<PAGE>   1
                                                                    EXHIBIT 10.2














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                 EMPLOYEE BENEFITS AND OTHER EMPLOYMENT MATTERS
                              ALLOCATION AGREEMENT
                                 BY AND BETWEEN
                               GRAND CASINOS, INC.
                                       AND
                                 GCI LAKES, INC.
                       DATED AS OF _________________, 1998

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<PAGE>   2


                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                        Page
<S>                                                                                     <C>
ARTICLE 1 - DEFINITIONS...................................................................2
     Section 1.1   Definitions............................................................2

ARTICLE 2 - TRANSFER OF EMPLOYEES; EMPLOYMENT ALLOCATION;AND TERMINATION BENEFITS.........6
     Section 2.1   Transfer of Employees..................................................6
     Section 2.2   Allocations between Company and Lakes..................................8
     Section 2.3   Change of Control Benefits; Termination Benefits.......................9

ARTICLE 3 - EMPLOYER STOCK AND COMPENSATION PLANS........................................10
     Section 3.1   Stock Option Plans....................................................10
     Section 3.2   Stock Purchase Plans..................................................11
     Section 3.3   Compensation Plans....................................................11

ARTICLE 4 - SAVINGS PLANS................................................................12
     Section 4.1   401(k)Plans...........................................................12

ARTICLE 5 - WELFARE AND OTHER BENEFITS...................................................15
     Section 5.1   Company Medical/Dental Plans..........................................15
     Section 5.2   Lakes Medical/Dental Plan.............................................16
     Section 5.3   Vacation and Sick Pay Liabilities.....................................17
     Section 5.4   Payroll Reporting and Withholding.....................................18
     Section 5.5   Post-Retirement Welfare Benefits......................................20
     Section 5.6   Other Welfare Plans...................................................20
                   
ARTICLE 6 - LABOR AND EMPLOYMENT MATTERS.................................................20
     Section 6.1   Separate Employers....................................................21
     Section 6.2   Employment Policies and Practices.....................................21
     Section 6.3   Collective Bargaining Agreements......................................21
     Section 6.4   Notice of Claims......................................................21
     Section 6.5   Assumption of Unemployment Tax-Rates..................................21
     Section 6.6   Employees on Leave of Absence.........................................21
     Section 6.7   Release and Separation Agreements.....................................22
     
ARTICLE 7 - MISCELLANEOUS................................................................22
     Section 7.1   Relationship of Parties...............................................22
     Section 7.2   Access to Information; Cooperation....................................22
     Section 7.3   Assignment............................................................22
     Section 7.4   Headings..............................................................22
     Section 7.5   Severability..........................................................22
     Section 7.6   Parties in Interest; No Third Party Beneficial Rights.................22
</TABLE>
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<TABLE>
<S>                                                                                     <C>
     Section 7.7   Notices...............................................................23
     Section 7.8   Further Assurances....................................................24
     Section 7.9   Waiver of Conditions..................................................24
     Section 7.10  Governing Law.........................................................24
     Section 7.11  Preservation of Right To Amend or Terminate Plans.....................24
     Section 7.12  Entire Agreement......................................................25
     Section 7.13  Counterparts..........................................................25
     Section 7.14  Survival..............................................................25
     Section 7.15  Dispute Resolution....................................................25
     Section 7.16  Reimbursement.........................................................25
     Section 7.17  Default...............................................................25
     Section 7.18  Force Majeure.........................................................25
     Section 7.19  Attorney/Client Privilege.............................................26
     Section 7.20  Specific Performance..................................................26
</TABLE>
                   
SCHEDULES

     Schedule A    Change of Control Agreements
     
     Schedule B    Release and Separation Agreements
     


<PAGE>   4


                EMPLOYEE BENEFITS AND OTHER EMPLOYMENT MATTERS
                             ALLOCATION AGREEMENT

         THIS EMPLOYEE BENEFITS AND OTHER EMPLOYMENT MATTERS ALLOCATION
AGREEMENT (this "Agreement") is made and entered into as of [_______________],
1998, by and between GRAND CASINOS, INC., a Minnesota corporation ("Company");
and GCI LAKES, INC., a Minnesota corporation and wholly owned subsidiary of
Company ("Lakes"); and shall be effective as of the Distribution Date (as
hereinafter defined).

                                   RECITALS

         WHEREAS, Company, through certain wholly-owned subsidiaries, (a) owns,
operates and develops certain gaining and resort facilities located in the State
of Mississippi (as more specifically described herein, the "Mississippi
Business"), and (b) manages and develops certain gaming facilities located
outside the State of Mississippi (as more specifically described herein, the
"Non-Mississippi Business");

         WHEREAS, it is necessary to separate the Mississippi Business from the
Non-Mississippi Business in order to satisfy conditions precedent contained in
that certain Agreement and Plan of Merger dated June [ ], 1998 (the "Merger
Agreement"), by and among Company; Lakes; Hilton Hotels Corporation, a Delaware
corporation ("Hilton"); Gaming Co., Inc., a Delaware corporation and a
wholly-owned subsidiary of Hilton ("Gaming Co."); and Gary Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of Gary ("Merger Sub"),
providing for the merger of Merger Sub with and into Company (the "Merger");

         WHEREAS, subject to Company shareholder ratification and certain other
conditions, the Board of Directors of Company has determined that the separation
of the Non-Mississippi Business from the Mississippi Business shall be
accomplished by distributing all of the issued and outstanding shares of common
stock, par value $.01 per share, of Lakes (the "Lakes Common Stock") to the
holders as of the Record Date (as hereinafter defined) of common stock, par
value $.01 per share, of Company (the "Company Common Stock") on a pro rata
basis (the "Distribution") immediately before the Merger;

         WHEREAS, as set forth in the written Distribution Agreement between the
parties, of even date herewith (the "Distribution Agreement"), and subject to
the terms and conditions thereof, Company will contribute to Lakes, prior to the
Distribution, all of the operations, assets and liabilities of the
Non-Mississippi Business and such other assets, liabilities and operations as
are described in the Distribution Agreement; and

         WHEREAS, pursuant to, and as contemplated by, the Distribution
Agreement, Company and Lakes have agreed to enter into an agreement allocating
responsibilities with respect to certain matters relating to employees and
employee compensation, benefits, labor and certain other employment matters
pursuant to the terms and conditions set forth herein.



<PAGE>   5
                                  AGREEMENT

         NOW, THEREFORE, in consideration of the premises and mutual covenants,
agreements, undertakings and obligations set forth herein, and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:

                                  ARTICLE 1
                                 DEFINITIONS

         Section 1.1     Definitions. As used in this Agreement, the following 
terms shall have the meanings set forth or as referenced below. Capitalized
terms used and not otherwise defined in this Agreement shall have the meaning
ascribed to them in the Distribution Agreement. All references herein to
"Articles," "Sections" or "Schedules" shall be deemed to be references to
Articles or Sections hereof or Schedules hereto unless otherwise indicated.

         "Ancillary Agreement" shall mean any agreement contemplated by the
Distribution Agreement, and such other documents as the parties thereto shall
mutually agree are required to effect the Distribution.

         "Change of Control Agreements" shall mean those Change of Control
Agreements of Company identified on Schedule A attached hereto and any and all
other employment or severance agreements of Company that provide severance or
termination benefits to any Employee subsequent to a change of control of
Company.

         "COBRA" shall mean the federal statutes designated as Code Section
4980B and ERISA Sections 601 through 608; and any applicable state law that also
establishes employer requirements for continuation of health care, life
insurance or other Welfare Plan benefits for the benefit of certain current and
former employees or dependents thereof and any successor legislation to any of
such laws.

         "Code" shall mean the Internal Revenue Code of 1986, as amended, or any
successor legislation.

         "Collective Bargaining Agreement" shall mean any collective bargaining
agreement or other labor agreement to which Company or any of its subsidiaries
or affiliates was a party on or before the Distribution Date.

