Document:

exv10w1

 

Exhibit 10.1

DEVELOPMENT FINANCING

AND

SERVICES AGREEMENT

between

JAMUL GAMING AUTHORITY

a governmental component and instrumentality of the

Jamul Indian Village,

JAMUL INDIAN VILLAGE

a federally recognized tribe

and

LAKES JAMUL DEVELOPMENT, LLC

a Minnesota limited liability company

Dated: January 17, 2006

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     THIS DEVLOPMENT FINANCING and SERVICES AGREEMENT (hereinafter referred to as the
“Agreement”) is made and entered into this 17th day of January, 2006 by and between
Jamul Indian Village, a federally recognized Indian tribe (hereinafter referred to as the
“Tribe”), located in the State of California with tribal offices located at P.O. Box 612 14191
Hwy 94 #16, Jamul, California 91935, the Jamul Gaming Authority (hereinafter referred to as the
“Authority”), a governmental component and instrumentality of the Tribe, whose business office is
also located at P.O. Box 612 14191 Hwy 94 #16, Jamul, California 91935, and Lakes Jamul
Development, LLC, a Minnesota limited liability company (hereinafter referred to as “Lakes”),
whose business office is located at 130 Cheshire Lane, Minnetonka, Minnesota 55305.

RECITALS

     A. The Tribe is a federally recognized Indian tribe eligible for the special programs and
services provided by the United States to Indians because of their status as Indians and is
recognized as possessing powers of self-government.

     B. The United States government holds lands in the State of California in trust for the
benefit of the Tribe over which the Tribe exercises jurisdiction and possesses sovereign
governmental powers (the Tribe’s “Indian Lands”).

     C. In compliance with the Indian Gaming Regulatory Act of 1988, P.L. 100-497, 25 U.S.C. §2701
et seq. as it may from time to time be amended, the Executive Committee of the
Tribe has or will enact a tribal ordinance regulating the operation of gaming activities on the
Tribe’s Indian Lands (hereinafter referred to as the “Gaming Control Ordinance”), creating the
Jamul Gaming Control Board, and authorizing Class II Gaming and Class III Gaming on the Tribe’s
Indian Lands subject to the provisions of the Gaming Control Ordinance and a Tribal-State Compact
or gaming procedures issued by the Secretary of the U.S. Department of the Interior.

     D. As a tribal governmental entity, the Authority is vested with the sovereign immunity of the
Tribe, and the Tribe has established the Authority, a governmental component and instrumentality of
the Tribe, as the legal entity which will own and operate any gaming projects which are to be
developed by the Tribe.

     E. The Authority, on behalf of the Tribe, intends to develop and construct a gaming facility
and related ancillary facilities on the Tribe’s Indian Lands (hereinafter referred to as the
“Project”).

     F. The Authority believes that the development and construction of the Project will provide
employment and improve the social, economic, education, and health needs of the Tribe’s members;
increase the revenues of the Tribe; and enhance the Tribe’s economic self-sufficiency and
self-determination.

     G. The Authority does not presently have the resources or expertise to finance and develop the
Project on its own and desires to engage the financing assistance and services of a

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financing/development company with knowledge and experience in the gaming industry to
provide start-up financing and development services in connection with the Authority’s planned
Project.

     H. Lakes has represented to the Authority that it has (1) the financial capacity to provide
financing for the funds necessary to develop, construct and equip the Project contemplated by this
Agreement; and (2) the development and construction management expertise to provide design and
construction management services to efficiently plan and built the Project.

     I. Lakes desires to advance to the Authority, subject to the terms and conditions of the
Development Financing Loan described herein, sums sufficient to finance the design and
construction of the Project contemplated by this Agreement; and subject to the terms and
conditions described herein, to provide development design and construction management services in
conjunction with the Authority’s development of the Project.

     J. Any dispute regarding this Agreement between the parties is to be subject to the dispute
resolution and governing law provisions contained herein, as well as the Resolutions of Limited
Waiver attached hereto as Exhibit E and
Exhibit F.

     K. The Authority, the Tribe and Lakes intend that this Agreement shall become effective and
binding upon the date of execution by the parties.

     L. In connection with a previously proposed gaming project of the Tribe, a Lakes Affiliate
previously advanced to the Tribe funds; and it is the intent of the parties hereto to make all such
advances and accrued interest thereon subject to the terms and conditions of the Development
Financing Loan in accordance with the provisions of Section 2.1 hereof.

     NOW, THEREFORE, in consideration of the hereinafter mutual promises and covenants, and for
other good and valuable consideration as set forth herein, the receipt and sufficiency of which are
expressly acknowledged, the Authority, the Tribe and Lakes agree as follows:

ARTICLE 1

Definitions

     As they are used in this Agreement, the terms listed below shall have the meaning assigned to
them in this Article:

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     “Affiliate” means, with respect to any specified Person, any other Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or is under common
control with the specified Person. For the purposes of this definition, “control” (including the
terms controlling, controlled by, or under common control with) means 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, partnership or member interests, by
contract or otherwise.

     “Agreement” means this Development Financing and Services Agreement, as it may be amended,
supplemented, restated or replaced from time to time.

     “Ancillary
Facilities” means any hotel, convention center, food and beverage
outlets, retail outlets, and any other enterprise designed to promote, support, or enhance the
Gaming Facility.

     “Architect” any architectural or engineering firm duly licensed to provide architectural
services for the Project Facilities.

     “Authority” means the Jamul Gaming Authority, a governmental component and instrumentality
of the Tribe, duly established by action of the Tribe’s General Council under tribal law, whose
business office is located at P.O. Box 612 14191 Hwy 94 #16, Jamul, California 91935

     “BIA” means the Bureau of Indian Affairs, established within the United States Department of
Interior.

     “Capital
Expenditures” means any expenditure that is considered a capital
expenditure under GAAP.

     “Claim” means any dispute, claim, question, or disagreement between the Authority or the
Tribe and Lakes that is directly or indirectly related to this Agreement, the Note, any
Transaction Documents contemplated by this Agreement, or the Project Facilities, whether arising
under law or in equity, whether arising as a matter of contract or a tort, and whether arising
during or after the expiration of this Agreement or the maturity of the Note.

     “Class II
Gaming” means class II gaming as defined in IGRA.

     “Class III Gaming” means class III gaming as defined in IGRA.

     “Collateral” is defined in Section 2.1(a).

     “Compact” means any Tribal-State Compact executed between the Tribe and the State of
California entered into and approved by the United States Secretary of the Interior either before
or after the Effective Date of this Agreement, and any amendments or modifications thereto.

     “Completion” means the completion of the Gaming Facility, or portions thereof, in

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substantial accordance with the Plans and Specifications, as evidenced by a completion certificate
from the Architect that the Gaming Facility, or portions thereof, have been substantially completed
in accordance with the Plans and Specifications, and by the issuance of a certificate of occupancy
by the tribal governmental authority having jurisdiction, and certificates of such professional
designers, inspectors or consultants or opinions of counsel, as Lakes may reasonably determine to
be appropriate, verifying construction and furnishing of the Gaming Facility is in compliance with
all Legal requirements.

     “Contractor” means any Person providing materials or services for the design, construction
and furnishing of the Project pursuant to a contract.

     “Design Professional” means any Person other than an Architect engaged in the
business of providing engineering, landscape, interior design or other design services.

     “Effective
Date” means the date the parties execute this Agreement.

     “Equipment Contract” means any contract to finance or acquire equipment or personal
property for use in connection with the Project Facilities, exclusive of personal property to be
provided pursuant to a Project Construction Contract, whether constituting or characterized as a
loan or credit agreement, purchase agreement, financing lease, capital lease, participating
lease, license or otherwise.

     “Equipment Vendor” means any Person that sells, leases or licenses personal property
to the Authority for use in connection with the Project Facilities.

     “Furnishings
and Equipment” shall mean all furniture, furnishings and equipment
required for the operation of the Project Facilities, including, without limitation:

     (i) cashier, money sorting and money counting equipment, surveillance and
communication equipment, and security equipment;

     (ii) slot machines, video games of chance, table games, keno equipment and other
gaming equipment;

     (iii) office furnishings and equipment;

     (iv) specialized equipment necessary for the operation of any portion of the Project
Facilities for accessory purposes, including equipment for kitchens, laundries, dry
cleaning, cocktail lounges, restaurants, public rooms, commercial and parking spaces, and
recreational facilities;

     (v) hotel equipment, furniture and furnishings (to the extent a hotel is included in
the Project Facilities); and

     (vi) all other furnishings and equipment now or hereafter located and installed in or
about the Project Facilities which are used in the operation of the Project Facilities.

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     “GAAP” means generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as have been approved by a significant segment of the
accounting profession.

     “Gaming Commission”means any tribal commission or body of the Tribe that is lawfully
performing the obligations and exercising the rights of the tribal gaming regulatory agency
established pursuant to the Tribe’s Gaming Ordinance.

     “Gaming Facility”means, in connection with the Project, all buildings, structures
and improvements, together with all furniture, fixtures and equipment and personal property
(whether tangible or intangible) to be used in connection with the operation of Class II Gaming
and/or Class III Gaming.

     “Gaming Facility Site”means the lands as legally described on Exhibit A attached
hereto.

     “Gaming Operation”means a “gaming operation” as defined in NIGC regulations, 25
C.F.R. § 502.10.

     “Gaming Ordinance”means any valid gaming ordinance of the Tribe that is in effect
for purposes of and to the extent required by IGRA or the Compact.

     “Governmental Authority”means the United States, the BIA, the State of California,
the Tribe and any governmental court, agency, department, commission, board, bureau or
instrumentality of the foregoing (including the NIGC), but only to the extent it has legal
jurisdiction over Class II Gaming or Class III Gaming at the Gaming Facility, the construction of
the Project Facilities, or Authority’s, the Tribe’s or Lakes’ obligations under this Agreement or
the Note or any Transaction Documents.

     “IGRA” means the Indian Gaming Regulatory Act of 1988, P.L. 100-497, 25 U.S.C. §§ 2701, el
seq., as it may be amended from time to time, and all regulations of the NIGC promulgated
thereunder.

     “Lakes” means Lakes Jamul Development, LLC, a Minnesota limited liability company and a
wholly-owned subsidiary of Lakes Gaming and Resorts, LLC.

     “Lakes Event of Default”is defined in Section 8.1.

     “Legal Requirements”means the Compact and all applicable present and future federal,
state, local and Tribe laws, ordinances, resolutions, rules, regulations, permits, licenses and
certificates, and any and all present and future orders of courts and administrative bodies of
competent jurisdiction, applicable to the Project, the Project Facilities, this Agreement, the
Note, or any Transaction Documents.

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     “Material Breach”by any party means (a) a material failure of the party to perform a
material obligation under this Agreement for reasons not excused under Section 11.5 (Force
Majeure); or (b) any material representation or warranty made by a party to this Agreement proves
to be knowingly false or erroneous in any material way when made or at any time shall fail to be
true and correct in all material respects.

     “Net Income” means with respect to any period of time, Revenues less (a) amounts paid out as,
or paid for, prizes; and (b) operating expenses of the Project Facilities in accordance with GAAP.

     “NIGC” means the National Indian Gaming Commission, established by IGRA.

     “Note” means the promissory note executed by the Authority in favor of Lakes in connection
with the Development Financing Loan as described in Section 2.1 (a).

     “Opening Date” means the first day on which the Gaming Facility is open to the public for the
conduct of Class II Gaming and/or Class III Gaming.

     “Person” means any entity, whether an individual, trustee, corporation, general partnership,
limited partnership, limited liability company, limited liability partnership, joint stock
company, trust, estate, unincorporated organization, business association, Indian tribe,
commission, instrumentality, firm, joint venture, Governmental Authority, or otherwise.

     “Project” means the development, construction and equipping and future expansion of the Gaming
Facility at the Gaming Facility Site and the development, construction and equipping of one or more
Ancillary Facilities in connection with the Project, whether such work shall occur simultaneously
or in phases during the term of this Agreement, which the parties anticipate to be developed under
this Agreement.

     “Project Architect” is defined in Section 3.1 (a).

     “Project Architectural Agreement”is defined in Section 3.1(b).

     “Project Budget” is defined in Section 3.3.

     “Project Construction Contract”is defined in Section 4.1.

     “Project Costs” means (a) all costs of any nature (whether considered an expense or Capital
Expenditure) incurred by or on behalf of the Authority, or by or on behalf of Lakes, in connection
with the Project in accordance with this Agreement, including all amounts advanced by Lakes to the
Authority for the Project, including but not limited to all amounts advanced under the Development
Financing Loan and all amounts evidenced by the Note; and (b) all other amounts mutually agreed
upon by Lakes and the Authority necessary for the development, construction and equipping of the
Project.

     “Project General Contractor”is defined in Section 4.1.

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     “Project Facilities” means the Gaming Facility and the Ancillary Facilities in
connection with the Project.

     “Project Plans and Specifications”is defined in Section 3.1(b).

     “Proprietary Interest”means proprietary interest in a Gaming Operation within the
meaning of IGRA.

     “Revenues” means, with respect to any period of time, all revenues of any nature derived
directly or indirectly from the operation of the Project Facilities and permitted under GAAP to be
included in the Project Facilities’ total revenues for that period, less any credits or
refunds made to customers, guests, or patrons of the Project Facilities, not considered a cost of
operations and not applied in any prior period to reduce Revenues. “Revenues” shall include any
monies received by the Authority or the Tribe as damages or settlement recovery in connection with
any litigation involving actions based upon any dispute concerning the Compact or the Authority or
the Tribe’s right to conduct gaming on any lands held or to be acquired by either for such
purposes. “Revenues” shall not include (i) any gratuities or service charges added to the bill of
a customer, guest or patron of the Project Facilities and payable to employees of the Project
Facilities, (ii) promotional allowances for which there is not a direct offsetting item treated as
a cost of operations, (iii) any sales, excise, gross receipt, admission, entertainment, tourist or
other taxes or charges (or assessments equivalent thereto, or payments made in lieu thereof) that
are received from a customer, guest or patron and passed on to governmental or quasi-governmental
entities unrelated to the Authority, (iv) any lawful federal, state, or local taxes or impositions
(including any payment or fee in lieu of the foregoing) that are collected from patrons of or
vendors to the Project Facilities, (v) proceeds of indebtedness of the Authority, and (vi)
proceeds from insurance or condemnation (other than proceeds of business interruption insurance
and other proceeds received to reimburse the Project Facilities for any item accounted for under
GAAP as a cost of operations). “Term” of this Agreement is defined in Section 9.1.

     “Transaction Document”and ‘Transaction Documents” means, collectively, this
Agreement, the Note, and each and every dominion account agreement, security agreement or other
agreement, document or instrument in favor of Lakes or any Affiliate of Lakes contemplated hereby
or thereby or otherwise executed and delivered hereunder or thereunder or in connection with or
relating to any agreement, document or instrument relating to the Project Facilities.

     “Tribal
Event of Default” is defined in Section 8.3.

     “Tribe” means the Jamul Indian Village, a federally-recognized tribe as listed on the BIA’s
federal register notice pursuant to 25 U.S.C. §479a-l.

     “UCC Financing Statements”means UCC-1 financing statements naming the Authority
and/or the Tribe as debtor, as the case may be, and naming Lakes as the secured party, in the form
approved by the parties.

