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EXHIBIT 10.2
OPERATING AGREEMENT
OF
BLACK HAWK/JACOBS ENTERTAINMENT, LLC
A COLORADO LIMITED LIABILITY COMPANY
EFFECTIVE AS OF NOVEMBER 12, 1996
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THIS OPERATING AGREEMENT made as of the 12th day of November, 1996 for
BLACK HAWK/JACOBS ENTERTAINMENT, LLC (the "Company") by and among BLACK HAWK
GAMING & DEVELOPMENT COMPANY, INC., a Colorado corporation ("Black Hawk"), and
BH ENTERTAINMENT LTD., an Ohio limited liability company ("Entertainment"), and
DIVERSIFIED OPPORTUNITIES GROUP LTD., an Ohio limited liability company
("Diversified").
RECITALS
WHEREAS, concurrently herewith, Black Hawk and Diversified are
entering into an Amended and Restated Purchase Agreement (the "Purchase
Agreement");
WHEREAS, it is a condition to the closing of the transactions
contemplated by the Purchase Agreement that the parties hereto form the Company
on the terms and subject to the conditions hereinafter set forth;
WHEREAS, the parties desire to form the Company as a limited liability
company under the laws of the State of Colorado to develop and manage a casino
project (the "Project") in the City of Black Hawk, County of Gilpin, State of
Colorado; and
WHEREAS, the parties desire to enter into this Operating Agreement to
reflect certain agreements among them and to replace and supersede that certain
Joint Venture Agreement dated December 15, 1994, by and between Black Hawk and
Jacobs Investments, Inc.; Entertainment and Diversified being the assignees of
Jacobs Investments, Inc.
NOW, THEREFORE, in consideration of the foregoing, of mutual promises
of the parties hereto, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
mutually agree as follows:
ARTICLE I
DEFINITIONS
The following terms used in this operating Agreement shall have the
following meanings (unless otherwise expressly provided herein):
"Act" shall mean the Colorado Limited Liability Company Act.
"Affiliate" means, with respect to any Person, (i) any Person directly
or indirectly controlling, controlled by, or under common control with such
Person, (ii) any Person owning or controlling ten percent (10%) or more of the
outstanding voting interests of such Person, (iii) any officer, director, or
general partner of such Person, or (iv) any Person who is an officer, director,
general partner, trustee, or holder of ten percent (10%) or more of the voting
interests of any Person described in clauses (i) through (iii) of this
sentence. For purposes of this definition, the term "controls," "is controlled
by," or "is under common control with" shall mean the possession,
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direct or indirect, of the power to direct or cause the direction of the
management and policies of a Person or Entity, whether through the ownership of
voting securities, by contract or otherwise.
"Annual Operating Plan" shall have the meaning ascribed in Section
5.11 of this Operating Agreement.
"Appraisal" shall mean the following process for determining the fair
market value of an interest in the Company: The fair market value of an
interest in the Company shall be the value agreed upon by the Members, or if an
agreement cannot be reached within thirty (30) days after such value is
requested by any Member (the "Determination Date"), then within twenty (20)
business days thereafter each Member shall select a reputable qualified
appraiser, each such appraiser having no less than ten (10) years experience in
the gaming industry and each being familiar with the prices then being paid for
comparable businesses. If either Member shall fail to designate its appraiser
within said twenty (20) business day period and thereafter shall fail to do so
within three (3) days after written notice by the other party requesting such
designation, then such appraiser shall be appointed by the office of the
American Arbitration Association. The two appraisers shall separately complete
their appraisals within thirty (30) days after the date that the later of them
is designated. The two appraisers shall then meet together with the Members or
their representatives, and at such meeting each appraiser shall present to the
other a sealed letter setting forth the appraiser's judgment as to the fair
market value of the interest in the Company and attempt to persuade all Members
to reach agreement as to the value. If all of the Members (or their
representatives) do not reach agreement, and if the higher amount set forth in
either such letter shall not exceed one hundred ten percent (110%) of the lower
amount, then the value shall be the average of the amounts set forth in the two
letters. If, however, the higher amount set forth in either of the two letters
shall exceed one hundred ten percent (110%) of the lower amount, then within
ten (10) business days after the initial delivery of the sealed letters the two
appraisers shall designate a third appraiser having the same minimum
qualifications as the first two. If the first two appraisers shall fail to
agree upon the designation of a third appraiser, then the third appraiser shall
be appointed by the American Arbitration Association. The third appraiser
shall conduct such investigations and hearing as he shall deem appropriate and
within thirty (30) days after his date of designation shall choose a value in
the range of the values determined by the appraisers selected by the Members as
the fair market value as of the Determination Date. The decision of the third
appraiser shall be in writing and shall be binding upon each Member. The costs
of the Appraisal shall be shared by all Members in accordance with their
Membership Interests.
"Articles of Organization" shall mean the Articles of Organization of
the Company as filed with the Office of the Secretary of State of the State of
Colorado in the form attached as Exhibit A hereto, as the same may be amended
from time to time.
"Bankruptcy" means, with respect to any Person, (i) the making of an
assignment for the benefit of creditors, (ii) the filing of a voluntary
petition in bankruptcy, (iii) the adjudication of such Person as bankrupt or
insolvent; (iv) the filing by such Person of a petition or answer seeking for
himself or itself any reorganization, arrangement, composition, readjustment,
liquidation,
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dissolution or similar relief under a statute, law or regulation; (v) the
filing by such Person of an answer or other pleading admitting or failing to
contest the material allegation of a petition filed against him or it in any
proceeding of this nature; (vi) seeking, consenting to, or acquiescence by such
Person in the appointment of a trustee, receiver, or liquidator of him or it or
of all or any substantial part of his or its property; (vii) the commencement
of any proceeding against such Person seeking reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
statute, law or regulation, if such proceeding has not been dismissed within
120 days after such commencement; or (viii) the appointment without the consent
of such Person or acquiescence of a trustee, receiver, or liquidator of such
Person or of all or any substantial part of his or its properties, if the
appointment is not vacated or stayed within 90 days, or if within 90 days after
the expiration of any such stay, the appointment is not vacated.
"Book Basis" means the adjusted basis of an item of property as
reflected in the books of the Company, determined and maintained in accordance
with this Operating Agreement and with the capital accounting rules contained
in Treasury Regulation Section 1.704-1(b)(2)(iv).
"Budget" means the Budget proposed and adopted with respect to a
Fiscal Year of the Company pursuant to Section 5.11 of this Operating
Agreement.
"Capital Account" means the account maintained by the Company for each
Member in accordance with the provisions of Treasury Regulation Section
1.704-1(b) and Section 7.4 of this Operating Agreement.
"Capital Interest" shall mean the proportion that a Member's Capital
Account bears to the aggregate Capital Accounts of all Members whose Capital
Accounts have positive balances as adjusted from time to time.
"Capital Proceeds" means the net cash proceeds realized by the Company
resulting from (1) a Capital Transaction, (2) any refinancing of indebtedness
of the Company, or (3) the elimination of the necessity for any funded reserve
in connection with any mortgage or other indebtedness of the Company.
"Capital Transaction" means the sale, exchange, liquidation or other
disposition of, or any condemnation award or casualty loss recovery with
respect to, all or substantially all of the property of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall refer to Black Hawk/Jacobs Entertainment, LLC.
