exv10w5






Exhibit 10.5




FOURTH AMENDED AND RESTATED

OPERATING AGREEMENT OF

DIAMOND RESORTS PARENT, LLC

A NEVADA LIMITED LIABILITY COMPANY




     THIS FOURTH AMENDED AND RESTATED OPERATING AGREEMENT is made as of the 21st day of July, 2011,
by and between (i) DRP Holdco, LLC, a Delaware limited liability company (“Guggenheim”), (ii)
Cloobeck Diamond Parent, LLC, a Nevada limited liability company (“CDP”), (iii) 1818 Partners, LLC,
a Nevada limited liability company (“1818 Partners”), Silver Rock Financial LLC, IN — FP1 LLC,
BDIF LLC and CM — NP LLC (each, a “Silver Rock Entity” and collectively, the “Silver Rock
Entities”), and (iv) The Hartford Growth Opportunities Fund, Hartford Growth Opportunities HLS
Fund, Quissett Investors (Bermuda) L.P., Quissett Partners, L.P., The Hartford Capital Appreciation
Fund, Bay Pond Partners, L.P. and Bay Pond Investors (Bermuda) L.P. (each a “Wellington Purchaser”
and collectively, the “Wellington Purchasers”).



     WHEREAS, Soros Strategic Partners LP, a Delaware limited partnership, Guggenheim, CDP and the
Silver Rock Entities are parties to that certain Third Amended and Restated Operating Agreement,
dated as of February 18, 2011 (the “Original Agreement”);



     WHEREAS, Section 14.4 of the Original Agreement provides that the Original Agreement may be
amended upon the prior written consent of (i) Board; (ii) a Majority-in-Interest of the Common
Members; (iii) a Majority-in-Interest of the Preferred Members (as such term is defined in the
Original Agreement); (iv) so long as the Guggenheim Common Members (as such term is defined in the
Original Agreement) meet the Guggenheim Common Unit Threshold (as such term is defined in the
Original Agreement), the Guggenheim Common Members holding a majority of the Common Units held by
all Guggenheim Common Members; and (v) the CDP Common Members (as such term is defined in the
Original Agreement) holding a majority of the Common Units held by all CDP Common Members;



     WHEREAS, the Board has authorized and approved the amendment and restatement of the Original
Agreement on the terms and conditions set forth herein; and



     WHEREAS, the undersigned, being a Majority-in-Interest of the Common Members under the
Original Agreement, a Majority-in-Interest of the Preferred Members, the Guggenheim Common Members
holding a majority of the Common Units held by all Guggenheim Common Members and the CDP Common
Members holding a majority of the Common Units held by all CDP Common Members, desire to amend and
restate the Original Agreement to (i) add the Wellington Purchasers as parties hereto, and (ii)
govern the relationship of the Members with respect to the operation, governance and other matters
of Diamond Resorts Parent, LLC, a Nevada limited liability company (the “Company”).



     NOW THEREFORE, pursuant to the Act (as hereinafter defined), the following agreement,
including, without limitation, Appendix 1 (Tax Accounting Procedures) attached hereto and
by reference incorporated herein, shall constitute the Operating Agreement for the Company.



ARTICLE 1

DEFINITIONS




     1.1 General Definitions. The following terms used in this Operating Agreement shall
have the following meanings (unless otherwise expressly provided herein).



     “Act” means the Nevada Limited Liability Company Act, Nev. Rev. Stat. §§ 86.011 to 86.590, as
amended from time to time.



 









 





     “Adjusted Capital Account Deficit” has the meaning ascribed thereto in Appendix 1.



     “Affiliate” means a Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, a specified Person. For the purpose
of this definition, the term “control” shall mean the possession, direct or indirect, of the power
to direct or cause the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.



     “Agreement” shall mean this Fourth Amended and Restated Operating Agreement, including
Appendix 1 (Tax Accounting Procedures) hereto, as amended from time to time.



     “Asset Value” has the meaning ascribed thereto in Appendix 1.



     “Basis” has the meaning ascribed thereto in Appendix 1.



     “Board” has the meaning ascribed thereto in Section 9.1.



     “Business Day” shall mean a day other than a Saturday, a Sunday, or a state or federally
recognized holiday on which banks in Nevada are permitted to close.



     “Business Hours” shall mean 8:00 A.M. to 5:00 P.M. Standard Time or Daylight Time, as the case
may be, at a location specified in this Agreement. If no location is specified, a reference to
Business Hours shall refer to Business Hours as determined by Pacific Standard Time or Pacific
Daylight Time, as the case may be.



     “Capital Account” has the meaning ascribed thereto in Appendix 1.



     “Capital Contribution” means the amount of money and the fair market value (as reasonably
determined by the Board as of the date of contribution) of other property contributed, or services
rendered or to be rendered, to the Company by a Member with respect to such Membership Interest in
the Company.



     “CDP” has the meaning ascribed thereto in the introductory paragraph.



     “CDP Member” means CDP, 1818 Partners and any of their respective permitted transferees
admitted as Members in accordance with this Agreement.



     “CDP Unit Threshold” means the ownership by the CDP Members of at least 10% of the Common
Units issued to the CDP Members as of the date hereof.



     “Change in Control” means any transaction (i) pursuant to which the Company sells its business
by (a) a sale or conveyance of all or substantially all of the Company’s assets to any Person, (b)
a sale or conveyance of all or substantially all of the equity interests in the Company to any
Person or (c) a merger or consolidation of the Company with any Person and (ii) pursuant to which
the Company’s members, immediately prior to such transaction shall own in the aggregate,
immediately after giving effect thereto, less than a majority of the voting interests or less than
10% of the economic interests of the surviving entity (or its parent) or the purchasing entity (or
its parent), as the case may be.



     “Code” shall mean the Internal Revenue Code of 1986 or corresponding provisions of subsequent
superseding federal revenue laws.



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     “Common Member” means a member holding Common Units.



     “Common Percentage Interest” means, as to a Member as of any determination date, the
respective percentage of Common Units held by such Member of all the Common Units issued and
outstanding as of such determination date. The Common Percentage Interest of each Common Member as
of the date hereof shall be as set forth opposite such Common Member’s name on Schedule A
hereto under the column entitled “Common Percentage Interest.”



     “Common Units” means the Units designated as Common Units, the holders of which shall have the
rights, preferences and obligations specified herein as pertaining to the holders of such Units.



     “Company” has the meaning ascribed thereto in the recitals.



     “Confidential Information” has the meaning ascribed thereto in Section 8.1.



     “Depreciation” has the meaning ascribed thereto in Appendix 1.



     “Dispute” has the meaning ascribed thereto in Section 10.18.



     “Dissolution Event” has the meaning ascribed thereto in Section 12.1.



     “DRC” means Diamond Resorts Corporation, a Maryland corporation.



     “EBITDA” has the meaning given to such term in the Senior Note Indenture.



     “Entity” shall mean any general partnership, government entity, limited partnership, limited
liability company, corporation, joint venture, trust, business trust, cooperative, association or
similar organization.



     “Exchange Act” means the Securities Exchange of 1934, as amended.



     “Fiscal Year” shall mean the taxable year of the Company for federal income tax purposes as
determined by Code Section 706 and the Regulations thereunder.



     “Guggenheim” has the meaning ascribed thereto in the introductory paragraph.



     “Guggenheim Units” means the Units held by the Guggenheim Members.



     “Guggenheim Entity” means any of (i) Guggenheim Capital, LLC and its Affiliates, (ii) any
Guggenheim Member and any of its equity holders who are Guggenheim Related Entities and (iii) any
Affiliates of any Guggenheim Member.



     “Guggenheim Member” means each, and “Guggenheim Members” means all, of Guggenheim and any of
its permitted transferees admitted as Members in accordance with this Agreement.



     “Guggenheim Purchase Agreement” means that certain Securities Purchase Agreement, dated as of
June 17, 2010, by and between the Company and Guggenheim.



     “Guggenheim Related Entity” means an entity with a management or investment management
relationship with Guggenheim Capital, LLC or its Affiliates.



     “Guggenheim Secondary Indemnitor” has the meaning given such term in Section 9.14(a).



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     “Guggenheim Unit Threshold” means the aggregate ownership by the Guggenheim Members of at
least (i) 5% of the total Common Percentage Interests (determined on a fully-diluted basis) or
(ii) 25% of the Common Units issued to the Guggenheim Member as of the date hereof.



     “Investor” means any Guggenheim Member, any Silver Rock Member or any Wellington Member.



     “Investor Indemnified Party” has the meaning ascribed thereto in Section 9.15(a).



     “Investor Losses” has the meaning ascribed thereto in Section 9.15(a).



     “Liquidation Event” means any of the following: (a) a dissolution or involuntary winding up of
the Company; and (b) any transaction that results in a Change in Control of the Company.



     “Losses” has the meaning ascribed thereto in Appendix 1.



     “Majority-in-Interest of the Common Members” means Common Members whose aggregate Common
Percentage Interest exceeds 50% of the Common Percentage Interest of all Common Members.



     “Majority-in-Interest of the Investors” means Investors whose aggregate Common Percentage
Interest exceeds 50% of the Common Percentage Interest of all Investors.



     “Manager” means a “manager” (within the meaning of the Act) of the Company and includes each
Board member (it being understood, however, that no Board member shall have the power or authority
to bind the Company except as provided in this Agreement).



     “Managing Person” means a Manager, officer, director, or their agents.



     “Management Services Agreement” means the Homeowner Association Executive Oversight,
Consulting and Executive Management Services Agreement, dated as of December 31, 2010, by and among
DRC and Hospitality Management and Consulting Service, L.L.C.



     “Manager Representative” means a Board Member nominated by the Board to serve as the sole
Manager for purposes of public filing documents, such as Secretary of State Annual Lists, and for
any other purposes delegated by the Board.



     “Material Subsidiary” means any operating subsidiary of the Company that during the previous
fiscal year represented more than 20% of the Company’s revenues or EBITDA.



     “Member” means those Persons executing this Agreement and any Person who may hereafter become
an additional or Substitute Member.



     “Membership Interest” means a Member’s Units, and the associated right to vote (if any) on or
participate in management, the right (if any) to share in Profits, Losses, and distributions, and
any and all benefits to which the holder of such Units may be entitled pursuant to this Agreement,
together with all obligations to comply with the terms and provisions of this Agreement.



     “NRS” means the Nevada Revised Statutes, as the same may be modified and amended from time to
time.



     “Partially Adjusted Capital Account” means with respect to any Member for any Fiscal Year, the
Capital Account of such Member at the beginning of such Fiscal Year, increased by all contributions



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during such year and all special allocations of income and gain pursuant to Section
6.3 of this Agreement and Section 1.2 of Appendix 1 with respect to such Fiscal
Year, and decreased by all distributions during such fiscal year and all special allocations of
losses and deductions pursuant to Section 6.3 of this Agreement and Section 1.2 of
Appendix 1, but before giving effect to any allocation of Profits or Losses for such Fiscal
Year pursuant to Section 6.1 and Section 6.2.




     “Permanent Disability,” with respect to an individual, means that individual is under a legal
disability or by reason of illness or mental or physical disability is unable to give prompt and
intelligent consideration to matters of the Company. The determination as to such individual’s
“Permanent Disability” at any time shall be made by such individual’s physician in writing, and
such determination shall be conclusive and binding upon the parties.



     “Person” shall mean any individual or Entity, and the heirs, executors, administrators, legal
representatives, successors, and assigns of such Person where the context so requires.



     “Polo Holdings” shall mean Diamond Resorts Holdings, LLC, a Nevada limited liability company.



     “Principal Line of Business” means all business activities related to Timeshare Opportunities,
including, but not limited to, financing, development, sales, marketing, management and maintenance
of interval or fractional timeshare properties and the real estate incident thereto, the
acquisition and re-sale of such properties and the booking and reservation activities related
thereto; provided that, for the avoidance of doubt, “Principal Line of Business” shall not include
business activities related to hotels, condominiums, condo-hotels, apartment rental complexes,
commercial retail centers, office complexes, casinos, or other types of real estate / hospitality
developments or other activities not involving Timeshare Opportunities. “Timeshare Opportunity”
means any real estate development project or arrangement which, at the time of entering into such
opportunity, is required to be licensed under or is regulated under any timeshare statute or
regulation in any jurisdiction (regardless of whether such jurisdiction is the jurisdiction in
which the opportunity is located, sold or marketed), including, without limitation, interval and
fractional timeshares, whether conveyed via license, right to use, fee simple title or points, and
any timeshare club or exchange arrangement.



     “Profits” has the meaning ascribed thereto in Appendix 1.



     “Property” means all real and personal property, tangible and intangible, owned by the
Company.



     “Proxy” has the meaning ascribed thereto in Section 10.23(a).



     “Public Offering” means an underwritten public offering and sale of Successor Stock pursuant
to an effective registration statement under the Securities Act; provided that a Public Offering
shall not include an offering made in connection with a business acquisition or combination
pursuant to a registration statement on Form S-4 or any similar form, or an employee benefit plan
pursuant to a registration statement on Form S-8 or any similar form.



     “Qualified Public Offering” means any Public Offering providing aggregate gross proceeds
(before deducting underwriting discounts and expenses) to the Company and/or its equityholders of
at least $150 million in such Public Offering and at an offering price which represents a common
equity valuation of Common Units or Successor Stock outstanding immediately prior to the issuance
of Successor Stock in connection with such offering of at least $750 million.



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     “Registration Rights Agreement” means the Second Amended and Restated Registration Rights
Agreement, dated as of the date hereof, by and among the Company, Guggenheim, CDP, 1818 Partners,
the Silver Rock Entities and the Wellington Purchasers (as amended from time to time in accordance
with the terms thereof).



     “Regulations” means the federal income tax regulations, including temporary (but not proposed)
regulations promulgated under the Code.



     “Securities Act” means the Securities Act of 1933, as amended.