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ARTICLE 2

Development Financing Loan

Section 2.1 Project Development Loan. Subject to the terms and conditions in this
Article 2, Lakes shall make advances as needed from time to time to the Authority with respect to
the Authority’s payment of Project development, construction, financing and equipping costs
(collectively the “Development Financing Loan”) in an aggregate amount to be agreed to by the
parties, such amount so agreed to be not less than $300,000 but not to exceed $350,000,000 (the
“Development Cap”). Lakes shall have no obligation whatsoever to advance any funds under the
Development Financing Loan in excess of the Development Cap. The parties agree that all sums
previously advanced by a Lakes Affiliate to the Tribe plus accrued interest thereon under any
contract or instrument in connection with any proposed gaming project (exclusive of any advances
made for land purchase purposes associated with property listed on Exhibit B hereto) shall
constitute advances and accrued interest under the Development Financing Loan, shall be credited to
Lakes’ obligations hereunder and shall be subject to the terms of the Development Financing Loan as
of January 17, 2006; and that as of January 16, 2006 Lakes’ Affiliates have advanced $16,922,740
with $4,469,305 in accrued interest thereon to the Tribe (as detailed on Exhibit C hereto) in
connection with proposed gaming projects (exclusive of any advances made for land purchase purposes
associated with property listed on Exhibit B hereto). Each of the Authority and the Tribe
represents and warrants to Lakes that, in connection with the advance of such sums and in
connection with other activities, the Authority, the Tribe and their respective officers, directors
or controlling persons have a preexisting, personal or business relationship with Lakes and, in any
event, the Authority and Tribe have the capacity to protect their own interests in connection with
the Development Financing Loan and other transactions contemplated by this Agreement. The
Development Financing Loan and Lakes’ obligation to advance funds to the Authority thereunder shall
be subject to the following requirements:

	 	(a)	 	All advances made pursuant to the Development Financing Loan shall be evidenced
by a promissory note prepared by Lakes, substantially in the form attached as Exhibit D
to this Agreement (the “Note”), executed on behalf of the Authority, and dated the date
hereof, to be payable from and secured by a pledge in (i) all Revenues from the Project
without any cross collateralization from other projects of the Authority and without
any other liability or guarantee on the part of the Authority except the security
interests described herein; and (ii) the Project’s Furnishings and Equipment. Such
Revenues described in the foregoing clause (i) and Furnishings and Equipment described
in foregoing clause (ii) are collectively referred to herein as the “Collateral”.
	 
	 	(b)	 	If the principal amount of the Note is exceeded by any pending advance on the
Development Financing Loan, prior to such advance being made and prior to Lakes having
any obligation to fund such advance, the Authority shall execute and deliver to Lakes
an amendment to the Note, increasing the principal amount of the Note by an amount at
least equal to the pending advance.

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	 	(c)	 	With respect to each advance made under the Development Financing Loan, the interest
rate applicable to such advance under Development Financing Loan shall be an annual rate
equal to the annual interest rate charged to Lakes in obtaining its financing necessary for
the advance (as reasonably determined by Lakes) plus five percent (5%), such annual rate to
be fixed as of the date of such advance. Interest shall be payable solely from the
Collateral and interest shall be computed for the actual number of days elapsed on the
basis of a year consisting of 360 days. Anything herein to the contrary notwithstanding, if
during any period for which interest is computed hereunder, the applicable interest rate,
together with all fees, charges and other payments which are treated as interest under
applicable law, as provided for herein or in any other Transaction Document, would exceed
the maximum rate of interest which may be charged, contracted for, reserved, received, or
collected by Lakes in connection with this Agreement under applicable law (“Maximum Rate”),
the Authority shall not be obligated to pay, and Lakes shall not be entitled to charge,
collect, receive, reserve or take, interest in excess of the Maximum Rate, and during any
such period the interest payable hereunder shall be limited to the Maximum Rate.
	 
	 	(d)	 	Unless otherwise agreed by the parties in writing, principal and interest accrued on the
Development Financing Loan shall become due and payable as follows:

(i) all interest accrued on advances outstanding as of the Opening Date shall be
capitalized as of the Opening Date (such capitalized amount, together with interest
thereon accruing at a rate determined by Section 2.1(c) as if such amount were an
advance made under the Development Financing Loan on the Opening Date, herein
referred to as the “Opening Date Amount”), and payment of such Opening Date Amount
shall be made in monthly payments, beginning on the date occurring thirty (30) days
after the Opening Date (the “Initial Payment Date”) and continuing on the same day
of each calendar month thereafter until such Opening Date Amount shall have been
paid in full, the amount of each such monthly payment to be determined as follows:
with respect to each month in which such a monthly payment is payable, (1) the
Authority shall retain the first $500,000 of that month’s Net Income from operation
of the Project Facilities; (2) if in such month the Authority receives Net Income
from operation of the Project Facilities in excess of $500,000, the Authority shall
pay to Lakes as such monthly payment for application against the Opening Date
Amount the excess of Net Income over $500,000; and (3) if in such month the
Authority receives Net Income from operation of the Project Facilities in excess of
$1,000,000, the Authority shall pay, for application against the Opening Date
Amount in addition to the amount payable pursuant to the foregoing subclause (2),
an amount equal to 50% of the Net Income it receives that month from operation of
the Project Facilities in excess of $1,000,000; such payments to be made until the
tenth anniversary of the Opening Date, at which time

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any remaining balance of the Opening Date Amount will be due and payable to Lakes;

(ii) in addition to the payments to be made under the foregoing clause (i),
monthly interest-only payments with respect to interest accrued from and after the
Opening Date on the Development Financing Loan, each such monthly payment in an
amount equal to all interest so accrued to the date of such payment, payable
beginning on the Initial Payment Date and continuing on the same day of each
calendar month thereafter until the tenth anniversary of the Opening Date; and

(iii) a principal balloon payment in the amount of all advances made by Lakes
under the Development Financing Loan plus any remaining accrued interest due
thereon and any remaining balance of the Opening Date Amount, such payment to be
made on the tenth anniversary of the Opening Date.

	 	 	 	Notwithstanding the foregoing, the Development Financing Loan shall become due and owing
in its entirety upon termination of this Agreement under Article 9. The parties further
agree that any fees or other costs charged to Lakes in connection with obtaining its
financing necessary for the Development Financing Loan shall be considered an advance and
included as principal under the Development Financing Loan.
	 
	 	(e)	 	The Development Financing Loan may not be prepaid other than as required by this Agreement,
except that any interest accrued as of the Opening Date on the Development Financing Loan may
be prepaid without penalty.
	 
	 	(f)	 	No amounts shall be loaned under the Development Financing Loan except for Project Costs set
forth in the Project Budget, and Lakes shall have no obligation to advance funds for such
costs unless the costs constitute payments properly due within the terms and scope of Project
Contractors’ contracts; upon any such payment by Lakes, an advance on the Development
Financing Loan shall automatically occur.
	 
	 	(g)	 	The Development Financing Loan, together with interest thereon, shall be payable from and
secured by a pledge of the Collateral. To that end, the Authority and the Tribe hereby pledge
and grant a security interest in all the Collateral to Lakes to secure the Authority’s and the
Tribe’s obligations under this Agreement and under the Note, and further agree to enter into
standard and customary dominion account agreements/security agreements, each in a form
acceptable to Lakes, necessary to evidence and effectuate such liens, and authorize Lakes to
file those UCC Financing Statements and similar documents and agreements as Lakes may believe
appropriate to perfect such liens.

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	 	(h)	 	Notwithstanding anything to the contrary in this Article 2, Lakes shall not be
obligated to fund any advances on the Development Financing Loan after the earliest
of:

	 	(i)	 	the third anniversary of the first advance under the Development
Financing Loan;
	 
	 	(ii)	 	the failure of the Authority or the Tribe to cure, within
the time prescribed
in this Agreement, any default under this Agreement, the Note, or any
related documents or agreements for which the Authority or the Tribe
receives written notice;
	 
	 	(iii)	 	sixty (60) days after written notice by Lakes
that a reasonable basis exists
for concluding that this Agreement or the development of the Project is
not lawful;
	 
	 	(iv)	 	any determination by Lakes that a reasonable basis exists for
concluding
that any material terms of this Agreement or the Note are not valid or
binding obligations of the Authority or the Tribe;
	 
	 	(v)	 	any reasonable
determination by Lakes (which may be based on the advice
of legal counsel) that any representations or warranties of the Authority or
the Tribe contained in this Agreement are not true and correct;
	 
	 	(vi)	 	the commencement of any litigation which, in the reasonable
determination of Lakes, has a reasonable likelihood of delaying the
completion of the Project Facilities for more than 24 months after the
Effective Date of this Agreement; and
	 
	 	(vii)	 	the reasonable determination of
Lakes that financing and operation of the
Project Facilities will be substantially impaired by changes in federal law
relating to permitted Class II and Class III gaming on Indian lands.

     Section 2.2 Conditions Precedent to First Advance of Development Financing Loan or to
Perform any Obligations. Notwithstanding Section 2.1, Lakes is not required to make any advance
under the Development Financing Loan or perform any obligations under this Agreement until Lakes
receives each of the following in form and substance reasonably satisfactory to Lakes:

	 	(a)	 	copy of tribal laws in a form sufficient as determined by Lakes to perfect the
security interests and liens granted to it under Section 2.1.
	 
	 	(b)	 	copy of one or more resolutions of the governing bodies of the Authority and
the Tribe authorizing and ratifying the adoption, or the execution, delivery and
performance by the Authority, or the Tribe, as applicable, of (i) the Compact (if in
effect), (ii) the Gaming Ordinance, (iii) this Agreement, and (iv) the Note, such
dominion account agreements and security agreements as Lakes may require, and the other
Transaction Documents and related documents and security instruments.
	 
	 	(c)	 	original of any license(s) required by any Government Authority for Lakes’
financing, development design and construction oversight services (as described

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	 	 	 	in this Agreement) in connection with the development, construction and equipping
of the Project.
	 
	 	(d)	 	an opinion of an attorney for the Authority and the Tribe in form reasonably
satisfactory to Lakes to the effect that (i) this Agreement, the Note, and any security
instruments and other Transaction Documents to be executed by the Authority or the
Tribe in connection with this Agreement will be valid, binding and, as applicable,
perfected obligations of the Authority and the Tribe, enforceable in accordance with
their terms, (ii) the Tribe is an Indian tribe within the meaning of IGRA, (iii) each
of the actions of the Authority or the Tribe, as applicable, referred to above in this
Section have been validly taken by that entity and is in full force and effect, (iv)
the Tribe is legally permitted to conduct Class II Gaming and Class III Gaming
activities in the State of California under all Legal Requirements, and (v) the Gaming
Facility Site for the Project constitutes “Indian lands” upon which the Tribe may
legally conduct gaming under IGRA.
	 
	 	(e)	 	An addendum to this Agreement describing the contemplated scope of the Project
has been signed by the parties.
	 
	 	(g)	 	Lakes has received a copy of a letter from the NIGC determining that the
Gaming Facility Site for the Project constitutes “Indian lands” upon which the Tribe
may legally conduct gaming under IGRA.
	 
	 	(h)	 	Lakes shall have received satisfactory evidence that all permits or other
authorizations, including, and without limitation, the building permit(s), required by
any applicable Governmental Authority to authorize construction of the Project
Facilities have been issued and are in full force and effect. At Lakes’ option, the
Authority and the Tribe shall furnish Lakes reasonable evidence that all permits
required in order to construct the Project Facilities in accordance with the Plans and
Specifications will be available when necessary.
	 
	 	(i)	 	There shall be no pending or threatened litigation, claim or dispute which, in
Lakes’ good faith judgment, might materially adversely affect the ability of the
Authority or the Tribe to timely perform its obligations under this Agreement.
	 
	 	(k)	 	Lakes shall have received satisfactory evidence that the Gaming Facility Site
is free from environmental contamination of any nature whatsoever or any other
environmental condition that would require any remediation pursuant to any applicable
Legal Requirement.

     Further, Lakes is not required to make any advance under the Development Financing Loan or
perform any obligations under this Agreement if, in the reasonable determination of Lakes,
financing and operation of the Project Facilities will be substantially impaired by changes in
federal law relating to permitted Class II and Class III gaming on Indian lands.

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ARTICLE 3

Development Design Services

     Section 3.1 The parties agree as follows in connection with design services to be rendered
by Lakes for the Project.

	 	(a)	 	Selection of Project Architect. As soon as reasonably practical after
the signing this Agreement, Lakes shall propose to the Authority one or more Architects
to provide customary architectural services with respect to the Project Facilities,
although the Authority also shall have the right to consider additional architects. As
soon as reasonably practical, the Authority shall either approve or reject each
proposed Architect. In the case of a rejection, the process described in this Section
3.1(a) shall be repeated until the Authority has approved one or more Architects
proposed for the Project (“Project Architect”).
	 
	 	(b)	 	Project Architectural Agreement; Plans and Specifications. Once an
Architect has been approved under Section 3.1(a), Lakes shall negotiate proposed
agreements with each Architect approved, and shall propose the same to the Authority
(each, a “Project Architectural Agreement”). As soon as reasonably practical, the
Authority shall either approve or reject each proposed Project Architectural Agreement.
In the case of a rejection, the process described in this Section 3.1 (b) shall be
repeated until the Authority has approved the Project Architectural Agreements proposed
by Lakes. Upon approval, the Authority shall take necessary action to authorize and
execute the applicable Project Architectural Agreements. After execution of each
Project Architectural Agreement, Lakes shall coordinate the Architect’s preparation of
preliminary basic plans, drawings and specifications for the Project Facilities. Lakes
shall also coordinate the Architect’s preparation of construction drawings and final
design, plans and specifications for the Project Facilities, and propose the same for
approval by the Authority. The completed and approved final plans, together with
any modifications thereof proposed by Lakes and approved by the Authority, shall
constitute the “Project Plans and Specifications.”
	 
	 	(c)	 	Scope of Project. The scope of the project contemplated by this
Agreement shall be stated and established in the Project Plans and Specifications. It
is contemplated the scope of the Project will be substantially as described on the
Scope of Project Description Sheet dated January 17, 2006 attached hereto as an
addendum, subject to such changes as may be necessary or appropriate taking into
account competitive conditions, financing and other circumstances. As a condition
precedent to this Agreement being given legal effect, the parties shall agree to and
execute the Scope of Project Description Sheet. Once executed, any changes to the Scope
of Project Description Sheet must also be executed by both parties.
	 
	 	(d)	 	Selection of Additional Design Professionals for Project. If the
Authority determines that design services for the Project Facilities from
Design

- 14 -

 

	 	 	 	Professionals are desirable, Lakes may propose to the Authority one or more
Design Professionals and the proposed services of each. As soon as reasonably
practical, the Authority shall either approve or reject the proposed Design
Professionals. In the case of a rejection, the process described in this Section
3.1 (d) shall be repeated until the Authority has approved all Design
Professionals proposed by Lakes. After approval of each Design Professional by the
Authority, Lakes shall coordinate the services of each Design Professional.
	 
	 	(e)	 	Project Safety/Health Standards. The Project shall be designed and
constructed so as to adequately protect the environment and the public health and
safety. Subject to any Compact requirements, the design and construction of the Project
shall, except to the extent a particular requirement or requirements may be waived in
writing by the Authority, meet or exceed all reasonable minimum standards pertaining to
the Tribe and national, State of California and local building codes, fire codes and
safety and traffic requirements (but excluding planning, zoning and use laws,
ordinances, regulations and requirements), which would be imposed on the Project by
existing State of California or federal statutes or regulations which would be
applicable if the Project were located outside of the jurisdictional boundaries of the
Tribe, even though those requirements may not apply within the Tribe’s jurisdictional
boundaries. To the extent that the Tribe has adopted or may in the future adopt more
stringent requirements, those requirements shall govern. Nothing in this subsection
shall grant to the State of California or any political subdivision thereof any
jurisdiction (including but not limited to, jurisdiction regarding zoning or Gaming
Facility Site use) over the Project or its development.

     Section 3.2 Other Project Contractors. Lakes shall propose to the Authority for its
approval all third-party professionals, such as environmental specialists, feasibility analysts,
and others providing services or materials to the Project Facilities as are customary for
undertakings such as the Project (“Project Contractors”). The Authority shall also have the right
to consider additional Project Contractors. Lakes, in consultation with the Authority, and subject
to the final approval by the Authority, shall negotiate all Project Contractor contracts. All
contracts shall require the Project Contractor to adhere in regard to recruitment, employment,
reduction in force, promotion, training and related employment actions to a publicly announced
policy and practice of Tribal preference and/or any publicly announced policy of Indian
preference, both of which must be reasonably promulgated by the Tribe. Except as provided in this
Agreement, each Project Contractor contract shall be between the Project Contractor and the
Authority as determined by the Authority. Notwithstanding the foregoing, all legal representation
of the Authority shall be determined solely by the Authority.

     Section 3.3 Project Budget. Lakes shall consult with the Architect to develop and
propose to the Authority a budget for all Project Costs relating to the Project, along with a
scheduled timeframe(s) for development of the Project. Revisions to the Project budget may be
proposed to the Authority from time to time by Lakes until a final budget is approved by the
Authority. The Project budget approved by the Authority, together with any modification thereafter
proposed by Lakes and approved by the Authority, shall include all Project Costs and shall be the
“Project Budget.”