"Consent" means the written consent of a Person to do the act or thing
for which the Consent may be required.
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"Deficit Capital Account" shall mean with respect to any Member, the
deficit balance, if any, in such Member's Capital Account as of the end of the
taxable year, after giving effect to the following adjustments:
credit to such Capital Account any amount which such Member is
obligated to restore under Section 1.704-1(b)(2)(ii)(c) of the Treasury
Regulations, as well as any additions thereto pursuant to the next to last
sentence of Sections 1.704-2(g)(1) and (i)(5) of the Treasury Regulations,
after taking into account thereunder any changes during such year in
partnership minimum gain (as determined in accordance with Section 1.704-2(d)
of the Treasury Regulations) and in the minimum gain attributable to any
partner nonrecourse debt (as determined under Section 1.704-2(i)(3) of the
Treasury Regulations); and
(i) debit to such Capital Account the items described in
Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Treasury
Regulations.
This definition of Deficit Capital Account is intended to comply with the
provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and 1.704-2,
and will be interpreted consistently with those provisions.
"Depreciation" means, for each Fiscal Year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year, except that if the Gross Asset Value
of an asset differs from its adjusted basis for federal income tax purposes at
the beginning of such Fiscal Year, Depreciation shall be an amount which bears
the same ratio to such beginning Gross Asset Value as the federal income tax
depreciation, amortization, or other cost recovery deduction for such Fiscal
Year bears to such beginning adjusted tax basis; provided, however, that if the
adjusted basis for federal income tax purposes of an asset at the beginning of
such Fiscal Year is zero, Depreciation shall be determined with reference to
such beginning Gross Asset Value using any reasonable method selected by the
Manager.
"Entity" shall mean any general partnership, limited partnership,
limited liability company, corporation, joint venture, trust, business trust,
cooperative or association or any foreign trust or foreign business
organization.
"Fiscal Year" shall mean the Company's fiscal year, which shall be the
calendar year.
"Gifting Member" shall mean any Member who gifts, bequeaths or
otherwise transfers for no consideration (by operation of law or otherwise) all
or any part of its Membership Interest in accordance with the provisions of
Article IX of this Operating Agreement.
"Gross Asset Value" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
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The initial Gross Asset Value of any asset contributed by a
Member to the Company shall be the gross fair market value of such asset, as
determined by the mutual agreement of the Members, provided that the initial
Gross Asset Values of the assets contributed to the Company pursuant to Section
7.1 hereof shall be the agreed values of such assets as set forth in Section
7.1;
(i) The Gross Asset Values of all Company assets may be
adjusted to equal their respective gross fair market values, as
determined by the mutual agreement of the Members as of the following
times: (a) the acquisition of an additional interest by any new or
existing Member in exchange for more than a de minimis contribution of
property (including money); (b) the distribution by the Company to a
Member of more than a de minimis amount of property as consideration
for a Membership Interest; and (c) the liquidation of the Company
within the meaning of Treasury Regulation Section
1.704-1(b)(2)(ii)(g); provided, however, that adjustments pursuant to
clauses (a) and (b) above shall be made only if the Manager reasonably
determines that such adjustments are necessary or appropriate to
reflect the relative economic interests of the Members in the Company;
(ii) The Gross Asset Value of any Company asset
distributed to any Member shall be adjusted to equal the gross fair
market value of such asset on the date of distribution as determined
by the mutual agreement of the Members; and
(iii) The Gross Asset Values of Company assets shall be
increased (or decreased) to reflect any adjustments to the adjusted
basis of such assets pursuant to Code Section 734(b) or Code Section
743(b), but only to the extent that such adjustments are taken into
account in determining Capital Accounts pursuant to Treasury
Regulation Section 1.704-1(b)(2)(iv)(m) and Section 7.4 and
subparagraph (iv) under the definition of Net Profits and Net Losses;
provided, however, that Gross Asset Values shall not be adjusted
pursuant to subparagraph (iv) to the extent the Manager determines
that an adjustment pursuant to subparagraph (ii) of this definition is
necessary or appropriate in connection with a transaction that would
otherwise result in an adjustment pursuant to this subparagraph (iv).
If the Gross Asset Value of an asset has been determined or adjusted pursuant
to subparagraph (i), (ii) or (iv) of this definition, then such Gross Asset
Value shall thereafter be adjusted by the Depreciation taken into account with
respect to such asset for purposes of computing Net Profits and Net Losses.
"Liquidator" means the Manager or, if there is no Manager at the time
in question, such other Person as may be appointed in accordance with
applicable law who shall be responsible to take all actions related to the
winding up and distribution of assets of the Company.
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"Manager" shall mean Entertainment or any other Person that
accompanies or succeeds it in that capacity in accordance with this Operating
Agreement.
"Member" shall initially mean each of Black Hawk, Entertainment and
Diversified, in their capacities as Members, and thereafter shall mean each of
the foregoing so long as it remains a Member of the Company in accordance with
the terms of this Operating Agreement, and each person who may hereafter become
a Member in accordance with the terms of this Operating Agreement.
"Member Capital" means an amount equal to the sum of all the Members'
Capital Account balances determined immediately prior to an allocation to the
Members pursuant to Section 8.1(b) of any Disposition Gain or Disposition Loss,
increased by the aggregate amount of Disposition Gain to be allocated to the
Members pursuant to Section 8.1(b)(i) or decreased by the aggregate amount of
Disposition Loss to be allocated to the Members pursuant to Section 8.1(b)(ii).
"Membership Interest" shall mean the entire interest of a Member in
the Company, including without limitation, the right to receive distributions
(liquidation or otherwise) and allocations of profits and losses. Initial
Membership Interests of the Members are as follows, although actual voting,
governance and other rights deriving from membership, and the allocation of
them, are subject to the specific provisions of this Operating Agreement:
Black Hawk - 75%
Entertainment - 24%
Diversified - 1%
"Net Cash Flow" means the Net Profits or Net Losses of the Company as
shown on the books of the Company adjusted for any accrual items and further
adjusted by the addition of all items set forth in subsection (i) below and by
the deduction of all items set forth in subsection (ii) below:
(i) (A) the amount of Depreciation taken in computing
such taxable income; (B) all other receipts of the Company not
included in taxable income (exclusive of Capital Contributions), the
proceeds of loans and similar capital receipts provided for elsewhere;
(C) the net proceeds of sale, exchange, condemnation, destruction or
other event resulting from the disposition of any part (but not all or
substantially all) of the property owned by the Company, to the extent
not included in such taxable income; (D) amounts released from
Reserves; and (E) any other funds deemed available for distribution
and designated as Net Cash Flow by the Manager.
(ii) (A) all principal payments for the current Fiscal
Year on all loans and on similar obligations of the Company, if any;
(B) expenditures of the acquisition of property of the Company and
similar capital outlay items not deducted for federal income tax
purposes; and (C) amounts added to Reserves.
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Net Cash Flow shall be determined separately for each Fiscal Year and shall not
be cumulative.