     “Securityholders Agreement” means the Fourth Amended and Restated Securityholders Agreement,
dated as of the date hereof, by and among the Company, Guggenheim, CDP, 1818 Partners, the Silver
Rock Entities and the Wellington Purchasers (as amended from time to time in accordance with the
terms thereof).



     “Senior Note Indenture” means the Indenture dated as of August 13, 2010 by and among DRC, the
Company, Polo Holdings, the Subsidiary Guarantors named therein and Wells Fargo Bank, National
Association, as trustee (as the same may be amended, restated, replaced or refinanced).



     “Silver Rock Entity” and “Silver Rock Entities” have the meanings ascribed thereto in the
introductory paragraph.



     “Silver Rock Member” means each, and “Silver Rock Members” means all, of the Silver Rock
Entities and any of its or their permitted transferees admitted as Members in accordance with this
Agreement.



     “Silver Rock Purchase Agreement” means that certain Securities Purchase Agreement, dated as of
February 18, 2011, by and between the Company and the Silver Rock Entities.



     “Silver Rock Secondary Indemnitor” has the meaning ascribed thereto in Section
9.14(b).



     “Silver Rock Units” means the Units held by the Silver Rock Members.



     “Subsidiary” means, with respect to any Person, any corporation, partnership, association or
other business entity of which (i) if a corporation, a majority of the total voting power of shares
of stock entitled (without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly,
by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or
(ii) if a partnership, association or other business entity, a majority of the partnership or other
similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes
hereof, a Person or Persons shall be deemed to have a majority ownership interest in a partnership,
association or other business entity if such Person or Persons shall be allocated a majority of
partnership, association or other business entity gains or losses or shall be or control the
managing director or a general partner of such partnership, association or other business entity.



     “Substitute Member” means a permitted transferee of a Membership Interest who has been
admitted to all of the rights of membership pursuant to Article 11.



     “Successor” has the meaning ascribed thereto in Section 13.1.



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     “Successor Stock” has the meaning ascribed thereto in Section 13.2(b).



     “Target Capital Account” means, with respect to any Member and any fiscal year, an amount
(which may be either a positive or a deficit balance) equal to the hypothetical distribution (as
described in the next paragraph) that such Member would receive, minus the Member’s share of
partner minimum gain determined pursuant to Regulations Section 1.704-2(g), and minus the Member’s
share of the partner nonrecourse debt minimum gain determined in accordance with Regulations
Sections 1.704-2(i)(3) and 1.704-2(i)(5), all computed immediately prior to the hypothetical sale
described below.



     The hypothetical distribution to a Member is equal to the amount that would be received by
such Member if all Company assets were sold for cash equal to their Asset Value, all Company
liabilities were satisfied to the extent required by their terms (limited, with respect to each
partner nonrecourse liability and partner nonrecourse debt, as defined in Regulations Section
1.704-2(b)(4), to the Asset Value of the assets securing such liability), and the net assets of the
Company were distributed in full to the Members as required pursuant to Section 7.1, all as
of the last day of such Fiscal Year.



     “Tax Distribution” has the meaning ascribed thereto in Section 7.2.



     “Transaction Agreements” means this Agreement, the Registration Rights Agreement and the
Securityholders Agreement, the Guggenheim Purchase Agreement, the Silver Rock Purchase Agreement
and the Wellington Purchase Agreement.



     “Units” as to any Member shall mean and refer to the cumulative number of Common Units held by
such Member.



     “Wellington Entity” means any of (i) Wellington Management Company, LLP and its Affiliates,
(ii) any Wellington Member, (iii) any Wellington Related Entities and (iv) any Affiliates of any
Wellington Member.



     “Wellington Member” means each, and “Wellington Members” means all, of the Wellington
Purchasers and any of its or their permitted transferees admitted as Members in accordance with
this Agreement.



     “Wellington Purchase Agreement” means that certain Securities Purchase Agreement, dated as of
the date hereof, by and between the Company and the Wellington Purchasers.



     “Wellington Purchaser” and “Wellington Purchasers” have the meanings ascribed thereto in the
introductory paragraph.



     “Wellington Related Entity” means an entity with a management or investment management
relationship with Wellington Management Company, LLP or its Affiliates.



     “Wellington Secondary Indemnitor” has the meaning ascribed thereto in Section 9.14(c).



     “Wellington Unit Threshold” means the aggregate ownership by the Wellington Members of at
least (i) 5% of the total Common Percentage Interests (determined on a fully-diluted basis) or
(ii) 25% of the Common Units issued to the Wellington Members as of the date hereof.



     “Wellington Units” means the Units held by the Wellington Members.



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ARTICLE 2

FORMATION OF COMPANY




     2.1 Name. The name of the Company is Diamond Resorts Parent, LLC.



     2.2 Formation. The Company was formed pursuant to Articles of Organization filed with
the Nevada Secretary of State on March 28, 2007.



     2.3 Principal Place of Business. The principal place of business of the Company
within the State of Nevada shall first be at 10600 West Charleston Boulevard, Las Vegas, NV 89135.
The Company may locate its places of business and registered office at any other place or places as
the Board may from time to time deem advisable.



     2.4 Registered Office and Agent. The Company’s registered office shall first be at
10600 West Charleston Boulevard, Las Vegas, NV 89135. The name of the registered agent at such
address as of the date hereof shall be Elizabeth Brennan.



     2.5 Term. Unless the Company is dissolved in accordance with the provisions of this
Agreement, the Act, or other Nevada law, the existence of the Company shall be perpetual.



ARTICLE 3

BUSINESS OF COMPANY




     3.1 Permitted Businesses. The purpose of the Company shall be to engage in any lawful
business and to do any lawful act concerning any and all lawful business for which a limited
liability company may be organized under the laws of the State of Nevada.



     3.2 Limits on Foreign Activity. The Company shall not directly engage in business in
any state, territory or country which does not recognize limited liability companies or the
effectiveness of the Act in limiting the liabilities of the Members of the Company. If the Company
desires to conduct business in any such state, it shall do so through an Entity which will ensure
limited liability to the Members.



     3.3 Limits on Trade or Business Activity. The Company shall not directly or
indirectly except through a subsidiary classified as a corporation for U.S. federal income tax
purposes engage in transactions that would cause the Company to be engaged in a U.S. trade or
business within the meaning of Section 864(b) of the Code or would result in the Company earning
income other than income described under Section 851(b)(2)(A) of the Code.



ARTICLE 4

CONTRIBUTIONS TO COMPANY




     4.1 Issuance of Units; Capital Contributions. The Company shall be permitted to issue
Common Units with such rights and obligations as set forth in this Agreement. The Common Units are
allocated in such amounts as set forth on Schedule A hereto, in exchange for the Capital
Contributions. The Capital Contribution of each Member as of the date hereof shall be as set forth
on the books and records of the Company.



     4.2 Additional Capital Contributions. Except as otherwise provided for under the Act,
unless all Members agree, no Member shall be obligated to make any additional Capital Contributions
to the Company. If the Company needs additional capital to meet its obligations, it shall seek
such capital in



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such manner as the Board shall determine, including, without limitation, in any of the
following manners (without any particular order of priority):





     (a) From additional Capital Contributions from the Members in proportion to their
Common Percentage Interests (provided, however, that no Member shall be
required to make any additional Capital Contributions to the Company); or




     (b) From any source from which the Company may borrow additional capital, including,
without limitation, any Member (provided, however, no Member shall be
obligated to make a loan to the Company).



     4.3 Withdrawal or Reduction of Members’ Contributions to Capital.




     (a) Except as otherwise expressly provided herein, a Member shall not receive out of
the Company’s Property any part of such Member’s contributions to capital until all
liabilities of the Company, excluding liabilities to Members on account of their
contributions to capital, have been paid or there remains Property of the Company sufficient
to pay them. Except as otherwise expressly provided herein or the Act, no Member may demand
a return of his Capital Contribution.




     (b) Except as otherwise expressly provided herein, a Member shall not resign from the
Company before the dissolution and winding up of the Company pursuant to Article 11
hereof unless all Members consent; provided that a Member may deliver written notice to the
Company of such Member’s intention to abandon all right, title and interest in and to all
Units held by such Member without any compensation to such Member, and such abandonment
shall be effective as a resignation by such Member and such Member shall have no right to
demand a return of its contribution to capital or to receive the fair value of such Member’s
Units.




     (c) Except as otherwise expressly provided herein, a Member, irrespective of the nature
of such Member’s contribution, has the right to demand and receive only cash in return for
such Member’s contribution to capital.



     4.4 No Interest on Capital Contribution. Except as otherwise expressly provided
herein, no Member shall be entitled to or shall receive interest on such Member’s Capital
Contribution.



ARTICLE 5

MEMBERSHIP INTERESTS




     5.1 Current Interests. The number of Units held by each Member are as set forth
opposite such Member’s name on Schedule A attached hereto.



     5.2 Securities Law Qualification. THE MEMBERS ARE AWARE THAT THE MEMBERSHIP INTERESTS
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT, OR THE SECURITIES LAWS OF ANY STATE. THE
MEMBERSHIP INTERESTS CANNOT BE RESOLD OR TRANSFERRED WITHOUT (i) REGISTRATION UNDER THE SECURITIES
ACT OR (ii) AN EXEMPTION FROM REGISTRATION. THERE IS NO PUBLIC TRADING MARKET FOR THE MEMBERSHIP
INTERESTS, AND IT IS NOT ANTICIPATED THAT ONE WILL DEVELOP. ADDITIONALLY, THERE ARE SUBSTANTIAL
RESTRICTIONS UPON THE TRANSFERABILITY OF THE MEMBERSHIP INTERESTS. SALE OR ASSIGNMENT BY A MEMBER
OF ITS MEMBERSHIP INTERESTS OR SUBSTITUTION OF MEMBERS MAY BE SUBJECT TO CERTAIN CONSENTS.



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THEREFORE, MEMBERS MAY NOT BE ABLE TO LIQUIDATE THEIR INVESTMENTS IN THE EVENT OF AN
EMERGENCY. FURTHER, MEMBERSHIP INTERESTS MAY NOT BE READILY ACCEPTED AS COLLATERAL FOR A LOAN.
MEMBERSHIP INTERESTS SHOULD BE CONSIDERED ONLY AS A LONG-TERM INVESTMENT.




ARTICLE 6

ALLOCATIONS OF PROFITS AND LOSSES




     6.1 Allocation of Profits. From and after the date hereof, after giving effect to the
special allocations set forth in Section 1.2 of Appendix 1, Profits, and to the
extent included in the computation of Profits an allocable portion (pro rata based on the amount of
Profits) allocated to each Member of each item of Company income, gain, loss or deduction, for each
Fiscal Year, shall be allocated to the Members so as to reduce, proportionally, the difference
between their respective Target Capital Accounts and Partially Adjusted Capital Accounts for such
fiscal year. No portion of the Profits for any Fiscal Year shall be allocated to a Member whose
Partially Adjusted Capital Account is greater than or equal to his Target Capital Account for such
fiscal year.



     6.2 Allocation of Losses. From and after the date hereof, after giving effect to the
special allocations set forth in Section 1.2 of Appendix 1 and subject to
Section 6.3 hereof, Losses and to the extent included in the computation of Losses an
allocable portion (pro rata based on the amount of Losses) allocated to each Member of each item of
Company income, gain, loss or deduction, for each Fiscal Year, shall be allocated to the Members so
as to reduce, proportionally, the difference between their respective Partially Adjusted Capital
Accounts and Target Capital Accounts for such Fiscal Year. No portion of the Losses for any Fiscal
Year shall be allocated to a Member whose Target Capital Account is greater than or equal to its
Partially Adjusted Capital Account for such Fiscal Year.



     6.3 Loss Limitation and Reallocation. The Losses allocated pursuant to Section
6.2 hereof shall not exceed the maximum amount of Losses that can be so allocated without
causing any Member to have an Adjusted Capital Account Deficit at the end of the Fiscal Year. In
the event that some, but not all of the Members would have an Adjusted Capital Account Deficit as a
consequence of an allocation of Losses pursuant to Section 6.2 hereof, the limitation set
forth in this Section 6.3 shall be applied on a Member-by-Member basis and Losses not
allocable to any Member as a result of such limitation shall be allocated to the other Members in
accordance with the positive balances in such Members’ Capital Accounts so as to allocate the
maximum permissible Losses to each Member under Regulations Section 1.704-1(b)(2)(ii)(d).



ARTICLE 7

DISTRIBUTIONS




     7.1 Distributions. Except as otherwise provided in Section 12.2 (on
liquidation) hereof, and subject to the remainder of this Article 7 (including Section
7.2), the Company shall make distributions as determined by the Board, to each holder of Common
Units, pro rata in proportion to such Common Member’s Common Percentage Interest in effect as of
the date of such distribution.



     7.2 Tax Distribution. To the extent cash is available, the Members shall be entitled
to receive cash distributions for each taxable year in amounts sufficient to enable each Member to
discharge any federal, state and local tax liability for such taxable year or, if applicable, prior
years (excluding penalties and interest) arising as a result of their interest in the Company,
determined by assuming the applicability to each Member of the highest combined effective marginal
federal, state and local income tax rates for any Person actually obligated to report on any tax
returns income derived from the Company; the Company shall provide quarterly estimates to each
Member of such Member’s tax liability arising as a



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result of its interest in the Company. To the extent distributions otherwise payable to a
Member pursuant to Section 7.1 are insufficient to cover such tax liabilities, the Company
shall make cash distributions (the “Tax Distributions”) in amounts that, when added to the cash
distributions otherwise payable, shall equal such tax liability. The amount of such tax liability
shall be calculated (i) taking into account the deductibility of state and local income taxes for
United States federal income tax purposes, and (ii) taking into account the amount of net
cumulative tax loss allocated to such Member in prior fiscal years (but after the date hereof) and
not used in prior fiscal years (but after the date hereof) to reduce taxable income for the purpose
of making distributions under this Section 7.2 (based on the assumption that taxable income
or tax loss from the Company is each Member’s only taxable income or tax loss). Tax Distributions
shall be treated as advances against distributions to the Members pursuant to Section 7.1.
To the extent this Section 7.2 results in distributions other than in the ratio required by
Section 7.1, the first distributions of net cash, securities or other property that are not
made pursuant to Section 7.2 shall be made so as to cause the aggregate distributions
pursuant to Section 7.1, including those made pursuant to Section 7.2, to be, as
nearly as possible, in the ratio required by Section 7.1.