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     Section 3.4 Contracts with Project Professionals. All professionals providing
services to the Project shall be independent of Lakes, unless otherwise agreed to by the parties
in writing, and all contracts with such professionals will be negotiated by Lakes and the
Authority on an arms-length basis and in the best interests of the Authority.

     Section 3.5 Compensation Paid to Lakes for its Development Design Services. As
compensation for its development design services rendered under this Agreement related to the
Project, in addition to interest earned on the Development Financing Loan, Lakes shall receive a
flat fee equal to $15,000,000 (“Development Design Services Fee”).

     Section 3.6 Terms of Payment of Development Design Services Fee. The parties agree
that it serves the Authority’s interest to delay payment of Lakes’ Development Design Services Fee
until such time as the Authority is likely to have acquired the funds necessary to make such
payments. Accordingly, the Authority and Lakes expressly agree that the Development Design
Services Fee shall be paid in ten (10) equal semi-annual installments commencing on the sixth
month anniversary of the Opening Date for the Project. No interest shall be charged in connection
with payment of the Development Design Services Fee as long as each payment is made when due; in
the event that a payment is not made when due, then interest shall accrue on that installment
amount at the rate of the prime interest rate of Chase Manhattan Bank U.S.A., N.A. (or any
successor bank) plus five percent (5%).

     Section 3.7 Development Design Services Fee Security. To secure payment of the
Development Design Services Fee, the Authority and the Tribe hereby pledge and grant a security
interest in all Collateral to Lakes to secure Authority’s and the Tribe’s obligations under this
Agreement in connection with payment of the Development Design Services Fee. The parties further
agree to enter into standard and customary dominion account agreements/security agreements
necessary to evidence and effectuate such liens, and to authorize Lakes to file those UCC
Financing Statements and similar documents and agreements as Lakes may believe appropriate to
perfect such liens.

ARTICLE 4

Construction Oversight Services

     Section 4.1 Project General Contractor and Construction Contracts. Lakes shall propose
to the Authority for its approval one or more general or prime contractors to provide customary
construction contracting services with respect to the Project Facilities (the “Project General
Contractor”). As soon as reasonably practical, the Authority shall either approve or reject each
proposed Project General Contractor. In the case of a rejection, the process described in this
Section 4.1 shall be repeated until the Authority has approved a Project General Contractor
proposed by Lakes. Once the Project General Contractor has been approved by the Authority, Lakes
shall negotiate and propose to the Authority for its approval one or more forms of agreements for
execution by Authority to engage the Project General Contractor (the “Project Construction
Contract”). After the Authority has approved and entered into the Project

- 16 -

 

Construction Contract(s), no change orders shall be made without the written recommendation of
Lakes and written approval by the Authority.

     Section 4.2 Project General Contractor Expectations. The Project General Contractor
must (i) exhibit the financial capability to complete the work, (ii) have the ability to obtain
adequate payment and performance bonds and builder’s risk insurance in amounts requested by the
Authority, (iii) provide an acceptable bid as determined by the Authority, (iv) be capable of
meeting the construction schedule and (v) construct quality facilities. The General Contractor
shall be responsible for providing, including through subcontractors, all material, equipment and
labor to construct and initially equip the Project Facilities as necessary in conformance with the
Project Plans and Specifications, including site development.

     Section 4.3 Project Construction Contract Provisions. Any Project Construction
Contract shall contain such provisions for the protection of the Authority and Lakes as the
parties deem appropriate, and shall provide that construction of the Project Facilities shall
commence within thirty (30) days of the Project Construction Contract being signed, subject to
Legal Requirements; and shall also provide that the Project General Contractor, and all its
subcontractors, shall exert their best efforts to complete construction within such time as the
Authority requires.

     Section 4.4 Lakes’ Construction Oversight Duties. Any Project Construction Contract
shall provide that Lakes shall be responsible for all construction administration during the
construction phases of the Project. Lakes shall act as the Authority’s designated representative
and shall have full power and complete authority to act on behalf of the Authority in connection
with any Project Construction Contract. To the extent allowed by the Project Construction
Contract, Lakes shall have control and charge of any persons performing work on the Project site,
and shall interpret and decide on matters concerning the performance of any requirements of the
Project Construction Contract. Lakes shall have the authority to reject work which does not
conform to the Project Construction Contract. Lakes may conduct inspections to determine the date
or dates of substantial completion and the date of Completion. Lakes shall observe and evaluate or
authorize the observation and evaluation of Project work performed, review or authorize review of
applications for payment for submission to the Authority and review or authorize review and
certification of the amounts due the contractors and/or the Project General Contractor. The
Project General Contractor shall, at a minimum, warrant its work to be performed free of defects
and unworkmanlike labor for at least one year after Completion or not less than the maximum period
subsequent to Completion customarily covered by the liability and insurance policy a Project
General Contractor would usually obtain in the State of Califonia, whichever is longer. Unless
otherwise provided in the Project Construction Contract, the Project General Contractor shall also
be required to obtain before construction commences and maintain until Completion a policy of
insurance in an amount at least equal to the estimated Project Costs naming the Authority as an
additional insured; said policy to be issued by an insurance company licensed by the State of
California and having an AM Best rating of A7 or better.

     Section 4.5 Construction Change Orders. Construction change orders in excess of the
Project Budget for the Project Plans and Specifications shall require written approval of the
Architect, the Authority and a representative of the Gaming Commission if required by applicable

- 17 -

 

law. If
completion of the construction, equipping and furnishing of the Project cannot be
reasonably accomplished within the Project Budget, then, the Authority, upon receiving advice from
Lakes and the Architect, shall promptly determine which components of the Project shall be deleted
or reduced in size, such that the total expenditures for Project Costs shall not exceed the
approved Project Budget.

     Section 4.6 Lakes Project Inspections. As part of the Project Costs, Lakes shall
inspect the Project Facilities prior to the disbursement of each requested advance of funds, and
(i) approve the progress and the workmanship of the construction; (ii) verify compliance with the
Project Plans and Specifications; (iii) satisfy itself that all work for which such advance is
requested has been performed and all materials for which such advance is requested are in place
or, as to stored materials, are owned by the Authority and suitably safeguarded. Such inspection
will be performed in a timely manner and not unreasonably delay the disbursement of any advance.

     Section 4.7 Final Acceptance Upon Completion. Final acceptance of construction of the
Project Facilities shall not occur until (i) evidence of Completion has been received and approved
by Authority, (ii) a fully executed indemnity or release from liens is received from the Project
General Contractor and all subcontractors, (iii) any other documentation reasonably requested by
the Authority, the Gaming Commission or Lakes is received from the Project General Contractor and
(iv) all approvals have been received from all Governmental Authorities from which approvals are
required.

     Section 4.8 Authority’s Representative. The Authority shall select an individual of
its choice knowledgeable in construction practices to act as the Authority’s construction monitor.
The construction monitor shall be allowed access to all project contracts, including plans,
designs, and construction cost information. The construction monitor shall inspect and approve
each phase of construction, including change orders, before each subsequent phase may be
initiated. The construction monitor shall inspect and shall not unreasonably withhold approvals
within twenty-four (24) hours of notification. The construction monitor shall be compensated at a
commercially reasonable rate, and the fees for such services shall be part of the Project Costs.

     Section 4.9 Project Equipment Contracts. Lakes shall propose to the Authority for
its approval one or more contractors to provide equipment or personal property for use in
connection with operations of the Project Facilities, exclusive of property to be provided
pursuant to a Project Construction Contract (the “Project Equipment Contractor”). The Authority
shall also have the right to consider additional Project Equipment Contractors. As soon as
reasonably practical, the Authority shall either approve or reject each proposed Project
Equipment Contractor. In the case of a rejection, the process described in this Section 4.9 shall
be repeated until the Authority has approved a Project Equipment Contractor proposed. Once the
Project Equipment Contractor has been approved by the Authority, Lakes shall negotiate and
propose to the Authority for its approval one or more forms of agreements for execution by the
Authority to engage the Project Equipment Contractor (the “Project Equipment Contract”). After
the Authority has approved and entered into the Project Equipment Contract(s), no change orders
shall be made without the written recommendation of Lakes and written approval by the

- 18 -

 

Authority. Lakes will assist in the selection, ordering, expediting, and installation of
furniture, fixtures and equipment required for the Project Facilities.

     Section 4.10 Project Contractor Costs. All costs incurred by or paid pursuant to the
Project Construction Contract(s) and Project Equipment Contract(s) in accordance with the Project
Budget shall be Project Costs.

     Section 4.11 Compensation Paid to Lakes for its Construction Oversight Services. As
compensation for its construction oversight services rendered under this Agreement related to the
Project, in addition to interest earned on the Development Financing Loan, Lakes shall receive a
flat fee equal to $15,000,000 (“Construction Oversight Services Fee”).

     Section 4.12 Terms of Payment of Construction Oversight Services Fee. The parties
agree that it serves the Authority’s interest to delay payment of Lakes’ Construction Oversight
Services Fee until such time as the Authority is likely to have acquired the funds necessary to
make such payments. Accordingly, the Authority and Lakes expressly agree that the Construction
Oversight Services Fee shall be paid in ten (10) equal semi-annual installments commencing on the
sixth month anniversary of the Opening Date for the Project. No interest shall be charged in
connection with payment of the Construction Oversight Services Fee as long as each payment is made
when due; in the event that a payment is not made when due, then interest shall accrue on that
installment amount at the rate of the prime interest rate of Chase Manhattan Bank U.S.A., N.A. (or
any successor bank) plus five percent (5%).

     Section 4.13 Construction Oversight Services Fee Security. To secure payment of the
Construction Oversight Services Fee, the Authority and the Tribe hereby pledge and grant a
security interest in all Collateral to Lakes to secure Authority’s and the Tribe’s obligations
under this Agreement in connection with payment of the Construction Oversight Services Fee,
further agree to enter into standard and customary dominion account agreements/security agreements
necessary to evidence and effectuate such liens, and authorize Lakes to file those UCC Financing
Statements and similar documents and agreements as Lakes may believe appropriate to perfect such
liens.

ARTICLE 5

No Operations Management Services to be Rendered;

No Grant of Proprietary Interest to Lakes

     Section 5.1 No Management Contract or Grant of Proprietary Interest. The parties agree
that it is their intent that neither this Agreement nor the Note or any related security documents
and instruments described herein (individually or collectively) constitute a “Management Contract”
within the meaning of IGRA or grants a Proprietary Interest to Lakes in violation of IGRA. If
agreed to by the parties, this Agreement can be submitted to the NIGC for review and determination
that (a) it is not a Management Contract and therefore does not require the approval of the NIGC in
order to be valid, regardless of whether it constitutes a “collateral agreement” as that term is
defined in IGRA; and (b) it does not violate IGRA’s “sole proprietary interest” requirements. If
submitted, each party shall use its best efforts to pursue such

- 19 -

 

determination and timely execute, deliver, and if necessary, record any and all additional
instruments, certifications, and other documents as may be required by the NIGC in order to issue
such determination; provided that such required instrument or other document shall not materially
change the respective rights, remedies or obligations of the parties under this Agreement. If the
NIGC finds that this Agreement does constitute a Management Contract within the meaning of IGRA or
grants a Proprietary Interest to Lakes in violation of IGRA, then the parties shall immediately
take all necessary steps to amend or modify the Agreement in a way that preserves the economic
benefits of the transactions to the parties without constituting a Management Contract within the
meaning of IGRA or granting a Proprietary Interest to Lakes in violation of IGRA.

     Section 5.2 Mechanics Liens. The Authority shall keep the Project Facilities and
Gaming Facility Site free and clear of all mechanic’s and other liens resulting from the
construction of the Project Facilities, which shall at all times remain the property of the
Authority. If such lien is claimed or filed, it shall be the responsibility of the Authority to
discharge the lien within thirty (30) days after receiving written notice of such claim. The
Authority shall indemnify and hold harmless Lakes for any pre-existing conditions on the Gaming
Facility Site and from any and all liability alleged to arise from any other prior agreements
entered into by the Authority or the Tribe with any persons or entities in connection with
development of the Project, including but not limited to, Indian Gaming of America, Inc.

     Section 5.3 Title to Project Facilities. The Project Facilities and all related
improvements and assets shall be the sole and exclusive property of the Authority, subject to no
liens or encumbrances except for any UCC and other liens permitted in favor of Lakes to be granted
pursuant to the provisions of this Agreement or any related security documents and instruments
between Lakes, the Authority and the Tribe entered into on or after the date the parties execute
this Agreement.

     Section 5.4 No Liens. During the term of this Agreement, neither the Authority, the
Tribe nor Lakes shall act in any way whatsoever, either directly or indirectly, to cause or permit
any other party to lease or to become a lienholder of the Gaming Facility Site or the Project
Facilities, or any related assets except as expressly permitted herein.

ARTICLE 6

Representations and Warranties

     Section 6.1 Representations and Warranties of Lakes. Lakes represents and warrants
to the Authority and the Tribe that:

	 	(a)	 	Organization. Lakes is a limited liability company duly formed
and validly existing under the laws of the State of Minnesota.

- 20 -

 

	 	(b)	 	Authority. Lakes has the full legal right and authority to enter into this
Agreement, to perform its obligations under this Agreement, and to consummate all other
transactions contemplated by this Agreement.
	 
	 	(c)	 	Binding Obligation. Each of this Agreement and the other Transaction Documents
has been duly executed and delivered by Lakes and constitutes a legal, valid and binding
obligation of Lakes, enforceable against Lakes in accordance with its terms, except as
enforceability may be limited by future bankruptcy, insolvency or similar proceedings,
limitations on rights of creditors generally and principles of equity, and assuming such
agreements are binding against the other parties hereto.
	 
	 	(d)	 	No Litigation. There are no judgments entered, or actions, suits, investigations or
proceedings pending against Lakes, or any of its assets or properties that could have a
material adverse effect on its ability to enter into or perform this Agreement.
	 
	 	(e)	 	No Violation or Conflict. The execution, delivery and performance by Lakes of this
Agreement does not violate any Legal Requirement applicable to Lakes, other than a violation
that shall not materially adversely affect the Project or the Authority’s of the Tribe’s
obligations or rights under this Agreement.
	 
	 	(f)	 	No Consents. No consent from any Governmental Authority arising from any Legal
Requirements not heretofore obtained by Lakes is required for Lakes to execute, deliver and
perform its obligations hereunder; provided that Lakes makes no representation or warranty
with respect to any consent that may be required by the Gaming Commission, the Tribe, the
Authority, the NIGC or the BIA.
	 
	 	(g)	 	Full Disclosure. No representation or warranty of Lakes in this Agreement and no
written report or statement delivered to the Authority or the Tribe by or on behalf of Lakes,
contains any untrue statement or omits to state a material fact necessary to make any such
representation, warranty, report or statement, in light of the circumstances in which they
were made, not misleading.
	 
	 	(h)	 	Financial Capacity. Lakes will use its best efforts to to finance any and all
amounts necessary in order to comply with Lakes’ commitment to provide the Development
Financing Loan under Article 3 hereof, and the provision of such financing will not result in
Lakes becoming insolvent or otherwise being unable to pay its debts as they become due.
	 
	 	(i)	 	Brokers’ Fees and Other Fees and Expenses. Lakes has not, as of the Effective Date
of this Agreement, engaged, nor has any liability or obligation to pay any fees, commissions
or expenses with respect to, any broker, finder or agent, investment banker, or any similar
advisor or services provider, with respect to or in connection with the transactions
contemplated by this Agreement for which Lakes could become liable or obligated.

- 21 -

 

     Section 6.2 Representations and Warranties by the Authority and the Tribe. The
Authority and the Tribe represent and warrant to Lakes that:

	 	(a)	 	Organization. The Authority is governmental component and
instrumentality of the Tribe duly established pursuant to the Tribe’s laws; and the
Tribe is a federally recognized Indian Tribe duly organized under the Constitution and
laws of the Tribe and the United States, and is eligible to conduct gaming within the
meaning of IGRA.
	 
	 	(b)	 	Authority and Power. The Authority and the Tribe have taken all action
required by tribal law without the necessity of further action to authorize the
execution, delivery and performance of this Agreement, the Note and the other
Transaction Documents (to the extent a party thereto). The Authority and the Tribe, to
the extent a party thereto, have all requisite power and authority to enter into this
Agreement, the Note, and other Transaction Documents and to perform their obligations
under this Agreement, the Note, and other Transaction Documents or related security
documents and instruments described herein, and to consummate all other transactions
contemplated by this Agreement, the Note and other Transaction Documents.
	 
