense during the first year after opening; and
(xxiii)charges, assessments, fines or fees imposed by governmental
entities of the Band which are reasonably related to the
cost of Tribal governmental regulation of public health,
safety or welfare, or the integrity of Tribal gaming
operations.
but Operating Expenses shall not include any portion of Manager's Internal
Expenses or Permitted Taxes (other than as described in clause xxiii above), or
any expenses related to hotel, non-Gaming activity or other commercial
enterprises not included in the Enterprise.
"OPERATING SUPPLIES" shall mean food and beverages (alcoholic and
nonalcoholic) and other consumable items used in the operation of a casino, such
as playing cards, tokens, chips, plaques, dice, fuel, soap, cleaning materials,
matches, paper goods, stationary and all other similar items.
"PERMITTED TAXES" shall mean taxes, fees, assessments or other charges
imposed by the Band that are permitted under ss. 7.2.
"PLANS AND SPECIFICATIONS" shall mean the final Plans and
Specifications approved for the Facility as described in the Development
Agreement.
"POKAGON COUNCIL" shall mean the duly elected, governing legislative
body of the Band described pursuant to Public Law 102-323 or, at the option of
the Band, a designee committee or council created pursuant to resolution or
ordinance of the Pokagon Council.
"POKAGON FUND" shall mean the non-profit corporation established
pursuant to the Local Agreement.
"PRE-OPENING BUDGET" shall have the meaning described in ss. 4.10.
"PRE-OPENING EXPENSES" shall have the meaning described in ss. 4.10.
"PROJECT" shall have the meaning described in ss. 4.1 of the
Development Agreement.
"PROMOTIONAL ALLOWANCES" shall mean the retail value of complimentary
food, beverages, merchandise, and tokens for gaming, provided to patrons as
promotional
<PAGE> 22
items.
"RATIFICATION" means passage on or before September 15, 1999 of a
resolution by the New Pokagon Council, at a duly called meeting with a quorum
present, ratifying and endorsing the execution of this Agreement by the Band.
"RELATIVE" shall mean an individual residing in the same household who
is related as a spouse, father, mother, son or daughter.
"RESTORATION ACT" shall mean 25 U.S.C.ss.ss.1300j et seq.
"RESTRICTED TERRITORY" shall mean the States of Ohio, Illinois,
Indiana and Michigan.
"SECOND TRANCHE -- LAKES NOTE" shall have the meaning set out in the
Development Agreement.
"SECOND TRANCHE -- NON-GAMING LAND ACQUISITION" shall have the meaning
set out in the Development Agreement.
"STATE" shall refer to the State of Michigan.
"SUBSEQUENT GAMING FACILITY REVENUES" means gaming revenues from a
gaming facility (other than the Facility) owned or operated by the Band in
Michigan, but only to the following extent: (i) all Class III Gaming Net
Revenue, and (ii) Class II Gaming Net Revenue to the extent that such Class II
Net Revenue exceeds $1,000,000.
"TERM" shall mean the term of this Agreement as described in ss. 3.2.
"TRIBAL DISTRIBUTIONS" shall mean Monthly Distribution Payments,
Minimum Guaranteed Monthly Payments and any other payments received by the Band
from the Enterprise pursuant to or in connection this Agreement.
2.1 Terms defined in the Development Agreement not otherwise defined in
this Agreement shall have the same meaning herein as therein.
3 ENGAGEMENT; BUSINESS BOARD; COMPLIANCE
In consideration of the mutual covenants contained in this Agreement,
the parties agree and covenant as follows:
<PAGE> 23
3.1 Engagement of Manager. The Band hereby retains and engages manager as
the exclusive manager of the Enterprise pursuant to the terms and
conditions of this Agreement, and Manager hereby accepts such retention
and engagement, subject to receipt of all necessary regulatory
approvals.
3.2 Term. The term of this Agreement shall begin on the date this
Agreement, the Development Agreement (if required) and the Lakes Note
are approved by the Chairman of the NIGC, and/or the BIA, if required,
and continue until, unless earlier terminated in accordance with its
terms, seven years from commencement of Gaming at the Initial Phase of
the Facility.
3.3 Status of Gaming Site. The Band represents and covenants that it will
acquire a Gaming Site in accordance with the terms of the Development
Agreement, and will maintain the Gaming Site throughout the Term as
land held in Trust by the United States of America for the benefit of
the Band, eligible as a location upon which Class II and Class III
Gaming can occur. The Band covenants, during the term hereof, that
Manager shall and may peaceably have complete access to and presence in
the Facility in accordance with the terms of this Agreement, free from
molestation, eviction and disturbance by the Band or by any person or
entity; provided, however, that such right of access to and presence in
the Facility shall cease upon the termination of this Agreement
pursuant to its terms.
3.4 Creation and Operation of Business Board. The Band and the Manager
agree to create a Business Board comprised of an equal number of
persons representing and designated by the Band and the Manager. Unless
otherwise agreed by the Band and the Manager, the Business Board shall
have four (4) members. Any member of the Business Board may designate
another person to exercise authority as a member by written notice
signed by such Business Board member and given in accordance with ss.
18.2 of this Agreement. The Business Board shall remain active during
the entire term of this Agreement. Within thirty (30) days following
the date of this Agreement, each party shall give the other notice of
the individuals initially designated by each to serve on the Business
Board. The Business Board shall have the obligations, rights and powers
described in this Agreement. In order to be effective, any action of
the Business Board must be the result of mutual agreement of a majority
of the Business Board members or their designees. In the event mutual
agreement cannot be reached, the appropriate action shall be determined
in the manner provided in Article 13.
3.5 Manager Compliance with Law; Licenses. Manager covenants that it will
at
<PAGE> 24
all times comply with Legal Requirements, including the Band Gaming
Ordinance, the IGRA, the Compact, State statutes, to the extent
applicable, and any licenses issued under any of the foregoing. The
Band shall not unreasonably withhold, delay, withdraw, qualify or
condition such licenses as the Band is authorized to grant.
3.6 Compliance with Compact. The parties shall at times comply with the
provisions of the Compact.
3.7 Fire and Safety. Manager shall ensure that the Facility shall be
constructed and maintained in compliance with all fire and safety
statutes, ordinances, and regulations which would be applicable if the
Facility were located outside of the jurisdiction of the Band although
those requirements would not otherwise apply within that jurisdiction.
Nothing in this Section shall grant any jurisdiction to the State or
any political subdivision thereof over the Gaming Site or the Facility.
Manager and the Band shall be jointly responsible for arranging fire
protection and police services for the Facility.
3.8 Compliance with the National Environmental Policy Act. With the
assistance of Manager, the Band shall supply the NIGC with all
information necessary for the NIGC to comply with any regulations of
the NIGC issued pursuant to the National Environmental Policy Act
(NEPA).
3.9 Commencement Date. Manager shall memorialize the Commencement Date in a
writing signed by Manager and delivered to the Band and to the Chairman
of the NIGC.
4 BUSINESS AND AFFAIRS OF THE ENTERPRISE
4.1 Manager's Authority and Responsibility. Manager shall conduct and
direct all business and affairs in connection with the day-to-day
operation, management and maintenance of the Enterprise and the
Facility, including the establishment of operating days and hours. It
is the parties' intention that the Enterprise be open 24 hours daily,
seven days a week. Manager is hereby granted the necessary power and
authority to act, through the General Manager, in order to fulfill all
of its responsibilities under this Agreement. Nothing herein grants or
is intended to grant Manager a titled interest to the Facility or to
the Enterprise. Manager hereby accepts such retention and engagement.