ARTICLE 8

BOOKS, RECORDS, AND ACCOUNTING




     8.1 Books and Records.




     (a) The Company shall maintain or cause to be maintained books of account that reflect
items of income and expenditure relating to the business of the Company. Such books of
account shall be maintained on the method of accounting selected by the Company and on the
basis of the Fiscal Year. Each Member directly holding Units, upon reasonable advance
written notice to the Board, at such Member’s own expense, shall have the right to inspect,
copy, and audit the Company’s books and records at any time during normal Business Hours
provided that it has a bona fide good faith business reason for doing so. The Members
acknowledge that information directly or indirectly regarding the Company or any of its
direct or indirect subsidiaries constitutes business and commercial information not in the
public domain or generally known in the timeshare industry including, but not limited to
methods, techniques, systems, customer lists, business opportunities, business plans, tax
returns, operating and financial statements and knowledge of and experience in the timeshare
industry (collectively, “Confidential Information”). Except (x) with respect to its
attorneys, accountants, consultants, other professional advisors and its Affiliates, and,
(A) with respect to the Guggenheim Member, any Guggenheim Entity that has a need to know
such information and is directed by the disclosing Guggenheim Member to keep such
information confidential in accordance with the terms of this Section 8.1 (it being
understood that the disclosing Guggenheim Member shall remain responsible for the compliance
of any such receiving Guggenheim Entity with the obligations set forth in this Section
8.1(a) with respect to Confidential Information) and (B) with respect to any Wellington
Member, any Wellington Entity that has a need to know such information and is directed by
the disclosing Wellington Member to keep such information confidential in accordance with
the terms of this Section 8.1 (it being understood that the disclosing Wellington
Member shall remain responsible for the compliance of any such receiving Wellington Entity
with the obligations set forth in this Section 8.1(a) with respect to Confidential
Information), or (y) to the extent disclosure thereof is required by applicable law,
regulation or court order, each Member agrees that it shall not disclose any Confidential
Information to a third party. Each Member agrees that the Confidential Information will be
used solely in connection with its investment in the Company. Notwithstanding the
foregoing, “Confidential Information” does not include any information, materials, or data
that: (i) were rightfully known to a Member prior to its receipt from the Company, or
become rightfully known to such Member other than as a result of the relationship between
the Company and such Member; (ii) are or



11









 







become generally available to the public other than as a result of such Member’s
unauthorized direct or indirect acts; (iii) were disclosed to such Member by a third party
with the right to disclose such information, materials, or data, without restriction or
subject to restrictions to which such Member has conformed; or (iv) were independently
developed by a Member without use of any confidential or proprietary information of the
Company.




     (b) The Company shall keep at its registered office such records as are required by the
Act.



     8.2 Tax Returns. The Company shall prepare and file, or cause to be prepared and
filed, all income tax and other tax returns of the Company. The Company shall furnish to each
Member a copy of all such returns together with all schedules thereto and such other information
which each Member may request in connection with such Member’s own tax affairs. A Schedule K-1
shall be provided by the Company to each Member as soon as possible after the end of the Company’s
tax year, but in no event later than 90 days after the end of such tax year.



     8.3 Bank Accounts. The Company shall establish and maintain one or more separate
accounts in the name of the Company in one or more federally insured banking institutions of its
choosing into which shall be deposited all funds of the Company and from which all Company
expenditures and other disbursements shall be made. Funds may be withdrawn from such accounts on
the signature of a duly authorized representative or agent of the Board.



ARTICLE 9

MANAGEMENT




     9.1 General Management.




     (a) The business and affairs of the Company shall be managed under the direction of a
board of managers (the “Board”). The members of the Board shall be “managers” within the
meaning of the Act (it being understood, however, that no Board member shall have the power
or authority to bind the Company except as provided in this Agreement and the
Securityholders Agreement). Subject to Section 9.2, the Securityholders Agreement
and the Board’s right to appoint officers, Managing Persons and other agents of the Company
(including an operations manager designated under the Management Services Agreement), the
Board shall have full, exclusive and complete discretion to manage and control the business
and affairs of the Company, to make all decisions affecting the business and affairs of the
Company and to take all such actions as it deems necessary or appropriate to accomplish the
purposes of the Company as set forth herein.




     (b) The Board shall nominate from time to time a Manager Representative. Such Manager
Representative shall be listed as the sole Manager on public documents, such as the Articles
of Organization and Annual List of the Secretary of State of Nevada, and shall be authorized
to sign as the Manager of the Company in these ministerial instances. The Manager
Representative shall have no other power or authority, except as delegated to him or her by
the Board. The initial Manager Representative shall be Stephen J. Cloobeck.




     (c) Some or all of the day-to-day business and affairs of the Company may be managed by
or under the direction of one or more Entities, who need not be Members of the Company, as
determined by the Board pursuant to a management services agreement to be executed between
the Company and such other Entity in accordance with the provisions of the Securityholders
Agreement.



12









 






     (d) The Board shall direct, manage and control the business of the Company and, subject
to the limitations and qualifications set forth in this Agreement (including Section
11) and the Securityholders Agreement, shall have full and complete authority, power and
discretion to make any and all decisions and to do any and all things which the Board shall
deem to be reasonably required in light of the Company’s business and objectives. Without
limiting the generality of the foregoing, the Board shall have power and authority (subject
to the restrictions set forth in the Securityholders Agreement) to:




     (i) acquire property from any Person as the Board may determine;




     (ii) establish policies for investment and invest Company funds (by way of
example but not limitation, in time deposits, short term governmental obligations,
commercial paper or other investments);




     (iii) make distributions of available cash to Members;




     (iv) employ accountants, legal counsel, managers, managing agents or other
experts or consultants to perform services for the Company with compensation from
Company funds;




     (v) enter into any transaction on behalf of the Company involving the
incurrence of any indebtedness or the hypothecation, encumbrance, or granting of a
security interest or lien upon any Company Property;




     (vi) purchase liability and other insurance to protect the Company’s Property
and business;




     (vii) organize Entities to serve as the Company’s subsidiaries and to determine
the form and structure thereof;




     (viii) establish committees; delegate management decisions thereto; appoint
members of the Board thereto and remove members of the Board therefrom;




     (ix) establish offices of President, Vice President, Secretary and Treasurer;
delegate to such offices daily management and operational responsibilities; appoint
Persons to act as members of such office and remove Persons therefrom; and




     (x) establish reasonable payments or salaries to Persons appointed as officers.



     9.2 Other Authorized Persons. Unless authorized to do so by this Agreement or by the
Board, no Member, agent, or employee of the Company shall have any power or authority to bind the
Company in any way, to pledge its credit or to render it liable pecuniarily for any purpose.
However, the Board may act (or may cause the Company to act) by a duly authorized power of
attorney.



     9.3 Appointment, Removal and Tenure of Board Members. The total number of members of
the Board shall be a minimum of three (3) and a maximum of seven (7). The number of members of the
Board as of the date hereof shall be five (5), of which (a) the Common Members shall have the right
to appoint three (3) members of the Board based on the vote of a Majority-in-Interest of the Common
Members, and (b) for so long as the Guggenheim Unit Threshold is met, the Guggenheim Members shall
have the right to appoint two (2) members of the Board. As of the date hereof, the members of the
Board



13









 




are Stephen J. Cloobeck, David F. Palmer and Lowell D. Kraff (as the members appointed by the
Majority-in-Interest of the Common Members), and Zachary Warren and Scott Minerd (as the members
appointed by the Guggenheim Members). Stephen J. Cloobeck shall be the initial Chairman of the
Board. Subject to the foregoing and the Securityholders Agreement, the number of members of the
Board may be adjusted from time to time based on the vote of a Majority-in-Interest of the Common
Members with such additional Members of the Board being appointed by a vote of a
Majority-in-Interest of the Common Members. Each Board member shall serve from the date of his or
her appointment to the Board until his or her successor is appointed or until his or her earlier
death, resignation or removal. The Majority-in-Interest of the Common Members and the Guggenheim
Members shall have the right to remove the applicable Board member appointed by such Member(s) at
any time or from time to time, with or without cause or reason, and to appoint a Board member in
his place, and shall have the right to fill any vacancy created by the resignation or death of the
Board member appointed by it or them. If any member of the Board appointed by the Common Members
is absent from any Board meeting or there exists any vacancy with respect to any Board membership
that the Common Members are entitled to appoint pursuant to the terms hereof, the other members of
the Board appointed by the Common Members shall nonetheless have, in the aggregate, the number of
votes that could be cast by all members of the Board the Common Members are entitled to appoint
hereunder, without the need for a proxy from the absent Board member or filling of the vacancy. If
either member of the Board appointed by the Guggenheim Members is absent from any Board meeting or
there exists any vacancy with respect to either of such Board memberships, the vote cast by the
member of the Board appointed by the Guggenheim Members who is present at such meeting shall count
as two votes, without the need for a proxy from the absent Board member or filling of the vacancy.




     9.4 Board Observation Rights. For so long as the Wellington Unit Threshold is met,
the Wellington Members may designate one observer (the “Wellington Observer”) to attend in a
nonvoting observer capacity all meetings of the Board, any committee of the Board and any board of
directors or board of managers (and any committees thereof) of any Material Subsidiary, and, in
this respect, the Company shall provide the Wellington Observer copies of all notices, minutes,
consents, and other material that it provides to the members of the Board, any committee of the
Board and any board of directors or board of managers (and any committees thereof) of any Material
Subsidiary at the same time such material is provided to such members; provided, however, that the
Company reserves the right to exclude the Wellington Observer from access to any material or
meeting or portion thereof if the Company believes upon advice of counsel that such exclusion is
reasonably necessary to preserve the attorney-client privilege. To the extent the information and
other material furnished to the Wellington Observer pursuant to this Section 9.4
constitutes or contains Confidential Information, the Wellington Members covenant that they will
use due care to prevent its officers, directors, partners, employees, trustees, counsel,
accountants and other representatives from disclosing such Confidential Information to Persons
other than their respective authorized employees, counsel, accountants, stockholders,
beneficiaries, partners, limited partners and other authorized representatives and any other person
permitted under Section 8.1(a); provided, however, that the Wellington Members may disclose
or deliver any information should they be advised by counsel that such disclosure or delivery is
required by law, regulation or judicial or administrative order or should the Company consent in
writing to such disclosure or delivery. “Due care” means the same level of care that a Wellington
Member would use to protect the confidentiality of sensitive or proprietary information regarding
its other investments that are subject to similar confidentiality agreements. Any material to be
provided to the Wellington Observer shall be sent solely to the address and department listed next
to the signatures of the Wellington Purchasers, and such material shall not be sent to any other
Person on behalf of the Wellington Observer without the prior written consent of a member of such
department. If any of such material contains material, non-public information (under applicable
securities laws) about any other entity with publicly traded securities, the Company shall identify
such information as such.



14









 





     9.5 Meetings of the Board; Action by Written Consent.




     (i) The Board may hold meetings at the Company’s principal place of business,
or at such other place either within or without the State of Nevada if consented to
by all of the Board members. Meetings of the Board may also be held by means of
conference telephone or similar communications equipment by means of which all
members participating in the meeting can hear each other, and participation in such
meeting shall constitute attendance and presence in person. Regular meetings of the
Board may be held without notice at such times and at such places as shall from time
to time be determined by the Board. Any Board member may call a meeting of the
Board on not less than three (3) Business Days’ notice to each other Board member,
either personally, by telephone, by mail, by facsimile or by any other means of
communication reasonably calculated to give notice. Notice of a meeting need not be
given to any Board member if a written waiver of notice, executed by such Board
member before or after the meeting, is filed with the records of the meeting, or to
any Board member who attends the meeting without protesting prior thereto or at its
commencement, the lack of notice. A notice and waiver of notice need not specify
the purposes of the meeting.




     (ii) Any action permitted or required by the Act, the articles of organization
of the Company or this Agreement to be taken at a meeting of the Board may be taken
without a meeting if a consent in writing, setting forth the action to be taken, is
signed by all of the members of the Board. Such consent shall have the same force
and effect as a vote at a meeting and may be stated as such in any document or
instrument filed with the Secretary of State of Nevada, and the execution of such
consent shall constitute attendance or presence in person at a meeting of the Board.



     9.6 Quorum and Acts of the Board. At all meetings of the Board a majority of the
total number of Board members shall constitute a quorum for the transaction of business and, except
as otherwise provided in this Agreement and the Securityholders Agreement, the vote of a majority
of the Board members present at any meeting in person or by proxy at which a quorum is present
shall be the act of the Board. If a quorum shall not be present at any meeting of the Board, the
Board members present thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present. Any instrument or writing executed
on behalf of the Company by any one or more of the members of the Board shall be valid and binding
upon the Company when authorized by such action of the Board.



     9.7 Committees. The Board may designate one or more committees, each committee to
consist of one or more of the members of the Board, or such other persons as may be designated by
the Board. Any such committee, to the extent provided by the Board, shall have and may exercise
all the powers and authority of the Board in the management of the business, property, and affairs
of the Company. Each committee which may be established by the Board pursuant hereto may fix its
own rules and procedures. For so long as the Guggenheim Unit Threshold is met, the Guggenheim
Members shall be entitled to appoint a person to each committee of the Board.



     9.8 Subsidiaries. For so long as the Guggenheim Unit Threshold is met, the Guggenheim
Members may elect one member to serve on the board of directors or board of managers, as the case
may be, of each Material Subsidiary and on each committee of the board of directors or board of
managers, as the case may be, of a Material Subsidiary.