         "Company" shall have the meaning set forth in the Preamble.

         "Company Common Stock" shall have the meaning set forth in the 
Recitals.

         "Company Director Option Plan" shall mean the 1995 Director Stock
Option Plan of Company.

                                      2
<PAGE>   6


         "Company Employee Stock Option Plan" shall mean the 1991 Grand Casinos,
Inc. Stock Option and Compensation Plan, and amendments thereto, of Company.

         "Company 401(k) Plan" shall mean, until the Distribution Date, the
Grand Casinos 401(k) Savings Plan sponsored by Company and dated as of September
1, 1995.

         "Company Incentive Compensation Plan" shall mean the management
incentive bonus plan of Company, as amended; and any other incentive or bonus
compensation plans of Company.

         "Company Individual" shall mean any individual who (a) is a Retained
Employee, (b) is, as of the Distribution Date, a Company Terminee whose last
employment with Company or any of its subsidiaries was with a Company Retained
Business or (c) is a dependent or beneficiary of any individual specified in
clause (a) or (b).

         "Company Medical/Dental Plan" shall mean any Medical/Dental Plan
maintained for or providing benefits to Company Individuals.

         "Company Qualified Beneficiary" shall mean a Qualified Beneficiary who,
immediately following the Distribution, is not a Lakes Qualified Beneficiary and
who, immediately prior to the Distribution, was a Qualified Beneficiary under
any Company Medical/Dental Plan.

         "Company Retained Business" shall mean the Mississippi Business
described in the Recitals and any other business or operation of Company or its
subsidiaries which is, pursuant to the Distribution Agreement, to be conducted
by Company following the Distribution.

         "Company Stock Option" shall mean an option to purchase Company Common
Stock pursuant to any of the Company Stock Option Plans.

         "Company Stock Option Plans" shall mean collectively, the Company
Employee Stock Option Plan and the Company Director Option Plan.

         "Company Stock Purchase Plan" shall mean the Grand Casinos, Inc.
Associate Stock Purchase Plan established by Company as of March 1, 1997.

         "Company Terminee" shall mean any individual who was formerly employed
by Company or any of its subsidiaries and terminated such employment prior to
the Distribution Date.

         "Distribution" shall have the meaning set forth in the Recitals.

         "Distribution Agreement" shall have the meaning set forth in the
Recitals.

         "Distribution Date" shall mean the date on which the Distribution
occurs.


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         "Employee" shall mean with respect to any entity, an individual who is
considered, according to the payroll and other records of such entity, to be
employed by such entity, regardless of whether such individual is, at the
relevant time, actively at work or on leave of absence (including vacation,
holiday, sick leave, family and medical leave, disability leave, military leave,
jury duty, layoff with rights of recall, and any other leave of absence or
similar interruption of active employment that is not considered, according to
the policies or practices of such entity, to have resulted in a permanent
termination of such individual's employment), but excluding any individual who
is, as of the relevant time, on long-term disability leave. An employee
includes, without limitation, any individual who is in one of the following
categories: a Retained Employee, a Company Terminee, a Lakes Employee or a
Transferred Employee.

         "Employer" shall mean Company or Lakes, as the context so indicates.

         "Employer Common Stock" shall mean Company Common Stock with respect to
Company Individuals and Lakes Common Stock with respect to Lakes Individuals.

         "Employer Stock Option Plan" shall mean a plan that provides for awards
of additional compensation to eligible Employees in the form of non-qualified or
incentive options to purchase Employer Common Stock, including without
limitation, the Company Stock Option Plans and the Lakes Stock Option Plan.

         "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, or any successor legislation.

         "Exercise Date" shall have the meaning set forth in Section 3.2(a).

         "Gaming Co. 401(k) Plan" shall mean the defined contribution deferred
profit sharing plan that is intended to qualify under Code Sections 401(a) and
401(k) and is sponsored by Gaming Co. and/or Merger Sub as of the date of
consummation of the Merger.

         "HMO" shall mean any health maintenance organization organized under 42
U.S.C. Section 300e-9, or a state health maintenance organization statute that
provides medical services for Company Individuals or Lakes Individuals under any
Plan.

         "IRS" shall mean the Internal Revenue Service.

         "Lakes" shall have the meaning set forth in the Preamble.

         "Lakes Business" shall mean the Non-Mississippi Business described in
the Recitals and any other business or operation of Company or any of its
subsidiaries that is, pursuant to the Distribution Agreement, to be conducted by
Lakes immediately following the Distribution.

         "Lakes Common Stock" shall have the meaning set forth in the Recitals.

                                       4
<PAGE>   8

         "Lakes Compensation Plans" shall have the meaning set forth in Section
3.3(b).

         "Lakes Employee" shall mean any individual who is (a) a Transferred
Employee; or (b) not a Transferred Employee, but becomes an employee of Lakes or
any of its subsidiaries on or after the Distribution Date.

         "Lakes Employment Agreements" shall have the meaning set forth in
Section 2.1(d).

         "Lakes 401(k) Plan" shall have the meaning set forth in Section 4.1
(a).

         "Lakes Individual" shall mean any individual who (a) is a Transferred
Employee; (b) is otherwise a Lakes Employee; (c) is, as of the Distribution
Date, a Company Terminee whose last employment with Company or a subsidiary of
Company was with a Lakes Business; or (d) is a dependent or beneficiary of any
individual described in clause (a), (b) or (c).

         "Lakes Medical/Dental Plans" shall mean the Medical/Dental Plans
established by Lakes in accordance with Section 5.2(a).

         "Lakes Option" shall have the meaning set forth in Section 3.1 (a).

         "Lakes Qualified Beneficiary" shall mean any Lakes Individual (or
dependent thereof) who, on or before the Distribution Date, was a Qualified
Beneficiary under any Company Medica/Dental Plan.

         "Lakes Stock Option Plan" shall mean the Stock Option Plan of Lakes, as
established by Lakes pursuant to Section 3.1 (b) hereof.

         "Lakes Stock Purchase Plan" shall have the meaning set forth in Section
3.2(b).

         "Medical/Dental Plan" shall mean a Welfare Plan providing health
benefits to Employees and their dependents; and also includes a "cafeteria" Plan
intended to qualify under Code Section 125.

         "Merger" shall have the meaning set forth in the Recitals.

         "Plan" shall mean any plan, policy, arrangement, contract or agreement
providing compensation benefits for any group of Employees or individual
Employees (including former Employees), or the dependents or beneficiaries of
any such Employee, whether formal or informal or written or unwritten, and
including, without limitation, any means, whether or not legally required,
pursuant to which any benefit is provided by an Employer to any such Employee or
the beneficiaries of any such Employee, existing as of the Distribution Date or
prior thereto.

         "Qualified Beneficiary" shall mean an individual (or dependent thereof)
who either (a) experiences a "qualifying event" (as that term is defined in Code
Section 4980B(f)(3) and ERISA 


                                      5
<PAGE>   9

Section 603) while a participant in any Medical/Dental Plan, or (b) becomes a
"qualified beneficiary" (as that term is defined in Code Section 4980B(g)(1) and
ERISA 607(3)) under any Medical/Dental Plan.

         "Record Date" shall mean 1998.

         "Release and Separation Agreements" shall mean those Release and/or
Separation Agreements identified on Schedule B hereto, and any other similar
agreements entered into by Company or any of its subsidiaries, and a Company
Terminee whose last employment with Company or such subsidiary was with either a
Lakes Business or a Company Retained Business.

         "Retained Employee" shall mean any individual who, immediately prior to
the Distribution, was an Employee of Company or any of its subsidiaries and who
is an employee of Company or any of its subsidiaries immediately following the
Distribution.

         "Rev. Proc. 84-77" shall have the meaning set forth in Section 5.4(a).

         "SEC" shall mean the Securities and Exchange Commission.

         "Service Credit" shall mean the period taken into account under any
Plan for purposes of determining length of service or plan participation to
satisfy eligibility, vesting, benefit accrual and similar requirements under
such Plan.