	 	(c)	 	Binding Obligations. Each of this Agreement (including but not limited
to, the waiver of sovereign immunity in Article 10), the Note and other Transaction
Documents has been duly executed and delivered by the Authority and the Tribe and is a
legal, valid, binding and perfected obligation of the Authority and the Tribe, to the
extent a party thereto, enforceable against the Authority and the Tribe in accordance
with its terms, except as enforceability may be limited by future bankruptcy,
insolvency or similar proceedings, limitations on rights of creditors generally and
principles of equity, and assuming the foregoing agreements are binding against the
other parties thereto.
	 
	 	(d)	 	Gaming Facility Site. The Gaming Facility Site for the Project
constitutes “Indian lands” upon which the Tribe may legally conduct gaming under IGRA.
	 
	 	(e)	 	Gaming Permitted. The Tribe is legally permitted to conduct Class II
Gaming and Class III Gaming activities in the State of California under all
Legal Requirements.
	 
	 	(f)	 	Gaming Rights. The Compact signed by the Tribe, and approved and
published by the United States Secretary of the Interior, is a valid and binding
obligation of the Tribe. The Authority, on behalf of the Tribe, has the right to engage
in Class III Gaming at the Gaming Facility to be operated by the Authority in
connection with this Agreement to the extent set forth in the Compact.
	 
	 	(g)	 	Gaming Licenses. All licenses, permits, approvals or other authority
required from the Gaming Commission to permit the Authority and Lakes to enter into
this

- 22 -

 

	 	 	 	Agreement and perform their obligations under this Agreement have been granted.
	 
	 	(h)	 	No Material Negative Obligations. There are no outstanding obligations owing by the
Authority or the Tribe or affecting either the Gaming Facility Site or the Project
Facilities, whether arising from contracts, instruments, orders, judgments, decrees or
otherwise, which are likely to materially and adversely affect the Project or Lakes’
obligations or rights under this Agreement, the Note and/or other Transaction Documents.
	 
	 	(i)	 	No Violation or Conflict. The execution, delivery and performance by the Authority
and the Tribe of this Agreement, the Note and the other Transaction Documents does not
violate any Legal Requirements. The execution, delivery and performance of this Agreement,
the Note and the other Transaction Documents by the Authority or the Tribe does not conflict
with or result in any breach of any provision of, or constitute a default under, or result in
the imposition of any lien or charge upon any asset of the Authority , or result in the
acceleration of any obligation under the terms of any agreement or document binding upon the
Authority or the Tribe, other than a conflict, breach, default or imposition as shall not
materially adversely affect the Project or the parties’ obligations or rights under this
Agreement, the Note and the other Transaction Documents.
	 
	 	(j)	 	No Litigation. There are no judgments entered, or actions, suits, investigations or
proceedings pending, or to the knowledge of the Authority or the Tribe, threatened, against
the Authority or the Tribe, or any of the assets or properties of the Authority, that could
have a material adverse effect on the Project, the Project Facilities, the Authority’s or the
Tribe’s ability to enter into or perform this Agreement or Lakes’ obligations or rights under
this Agreement, the Note and the other Transaction Documents.
	 
	 	(k)	 	No Consents. No consent from any Governmental Authority arising from any Legal
Requirements not heretofore obtained by the Authority or the Tribe is required to execute,
deliver and perform its obligations hereunder.
	 
	 	(1)	 	Full Disclosure. No representation or warranty of the Authority or the Tribe in this
Agreement and no written report or statement delivered to Lakes by or on behalf of the
Authority or the Tribe, contains any untrue statement or omits to state a material fact
necessary to make any such representation, warranty, report or statement, in light of the
circumstances in which they were made, not misleading. The Authority and the Tribe have fully
disclosed the existence and terms of all material agreements and Legal Requirements, written
or oral, relating to the Project.
	 
	 	(m)	 	No Tribal Tax. Neither the Project, the Project Facilities nor the transaction(s)
between the parties contemplated by this Agreement, the Note, and the other Transaction
Documents are now, or at any time during the term of this Agreement

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will be, subject to any tribal tax of any sort other than reasonable pass-through
taxes on Project patrons which are consistent with gaming resort industry
practices.

ARTICLE 7

Covenants

     Section 7.1 Covenants of Lakes. Lakes covenants and agrees to execute any additional
instruments as may be reasonably required by the Authority or the Tribe to carry out the intent of
this Agreement or to perfect or give further assurances of any of the rights granted or provided
for under this Agreement.

     Section 7.2 Covenants of the Authority and the Tribe. The Authority and the Tribe
covenant and agree as follows:

	 	(a)	 	Additional Documents. The Authority and the Tribe shall execute any
additional instruments as may be reasonably required by Lakes to carry out the intent
of this Agreement or to perfect or give further assurance of any of the rights granted
or provided for under this Agreement or the Note, including execution of the other
Transaction Documents.
	 
	 	(b)	 	Non-Impairment. Neither the Authority nor the Tribe shall enact or
permit the enactment of, any law, ordinance, resolution, rule or regulation impairing
the rights or obligations of the parties under this Agreement or under any related
contracts entered into by the Authority or the Tribe or impairing the rights and
obligations of Lakes in furtherance of the design, development, construction, equipping
or financing of the Project Facilities, including but not limited to this Agreement and
any contract or agreement entered into or contemplated by this Agreement.
	 
	 	(c)	 	Records. The Authority shall maintain or cause to be
maintained Full and
accurate accounts and records for the Project and its Project Facilities according to
GAAP.
	 
	 	(d)	 	No Liens. Except upon the express written consent of Lakes, neither
the Authority nor the Tribe shall cause or voluntarily permit any lien or encumbrance
to be created on the Project Facilities, the Gaming Facility Site, the Collateral or
any proceeds of the Development Financing Loan.
	 
	 	(e)	 	No Tax. Neither the Authority nor the Tribe shall impose any tax, fee
or assessment on Lakes, any Contractor, the Project Facilities, this Agreement, the
Note, and the other Transaction Documents other than reasonable pass-through taxes on
Project patrons which are consistent with gaming resort industry practices.

- 24 -

 

	 	(f)	 	No Subsidiaries. Neither the Authority nor the Tribe will create,
acquire or own any instrumentality, subdivision or subunits in connection with any
gaming operations of the Authority or the Tribe unless the actions and assets of
such instrumentalities, subdivisions or subunits are subject to and bound by the
terms of this Agreement.
	 
	 	(g)	 	Exclusive Financing. Both the Authority and the Tribe acknowledge and
agree that the Development Financing Loan to be provided by Lakes under Section 2.1
shall be the exclusive financing source for the Authority and the Tribe in connection
with funding the development, construction and equipping of the Project.
	 
	 	(h)	 	Contractor Payments. Both the Authority and the Tribe acknowledge and
agree to pay any Contractor pursuant to the terms of the applicable agreement in a
commercially reasonable manner and time, and each of the Authority and the Tribe agree
to hold Lakes harmless from any Contractor claims for payment associated with design,
construction and furnishing of the Project

ARTICLE 8

Events of Default

     Section 8.1 Events of Default by Lakes. Each of the following occurring prior to the
date on which the Project has been substantially completed shall constitute a “Lakes Event of
Default”:

	 	(a)	 	A Material Breach by Lakes.
	 
	 	(b)	 	Lakes violates any of the covenants in Section 7.1 of this Agreement, and sixty
(60) days have passed following a request by the Authority and/or the Tribe to Lakes to
cure the violation, during which the violation has not been cured unless caused by
force majeure.
	 
	 	(c)	 	Subject to Section 8.3, any license, permit or approval required to be received
or maintained by Lakes to perform its obligations under this Agreement is denied,
suspended, or revoked by proper and reasonable action of any state or federal
Governmental Authority, and all rights to appeal or review the action have been
exhausted.
	 
	 	(d)	 	Lakes has: (i) filed for relief under the United States Bankruptcy Code or
has suffered the filing of an involuntary petition under the Bankruptcy Code that is
not dismissed within sixty (60) days after filing; (ii) had a receiver appointed to
take possession of all or substantially all of the property of Lakes; or (iii) suffered
an assignment for the benefit of creditors.

- 25 -

 

     Section 8.2 Cure of Lakes Default. Upon the occurrence of a Lakes Event of Default,
the Authority and/or the Tribe shall provide written notice to Lakes of such event of default
requesting Lakes to cure the Lakes Event of Default. Lakes shall have thirty (30) days following
receipt of the notice to effect a cure; provided, however, that if the nature of such breach is
such that it is not possible to cure such breach within thirty (30) days, such thirty-day period
shall be extended for so long as Lakes shall be using diligent efforts to effect a cure thereof
but no more than an additional sixty (60) days. The discontinuance or correction of a Lakes Event
of Default shall constitute a cure thereof. If Lakes fails to cure the Lakes Event of Default
within the cure period, the Authority and/or the Tribe may: (a) suspend all performance of the
Authority and/or the Tribe under this Agreement; (b) terminate this Agreement under Section 9.4;
or (c) pursue any other remedy available at law or in equity, subject to the provisions of Section
10.1.

     Section 8.3 Events of Default by the Authority or the Tribe. Each of the following
shall constitute a “Tribal Event of Default”:

	 	(a)	 	(i) a Material Breach by the Authority or the Tribe exists; or (ii) an “Event
of Default” by the Authority or the Tribe has occurred and exists under the Note or any
other Transaction Document; or (iii) the Tribe shall be in default of any agreement now
or hereafter executed by it in favor of Lakes.
	 
	 	(b)	 	The Gaming Commission or any other applicable governmental authority of the
Tribe denies, revokes, fails to renew or otherwise impairs any license, permit or
approval required for Lakes to perform its obligations or enjoy its rights under this
Agreement.
	 
	 	(c)	 	The Authority or the Tribe violate any of the covenants in Section 7.2 of this
Agreement, and after sixty (60) days have passed following a request by Lakes to the
Authority or the Tribe to cure the violation, during which the violation has not been
cured.
	 
	 	(d)	 	The Authority and/or the Tribe or any of their Affiliates material to the
Project has: (i) filed for relief under the United States Bankruptcy Code or has
suffered the filing of an involuntary petition under the Bankruptcy Code that is not
dismissed within sixty (60) days after filing; (ii) had a receiver appointed to take
possession of all or substantially all of Authority’s property; or (iii) suffered an
assignment for the benefit of creditors,
	 
	 	(e)	 	The Compact is determined by any court of competent jurisdiction to be invalid
and such determination becomes final and non-appealable.
	 
	 	(f)	 	The Tribe is no longer an Indian tribe eligible to conduct gaming within the
meaning of IGRA.
	 
	 	(g)	 	Any order or judgment of any court of competent jurisdiction enjoins the
development of the Project in any material manner, and the injunction continues for
thirty (30) days.

- 26 -

 

     Section 8.4 Cure of Tribal Event Default. Upon the occurrence of a Tribal Event of
Default, Lakes shall provide written notice to the Authority or the Tribe of such default and, if
it is possible for the Authority or the Tribe to cure the Tribal Event of Default, the Authority
or the Tribe shall have thirty (30) days following receipt of notice to effect a cure; provided,
however, that if the nature of such breach (but specifically excluding breaches curable by the
payment of money) is such that it is not possible to cure such breach within thirty (30) days,
such thirty-day period shall be extended for so long as the Authority or the Tribe shall be using
diligent efforts to effect a cure thereof but no more than an additional sixty (60) days. Upon the
occurrence of any of the events described in Section 8.3 and during any applicable cure period,
Lakes may suspend its performance under this Agreement. The discontinuance or correction of a
Tribal Event of Default shall constitute a cure thereof. If the Authority or the Tribe fails to
cure the Tribal Event of Default within the cureperiod, Lakes may take any one or more of the
following actions: (a) suspend all performance of Lakes under this Agreement; (b) declare all
principal and interest accrued on the Note and any Development Design Service Fees or Construction
Oversight Services Fees to be immediately due and owing, (c) terminate this Agreement under
Section 9.3; or (d) pursue any other remedy available by agreement, at law or in equity, subject
to the provisions of Section 10.1.

ARTICLE 9

Term of Agreement

     Section 9.1 Term. Subject to Section 3.1(c), this Agreement shall become effective
and binding upon the parties on the Effective Date, and shall continue in effect until the
Development Financing Loan and Development Design Services fees and Construction Management
Services Fees applicable hereunder have been fully paid, subject to earlier termination as
provided in this Article; provided that (a) all rights of any party to assert a Claim against the
other shall survive the termination of this Agreement, and (b) all provisions of Article 10 and
Article 11 shall survive a termination.

     Section 9.2 Mutual Termination. This Agreement may be terminated at any time by the
mutual written consent of the parties.

     Section 9.3 Termination by Lakes. This Agreement may be terminated upon notice by
Lakes to the Authority and the Tribe if an uncured Tribal Event of Default exists under Section
8.3 and all applicable grace and cure periods have expired.

     Section 9.4 Termination by the Authority and/or the Tribe. This Agreement may be
terminated upon notice by the Authority and/or the Tribe to Lakes if an uncured Lakes Event of
Default exists under Section 8.1 and all applicable grace and cure periods have expired.

- 27 -

 

ARTICLE 10

Dispute Resolution;

Waivers of Sovereign Immunity and Tribal Court Jurisdiction; Governing Law

     Section 10.1 Dispute Resolution. The parties agree that any Claim shall be
governed by the following dispute resolution procedures:

	 	(a)	 	The parties shall use their best efforts to settle the Claim. To this effect,
they shall consult and negotiate with each other in good faith and, recognizing their
mutual interests, attempt to reach a just and equitable solution satisfactory to the
parties. If they do not reach such solution within a period of ten (10) days, then,
upon notice by a party to the other parties, all Claims shall be settled by arbitration
administered by the American Arbitration Association in accordance with the provisions
of its Commercial Arbitration Rules in effect at the time of submission; except that:
(a) the question whether or not a Claim is arbitrable shall be a matter for binding
arbitration by the arbitrators, such question shall not be determined by any court and,
in determining any such question, all doubts shall be resolved in favor of
arbitrability; and (b) discovery shall be permitted in accordance with the Federal
Rules of Civil Procedure, subject to supervision as to scope and appropriateness by the
arbitrators. Unless the parties otherwise agree to in writing, arbitration
proceedings shall be held at San Diego, California.
	 
	 	(b)	 	The arbitration proceedings shall be conducted before a panel of three neutral
arbitrators, all of whom shall be currently licensed attorneys, actively engaged in the
practice of law for at least ten (10) years, one of which shall have five (5) years of
experience in federal Indian law, and one of which shall have five (5) years of
experience in the gaming industry. The arbitrator selected by the claimant and the
arbitrator selected by respondent shall, within ten (10) days of their appointment,
select a third neutral arbitrator. In the event that they are unable to do so, the
parties or their attorneys may request the American Arbitration Association to appoint
the third neutral arbitrator. Prior to the commencement of hearings, each of the
arbitrators appointed shall provide an oath or undertaking of impartiality. The
Authority and the Tribe further agree that any arbitration proceeding held in
connection with any Claim may be consolidated with any other arbitration proceeding
involving Lakes and any of the Authority’s and/or the Tribe’s Affiliates.
	 
	 	(c)	 	The arbitration award shall be in writing signed by each of the arbitrators,
and shall state the basis for the award. The arbitration award shall be set forth in
reasonable detail as to its findings of fact and law, and basis of determination of
award form and amount. Except to the extent such enforcement will be inconsistent with
a specific provision of this Agreement, arbitration awards made pursuant to this
Article 10 shall be enforceable in federal court under Title 9 of the United States
Code and any applicable tribal, federal or state law governing the enforcement of
arbitration awards. In addition to any basis for appeal of an

- 28 -

 

	 	 	 	arbitration award stated in Title 9 of the United States Code or any
applicable law governing the enforcement of arbitration awards, any party hereto
may appeal an arbitration award on the basis that the arbitrators incorrectly
decided a question of law in making the award, or the award was made in an
arbitrary or capricious manner or in manifest disregard of the
factual evidence.
	 
	 	(d)	 	Each party hereto, without having to exhaust any tribal remedies first, shall
have the right to seek and obtain a court order from a court having jurisdiction over
the parties requiring that the circumstances specified in the order be maintained
pending completion of the arbitration proceedings, to the extent permitted by
applicable law.
	 