     9.9 No Liability for Certain Acts. A member of the Board of the Company and each
other duly appointed officer of the Company shall perform such person’s duties, in good faith, in a
manner such



15









 




person reasonably believes to be in the best interests of the Company; provided that nothing
contained herein shall prevent a member of the Board from acting in the interests of the Member or
Members having appointed such member to the Board. Such Board member or officer does not, in any
way, guarantee the return of the Members’ Capital Contributions or a profit for the Members from
the operations of the Company. No such person shall be responsible to any Members because of a
loss of their investment in the Company or a loss in the operations of the Company, unless the loss
shall have been the result of the Board member or officer not acting in good faith as provided in
this Section. A Board member or officer shall incur no liability to the Company or to any of the
Members as a result of engaging in any other business or venture; provided that the foregoing shall
not relieve any Member of its duties and responsibilities under Section 10.19 hereof. The
foregoing provision shall not preclude liability on the part of a Board member or officer to a
Member pursuant to any other agreement between such Member and a Board member or officer. Board
members shall be entitled to any other protection afforded to a manager under the Act. A Board
member or officer who so performs such person’s duties shall not have any liability by reason of
being or having been a Board member or officer of the Company. In performing the duties of a Board
member or officer, such person shall be entitled to rely on information, opinions, reports or
statements, including financial statements and other financial data, in each case prepared or
presented by persons and groups listed below unless such person has knowledge concerning the matter
in question that would cause such reliance to be unwarranted:





     (a) one or more employees or other agents of the Company whom the Board member or
officer believes in good faith to be reliable and competent in the matters presented;




     (b) legal counsel, public accountants, or other Persons as to matters that the Board
member or officer believes in good faith to be within such Persons’ professional or expert
competence; or




     (c) a committee, upon which such Board member or officer does not serve, duly
designated in accordance with the provisions of this Agreement, as to matters within its
designated authority, which committee the Board member or officer believes in good faith to
merit confidence.



     9.10 Transactions with Affiliates. Except as otherwise expressly provided in the
Securityholders Agreement, the Company and Company Affiliates may enter into agreements and other
transactions with any Member or Affiliates of any Member without the prior written consent of the
Members.



     9.11 Board Members And Officers Have No Exclusive Duty to Company. Board members or
officers shall not be required to manage the Company as such person’s sole and exclusive activity,
and each Board member or officer may have other business interests and may engage in other
activities in addition to those relating to the Company. Neither the Company nor any Member shall
have any right, by virtue of this Agreement, to share or participate in such other investments or
activities of any Board member or officer.



     9.12 Expenses. The Company shall (or shall cause one of its subsidiaries to)
reimburse the members of the Board and the Wellington Observer for all reasonable out of pocket
expenses incurred by such individual in connection with their attendance of any meeting of the
Board, the board of directors or board of managers of any Material Subsidiary or any committee
thereof.



16









 





     9.13 Indemnity of Board Members and Officers.




     (a) The Company agrees to indemnify, pay, protect and hold harmless each Board member
and officer from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, proceedings, costs, expenses and disbursements of any
kind or nature whatsoever (including, without limitation, all reasonable costs and expenses
of defense, appeal and settlement of any and all suits, actions or proceedings instituted
against the such person or the Company and all costs of investigation in connection
therewith) which may be imposed on, incurred by, or asserted against such person or the
Company in any way relating to or arising out of, or alleged to relate to or arise out of,
(i) any action or inaction on the part of the Company or on the part of a Board member or
officer, acting in a manner believed in good faith to be in the best interests of the
Company, (ii) in connection with the formation, operation and/or management of the Company,
or the Company’s purchase and operation of Property, and/or (iii) as a result of the Board
member or officer agreeing to act as a Board member or officer of the Company or any
subsidiary. If any action, suit or proceeding shall be pending or threatened against the
Company or a Board member or officer relating to or arising out of, or alleged to relate to
or arise out of, any such action or nonaction, a Board member or officer shall have the
right to employ, at the expense of the Company, separate counsel of such person’s choice in
such action, suit or proceeding and the Company shall advance the reasonable out-of-pocket
expenses in connection therewith. The satisfaction of the obligations of the Company under
this Section shall be from and limited to the assets of the Company, and no Member shall
have any personal liability on account thereof. The foregoing rights of indemnification are
in addition to and shall not be a limitation of any rights of indemnification as provided in
Sections 86.411 through 86.451 of the Act, as such may be amended from time to time.




     (b) This Section shall not limit the Company’s power to pay or reimburse expenses
incurred by a Board member or officer in connection with such person’s appearance as a
witness in a proceeding at a time when the Board member or officer has not been made a named
defendant or respondent in the proceeding.




     (c) The Company may indemnify and advance expenses to an employee or agent of the
Company who is not a Board member or officer to the same or to a greater extent as the
Company may indemnify and advance expenses to a Board member or officer.




     (d) The Company shall use its best efforts to purchase and maintain insurance on behalf
of any Person who is or was a Board member or officer, Member, employee, fiduciary, or agent
of the Company or who, while a Board member or officer, Member, employee, fiduciary, or
agent of the Company, is or was serving at the request of the Company as a manager, member,
director, officer, partner, trustee, employee, fiduciary, or agent of any other foreign or
domestic limited liability company or any corporation, partnership, joint venture, trust,
other enterprise, or employee benefit plan against any liability asserted against or
incurred by such Person in any such capacity or arising out of such Person’s status as such,
whether or not the Company would have the power to indemnify such Person against such
liability under the provisions of this Section. Any such insurance may be procured from any
insurance company designated by the Board, whether such insurance company is formed under
the laws of this state or any other jurisdiction of the United States or elsewhere.



     9.14 Subrogation.




     (a) In the event that any member of the Board appointed by the Guggenheim Members is
entitled to indemnification under Section 9.13 for which such Person is also
entitled



17









 







to indemnification from a Guggenheim Member or their Affiliates (the “Guggenheim
Secondary Indemnitor”), the Company hereby agrees that its duties to indemnify such Person,
whether pursuant to this Agreement or otherwise, shall be primary to those of the Guggenheim
Secondary Indemnitor, and to the extent the Guggenheim Secondary Indemnitor actually
indemnifies any such Person, such Guggenheim Secondary Indemnitor shall be subrogated to the
rights of such Person against the Company for indemnification hereunder. The Company hereby
acknowledges the subrogation rights of each Guggenheim Secondary Indemnitor under such
circumstances and agrees to execute and deliver such further documents and/or instruments as
the Guggenheim Secondary Indemnitor may reasonably request in order to evidence any such
subrogation rights, whether before or after the Guggenheim Secondary Indemnitor makes any
such indemnification payment. The Company shall pay any amounts due under this Section
9.14(a), in cash, promptly, and in any event within ten (10) days, upon written demand
from the Guggenheim Secondary Indemnitor. The Company hereby waives any right against the
Guggenheim Secondary Indemnitor to indemnification, subrogation or contribution.
Furthermore, the Company expressly agrees that each Guggenheim Secondary Indemnitor is an
intended third party beneficiary as to the indemnification provisions of this Agreement and
shall be entitled to bring suit against the Company to enforce said provisions.




     (b) In the event that any member of the Board appointed by the Silver Rock Common
Members is entitled to indemnification under Section 9.13 for which such Person is
also entitled to indemnification from a Silver Rock Member or their Affiliates (the “Silver
Rock Secondary Indemnitor”), the Company hereby agrees that its duties to indemnify such
Person, whether pursuant to this Agreement or otherwise, shall be primary to those of the
Silver Rock Secondary Indemnitor, and to the extent the Silver Rock Secondary Indemnitor
actually indemnifies any such Person, such Silver Rock Secondary Indemnitor shall be
subrogated to the rights of such Person against the Company for indemnification hereunder.
The Company hereby acknowledges the subrogation rights of each Silver Rock Secondary
Indemnitor under such circumstances and agrees to execute and deliver such further documents
and/or instruments as the Silver Rock Secondary Indemnitor may reasonably request in order
to evidence any such subrogation rights, whether before or after the Silver Rock Secondary
Indemnitor makes any such indemnification payment. The Company shall pay any amounts due
under this Section 9.14(b), in cash, promptly, and in any event within ten (10)
days, upon written demand from the Silver Rock Secondary Indemnitor. The Company hereby
waives any right against the Silver Rock Secondary Indemnitor to indemnification,
subrogation or contribution. Furthermore, the Company expressly agrees that each Silver
Rock Secondary Indemnitor is an intended third party beneficiary as to the indemnification
provisions of this Agreement and shall be entitled to bring suit against the Company to
enforce said provisions.




     (c) In the event that any member of the Board appointed by any of the Wellington
Members is entitled to indemnification under Section 9.13 for which such Person is
also entitled to indemnification from a Wellington Member or their Affiliates (the
“Wellington Secondary Indemnitor”), the Company hereby agrees that its duties to indemnify
such Person, whether pursuant to this Agreement or otherwise, shall be primary to those of
the Wellington Secondary Indemnitor, and to the extent the Wellington Secondary Indemnitor
actually indemnifies any such Person, such Wellington Secondary Indemnitor shall be
subrogated to the rights of such Person against the Company for indemnification hereunder.
The Company hereby acknowledges the subrogation rights of each Wellington Secondary
Indemnitor under such circumstances and agrees to execute and deliver such further documents
and/or instruments as the Wellington Secondary Indemnitor may reasonably request in order to
evidence any such subrogation rights, whether before or after the Wellington Secondary
Indemnitor makes any such indemnification payment. The Company shall pay any amounts due
under this Section 9.14(c), in cash, promptly,



18









 







and in any event within ten (10) days, upon written demand from the Wellington
Secondary Indemnitor. The Company hereby waives any right against the Wellington Secondary
Indemnitor to indemnification, subrogation or contribution. Furthermore, the Company
expressly agrees that each Wellington Secondary Indemnitor is an intended third party
beneficiary as to the indemnification provisions of this Agreement and shall be entitled to
bring suit against the Company to enforce said provisions.



     9.15 Indemnity of Investors.




     (a) Without limitation of any other provision of this Agreement or any agreement
executed in connection herewith, the Company agrees to defend, indemnify and hold each
Investor, its respective Affiliates and direct and indirect partners (including partners of
partners and stockholders and members of partners), members, stockholders, directors,
officers, employees and agents and each person who controls any of them within the meaning
of Section 15 of the Securities Act, or Section 20 of the Exchange Act (collectively, the
“Investor Indemnified Parties” and, individually, an “Investor Indemnified Party”) harmless
from and against any and all damages, liabilities, losses, taxes, fines, penalties,
reasonable costs and expenses (including, without limitation, reasonable fees of a single
counsel representing the Investor Indemnified Parties), as the same are incurred, of any
kind or nature whatsoever (whether or not arising out of third party claims and including
all amounts paid in investigation, defense or settlement of the foregoing) which may be
sustained or suffered by any such Investor Indemnified Party (“Investor Losses”), based
upon, arising out of, or by reason of (i) any breach of any covenant or agreement made by
the Company in the Transaction Agreements, or (ii) any third party or governmental claims
relating in any way to such Investor Indemnified Party’s status as a member, controlling
person, manager, or member of the Board of the Company (including, without limitation, any
and all Losses under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, at common law or otherwise, which relate directly or indirectly
to the registration, purchase, sale or ownership of any securities of the Company or to any
fiduciary obligation owed with respect thereto), including, without limitation, in
connection with any third party or governmental action or claim relating to (A) any action
taken or omitted to be taken or alleged to have been taken or omitted to have been taken by
any Investor Indemnified Party as security holder, director, agent, representative or
controlling person of the Company or otherwise, alleging so called control person liability
or securities law liability or (B) any transaction pursuant to which such Investor became a
Member; provided, however, that the Company will not be liable to the extent
that such Losses arise from and are based on conduct by an Investor Indemnified Party which
constitutes fraud or willful misconduct.




     (b) If the indemnification provided for in Section 9.15(a) above for any reason
is held by a court of competent jurisdiction to be unavailable to an Investor Indemnified
Party in respect of any Investor Losses referred to therein, then the Company, in lieu of
indemnifying such Investor Indemnified Party thereunder, shall contribute to the amount paid
or payable by such Investor Indemnified Party as a result of such Investor Losses (i) in
such proportion as is appropriate to reflect the relative fault of the Company and the
Investor Indemnified Party, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not only the
relative fault referred to in clause (i) above but also the relative benefits received by
the Company and the Investor Indemnified Party in connection with the action or inaction
which resulted in such Investor Losses, as well as any other relevant equitable
considerations. The relative fault of the Company and the Investor Indemnified Party shall
be determined by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company and the Investor Indemnified Party and the



19









 







parties’ relative intent, knowledge, access to information and opportunity to correct
or prevent such statement or omission.




     (c) Each of the Company and the Investors agrees that it would not be just and
equitable if contribution pursuant to Section 9.15(b) were determined by pro rata or
per capita allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.



ARTICLE 10

RIGHTS AND OBLIGATIONS OF MEMBERS




     10.1 Limitation of Liability. Each Member’s liability shall be limited as set forth
herein, in the Act and other applicable law. A Member will not personally be liable for any debts
or losses of the Company, except as provided in the Act. Without limiting the foregoing, no Member
shall be required to guaranty any obligation of the Company.



     10.2 Member Indemnity. The Company agrees to indemnify, pay, protect and hold
harmless any Member (on demand and to the satisfaction of the Member) from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits, proceedings,
costs, expenses and disbursements of any kind or nature whatsoever in any way relating to any
agreement, liability, commitment, expense or obligation of the Company which may be imposed on,
incurred by, or asserted against the Member solely as a result of such Member being a Member or
becoming a Member (including, without limitation, all reasonable costs and expenses of defense,
appeal and settlement of any and all suits, actions or proceedings instituted against the Member
and all costs of investigation in connection therewith). The satisfaction of the obligations of
the Company under this Section shall be from and limited to the assets of the Company, and no
Member shall have any personal liability on account thereof. The foregoing rights of
indemnification are in addition to and shall not be a limitation of any rights that may be provided
in the Act.



     10.3 List of Members. Upon written request of any Member directly holding Units, the
Company shall provide a list showing the names, addresses and Units of the Members in the Company
subject to the provisions regarding Confidential Information.