         "Termination Benefits" shall have the meaning set forth in Section
2.3(a).

         "Transferred Employee" shall mean any individual who was an Employee of
Company or any of its subsidiaries immediately prior to the Distribution and who
is or becomes, immediately after the Distribution, an Employee of Lakes or any
of its subsidiaries.

         "Welfare Plan" shall mean any Plan that provides medical, health,
disability, accident, life insurance, death, dental or any other welfare
benefit, including, without limitation, any post-employment benefit, but
excluding vacation benefits covered under Section 5.3.

                                    ARTICLE 2
                  TRANSFER OF EMPLOYEES; EMPLOYMENT ALLOCATION;
                            AND TERMINATION BENEFITS

         Section 2.1     Transfer of Employees.

(a)      Company and Lakes shall take all steps necessary or appropriate so that
         all of the Employees of Company and its subsidiaries are allocated
         between the Company Retained Business and the Lakes Business in
         accordance with the principles set forth in Section 2.1 (b) below; and
         so that (i) each individual who is so allocated to the Lakes Business
         is, as of the Distribution 

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<PAGE>   10

         Date and immediately following the Distribution, an Employee of Lakes
         or any of its subsidiaries in the Lakes Business; and (ii) each
         individual who is so allocated to the Company Retained Business is, as
         of the Distribution Date and immediately following the Distribution, an
         Employee of Company or any of its subsidiaries in the Company Retained
         Business.

(b)      In making the allocation provided for in this Section , Company and
         Lakes shall allocate each Employee who is primarily engaged in the
         Company Retained Business to Company and/or its subsidiaries (other
         than Lakes and its subsidiaries) and each Employee who is primarily
         engaged in the Lakes Business to Lakes and/or its subsidiaries. All
         other Employees shall be allocated in a mutually agreeable manner that,
         to the extent possible, takes into account (i) the Employees'
         expertise, experience and existing positions and duties, (ii) the
         likelihood of unreasonably disrupting either the Company Retained
         Business or the Lakes Business and (iii) maximizing the ability of each
         of Company and Lakes, and their respective subsidiaries to manage and
         operate their respective businesses after the Distribution Date, taking
         into account the respective needs of such businesses as established by
         past practice, and with a view towards maximizing the value and
         effectiveness of both the Company Retained Business and the Lakes
         Business.

(c)      Company and Lakes each agree that, between the date hereof and the
         Distribution Date, Employees will not be transferred between the
         Company Retained Business or Lakes Business except as (i) necessary to
         effect the transfer pursuant to this Section 2.1 or (ii) in the
         ordinary course of business consistent with past practice.
         Notwithstanding the foregoing allocation, Company and Lakes acknowledge
         that (x) Company may need the services of certain Transferred Employees
         for a transitional period following the Distribution and (y) Lakes may
         need the services of certain Retained Employees for a transitional
         period following the Distribution. Company and Lakes agree to enter
         into an Ancillary Agreement to this effect and to cooperate to make
         such services available on a transitional basis.

(d)      Effective as of the Distribution Date, Company shall assume all
         obligations and liabilities for, and arising under, all written and
         oral employment agreements, if any, in each case with respect to
         Retained Employees; and Lakes shall have no liability or obligation
         with respect thereto. Effective as of the Distribution Date, Lakes
         shall assume all obligations and liabilities for, and arising under,
         all written and oral employment agreements, if any, in each case with
         respect to Transferred Employees (the "Lakes Employment Agreements");
         and Company shall have no liability or obligation with respect thereto.
         Lakes shall take, or cause to be taken, all action necessary and
         appropriate to assume, as of the Distribution Date, all Lakes
         Employment Agreements, with such changes as may be necessary to reflect
         the change in the employer thereunder and such other changes as Lakes
         shall determine. Such Lakes Employment Agreements shall otherwise have
         the same terms and conditions as in effect immediately prior to the
         Distribution Date, except that references to employment by or
         termination of employment with Company and its affiliates shall be
         changed to refer to employment by or termination of employment with
         Lakes and its affiliates.

                                      7

<PAGE>   11


         Section 2.2     Allocations between Company and Lakes.

(a)      Allocation of Responsibilities as Employer on Distribution Date. On the
         Distribution Date, except to the extent assumed by Company under this
         Agreement or any Ancillary Agreement, Lakes and/or its subsidiaries
         shall retain or assume, as the case may be, responsibility as employer
         for all Transferred Employees. On the Distribution Date, except to the
         extent assumed by Lakes under this Agreement or any Ancillary
         Agreement, Company and/or its subsidiaries shall retain responsibility
         as employer for all Retained Employees.

(b)      Assumption of Liabilities on Distribution Date. Except as specifically
         provided in this Agreement, or as otherwise agreed by the parties
         hereto:

(i)      Except as provided in Section 2.2(c), immediately following the
         Distribution, Lakes shall assume all benefit obligations and all
         related rights in connection with any Plan with respect to the
         Transferred Employees and other Lakes Individuals; and Company shall
         have no further liability with respect thereto.

(ii)     Company shall retain all benefit obligations and all related rights
         that accrue after the Distribution Date in connection with any Plan and
         with respect to Retained Employees; and Lakes shall have no further
         liability with respect thereto; provided, however, that with respect to
         any such Retained Employees who become employed by Lakes after the
         Distribution, any benefit obligations and all related rights that
         accrue after such employment in connection with any Plan with respect
         to such employment with Lakes shall be assumed by Lakes.

(c)      Service Credits.

(i)      Distribution Date Transfers. In connection with the Distribution and
         for purposes of determining Service Credits under any Plan, Company
         shall credit each Retained Employee and Lakes shall credit each
         Transferred Employee with such Employee's Service Credits and original
         hire date as reflected in the records of Company or any of its
         subsidiaries as of the Distribution Date. Such Service Credits and hire
         date shall continue to be maintained as described herein for as long as
         the Employee does not terminate such employment or as otherwise may be
         required by applicable law or any applicable Plan.

(ii)     Service Credits Following the Distribution Date. Subject to the
         provisions of applicable law, (x) Lakes may, in the case of Transferred
         Employees, in its sole discretion, make such decisions as it deems
         appropriate with respect to determining Service Credits accrued after
         the Distribution Date; and (y) Company may, in the case of Retained
         Employees, in its sole discretion, make such decisions as it deems
         appropriate with respect to determining Service Credits accrued after
         the Distribution Date.

                                       8

<PAGE>   12


         Section 2.3     Change of Control Benefits; Termination Benefits.

(a)      No Transferred Employee shall be deemed, as a result of any actions
         taken pursuant to this Article 11 or otherwise as a result of the
         consummation of the transactions contemplated by the Distribution
         Agreement, to have become entitled to any benefits under any Plan,
         contract, agreement, statute, regulation or other arrangement that
         provides for the payment of severance pay, salary continuation, pay in
         lieu of notice, unused vacation pay, or similar benefits in connection
         with actual or constructive termination or alleged actual or
         constructive termination of employment (collectively, "Termination
         Benefits").

(b)      Notwithstanding Section 2.3(a), effective as of the Distribution Date,
         Company shall retain all liabilities relating to or arising out of
         claims made by or on behalf of Retained Employees (including the
         beneficiary, dependent or alternate payee of such individual) for, or
         with respect to, Termination Benefits relating to the actual or
         constructive termination or alleged actual or constructive termination
         of employment of any Retained Employee with any member of the Lakes
         Business or the Company Retained Business, whether before, on or after
         the Distribution Date. In addition, Company shall retain all
         liabilities and obligations pursuant to any Change of Control
         Agreements with respect to Retained Employees.