"Net Profits" and "Net Losses" shall mean for each taxable year of the
Company an amount equal to the Company's net taxable income or loss for such
year as determined for federal income tax purposes (including separately stated
items) in accordance with Section 703 of the Code with the following
adjustments:
(i) Any items of income, gain, loss and deduction
allocated to Members pursuant to Section 8.2 shall not be taken into
account in computing Net Profits or Net Losses for purposes of this
Operating Agreement;
(ii) Any income of the Company that is exempt from federal
income tax and not otherwise taken into account in computing Net
Profits and Net Losses (pursuant to this definition) shall be added to
such taxable income or loss;
(iii) Any expenditure of the Company described in Section
705(a)(2)(B) of the Code and not otherwise taken into account in
computing Net Profits and Net Losses (pursuant to this definition)
shall be subtracted from such taxable income or loss;
(iv) In the event the Gross Asset Value of any Company
asset is adjusted pursuant to clause (ii) or (iii) of the definition
of Gross Asset Value, the amount of such adjustment shall be taken
into account as gain or loss from the disposition of such asset for
purposes of computing Net Profits and Net Losses;
(v) Gain or loss resulting from any disposition of any
Company asset with respect to which gain or loss is recognized for
federal income tax purposes shall be computed with reference to the
Gross Asset Value of the asset disposed of, notwithstanding that the
adjusted tax basis of such asset differs from its Gross Asset Value;
and
(vi) In lieu of the depreciation, amortization and other
cost recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation for
such Fiscal Year.
"Notice" means a writing containing the information required by this
Agreement to be communicated to a Person and sent by registered or certified
United States mail, postage prepaid and registered or certified with returns
receipt requested, or sent by some form of overnight express delivery to such
Person at the last known address of such Person or sent by facsimile (receipt
confirmed). All Notices shall be effective upon being deposited in the United
States mail or with such overnight express delivery service. However, the time
period in which a response to any such Notice must be given shall commence to
run from the date of delivery or attempted delivery as noted on the return
receipt of the Notice by the addressee thereof or the records of the Entity
effecting the overnight express delivery. Notwithstanding the foregoing, any
written
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communication containing such information sent to such Person actually received
by such Person shall constitute Notice for all purposes of this Agreement.
"Operating Agreement" shall mean this Operating Agreement as
originally executed and as amended from time to time.
"Person" shall mean any individual or Entity, and the heirs,
executors, administrators, legal representatives, successors and assigns of
such "Person" where the context so permits.
"Policy Board" shall mean the board established by the Members as
contemplated by Section 5.3, which Policy Board shall have full responsibility
and authority for the operation and management of the Company's business
affairs. Initially, the Policy Board shall have five members (three appointed
by Entertainment and two appointed by Black Hawk).
"Project" shall have the meaning ascribed to it in the recital
paragraphs.
"Reserves" shall mean, with respect to any fiscal period, funds set
aside or amounts allocated to such period to reserves which shall be maintained
in amounts deemed sufficient by the Members for working capital or other
reasonable business needs.
"Required Interest" shall mean Members owning 100% of the Membership
Interests of the Company.
"Selling Member" shall mean any Member which sells, assigns, or
otherwise transfers for consideration all or any portion of its Membership
Interest in accordance with the provisions of Article IX of this Operating
Agreement.
"Service" means the Internal Revenue Service.
"State" means the State of Colorado.
"Tax Matters Partner" means Entertainment.
"Transferring Member" shall, depending on the context, refer to a
Selling Member, a Gifting Member or both.
"Treasury Regulations" shall include temporary and final regulations
promulgated under the Code in effect as of the date of filing the Articles of
organization and the corresponding sections of any regulations subsequently
issued that amend or supersede such regulations.
"Withdrawal Event" shall have the meaning ascribed in Section
12.1(a)(iii) of this Operating Agreement.
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ARTICLE II
FORMATION OF COMPANY
SECTION 2.1 Members. The names and business addresses of the initial
Members are as follows:
Black Hawk Gaming & Development
Company, Inc.
2060 Broadway, Suite 400
Boulder, Colorado 80302
BH Entertainment Ltd.
c/o Jacobs Entertainment Ltd.
425 Lakeside Avenue
Cleveland, Ohio 44114
Diversified Opportunities Group Ltd.
c/o Jacobs Entertainment Ltd.
425 Lakeside Avenue
Cleveland, Ohio 44114
2.2 Formation and Name. The Company was formed as a Colorado
limited liability company as of November _____, 1996, upon the filing of
Articles of Organization with the Colorado Secretary of State. This Operating
Agreement constitutes the sole agreement, and supersedes any prior oral or
written agreements, of the Members relating to the Company.
2.3 Name. The name of the Company is Black Hawk/Jacobs
Entertainment, LLC.
2.4 Principal Place of Business. The principal place of business
of the Company shall be 2060 Broadway, Suite 400, Boulder, Colorado 80302.
The Company may locate its places of business and registered office at any
other place or places as the Manager may from time to time determine.
2.5 Registered Office and Registered Agent. The Company's initial
registered office shall be at the office of its registered agent at 2060
Broadway, Suite 400, Boulder, Colorado 80302, and the name of its initial
registered agent at such address shall be Black Hawk Gaming & Development
Company, Inc. The registered office and registered agent may be changed from
time to time by filing the address of the new registered office and/or the name
of the new registered agent with the Secretary of State pursuant to the Act.
2.6 Term. The term of the Company shall commence upon the filing
of the Articles of Organization with the Colorado Secretary of State and shall
expire on December 31, 2036, or
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such later date as may be fixed by amendment of this Operating Agreement,
unless the Company is earlier dissolved in accordance with either the
provisions of this Operating Agreement or the Act.
ARTICLE III
BUSINESS OF COMPANY
3.1 Permitted Businesses. The business of the Company shall be
the development, ownership and management of the Project and in connection
therewith:
(a) to accomplish any lawful business whatsoever, or
which shall at any time appear conducive to or expedient for the
protection or benefit of the Company and its assets;
(b) to exercise all other powers necessary to or
reasonably connected with the Company's business which may be legally
exercised by limited liability companies under the Act; and
(c) to engage in all activities necessary, customary,
convenient, or incident to any of the foregoing.
ARTICLE IV
GENERAL ECONOMIC TERMS AND SECURITY
4.1 Purchase Agreement Terms. Subject to the terms of the
Purchase Agreement, Diversified is acquiring 190,476 Shares (as defined in the
Purchase Agreement) and is loaning to Black Hawk an amount that ultimately will
equal $6,000,000. The loan is evidenced by a Convertible Note of even date
herewith (the "Note"). The Note provides, among other things, that prior to
payment in full of the principal balance of the Note, all or any portion of the
unpaid principal balance shall be convertible into Shares of Black Hawk at any
time upon the election of Diversified and, if not yet fully converted, shall,
unless the provisions of Article XI of this Operating Agreement apply, be
automatically converted into Shares at such time as (i) Diversified has
acquired or received all necessary and appropriate regulatory, licensing and
other approvals from the Colorado Division of Gaming (the "Division"), the
Colorado Limited Gaming Control Commission (the "Commission") and the State and
local liquor licensing authorities and (ii) the Commission approves the
issuance to the Company of a retail gaming license (such date of conversion
being hereafter referred to as the "Conversion Date"). The proceeds of the
loan received by Black Hawk pursuant to the Note shall be contributed to the
capital of the Company by Black Hawk.