The Band shall have the sole proprietary interest in and ultimate
responsibility for the conduct of all Gaming conducted by the
Enterprise, subject to the rights and responsibilities of Manager under
this Agreement.
<PAGE> 25
4.2 Duties of Manager. In managing, operating, maintaining and repairing
the Enterprise and the Facility, under this Agreement, Manager's duties
shall include, without limitation, the following:
4.2.1 Physical Duties. Manager shall use reasonable measures for the
orderly physical administration, management, and operation of
the Enterprise and the Facility, including without limitation
cleaning, painting, decorating, plumbing, carpeting, grounds
care and such other maintenance and repair work as is
reasonably necessary.
4.2.2 Compliance with Band Ordinances. Manager shall comply with
all duly enacted statutes, regulations and ordinances of the
Band, subject to the provisions of ss.10.2.1.
4.2.3 Required Filings. Manager shall comply with all applicable
provisions of the Internal Revenue Code including, but not
limited to, the prompt filing of any cash transaction reports
and W-2G reports that may be required by the Internal Revenue
Service of the United States or under the Compact.
4.2.4 Contracts in Band's Name Doing Business as the Enterprise and at
Arm's Length. Contracts for the operations of the Enterprise shall
be entered into the name of the Band, doing business as the
Enterprise, and signed by the General Manager. Any contract
requiring an expenditure in any year in excess of $50,000, or such
higher amount as may be set by the Business Board, shall be
approved by the Business Board. No contracts, of any amount, for
the supply of goods or services to the Enterprise shall be entered
into with an Affiliate or Insider of the Manager unless that
affiliation is disclosed to and approved by the Business Board, and
the contract terms are no less favorable for the Enterprise than
could be obtained from a nonaffiliated contractor. Nothing
contained in this ss.4.2.4 shall be deemed to be or constitute a
waiver of the Band's sovereign immunity.
4.2.5 Enterprise Operating Standards. Manager shall use its best efforts
to operate the Enterprise in a proper, efficient and competitive
manner in accordance with operating standards which are consistent
with the highest operating standards of the casino, hospitality and
resort industries.
4.2.6 Security. Manager shall provide for appropriate security for
the operation of the Enterprise. All aspects of the Facility
security shall be
<PAGE> 26
the responsibility of Manager. Any security officer shall at the
request of the Business Board be bonded and insured in an amount
commensurate with his or her enforcement duties and obligations.
The cost of any charge for security and increased public safety
services will be an Operating Expense.
4.3 Damage, Condemnation or Impossibility of the Enterprise. Damage to
or destruction or condemnation of the Facility or the Enterprise
shall be governed by the provisions of ss.13.8 of the Development
Agreement.
4.4 Alcoholic Beverages and Tobacco Sales. During the term of this
Agreement alcoholic beverages may be served at the Facility if
permissible in accordance with applicable law. The parties
acknowledge that no enabling Band legislation for the sale of
alcoholic beverages is now in force, and that such legislation would
be necessary in order to serve alcoholic beverages at the Facility.
If such legislation is subsequently enacted, and if other requisite
approvals are obtained, the Band and Manager may mutually agree to
include service of such beverages within the Enterprise. Tobacco may
be sold at the Facility subject to and in accordance with the Band's
licensing requirements, if any.
4.5 Employees.
4.5.1 Manager's Responsibility. Manager shall have, subject to the
terms of this Agreement, the exclusive responsibility and
authority to direct the selection, control and discharge of
all employees performing regular services for the Enterprise
in connection with the maintenance, operation, and management
of the Enterprise and the Facility and any activity upon the
Gaming Site; and the sole responsibility for determining
whether a prospective employee is qualified and the
appropriate level of Compensation to be paid.
4.5.2 Enterprise Employee Policies. Manager shall prepare a draft
of personnel policies and procedures (the "Enterprise Employee
Policies"), including a job classification system with salary
levels and scales, which policies and procedures shall be
subject to approval by the Business Board and the Pokagon
Council. The Enterprise Employee Policies shall include a
grievance procedure in order to establish fair and uniform
standards for the Enterprise Employees, which will include
procedures for the resolution of disputes between Manager and
Enterprise
<PAGE> 27
Employees. Any revisions to the Enterprise Employee Policies
shall not be effective unless they are approved by the Business
Board. All such actions shall comply with applicable Band law.
4.5.3 Senior Employees. The selection of the General Manager, Chief
Financial Officer, Casino Manager, and Human Resources Manager of
the Enterprise, or the functionally equivalent positions, shall
be subject to consultation between, and agreement by, Manager,
the Business Board and the Pokagon Council. All such Employees
shall be Enterprise Employees.
4.5.4 Enterprise Employees. The terms of employment of all Enterprise
Employees shall be structured as though all labor, employment,
and unemployment insurance laws applicable in the State which
would apply to Enterprise Employees if they were not working on
an Indian reservation would also apply to Enterprise Employees;
except that the Band reserves the right to by ordinance establish
a workman's compensation trust fund and worker's compensation
system instead of adopting Michigan workers compensation law, and
to adopt other laws and regulations that might preempt otherwise
applicable law.
4.5.5 Removal of Employees. Manager will act in accordance with the
Enterprise Employee Policies with respect to the discharge,
demotion or discipline of any Enterprise Employee.
4.5.6 Band Employees. All Enterprise Employees shall be employees of
the Band.
4.6 No Manager Internal Expenses; Limitation on Manager Payments. No
Manager Internal Expenses shall be paid by the Enterprise. No officer,
director, shareholder or employee of Manager shall be compensated by
wages from or contract payments by the Enterprise for their efforts or
for any work which they perform under this Agreement. Manager shall
receive no payments from the Enterprise other than loan repayments
(whether under the Lakes Note, for other advances in accordance with
this Agreement, or as subrogee after paying on any Loan guarantee) and
the Management Fee to be paid to Manager under ss. 5.1. Manager
Internal Expenses may be paid from Management Fees and loan repayments
after they have been received by Manager. Nothing in this subsection
shall restrict the ability of an employee of the Enterprise to purchase
or hold stock in Manager where (i) such stock is publicly held, and
(ii) such employee acquirers, on a cumulative basis, less than five
percent (5%) of the outstanding stock in the corporation.
<PAGE> 28
4.7 GRA Expenses. The funding of the operation of the Gaming Regulatory
Authority shall, prior to the Commencement Date, be a start up expense
of the Enterprise and thereafter shall be an Operating Expense. The
budget for the GRA shall reflect the reasonable cost of regulating the
Enterprise. Disputes between the parties relating to GRA costs shall be
resolved pursuant to the provisions of Article 13 of this Agreement.
The decisions and actions of the GRA as to Manager shall be subject to
the provisions of Article 13 hereof.