(c)      Notwithstanding Section 2.3(a), and except as provided otherwise in
         Section 2.3(b) above, effective as of the Distribution Date, Lakes
         shall assume all liabilities relating to or arising out of claims made
         by or on behalf of Transferred Employees (including the beneficiary,
         dependent or alternative payee of such individual) for, or with respect
         to, Termination Benefits relating to the actual or constructive
         termination or alleged actual or constructive termination of employment
         of any Transferred Employee with Lakes or any of its subsidiaries in
         the Lakes Business or Company or any of its subsidiaries in the Company
         Retained Business, whether before, on or after the Distribution Date.
         In addition, Lakes shall assume all liabilities and obligations
         pursuant to any Change of Control Agreements with respect to
         Transferred Employees.

                                    ARTICLE 3
                      EMPLOYER STOCK AND COMPENSATION PLANS

         Section 3.1     Stock Option Plans.

(a)      Company Stock Option Plans. Company shall continue the Company Stock
         Option Plans. Effective as of the Distribution Date, all outstanding
         Company Stock Options shall be adjusted to represent options to
         purchase an equivalent number of shares of Company Common Stock and
         shares of Lakes Common Stock (each such option to purchase Lakes Common
         Stock, a "Lakes Option"). Pursuant to such adjustment, the intrinsic
         value of the Company Stock Options immediately prior to the
         Distribution shall be preserved immediately after the Distribution, the
         exercise prices of the Company Stock Options shall be adjusted to
         reflect the Distribution and the exercise prices of the Lakes Options
         shall be 

                                       9
<PAGE>   13
         determined based upon the relative values of Company Common Stock and
         Lakes Common Stock immediately following the Distribution, all as
         mutually agreed by Company and Lakes. To the extent necessary, Company
         shall amend the Company Stock Option Plans to provide that, with
         respect to Lakes Individuals, all references to employment or
         termination of employment with Company and its affiliates shall be
         changed to references to employment by or termination of employment
         with Lakes and its affiliates.

(b)      Lakes Stock Option Plans. Lakes shall take, or cause to be taken, all
         action necessary and appropriate to assume and adopt, effective as of
         the Distribution Date, the Company Stock Option Plans, with such
         changes as may be necessary to reflect the change in the issuer of
         awards thereunder and such other changes as Lakes shall determine (such
         plans as adopted, the "Lakes Stock Option Plans"). All awards under the
         Lakes Stock Option Plans will be options with respect to Lakes Common
         Stock. Lakes Options that are issued pursuant to the adjustment of the
         Company Stock Options under subsection (a) above shall otherwise have
         the same terms and conditions as the Company Stock Options with respect
         to which they are issued, except that with respect to Company
         Individuals receiving any Lakes Options, references to employment by or
         termination of employment with Lakes and its affiliates shall be
         changed to references to employment by or termination of employment
         with Company and its affiliates. From and after the Distribution Date,
         Lakes shall assume all obligations with respect to the Lakes Options,
         and shall administer the Lakes Stock Option Plans under terms governing
         such awards.

         Section 3.2     Stock Purchase Plans.

(a)      Company Stock Purchase Plan. The Company Stock Purchase Plan shall be
         administered and, if necessary, amended to provide that all
         contributions withheld from the compensation of participants through
         the day before the Distribution Date (the "Purchase Date") shall be
         used on the Purchase Date to purchase Company Common Stock under the
         terms and conditions set forth in such Plan. From and after the
         Distribution Date, Company shall continue the Company Stock Purchase
         Plan with respect to Retained Employees. Company shall assume all
         obligations with respect to, and shall administer the Company Stock
         Purchase Plan under its terms with respect to Retained Employees.

(b)      Lakes Stock Purchase Plan. Lakes shall take, or cause to be taken, all
         action necessary and appropriate to assume and adopt, effective as of
         the Distribution Date, a Plan similar to the Company Stock Purchase
         Plan, with such changes as may be necessary to reflect the change in
         the issuer of awards thereunder and such other changes as Lakes shall
         determine (such plan as adopted, the "Lakes Stock Purchase Plan"). The
         Lakes Stock Purchase Plan shall otherwise have the same terms and
         conditions as the Company Stock Purchase Plan, except that references
         to employment by or termination of employment with Company and its
         affiliates shall be changed to references to employment by or
         termination of employment with Lakes and its affiliates. From and after
         the Distribution Date, Lakes shall administer the Lakes Stock Purchase
         Plan under its terms with respect to Transferred Employees.

                                       10

<PAGE>   14
         Section 3.3     Compensation Plans.

(a)      Company Compensation Plans. Company shall pay, or cause to be paid, all
         compensation and bonuses earned by each Company Individual who, on the
         Distribution Date, is a participant under any of the Company
         Compensation Plans for the period prior to the Distribution Date, in
         accordance with the terms of the applicable Company Compensation Plan.
         From and after the Distribution Date, Company shall retain all
         liabilities relating to or arising under the Company Compensation Plans
         with respect to any Company Individuals.

(b)      Lakes Compensation Plans. Lakes shall assume and shall be solely
         responsible for, all obligations to pay all compensation and bonuses
         earned by each Lakes Individual who, on the Distribution Date, is a
         participant under the Company Compensation Plans. Lakes shall take, or
         cause to be taken, all action necessary and appropriate to assume and
         adopt, effective as of the Distribution Date, the Company Compensation
         Plans that cover Lakes Individuals, with such changes as may be
         necessary to reflect the change in the issuer of awards thereunder and
         such other changes as Lakes shall determine (such plan as adopted, the
         "Lakes Compensation Plans"). From and after the Distribution Date, the
         Lakes Compensation Plans shall provide future compensation benefits
         thereunder to Lakes Individuals pursuant to the terms therein. The
         Lakes Compensation Plans shall otherwise have the same terms and
         conditions as the Company Compensation Plans, until such time as Lakes
         may determine that any amendment or termination of any Plan is
         necessary or desirable.

                                    ARTICLE 4
                                  SAVINGS PLANS

         Section 4.1     401(k)Plans.

(a)      Transfer and Lakes Assumption of Company 401(k) Plan. Effective as of
         the Distribution Date, each of the Company and Lakes shall take, or
         cause to be taken, all action necessary and appropriate to allow Lakes
         to assume all of the future responsibilities and rights as sponsor of
         the Company 401(k) Plan, in lieu of Company; and from and after the
         Distribution Date, such Plan shall provide additional benefits only for
         eligible Lakes Individuals, subject to the terms and provisions of such
         Plan; and the Retained Employees shall not be eligible to participate
         in such Plan, except that such Plan shall continue to hold the benefits
         of Company Individuals that had accrued before the Distribution until
         such time as the transaction described in the following paragraph (b)
         is completed. For all periods after the Distribution Date, the Company
         401(k) Plan shall be referred to herein as the "Lakes 401(k) Plan."
         Lakes shall provide benefits under the Lakes 401(k) Plan after the
         Distribution Date for all Lakes Individuals subject to the terms and
         provisions of such Plan.


                                       11
<PAGE>   15


(b)      Possible Spin-off and Merger with Gaming Co. 401(k) Plan. As soon as
         practical after the completion of the Distribution and the Merger,
         Lakes shall take, or cause to be taken, all action necessary and
         appropriate to split up and spin off that portion of the Lakes 401(k)
         Plan which is attributable to Company Individuals and transfer that
         portion to the Gaming Co. 401(k) Plan pursuant to Section 4.1(d). To
         the extent that the Gaming Co. 401(k) Plan does not accept such
         transfer, the accrued benefits of the Company Individuals under the
         Lakes 401(k) Plan shall become fully vested and nonforfeitable as of
         the Distribution Date and Lakes shall cause such accrued benefits to be
         payable to the Company Individuals pursuant to the terms of such Plan
         and applicable law.

(c)      Matching and Profit Sharing Contributions. For periods on or before the
         Distribution Date, any matching and discretionary contributions under
         the Company 401(k) Plan with respect to Company Individuals will be
         made solely by Company pursuant to the terms of the Company 401(k)
         Plan. For periods after the Distribution Date, any matching and
         discretionary contributions under the Lakes 401(k) Plan with respect to
         Lakes Individuals will be made solely by Lakes pursuant to the terms of
         the Lakes 401(k) Plan.