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4.2 NASD Approval. Notwithstanding anything to the contrary
contained in Section 4.1, in the event Black Hawk does not obtain NASD Approval
(as defined in the Purchase Agreement), Diversified shall have no further
obligation to make any investment in or loan to Black Hawk beyond the
acquisition of the 190,476 Shares and the initial $1,500,000 loan for the First
Note (as defined in the Purchase Agreement). At such time, the First Note
shall be deemed to have been cancelled, the 190,476 Shares acquired by
Diversified shall be deemed to have been redeemed by Black Hawk, and
Diversified shall be deemed to have made a $2,500,000 capital contribution to
the Company and the parties' Membership Interests and other interests in the
Company shall be adjusted so that Black Hawk shall have a 50% Membership
Interest and Diversified and Entertainment shall have an aggregate 50%
Membership Interest and, thereafter, the parties shall make such capital
contributions as are necessary to equalize their Capital Accounts in accordance
with the foregoing.
4.3 Security. As security for Black Hawk's obligations to
Diversified under the Note, pursuant to the terms of an Assignment, Pledge and
Security Agreement (the "Security Agreement") of even date herewith, Black Hawk
is granting Diversified a first priority lien in 100% of Black Hawk's
Membership Interest and the products and proceeds thereof, including but not
limited to its Capital Interest, interest in Net Profits and Net Losses and Net
Cash Flow of the Company, and all other rights and privileges associated with
Black Hawk's membership in the Company; provided, however, that Diversified's
remedies upon an event of default under the Note shall be limited (i) to
obtaining accrued but unpaid interest thereon and (ii) in the same manner as if
it exercised its Purchase Right described in Sections 11.2(a) and (b), below,
(provided that all of the events described in Section 11.2(b) occur).
ARTICLE V
MANAGEMENT
5.1 Manager.
(a) Subject to the other provisions of this Operating
Agreement, the business and affairs of the Company shall be managed by the
Manager. The Manager shall direct, manage and control the business of the
Company to the best of its ability. Except for decisions, actions or
situations in which the approval of the Policy Board or the Members is
expressly required by this Operating Agreement or by non-waivable provisions of
applicable law, the Manager shall have full and complete authority, power and
discretion to manage and control the business, affairs and properties of the
Company, to make all decisions regarding those matters and to perform any and
all other acts or activities customary or incident to the management of the
Company's business.
(b) No Person may serve as Manager unless it is a Member
and holds at least a twenty percent (20%) Membership Interest in the Company.
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(c) The Members hereby designate Entertainment as the
initial Manager; provided, however, that from and after the Conversion Date,
Black Hawk also shall be designated as a Manager and, thereafter, Entertainment
and Black Hawk shall have equal rights as Manager. Notwithstanding the
foregoing, following the Conversion Date, Entertainment shall continue to serve
as the Tax Matters Partner.
5.2 Powers and Duties of Manager.
(a) Without limiting the generality of Section 5.1, but
subject to the limitations set forth in Section 5.4, the Manager shall have the
power and authority, on behalf of the Company to:
(i) Cause the Company to pay all required taxes,
rents, assessments and other obligations of the Company;
(ii) On behalf of the Company, execute and
supervise contracts to be entered into by the Company and execute all
other instruments and documents, including, without limitation,
checks, drafts, notes and other negotiable instruments, mortgages or
deeds of trust, security agreements, financing statements, documents
providing for the acquisition, mortgage or disposition of the
Company's property, assignments, bills of sale, leases and any other
instruments or documents necessary, in the opinion of the Manager, to
the business of the Company;
(iii) Borrow money for the Company from banks,
other lending institutions, Members, or Affiliates of Members in
accordance with this Agreement or on such terms as may be approved by
the Members, and in connection therewith, to hypothecate, encumber and
grant security interests in the assets of the Company to secure
repayment of the borrowed sums. No debt shall be contracted or
liability incurred by or on behalf of the Company except to the extent
expressly provided in this Operating Agreement or as approved by the
Policy Board;
(iv) Purchase liability and other insurance to
protect the Company's property and business;
(v) Invest any Company funds temporarily (by way
of example but not limitation) in time deposits, short-term
governmental obligations, commercial paper or other investments; and
(vi) Take any action and do and perform all other
acts which (A) are necessary or appropriate to the conduct of the
Company's business, including all actions necessary to fulfill the
Company's obligations to maintain the development of the Project, but
(B) do not require approval of the Policy Board under this Operating
Agreement,
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unless such action or acts are specifically authorized by the Budget
or the Annual Operating Plan.
(b) The Manager shall be responsible for and hereby
covenants that:
(i) as Tax Matters Partner, it will provide: (A)
notice of each Member's name, address and profits interest to be
furnished to the Service in accordance with Section 6223(c) of the
Code, provided the Tax Matters Partner has knowledge of such Member's
name, address and profits interest, (B) notice of all administrative
and judicial proceedings for the adjustment at the partnership
(Company) level of partnership (Company) items shall be sent to each
known Member, and (C) if the Service notifies the Company of any
administrative proceeding, notice will be sent to the Service in
accordance with Section 6230(e) of the Code;
(ii) it will exercise good faith in all activities
relating to the conduct of the business of the Company and will take
no action with respect to the business and property of the Company
which is not reasonably related to the achievement of the purpose of
the Company;
(iii) extended risk insurance in favor of the
Company acceptable to the Policy Board and workmen's compensation and
public liability insurance in favor of the Company in amounts
satisfactory to the Policy Board will be kept in force during the term
of the Company as to property of the Company;
(iv) all funds of the Company will be deposited in
a separate bank account or accounts as shall be determined by the
Manager;
(v) at the Company's cost and expense, it will
provide or cause to be provided each Member (A) within thirty (30)
days after the end of each fiscal quarter, a report of operations for
such quarter, including a balance sheet, a statement of income and
expenses and a cash flow statement for the quarter then ended, (B)
within ninety (90) days after the end of each Fiscal Year of the
Company, reviewed and compiled and, if necessary, audited financial
statements prepared by Deloitte & Touche (or such other independent
accountants as may be selected by the Members) in accordance with
generally accepted accounting principles and such financial
information with respect to such Fiscal Year of the Company as shall
be reportable for federal and state income tax purposes, (C) tax
returns for the Company as set forth in Section 8.10; and (D) regular
and periodic (but not less than quarterly) reports and updates
regarding the Project;
(vi) comply with all contracts, agreements and
obligations and all governmental rules, regulations, laws, ordinances
and requirements, applicable to the Project and management of the
Company; and
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(vii) in hiring professionals on behalf of the
Company, it will consider, on a reasonable basis, any business issues
or concerns raised by any Member with respect to any one or more
candidates for such engagement.
5.3 Policy Board.
(a) Subject to the authority granted to the Manager, the
Policy Board shall have full authority for operating and managing the Company
and the Project. Actions and decisions of the Policy Board shall require the
vote or Consent of a majority of the members of the Policy Board. The Policy
Board shall make all decisions on behalf of the Company not specifically
reserved herein to the Manger.
(b) There shall be five Members of the Policy Board. The
Policy Board members and the Member of the Company appointing such individuals
are as follows:
Entertainment Black Hawk
------------- ----------
1) Jeffrey P. Jacobs 1) Robert D. Greenlee
2) David C. Grunenwald 2) Stephen R. Roark
3) Robert H. Hughes
All members of the Policy Board shall serve in such capacity without
compensation from the Company. Each Member of the Company may at any time and
from time to time upon Notice to the other Members replace any of its designees
to the Policy Board should such designee die, become disabled, resign or for
any reason cease to serve on the Policy Board.