4.8 Employee Background Checks. A background investigation shall be
conducted by the GRA in compliance with all Legal Requirements, to the
extent applicable, on each applicant for employment as soon as
reasonably practicable. No individual whose prior activities, criminal
record, if any, or reputation, habits and associations are known to
pose a threat to the public interest, the effective regulation of
Gaming, or to the gaming licenses of Manager, or to create or enhance
the dangers of unsuitable, unfair, or illegal practices and methods and
activities in the conduct of Gaming, shall knowingly be employed by
Manager or the Band. The background investigation procedures employed
by the GRA shall be formulated in consultation with Manager and shall
satisfy all regulatory requirements independently applicable to
Manager. Any cost associated with obtaining such background
investigations shall constitute an Operating Expense, provided,
however, the costs of background investigations relating to Manager and
the shareholders, officers, directors or employees of Manager or its
Affiliates shall be borne solely by Manager, shall be nonrefundable,
shall not be treated as part of the Lakes Development Loan or as
Operating Expenses of the Enterprise, and shall not exceed $50,000.
4.9 Indian Preference: Recruiting and Training. In order to maximize
benefits of the Enterprise to the Band, Manager shall, during the term
of this Agreement, to the maximum extent reasonably possible under
applicable law, including, but not limited to the Indian Civil Rights
Act, 25 U.S.C.ss.1301, et. seq., give preference in recruiting,
training and employment to qualified members of the Band, their
spouses, and children in all job categories of the Enterprise,
including senior management. Manager shall:
(i) conduct job fairs and skills assessment meetings for
Band members;
(ii) in consultation with and subject to the approval of
the Band, develop a management training program for
Band members or people selected by the Band. This
program shall be structured to
<PAGE> 29
provide appropriate training for those participating
to assume full managerial control at the conclusion
of the Term of this Agreement; and
(iii) within two hundred seventy (270) days of the
Commencement Date, Manager shall develop and present
to the Band for its approval, a training plan
designed so that, by the end of the Term of the
Agreement, all Enterprise Employees will be Band
members or others designated by the Band.
Manager shall also give preference to residents of the community in
which the Gaming Site is located. Final determination of the
qualifications of Band members and all other persons for employment
shall be made by Manager, subject to any licensing requirements of the
Gaming Regulatory Authority. Not later than 90 days prior to the
Commencement Date, Manager shall develop and present to the Band for
its approval a training plan designed to meet the goals set out in this
section.
4.10 Pre-Opening. Nine months prior to the scheduled Commencement Date,
Manager shall commence implementation of a pre-opening program which
shall include all activities necessary to financially and operationally
prepare the Facility for opening. To implement the pre-opening program,
Manager shall prepare a comprehensive pre-opening budget which shall be
submitted to the Business Board for its approval no later than seven
months prior to the scheduled Commencement Date ("Pre-Opening Budget").
The Pre-Opening Budget shall identify expenses which Manager
anticipates to be necessary or desirable in order to prepare the
Facility for the Commencement Date, including without limitation, cash
for disbursements, Furnishings and Equipment and Operating Supplies,
hiring, training, relocation and temporary lodging of employees,
advertising and promotion, office overhead and office space (whether on
or off the Gaming Site), and travel and business entertainment
(including opening celebrations and ceremonies) ("Pre-Opening
Expenses"). The Band recognizes that the Pre-Opening Budget has been
prepared well in advance of Commencement and is intended only to be a
reasonable estimate, subject to variation due to a number of factors,
some of which will be outside of Manager's control (e.g. the time of
completion, inflationary factors and varying conditions for the goods
and services required). The Band agrees that the Pre-Opening Budget may
be modified from time to time, subject to approval of the Business
Board in accordance with the procedure established by ss. 4.11 of this
Agreement for adjustments to the Operating Budget and Annual Plan. If a
Temporary Facility is constructed, Manager shall prepare a pre-opening
budget in that regard which shall be
<PAGE> 30
submitted to the Business Board for its approval no later than two
months prior to the scheduled opening of the Temporary Facility, or at
such other time as may be approved by the Business Board.
4.11 Operating Budget and Annual Plan. Manager shall, prior to the scheduled
Commencement Date, submit to the Business Board for its approval a
proposed Operating Budget and Annual Plan for the Fiscal Year
commencing on the Commencement Date. Thereafter, Manager shall, not
less than 30 days prior to the commencement of each full or partial
Fiscal Year, submit to the Business Board for its approval a proposed
Operating Budget and Annual Plan for the ensuing full or partial Fiscal
Year, as the case may be. The Operating Budget and Annual Plan shall
include a projected income statement, balance sheet, and projection of
cash flow for the Enterprise, with detailed justifications explaining
the assumptions used therein. The Operating Budget and Annual Plan
shall include, without limitation, a schedule of repairs and
maintenance (other than Capital Replacements), a business and marketing
plan for the Fiscal Year, and the Minimum Balance which must remain in
the Enterprise Accounts and the House Bank as of the end of each month
during the Fiscal Year to assure sufficient monies for working capital
purposes, and detail of other expenditures proposed to be authorized
under the Operating Budget and Annual Plan.
The Operating Budget and Annual Plan for the Enterprise will be
comprised of the following:
4.11.1 A statement of the estimated income and expenses for the coming
Fiscal Year, including estimates as to Gross Revenues and
Operating Expenses for such Fiscal Year, such operating budget to
reflect the estimated results of the operation during each month
of the subject Fiscal Year;
4.11.2 Either as part of the statement of the estimated income and
expenses referred to ss. 4.11.1, or separately, budgets (and
timetables and requirements of Manager) for:
4.11.2.1 repairs and maintenance;
4.11.2.2 Capital Replacements;
4.11.2.3 Furnishings and Equipment;
4.11.2.4 advertising and business promotion programs for the
Enterprise;
<PAGE> 31
4.11.2.5 the estimated cost of Promotional Allowances; and
4.11.2.6 a business and marketing plan for the subject Fiscal Year.
4.11.3 The Business Board's approval of the Operating Budget and Annual
Plan shall not be unreasonably withheld or delayed. Manager shall
meet with the Business Board to discuss the proposed Operating
Budget and Annual Plan and the Business Board's approval shall be
deemed given unless a specific written objection thereto is
delivered by the Band Representatives to Manager within thirty
(30) days after Manager and the Business Board have met to
discuss the proposed Operating Budget and Annual Plan. If the
Band Representatives for any reason decline to meet with Manager
to discuss a proposed Operating Budget and Annual Plan after not
less than twenty (20) days written notice, the Band
Representatives shall be deemed to have consented unless a
specific written objection is delivered to Manager within thirty
(30) days after the date of the proposed meeting. The Business
Board shall review the Operating Budget and Annual Plan on a
line-by-line basis, if requested by the Band Representative.
4.11.4 If the initial proposed Operating Budget and Annual Plan contains
disputed budget item(s), the Band Representatives on the Business
Board and the Manager agree to cooperate with each other in good
faith to resolve the disputed or objectionable proposed item(s).