(f)      Transfer and Acceptance of Account Balances. As soon as practicable
         after the Distribution Date, subject to the consent of Gaming Co. and
         the trustee of the Gaming Co. 401(k) Plan, Lakes shall cause the
         trustees of the Lakes 401(k) Plan to transfer to the trustees or other
         funding agent of the Gaming Co. 401(k) Plan, the amounts (in cash,
         securities, other property or a combination thereof representing the
         account balances of all Company Individuals, said amounts to be
         established as account balances or accrued benefits of such individuals
         under the Lakes 401(k) Plan. Each such transfer shall comply with
         Section 414(l) of the Code and the requirements of ERISA and the
         regulations promulgated thereunder. Lakes shall not cause the trustees
         or other funding agent of the Lakes 401(k) Plan to complete the
         plan-to-plan transfer from the Lakes 401(k) Plan trustees, unless and
         until Gaming Co. and the plan administrator of the Gaming Co. 401(k)
         Plan agree in writing to credit the accounts of such Company
         Individuals under the Gaming Co. 401(k) Plan with any amounts
         transferred on their behalf.

(e)      Information. Lakes shall (with the cooperation of Company to the extent
         that relevant information is in the possession of Company) provide
         Gaming Co., as soon as practicable after the transaction described in
         subsection (b) of this Section 4.1 and the transfer described in
         subsection (d) of this Section 4.1, with a list of Company Individuals
         who, to the best knowledge of Lakes, were participants in or otherwise
         entitled to benefits under the Lakes 401(k) Plan on the date of such
         transaction and transfer, together with a listing of each participant's
         Service Credits under such Plan and a listing of each such Company
         Individual's account balance thereunder, and each Company Individual's
         investment election. Lakes shall, as soon as practicable after the date
         of such transaction and transfer, provide Gaming Co. with such
         additional information in the possession of Lakes (and not already in
         the possession of Gaming Co.) as may be reasonably requested by Gaming
         Co. and necessary for Gaming Co. to administer effectively the Gaming
         Co. 401(k) Plan.

                                       12

<PAGE>   16


(f)      Regulatory Filings. Company and Lakes shall, in connection with the
         plan-to-plan transfer described in Section 4.1(b) above, cooperate with
         each other and Gaming Co. in making any and all appropriate filings
         required by the SEC or the IRS, or required under the Code or ERISA or
         any applicable securities laws and the regulations thereunder, and take
         all such action as may be necessary and appropriate to cause such
         plan-to-plan transfer to take place as soon as practicable after the
         Distribution and Merger or otherwise when required by law. Further,
         Lakes shall seek a favorable IRS determination letter that the Lakes
         401(k) Plan as in effect after the Distribution, satisfies all
         qualification requirements under Section 401(a) of the Code.
         Notwithstanding the foregoing, such change in plan sponsor and
         plan-to-plan transfers may take place pending issuance of such
         favorable determination letter. Lakes shall make any necessary
         amendments on a retroactive basis to the Lakes 401(k) Plan,
         respectively, as required by the IRS to issue the favorable
         determination letter described above.

(g)      Account Balances of Participants. Except as otherwise provided herein,
         on the Distribution Date, Lakes shall assume sole responsibility for
         all liabilities and obligations accruing after the Distribution Date
         under the Lakes 401(k) Plan; and Company shall have no liability or
         obligation with respect to the Lakes 401(k) Plan, except for any
         liabilities and obligations accruing on or before the Distribution
         Date, when it will have been the Company 401(k) Plan.

(h)      Qualification of Plans and Other Liabilities. Company shall be
         responsible for all liabilities incurred by Company or Lakes as a
         result of any failure of the Company 401(k) Plan to be qualified under
         Section 401(a) of the Code, or any other liability that might be
         incurred with respect to such Plan, with respect to Company
         Individuals. Lakes shall be responsible for all liabilities incurred by
         Company or Lakes as a result of any failure of the Company 401(k)Plan
         to be qualified under Section 401(k) of the Code, or any such other
         liability might be incurred with respect to such Plan, with respect to
         Lakes Individuals. Notwithstanding the foregoing, to the extent that
         any such liabilities incurred by Company or Lakes as a result of any
         failure of the Company 401(k) Plan to be qualified under Section 401(a)
         of the Code, or any other liability that might be incurred with respect
         to such Plan, are not clearly attributable to either Company
         Individuals or Lakes Individuals then each of Company and Lakes shall
         be responsible for such liabilities in a proportion based on the ratios
         of the accrued benefits of Company Individuals and the accrued benefits
         of Lakes Individuals to the total accrued benefits under such Plan as
         of December 31, 1997.

                        The parties hereto agree that, to the extent either
of them becomes aware that such Plan fails or may fail to be so qualified, 
it shall notify the other party and the parties shall cooperate and use best
efforts to avoid such disqualification, including using the Internal Revenue
Service's Employee Plans Compliance Resolution System or similar programs, and
taking any steps available pursuant to such program to avoid disqualification,
as determined by the party who is made responsible under this Section 4.2(h) for
the liabilities that would result from such disqualification



                                       13
<PAGE>   17
(and the liabilities for which such party is responsible shall include all
costs and expenses resulting from such steps, including fines, penalties,
contributions, attorneys' fees and expenses and administrative expenses).

                                    ARTICLE 5
                           WELFARE AND OTHER BENEFITS

         Section 5.1     Company Medical/Dental Plans.

(a)      Liability for Claims.

(i)      Except as otherwise provided herein, as of the Distribution Date,
         Company shall assume or retain and shall be responsible for, or cause
         its insurance carriers or HMOs to be responsible for, all liabilities
         and obligations related to claims asserted or incurred or premiums owed
         as of and after the Distribution Date in respect of any Company
         Individual under any Company Medical/Dental Plan and claims asserted or
         incurred or premiums due after the Distribution Date in respect of any
         Company Individual under any Company Medical/Dental Plan, and Lakes
         shall have no liability or obligation with respect thereto.

(ii)     Except as otherwise provided herein, as of the Distribution Date, Lakes
         shall assume or retain and shall be responsible for, or cause its
         insurance carriers or HMOs to be responsible for, all liabilities and
         obligations related to claims asserted or incurred or premiums owed as
         of and after the Distribution Date in respect of any Lakes Individual
         under any Company Medical/Dental Plan and claims asserted or incur-red
         or premiums due after the Distribution Date in respect of any such
         Lakes Individual under any Company Medical/Dental Plan, and Company
         shall have no liability or obligation with respect thereto.

(b)      Continuation Coverage Administration. As of the Distribution Date,
         Company shall retain and shall be solely responsible for, or cause its
         insurance carriers or HMOs to be responsible for, providing and
         administering the continuation coverage required by COBRA as it relates
         to any Company Qualified Beneficiary, and Lakes shall have no liability
         or obligation with respect thereto. As of the Distribution Date, Lakes
         shall retain and shall be solely responsible for, or cause its
         insurance carriers or HMOs to be responsible for, providing and
         administering the continuation coverage required by COBRA as it relates
         to any Lakes Qualified Beneficiary, and Company shall have no liability
         or obligation with respect thereto.

(c)      Continuation Coverage Claims. As of the Distribution Date, Company
         shall assume or retain and shall be responsible for, or cause its
         insurance carriers or HMOs to be responsible for, all liabilities and
         obligations in connection with claims asserted or incurred or premiums
         owed through the Distribution Date under any Company Medical/Dental
         Plan in respect of any Company Qualified Beneficiary and claims
         asserted or incurred or premiums owed after the Distribution Date under
         any Company Medical/Dental Plan in respect of any Company Qualified
         Beneficiary, and Lakes shall have no liability or obligation with
         respect thereto. 