(c) From and after the date on which Diversified controls
Black Hawk's Board of Directors, one of the Members of the Policy Board
designated by Entertainment shall resign and Black Hawk shall have the right to
nominate the fifth member of the Policy Board. If, however, Jeffrey P. Jacobs
("Jacobs") ceases to be Chief Executive Officer or Chairman of the Board of
Black Hawk, the Policy Board shall consist of six members, with three members
being designated by each of Entertainment and Black Hawk and thereafter
decisions of the Policy Board shall require the vote or consent of four of the
members of the Policy Board.
5.4 Restrictions on Authority of the Manager.
The Manager shall not have the authority to, and covenants and
agrees that it shall not, do any of the following acts without the majority
Consent of the members of the Policy Board:
(a) Cause or permit the Company to engage in any activity
that is not consistent with the purposes of the Company as set forth in Section
3.1 hereof;
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(b) Do any act in contravention of this Operating
Agreement;
(c) Do any act which would make it impossible to carry on
the ordinary business of the Company, except as otherwise provided in this
Operating Agreement;
(d) Confess a judgment against the Company or execute an
assignment for the benefit of creditors;
(e) Utilize Company property, or assign rights in
specific property of the Company, for other than a Company purpose;
(f) Perform any act that would cause the Company to
conduct business in a state which has neither enacted legislation which permits
limited liability' companies to organize in such state nor permits the Company
to register to do business in such state as a foreign limited liability
company;
(g) Cause the Company to voluntarily take any action that
would cause Bankruptcy of the Company;
(h) Cause the Company to acquire any equity or debt
securities of any Member or any of its Affiliates, or otherwise make loans to
any Member or any of its Affiliates;
(i) Direct the business and affairs of the Company and
exercise the rights and powers granted by Section 5.2 in a manner that would
cause or effect a significant change in the nature of the Company's business;
(j) Cause the Company to admit any additional Members;
(k) Sell, lease, encumber or otherwise dispose of all or
any part of the Project or Company assets, except for a liquidating sale in
connection with the dissolution of the Company or the casual sale or other
disposition of Company assets with a fair market value of less than $10,000 in
a single transaction or $100,000 in the aggregate;
(l) Except as otherwise contemplated by this Agreement,
cause the Company to enter into any contract or obligation in excess of
$50,000;
(m) Borrow money on behalf of the Company;
(n) Except as otherwise contemplated by this Agreement,
cause the Company to enter into any contract or agreement with any Affiliate of
any Member, unless the compensation provided thereunder is in accordance with
Section 6.7 and the services to be provided are approved by the Manager and are
reasonably necessary for the Company's business;
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(o) Cause dissolution of the Company;
(p) Establish, add to and release funds from Reserves;
(q) Cause the Company to enter into any joint venture,
partnership or other Entity; or
(r) Agree or consent to any material amendment of, or the
execution of, any Agreement, contract or other document relating to the
Project.
5.5 Duties of Manager and Policy Board. Each of the Manager and
Policy Board shall perform their respective duties in good faith, in a manner
each reasonably believes to be in the best interests of the Company, and with
such care as an ordinarily prudent person in a like position would use under
similar circumstances.
5.6 Managers and Members of the Policy Board Have No Exclusive
Duty to Company. Neither the Manager nor the members of the Policy Board shall
be required to manage the Company as its sole and exclusive function and each
(and/or any Member) (i) may have other business interests and may engage in
other activities in addition to those relating to the Company, including,
without limitation, subject to this Agreement, and the Master Joint Venture
Agreement (as defined in the Purchase Agreement), participation in ventures
which compete, or may compete, with the business of the Company and (ii) shall
incur no liability to the Company or to any of the Members as a result of
engaging in any such other business or venture.
5.7 Bank Accounts. The Manager may from time to time open bank
accounts in the name of the Company, and the Policy Board shall designate the
sole signatories on such accounts.
5.8 Resignation. The Manager of the Company may resign at any
time by giving Notice to the Members. Any such resignation of a Manager shall
take effect upon receipt of Notice thereof or at such later time as shall be
specified in such Notice; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
The failure of a Manager to satisfy or to continue to satisfy the requirements
of Section 5.1(b) shall be deemed to constitute the resignation of such
Manager, effective immediately and without Notice or any further action upon
such failure. Upon resignation of a Manager, until a new Manager is appointed
pursuant to Section 5.8, the management of the Company shall revert to and be
vested in the Policy Board. The resignation of a Manager shall not affect the
former Manager's rights as a Member and shall not constitute a withdrawal of a
Member.
5.9 Vacancies. Any vacancy occurring for any reason in the
position of Manager of the Company shall be filled by Entertainment until the
Conversion Date and, thereafter, by the Members holding the Required Interest.
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5.10 Right to Rely on the Manager. Any Person dealing with the
Company may rely (without duty of further inquiry) upon a certificate signed by
the Manager as to:
(a) The identity of the Manager or any Member;
(b) The existence of nonexistence of any fact or facts
which contribute a condition precedent to acts by the Manager or which are in
any other manner germane to the affairs of the Company;
(c) The Persons who are authorized to execute and deliver
any instrument or document of the Company; or
(d) Any act or failure to act by the Company or any other
matter whatsoever involving the Company or any Member with respect to the
business of the Company.
5.11 Annual Operating Plan and Budget.
(a) The Manager shall prepare for the approval of the
Policy Board, which approval shall not be unreasonably withheld, each Fiscal
Year (no later than thirty (30) days prior to the end of the then current
Fiscal Year) a business plan ("Annual Operating Plan") for the next Fiscal
Year. Each Annual Operating Plan shall consist of a strategic plan setting
forth the Company's goals and objectives regarding the Project during the next
Fiscal Year. Any such Annual Operating Plan shall also include such other
information or other matters necessary in order to inform the Policy Board of
the Company's business and prospects and to enable the Policy Board to make an
informed decision with respect to their approval of such Annual Operating Plan.
(b) The Manager shall prepare for the approval of the
Policy Board, which approval shall not be unreasonably withheld, each Fiscal
Year (no later than thirty (30) days prior to the end of the then current
Fiscal Year) a budget ("Budget") for the next Fiscal Year. If the proposed
Budget for any given year is not approved by the Policy Board by the first day
of such year, then, until such time as the Members approve a Budget for that
year, the Manager shall be authorized to expend only such funds as are required
to preserve and protect the value of the Project and satisfy the Company's
obligations under existing contracts with Persons.
ARTICLE VI
RIGHTS AND OBLIGATIONS OF MEMBERS
6.1 Limitation of Liability. Each Member's liability shall be
limited as set forth in this Operating Agreement, the Act and other applicable
law. A Member will not be personally liable for any debts, obligations,
liabilities or losses of the Company beyond its respective Capital
Contributions and any obligation of a Member under Section 7.1, 7.2 or 7.4 to
make Capital
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Contributions, as specifically agreed in accordance with Section 7.5 or as
otherwise required by law.
6.2 List of Members. Upon written request of any Member, the
Manager shall provide a list showing the names, addresses and Membership
Interests of all Members.