     10.4 Voting. Members shall be entitled to vote only on matters reserved for their
approval or consent in the manner expressly specified herein.



     10.5 Additional Members. Except with respect to employees holding Units pursuant to
an employee option or incentive plan or as otherwise expressly provided herein (including, without
limitation, any transfers permitted under Section 11), no Person shall be admitted to the
Company as an additional Member without the consent of a Majority-in-Interest of the Common
Members.



     10.6 Meetings. Unless otherwise prescribed by the Act, meetings of the Members may be
called, for any purpose or purposes, by the Board (or a Managing Person duly authorized by the
Board) or by all of the Members.



     10.7 Place of Meetings. Meetings shall take place at the Company’s principal place of
business, or at such other place if consented to by all the Members.



     10.8 Notice of Meetings. Except as provided in this Agreement, written notice stating
the date, time, and place of the meeting, and the purpose or purposes for which the meeting is
called, shall be delivered not less than five (5) Business Days nor more than fifty (50) calendar
days before the date of the



20









 




meeting, either personally or by mail, facsimile, or overnight or next-day delivery services
by or at the direction of the Board, or the Member or Members calling the meeting, to each Member
entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered three (3)
Business Days after deposit in the United States mail, postage prepaid, addressed to the Member at
his or her address as it appears on the books of the Company. If transmitted by way of facsimile,
such notice shall be deemed to be delivered on the date of such facsimile transmission to the fax
number, if any, for the respective Member which has been supplied by such Member to the Board and
identified as such Member’s facsimile number. If transmitted by overnight or next-day delivery,
such notice shall be deemed to be delivered on the next Business Day after deposit with the
delivery service addressed to the Member at his or her address as it appears on the books of the
Company. When a meeting is adjourned to another time or place, notice need not be given of the
adjourned meeting if the time and place thereof are announced at the meeting at which the
adjournment is taken, unless the adjournment is for more than thirty (30) calendar days. At the
adjourned meeting the Company may transact any business which might have been transacted at the
original meeting.




     10.9 Meeting of All Members. If all of the Members shall meet at any time and place,
including by conference telephone call, either within or outside of the State of Nevada, and
consent to the holding of a meeting at such time and place, such meeting shall be valid without
call or notice.



     10.10 Record Date. For the purpose of determining Members entitled to notice of or to
vote at any meeting of Members or any adjournment thereof, the date on which notice of the meeting
is mailed shall be the record date for such determination of Members. When a determination of
Members entitled to vote at any meeting of Members has been made as provided in this Section, such
determination shall apply to any adjournment thereof, unless notice of the adjourned meeting is
required to be given pursuant to Section 10.8 hereof.



     10.11 Quorum. Members holding a majority of the Units, represented in person or by
proxy, shall constitute a quorum at any meeting of Members. Business may be conducted once a
quorum is present.



     10.12 Voting Rights of Members. Except as otherwise provided herein, the holders of
the Common Units shall vote as a single class. Each Member shall be entitled to vote based on
Units held. If all or a portion of a Membership Interest which includes Units is transferred to an
assignee who does not become a Member, the Member from whom the Membership Interest is transferred
shall no longer be entitled to vote the Units transferred nor shall the Units transferred be
considered outstanding for any purpose pertaining to meetings or voting. No withdrawn Member shall
be entitled to vote nor shall such Member’s Units be considered outstanding for any purpose
pertaining to meetings or voting.



     10.13 Manner of Acting. Except as otherwise expressly provided in the Act, the
Company’s articles of organization, this Agreement or the Securityholders Agreement, the
affirmative vote of the Members holding a majority of the Units shall be the act of the Members.



     10.14 Proxies. At all meetings of Members, a Member holding Units may vote in person
or by proxy executed in writing by the Member or by a duly authorized attorney-in-fact. Except for
the proxy which may be granted pursuant to Section 10.23, no proxy shall be valid after 11
months from the date of its execution, unless otherwise provided in the proxy.



     10.15 Action by Members without a Meeting. Any action required or permitted to be
taken by vote or at a meeting of Members may be taken without a meeting if the action is evidenced
by one or more written consents describing the action taken, circulated to all the Members, signed
by that percentage or number of the Members holding Units required to take or approve the action.
Any such



21









 




written consents shall be delivered to the Secretary of the Company (or other Managing Person
duly authorized by the Board) of the Company for inclusion in the minutes or for filing with the
Company records. Action taken by written consent under this Section shall be effective on the date
the required percentage or number of the Members holding Units have signed and delivered the
consent to the Secretary of the Company (or other Managing Person duly authorized by the Board),
unless the consent specifies a different effective date. The record date for determining Members
entitled to take action without a meeting shall be the date the written consent is circulated to
the Members. Prompt notice of the taking of action by written consent shall be given to those
Members who have not consented in writing.




     10.16 Telephonic Communication. Members may participate in and hold a meeting by
means of conference telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in such meeting shall
constitute attendance and presence in person, except where the Member participates in the meeting
for the express purpose of objecting to the transaction of any business on the ground the meeting
is not lawfully called or convened.



     10.17 Waiver of Notice. When any notice is required to be given to any Member, a
waiver thereof in writing signed by the Person entitled to such notice, whether before, at, or
after the time stated therein, shall be equivalent to the giving of such notice.



     10.18 Mandatory Mediation. The parties hereto shall, and shall cause their respective
Affiliates to, resolve any dispute, controversy or claim arising out of or in connection with this
Agreement and any transactions contemplated hereby (a “Dispute”) in accordance with the following
procedures: within 30 Business Days after any party has served written notice on the other party,
such Dispute shall be submitted to the Las Vegas, Nevada office of JAMS for mediation. The
mediation shall take place in Nevada. Notwithstanding anything contained in this Agreement to the
contrary, in no event will any party be obligated to participate in any mediation for more than 30
Business Days.



     10.19 Competition by Members. The Members and Member’s Affiliates shall not, so long
as they are Members or Affiliates of Members, either directly or indirectly, personally or through
the use of agents, engage in or invest in any activity or business which is in competition with the
Principal Line of Business conducted by the Company or any of its subsidiaries anywhere in the
world; provided that the foregoing shall not prohibit a purely passive, minority investment in any
Entity. Should any Member violate this covenant, and fail to cure such violation after 45 days’
written notice, in addition to all other rights and remedies, such Member’s Units shall revert to
treasury without consideration and will be of no further force or effect. While the provisions
contained in this Agreement are considered by the parties to be reasonable in all circumstances, it
is recognized that provisions of this Section 10.19, including without limitation, remedies
and geographic scope, may fail for technical reasons and, accordingly, it is hereby agreed and
declared that if any one or more of such provisions shall, either by itself or themselves or taken
with others, be adjudged to be invalid as exceeding what is reasonable in all circumstances for the
protection of the interests of the Company or the Members, but would be valid if any particular
restriction or provisions were deleted or restricted or limited in a particular manner or if the
period or area thereof were reduced or curtailed, then the said provisions shall apply with such
deletion, restriction, limitation, reduction, curtailment, or modification as may be necessary to
make them valid and effective. Notwithstanding anything to the contrary contained herein, the
terms of this Section 10.19 shall not apply to any activity or business commenced by a
Member or any Affiliate of a Member prior to the date hereof and which is set forth on Schedule
10.19 attached hereto. Each Member represents and warrants to the Company and to each other
that as of the date hereof neither it, nor, in the case of CDP or 1818 Partners, their respective
Affiliates, either directly or indirectly, personally or through the use of agents, engages in or
invests in any activity or business which is in competition with the Principal Line of Business
anywhere in the world, except as set forth on Schedule 10.19 and except for (i) purely
passive, minority



22









 




investments in any Entity, and (ii) any investment by CDP, 1818 Partners or any of their
respective Affiliates in any Entity, or the engagement or performance of services by CDP, 1818
Partners or any of their respective Affiliates on behalf of any Entity, for which the Company or
DRC performs one or more management services pursuant to customary management services agreements.
Notwithstanding the foregoing, this Section 10.19 shall not apply to or restrict any
Guggenheim Entity, any Silver Rock Member (including its Affiliates) or any Wellington Entity.




     10.20 Solicitation by Members. No Member nor any Member’s Affiliates shall, so long
as such Person is a Member or an Affiliate of a Member and for a period of 12 months thereafter,
directly or indirectly through another Person or entity, (i) induce or attempt to induce any
employee of managerial level of the Company or any Subsidiary to leave the employ of the Company or
such Subsidiary, or in any way knowingly interfere with the relationship between the Company or any
Subsidiary and such employee, (ii) actively solicit for hire (except through a general solicitation
not targeted to employees of the Company or any Subsidiary) any employee of managerial level of the
Company or any Subsidiary or (iii) knowingly induce or attempt to induce any customer or potential
customer, supplier, licensee, licensor, franchisee or other business relation of the Company or any
Subsidiary to cease doing business with the Company or such Subsidiary, or in any way knowingly
interfere with the relationship between any such customer, supplier, licensee or business relation
and the Company or any Subsidiary; provided, that this Section 10.20 shall not apply to or
restrict any Guggenheim Entity, any Silver Rock Member (including its Affiliates) or any Wellington
Entity.



     10.21 Submission of Opportunities. Each Member agrees to submit (and to cause its
Affiliates to submit) to the Board all business, commercial and investment opportunities presented
to any Member or its Affiliates which relate to the Principal Line of Business and, unless approved
by the Board in writing, such Member shall not (and shall cause its Affiliates to not) pursue,
directly or indirectly, any such opportunities on such Member’s or its Affiliate’s own behalf.
Nothing in this Section 10.21 shall be deemed to create any affirmative duty to seek out
such opportunities nor to obligate any Person to violate any law, breach any contractual commitment
or commit any tort. Notwithstanding the foregoing, this Section 10.21 shall not apply to
or restrict any Guggenheim Entity, any Silver Rock Member (including its Affiliates) or any
Wellington Entity. The Company and each other Member acknowledges that the Guggenheim Entities and
the Wellington Entities are, or may be, in the business of providing financial services and
therefore review the business plans and related proprietary information of many enterprises,
including enterprises which may have products or services which compete directly or indirectly with
those of the Company and/or its Subsidiaries and nothing in this Agreement shall preclude or in any
way restrict any Guggenheim Entity or any Wellington Entity from investing or participating in any
particular enterprise whether or not such enterprise has products or services which compete with
those of the Company and/or its Subsidiaries.



     10.22 Intellectual Property, Inventions and Patents. For so long as CDP or 1818
Partners is a Member, each of CDP and 1818 Partners acknowledges that all discoveries, concepts,
ideas, inventions, innovations, improvements, developments, methods, designs, analyses, drawings,
reports, patent applications, copyrightable work and mask work (whether or not including any
Confidential Information) and all registrations or applications related thereto, all other
proprietary information and all similar or related information (whether or not patentable) which
relate to the Principal Line of Business which are conceived, developed or made by such Member or
its Affiliates (whether alone or jointly with others) (“Work Product”), belong to the Company;
provided, however, that it is acknowledged and agreed that such Member shall have the right to
publicize its participation in the creation of such Work Product. CDP or 1818 Partners, as
applicable, shall promptly disclose such Work Product to the Board and, at the Company’s expense,
perform all actions reasonably requested by the Board to establish and confirm such ownership
(including, without limitation, assignments, consents, powers of attorney and other instrument).



23









 





     10.23 Agreement to Vote Units; Proxy.




     (a) In the event of the death or Permanent Disability of Stephen J. Cloobeck, so long
as David F. Palmer is serving as an officer of the Company at such time, David F. Palmer
shall be solely authorized, to the fullest extent permitted by law, (i) to vote all Common
Units held by the CDP Members, (ii) to execute all written consents, call special meetings
and waive notice of all meetings on behalf of the CDP Members and (iii) to take such other
actions incident to any of the foregoing. Such authorization shall be irrevocable to the
fullest extent permitted by law, with respect to each and every meeting of Members of the
Company or action or approval by written resolution or consent of Members of the Company
covering the total number of Common Units in respect of which any CDP Member is entitled to
vote at any such meeting or in connection with any such written consent. Upon the execution
of this Agreement, each of CDP and 1818 Partners hereby (i) revokes any and all prior
proxies or other voting authorizations (other than as provided herein) given with respect to
the Common Units held by each of CDP and 1818 Partners, and (ii) agrees that it shall not
grant any subsequent proxies, or enter into any agreement or understanding with any Person
to vote or give or execute instructions regarding voting with respect to the Common Units
held by the CDP Members.




     (b) In no event will David F. Palmer be liable to any Member of the Company or to any
other Person for any action which David F. Palmer takes or refrains from taking in
connection with the authorization granted in Section 10.23(a), in each case so long
as David F. Palmer has acted in good faith without gross negligence or willful misconduct.
The foregoing shall not create or imply the existence of any duty, fiduciary or otherwise,
of David F. Palmer to any Member of the Company beyond that which may otherwise exist in the
absence of this Agreement.




     (c) Each CDP Member hereby acknowledges and agrees that the Company’s delivery to David
F. Palmer of any notices or other documents that the Company is delivering to its Members in
connection with a meeting, a vote, or a written consent (including, but not limited to,
notices of meetings and written consents), shall be deemed to satisfy any delivery
requirements that the Company may have to such CDP Member.




     (d) Promptly following any action by David F. Palmer pursuant to the authorization
granted in Section 10.23(a), David F. Palmer shall deliver notice thereof to each
CDP Member on whose behalf David F. Palmer has so acted.




     (e) If any court of competent jurisdiction shall at any time deem the proxy granted
herein to be invalid because it does not contain a specified duration, the duration shall be
deemed to be the lengthiest duration permissible by law under the circumstances. The court
shall reduce the temporal scope of this proxy permissible duration.



     10.24 Agreement not to Seek a Sale of the Company. In the event of the death or
Permanent Disability of Stephen J. Cloobeck, so long as the Company is in compliance with the
obligations set forth in the Management Services Agreement, each CDP Member hereby agrees that it
shall not, in its position as a Member of the Company, cause or attempt to cause a sale or
liquidation of the Company or any of its direct or indirect Subsidiaries.