                                       14
<PAGE>   18
         As of the Distribution Date, Lakes shall assume or retain and shall be
         responsible for, or cause its insurance carriers or HMOs to be
         responsible for, all liabilities and obligations in connection with
         claims asserted or incurred or premiums owed through the Distribution
         Date under any Company Medica/Dental Plan in respect of any Lakes
         Qualified Beneficiary and claims asserted or incurred or premiums owed
         after the Distribution Date under any Company Medical/Dental Plan in
         respect of any Lakes Qualified Beneficiary, and Company shall have no
         liability or obligation with respect thereto.

         Section 5.2     Lakes Medical/Dental Plan.

(a)      Establishment of Lakes Medical/Dental Plans. On or prior to the
         Distribution Date, Lakes shall take, or cause to be taken, all action
         necessary and appropriate to establish and administer the Lakes
         Medical/Dental Plans and to provide benefits thereunder for all Lakes
         Individuals and Lakes Qualified Beneficiaries (with respect to
         continuation coverage under COBRA only) who, immediately prior to the
         Distribution Date, were participants in or otherwise entitled to
         benefits under the Company Medica/Dental Plans. Each such individual
         shall, to the extent applicable, for all purposes under the new Lakes
         Medical/Dental Plans (i) have coverage that is substantially comparable
         to that provided immediately prior to the Distribution Date, (ii) have
         no preexisting condition limitation imposed other than that which is or
         was already imposed under the applicable existing Plan and (iii) be
         credited with or otherwise have taken into account, to the extent
         applicable, Service Credits, any expenses incurred towards deductibles,
         out-of-pocket limits, maximum benefit payments, and any benefit usage
         towards plan limits credited to such individual as of the Distribution
         Date under the terms of the applicable existing Plan as if such service
         had been rendered to Lakes and as if such expenses and usage had
         originally been credited to such individual under the Lakes
         Medical/Dental Plans.

(b)      Company to Provide Information. As soon as practicable after the
         Distribution Date, Company shall provide Lakes (with the cooperation of
         Lakes to the extent that relevant information is in the possession of
         Lakes, and in accordance with Section 8.2), with a list of Lakes
         Individuals who were, to the best knowledge of Company, participants in
         or otherwise entitled to benefits under the Company Medica/Dental Plans
         immediately prior to the Distribution Date, together with a listing of
         each such individual's Service Credit under such Plans and a listing of
         each such individual's expenses incurred towards deductibles,
         out-of-pocket limits, maximum benefit payments, and any benefit usage
         towards plan limits thereunder. Company shall, as soon as practicable
         after the Distribution Date, in accordance with Section 7.2, provide
         Lakes with such additional information in the possession of Company
         (and not already in the possession of Lakes) as may be reasonably
         requested by Lakes and necessary for Lakes to establish and administer
         effectively any Lakes Medical/Dental Plan.

         Section 5.3     Vacation and Sick Pay Liabilities.

                                       15
<PAGE>   19
(a)      Division of Liabilities. Effective on the Distribution Date, (i)
         Company shall retain and shall be responsible for all accrued
         liabilities (whether vested or unvested, and whether funded or
         unfunded) for vacation and sick leave in respect of all Company
         Individuals as of the Distribution Date, and (ii) Lakes shall assume
         and shall be responsible for all accrued liabilities (whether vested or
         unvested, and whether funded or unfunded) for vacation and sick leave
         in respect of all Lakes Individuals as of the Distribution Date. From
         and after the Distribution Date, (x) Company shall be solely
         responsible for the payment to Company Individuals of vacation or sick
         leave accrued after the Distribution Date and (y) Lakes shall be solely
         responsible for the payment to Lakes Individuals of vacation or sick
         leave accrued after the Distribution Date.

(b)      Post-Distribution Transfers. For a period of 90 days after the
         Distribution Date, an Employee who leaves the service of one party to
         immediately begin employment with the other party (i.e., leaving
         Company employment to work for Lakes or any its subsidiaries, or
         leaving Lakes employment to work for Company or any its subsidiaries)
         shall be provided by the successor employer with the same balance of
         vested and unvested vacation and sick leave hours as had been accrued
         by the former Employer through such termination date. The former
         Employer shall promptly notify the successor Employer in writing of the
         occurrence of any termination subject to the provisions of this Section
         5.3(b); and the former Employer shall make a payment to the successor
         Employer within thirty (30) days of the aforesaid termination date in
         an amount equal to the value of the terminating Employee's vested
         balance of vacation leave and sick leave accrued by the former Employer
         through such termination date, based on the Employee's final rate of
         pay with the former Employer. No payment shall be made by the former
         Employer to the successor Employer for any unvested sick leave or
         vacation leave balance relating to any post-Distribution transfer,
         whether within or after the 90-day period referred to above.

         Section 5.4     Payroll Reporting and Withholding.

(a)      Form W-2 Reporting. Company and Lakes may adopt the "alternative
         procedure" for preparing and filing IRS Forms W-2 (Wage and Tax
         Statements), as described in Section 5 of Revenue Procedure 84-77,
         1984-2 IRS Cumulative Bulletin 753 ("Rev. Proc. 84-77"). Under this
         procedure Lakes as the successor employer shall provide all required
         Forms W-2 to all Lakes Individuals reflecting all wages paid and taxes
         withheld by both Company as the predecessor and Lakes as the successor
         employer for the entire year during which the Distribution takes place.
         Company shall provide all required Forms W-2 to all Company Individuals
         reflecting all wages and taxes paid and withheld by Company before and
         after the Distribution Date.

                        In connection with the aforesaid agreement under Rev. 
Proc. 84-77, each business unit or business operation of Company shall be
assigned to either Company or Lakes, depending upon whether it is a Company
Retained Business or a Lakes Business, and each Company Individual or Lakes
Individual associated with such business unit or business operation shall be

                                       16
<PAGE>   20
assigned for payroll reporting purposes to Company or Lakes, as the case may be.
Company and Lakes shall be responsible for filing IRS Forms 941 for their
respective Employees.

(b)      Forms W-4 and W-5. Company and Lakes may adopt the alternative
         procedure of Rev. Proc. 84-77 for purposes of filing IRS Forms W-4
         (Employee's Withholding Allowance Certificate) and W-5 (Earned Income
         Credit Advance Payment Certificate). Under this procedure, (a) Company
         shall provide to Lakes all IRS Forms W-4 and W-5 on file with Company
         or any of its subsidiaries in the Company Retained Business and
         relating to a Lakes Individual, and Lakes and its subsidiaries in the
         will honor these forms until such time, if any, that such Lakes
         Individual submits a revised form; and (b) Lakes shall provide to
         Company all IRS Forms W-4 and W-5 on file with Lakes or any of its
         subsidiaries in the Lakes Business and relating to each Company
         Individual, and Company and its subsidiaries will honor these forms
         until such time, if any, that such Company Individual submits a revised
         form.

(c)      Garnishments, Tax Levies, Child Support Orders, and Wage Assignment.
         With respect to garnishments, tax levies, child support orders, and
         wage assignments in effect with Company and its subsidiaries on the
         Distribution Date, Company and its subsidiaries in the Company Retained
         Business shall honor such payroll deduction authorizations with respect
         to Company Individuals, and Lakes and its subsidiaries in the Lakes
         Business shall honor such payroll deduction authorizations with respect
         to Lakes Individuals; and each such party will continue to make payroll
         deductions and payments to the authorized payee, as specified by the
         court or governmental order which was filed with Company or any of its
         subsidiaries on or before the Distribution Date. Company shall, as soon
         as practicable after the Distribution Date, in accordance with Section
         7.2, provide Lakes with such information in the possession of Company
         (and not already in the possession of Lakes) as may be reasonably
         requested by Lakes and necessary for Lakes to make the payroll
         deductions and payments to the authorized payee as required by this
         subsection (c).