6.3 Company Books. In accordance with the Act, at the expense of
the Company, the Manager shall maintain and preserve, during the term of the
Company, and for five (5) years thereafter, all books, records and accounts of
all operations and expenditures of the Company and other relevant Company
documents. Upon reasonable request, each Member (or its representative) shall
have the right, during ordinary business hours, to inspect and copy such
Company documents at the requesting Member's expense. In addition to complete
accounting records, at a minimum, the Company shall keep at its principal place
of business the following records:
(a) A current list of the full name and last known
business, residence, or mailing address of each Member, assignee, member of the
Policy Board and Manager, both past and present;
(b) A copy of the Articles of Organization of the Company
and all amendments thereto, together with executed copies of any powers of
attorney pursuant to which any amendment has been executed;
(c) Copies of the Company's federal, state, and local
income tax returns and reports, if any, for the four most recent years;
(d) Copies of the Company's currently effective written
Operating Agreement, copies of any writings permitted or required with respect
to a Member's obligation to contribute cash, property or services, and copies
of any financial statements of the Company for the three most recent years;
(e) Minutes of every annual, special meeting and
court-ordered meeting of the Manager or the Members; and
(f) Any written consents obtained from Members for
actions taken by Members without a meeting and from members of the Manager for
actions taken by the Manager without a meeting.
6.4 Liability of a Member to the Company. A Member who receives a
distribution in violation of this Agreement or the Act is liable to the Company
to the extent now or hereafter provided by the Act.
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6.5 No Commitments on Behalf of the Company. Except as provided
in this Operating Agreement, each Member agrees that it will not take any
action which will commit or bind, or purport to commit or bind, the Company or
any other Member to any act, agreement, contract or undertaking of any kind or
nature whatsoever, or incur debt in the name of or on behalf of the Company or
create any lien upon any of the properties or the other assets of the Company
or hold itself out as authorized to act on behalf of the Company or any Member,
unless permitted by this Operating Agreement or expressly authorized in advance
to do so by approval of the other Member. Each Member agrees that it will
indemnify the Company and the other Member(s) against any and all claims,
damages, losses and liabilities to which the Company or any other Member may be
or become subject arising or resulting from the breach by such Member of this
Section 6.5.
6.6 Payment of Costs and Expenses. All reasonable costs and
expenses of the Company and (to the extent fairly allocable to the Company) of
the Manager and/or the Policy Board will be borne by and charged to the
Company, including, without limitation: (i) out-of pocket expenses incurred by
the Company, the Manager or the Policy Board in connection with the
organization of the Company; (ii) fees and expenses of consultants, appraisers,
custodians, counsel, independent public accountants, actuaries and other
agents; (iii) finders, placement, brokerage and other similar fees; (iv)
out-of-pocket costs of meetings with (including travel), and reports to, the
Members or the Policy Board; (v) costs and expenses incurred for the
preparation and distribution of financial reports, tax reports, and other
information for the benefit of the Members or as specifically requested by a
Member; (vi) any taxes, fees or other governmental charges levied against the
Manager or its income or assets or in connection with its business or
operations; and (vii) costs of any agency or administrative actions or
hearings, any governmental action or third-party litigation or other matters
that are the subject of indemnification pursuant to Article X hereof; (viii)
costs of winding-up and liquidating the Company, and (ix) all other reasonable
costs and expenses of the Company, the Manager or the Policy Board in
connection with this Agreement.
6.7 Member or Affiliates Dealing With Company.
(a) A Member or any Affiliate of a Member shall have the
right to contract or otherwise deal with the Company for the sale of goods or
services only if (i) the terms and conditions of such contract are fully
disclosed in writing to all Members not less than thirty (30) business days
prior to the effective date of such contract, (ii) compensation paid or
promised for such goods or services is reasonable and competitive (i.e., at
fair market value) and is paid only for goods or services actually furnished to
the Company, (iii) the goods or services to be furnished are reasonable for and
necessary to the Company, and (iv) the terms for the furnishing of such goods
and services are at least as favorable to the Company as would be obtainable in
an arm's length transaction. Any contract covering such transactions shall be
in writing. Any payment made to a Member or any Affiliate of a Member for such
goods or services shall be fully disclosed to all Members, and no Affiliate
shall, by the making of lump-sum payments to any other Person for disbursement
by such other Person, circumvent the provisions of this Section 6.7.
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(b) Notwithstanding the provisions of Section 6.7(a), no
Member or Affiliate of a Member shall:
(i) participate in any arrangement which would
circumvent the provisions of Section 6.7(a), including but not limited
to receipt of a rebate or give-up; or
(ii) receive any insurance brokerage fee or write
any insurance policy covering the Company.
6.8 Member Loans. Nothing in this Operating Agreement shall
prevent any Member from making secured or unsecured loans to the Company by
agreement with the Company and approval of all of the Members; provided,
however, each Member shall be entitled to proportionately participate in making
such loan(s) on the same terms as made by any Member.
ARTICLE VII
CAPITAL CONTRIBUTIONS, MEMBER LOANS,
FINANCIAL OBLIGATIONS AND CAPITAL ACCOUNTS
7.1 Members' Capital Contributions.
(a) As its Capital Contribution to the Company,
Entertainment and Diversified have or will assign, or cause to be assigned, and
contribute those items set forth on Exhibit B. For Capital Account purposes,
the Members acknowledge that the Agreed Value of such Capital Contribution is
$5,000,000.
(b) As its Capital Contribution to the Company, Black
Hawk has or will assign, or cause to be assigned, and contribute those items
set forth on Exhibit B. For Capital Account purposes, the Members acknowledge
that the Agreed Value of such Capital Contribution is $15,000,000.
7.2 Additional Capital. Except as may be required or desired by
the Policy Board, no Member shall be required to contribute capital to the
Company beyond its initial Capital Contribution. Additional Capital
Contributions shall be made by each of the Members in proportion to their
Membership Interests.
7.3 Provisions Not for Benefit of Creditors. None of the terms,
covenants, obligations or rights contained in this Article VII is or shall be
deemed to be for the benefit of any person or Entity other than the Members and
the Company, and no such third person shall under any circumstances have any
right to compel any actions or payments by the Manager and/or the Members.
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7.4 Capital Accounts.
(a) A separate Capital Account will be maintained for
each Member. Each Member's Capital Account will be increased by (1) the amount
of money contributed by such Member to the Company; (2) the fair market value
of property contributed by such Member to the Company (net of liabilities
secured by such contributed property that the Company is considered to assume
or take subject to under Section 752 of the Code); (3) allocations to such
Member of Net Profits; (4) any items in the nature of income and gain which are
specially allocated to the Member pursuant to paragraphs (a), (b), (c), (d),
(e), (i) and/or (j) of Section 8.2; and (5) allocations to such Member of
income described in Section 705(a)(1)(B) of the Code. Each Member's Capital
Account will be decreased by (1) the amount of money distributed to such Member
by the Company; (2) the fair market value of property distributed to such
Member by the Company (net of liabilities secured by such distributed property
that such Member is considered to assume or take subject to under Section 752
of the Code); (3) allocations to such Member of expenditures described in
Section 705(a)(2)(B) of the Code; (4) any items in the nature of deduction and
loss that are specially allocated to the Member pursuant to paragraphs (a),
(b), (c), (d), (e), (f), (i) and/or (j) of Section 8.2; and (5) allocations to
the account of such Member of Net Losses.