24









 





ARTICLE 11

TRANSFERS AND REDEMPTIONS OF MEMBERSHIP INTERESTS




     11.1 Transfers among Members. Except as otherwise expressly provided herein and in
the Securityholders Agreement, the Members may freely transfer or assign all or any portion of
their Membership Interest to other Members.



     11.2 Transfers by Members. Except as otherwise expressly provided herein and in the
Securityholders Agreement, the Members shall be entitled to freely transfer or assign all or any
portion of their Units at any time and such transferee or assignee shall become a Substitute Member
as to the Membership Interest so transferred or assigned.



     11.3 Substitute Member. With respect to all or any portion of a Membership Interest
that is transferred or assigned as permitted in this Article 11, the Substitute Member has
the rights and powers and is subject to the restrictions and liabilities that are associated with
such Membership Interest which accrued prior to the date of substitution, except that the
substitution of the assignee does not release the assignor from existing liability to the Company.
In any event, no transfer or assignment of all or any portion of a Membership Interest in the
Company (including the transfer or assignment of any right to receive or share in profits, losses,
or distributions) shall be effective unless and until written notice (including the name and
address of the proposed transferee or assignee, the interest to be transferred or assigned, and the
date of such transfer or assignment) has been provided to the Company and the nontransferring or
nonassigning Member(s). Every Person before becoming a Substitute Member must assume this
Agreement, as amended from time to time, in writing.



     11.4 Definition of Transfer. For purposes of this Agreement the prohibition on
transfers, assignments and other conveyances shall be deemed to prohibit any such action, whether
directly or indirectly, such as (by way of example only) a transfer of stock in a corporate member.



ARTICLE 12

DISSOLUTION AND TERMINATION




     12.1 Dissolution.




     (a) The Company shall be dissolved upon the occurrence of any of the following events
(a “Dissolution Event”):




     (i) if the Company voluntarily enters bankruptcy chapter VII or another
insolvency proceeding that contemplates its final liquidation, or does so
involuntarily and such proceeding is not vacated or dismissed within 120 days after
commencement thereof; or




     (ii) by the unanimous vote or written consent of the Members.


The death, withdrawal, resignation or termination of any Member for any reason shall not constitute
a Dissolution Event.





     (b) As soon as possible following the occurrence of any Dissolution Event, the
appropriate duly authorized representative of the Company shall make all filings and do all
acts necessary to dissolve the Company.



25









 





     12.2 Distribution of Assets Upon Dissolution. In settling accounts after dissolution,
the assets of the Company shall be distributed in the following order:




     (a) First, to pay those liabilities to creditors, in the order of priority as provided
by law; and




     (b) The balance, if any, to the Members in accordance with Section 7.1.



     12.3 Winding Up. Except as provided by law, upon dissolution, each Member shall look
solely to the assets of the Company for the return of its Capital Contribution. If the Property
remaining after the payment or discharge of the debts and liabilities of the Company is
insufficient to return the Capital Contribution of each Member, such Member shall have no recourse
against any other Member. The winding up of the affairs of the Company and the distribution of its
assets shall be conducted exclusively by the Board (or other Managing Person duly authorized by the
Board), who is hereby authorized to take all actions necessary to accomplish such distribution,
including without limitation, selling any Company assets the Board deems necessary or appropriate
to sell. In the discretion of the Board, a pro rata portion of the amounts that otherwise would be
distributed to the Members under this Article may be withheld to provide a reasonable reserve for
unknown or contingent liabilities of the Company.



     12.4 Notice of Dissolution. Within 90 days of the happening of a Dissolution Event,
the Board (or other Managing Person duly authorized by the Board) shall give written notice thereof
to each of the Members, to the banks and other financial institutions with which the Company
normally does business, and to all other parties with whom the Company regularly conducts business,
and shall publish notice of dissolution in a newspaper of general circulation in each place in
which the Company generally conducts business.



ARTICLE 13

CHANGE IN BUSINESS FORM




     13.1 With or without a vote or consent of the Majority-in-Interest of the Common Members, the
Board may upon any initial Public Offering, and the Board shall upon a Qualified Public Offering,
elect to cause the Company to reorganize as a corporation (the “Successor”) in accordance with this
Article 13 in anticipation of registration of the common stock of such Successor. The
method of effecting such reorganization, whether by merger with and into a corporate subsidiary of
the Company or otherwise, shall (subject to the remaining provisions of this Article 13) be
determined by the Board in its discretion; provided that (i) the Company shall to the extent
feasible under the circumstances effect any such reorganization in a manner which avoids creation
of a taxable income for the Company or any Member and (ii) the Company shall not effect any such
reorganization in a way that would adversely affect a Member in a manner disproportionate to any
adverse effect such reorganization would have on other Members (not including any disproportionate
adverse effect on the particular tax status or attributes of a Member), without the written consent
of such Member.



     13.2 Each of the Members hereby agrees to take such actions as are reasonably required to
effect such reorganization as shall be determined by the Board and irrevocably authorizes and
appoints each of the Managers who are in office at such time as such Member’s representative and
true and lawful attorney-in-fact and agent to act in such Member’s name, place and stead as
contemplated in this Article 13 and to execute in the name and on behalf of such Member any
agreement, certificate, instrument or document to be delivered by the Members in connection with
any such reorganization as determined by the Board (but with such power of attorney to be exercised
only in the event of the failure of such Member to comply with this Article 13). In
connection with any such reorganization, each of the



26









 




transactions described in clauses (a) through (d) below shall be consummated as provided below
and deemed to have occurred simultaneously:





     (a) The Successor shall be organized as a Delaware corporation, with customary charter
and by-laws, each reasonably acceptable to the Board;




     (b) Each Common Unit shall (effective upon and subject to the consummation of such
initial Public Offering) convert into shares of common stock of the Successor (the
“Successor Stock”), and the shares of Successor Stock shall be allocated among the holders
in exchange for their respective Common Units such that each holder shall receive a number
of shares of Successor Stock equal to the quotient of (i) the amount such holder would have
received in respect of such holder’s Common Units in a liquidation or dissolution at the
time of the initial Public Offering, divided by (ii) the price per share at which the common
stock is being offered to the public in the initial Public Offering, in each case net of
underwriting discounts and commissions;




     (c) The Successor shall expressly acknowledge and assume the obligations and
liabilities of the Company, including its remaining obligations under this Agreement and the
other Transaction Agreements and as otherwise described in clause (ii) above, with such
conforming changes as may be necessary or appropriate to reflect the corporate status of the
Successor, and in connection with such transactions and those described above the Members
shall take such action as may be necessary to consolidate the Company as part of the
Successor to the extent such consolidation does not occur by operation of law; and




     (d) The Successor (and the Company) shall use commercially reasonable efforts to make
all filings, obtain all approvals and consents and take such other actions as may be
necessary, desirable or appropriate to effectuate the reorganization contemplated by this
Section 13.2.



     13.3 Without limiting the generality of the foregoing or any other provision of this
Agreement, it is understood and agreed that the following structures for any such reorganization
and subsequent initial Public Offering shall be utilized by the Company and approved by the Board:




     (a) The organizational documents of the Successor and/or a stockholders’ or other
agreement, as appropriate, shall provide that the rights and obligations of the Members
hereunder and under the Transaction Agreements (to the extent such rights and obligations
survive consummation of an initial Public Offering) shall continue to apply in accordance
with the terms thereof unless the parties thereto otherwise agree in writing pursuant to the
terms thereof.




     (b) In the event of an initial Public Offering, the Company shall, and each Member
shall use commercially reasonable efforts to, take all necessary or desirable actions
requested by the Board in connection with the consummation of such initial Public Offering,
including consenting to, voting for and waiving any dissenters rights, appraisal rights or
similar rights with respect to a reorganization of the Company pursuant to the terms of this
Article 13 and compliance with the requirements of all laws and regulatory bodies
which are applicable or which have jurisdiction over such initial Public Offering. The
Company shall pay all filing fees necessary to obtain all authorizations and approvals
required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976 as amended and the
rules and regulations promulgated thereunder that are required for the consummation of the
reorganization contemplated in this Article 13.



27









 





     13.4 Nothing in this Agreement shall be construed to require a Member to disclose to any third
party or governmental entity the identities of partners, shareholders or members of such Member or
any of its Affiliates or investment advisers, or other confidential proprietary information of a
Member or any of its Affiliates or investment advisers.



ARTICLE 14

MISCELLANEOUS PROVISIONS




     14.1 Notices. Except as otherwise expressly provided herein, any notice or
communication required or permitted to be given by any provision of this Agreement, including, but
not limited to, any consents and, with respect to the Wellington Members, any material to be
provided to the Wellington Observer, shall be in writing and shall be deemed to have been given and
received by the Person to whom directed (a) when delivered personally to such Person or to an
officer or partner of the Member to which directed, (b) when transmitted by facsimile or e-mail
transmission, with evidence of a confirmed transmission, to the facsimile number or e-mail address
of such Person who has notified the Company and every other Member of its facsimile number and
e-mail address and received during Business Hours on a Business Day at the destination of such
facsimile or e-mail transmission, (c) three Business Days after being posted in the United States
mails if sent by registered, express or certified mail, return receipt requested, postage and
charges prepaid, or (d) one Business Day after deposited with overnight courier, return receipt
requested, delivery charges prepaid, in either case addressed to the Person to which directed at
the address, if any, shown on the page containing their signatures, or such other address of which
such Person has notified the Company and every other Member. If no address appears on the page
containing a Member’s signature and if the Company and the Members have not been notified of any
other address at which such Person shall receive notifications, then a notice delivered to the
Board (or other person duly authorized by the Board), who shall reasonably attempt to forward the
notice to such Person, shall constitute sufficient notice to such Person. Notwithstanding anything
herein to the contrary, any notice, communication, consent or other material to be provided to the
Wellington Members or the Wellington Observer shall be sent solely to the address and department
listed next to the signatures of the Wellington Purchasers, and such notices, communications,
consents, and materials shall not be sent to any other Person on behalf of the Wellington Members
or the Wellington Observer without the prior written consent of a member of such department.



     14.2 Application of Nevada Law; Waiver of Right to Trial by Jury; Jurisdiction and
Venue.




     (a) This Agreement, and the application and interpretation hereof, shall be governed
exclusively by its terms and by the laws of the State of Nevada, and specifically the Act.




     (b) EACH PARTY HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR CLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF SUCH
PARTY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.




     (c) The parties hereto hereby irrevocably submit to the jurisdiction of the State of
Nevada or federal court in or for Clark County, Nevada, in any action or proceeding arising
out of or relating to this Agreement and the parties hereto hereby irrevocably agree that
all claims in respect of such action or proceeding may be heard and determined in such State
of Nevada court or such federal court. The parties hereto hereby irrevocably waive, to the
fullest extent they may effectively do so, the defense of an inconvenient forum to the
maintenance of such action or proceeding.



28









 





     14.3 Waiver of Action for Partition. Each Member irrevocably waives during the term
of the Company any right that such Member may have to maintain any action for partition with
respect to the Property of the Company.



     14.4 Amendments. Subject to Section 8 of the Securityholders Agreement, except with
respect to amendments to Schedule A that are required from time to time to correctly
reflect the then-current ownership of the Company, which shall not require the consent of any other
party, amendments, modifications or waivers to this Agreement shall require the approval of the (i)
Board; (ii) a Majority-in-Interest of the Common Members; (iii) a Majority-in-Interest of the
Investors; and (iv) for so long as the CDP Unit Threshold is met, the CDP Members holding a
majority of the Common Units held by all CDP Members; provided, however, that if
any such amendment, modification or waiver would materially alter the right or interest of any
Member in the Profits, Losses or distributions of the Company or materially alter the rights or
interests of any Member under any material provision of this Agreement other than as the result of
the issuance of Common Units, then such amendment, modification or waiver shall also require the
consent of all Members who would be similarly adversely affected by such amendment;
provided, further, that if any such amendment, modification or waiver of any
provision of this Agreement would materially and adversely affect the rights, interests or
obligations of any Investor hereunder in a manner differently than any other Member holding the
same class or series of Units, such amendment, modification or waiver shall not be effective
against such Investor without such Investor’s written consent with respect thereto.



     14.5 Construction. Whenever the singular number is used in this Agreement and when
required by the context, the same shall include the plural, and the masculine gender shall include
the feminine and neuter genders and vice versa.



     14.6 Headings. The headings in this Agreement are inserted for convenience only and
are in no way intended to describe, interpret, define, or limit the scope, extent or intent of this
Agreement or any provision hereof.



     14.7 Waivers. The failure of any party to seek redress for violation of or to insist
upon the strict performance of any covenant or condition of this Agreement shall not prevent a
subsequent act, which would have originally constituted a violation, from having the effect of an
original violation, except in the event of a written waiver to the contrary that specifically
states that this Section 14.7 shall be inapplicable.



     14.8 Rights and Remedies Cumulative. The rights and remedies provided by this
Agreement are cumulative and the use of any one right or remedy by any party shall not preclude or
waive the right to use any or all other remedies subject to the provisions of Section
10.18. Said rights and remedies are given in addition to any other rights the parties may have
by law, statute, ordinance or otherwise, subject to the provisions of Section 10.18.



     14.9 Severability. If any provision of this Agreement or the application thereof to
any Person or circumstance shall be invalid, illegal or unenforceable to any extent, the remainder
of this Agreement and the applications thereof shall not be affected and shall be enforceable to
the fullest extent permitted by law.



     14.10 Heirs, Successors and Assigns. Each and all of the covenants, terms, provisions
and agreements herein contained shall be binding upon and inure to the benefit of the parties
hereto and, to the extent permitted by this Agreement, their respective heirs, legal
representatives, successors and assigns.