(d)      Authorizations for Payroll Deductions. Unless otherwise prohibited by
         this or another agreement entered into in connection with the
         Distribution, or by a Plan document, with respect to Lakes Individuals
         with authorizations for payroll deductions in effect with Company or
         any of its subsidiaries on the Distribution Date, Company and its
         subsidiaries in the Company Retained Business will honor such payroll
         deduction authorizations relating to each Company Individual, and Lakes
         and its subsidiaries in the Lakes Business will honor such payroll
         deduction authorizations relating to each Lakes Individual, and no such
         party shall require that any such individual submit a new authorization
         to the extent that the type of deduction by the employer after the
         Distribution Date does not differ from that made by Company or its
         applicable subsidiary on or before the Distribution Date. Such
         deduction types include, without limitation: contributions to any Plan;
         scheduled loan repayments to any Plan or to an employee credit union;
         and direct deposit of payroll, bonus advances, union dues, employee
         relocation loans, and other types of authorized company receivables
         usually collectible through payroll deductions. Company shall, as soon
         as practicable after the 


                                       17
<PAGE>   21

         Distribution Date, in accordance with Section 7.2, provide Lakes with
         such information in the possession of Company (and not already in the
         possession of Lakes) as may be reasonably requested by Lakes and
         necessary for Lakes to honor the payroll deduction authorizations
         contemplated by this subsection (d).

         Section 5.5     Post-Retirement Welfare Benefits. As of the 
Distribution Date, Company shall assume or retain and shall be responsible for,
or cause its insurance carriers or HMOs to be responsible for, all liabilities
and obligations related to claims asserted or incurred or premiums owed as of
and after the Distribution Date for post-retirement medical or life benefits in
respect of any Company Individual under any Plan and claims asserted or incurred
or premiums due after the Distribution Date in respect of any Company Individual
under any such Plan; and Lakes shall have no liability or obligation with
respect thereto. As of the Distribution Date, Lakes shall assume or retain and
shall be responsible for, or cause its insurance carriers or HMOs to be
responsible for, all liabilities and obligations related to claims asserted or
incurred or premiums owed as of and after the Distribution Date for 
post-retirement medical or life benefits in respect of any Lakes Individual
under any Plan and claims asserted or incurred or premiums due after the
Distribution Date in respect of any Lakes Individual under any such Plan; and
Company shall have no liability or obligation with respect thereto.

         Section 5.6     Other Welfare Plans. As of the Distribution Date, 
Company shall assume or retain and shall be responsible for, or cause its
insurance carriers to be responsible for, all liabilities and obligations
related to claims asserted or incurred or premiums owed as of and after the
Distribution Date for its Welfare Plans other than Medical/Dental Plans or
post-retirement medical or life benefit Plans ("Other Welfare Plans") in respect
of any Company Individual under any such Other Welfare Plan and claims asserted
or incurred or premiums due after the Distribution Date in respect of any
Company Individual under any such Other Welfare Plan; and Lakes shall have no
liability or obligation with respect thereto. As of the Distribution Date, Lakes
shall assume or retain and shall be responsible for, or cause its insurance
carriers to be responsible for, all liabilities and obligations related to
claims asserted or incurred or premiums owed as of and after the Distribution
Date for any Other Welfare Plans in respect of any Lakes Individual under any
such Other Welfare Plan and claims asserted or incurred or premiums due after
the Distribution Date in respect of any Lakes Individual under any such Other
Welfare Plan; and Company shall have no liability or obligation with respect
thereto.

                                    ARTICLE 6
                          LABOR AND EMPLOYMENT MATTERS

         Notwithstanding any other provision of this Agreement or any other
agreement between Company and Lakes to the contrary, Company and Lakes
understand and agree that:

         Section 6.1     Separate Employers. On and after the Distribution Date
and the separation of Employees into their respective companies, Company and
Lakes will be separate and independent employers.



                                       18
<PAGE>   22
         Section 6.2     Employment Policies and Practices. Subject to the
provisions of ERISA and the provisions herein governing post-Distribution
transfers, and except as limited by applicable law or agreement, Company and
Lakes may adopt, continue, modify or terminate such employment policies,
compensation practices, retirement plans, welfare benefit plans, and other
employee benefit plans of any kind or description, as each may determine, in its
sole discretion, are necessary or appropriate.

         Section 6.3     Collective Bargaining Agreements. With regard to any
Employees covered by a Collective Bargaining Agreement on the Distribution Date
who are or become Retained Employees or are or become Lakes Employees, Company
and Lakes promise and covenant to each other not to take any action that
disrupts or otherwise negatively impacts the labor relations of the other.
Company and, to the extent applicable, Lakes will diligently work to substitute
the appropriate employer for Company in any Collective Bargaining Agreements
with respect to Transferred Employees.

         Section 6.4     Notice of Claims. Without limitation to the scope and
application to each party in the performance-Nace of its duties herein, each
party hereto will notify in writing and consult with the other party prior to
making any settlement of an employee claim, for the purpose of avoiding any
prejudice to such other party arising from the settlement.

         Section 6.5     Assumption of Unemployment Tax-Rates. Changes in state
unemployment tax experience from that of Company and its subsidiaries as of the
Distribution Date shall be handled as follows. In the event an option exists to
allocate any state unemployment tax experience of Company or any of its
subsidiaries, such experience shall be transferred to Lakes or one or more of
its subsidiaries in the Lakes Business if this results in the lowest aggregate
unemployment tax costs for both Company and Lakes combined; and such experience
shall be retained by Company or one or more of its subsidiaries in the Company
Retained Business if this results in the lowest aggregate unemployment tax costs
for Company, Lakes and their respective subsidiaries combined.

         Section 6.6     Employees on Leave of Absence. After the Distribution 
Date, Lakes shall assume responsibility, if any, as employer for all Employees
returning from an approved leave of absence who prior to the Distribution Date
were employed in a Lakes Business. After the Distribution Date, Company shall
assume responsibility, if any, as employer for all Employees returning from an
approved leave of absence who prior to the Distribution Date were employed in a
Company Retained Business or otherwise were not employed in a Lakes Business.

         Section 6.7     Release and Separation Agreements. Effective as of the
Distribution Date, Company shall assume all obligations and liabilities for, and
arising under those Release and Separation Agreements with respect to Company
Individuals, and Lakes shall have no liability or obligation with respect
thereto. Effective as of the Distribution Date, Lakes shall assume all
obligations and liabilities for and arising under those Release and Separation
Agreements with respect to Lakes Individuals, and Company shall have no
liability or obligation with respect thereto.

                                       19
<PAGE>   23
                                    ARTICLE 7
                                  MISCELLANEOUS

         Section 7.1     Relationship of Parties. Nothing in this Agreement 
shall be deemed or construed by the parties hereto or any third party as
creating the relationship of principal and agent, partnership or joint venture
between the parties hereto, it being understood and agreed that no provision
contained herein, and no act of the parties hereto, shall be deemed to create
any relationship between such parties other than the relationship set forth
herein.

         Section 7.2     Access to Information; Cooperation. Company and Lakes 
and their authorized agents shall be given reasonable access to and may take
copies of all information relating to the subjects of this Agreement (to the
extent permitted by federal and state confidentiality laws) in the custody of
the other party, including any agent, contractor, subcontractor, agent or any
other person or entity under the contract of such party. The parties hereto
shall provide one another with such information within the scope of this
Agreement as is reasonably necessary to administer each party's Plans. The
parties hereto shall cooperate with each other to minimize the disruption caused
by any such access and providing of information.

         Section 7.3     Assignment. Except as part of the Merger, neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other party hereto and any purported
transfer without such consent shall be void.

         Section 7.4     Headings. The section and paragraph headings and table
of contents contained herein are for reference purposes only and shall not in
any way affect the meaning or interpretation of this Agreement.

         Section 7.5     Severability. If any provision set forth in this 
Agreement is determined by any court of competent jurisdiction to be
unenforceable by reason of its being too extensive in any respect, such
provision shall be interpreted to have the broadest application as shall be
enforceable. The invalidity or unenforceability of any particular provision of
this Agreement shall not affect the validity of the other provisions hereof,
which shall continue in full force and effect.