	 	(e)	 	Judgment on any arbitration award may be entered in any court having
jurisdiction over the parties. The arbitrators shall not have the power to award
punitive, exemplary or consequential damages, or any damages excluded by or in excess
of any damage limitations expressed in this Agreement.
	 
	 	(f)	 	The Authority and the Tribe hereby expressly and irrevocably waive, and also
waive their right to assert, sovereign immunity and any and all defenses based thereon
with respect to any Claims; and the Authority and the Tribe hereby consent to (i)
binding arbitration under the Commercial Arbitration Rules of the American Arbitration
Association, (ii) empowering the arbitrators to take the actions and enforce the
judicial remedies described in paragraph 5 of their respective Resolution of Limited
Waiver of Sovereign Immunity dated January 17, 2006 (attached
hereto as Exhibit E and
Exhibit F) adopted by the Authority and the Tribe in connection with approving the
execution of this Agreement, and (iii) judicial proceedings in or before the United
States District Court in which the Project is located, the United States Court of
Appeals having jurisdiction over the applicable District Court, and the United States
Supreme Court, for the purpose of compelling arbitration or enforcing any arbitration
award, orders or judgment arising out of this Agreement, the Note, or related security
documents and instruments. If the United States District Court determines it is
without jurisdiction, the Authority and the Tribe consent to be sued in a court of
competent jurisdiction and all courts to which an appeal therefrom may be available,
but solely to compel, enforce, modify or vacate any arbitration award.
	 
	 	(g)	 	To the extent lawful in connection with any such Claims, the Authority and the
Tribe expressly waive the application of the doctrines of exhaustion of tribal
remedies, abstention or comity that might otherwise require that Claims be heard first
in tribal court or other tribal forums of the Tribe.
	 
	 	(h)	 	The waivers by the Authority and the Tribe set forth herein only extend to
claims or proceedings brought by Lakes and any award of damages against the Authority
or the Tribe shall be payable solely out of the Collateral.

- 29 -

 

     Section 10.2 Governing Law. This Agreement is governed by the laws of the
State of Minnesota, except that the State of Minnesota’s conflict of laws provisions shall not
apply.

ARTICLE 11

Miscellaneous

     Section 11.1 Assignment. The rights and obligations under this Agreement shall not
be assigned or subcontracted by any party without the prior written consent of the other parties;
provided, however, Lakes may assign this Agreement to a wholly owned subsidiary without the
Authority’s or the Tribe’s consent; provided further that Lakes shall remain obligated for the
performance of the Lakes subsidiary hereunder. Other than as expressly provided in this Section
11.1, any attempted assignment or subcontracting without prior written consent shall be void.
Subject to the preceding requirements, this Agreement is binding upon and inures to the benefit
of the parties and their respective successors and assigns.

     Section 11.2 Notices. Any notice, consent or any other communication permitted or
required by this Agreement: (a) must be in writing; (b) shall be effective three (3) days after
the date sent; (c) must be delivered by personal service, via fax with reasonable evidence of
transmission, express delivery or by certified or registered mail, postage prepaid, return receipt
requested; and (d) until written notice of a new address or addresses is given, must be addressed
as follows:

	 	 	 
	If to the Authority:

	 	Jamul Gaming Authority
	 

	 	P.O. Box 612
	 

	 	14191 Hwy 94 #16
	 

	 	Jamul, CA 91935
	 

	 	Attn: Chairman
	 

	 	Fax: (619) 669-4817
	 
	 	 
	With a Copy to:

	 	Eugene R. Madrigal, Esq.
	 

	 	28581 Old Town Front Street, Suite 208
	 

	 	Temecula, CA 92590
	 

	 	(951) 695-7080
	 

	 	Fax: (951) 695-7081
	 

	 	(copy to counsel does not constitute notice to a party)
	 
	 	 
	If to the Tribe:

	 	Jamul Indian Village
	 

	 	P.O. Box 612
	 

	 	14191 Hwy 94 #16
	 

	 	Jamul, CA 91935
	 

	 	Attn: Chairman
	 

	 	Fax: (619) 669-4817
	 
	 	 
	With a Copy to:

	 	Eugene R. Madrigal, Esq.
	 

	 	28581 Old Town Front Street, Suite 208

- 30 -

 

	 	 	 
	 

	 	Temecula, CA 92590
	 

	 	(951) 695-7080
	 

	 	Fax: (951) 695-7081
	 

	 	(copy to counsel does not constitute notice to a party)
	 
	 	 
	If to Lakes:

	 	Lakes Jamul Development, LLC
	 

	 	130 Cheshire Lane
	 

	 	Minnetonka, MN 55305
	 

	 	Attn: Timothy J. Cope
	 

	 	Fax: (952) 449-7064
	 
	 	 
	With a Copy to:

	 	Damon E. Schramm
	 

	 	General Counsel
	 

	 	Lakes Entertainment, Inc.
	 

	 	130 Cheshire Lane, Suite 101
	 

	 	Minnetonka, Minnesota 55305
	 

	 	Fax: (952) 449-7064
	 
	 	 
	and

	 	Kevin C. Quigley
	 

	 	Hamilton Quigley & Twait PLC
	 

	 	W1450 First National Bank Building
	 

	 	332 Minnesota Street
	 

	 	St. Paul, Minnesota 55101-1314
	 

	 	(651) 602-6262
	 

	 	Fax; (651) 602-9976
	 
	 	 
	 

	 	Daniel R. Tenenbaum, Esq.
	 

	 	Grey Plant Mooty
	 

	 	500 IDS Center
	 

	 	80 South Eighth Street
	 

	 	Minneapolis, MN 55402-3796
	 

	 	(612) 632-3050
	 

	 	Fax: (612) 632-4050
	 

	 	(copy to counsel does not constitute notice to a party)

     Copies of any notices shall be given to the Gaming Commission at its last known
address.

     Section 11.3
Amendments. This Agreement may be amended only by written
instrument duly executed by all of the parties and with any and all necessary regulatory
approvals, if any, required by Legal Requirements.

     Section 11.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which together shall
constitute one and the same agreement.

- 31 -

 

     Section 11.5 Force Majeure. No party shall be in default in the performance due
under this Agreement if that failure of performance is due to causes beyond its reasonable
control, including but not limited to acts of God, war, terrorism, fires, floods, or accidents
causing material damage to or destruction of the Project Facilities.

     Section 11.6 Preparation of Agreement. This Agreement has been carefully prepared and
reviewed by counsel for each party hereto and may not be construed more strongly for or against
any party.

     Section 11.7 Entire Agreement. This Agreement, including all exhibits, represents the
entire agreement between the parties and supersedes all provisions of any prior agreements between
the parties relating to the development, financing, construction and equipping of the Project and
its Project Facilities, and any other matter addressed in this Agreement

     Section 11.8 Indemnification by Lakes. Lakes shall immediately indemnify the
Authority and the Tribe and its agents, enrolled members, officers, employees, consultants,
attorneys and Affiliates (each an “Authority/Tribe Indemnitee”) from and against any and all
damages, claims, losses or expenses of whatever kind or nature, including attorneys’ fees and
expenses as and when incurred in defending those claims, losses or expenses, to the extent they
result from the gross negligence or willful misconduct of Lakes with respect to (a) the Project or
(b) non-performance of any of Lakes’ obligations under this Agreement. Lakes shall have the sole
right to control the defense and settlement of any matter in which indemnification is required of
Lakes, and shall pay its attorneys’ fees, provided that, with respect to those matters, Lakes
shall not be responsible for the attorneys’ fees of attorneys hired by the Authority/Tribe
Indemnitee.

     Section 11.9 Indemnification by the Authority and the Tribe. The Authority and the
Tribe shall immediately indemnify Lakes and its agents, officers, employees, consultants, attorneys
and Affiliates ( each a “Lakes Indemnitee”) from and against any and all damages, claims, losses or
expenses of whatever kind or nature, including attorneys’ fees and expenses as and when incurred in
defending those claims, losses or expenses, to the extent they result from (a) the gross negligence
or willful misconduct of the Authority or the Tribe with respect to (i) the Project or (ii) the
performance or non-performance of the Authority’s or the Tribe’s obligations under this Agreement,
or (b) the performance by Lakes of any of its obligations under this Agreement but excluding any
claims, loss or expense arising from the gross negligence or willful misconduct of Lakes. The
Authority and/or the Tribe and Lakes shall consult and agree on the defense and settlement of any
matter in which indemnification is required of the Authority or the Tribe, Lakes shall have the
right to retain its separate counsel to advise it thereon (but such counsel shall be at Lakes’ own
expense), and upon the occurrence of any such claim, the parties shall enter into a mutually
acceptable agreement providing for the procedures by which any such claims shall be prosecuted and
related costs and expenses shall be reimbursed. Lakes shall be listed as an additional insured on
all insurance policies with respect to any Project. The Authority and the Tribe further agree to
indemnify and hold each Lakes Indemnitee harmless from any and all liabilities, claims, losses and
expenses arising from any prior agreements entered into by the Authority or the Tribe with any
Persons or entities in connection with development, construction and/or operation of the Project
Facilities.

- 32 -

 

     Section 11.10
Compliance with Legal Requirements. All parties shall at all
times comply with all Legal Requirements applicable to their performance under this Agreement.

     Section 11.11
Further Assurances. The parties agree to do all acts and to deliver all
necessary documents as from time to time are reasonably required to
carry out the terms and
provisions of this Agreement, including the filing of UCC Financing Statements and related
security instruments described herein.

     Section 11.12
Cooperation; Approvals. Each of the parties agrees to cooperate in good
faith with the other to timely implement the purposes of this Agreement. Any consents or approvals
required to be given in connection with this Agreement shall not be unreasonably withheld or
delayed by the parties.

     Section 11.13
Confidentiality. Except as required by Legal Requirements, including
but not limited to, reporting requirements imposed on publicly traded companies, each of the
parties agrees that all non-public information exchanged between the parties with respect to the
Project shall be kept confidential by each party and only disclosed to that party’s legal counsel,
financial advisors or as reasonably required to be disclosed in connection with the Project.

     Section 11.14
Effective Date. Subject to Section 3. l(c), this Agreement shall become
effective and binding upon the date of execution by the parties.

[Signature Page Follows]

- 33 -

 

     The parties have executed this Development Financing and Services
Agreement as of the date stated in the introductory clause.

	 	 	 	 	 	 	 
	 	 	Jamul Gaming Authority	 	 
	 	 	a governmental component and	 	 
	 	 	instrumentality of the	 	 
	 	 	Jamul Indian Village	 	 
	 
	 	 	 	 	 	 
	 

	 	By

Its:
	 	/s/ Leon Acebedo
 

Leon Acebedo, Chairman
	 	 
	 
	 	 	 	 	 	 
	 

	 	By
	 	/s/ Erica Pinto	 	 
	 

	 	 	 	 	 	 
	 

	 	Its:
	 	Erica Pinto, Secretary	 	 
	 
	 	 	 	 	 	 
	 	 	Jamul Indian Village	 	 
	 	 	a federally recognized Indian tribe	 	 
	 
	 	 	 	 	 	 
	 

	 	By
	 	/s/ Leon Acebedo	 	 
	 

	 	 	 	 	 	 
	 

	 	Its:
	 	Leon Acebedo, Chairman	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	By
	 	/s/ Julia Lotta	 	 
	 

	 	 	 	 	 	 
	 

	 	Its:
	 	Julia Lotta, Secretary	 	 
	 
	 	 	 	 	 	 
	 	 	Lakes Jamul Development, LLC	 	 
	 	 	a Minnesota limited liability company	 	 
	 
	 	 	 	 	 	 
	 

	 	By
	 	/s/ Timothy Cope	 	 
	 

	 	 	 	 	 	 
	 

	 	Its:
	 	President /CFO     3/30/06	 	 

[Signature
Page to Jamul Development Financing and Services Agreement]

34

 

EXHIBIT A

Gaming Facility Site — Legal Description

EXHIBIT B

Property Not Subject to Development Financing Loan

EXHIBIT C

Detail of Advances Made by Lakes Affiliates Before January 17, 2006 and

Accrued Interest Thereon

EXHIBIT D

Form of Note

EXHIBIT E

Resolution of Limited Waiver of Sovereign Immunity — Authority

EXHIBIT F

Resolution of Limited Waiver of Sovereign Immunity — Tribe

35

 

EXHIBIT A

Gaming Facility Site — Legal Description

LEGAL DESCRIPTION

PARCEL 2: THE UNITED STATE OF AMERICA IN TRUST FOR SUCH JAMUL INDIANS OF ONE-HALF DEGREE OR
MORE INDIAN BLOOD AS THE SECRETARY OF THE INTERIOR MAY DESIGNATE

ALL THAT PORTION OF RANCHO JAMUL, IN THE COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO
L.S. MAP THEREOF NO. 430, FILED IN THE OFFICE OF THE RECORDER OF SAID SAN DIEGO COUNTY, MAY 28,
1931, MORE PARTICULARLY DESCRIBED AS FOLLOWS:

BEGINNING AT CORNER R.J. 16 AS SHOWN ON SAID L.S. MAP NO. 430; THENCE ALONG THE NORTHERLY LINE OF
SAID RANCHO JAMUL SOUTH 88° 42’ EAST, 529.24 FEET (RECORD NORTH 88° 42’ WEST, 530.52 FEET) TO THE
WESTERLY LINE OF THAT CERTAIN PARCEL OF LAND NOTED INDIAN CEMETERY ON SAID L.S. MAP NO. 430; THENCE
ALONG SAID WESTERLY LINE SOUTH 01° 20’ 53” WEST, 239.66 FEET (RECORD NORTH 01° 18’ EAST, 239.0 FEET)
TO THE SOUTHWEST CORNER OF SAID INDIAN CEMETERY; THENCE ALONG THE SOUTHERLY LINE OF SAID INDIAN
CEMETERY; SOUTH 88° 39’ 07” EAST, 53.55 FEET (NORTH 88° 42’ WEST, 83.5 FEET) TO THE TRUE POINT OF
BEGINNING; THENCE CONTINUING ALONG SAID SOUTHERLY LINE AS FOLLOWS: NORTH 01° 20’ 53” EAST 59.94
FEET (RECORD SOUTH 01° 18’ WEST, 59.9 FEET); NORTH 87° 54’ 53” EAST, 665.17 FEET (RECORD SOUTH 87°
52’ WEST, 664.77 FEET) NORTH 01° 20’ 53” EAST, 58.04 FEET (RECORD SOUTH 01° 18’ WEST, 58.00 FEET);
SOUTH 88° 42’ 00” EAST, 598.46 FEET TO THE SOUTHWESTERLY LINE OF CAMPO ROAD, SAID POINT BEING ON A
559.59 FOOT RADIUS CURVE CONCAVE SOUTHWESTERLY, A RADIAL LINE FROM SAID POINTS BEARS SOUTH 47° 16’
18” WEST, THENCE SOUTHEASTERLY ALONG THE ARC OF SAID CURVE, THROUGH A CENTRAL ANGLE OF 03° 29’ 08”
A DISTANCE OF 33.80 FEET: THENCE LEAVING SAID SOUTHWESTERLY LINE NORTH 88° 42’ 00” WEST, 338.54
FEET: THENCE SOUTH 21° 58’ 02: EAST, 257.03 FEET: THENCE NORTH 86° 48’ 26” WEST, 721.24 FEET:
THENCE NORTH 86° 21’ 37” WEST, 338.78 FEET TO THE TRUE POINT OF BEGINNING.

PARCEL 3: THE UNITED STATES OF AMERICA IN TRUST FOR THE JAMUL INDIAN VILLAGE

 

 

ALL THAT PORTION OF RANCHO JAMUL, IN THE COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING
TO L.S. MAP THEREOF NO. 430, FILED IN THE OFFICE OF THE RECORDER OF SAID SAN DIEGO COUNTY, MAY
28, 1931, MORE PARTICULARLY DESCRIBED AS FOLLOWS:

COMMENCING AT A POINT ON THE NORTH BOUNDARY LINE OF THE RANCHO JAMUL, DISTANCE 648.5 FEET EAST FROM
THE RANCHO JAMUL CORNER NO. 16: THENCE EAST, ALONG SAID NORTH BOUNDARY LINE 1383.0 FEET TO A POINT
ON THE WESTERLY LINE OF COUNTY ROAD: THENCE SOUTH 49° 13’ EAST, ALONG SAID WESTERLY LINE OF COUNTY
ROAD 26.02 FEET TO A POINT: THENCE WEST 594.7 FEET TO A POINT: THENCE SOUTH 58.0 FEET TO A POINT:
THENCE SOUTH 86° 45’ WEST 704.0 FEET TO A POINT: THENCE SOUTH 43° 30’ WEST 88.5 FEET TO A POINT:
THENCE SOUTH 59.9 FEET TO A POINT: THENCE WEST 44.2 FEET TO A POINT, THENCE NORTH 239.0 FEET TO A
POINT OF BEGINNING.