In the event that the Band Representatives on the Business Board
and the Manager are not able to reach mutual agreement concerning
any disputed or objectionable item(s) within a period of fifteen
(15) days after the date the Band Representatives on the Business
Board provide written notice of the Band's objection to Manager,
either party shall be entitled to submit the dispute to
arbitration in accordance with Article 13. If the Band
Representatives on the Business Board and the Manager are unable
to resolve the disputed or objectionable item(s) prior to the
commencement of the applicable fiscal year, the undisputed
portions of the proposed Operating Budget and Annual Plan shall
be deemed to be adopted and approved and the corresponding line
item(s) contained in the Operating Budget and Annual Plan for the
preceding fiscal year shall be adjusted as set forth herein and
shall be substituted in lieu of the disputed item(s) in the
proposed Operating Budget and Annual Plan. Those line items which
are in dispute shall be determined by increasing the preceding
fiscal year's actual expense for the corresponding line items by
an amount determined by Manager which does not exceed the
Consumer Price Index for All Urban Consumers published by the
<PAGE> 32
Bureau of Labor Statistics of the United States Department of
Labor, U.S. City Average, all items (1997-98 = 100) for the
Fiscal Year prior to the Fiscal Year with respect to which the
adjustment to the line item(s) is being calculated or any
successor or replacement index thereto. The resulting Operating
Budget and Annual Plan obtained in accordance with the preceding
sentence shall be deemed to be the Operating Budget and Annual
Plan in effect until such time as Manager and the Band
Representatives on the Business Board have resolved the items
objected to by the Band Representatives on the Business Board or
an arbitrator has rendered his award on the dispute.
4.11.5 Adjustments to Operating Budget and Annual Plan and Capital
Budget. Manager may, after notice to and approval by the Business
Board, revise the Operating Budget and Annual Plan and the
Capital Budget from time to time, as necessary, to reflect any
unpredicted significant changes, variables or events or to
include significant, additional, unanticipated items of expense.
Expenditures shall not materially vary from the approved budgets
nor exceed the aggregate Operating Budget and Annual Plan (as
approved by the Business Board, and revised with the reasonable
approval of the Business Board) absent the written consent of the
Business Board; provided that the Band recognizes that (a) the
absolute amounts of expenditures may exceed budgeted amounts if
the volume of business at the Facility exceeds projections, (b)
the relative amounts of income and expense may vary from budgeted
amounts if the volume of business is less than projected, and (c)
Manager does not guarantee the economic performance shown in
budgets. Manager shall submit a revision of the Operating Budget
and Annual Plan to the Business Board for review on a quarterly
or other appropriate basis.
4.12 Capital Budgets. Manager shall, not less than 30 days prior to the
commencement of each fiscal year, or partial fiscal year, submit to the
Business Board a recommended capital budget (the "Capital Budget")
describing the present value, estimated useful life and estimated
replacement costs for the ensuing full or partial year, as the case may
be, for the physical plant, furnishings, equipment, and ordinary
capital replacement items, all of which are defined to be any items,
the cost of which is capitalized and depreciated, rather than expended,
using GAAP ("Capital Replacements") as shall be required to operate the
Enterprise in accordance with sound business practices. Capital
Replacements in the Capital Budget in an aggregate sum equal to or less
than the sum of the Capital Replacement Reserve for the Fiscal Year
shall be approved by the Business Board; and any amounts in excess of
the Capital Replacement Reserve for the Fiscal Year shall be subject to
approval of the
<PAGE> 33
Pokagon Council in its sole discretion. The Pokagon Council, Business
Board, and Manager shall meet to discuss the proposed Capital Budget
and the Business Board and Pokagon Council shall be required to make
specific written objections to a proposed Capital Budget in the same
manner and within the same time periods specified in ss. 4.11.4 with
respect to an Operating Budget and Annual Plan. The Business Board and
Pokagon Council shall not unreasonably withhold or delay its consent.
Unless the Pokagon Council, Business Board, and Manager otherwise
agree, Manager shall be responsible for the design and installation of
Capital Replacements, subject to the Business Board's approval and
ratification by the Pokagon Council and right to inspect.
4.13 Capital Replacements. The Band shall effect and expend such amounts for
any Capital Replacements as shall be required, in the course of the
operation of the Enterprise, to maintain, at a minimum, the Enterprise
in compliance with any Legal Requirements and to comply with Manager's
recommended programs for renovation, modernization and improvement
intended to keep the Enterprise competitive in its market; or to
correct any condition of an emergency nature, including without
limitation, maintenance, replacements or repairs which are required to
be effected by the Band, which in Manager's sole discretion requires
immediate action to preserve and protect the Facility, assure its
continued operation, and/or protect the comfort, health, safety and/or
welfare of the Facility's guests or employees (an "Emergency
Condition"); provided, however, that the Band shall be under no
obligation to fund Capital Replacements in aggregate amount greater
than its periodic required contributions to the Capital Replacement
Reserve described in ss. 4.15. Manager is authorized to take all steps
and to make all expenditures from the Disbursement Accounts described
in ss. 4.19.3 (in the case of non-capitalized repairs and maintenance),
or Capital Replacement Reserve described at ss. 4.15, (in the case of
expenditures for Capital Replacements) as it deems necessary to repair
and correct any Emergency Condition, regardless whether such provisions
have been made in the Capital Budget or the Operating Budget and Annual
Plan for any such expenditures; or the cost thereof may be advanced by
Manager and reimbursed from future revenues. Design and installation of
Capital Replacements shall be effected in a time period and subject to
such conditions as the Business Board may establish to minimize
interference with or disruption of ongoing operations.
4.14 Capital Replacement Reserve. Manager shall establish a Capital
Replacement Reserve on the books of account of the Enterprise, and the
periodic contributions of cash required by ss.4.15 shall be deposited
by the Enterprise into an account (the "Capital Replacement Reserve")
established in the Band's name at a bank designated by the Business
Board in accordance
<PAGE> 34
with ss.4.19.1 of this Agreement. All amounts in the Capital
Replacement Reserve shall be invested in interest bearing investments
in accordance with the Enterprise Investment Policy to the extent that
availability of funds, when required, is not thereby impaired. Interest
earned on amounts deposited in the Capital Replacement Reserve shall be
credited to the Capital Replacement Reserve and shall be available for
payment of expenditures for Capital Replacements to the Facility.
Manager shall draw on the Capital Replacement Reserve for Capital
Replacements to purchase those items included in the Capital Budget
approved by the Business Board or such emergency additions, repairs or
replacements as shall be required to correct an Emergency Condition.
4.15 Periodic Contributions to Capital Replacement Reserve. In accordance
with ss. 5.5 of this Agreement, Manager shall make monthly deposits
into the Capital Replacement Reserve in amounts equivalent to an annual
rate of 1% (one percent) of Gross Revenues during the first Fiscal Year
after the Commencement Date and equivalent to an annual rate of 3%
(three percent) of Gross Revenues during each Fiscal Year over the
remainder of the Term; such reserve shall be funded out of Monthly
Distribution Payments. The cash amounts required to be so deposited
shall be calculated and deposited into the Capital Replacement Reserve,
in arrears, no later than the twenty-first (21st) day of the month
immediately following the month with respect to which a deposit is
made. If any adjustment of Gross Revenues is made as result of an audit
or for other accounting reasons, a corresponding adjustment in the
Capital Replacement Reserve deposit shall be made. In addition, all
proceeds from the sale of capital items no longer needed for the
operation of the Enterprise, and the proceeds of any insurance received
in reimbursement for any items previously paid from the Capital
Replacement Reserve, shall be deposited into the Capital Replacement
Reserve upon receipt.