         Section 7.6     Parties in Interest; No Third Party Beneficial Rights.

(a)      This Agreement shall inure to the benefit of and be binding upon the
         parties hereto and their respective successors and permitted assigns.
         Except as specifically provided herein, this Agreement is for the sole
         and exclusive benefit of the parties hereto and nothing herein is
         intended to give or shall be construed to give to any person or entity
         other than the parties hereto any rights or remedies hereunder.


                                       20
<PAGE>   24
(b)      No provision of this Agreement shall create any third party beneficiary
         rights in any Employee, any beneficiary or dependent thereof, or any
         collective bargaining representative thereof, with respect to the
         compensation, terms and conditions of employment and benefits that may
         be provided to any Employee by either party hereto or under any Plan
         which a party may maintain.

(c)      Nothing contained in this Agreement shall confer upon any Employee any
         right with respect to continuance of employment by either party hereto,
         nor shall anything herein interfere with the right of either party
         hereto to terminate the employment of any Employee at any time, with or
         without cause, or restrict a party in the exercise of its independent
         business judgment in modifying any of the terms and conditions of the
         employment of an Employee, except as provided by applicable law.

         Section 7.7     Notices. Unless otherwise provided herein, any notice,
request, instruction or other document to be given hereunder by any party (or
other person referred to herein) shall be in writing and shall be deemed to be
given and effective (a) upon delivery if delivered in person or by courier, (b)
when sent by electronic transmission (telegraph, telex, telecopy or facsimile
transmission), receipt confirmed, (c) five days after being sent by airmail,
postage prepaid or (d) when receipt is acknowledged if mailed by certified mail,
postage prepaid, return receipt requested. The notice shall be delivered to the
addresses of each party hereto as follows, or to such other persons or addresses
as may be designated in writing by the party to receive such notice:

                 (a)     if to Company:

                         _____________________________
                         _____________________________
                         _____________________________
                         Attn: _______________________
                         Fax: ________________________

                         with a copy to:

                         _____________________________
                         _____________________________
                         _____________________________
                         Attn: _______________________
                         Fax: ________________________

                 (b)     if to Lakes:

                         _____________________________
                         _____________________________
                         _____________________________


                                       21

<PAGE>   25
                         Attn: _______________________
                         Fax: ________________________

                         with a copy to:

                         _____________________________
                         _____________________________
                         _____________________________
                         Attn: _______________________
                         Fax: ________________________


         Section 7.8     Further Assurances. Each of the parties hereto promptly
shall execute such documents and other instruments and take such further actions
as may be reasonably required or desirable to carry out the provisions hereof
and to consummate the transactions contemplated hereby.

         Section 7.9     Waiver of Conditions. The conditions to each of the
parties' obligations to effect the transactions contemplated herein are for the
sole benefit of such party. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar), nor shall such waiver constitute a continuing waiver
unless otherwise expressly provided.

         Section 7.10     Governing Law. This Agreement shall be deemed to be 
made in and in all respects shall be interpreted, construed and governed by and
in accordance with the laws of the State of Minnesota, without giving effect to
principles of conflicts of laws thereof.

         Section 7.11     Preservation of Right To Amend or Terminate Plans. 
Except as otherwise expressly provided herein, no provisions of this Agreement,
including, without limitation, the agreement of Company or Lakes to make a
contribution or payment to or under any Plan referred to herein for any period,
shall be construed as a limitation on the right of Company or Lakes to amend
such Plan or terminate its participation therein which Company or Lakes would
otherwise have under the terms of such Plan or otherwise; and no provision of
this Agreement shall be construed to create a right in any employee or former
employee, or dependent or beneficiary of such employee or former employee under
a Plan which such person would not otherwise have under the terms of the Plan
itself; provided, however, that neither party shall amend any Plan to the extent
that such amendment would have the effect of increasing the liabilities of the
other party under any Plan of the other party, without such other party's
consent.

         Section 7.12     Entire Agreement. This Agreement, the Distribution
Agreement and all other Ancillary Agreements constitute the entire understanding
between the parties hereto, and supersede all prior written or oral
communications, relating to the subject matter covered by said agreements. To
the extent that the terms of this Agreement and similar terms of the
Distribution Agreement are in conflict, the interpretation given to the
conflicting terms of the Distribution Agreement shall 

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govern the interpretation and performance of this Agreement. No amendment,
modification, extension or failure to enforce any condition of this Agreement by
either party shall be deemed a waiver of any of its rights herein.

         Section 7.13     Counterparts. This Agreement and any amendments hereto
may be executed in two or more counterparts, all of which shall be considered
one and the same agreement and shall become effective when two or more
counterparts have been signed by each of the parties and delivered to the other
party, it being understood that all parties need not sign the same counterpart.

         Section 7.14     Survival.  Obligations described in this Agreement  
shall remain in full force and effect and shall survive the Distribution Date 
and the Merger.

         Section 7.15     Dispute Resolution. Any dispute arising under this
Agreement shall be resolved by binding arbitration in the manner contemplated by
Section 9.14 of the Distribution Agreement, including without limitation Section
9.14(c) thereof, and including the attorneys' fees provisions referred to
therein

         Section 7.16     Reimbursement. Company and Lakes acknowledge that
Company, on the one hand, and Lakes, on the other hand, may incur costs and
expenses, including, but not limited to, contributions to Plans and the payment
of insurance premiums arising from or related to any of the Plans which are, as
set forth in this Agreement, the responsibility of the other party hereto.
Accordingly, Company and Lakes shall reimburse each other, as soon as
practicable, but in any event within thirty (30) days of receipt from the other
party hereto of appropriate verification, for all such costs and expenses.

         Section 7.17     Default. In the event of a material default by either
party hereunder, the non-defaulting party shall be entitled to all remedies
provided by law or equity (including reasonable attorneys' fees and costs of
suit incurred).

         Section 7.18     Force Majeure. Company and Lakes shall incur no 
liability to each other due to a default under the terms and conditions of this
Agreement resulting from fire, flood, war, strike, lock-out, work stoppage or
slow-down, labor disturbances, power failure, major equipment breakdowns,
construction delays, accident, riots, acts of God, acts of United States'
enemies, laws, orders or at the insistence or result of any governmental
authority or any other delay beyond each other's reasonable control.

         Section 7.19     Attorney/Client Privilege. The provisions herein 
requiring either party hereto to cooperate shall not be deemed to be a waiver of
the attorney/client privilege for either party hereto nor shall it require
either party to waive its attorney/client privilege.

         Section 7.20     Specific Performance. The parties hereto agree that 
the remedy at law for any breach of this Agreement will be inadequate and that
any party by whom this Agreement is enforceable shall be entitled to specific
performance in addition to any other appropriate relief or 

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<PAGE>   27
remedy. Such party may, in its sole discretion, apply to a court of competent
jurisdiction for specific performance or injunctive or such other relief as such
court may deem just and proper in order to enforce this Agreement or prevent any
violation hereof and, to the extent permitted by applicable laws, each party
waives any objection to the imposition of such relief.

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.

                                   GRAND CASINOS, INC., a Minnesota corporation

                                   By: ______________________________
                                   Name: _____________________________
                                   Title: ____________________________

                                   GCI LAKES, INC., a Minnesota corporation

                                   By: ______________________________
                                   Name: _____________________________
                                   Title: ____________________________


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                                   SCHEDULE A

                          CHANGE OF CONTROL AGREEMENTS

         The Change of Control Agreements of Company are identified in Schedule
4.8 of the Merger Agreement, as those agreements and plans providing for any
additional payments or benefits to specified employees upon a change of control
of Company, as defined in such agreement or plan.














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<PAGE>   29


                                   SCHEDULE B

                        RELEASE AND SEPARATION AGREEMENTS

         The Change of Control Agreements of Company are identified in Schedule
4.8 of the Merger Agreement, as those agreements providing for any additional
payments or benefits to specified employees upon termination of employment under
specified conditions.












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