EXCEPTING THEREFROM THAT PORTION THEREOF CONVEYED TO THE UNITED
STATE OF AMERICA IN TRUST FOR THE JAMUL INDIAN VILLAGE IN DEED RECORDED JULY 27,1982 AS FILE NO.
82-229256 OF OFFICIAL RECORDS.

 

 

EXHIBIT B

(Property not subject to Development Financing Loan)

JAMUL — 11 ACRE PARCEL: 

PARCEL 1:

THAT PORTION OF LOT 5 OF THE SOUTHWEST QUARTER OF THE NORTHWEST QUARTER OF SECTION 10, TOWNSHIP 17
SOUTH, RANGE 1 EAST, SAN BERNARDINO MERIDIAN, IN THE COUNTY OF SAN DIEGO, STATE OF CALIFORNIA,
ACCORDING TO OFFICIAL PLAT THEREOF, DESCRIBED AS FOLLOWS:

BEGINNING AT THE SOUTHWESTERLY CORNER OF SAID LOT 5; THENCE ALONG THE SOUTHERLY LINE OF SAID LOT 5
SOUTH 84°47’00” WEST 601.86 FEET TO THE SOUTHEASTERLY CORNER OF THAT PARCEL OF LAND CONVEYED TO
ORSEN B. THAYER BY DEED RECORDED JULY 19, 1888 IN BOOK 125, PAGE 390 OF DEEDS; THENCE ALONG THE
EASTERLY LINE OF SAID THAYER LAND, NORTH 0°07’00” WEST 706.81 FEET TO THE WESTERLY PROLONGATION OF
THE SOUTHERLY LINE OF THAT PARCEL OF LAND CONVEYED AMY B. NOBARD BY DEED RECORDED JULY 24,1930 AS
FILE NO. 35224 IN BOOK 1795, PAGE 217 OF DEEDS; THENCE ALONG SAID PROLONGATION AND ALONG THE SAID
SOUTHERLY LINE NORTH 86°23’40” EAST 614.36 FEET TO THE EASTERLY LINE OF SAID LOT 5; THENCE ALONG
SAID EASTERLY LOT LINE SOUTH 1 01’25” WEST 690.83 FEET TO THE POINT OF BEGINNING.

PARCEL 2:

ALL THAT PORTION OF LOT 6 IN SECTION 10, TOWNSHIP 17 SOUTH, RANGE 1 EAST, SAN BERNARDINO MERIDIAN,
IN THE COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO OFFICIAL PLAT THEREOF, LYING WEST OF
THE CENTER LINE OF THE RELOCATION OF THE COUNTY HIGHWAY KNOWN AS ROUTE 16, DIVISION 2 ACCORDING TO
MAP THEREOF ON FILE IN THE OFFICE OF THE COUNTY SURVEYOR OF SAN DIEGO COUNTY AND LYING SOUTH OF THE
SOUTH LINE OF THE PARCEL OF LAND CONVEYED TO WILLIAM E. LOWE, BY DEED DATED SEPTEMBER 25, 1930 AND
RECORDED IN BOOK 1820, PAGE 143 OF DEEDS, RECORDS OF SAID SAN DIEGO COUNTY.

PARCEL 3:

THE EASTERLY 8.00 FEET OF LOTS 31 AND 32 OF COUNTY OF SAN DIEGO TRACT NO. 3673, IN THE COUNTY OF
SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF NO. 10781, FILED IN THE OFFICE OF THE
COUNTY RECORDER OF SAN DIEGO COUNTY, NOVEMBER 30, 1983.

ALSO THE EASTERLY 8.00 FEET OF THE SOUTHERLY 0.40 FEET OF LOT 30 OF

 

 

COUNTY OF SAN DIEGO TRACT NO. 3673, IN THE COUNTY OF SAN DIEGO, STATE OF
CALIFORNIA, ACCORDING TO MAP THEREOF NO. 10781, FILED IN THE OFFICE OF THE COUNTY
RECORDER OF SAN DIEGO COUNTY, NOVEMBER 30, 1983.

SAID PARCELS 1, 2 AND 3 IN THE AGGREGATE CONTAINING 11.3 ACRES MORE OR LESS.

JAMUL — 87 ACRE PARCEL:

LOTS 12 AND 13 AND THAT PORTION OF LOT 11 LYING WESTERLY OF COUNTY ROAD SURVEY NO.
150, IN SECTION 10, TOWNSHIP 17 SOUTH, RANGE 1 EAST, SAN BEARNARDINO BASE AND MERIDIAN, IN
THE COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO OFFICIAL PLAT THEREOF.

SAID LAND IS ALSO SHOWN ON RECORD OF SURVEY MAP NO. 695, FILED IN THE OFFICE OF THE COUNTY
RECORDER OF SAN DIEGO COUNTY.

EXCEPTING THEREFROM THAT PORTION DESCRIBED AS FOLLOWS:

COMMENCING AT CORNER NO. 16 OF RANCHO JAMUL, ACCORDING TO THE RECORD OF SURVEY MAP NO. 695,
FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY; THENCE SOUTH 88°23’30” EAST
ALONG THE NORTHERLY LINE OF SAID RANCHO JAMUL, A DISTANCE OF 1242.57 FEET TO THE TRUE POINT OF
BEGINNING; THENCE CONTINUING SOUTH 88°23’30” EAST ALONG SAID NORTHERLY LINE, A DISTANCE OF
671.25 FEET TO THE SOUTHWESTERLY LINE OF HIGHWAY ROUTE 16, DIVISION 2, ALSO KNOWN AS CAMPO
ROAD AND STATE HIGHWAY 94; THENCE NORTHWESTERLY ALONG SAID SOUTHWESTERLY LINE THE FOLLOWING
COURSES:

NORTH 47°30’30” WEST, 291.98 FEET; NORTH 46°30’30” WEST, 264.02 FEET; NORTH 61°03’30” WEST,
123.75 FEET; NORTH 47°57’30” WEST, 189.19 FEET; THENCE LEAVING SAID SOUTHWESTERLY LINE SOUTH
01°36’30” WEST, 546.89 FEET TO THE TRUE POINT OF BEGINNING.

SAID PARCELS IN THE AGGREGATE CONTAINING APPROXIMATELY 86.30 ACRESexv10w2

 

Exhibit 10.2

SECURITY AGREEMENT

(Lakes Jamul — Development)

     THIS SECURITY AGREEMENT (this “Agreement” or “Security Agreement”) is made and
entered into as of January 17, 2006, by and among Jamul Indian Village, a federally
recognized Indian tribe whose chief executive office and business office is located at
P. 0. Box 612, 14191 Highway 94 #16, Jamul, California 91925 (the “Tribe”), Jamul
Gaming Authority, a tribal governmental component and instrumentality of the Tribe
whose chief executive office and business office is located at P. O. Box 612,14191
Highway 94 #16, Jamul, California 91925 (the “Authority,” and, together with the Tribe,
jointly and severally “Debtor”) and Lakes Jamul Development, LLC, a Minnesota limited
liability company, whose business office is located at 130 Cheshire Lane, Minnetonka,
Minnesota 55305 (for itself and as agent for any of its Affiliates to which Secured
Obligations are owed, “Secured Party”).

RECITALS

     Whereas, Authority is created under the laws of and is a governmental component
and instrumentality of the Tribe, a federally recognized Indian tribe eligible for the
special programs and services provided by the United States to Indians because of their
status as Indians and is recognized as possessing powers of self-government.

     Whereas, the United States government holds lands in the State of California in
trust for the benefit of the Tribe over which the Tribe possesses sovereign
governmental powers and the Tribe holds or intends to acquire interests in lands which
constitute or will constitute “Indian lands” upon which the Tribe may legally conduct
gaming under applicable federal law.

     Whereas, Authority, a governmental component and instrumentality of the Tribe, is
vested with the sovereign immunity of the Tribe, and has been established as the legal
entity which will own and operate the gaming projects which are to be developed by the
Tribe, including the Project (as defined in the Development Agreement referred to
below).

     Whereas, Authority, on behalf of the Tribe, intends to develop and construct a
gaming facility and related ancillary facilities on the Tribe’s Indian lands.

     Whereas, Secured Party has entered into a Development Financing and Services
Agreement with Debtor dated January 17, 2006 (as heretofore and hereafter from time to
time amended, the “Development Agreement”), pursuant to which Secured Party is to
provide certain financing assistance and services to Authority for such gaming facility
and related ancillary facilities as more specifically described therein.

     Whereas, pursuant to the Development Agreement, Secured Party will, among other
things, advance funds to Authority.

 

 

     Whereas, as a material inducement to Secured Party to enter into the Development
Agreement, Debtor has agreed to execute this Security Agreement in favor of Secured Party and to
grant a security interest to Secured Party in all of its right, title and interest in the property
described herein.

AGREEMENT

     NOW THEREFORE, in consideration of the above recitals and the mutual covenants
hereinafter set forth, the parties hereto agree as follows:

     1. Defined Terms. Capitalized terms used but not otherwise defined herein shall have
the meanings ascribed to them in the Development Agreement and each category of Collateral (as
hereinafter defined) that is defined under the Uniform Commercial Code shall have the meanings set
forth therein.

     2. Creation of Security Interest.

          (a) Debtor hereby assigns, pledges and grants to Secured Party, for and on behalf of
Secured Party itself and its Affiliates, a security interest (the “Security Interest”) in the
Collateral to secure the payment and performance of the Secured Obligations (as hereinafter
defined).

          (b) In connection with the execution and delivery by Debtor of this Agreement, Debtor (i)
authorizes Secured Party to file in accordance with Section 6(g) hereof, or shall cause to be
delivered to Secured Party, as the case may be, such Uniform Commercial Code (as hereinafter
defined) financing statements and similar documents or agreements necessary to perfect the Security
Interest (collectively, “Perfection Documents”), and (ii) shall cause to be delivered to Secured
Party a legal opinion in form and substances reasonably acceptable to Secured Party as to the due
authorization, execution, delivery and enforceability of this Agreement and the Perfection
Documents by Debtor and as to Debtor’s sovereign immunity waiver and non-contravention of the
Transaction Documents with laws and agreements.

     3. Collateral.

          (a) “Collateral” means, collectively, the following assets in which Debtor now or
hereafter has any right, title or interest which are or are to be installed, attached, and/or used
upon or in connection with, relate to or arise from (including without limitation the ownership
and/or operation of) the Project, the Gaming Facility, the Gaming Facility Site and/or the Project
Facilities, each whether now owned or hereafter acquired:

          (i) all Furnishings and Equipment, exclusive of fixtures and any real estate or interest in
real estate;

in each case whether now owned or hereafter at any time acquired by Debtor and wherever located,
and including all improvements, replacements, additions, parts, appurtenances, accessions,
substitutions, repairs, proceeds, products, offspring, rents and profits, license rights and
software attached or relating thereto or therefrom, and all documents, records, ledger sheets and
files of Debtor relating thereto; together further with all proceeds thereof, including, without

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limitation (i) whatever is now or hereafter receivable or received by Debtor upon the sale,
exchange, collection or other disposition of any item thereof, whether voluntary or involuntary,
whether such proceeds constitute equipment, intangibles, or other assets; (ii) any such items
which are now or hereafter acquired by Debtor with any proceeds thereof hereunder; (iii) all
warehouse receipts, bills of lading and other documents of title now or hereafter covering such
goods; and (iv) any insurance proceeds, condemnation awards or any payments under any indemnity,
warranty or guaranty now or hereafter payable by reason of loss or damage or otherwise with
respect to any item thereof or any proceeds thereof.

          (b) “Furnishings and Equipment” means all furniture, furnishings and equipment required for
the operation of the Project Facilities, including, without limitation:

     (i) cashier, money sorting and money counting equipment, surveillance and
communication equipment, and security equipment;

     (ii) slot machines, video games of chance, table games, keno equipment and other
gaming equipment;

     (iii) office furnishings and equipment;

     (iv) specialized equipment necessary for the operation of any portion of the Project
Facilities for accessory purposes, including equipment for kitchens, laundries, dry
cleaning, cocktail lounges, restaurants, public rooms, commercial and parking spaces, and
recreational facilities;

     (v) hotel equipment, furniture and furnishings (to the extent a hotel is included in
the Project Facilities); and

     (vi) all other furnishings and equipment now or hereafter located and installed in or
about the Project Facilities which are used in the operation of the Project Facilities.

     4. Secured Obligations of Debtor.

          (a) The Collateral secures the following (collectively, the “Secured Obligations”): each and
every debt, liability and obligation of every type and nature which Debtor may now or at any time
hereafter owe to Secured Party or any Affiliate of Secured Party, whether now existing or hereafter
created or arising, and whether direct or indirect, due or to become due, absolute or contingent,
or otherwise, including without limitation, all principal, interest, compensation, fees, expenses
and other charges, obligations or amounts.

          (b) The Secured Obligations include without limitation (i) each and every debt, liability and
obligation of every type and nature which Debtor may now or at any time hereafter owe to Secured
Party or any Affiliate of Secured Party under or with respect to the Note, the Development
Agreement, this Agreement, or any other Transaction Document, (ii) without limiting the generality
of the foregoing clause (i), any and all sums advanced by Secured Party or any Affiliate of Secured
Party in order to preserve the Collateral or preserve the Security Interest (or the priority
thereof), and (iii) without limiting the generality of the foregoing clauses (i) and (ii), any and
all expenses of retaking, holding, preparing for sale or lease, selling or

-3-

 

otherwise disposing of or realizing on the Collateral, of any proceeding for the collection
or enforcement of any debt, liability or obligation of Debtor referred to above, or of any
exercise by Secured Party of its rights hereunder, together with reasonable attorneys’ fees and
disbursements and court costs.

          (c) All payments and performance by Debtor with respect to any Secured Obligations shall be
in accordance with the terms under which such Secured Obligations were or are hereafter incurred
or created.