4.16 Use and Allocation of Capital Replacement Reserve. Any expenditures for
Capital Replacements which have been budgeted and previously approved
may be paid from the Capital Replacement Reserve without further
approval from the Business Board. Any amounts remaining in the Capital
Replacement Reserve at the close of any year shall be carried forward
and retained in the Capital Replacement Reserve until fully used. If
the amounts in the Capital Replacement Reserve at the end of any year
plus the anticipated contributions to the Capital Replacement Reserve
for the next ensuing year are not sufficient to pay for Capital
Replacements authorized by the Capital Budget for such ensuing year,
then additional funds, in the amount of the projected deficiency, may
be advanced by the Manager and reimbursed by the Enterprise from future
revenues.
<PAGE> 35
4.17 Indian Preference: Vendors and Contractors. In order to maximize
benefits of the Enterprise to the Band, Manager and the Band shall,
during the term of this Agreement, together strive for use of Native
American contractors, sub-contractors and vendors, provided their bids
are reasonably competitive. The Band and Manager shall agree on
policies reasonably governing (i) preferential purchases from vendors
and contractors owned by or affiliated with members of the Band, which
shall among other things limit such preference to entities in which the
member is the real party in interest and require the price and other
terms offered by such vendors to be reasonably competitive; and (ii)
purchases of goods or services from the Band, which shall be on terms
that are reasonably competitive. The Band reserves the right to require
use of union labor on some or all contracts, subject to review of
budgetary impact. Manager shall provide written notice to the Band in
advance of all such contracting, subcontracting and construction
opportunities.
4.18 Internal Control Systems. Manager shall install systems for monitor of
all funds (the "Internal Control Systems"), which systems shall comply
with all Legal Requirements, and shall be submitted to the Business
Board and the Band Regulatory Authority for approval in advance of
implementation, which approval shall not be unreasonably withheld. The
Band shall retain the right to review all Internal Control Systems and
any changes instituted to the Internal Control Systems of the
Enterprise. The Band shall have the right to retain an auditor to
review the adequacy of the Internal Control Systems prior to the
Commencement Date. The cost of such review shall be a Pre-Opening
Expense. Any significant changes in such systems after the Commencement
Date also shall be subject to review and approval by the Gaming
Regulatory Authority. The Gaming Regulatory Authority and Manager shall
have the right and duty to maintain and police the Internal Control
Systems in order to prevent any loss of proceeds from the Enterprise.
The Gaming Regulatory Authority shall have the right to inspect and
oversee the Internal Control System at all times. Manager shall install
a closed circuit television system to be used for monitoring the cash
handling activities of the Enterprise sufficient to meet all Legal
Requirements.
4.19 Banking and Bank Accounts.
4.19.1 Enterprise Accounts. The Business Board shall select, and the
Pokagon Council shall approve, a bank or banks for the deposit
and maintenance of funds and shall establish in such bank or
banks accounts as Manager deems appropriate and necessary in the
course of business and as consistent with this Agreement,
including the Dominion Account.
<PAGE> 36
("Enterprise Accounts"). Establishment of any Enterprise Bank
Account shall be subject to the approval of the Business Board.
The sum of money agreed to by the Business Board to be maintained
in the Enterprise Bank Account(s) to serve as working capital for
Enterprise operations, shall include all sums needed for the
House Bank, and all sums needed to accrue for payment of expenses
not paid on a monthly basis (the "Minimum Balance"). Manager
shall propose a policy for investing funds in excess of the
Minimum Balance (the "Enterprise Investment Policy"), which shall
be subject to the approval of the Business Board.
4.19.2 Daily Deposits to Depository Account. Manager shall establish for
the benefit of the Band in the Enterprise's name a Dominion
Account, which shall be subject to the lien and security interest
of Manager to the extent provided in ss.9.2.1(x) of the
Development Agreement and the Dominion Agreement. Manager shall
collect all Gross Revenues and other proceeds connected with or
arising from the operation of the Enterprise, the sale of all
products, food and beverage, and all other activities of the
Enterprise and deposit the related cash daily into the Dominion
Account at least once during each 24-hour period unless otherwise
agreed by the Business Board. All money received by the
Enterprise on each day that it is open must be counted at the
close of operations for that day or at least once during each
24-hour period. Manager agrees to obtain a bonded transportation
service to effect the safe transportation of the daily receipts
to the bank, which expense shall constitute an Operating Expense.
4.19.3 Disbursement Accounts. Manager shall establish for the benefit of
the Band in the Enterprise's name one or more Disbursement
Accounts. Manager shall, consistent with and pursuant to the
approved annual Operating Budget and Annual Plan and Capital
Budget, have responsibility and authority for making all payments
for Operating Expenses, debt service, Management Fees, and Tribal
Distributions from the Disbursement Accounts.
4.19.4 No Cash Disbursements. Manager shall not make any cash
disbursements from the Enterprise Accounts except for the payment
of cash prizes; and except for such cash disbursements, any and
all payments or disbursements by the Manager shall be made by
check or wire transfer drawn against an Enterprise Bank Account.
4.19.5 Transfers Between Accounts. Manager has the authority to transfer
<PAGE> 37
funds from and between the Enterprise Accounts to the
Disbursement Accounts in order to pay Operating Expenses and to
pay debt service pursuant to the Loans, to invest funds in
accordance with the Enterprise Investment Policy, and to pay the
Management Fees and Tribal Distributions pursuant to this
Agreement.
4.19.6 Transfers from Dominion Account to Disbursement Accounts. Lakes
agrees that, notwithstanding any provision of the Dominion
Agreement or any Band Event of Default or any default by the Band
under the Dominion Agreement, it shall make or permit timely
transfers from the Dominion Account to Disbursement Accounts of
all funds needed to pay (i) Operating Expenses; (ii) all Loans,
as well any other third party loans to which Lakes has
subordinated in writing; (iii) the Minimum Guaranteed Monthly
Payment; (iv) deposits into the Capital Replacement Reserve
pursuant to ss.4.15 of the Management Agreement; (v) maintenance
of the Minimum Balance, and any other reserves approved by the
Business Board with the written consent of Great Lakes; and (vi)
claims of third parties granted priority over Lakes under the
Agreements, if the events occur which trigger that priority.
Lakes further agrees that, prior to any Band Event of Default, it
shall make timely transfers to Disbursement Accounts to enable
the Monthly Distribution Payment to be made to the Band when due,
and otherwise in accordance with this Agreement.
4.20 Insurance. Manager, on behalf of the Band, shall arrange for, obtain
and maintain, or cause its agents to maintain, with responsible
insurance carriers licensed to do business in the State, insurance
satisfactory to Manager and the Business Board covering the Facility
and the operations of the Enterprise, naming the Band, the Enterprise
and Manager as insured parties. Manager shall recommend to the Business
Board the minimum amounts of insurance coverage for the Enterprise,
which shall be subject to the reasonable approval of the Band.
4.21 Accounting and Books of Account.
4.21.1 Statements. Manager shall prepare and provide to the Band on a
monthly, quarterly, and annual basis, operating statements on
behalf of the Enterprise. The operating statements shall comply
with all Legal Requirements and shall include an income
statement, statement of cash flows, and balance sheet for the
Enterprise. Such statements shall include the Operating Budget
and Annual Plan and Capital Budget projections as comparative
statements, and, after the first full year of operation, will
include comparative statements from the comparable period for the
prior year; and shall reflect in accordance with GAAP all
<PAGE> 38
amounts collected and received and all expenses, deductions and
disbursements made therefrom in connection with the Enterprise.