29









 





     14.11 Creditors; Third Party Beneficiaries. None of the provisions of this Agreement
shall be for the benefit of or enforceable by (i) any creditors of the Company or (ii) any Person
not a party to this Agreement or (iii) any Person not expressly granted the rights of a third-party
beneficiary hereunder. The provisions of this Agreement are not intended to be for the benefit of
and shall not confer any rights on any creditor or other Person (other than a Member in such
Member’s capacity as a Member) to whom any debts, liabilities or obligations are owed by the
Company or any of the Members.



     14.12 Counterparts. This Agreement may be executed in counterparts, each of which
shall be deemed an original but all of which shall constitute one and the same instrument.



     14.13 Further Assurances. The Members and the Company agree that they and each of
them will take whatever action or actions as are deemed by counsel to the Company to be reasonably
necessary or desirable from time to time to effectuate the provisions or intent of this Agreement,
and to that end, the Members and the Company agree that they will execute, acknowledge, seal, and
deliver any further instruments or documents which may be necessary to give force and effect to
this Agreement or any of the provisions hereof, or to carry out the intent of this Agreement or any
of the provisions hereof.



     14.14 Entire Agreement. This Agreement, including the Schedules, Exhibits and
Appendix attached hereto, sets forth all (and is intended by all parties hereto to be an
integration of all) of the promises, agreements, conditions, understandings, warranties, and
representations among the parties hereto with respect to the Company, and there are no promises,
agreements, conditions, understandings, warranties, or representations, oral or written, express or
implied, among them other than as set forth herein.



     14.15 Time of Essence. Time is of the essence of this Agreement and all of the terms,
provisions, covenants and conditions hereof.



     14.16 Opt-in to Article 8 of the Uniform Commercial Code. The Company hereby
irrevocably elects that all membership interests in the Company shall be securities governed by
Article 8 of the Uniform Commercial Code. Any certificate evidencing membership interests in the
Company shall bear the following legend: “This certificate evidences an interest in Diamond
Resorts Parent, LLC and shall be a security for purposes of Article 8 of the Uniform Commercial
Code.” No change to this provision shall be effective until all outstanding certificates have been
surrendered for cancellation and any new certificates thereafter issued shall not bear the
foregoing legend.



* * * * *



 









 





     IN WITNESS WHEREOF, the Members have executed this Fourth Amended and Restated Operating
Agreement to be effective as of the date first written above.



DRP HOLDCO, LLC




	 	 	 	 	 

	By:

	 	/s/ Zachary D. Warren
 

Zachary D. Warren
	 	 
	Its:

	 	Authorized Person	 	 






Notice Address:

DRP Holdco, LLC

135 East 57th Street

6th Floor

New York, NY 10022

Attention: Kaitlin Trinh

Facsimile: (212) 644-8396




with copies, which shall not constitute notice, to:




Guggenheim Partners

100 Wilshire Boulevard — Suite 500

Santa Monica, California 90401

Attention: Zachary D. Warren

Facsimile: (310) 576-1271




and




Guggenheim Investment Management, LLC

135 East 57th Street

New York, New York 10022

Attention: William Hagner

Facsimile: (212) 644-8396




and




Sidley Austin LLP

One South Dearborn

Chicago, IL 60603

Attention: Richard W. Astle

Facsimile: (312) 853-7036




[signature pages continue]




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Diamond Resorts Parent, LLC





 









 








CLOOBECK DIAMOND PARENT, LLC




	 	 	 	 	 

	By:

	 	/s/ Stephen J. Cloobeck
 

Stephen J. Cloobeck
	 	 
	Its:

	 	Sole Manager	 	 






Notice Address:




Cloobeck Diamond Parent, LLC

10600 West Charleston Boulevard

Las Vegas, NV 89135

Attention: Stephen J. Cloobeck and David F. Palmer

Facsimile: (702) 798-8840




With a copy, which shall not constitute notice, to:




Katten Muchin Rosenman LLP

525 West Monroe Street

Suite 1900

Chicago, IL 60661

Attention: Howard S. Lanznar

Facsimile: (312) 902-1061




[signature pages continue]




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Diamond Resorts Parent, LLC






 









 








	 	 	 	 	 	 	 

	SILVER ROCK FINANCIAL LLC	 	 	 	Notice Address:
	 
	 	 	 	 	 	 
	By: 

Its:

	 	/s/ Jeff Green
 

Jeff Green 

Authorized Signatory
	 	 	 	1250 Fourth Street

Santa Monica, CA 90401

Facsimile: (310) 570-4599
	 
	 	 	 	 	 	 
	IN — FP1 LLC	 	 	 	Notice Address:
	 
	 	 	 	 	 	 
	By: 

Its:

	 	/s/ Jeff Green
 

Jeff Green 

Authorized Signatory
	 	 	 	1250 Fourth Street

Santa Monica, CA 90401

Facsimile: (310) 570-4599
	 
	 	 	 	 	 	 
	BDIF LLC	 	 	 	Notice Address:
	 
	 	 	 	 	 	 
	By: 

Its:

	 	/s/ Jeff Green
 

Jeff Green 

Authorized Signatory
	 	 	 	1250 Fourth Street

Santa Monica, CA 90401

Facsimile: (310) 570-4599
	 
	 	 	 	 	 	 
	CM — NP LLC	 	 	 	Notice Address:
	 
	 	 	 	 	 	 
	By: 

Its:

	 	/s/ Jeff Green
 

Jeff Green 

Authorized Signatory
	 	 	 	1250 Fourth Street

Santa Monica, CA 90401

Facsimile: (310) 570-4599






[signature pages continue]




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Diamond Resorts Parent, LLC





 









 








THE HARTFORD GROWTH OPPORTUNITIES FUND




	 	 	 	 	 

	By:

	 	Wellington Management Company, LLP	 	 
	As investment adviser	 	 
	 
	 	 	 	 
	By:

	 	/s/ Steven M. Hoffman
 

Name: Steven M. Hoffman
	 	 
	 

	 	Title: Vice President & Counsel	 	 
	 
	 	 	 	 
	HARTFORD GROWTH OPPORTUNITIES HLS FUND	 	 
	 
	 	 	 	 
	By:

	 	Wellington Management Company, LLP	 	 
	As investment adviser	 	 
	 
	 	 	 	 
	By:

	 	/s/ Steven M. Hoffman	 	 
	 

	 	 	 	 
	 

	 	Name: Steven M. Hoffman	 	 
	 

	 	Title: Vice President & Counsel	 	 
	 
	 	 	 	 
	QUISSETT INVESTORS (BERMUDA) L.P.	 	 
	 
	 	 	 	 
	By:

	 	Wellington Management Company, LLP	 	 
	As investment adviser	 	 
	 
	 	 	 	 
	By:

	 	/s/ Steven M. Hoffman	 	 
	 

	 	 	 	 
	 

	 	Name: Steven M. Hoffman	 	 
	 

	 	Title: Vice President & Counsel	 	 
	 
	 	 	 	 
	QUISSETT PARTNERS, L.P.	 	 
	 
	 	 	 	 
	By:

	 	Wellington Management Company, LLP	 	 
	As investment adviser	 	 
	 
	 	 	 	 
	By:

	 	/s/ Steven M. Hoffman	 	 
	 

	 	 	 	 
	 

	 	Name: Steven M. Hoffman	 	 
	 

	 	Title: Vice President & Counsel	 	 






[signature pages continue]




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Diamond Resorts Parent, LLC







 









 







THE HARTFORD CAPITAL APPRECIATION FUND




	 	 	 	 	 

	By:

	 	Wellington Management Company, LLP	 	 
	As investment adviser	 	 
	 
	 	 	 	 
	By:

	 	/s/ Steven M. Hoffman
 

Name: Steven M. Hoffman
	 	 
	 

	 	Title: Vice President & Counsel	 	 
	 
	 	 	 	 
	BAY POND PARTNERS, L.P.	 	 
	 
	 	 	 	 
	By:

	 	Wellington Management Company, LLP	 	 
	As investment adviser	 	 
	 
	 	 	 	 
	By:

	 	/s/ Steven M. Hoffman	 	 
	 

	 	 	 	 
	 

	 	Name: Steven M. Hoffman	 	 
	 

	 	Title: Vice President & Counsel	 	 
	 
	 	 	 	 
	BAY POND INVESTORS (BERMUDA) L.P.	 	 
	 
	 	 	 	 
	By:

	 	Wellington Management Company, LLP	 	 
	As investment adviser	 	 
	 
	 	 	 	 
	By:

	 	/s/ Steven M. Hoffman	 	 
	 

	 	 	 	 
	 

	 	Name: Steven M. Hoffman	 	 
	 

	 	Title: Vice President & Counsel	 	 
	 
	 	 	 	 
	Notice Address for each Wellington Purchaser:	 	 
	 
	 	 	 	 
	c/o Wellington Management Company, LLP	 	 
	280 Congress Street	 	 
	Boston, MA 02210	 	 
	Attention: Legal and Compliance Department	 	 
	Facsimile: (617) 289-5699	 	 
	 
	 	 	 	 
	with a copy, which shall not constitute notice, to:	 	 
	 
	 	 	 	 
	Greenberg Traurig	 	 
	One International Place	 	 
	Boston, MA 02210	 	 
	Attention: Bradley A. Jacobson	 	 
	Facsimile: (617) 279-8402	 	 






[signature pages continue]




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Diamond Resorts Parent, LLC






 









 








1818 PARTNERS, LLC




	 	 	 	 	 

	By:

	 	Chautauqua Management, LLC	 	 
	Its:

	 	Member	 	 
	 
	 	 	 	 
	By:

	 	/s/ David F. Palmer
 

Name: David F. Palmer
	 	 
	 

	 	Title: Sole Manager	 	 
	 
	 	 	 	 
	Notice Address:	 	 
	 
	 	 	 	 
	1818 Partners, LLC	 	 
	10600 West Charleston Boulevard	 	 
	Las Vegas, NV 89135	 	 
	Attention: Stephen J. Cloobeck and David F. Palmer	 	 
	Facsimile: (702) 798-8840	 	 
	 
	 	 	 	 
	With a copy, which shall not constitute notice, to:	 	 
	 
	 	 	 	 
	Katten Muchin Rosenman LLP	 	 
	525 West Monroe Street	 	 
	Suite 1900	 	 
	Chicago, IL 60661	 	 
	Attention:
Howard S. Lanznar

	 	 
	Facsimile: (312) 902-1061

	 	 






Signature page to Operating Agreement

Diamond Resorts Parent, LLC



 









 








SCHEDULE A




Members, Units and Percentage Interests as of July 21, 2011




	 	 	 	 	 	 	 	 	 
	 	 	Common	 	 	Common Percentage	 
	Name of Member	 	Units	 	 	Interest	 
	Cloobeck Diamond Parent, LLC
	 	 	753.270	 	 	 	54.277	%
	 
	 	 	 	 	 	 	 	 
	1818 Partners, LLC
	 	 	32.711	 	 	 	2.357	%
	 
	 	 	 	 	 	 	 	 
	DRP Holdco, LLC
	 	 	293.050	 	 	 	21.116	%
	 
	 	 	 	 	 	 	 	 
	Silver Rock Financial LLC
	 	 	8.369	 	 	 	0.603	%
	 
	 	 	 	 	 	 	 	 
	IN — FP1 LLC
	 	 	6.978	 	 	 	0.503	%
	 
	 	 	 	 	 	 	 	 
	BDIF LLC
	 	 	6.978	 	 	 	0.503	%
	 
	 	 	 	 	 	 	 	 
	CM — NP LLC
	 	 	5.580	 	 	 	0.402	%
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Subtotal Silver Rock Entities
	 	 	27.905	 	 	 	2.011	%
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	The Hartford Growth Opportunities Fund
	 	 	35.683	 	 	 	2.571	%
	 
	 	 	 	 	 	 	 	 
	Hartford Growth Opportunities HLS Fund
	 	 	20.805	 	 	 	1.499	%
	 
	 	 	 	 	 	 	 	 
	Quissett Investors (Bermuda) L.P.
	 	 	14.240	 	 	 	1.026	%
	 
	 	 	 	 	 	 	 	 
	Quissett Partners, L.P.
	 	 	10.845	 	 	 	0.781	%
	 
	 	 	 	 	 	 	 	 
	The Hartford Capital Appreciation Fund
	 	 	184.937	 	 	 	13.326	%
	 
	 	 	 	 	 	 	 	 
	Bay Pond Partners, L.P.
	 	 	9.466	 	 	 	0.682	%
	 
	 	 	 	 	 	 	 	 
	Bay Pond Investors (Bermuda) L.P.
	 	 	4.918	 	 	 	0.354	%
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Subtotal Wellington Entities
	 	 	280.894	 	 	 	20.240	%
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Total
	 	 	1,387.830	 	 	 	100.000	%
	 
	 	 	 	 	 	 










 









 








APPENDIX 1

TAX ACCOUNTING PROCEDURES




     1.0. References to Sections of the Code or Regulations. References within this
Appendix to sections of the Code or Regulations shall be applied by substituting for the
Regulations’ terms of “partnership” and “partner” the terms “limited liability company” (or
“company”) and “member,” respectively.



     1.1. Tax Definitions. The following terms used in this Agreement and Appendix shall
have the following meanings:




     a. “Adjusted Capital Account Deficit” with respect to any Member means the deficit
balance, if any, in such Member’s Capital Account as of the end of any Fiscal Year after
giving effect to the following adjustments: (i) credit to such Capital Account the sum of
(A) an amount equal to such Member’s share of Company Minimum Gain (as defined in
Section 1.2(a) hereof) and determined under Regulations Section 1.704-2(g), and such
Member’s share of Member Nonrecourse Debt Minimum Gain (as defined in Section 1.2(b)
hereof) and as determined under Regulations Section 1.704-2(i)(5), plus (B) any amounts
which such Member is deemed to be obligated to restore pursuant to Regulations Section
1.704-1(b)(2)(ii)(c); and (ii) debit to such Capital Account the items described in
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).




     b. “Asset Value” with respect to any Company asset means:




     i. The fair market value when contributed of any asset contributed to the
Company by any Member;




     ii. The fair market value of any Company asset when such asset is distributed
to any Member;




     iii. The fair market value of all Property at the time of the happening of any
of the following events: (A) the admission of a Member to, or the increase of a
Membership Interest of an existing Member in, the Company in exchange for a Capital
Contribution; (B) the distribution of any asset distributed by the Company to any
Member as consideration for a Membership Interest in the Company; or (C) the
liquidation of the Company under Regulations Section 1.704-1(b)(2)(ii)(g); or




     iv. The Basis of the asset in all other circumstances.