(b) In the event of a permitted sale or exchange of a
Membership Interest in the Company, the Capital Account of the transferor shall
become the Capital Account of the transferee to the extent it relates to the
transferred Membership Interest in accordance with Section 1.704-1(b)(2)(iv) of
the Treasury Regulations.
(c) The manner in which Capital Accounts are to be
maintained pursuant to this Section 7.4 is intended to comply with the
requirements of Section 704(b) of the Code and the Treasury Regulations
promulgated thereunder. If, in the opinion of the Company's accountants, the
manner in which Capital Accounts are to be maintained pursuant to the preceding
provisions of this Section 7.4 should be modified in order to comply with
Section 704(b) of the Code and the Treasury Regulations thereunder, then
notwithstanding anything to the contrary contained in the preceding provisions
of this Section 7.4, the method in which Capital Accounts are maintained shall
be so modified; provided, however, that any change in the manner of maintaining
Capital Accounts shall not materially alter the economic agreement between or
among the Members.
(d) Upon liquidation of the Company (or any Member's
Membership Interest or an assignee's Membership Interest, except as otherwise
provided in this Operating Agreement), liquidating distributions will be made
in accordance with the positive Capital Account balances of the Members and
assignees, as determined after taking into account all Capital Account
adjustments for the Company's taxable year during which the liquidation occurs.
Liquidation proceeds will be paid in accordance with Section 12.3(b). The
Company may offset damages for breach of this Operating Agreement by a Member
or assignee whose interest is liquidated (either upon the withdrawal of the
Member or the liquidation of the Company) against the amount otherwise
distributable to such Member.
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(e) Except as otherwise required in the Act (and subject
to Sections 6.1 and 6.4), no Member or assignee shall have any liability to
restore all or any portion of a deficit balance in such Member's or assignee's
Capital Account.
7.5 Withdrawal or Reduction of Members' Contributions
(a) A Member shall not receive out of the Company's
property any part of its Capital Contribution until all liabilities of the
Company, except liabilities to Members on account of their Capital
Contributions, have been paid or there remains property of the Company
sufficient to pay them.
(b) A Member, irrespective of the nature of its Capital
Contribution, has only the right to demand and receive cash in return for its
Capital Contribution.
ARTICLE VIII
ALLOCATIONS, DISTRIBUTIONS, ELECTIONS AND REPORTS
8.1 (a) Allocations of Profits and Losses from Operations.
Subject to Section 8.1(b) and 8.2 the Net Profits and Net Losses of the Company
for each Fiscal Year shall be allocated to the Members in proportion to their
respective Membership Interests.
(b) Allocations of Gain or Loss Upon Sale or Other Disposition
of the Property Upon Liquidation of the Company. The Net Profits or Net Losses
from the sale or other disposition of the property or any portion thereof (such
Net Profits or Net Losses determined by reference to the Book Basis of such
property to the Company, and without including any income from interest on any
deferred portion of the sale price) ("Disposition Gain" and Disposition Loss,"
respectively) for each fiscal year of the Company shall be allocated to the
Members as follows:
(i) Disposition Gain. Subject to the allocations set forth in
Sections 8.2, Disposition Gain shall be allocated to the
Members as follows:
(A) First, to any Members with deficit balances in their
respective Capital Accounts, until such balances are
restored to zero;
(B) Second, among the Members in such proportions and in
such amounts as would result in the Capital Account
balance of each Member equaling, as nearly as
possible, the amount of the distribution that such
Member would receive if an amount equal to the Member
Capital were distributed to the Members pursuant to
Section 8.4; and
(C) Any remaining Disposition Gain shall be allocated to
the Members in accordance with their respective
Percentage Interests.
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(ii) Disposition Loss. Subject to the allocations set forth in
Sections 8.2, Disposition Loss shall be allocated to the
Members as follows:
(A) First, to those Members with positive balances in
their respective Capital Accounts in amounts equal to
their respective Capital Account balances; provided,
however, that if the amount of Disposition Loss to be
allocated is less than the sum of the Capital Account
balances of all Members having positive Capital
Account balances, then the Disposition Loss shall be
allocated to such Members in such proportions and in
such amounts as would result in the Capital Account
balance of each such Member equaling, as nearly as
possible, the amount of the distribution that such
Member would receive if an amount equal to the Member
Capital were distributed to such Members pursuant to
Section 8.4; and
(B) Any remaining Disposition Loss shall be allocated to
the Members in accordance with their respective
Membership Interests.
(iii) Interest Income on Sale. Income from interest on any deferred
portion of the Net Capital Proceeds with respect to a sale or other
disposition of Property shall not be deemed to be gain on such sale,
and such income shall be considered an item of gross income and
allocated to the Member receiving the interest to which such income is
attributable.
8.2 Special Allocations to Capital Accounts and Certain Other
Income Tax Allocations. Notwithstanding Section 8.1 hereof:
(a) In the event any Member unexpectedly receives any
adjustments, allocations, or distributions described in Sections
1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Treasury Regulations, which create
or increase a Deficit Capital Account of such Member, then items of Company
income and gain (consisting of a pro rata portion of each item of Company
income, including gross income, and gain for such year and, if necessary, for
subsequent years) shall be specially allocated to such Member in an amount and
manner sufficient to eliminate, to the extent required by the Treasury
Regulations, the Deficit Capital Account so created as quickly as possible. It
is the intent that this Section 8.2(a) be interpreted to comply with the
alternate test for economic effect set forth in Section 1.704-1(b)(2)(ii)(d) of
the Treasury Regulations.
(b) In the event any Member would have a Deficit Capital
Account at the end of any Company taxable year which is in excess of the sum of
any amount that such Member is obligated to restore to the Company under
Section 1.704-1(b)(2)(ii)(c) of the Treasury Regulations and such Member's
share of minimum gain as defined in Section 1.704-2(g)(1) of the Treasury
Regulations (which is also treated as an obligation to restore in accordance
with Section 1.704-1(b)(2)(ii)(d) of the Treasury Regulations), the Capital
Account of such Member shall be specially credited with items of Membership
income (including gross income) and gain in the amount of such excess as
quickly as possible.
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(c) Notwithstanding any other provision of this Section
8.2, if there is a net decrease in the Company's minimum gain as defined in
Treasury Regulation Section 1.704-2(d) during a taxable year of the Company,
then, the Capital Account of each Member shall be allocated items of income
(including gross income) and gain for such year (and if necessary for
subsequent years) equal to that Member's share of the net decrease in Company
minimum gain. This Section 8.2(c) is intended to comply with the minimum gain
chargeback requirement of Section 1.704-2 of the Treasury Regulations and shall
be interpreted consistently therewith. If (i) in any taxable year that the
Company has a net decrease in the Company's minimum gain, (ii) the minimum gain
chargeback requirement would cause a distortion in the economic arrangement
among the Members, and (iii) it is not expected that the Company will have
sufficient other income to correct that distortion, then the Manager may in its
discretion (and shall, if requested to do so by a Member) seek to have the
Internal Revenue Service waive the minimum gain chargeback requirement in
accordance with Treasury Regulation Section 1.704-2(f)(4).