4.21.2 Books of Account. Manager shall maintain full and accurate books
of account on behalf of the Enterprise at an office in the
Facility and at such other location as may be determined by
Manager. The GRA and other designated representatives of the
Pokagon Council shall have access to the daily operations of the
Enterprise and shall have the unlimited right to inspect,
examine, and copy all such books and supporting business records.
Such rights may be exercised through the Gaming Regulatory
Authority or through an agent, employee, attorney, or independent
accountant acting on behalf of the Band.
4.21.3 Accounting Standards. Manager shall maintain the books and
records on behalf of the Enterprise reflecting the operations of
the Enterprise in accordance with Generally Accepted Accounting
Principles consistently applied and shall adopt and follow the
fiscal accounting periods utilized by Manager in its normal
course of business (i.e., a month, quarter and year prepared in
accordance with the Fiscal Year). The accounting systems and
procedures shall comply with Legal Requirements and, at a
minimum:
4.21.3.1 include an adequate system of internal accounting controls;
4.21.3.2 permit the preparation of financial statements in accordance with
GAAP;
4.21.3.3 be susceptible to audit;
4.21.3.4 permit the calculation and payment of the Management Fee
described in ss. 5; and
4.21.3.5 provide for the allocation of operating expenses or overhead
expenses among the Band, the Enterprise, and any other user of
shared facilities and services.
4.22 Annual Audit. An independent certified public accounting firm selected
by the Band and reasonably acceptable to Manager shall perform an
annual audit of the books and records of the Enterprise and of all
contracts for supplies, services or concessions reflecting Operating
Expenses, and shall provide such other services as the Business Board
shall designate. The Band, the BIA and the NIGC shall also have the
right to perform special audits of the Enterprise
<PAGE> 39
on any aspect of the Enterprise at any time without restriction. The
costs incurred for such audits shall constitute an Operating Expense.
Such audits shall be provided by the Band to all applicable federal and
state agencies, as required by law, and may be used by Manager for
reporting purposes under federal and state securities laws, if
required.
4.23 Manager's Contractual Authority. Manager is authorized to make, enter
into and perform in the name of and for the account of the Band, doing
business as the Enterprise, such contracts deemed necessary by Manager
to perform its obligations under this Agreement, provided such
contracts comply with the terms and conditions of this Agreement,
including, but not limited to, ss. 4.2.4, and provided such contracts
do not obligate the Enterprise to pay sums not approved in the
Operating Budget and Annual Plan or the Capital Budget.
4.24 Retail Shops and Concessions. The Business Board shall approve in
advance in writing the specific type or types of shops or concessions
to be authorized for inclusion in the Facility.
4.25 Entertainment Approvals. The Pokagon Council may require that the
Business Board approve in advance in writing entertainment and/or
sporting events to provided at the Facility.
4.26 Litigation. Except for disputes between the Band and Manager, and
claims relating to the Band's status as a Tribe or the trust status of
the Gaming Site, Manager shall bring and/or defend and/or settle any
claim or legal action brought against Manager, the Enterprise or the
Band, individually, jointly or severally, or any Enterprise Employee,
in connection with the operation of the Enterprise if the basis of such
claim or legal action was within the scope of Manager's authority under
the Agreements; except that bringing litigation or arbitration relating
to claims in excess of $100,000 must be approved by the Business Board
and, as to claims in excess of $500,000, by the Pokagon Council (which
consent shall not be unreasonably withheld); and Manager shall furnish
such information regarding claims, litigation and arbitration as the
Band may request. Subject to the Band's approval of legal counsel,
Manager shall retain and supervise legal counsel, accountants and such
other professionals, consultants and specialists as Manager deems
appropriate to assert or defend any such claim or cause of action. All
liabilities, costs and expenses, including reasonable attorneys' fees
and disbursements incurred in defending and/or settling any such claim
or legal action which are not covered by insurance and which, as to
Manager, relate to acts or omissions of Manager within the scope of its
authority under the Agreements, shall be an Operating Expense, or, if
incurred prior to the Commencement Date, shall be a
<PAGE> 40
Pre-Opening Expense. Nothing contained herein is a grant to Manager of
the right to waive the Band's or the Enterprise's sovereign immunity.
That right is strictly reserved to the Band, and shall at the option of
the Pokagon Council be asserted by the Band through its counsel (whose
fees and expenses relating to the Enterprise shall be an Operating
Expense). Any settlement of a third party claim or cause of action
shall require approval of the Business Board and, as to claims in
excess of $100,000 not covered by insurance, by the Pokagon Council
(which consent shall not be unreasonably withheld).
5 MANAGEMENT FEE, DISBURSEMENTS, AND OTHER PAYMENTS BY MANAGER.
5.1 Management Fee. Subject to the provisions of ss. 5.5, on or before the
twenty-first (21st) day of each month after the month in which the
Commencement Date occurs, Manager is authorized by the Band to pay
itself from the Enterprise Bank Account(s) a fee as follows: 24% of the
Net Revenues of the Enterprise in the period from the Commencement Date
until the first day of the month next following the Commencement Date
(which shall constitute the commencement of the next Fiscal Year),
payable on or before the twenty-first day of that next month; then 24%
of the Net Revenues of each succeeding month, payable monthly in
arrears, until the Net Revenues in a Fiscal Year have totaled $80
million; and thereafter 19% of Net Revenues of each succeeding month,
payable monthly in arrears, to the extent that aggregate Net Revenues
in such Fiscal Year exceed $80 million. To the extent that aggregate
Net Revenues reach $80 million during a month, the fee shall be
prorated.
5.2 Fee Subordinated. The Management Fee shall be subordinated to the Bank
Loan, the Equipment Loan, any other third-party loans or equipment
leases pertaining to the Enterprise, and the Minimum Guaranteed Monthly
Payment. Manager agrees to execute and deliver subordination agreements
evidencing such subordination in form reasonably acceptable to the Bank
Lender, the Equipment Lender, or any other third-party lender or
equipment lessor.
5.3 Disbursements. As and when received by the Enterprise, Gross Revenues
shall be deposited in the Dominion Account created pursuant to
ss.4.19.2 of this Agreement. There shall, in turn, be disbursed by
Manager, on a monthly basis, for and on behalf of the Band, funds from
the Enterprise Bank Account(s) in accordance with ss.4.19.6 of this
Agreement to pay, to the extent available, Operating Expenses and
required deposits into the Capital Replacement Reserve for Capital
Replacements. Manager will reserve funds in the
<PAGE> 41
Enterprise in amounts equal to the Minimum Balance. Additionally,
Manager may advance any monies needed to cover any operating cash
shortfall and shall be allowed to be reimbursed same in accordance with
ss.18.8.
5.4 Adjustment to Bank Account. After the disbursements pursuant to ss. 5.3
and establishment of any additional reserves for future disbursements
as Manager deems necessary and as are approved by the Business Board,
taking into account anticipated cash flow and Operating Costs of the
Enterprise, any excess funds remaining in the Enterprise Bank
Account(s) over the Minimum Balance, the Capital Replacement Reserve,
and such additional reserves as may be approved by the Business Board
shall be disbursed monthly in accordance with ss. 5.5.