For purposes of this definition, fair market value of any asset contributed to the Company after
the date hereof shall be determined by the Board with the approval of a Majority-in-Interest of the
Investors. The Asset Value of any Company asset shall be adjusted from time to time to account for
any Depreciation of such asset.





     c. “Basis” with respect to an asset means the adjusted basis from time to time of such
asset for federal income tax purposes.




     d. “Capital Account” means an account maintained for each Member in accordance with
Regulations Sections 1.704-1(b) and 1.704-2 and to which the following provisions apply to
the extent not inconsistent with such Regulations:



 









 






     i. There shall be credited to each Member’s Capital Account: (1) such Member’s
Capital Contributions (as defined in Article 1 of this Agreement); (2) such Member’s
distributive share of Profits; (3) any items of income or gain specially allocated
to such Member under this Agreement; and (4) the amount of any Company liabilities
(determined as provided in Code Section 752 (c) and the Regulations thereunder)
assumed by such Member or to which Property distributed to such Member is subject;




     ii. There shall be debited to each Member’s Capital Account (1) the amount of
money and the Asset Value of any Property distributed to such Member pursuant to
this Agreement; (2) such Member’s distributive share of Losses; (3) any items of
expense or loss which are specially allocated to such Member under this Agreement,
and (4) the amount of liabilities (determined as provided in Code Section 752(c) and
the Regulations thereunder) of such Member assumed by the Company (within the
meaning of Code Section 704) or to which Property contributed to the Company by such
Member is subject; and




     iii. The Capital Account of any transferee Member shall include the appropriate
portion of the Capital Account of the Member from whom the transferee Membership
Interest was obtained.




     e. “Depreciation” for any Fiscal Year or other period means the cost recovery deduction
with respect to an asset for such year or other period as determined for federal income tax
purposes, provided that if the Asset Value of such asset differs from its Basis at the
beginning of such year or other period, depreciation shall be determined as provided in
Regulations Section 1.704-1(b)(2)(iv)(g)(3).




     f. “Profits” and “Losses” for any Fiscal Year or other period means an amount equal to
the Company’s net taxable income or net loss for such year or period determined in
accordance with Code Section 703(a) and the Regulations thereunder with the following
adjustments:




     i. All items of income, gain, loss and deduction of the Company required to be
stated separately shall be included in taxable income or loss;




     ii. Income of the Company exempt from federal income tax shall be treated as
taxable income;




     iii. Expenditures of the Company described in Code Section 705(a)(2)(B) or
treated as such expenditures under Regulations Section 1.704-1(b)(2)(iv)(i)(1) shall
be subtracted from taxable income;




     iv. In the event the Asset Value of any Company asset is adjusted pursuant to
Sections 1.1(b)(ii) or (iii) of this Appendix, the amount of such adjustment shall
be taken into account as gain or loss from the disposition of such asset for the
purposes of computing Profits or Losses;




     v. Gain or loss resulting from the disposition of Property from which gain or
loss is recognized for federal income tax purposes shall be determined with
reference to the Asset Value of such Property;



 









 






     vi. Depreciation shall be determined based upon Asset Value as determined under
Regulations Section 1.704-1(b)(2)(iv)(g)(3) instead of as determined for federal
income tax purposes; and




     vii. To the extent an adjustment to the adjusted tax basis of any Company asset
pursuant to Code Section 734(b) or Code Section 743(b) is required pursuant to
Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining
Capital Accounts as a result of a distribution other than in complete liquidation of
a Membership Interest, the amount of such adjustment shall be treated as an item of
gain (if the adjustment increases the basis of the asset) or loss (if the adjustment
decreases the basis of the asset) from the disposition of the asset and shall be
taken into account for purposes of computing Profits and Losses.




     viii. Items which are specially allocated shall not be taken into account; and




     ix. For the avoidance of doubt, except as specifically provided herein,
allocation will be made only of net taxable income or net losses and not individual
items of net taxable income or net loss.



     1.2. Special Allocations of Profits and Losses.




     a. Minimum Gain Chargeback. Notwithstanding any other provision of this
Appendix, if there is a net decrease in Company Minimum Gain (as defined in Regulations
Section 1.704-2(d)) during any Fiscal Year, then each Member shall be allocated such amount
of income and gain for such year (and subsequent years, if necessary) determined under and
in the manner required by Regulations Section 1.704-2(f) as is necessary to meet the
requirements for a minimum gain chargeback as provided in that Regulation.




     b. Member Nonrecourse Debt Minimum Gain Chargeback. Notwithstanding any other
provision of this Appendix, if there is a net decrease in Member Nonrecourse Debt Minimum
Gain (as defined in accordance with Regulations Section 1.704-2(i)(3)) attributable to a
Member Nonrecourse Debt (as defined in Regulations Section 1.704-2(b)(4)) during any Fiscal
Year, any Member who has a share of the Member Nonrecourse Debt Minimum Gain attributable to
such Member Nonrecourse Debt determined in accordance with Regulations Section 1.704-2(i)(5)
shall be allocated such amount of income and gain for such year (and subsequent years, if
necessary) determined under and in the manner required by Regulations Section 1.704-2(i)(4)
as is necessary to meet the requirements for a chargeback of Member Nonrecourse Debt Minimum
Gain as is provided in that Regulation.




     c. Qualified Income Offset. If a Member unexpectedly receives any adjustment,
allocation or distribution described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or
(6), items of Company income and gain shall be specifically allocated to such Member in an
amount and manner sufficient to eliminate, to the extent required by the Regulations, the
Adjusted Capital Account Deficit of such Member as quickly as possible, provided that an
allocation pursuant to this Subsection shall be made only if and to the extent that such
Member would have an Adjusted Capital Account Deficit after all other allocations provided
for in Sections 6.1, 6.2, and 6.3 of the Agreement and this
Section 1.2 have been made without giving effect to this Subsection 1.2(c).




     d. Gross Income Allocation. In the event any Member has a deficit Capital
Account at the end of Fiscal Year which is in excess of the sum of (i) the amount such
Member is obligated to restore pursuant to this Agreement, and (ii) the amount such Member
is deemed to be



 









 







obligated to restore pursuant to Regulations 1.704-2(g)(1) and 1.704-2(i)(5), each such
Member shall be specially allocated items of Company income and gain in the amount of such
excess as quickly as possible, provided that an allocation pursuant to this Subsection shall
be made only if and to the extent that such Member would have a deficit Capital Account
after all other allocations provided for in Sections 6.1, 6.2 and
6.3 of the Agreement and this Section 1.2 have been made without giving
effect to Subsection 1.2(c) and this Subsection 1.2(d).




     e. Nonrecourse Deductions. Nonrecourse Deductions (as defined and determined
in Regulations Sections 1.704-2(b) and 1.704-2(c)) for any Fiscal Year shall be allocated
among the Members in proportion to their Common Percentage Interests except to the extent
that applicable Regulations require that such deductions be allocated in some other manner.




     f. Member Nonrecourse Deductions. Any Member Nonrecourse Deductions (as
defined under Regulations Section 1.704-2(i)(2)) shall be allocated pursuant to Regulations
Section 1.704-2(i)(1) to the Member who bears the economic risk of loss with respect to the
“Member Nonrecourse Debt” to which it is attributable.




     g. Code Section 754 Adjustment. To the extent that an adjustment to the Basis
of any asset pursuant to Code Section 734(b) or Code Section 743(b) is required to be taken
into account in determining Capital Accounts as provided in Regulations Section
1.704-1(b)(2)(iv)(m), the adjustment shall be treated (if an increase) as an item of gain or
(if a decrease) as an item of loss, and such gain or loss shall be allocated to the Members
consistent with the allocation of the adjustment pursuant to such Regulation.




     h. Purpose and Application. The purpose and the intent of the special
allocations provided for in Section 6.3 of the Agreement and Sections 1.2(a)
through (g) of this Appendix are to comply with the provisions of Regulations
Sections 1.704-1(b) and 1.704-2, and such special allocations are to be made so as to
accomplish that result. However, to the extent possible, the Board, in allocating items of
income, gain, loss, or deduction among the Members, shall take into account the special
allocations in such a manner that the net amount of allocations to each Member shall be the
same as such Member’s distributive share of Profits and Losses would have been had the
events requiring the special allocations not taken place. The Board shall apply the
provisions of this Section in whatever order the Board reasonably believes will minimize the
effect of the special allocations.



     1.3. General Provisions.




     a. Except as otherwise provided in this Agreement, the Members’ distributive shares of
all items of Company income, gain, loss, and deduction are the same as their distributive
shares of Profits and Losses.




     b. The Board shall allocate Profits, Losses, and other items properly allocable to any
period using any method permitted by Code Section 706 and the Regulations thereunder.




     c. To the extent permitted by Regulations Section 1.704-2(h) and Section 1.704-2(i)(6),
the Board shall endeavor to avoid treating distributions as being from the proceeds of a
Nonrecourse Liability (as defined in Regulations Section 1.752-1(a)(2)) or a Member
Nonrecourse Debt.




     d. If there is an increase or decrease in one or more Member’s membership interest in
the Company during a Fiscal Year, each Member’s distributive share of Profits or Losses or



 









 







any item thereof for such Fiscal Year shall be determined by any method prescribed by
Code Section 706(d) or the Regulations thereunder that takes into account the varying
Members’ Interests in the Company during such Fiscal Year.




     e. The Members agree to report their shares of income and loss for federal income tax
purposes in accordance with the provisions of this Appendix.



     1.4. Code Section 704(c) Allocations. Solely for federal income tax purposes and not
with respect to determining any Member’s Capital Account, distributive shares of Profits, Losses,
other items, or distributions, a Member’s distributive share of income, gain, loss, or deduction
with respect to any Property (other than money) contributed to the Company, or with respect to any
Property the Asset Value of which was determined as provided in this Agreement upon the acquisition
of Membership Interest in the Company by a new Member or existing Member in exchange for a Capital
Contribution, shall be determined in accordance with Code Section 704(c) and the Regulations
thereunder or with the principles of such provisions, using any reasonable method selected by the
Board with the approval of a Majority-in-Interest of the Investors, provided that the
Company shall be authorized to use, without the approval of a Majority-in-Interest of the
Investors, the so-called “traditional method” described in Section 1.704-3(b) of the Regulations
with respect to any Section 704(c) allocations to CDP resulting from CDP’s contribution of assets
to the Company on April 26, 2007.



     In the event the Asset Value of any Company asset is adjusted pursuant to Section
1.1(b)(iii) hereof, subsequent allocations of income, gain, loss, and deduction with respect to
such asset shall take account of any variation between the adjusted basis of such asset for federal
income tax purposes and its Asset Value in the same manner as under Code Section 704(c) and the
Regulations thereunder.



     1.5. Curative Reallocations Regarding Payments to Members. To the extent that
compensation paid to any Member by the Company ultimately is not determined to be a guaranteed
payment under Code Section 707(c) or a payment other than in his capacity as a Member pursuant to
Code Section 707(a), the Member shall be specially allocated gross income of the Company in an
amount equal to the amount of such compensation, and the Member’s Capital Account shall be adjusted
to reflect the payment of such compensation. If the Company’s gross income for a Fiscal Year is
less than the amount of such compensation paid in such year, the Member shall be specially
allocated gross income of the Company in the succeeding year or years until the total amount so
allocated equals the total amount of such compensation.



     1.6. Special Basis Adjustment. At the request of either the transferor or transferee
in connection with a transfer of a Membership Interest in the Company, the Board will, at the
request of any Member, cause the Company to make the election provided for in Code Section 754 and
maintain a record of the adjustments to Basis of Property resulting from that election. Any such
transferee shall pay all costs incurred by the Company in connection with such election and the
maintenance of such records.



     1.7. Tax Matters Member.




     a. CDP is hereby designated the Tax Matters Member (as defined in Section 6231(a)(7) of
the Code) on behalf of the Company and shall take steps so that each “eligible member” is a
“notice partner” as defined in Code Section 6231.




     b. Without the consent of the Board, the Tax Matters Member shall have no right to
extend the statute of limitations for assessing or computing any tax liability against the
Company or the amount of any Company tax item.



 









 






     c. If the Tax Matters Member elects to file a petition for readjustment of any Company
tax item (in accordance with Code Section 6226(a)) such petition shall be filed in the
United States Tax Court unless otherwise agreed by the Board.




     d. The Tax Matters Member shall, within ten (10) Business Days after receipt thereof,
forward to each Member a photocopy of any correspondence relating to the Company received
from the Internal Revenue Service. The Tax Matters Member shall, within ten (10) Business
Days thereof, advise each Member in writing of the substance of any conversation held with
any representative of the Internal Revenue Service.




     e. Any reasonable costs incurred by the Tax Matters Member for retaining accountants
and/or lawyers on behalf of the Company in connection with any Internal Revenue Service
audit of the Company shall be expenses of the Company. Any accountants and/or lawyers
retained by the Company in connection with any Internal Revenue Service audit of the Company
shall be selected by the Tax Matters Member and the fees therefor shall be expenses of the
Company.




 









 








Schedule 10.19





	 	1.	 	Ownership and sales of timeshare inventory at the Jockey Club.
	 
	 	2.	 	Ownership and sales of timeshare inventory at the Carriage House.
	 
	 	3.	 	Potential purely passive overrides from future Marriott projects
located in Clark County, Nevada based on a previous transaction.
	 
	 	4.	 	Investment in JeanCo, LLC, an MGM Mirage-controlled joint venture,
which currently has no timeshare development in its business plan.