     5. Debtor’s Representations and Warranties. Debtor represents and warrants that:

          (a) each party comprising Debtor is (or, with respect to Collateral acquired after the date
hereof, will be) the sole legal and beneficial owner of its respective Collateral and has exclusive
possession and control thereof; there are no security interests in, liens, charges or encumbrances
on, or adverse claims of title to, or any other interest whatsoever in, such Collateral or any
portion thereof except such liens permitted by and subject to the terms of Section 7.2 of the
Development Agreement, the Security Interest and other any other lien created by a Transaction
Document (“Permitted Liens”); and that no financing statement, notice of lien, mortgage, deed of
trust or instrument similar in effect covering the Collateral or any portion thereof or any
proceeds thereof (each a “Lien Notice”) exists or is on file in any public office, except as
relates to Permitted Liens and except as may have been filed in favor of Secured Party relating to
this Security Agreement or related agreements, or for which duly executed termination statements
have been delivered to Secured Party for filing;

          (b) Debtor has full right, power and authority to execute, deliver and perform this Security
Agreement. This Security Agreement constitutes a legally valid and binding obligation of Debtor,
enforceable against Debtor in accordance with its terms subject to any limitations set forth in the
Resolution of Limited Waiver of Sovereign Immunity of the Tribe and the Resolution of Limited
Waiver of Sovereign Immunity of the Authority, each dated January 17, 2006, related to and
approving the Transaction Documents (the “Resolutions of Limited Waiver”). Subject to the
completion of the items identified in Section 5(c) below, the provisions of this Security Agreement
are effective to create in favor of Secured Party a valid and enforceable first, prior and
perfected security interest in the Collateral;

          (c) except for the filing or recording of the financing statements that are to be filed in
connection with this Security Agreement, no authorization, approval or other action by, no notice
to or registration or filing with, any person or entity, including without limitation, any
stockholder or creditor of Debtor or any governmental authority or regulatory body is required,
except as may be agreed to by Debtor and Secured Party: (i) for the grant by Debtor of the Security
Interest pursuant to this Security Agreement or for the execution, delivery or performance of this
Security Agreement by Debtor, (ii) for the perfection or maintenance of such Security Interest
created hereby, including the first priority nature of such Security Interest, or the exercise by
Secured Party of the rights and remedies provided for in this Security Agreement (other than any
required governmental consent or filing with respect to any patents, trademarks, copyrights,
governmental claims, tax refunds, licenses or permits and the exercise of remedies

-4-

 

requiring prior court approval), or (iii) for the enforceability of such Security Interest
against third parties, including, without limitation, judgment lien creditors;

          (d) Debtor does not do business, and for the previous five years has not done business, under
any fictitious business names or trade names;

          (e) the Collateral has not been and will not be used or bought by Debtor for personal, family
or household purposes;

          (f) Debtor’s chief executive office (the main place where each of the Tribe and the Authority
manages the main part of its business operations or other affairs) is located at the address
referenced on the first page of this Agreement, Debtor has no places of business other than such
address and the locations described on Exhibit A attached hereto, and the Collateral is now
and will at all times hereafter be located at such premises or as Debtor may otherwise notify
Secured Party in writing in accordance with the provisions of Section 6(a);

          (g) The true, correct, complete and only legal name of the Tribe is “Jamul Indian Village,”
and the true, correct, complete and only legal name of the Authority is “Jamul Gaming Authority,”
and in each case such name is the only legal name of such party within the five-year period
preceding the date hereof; the Tribe is an Indian tribe and the Authority is a governmental
component and instrumentality organized under the laws of the Tribe; neither Debtor has an
organizational number; neither the Tribe nor the Authority is a registered organization under the
Uniform Commercial Code; and the tax identification numbers of the
Tribe and the Authority are          and
        , respectively;

          (h) Debtor has not purchased any Collateral, other than for cash, within twenty-one (21) days
prior to the date hereof;

          (i) all originals of all promissory notes, other instruments or chattel paper which evidence
Collateral (other than checks received by Debtor in the ordinary course of business) have been (or,
with respect to such Collateral hereafter acquired, will be) delivered to Secured Party (with all
necessary or appropriate endorsements); and

          (j) none of the execution, delivery and performance of this Security Agreement by Debtor, the
consummation of the transactions herein contemplated, the fulfillment of the terms hereof or the
exercise by Secured Party of any rights or remedies hereunder will constitute or result in a
breach of any of the terms or provisions of, or constitute a default under, or constitute an event
which with notice or lapse of time or both will result in a breach of or constitute a default
under, any agreement, indenture, mortgage, deed of trust, equipment lease, instrument or other
document to which Debtor is a party, conflict with or require approval, authorization, notice or
consent under any law, order, rule, regulation, license or permit applicable to Debtor of any
court or any federal or state government, regulatory body or administrative agency, or any other
governmental body having jurisdiction over Debtor or its properties, or require notice, consent,
approval or authorization by or registration or filing with any person or entity (including,
without limitation, any stockholder or creditor of Debtor) other than any notices to Debtor from
Secured Party required hereunder except as may be agreed to by Debtor and Secured Party. Except
for the Permitted Liens, none of the Collateral is subject to

-5-

 

any agreement, indenture, mortgage, deed of trust, equipment lease, instrument or other
document to which Debtor is a party that may restrict or inhibit Secured Party’s rights or ability
to sell or dispose of the Collateral or any part thereof after the occurrence of an Event of
Default (as defined herein).

     6. Covenants of Debtor. Debtor covenants and agrees that:

          (a) Debtor will not move or permit to be moved the Collateral or any portion thereof to any
location other than that set forth in Section
5(f) hereof or locations established in compliance
with Section 6(b) hereof without the prior filing of a financing statement with the proper office
and in the proper form to perfect or continue the perfection (without loss of priority) of the
Security Interest, which filing shall be satisfactory in form, substance and location to Secured
Party prior to such filing;

          (b) Debtor will not voluntarily or involuntarily change its name, identity, corporate
structure, or location of its chief executive office or any of its other places of business, unless
in any such case: (i) Secured Party shall have first received written notice of any such proposed
change at least sixty (60) days prior to the date such change is proposed to be effective, (ii)
Debtor shall have executed and caused to be filed, or Secured Party pursuant to Section 6(g) shall
have filed, financing statements with the proper offices and in the proper form to perfect or
continue the perfection (without loss of priority) of the Security Interest, each of which filings
shall be satisfactory in form, substance and location to Secured Party prior to such filing, and
(iii) Debtor shall have delivered to Secured Party any other documents required by Secured Party in
a form and substance satisfactory to Secured Party;

          (c) [intentionally omitted];

          (d) Debtor will promptly, and in no event later than twenty one (21) days after a request by
Secured Party, procure or execute and deliver all further instruments and documents (including,
without limitation, notices, legal opinions, financing statements, mortgagee waivers, landlord
disclaimers and subordination agreements) necessary or appropriate to and take any other actions
which are necessary or, in the judgment of Secured Party, desirable or appropriate to perfect or to
continue the perfection, priority and enforceability of the Security Interest, to enable Secured
Party to exercise and enforce its rights and remedies hereunder with respect to any Collateral, to
protect the Collateral against the rights, claims or interests of third persons, or to effect or to
assure further the purposes and provisions of this Security Agreement, and will pay all reasonable
costs incurred in connection therewith. Without limiting the generality of the foregoing, Debtor
will: (i) mark conspicuously each item of chattel paper and each other contract included in the
Collateral with a legend, in form and substance satisfactory to Secured Party, indicating that such
chattel paper and other contracts are subject to the Security Interest; (ii) if required, execute
and file such financing or continuation statements, or amendments thereto, and such other
instruments or notices as may be necessary or desirable, which Secured Party may reasonably request
in order to perfect and preserve the perfection and priority of the Security Interest; (iii) if any
Collateral shall be evidenced by a promissory note or other instrument or chattel paper (other than
checks received by any Debtor in the ordinary course of business), deliver and pledge to Secured
Party such note or instrument or chattel paper duly endorsed and accompanied by duly executed
instruments of transfer or assignment, all in form

-6-

 

and substance reasonably satisfactory to Secured Party; (iv) if any Collateral is at any time
in the possession or control of any warehouseman, bailee, consignee or any of Debtor’s agents or
processors, Debtor shall notify such warehouseman, bailee, consignee, agent or processor of the
Security Interest, shall cause such warehouseman, bailee, consignee, agent or processor to execute
any financing statements or other documents which Secured Party may request, and, upon the request
of Secured Party after the occurrence and during the continuation of an Event of Default, shall
instruct such person to hold all such Collateral for Secured Party’s account subject to Secured
Party’s instructions; (v) deliver and pledge to Secured Party all securities and instruments (other
than checks received by Debtor in the ordinary course of business) constituting Collateral duly
endorsed and accompanied by duly executed instruments of transfer or assignments, all in form and
substance satisfactory to Secured Party; and (vi) at the request of Secured Party, deliver to
Secured Party any and all certificates of title, applications for title or similar evidence of
ownership of all Collateral and shall cause Secured Party to be named as lienholder on any such
certificate of title or other evidence of ownership;

          (e) without the prior written consent of Secured Party, Debtor will not in any way encumber,
or hypothecate, or create or permit to exist, any lien, security interest, charge or encumbrance or
adverse claim upon or other interest in the Collateral, except for Permitted Liens, and Debtor will
defend the Collateral against all claims and demands of all persons at any time claiming the same
or any interest therein, except as expressly provided herein. Debtor will not permit any Lien
Notices to exist or be on file in any public office with respect to all or any portion of the
Collateral except, in each case, for Lien Notices of holders of Permitted Liens or except as may
have been filed by or for the benefit of Secured Party relating to this Security Agreement or
related agreements. Debtor shall promptly notify Secured Party of any attachment or other legal
process levied against any of the Collateral and any information received by Debtor relative to the
Collateral, which may in any material way affect the value of the Collateral or the rights and
remedies of Secured Party in respect thereto;

          (f) without the prior written consent of Secured Party, Debtor will not sell, transfer, assign
(by operation of law or otherwise), exchange or otherwise dispose of all or any portion of the
Collateral or any interest therein, except that Debtor may sell worn-out or obsolete equipment
provided that the proceeds thereof are applied to the Secured Obligations or used to purchase new
collateral of equal or greater value and the Secured Party shall be granted a first priority
security interest therein. Any notes, instruments, documents of title, letters of credit or chattel
paper constituting proceeds of any such disposition shall be promptly delivered to Secured Party to
be held as Collateral hereunder (with all necessary or appropriate endorsements). If the
Collateral, or any part thereof or interest therein, is sold, transferred, assigned, exchanged, or
otherwise disposed of in violation of these provisions, the Security Interest shall continue in
such Collateral or part thereof notwithstanding such disposition, and Debtor will hold the proceeds
thereof in a separate account for Secured Party’s benefit. Debtor will, at Secured Party’s request,
transfer such proceeds to Secured Party in kind;

          (g) Debtor authorizes Secured Party to file one or more financing statements, continuations
thereof and amendments thereto, relative to all or any part of the Collateral, without the
signature of Debtor where permitted by law, in each case in such form and substance as Secured
Party may determine, and Debtor shall pay all filing, registration and recording fees in connection
therewith;

-7-

 

          (h) Except as expressly permitted by the Development Agreement, Debtor will not enter
into any indenture, mortgage, deed of trust, contract, undertaking, document, instrument or other
agreement, except for the Transaction Documents and any documents, instruments or agreements
related thereto, or issue any securities which may materially restrict or inhibit Secured Party’s
rights or ability to sell or otherwise dispose of the Collateral or any part thereof after the
occurrence of an Event of Default;

          (i) Debtor
shall cause to be maintained insurance on the Project Facilities, the Project and
the Collateral and related assets as required by the Development Agreement or otherwise with such
coverages and in such amounts as are reasonably satisfactory to Secured Party, including without
limitation loss of business income coverage, and naming Secured Party as an additional insured,
lender loss payee and mortgagee, if applicable. Upon request, Debtor shall provide to the Secured
Party certificates of insurance or copies of insurance policies evidencing that such insurance is
in effect at all times;

          (j) Except as expressly permitted by the Development Agreement, Debtor will pay and
discharge all taxes, assessments and governmental charges or levies against the Collateral prior to
delinquency thereof and will keep the Collateral free of all unpaid claims and charges (including
claims for labor, materials and supplies) whatsoever;

          (k) Debtor will keep and maintain the Collateral in good condition, working order and repair
and from time to time will make or cause to be made all repairs, replacements and other
improvements in connection therewith that are necessary or desirable toward such end. Debtor will
not misuse or abuse the Collateral, or waste or allow it to deteriorate except for the ordinary
wear and tear of its normal and expected use in Debtor’s business in accordance with Debtor’s
policies as then in effect (provided that no changes are made to Debtor’s policies as in effect on
the date hereof that would be materially adverse to the interests of the Secured Party), and will
comply with all laws, statutes and regulations pertaining to the use or ownership of the
Collateral. Debtor will promptly notify Secured Party regarding any material loss or damage to any
material Collateral or portion thereof;

          (1) Debtor will take all actions consistent with reasonable business judgment or, upon the
occurrence of an Event of Default, directed by Secured Party in Secured Party’s sole and absolute
discretion, to create, preserve and enforce any liens or guaranties available to secure or
guaranty payments due Debtor under any contracts or other agreements with third parties, will not
voluntarily permit any such payments to become more than thirty (30) days delinquent and will in a
timely manner record and assign to Secured Party, to the extent and at the earliest time permitted
by law, any such liens and rights to under such guaranties;

          (m) [intentionally omitted];

          (n) [intentionally omitted];

          (o) Secured Party shall have during normal business hours, with reasonable notice, the right
to enter into and upon any premises where any of the Collateral or records with respect thereto
are located for the purpose of inspecting the same, performing any audit, making

-8-

 

copies of records, observing the use of any part of the Collateral, or otherwise protecting
the Security Interest;

          (p) Secured Party shall have the right at any time, but shall not be obligated, to make any
payments and do any other acts Secured Party may deem necessary or desirable to protect the
Security Interest, including without limitation, after the occurrence of any Event of Default, the
right to pay, purchase, contest or compromise any encumbrance, charge or lien (including any
Permitted Liens) applicable or purported to be applicable to any Collateral hereunder, and whether
prior to or after the occurrence of any Event of Default, appear in and defend any action or
proceeding purporting to affect the Security Interest or the value of any Collateral, and in
exercising any such powers or authority, the right to pay all expenses incurred in connection
therewith, including attorneys’ fees. Debtor hereby agrees that it shall be bound by any such
payment made or incurred or act taken by Secured Party hereunder and shall reimburse Secured Party
for all reasonable payments made and expenses incurred under this Security Agreement, which amounts
shall be Secured Obligations secured under this Security Agreement. Secured Party shall have no
obligation to make any of the foregoing payments or perform any of the foregoing acts;

          (q) if Debtor shall become entitled to receive or shall receive any certificate, instrument,
option or rights, whether as an addition to, in substitution of, or in exchange for any or all of
the Collateral or any part thereof, or otherwise, Debtor shall accept any such instruments as
Secured Party’s agent, shall hold them in trust for Secured Party, and shall deliver them
forthwith to Secured Party in the exact form received, with Debtor’s endorsement when necessary or
appropriate, or accompanied by duly executed instruments of transfer or assignment in blank or, if
requested by Secured Party, an additional pledge agreement or security agreement executed and
delivered by Debtor, all in form and substance satisfactory to Secured Party, to be held by
Secured Party, subject to the terms hereof, as additional Collateral to secure the Secured
Obligations hereunder;

          (r) Secured Party is hereby authorized to pay all reasonable costs and expenses incurred in
the exercise or enforcement of its rights hereunder, including attorneys’ fees, and to apply any
Collateral or proceeds thereof against such amounts, and then to credit or use any further proceeds
of the Collateral in accordance herewith; provided however that if Debtor is the prevailing party
in any action or proceeding seeking enforcement of this Agreement, then Debtor shall not be and
Secured Party shall be responsible for such related costs and expenses; and

          (s) Secured Party may take any actions permitted hereunder or in connection with the
Collateral by or through agents or employees and shall be entitled to retain counsel and to act in
reliance upon the advice of counsel concerning all such matters.

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     7. Defaults and Remedies

     7.1 Events of Default. Each of the following occurrences shall constitute an Event of
Default:

          (a) Any representation or warranty made by or on behalf of Debtor herein, in any of the other
Transaction Documents, or in any report, certificate or other document furnished by or on behalf of
Debtor pursuant to this Agreement or any of the other Transaction Documents shall prove to have
been false or misleading in any material respect when made or at any time shall fail to be true and
correct in all material respects.

          (b) Debtor shall default in the due observance or performance of any obligation hereunder and
such default shall continue for thirty (30) days (unless a shorter or longer cure period is
provided under the terms of this Agreement) after written notice thereof has been sent to Debtor by
Secured Party; provided, however, that if the nature of such default (but specifically excluding
defaults curable by the payment of money) is such that it is not possible to cure such breach
within such cure period, such cure period shall be extended an additional reasonable period of time
for so long as Debtor shall be using diligent efforts to effect a cure thereof but no more than an
additional sixty (60) days.

          (c) A Material Breach by Debtor under the Development Agreement or an Event of Default under
and as defined in any other Transaction Document shall occur, and such Material Breach or Event of
Default shall have continued beyond any applicable grace or cure period.