5.5 Payment of Fees and Band Disbursement. Within twenty-one (21) days
after the end of each calendar month of operations, Manager shall
calculate Gross Revenues, Operating Expenses, and Net Revenues of the
Enterprise for the previous month's operations and the Fiscal Year's
operations to date. Such Net Revenues shall be disbursed from the
Enterprise Bank Account(s) to the extent available in the following
order of priority:
5.5.1 the Minimum Guaranteed Monthly Payment described in ss. 5.6;
5.5.2 Current principal and any other payments due on all Loans (and if
payments are due quarterly, a reserve equal to one third of the
scheduled quarterly payment shall be deposited in a designated
Enterprise Bank Account for such payment, and may be invested in
accordance with the Enterprise Investment Policies pending
payment);
5.5.3 Capital Replacement Reserve contributions as described in ss.
4.15; and
5.5.4 the Management Fee.
5.5.5 Interest and principal on the Second Tranche -- Lakes Note and
the Second Tranche - Non-Gaming Land, payable in 12 equal monthly
payments of principal and interest commencing with distribution
made after the first calendar month of operations; provided that
if distributions under this subsection in any month are
insufficient to fund such payment in full, the amount unpaid
shall be deferred and paid, without compounding of interest,
under ss.5.5.6.
5.5.6 Any amounts deferred under ss.5.5.5.
<PAGE> 42
All remaining Net Revenues (the "Monthly Distribution Payment")
shall be distributed to the Band at the same time the Management
Fee is paid.
5.6 Minimum Guaranteed Monthly Payment. The Enterprise shall, subject to
the provisions of ss.5.6.1, pay the Band $1,000,000 per month (the
"Minimum Guaranteed Monthly Payment"), beginning on the Commencement
Date and continuing for the remainder of the Term. The Minimum
Guaranteed Monthly Payment shall be payable to the Band in arrears on
the twenty first (21st) day of each calendar month following the month
in which the Commencement Date occurs, which payment shall have
priority over the Management Fee. If the Commencement Date is a date
other than the first day of a calendar month, the first payment will be
prorated from the Commencement Date to the end of the month.
5.6.1 Minimum Guaranteed Monthly Payments shall be charged against the
Band's distribution of Net Revenues for each month; provided,
however, that if the Net Revenues in a given month are less than
$1,000,000, Manager shall pay the funds necessary to compensate
for the deficiency from its own funds; and provided further that
the Minimum Guaranteed Monthly Payments shall be reduced to
$10,000 per month for the remaining months in a Fiscal Year after
the Band has received in such Fiscal Year total Net Revenue
distributions of $12,000,000. Manager shall be entitled to recoup
from the Band's Monthly Distribution Payment in succeeding months
of a Fiscal Year any deficiency payments made under this
paragraph in that same Fiscal Year, but in no event shall this
recoupment payment result in the Band's receiving less than its
Minimum Guaranteed Monthly Payment in any month. Manager shall
not otherwise be entitled to reimbursement from the Enterprise or
the Band for payments it makes from its own funds on account of
Minimum Guaranteed Monthly Payments, and shall not be entitled to
charge any interest on any deficiency payments made hereunder.
5.6.2 The obligation to make Minimum Guaranteed Monthly Payments shall
cease upon termination of this Agreement, unless the Agreement is
terminated by the Band for a Material Breach by the Manager.
5.6.3 The Minimum Guaranteed Monthly Payment shall be reduced
prospectively from $1,000,000 to $500,000 upon the opening, if
any, of a casino in Indiana owned by the Band, on the same
cumulative basis as provided in ss. 5.6.1.
5.6.4 Except as provided in this ss. 5.6 with regard to cumulation of
payments
<PAGE> 43
in any Fiscal Year or otherwise specifically provided in this
Agreement, Manager's obligation to pay the Band the Minimum
Guaranteed Monthly Payment is unconditional and shall not be
affected by the actual level of funds generated by the
Enterprise.
5.7 Payment of Net Revenues. The Net Revenues paid to the Band pursuant to
this Article 5 shall be payable to the Band bank account specified by
the Pokagon Council in a notice to Manager pursuant to ss. 18.2.
5.8 Harrah's Termination Agreement. Manager shall pay out of its Management
Fee all obligations of the Band to make payments under ss.ss. 1.4.1 and
1.4.3 (as it pertains to interest on payments due under ss. 1.4.1) of
the Termination Agreement dated September 12, 1998 between the Band and
Harrah's Southwest Michigan Casino Corporation (the "Harrah's
Termination Agreement"), and shall indemnify and hold the Band harmless
against all loss, liability and expense relating to its liability under
those sections of the Harrah's Termination Agreement. Such payments
shall not constitute Operating Expenses of the Gaming Facility and
shall not be reimbursed by the Band or the Enterprise.
5.9 The Band shall indemnify Manager against any decrease in Management Fee
caused by an Indiana casino owned or operated by the Band, provided
that (a) the alleged reduction in fees shall be measured against the
Management Fees actually earned by Manager in the 12-month period
preceding the date on which the Manager notifies the Band of the claim
for indemnification under this section, without giving effect to any
subsequent actual or projected increase in such fees over that level;
and (b) in any arbitration relating to such a claim, Manager must prove
its claim by clear and convincing evidence.
5.10 The maximum dollar amount for recoupment of the development and
construction costs of the Facility and the Enterprise shall be the
aggregate amount of all Loans made under ss. 9.2 of the Development
Agreement, including the Lakes Development Loan, Bank Development Loan
and Equipment Loan, provided that such aggregate amount shall not
exceed $200,000,000.
6 ENTERPRISE NAME; MARKS
6.1 Enterprise Name. The Enterprise shall be operated under a business name
approved by the Business Board and reasonably acceptable to the Band
(the "Enterprise Name").
<PAGE> 44
6.2 Marks. All Marks shall be approved by the Business Board and shall be
subject to the reasonable approval of the Pokagon Council. Prior to the
Commencement Date and from time to time during the Term hereof, Manager
agrees to take such actions on behalf of the Band as are reasonably
necessary to register and protect all Marks.
6.3 Signage. Manager shall erect and install in accordance with local codes
and regulations appropriate signs in, on or about the Facility,
including, but not limited to, signs bearing Marks as part of the
Enterprise Name. The costs of purchasing, leasing, transporting,
constructing, maintaining and installing the required signs and
systems, and of registering and protecting all Marks, shall be part of
the Operating Expenses.
7 TAXES
7.1 State and Local Taxes. If the State or any local government attempts to
impose any tax including any possessory interest tax upon any party to
this Agreement or upon the Enterprise, the Facility or the Gaming Site,
the Pokagon Band may direct the Enterprise, in the name of the
appropriate party or parties in interest, to resist such attempt
through legal action. The costs of such action and the compensation of
legal counsel shall be an Operating Expense of the Enterprise. Any such
tax shall constitute an Operating Expense of the Enterprise. This
section shall in no manner be construed to imply that any party to this
Agreement or the Enterprise is liable for any such tax.