     7.2 Remedies. Upon the occurrence and during the continuation of an Event of Default
hereunder, Debtor expressly covenants and agrees that Secured Party may, at its option, in addition
to other rights and remedies provided herein or otherwise available to it, without notice to or
demand upon Debtor (except as otherwise required herein), exercise anyone or more of the rights as
set forth as follows:

          (a) declare all Secured Obligations to be immediately due and payable, whereupon all unpaid
principal and interest on such Secured Obligations shall become and be immediately due and payable;

          (b) if the Development Agreement is terminated and either (i) the Gaming Facility has not
opened for business to the general public, or (ii) Debtor does not or at any time fails to continue
operations of Class II Gaming and/or Class III Gaming at the Gaming Facility or any material
portion of the Project Facilities, Secured Party may immediately take possession of any of the
Collateral wherever it may be found or require Debtor to assemble the Collateral or any part
thereof and make it available at one or more places as Secured Party may designate, and to deliver
possession of the Collateral or any part thereof to Secured Party, who shall have full right to
enter upon any or all of Debtor’s places of business, premises and property to exercise Secured
Party’s rights hereunder; and without notice (except as specified below), sell the Collateral or
any part thereof in one or more parcels at one or more public or private sales, at any of Secured
Party’s offices or elsewhere, at such time or times, for cash, on credit or for future delivery,
and at such price or prices and upon such other terms as shall be commercially

-10-

 

reasonable. Debtor acknowledges and agrees that, to the extent notice of sale shall be
required by law, at least ten (10) days’ written notice to Debtor of the time and place of any
public sale or of the date on or after which any private sale is to be made shall constitute
reasonable notification. Any public sale shall be held at such time or times during ordinary
business hours and at such place or places as Secured Party may fix in the notice of such sale.
Notwithstanding the foregoing, Secured Party shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. Secured Party may, without notice or publication,
adjourn any public or private sale, or cause the same to be adjourned from time to time by
announcement at the time and place fixed for sale or, with respect to a private sale, after which
such sale may take place, and any such sale may, without further notice, be made at the time and
place to which it was so adjourned or, with respect to a private sale, after which such sale may
take place. Each purchaser at any such sale shall hold the property sold free from any claim or
right on the part of Debtor, and Debtor hereby waives, to the full extent permitted by law, all
rights of stay and/or appraisal which Debtor now has or may at any time in the future have under
any rule of law or statute now existing or hereafter enacted. Debtor also hereby waives any claims
against Secured Party arising by reason of the fact that the price at which any Collateral may have
been sold at a private sale was less than the price which might have been obtained at a public
sale, even if Secured Party accepts the first offer received and does not offer such Collateral to
more than one offeree. The parties hereto agree that the notice provisions, method, manner and
terms of any sale, transfer or disposition of any Collateral in compliance with the terms set forth
herein or any other provision of this Security Agreement are commercially reasonable;

          (c) exercise any or all of the rights and remedies provided for by the Uniform Commercial
Code, applicable law or by other agreement (other than any right to use or operate any of the
Collateral in place, the exercise of which Secured Party hereby waives), specifically including,
without limitation, the right to recover the attorneys’ fees and other expenses incurred by Secured
Party in the enforcement of this Security Agreement or in connection with Debtor’s redemption of
the Collateral; provided, however, that if Debtor is the prevailing party in any action or
proceeding seeking enforcement of this Agreement, then Debtor shall not be and Secured Party shall
be responsible for such related costs and expenses. Secured Party may exercise its rights under
this Security Agreement independently of any other collateral or guaranty that Debtor may have
granted or provided to Secured Party in order to secure payment and performance of the Secured
Obligations, and Secured Party shall be under no obligation or duty to foreclose or levy upon any
other collateral given by Debtor to secure any Secured Obligation or to proceed against any
guarantor before enforcing its rights under this Security Agreement. Debtor shall reimburse Secured
Party upon demand for, or Secured Party may apply any proceeds of Collateral to, the reasonable
costs and expenses (including attorneys’ fees, transfer taxes and any other charges) incurred by
Secured Party in connection with any sale, disposition, repair, replacement, alteration, addition,
improvement or retention of any Collateral hereunder; provided however that if Debtor is the
prevailing party in any action or proceeding seeking enforcement of this Agreement, then Debtor
shall not be and Secured Party shall be responsible for such related costs and expenses;

          (d) the powers conferred on the Secured Party by this Section 7.2 and otherwise in this
Agreement are solely to protect the Secured Party’s interests in the Collateral and shall not
impose any duty upon it to exercise any such powers. The Secured Party shall be accountable only
for amounts that it actually receives as a result of the exercise of such powers,

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and neither the Secured Party nor any of its officers, directors, trustees, employees,
representatives or agents shall, in the absence of willful misconduct or gross negligence, be
responsible to Debtor for any act or failure to act pursuant to this Section 7.2 or otherwise
pursuant to this Agreement; and

          (e) Secured Party’s sole duty with respect to the custody, safekeeping and preservation of
the Collateral, under Section 9-207 of the Uniform Commercial Code or otherwise, shall be to deal
with it in the same manner as the Secured Party deals with similar property for their own account.
Neither the Secured Party nor any of its directors, officers, trustees, employees,
representatives, or agents shall be liable for failure to demand, collect or realize upon all or
any part of the Collateral or for any delay in doing so or shall be under any obligation to sell
or otherwise dispose of any Collateral upon the request of Debtor or otherwise.

     8. Miscellaneous Provisions

          (a) Notices. All notices, requests, approvals, consents and other communications
required or permitted to be made hereunder shall, except as otherwise provided, be in writing and
may be delivered personally or sent by telegram, telecopy, facsimile, telex, first class mail or
overnight courier, postage prepaid, to the parties addressed as follows:

	 	 	 	 	 
	If to Debtor:	 	Jamul Indian Village
	 

	 	 	 	Jamul Gaming Authority
	 

	 	 	 	P.O. Box 612
	 

	 	 	 	Jamul, California 91935
	 

	 	 	 	Attention: Chairman
	 
	 	 	 	 
	 

	 	With a copy to:
	 	Eugene R. Madrigal, Esq.
	 

	 	 	 	28581 Old Town Front Street, Suite 208
	 

	 	 	 	Temecula, California 92590
	 

	 	 	 	(copy to counsel does not constitute notice to a party)
	 
	 	 	 	 
	If to Secured Party:	 	Lakes Jamul Development, LLC
	 

	 	 	 	130 Cheshire Lane
	 

	 	 	 	Minnetonka, Minnesota 55305
	 

	 	 	 	Attention: Timothy J. Cope
	 
	 	 	 	 
	 

	 	With a copy to:
	 	Damon E. Schramm
	 

	 	 	 	General Counsel
	 

	 	 	 	Lakes Entertainment, Inc.
	 

	 	 	 	130 Cheshire Lane
	 

	 	 	 	Minnetonka, Minnesota 55305
	 

	 	 	 	(copy to counsel does not constitute notice to a party)

-12-

 

	 	 	 	 	 
	 

	 	And
	 	Daniel R. Tenenbaum, Esq.
	 

	 	 	 	Gray, Plant, Mooty, Mooty & Bennett, P.A.
	 

	 	 	 	500 IDS Center
	 

	 	 	 	80 South Eighth Street
	 

	 	 	 	Minneapolis, Minnesota 55402
	 

	 	 	 	(copy to counsel does not constitute notice to a party)

Such notices, requests and other communications sent as provided hereinabove shall be effective
when received by the addressee thereof, unless sent by registered or certified mail, postage
prepaid, in which case they shall be effective exactly three (3) business days after being
deposited in the United States mail. The parties hereto may change their addresses by giving
notice thereof to the other parties hereto in conformity with this section.

          (b) Headings. The various headings in this Security Agreement are inserted for
convenience only and shall not affect the meaning or interpretation of this Security Agreement or
any provision hereof.

          (c) Amendments. This Security Agreement or any provision hereof may be changed,
waived, or terminated only by a statement in writing signed by the party against which such change,
waiver or termination is sought to be enforced, and then any such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which given.

          (d) No Waiver. No failure on the part of Secured Party to exercise, and no delay in
exercising, and no course of dealing with respect to, any power, privilege or right under this
Security Agreement or any related agreement shall operate as a waiver thereof nor shall any single
or partial exercise by Secured Party of any power, privilege or right under this Security Agreement
or any related agreement preclude any other or further exercise thereof or the exercise of any
other power, privilege or right. The powers, privileges and rights in this Security Agreement are
cumulative and are not exclusive of any other remedies provided by law. Without limiting the
generality of the foregoing, all rights and remedies of Secured Party shall be cumulative and may
be exercised singularly in any order or concurrently, at the option of Secured Party, and the
exercise or enforcement of any such right or remedy shall neither be a condition to nor a bar to
the exercise or enforcement of any other right or remedy. No waiver by Secured Party of any default
hereunder shall be effective unless in writing, nor shall any waiver operate as a waiver of any
other default or of the same default on a future occasion.

          (e) Binding Agreement. All rights of Secured Party hereunder shall inure to the
benefit of its successors and assigns. Subject to the terms of the Development Agreement, Debtor
shall not assign any interest under this Security Agreement without the prior written consent of
Secured Party. Any purported assignment inconsistent with this provision shall, at the option of
Secured Party, be null and void.

          (f) Entire Agreement. This Security Agreement, together with, any other agreement
executed in connection herewith, is intended by the parties as a final expression of their
agreement with respect to the matters covered hereby and is intended as a complete and exclusive
statement of the terms and conditions thereof. Acceptance of or acquiescence in a

-13-

 

course of performance rendered under this Security Agreement shall not be relevant to
determine the meaning of this Security Agreement even though the accepting or acquiescing party
had knowledge of the nature of the performance and opportunity for objection.

          (g) Severability. If any provision or obligation of this Security Agreement should be
found to be invalid, illegal, or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions and obligations or any other agreement executed in
connection herewith, or of such provision or obligation in any other jurisdiction, shall not in
any way be affected or impaired thereby and shall nonetheless remain in full force and effect to
the maximum extent permitted by law.

          (h)
Survival of Provisions. All representations, warranties and covenants of Debtor
contained herein shall survive the execution and delivery of this Security Agreement, and shall
terminate only upon the termination of this Security Agreement pursuant to Section 8(k) hereof.

          (i) Power of Attorney. Debtor hereby irrevocably appoints Secured Party its
attorney-in-fact, which appointment is coupled with an interest, with full authority in the place
and stead of Debtor and in the name of Debtor, Secured Party or otherwise, from time to time in
Secured Party’s discretion (a) to execute and file financing and continuation statements (and
amendments thereto and modifications thereof) on behalf and in the name of Debtor with respect to
the Security Interest, (b) to take any action and to execute any instrument which Secured Party
may deem necessary or advisable to exercise its rights under this Agreement, and (c) upon the
occurrence and during the continuance of an Event of Default, to take any action and to execute
any instrument which Secured Party may deem necessary or advisable to accomplish the purposes of
this Security Agreement, including, without limitation:

               (i) to obtain and adjust insurance required to be paid to Secured Party pursuant hereto;

               (ii) to ask, demand, collect, sue for, recover, compound, receive and give acquittance and
receipts for moneys due and to become due under or in respect of any of the Collateral;

               (iii) to receive, endorse and collect any drafts or other instruments, documents and chattel
paper, in connection with clauses (i) and (ii) above;

               (iv) to sell, convey or otherwise transfer any item of Collateral to any purchaser thereof;
and

               (v) to file any claims or take any action or institute any proceedings which Secured Party
may deem necessary or desirable for the collection of any of the Collateral or otherwise to
enforce the rights of Secured Party with respect to any of the Collateral.

          (j) Counterparts. This Security Agreement and any amendments, waivers, consents or
supplements may be executed in any number of counterparts and by facsimile, each of which when so
executed and delivered shall be deemed an original, but all of which shall together constitute one
and the same agreement.

-14-

 

          (k) Termination of Agreement. This Security Agreement and the Security Interest
shall not terminate until full and final payment and performance of all indebtedness and
obligations secured hereunder, including without limitation the Secured Obligations. Secured Party
agrees to terminate this Security Agreement upon request if Debtor has satisfied the following
conditions: (i) all Secured Obligations shall have been paid in full and Secured Party shall have
no further obligation to make advances under the Development Agreement, and (ii) the Development
Agreement shall have been terminated in accordance with its terms. At such time as such conditions
shall have been so satisfied, Secured Party shall reassign and redeliver to Debtor all of the
Collateral hereunder which has not been sold, disposed of, retained or applied by Secured Party in
accordance with the terms hereof, and execute and deliver to Debtor such documents as Debtor may
reasonably request to evidence such termination. Such reassignment and redelivery shall be without
warranty by or recourse to Secured Party, and shall be at the expense of Debtor; provided however,
that this Security Agreement (including all representations, warranties and covenants contained
herein) shall continue to be effective or be reinstated, as the case may be, if at any time any
amount received by Secured Party in respect of the Secured Obligations is rescinded or must
otherwise be restored or returned by Secured Party upon or in connection with the insolvency,
bankruptcy, dissolution, liquidation or reorganization of Debtor or any other person or upon or in
connection with the appointment of any intervenor or conservator of or trustee or similar official
for Debtor or any other person or any substantial part of its assets, or otherwise, all as though
such payments had not been made.

          (1) Sovereign Immunity Waiver: Arbitration: Submission to Jurisdiction. This Agreement
constitutes a security agreement contemplated by Section 2.1(g) of the Development Agreement. As
such and without limiting the scope of the Development Agreement, the provisions of Article 10 of
the Development Agreement apply to this Agreement and are hereby incorporated by reference,
including, without limitation, the limited sovereign immunity waiver, limitations on recourse and
arbitration provisions contained therein and the Resolutions of Limited Waiver. This Agreement will
be governed by, and construed in accordance with, the internal laws of the State of Minnesota
(without giving effect to its conflict of laws principles) and applicable federal law, and without
limiting the generality of the foregoing, the Uniform Commercial Code, notwithstanding any
provision therein or other applicable law that would otherwise make such law inapplicable to
Debtor; provided, however, that if the Security Interest with respect to any item of Collateral is
unperfected under the laws of the State of Minnesota or if such laws otherwise do not recognize the
perfection of the Security Interest with respect to any item of Collateral, and any secured
transaction law of or adopted by Debtor does recognize the perfection of such Security Interest,
then such secured transaction law of or adopted by Debtor shall apply to the Security Interest with
respect to such item of Collateral, including without limitation the creation, attachment,
perfection and enforcement thereof. As used in this Agreement, “Uniform Commercial Code” means the
Uniform Commercial Code as the same may from time to time be in effect in the State of Minnesota.
The parties hereto may not change the law governing this Agreement without express written consent
of Debtor and Secured Party.

          (m) Multiple Parties. As defined in this Agreement, the term “Debtor” refers to each
of the Tribe and the Authority separately and to both of them jointly and each is severally and
jointly bound with the other. Without limiting the generality of the foregoing, (i) all property
described in Section 3 of this Agreement will be included as Collateral if either the

-15-

 

Tribe or the Authority has, or if both jointly have, any right, title or interest therein,
(ii) all representations, warranties and covenants are made by each of the Tribe and the Authority,
and all Events of Default and other provisions applicable to Debtor shall be applicable to each of
the Tribe and the Authority, and (iii) receipt of any notice in accordance with the provisions of
this Agreement by either the Tribe or the Authority shall be deemed to have been received by both.

[The remainder of this page has been intentionally left blank.]

-16-

 

     IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be
duly executed and delivered as of the date first above written.

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	DEBTOR:
	 	 	 	 	 	 	JAMUL INDIAN VILLAGE
	 
	 	 	 	 	 	 	 	 
	By:

	 	/s/ Julia Lotta
	 	 	 	By:
	 	/s/ Leon Acebedo
	 

	 	 
	 	 	 	 	 	 
	Name:

	 	Julia Lotta
	 	 	 	Name:
	 	Leon Acebedo,
	Its:

	 	Secretary
	 	 	 	Title:
	 	Chairman
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	DEBTOR:
	 	 	 	 	 	 	JAMUL GAMING AUTHORITY
	 
	 	 	 	 	 	 	 	 
	By:

	 	/s/ Erica Pinto
	 	 	 	By:
	 	/s/ Leon Acebedo
	 

	 	 
	 	 	 	 	 	 
	Name:

	 	Erica Pinto,
	 	 	 	Name:
	 	Leon Acebedo
	Its:

	 	Secretary
	 	 	 	Title:
	 	Chairman
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	SECURED PARTY:
	 	 	 	 	 	 	LAKES JAMUL DEVELOPMENT, LLC
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	/s/ Timothy Cope
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Name:
	 	Timothy Cope
	 

	 	 	 	 	 	Title:
	 	President and Chief Financial
Officer 3/30/06

-17-

 

EXHIBIT A

TO

SECURITY AGREEMENT

(Collateral Locations)

     1. Jamul Casino and Resort located on the Jamul Indian Reservation in San Diego County,
California

-18-

 

Security Agreement

UCC-1 Financing Statement form

[to be provided]

-19-

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