7.2 Band Taxes. The Band agrees that neither it nor any agent, agency,
affiliate or representative of the Band will impose any taxes, fees,
assessments or other charges of any nature whatsoever on payments of
any debt service on any Loan or on debt service on any other financing
for the Facility or for the Enterprise, or on the revenues of the
Enterprise or the Facility, or on the Management Fee as described in
ss. 5.1 of this Agreement; but the Band reserves the right to otherwise
impose usual and customary taxes and fees on transactions at or in
connection with the Facility or on the Facilities's employees,
officers, directors, vendors and patrons. Without limiting the
foregoing, the Band shall be specifically permitted to impose (i)
charges, assessments, fines or fees imposed by governmental entities of
the Band which are reasonably related to the cost of Tribal
governmental regulation of public health, safety or welfare, or the
integrity of Tribal gaming operations, and (ii) other taxes, charges,
assessments or fees imposed against the Enterprise or property of the
Enterprise, or sales, use, excise, hotel occupancy and other similar
taxes (excluding taxes, charges, assessments or fees against real or
personal property of the Facility or on
<PAGE> 45
gaming revenues or earnings) of such types and percentage amounts not
to exceed those imposed by any state or local government within the
Restricted Territory.
7.3 Compliance with Internal Revenue Code. Manager shall comply with all
applicable provisions of the Internal Revenue Code.
8 BUY-OUT OPTION
The Band shall have the right, beginning two years after the
Commencement Date, to buy out the remaining term of this Agreement (the "Buyout
Option"), provided that such buyout includes repayment in full of all
outstanding debt owed by the Band to Manager, including without limitation the
Lakes Development Loan, the Transition Loan, the Non-Gaming Land Acquisition
Line of Credit, and either repayment of the Bank Development Loan and the
Equipment Loan (to the extent they are guaranteed by Manager) or release of
Manager's guarantees and other credit enhancements, if any, relating to those
Loans. The Buyout Option price shall be determined by multiplying the average
monthly Management Fee earned during the 12 month period prior to exercise of
the Buyout by the number of months remaining in the term of this Agreement, and
discounting future payments at a discount rate equal to the Band Interest Rate.
The Band shall not be required in connection with its exercise of the Buyout
Option to pay any termination fee or to make any payment related to the value of
gaming equipment, amenities, or any other asset of the Facility or the
Enterprise.
9 EXCLUSIVITY; NON-COMPETITION
9.1 Exclusivity in Michigan. The Band shall deal exclusively with Manager
for gaming development on Indian lands in Michigan from the date of
execution of this Agreement through the earlier of five years from the
Commencement Date or termination or buyout of the Agreements.
9.2 Indiana Casino. Manager recognizes that the Band intends to develop a
casino in Indiana, and that the Band shall have no obligations to
Manager in that regard; except that the Band agrees that, if it decides
to engage an outside manager to develop or operate an Indiana casino,
it shall discuss contracting with Manager for such development or
operation for 45 days before soliciting proposals from third parties as
to management or development of that casino. No obligation to enter
into an agreement with Manager shall be implied from this undertaking,
and the Band shall retain full and absolute discretion in that
<PAGE> 46
regard.
9.3 Non-Competition. Manager agrees that for five years after execution of
the Agreements or the Term of the Agreements, whichever is greater,
neither it nor any present or future Insider will directly or
indirectly in the Restricted Territory develop, operate, consult with
regard to, or be in any way affiliated with any non-Indian gaming
facility, any Class II or III Gaming facility or any other kind of
gaming, or any hotels or other amenities related to such gaming or
facility; except that Insiders shall not include (a) Kids Quest, Grand
Casinos, Inc., Park Place Entertainment or Innovative Gaming Corp. by
reason of (i) the service of (A) Lyle Berman as director or employee
(without management responsibility) of such entities, provided that Mr.
Berman votes as director against, or abstains from voting as to, any
direct or indirect lobbying by Park Place Entertainment against a
compact between the Band and the State of Indiana or any direct or
indirect opposition by Park Place Entertainment to the Band's taking of
land into trust for a casino to be owned or operated by the Band in
Indiana, and does not personally directly or indirectly lobby against
such a compact or oppose such taking into trust; (B) Lyle Berman as
employee of Park Place Entertainment with management responsibility, so
long as Park Place Entertainment does not (x) develop, operate, consult
with regard to, or be in any way affiliated with a Class III Gaming
facility in the Restricted Territory (excluding Ohio) that commences
new operations or expands its gaming capacity more than 50% after the
execution of the Agreements, or (y) directly or indirectly lobby
against a compact between the Band and the State of Indiana, or
directly or indirectly oppose the taking of land into trust by the Band
for a casino to be owned or operated by the Band in Indiana; or (C)
Thomas Brosig as director or employee (without any management
responsibility for gaming in the Restricted Territory unless the Band
consents) in Park Place Entertainment, or (ii) any stock ownership of
Manager in such entities; or (b) any entity because of the investment
banking services of Ron Kramer, a director of Manager.
9.4 Permitted Assignment; Change of Control.
9.4.1 Manager may not assign its rights under this Agreement without
the Band's prior written consent, except that Manager may assign
its rights under such Agreement, but not its obligations, to a
wholly owned subsidiary.
9.4.2 The Band may not assign its rights under this Agreement; except
that the Band may, without the consent of Manager, but subject to
approval by the Secretary of the Interior or the Chairman of the
NIGC or his
<PAGE> 47
authorized representative, if required, assign this Agreement and
the assets of the Enterprise to a Corporate Commission or other
instrumentality of the Band organized to conduct the business of
the Project and the Enterprise for the Band that assumes all
obligations herein. No assignment authorized hereunder shall be
effective until all necessary governmental approvals have been
obtained. No such assignment shall relieve the Band of any
obligation hereunder, unless otherwise agreed by Manager or the
holder of such obligation.
9.4.3 The Band shall be entitled to terminate the Agreements if Manager
undergoes a Change of Control without the prior written consent
of the Band. The Band shall not be required to prepay any amounts
advanced by Manager or any third party in the event of such
termination, and such obligations shall remain payable in
accordance with their payment terms. Manager agrees to notify the
Band in writing within 30 days after the occurrence of any event
described in Clauses I or II in the definition of Change of
Control, and within 30 days of Manager's knowledge of any event
described in Clauses III or IV of that definition.
"Change of Control," for purposes of this provision, means (I)
the merger, consolidation or other business combination of
Manager with, or acquisition of all or substantially all of the
assets of Manager by, any other entity; (II) Lyle Berman's
ceasing to be either Chief Executive Officer or Chairman of the
Board of Manager (other than on account of death or disability,
and except as provided at the end of this definition); (III) the
acquisition by any person or affiliated group of persons not
presently a shareholder of Manager of beneficial ownership of 30%
or more in interest of the outstanding voting stock of Manager,
as determined under 17 CFR ss.ss. 240.13d-3 or 240.16a-1; or (IV)
the acquisition by any person or affiliated group of persons not
presently a shareholder of Manager of beneficial ownership of 10%
or more in interest of the outstanding voting stock of Manager,
as determined under 17 CFR ss.ss. 240.13d-3 or 240.16a-1, if a
majority of the Board of Directors of Manager is replaced within
two years after such acquisition by directors not nominated and
approved by the Board of Directors.
Notwithstanding any other provision of this definition, if the
non-competition provisions of ss. 9.3(a)(i)(B) are breached |