(d) Items of Company loss, deduction and expenditures
described in Section 705(a)(2)(B) which are attributable to any nonrecourse
debt of the Company and are characterized as partner (Member) nonrecourse
deductions under Section 1.704-2(i) of the Treasury Regulations shall be
allocated to the Members' Capital Accounts in accordance with said Section
1.704-2(i) of the Treasury Regulations.
(e) Beginning in the first taxable year in which there
are allocations of "nonrecourse deductions" (as described in Section 1.704-2(b)
of the Treasury Regulations) such deductions shall be allocated to the Members
in the same manner as Net Profit or Net Loss is allocated for such period.
(f) In accordance with Section 704(c)(1)(A) of the Code
and Section 1.704-1(b)(2)(i)(iv) of the Treasury Regulations, if a Member
contributes property with a fair market value that differs from its adjusted
basis at the time of contribution, income, gain, loss and deductions with
respect to the property shall, solely for federal income tax purposes (and not
for Capital Account purposes), be allocated among the Members so as to take
account of any variation between the adjusted basis of such property to the
Company and its fair market value at the time of contribution.
(g) Pursuant to Section 704(c)(1)(B) of the Code, if any
contributed property is distributed by the Company other than to the
contributing Member within five years of being contributed, then, except as
provided in Section 704(c) (2) of the Code, the contributing Member shall,
solely for federal income tax purposes (and not for Capital Account purposes),
be treated as recognizing gain or loss from the sale of such property in an
amount equal to the gain or loss that would have been allocated to such Member
under Section 704(c) (1)(A) of the Code if the property had been sold at its
fair market value at the time of the distribution.
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(h) In the case of any distribution by the Company to a
Member or assignee, such Member or assignee shall, solely for federal income
tax purposes (and not for Capital Account purposes), be treated as recognizing
gain in an amount equal to the lesser of:
(i) the excess (if any) of (A) the fair market
value of the property (other than money) received in the distribution
over (B) the adjusted basis of such Member's Membership Interest or
assignee's Membership Interest in the Company immediately before the
distribution reduced (but not below zero) by the amount of money
received in the distribution, or
(ii) the Net Precontribution Gain (as defined in
Section 737(b) of the Code) of the Member or assignee. The Net
Precontribution Gain means the net gain (if any) which would have been
recognized by the distributes Member or assignee under Section
704(c)(1)(B) of the Code of all property which (1) had been
contributed to the Company within five years of the distribution, and
(2) is held by the Company immediately before the distribution, had
been distributed by the Company to another Member or assignee. If any
portion of the property distributed consists of property which had
been contributed by the distributes Member or assignee to the Company,
then such property shall not be taken into account under this Section
8.2(h) and shall not be taken into account in determining the amount
of the Net Precontribution Gain. If the property distributed consists
of an interest in an Entity, the preceding sentence shall not apply to
the extent that the value of such interest is attributable to the
property contributed to such Entity after such interest had been
contributed to the Company.
(i) All recapture of income tax deductions resulting from
sale or disposition of company property shall be allocated to the Member or
Members to whom the deduction that gave rise to such recapture was allocated
hereunder to the extent that such Member is allocated any gain from the sale or
other disposition of such property.
(j) Any credit or charge to the Capital Accounts of the
Members pursuant to Sections 8.2(a), (b), (c), (d), and/or (e) hereof shall be
taken into account in computing subsequent allocations of profits and losses
pursuant to Section 8.1, so that the net amount of any items charged or
credited to Capital Accounts pursuant to Sections 8.1 and 8.2(a), (b), (c),
(d), and/or (e) shall, to the extent possible, be equal to the net amount that
would have been allocated to the Capital Account of each Member pursuant to the
provisions of this Article VIII if the special allocations required by Sections
8.2(a), (b), (c), (d), and/or (e) hereof had not occurred.
8.3 INTENTIONALLY OMITTED.
8.4 Distributions. Except as provided in Section 12.3, all
Company Net Cash Flow, Capital Proceeds, or other cash or property shall be
distributed at least quarterly, after payment of debts of the Company to the
extent required (including the payment of debts to Members) and the setting
aside of any Reserves which the Members deem reasonably necessary for
contingent,
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unforeseen or unmatured Company obligations, to the Members in the same manner
as Net Profits and Net Losses are allocated as set forth in Section 8.1.
8.5 Limitation Upon Distributions. No distribution shall be
declared and paid unless, after the distribution is made, the then fair market
value of the assets of the Company are in excess of all liabilities of the
Company, except liabilities to Members on account of their contributions.
8.6 Priority and Return of Capital. Except as may be expressly
provided in this Article VIII, no Member or assignee shall have priority over
any other Member or assignee, either as to the return of Capital Contributions
or as to Net Profits, Net Losses or distributions; provided that this Section
shall not apply to loans (as distinguished from Capital Contributions) which a
Member has made to the Company.
8.7 Accounting Principles. The profits and losses of the Company
shall be determined in accordance with generally accepted accounting principles
applied on a consistent basis.
8.8 Interest on and Return of Capital Contributions. No Member
shall be entitled to interest on its Capital Contribution or to return of its
Capital Contribution, except as otherwise specifically provided for herein.
8.9 Accounting Period. The Company's accounting period shall be
the calendar year.
8.10 Returns and Elections. The Manager shall cause the
preparation and timely filing of all tax returns required to be filed by the
Company pursuant to the Code and all other tax returns deemed necessary and
required in each jurisdiction in which the Company does business. Copies of
such returns, or pertinent information therefrom, shall be furnished to the
Members within a reasonable time after the end of the Company's Fiscal Year.
All elections permitted to be made by the Company under federal or
state tax laws shall be made by the Manager with the prior approval and
direction of the Members.
8.11 Distributions In Kind. No Member shall be entitled to demand
and receive property other than cash in return for his Capital Contributions to
the Company. No Company assets shall be distributed in kind except as and in
such manner as may be specifically agreed and approved by the Members. The
amount by which the fair market value of any property to be distributed in kind
to the Members exceeds or is less than the tax basis of such property shall, to
the extent not otherwise recognized by the Company, be taken into account in
computing Net Profits and Net Losses of the Company for purposes of allocations
and distributions to the Members under this Article VIII.
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ARTICLE IX
ASSIGNMENTS AND TRANSFERS
9.1 General. Except for the pledge and assignment by Black Hawk
to Diversified of its Membership Interest and as otherwise specifically
provided herein, neither a Member nor an assignee shall have the right to:
(a) sell, assign, transfer, exchange, pledge or otherwise
transfer for consideration, (collectively, "sell" or "sale"), or
(b) gift, bequeath or otherwise transfer for no
consideration whether or not by operation of law, including without limitation,
in the case of Bankruptcy (collectively "gift") all or any part of its
Membership Interest. Each Member hereby acknowledges the reasonableness of the
restrictions on sale and gift of Membership Interests imposed by this Operating
Agreement in view of the unique terms, the Company purposes and the
relationship of the Members. Accordingly, the restrictions on sale and gift
contained herein shall be specifically enforceable. Any attempt to effect a
sale or gift of a Membership Interest in contravention of this Section 9.1
shall be deemed null and void.
9.2 No Assignment or Transfer in Absence of Unanimous Consent.
(a) Notwithstanding anything contained herein to the
contrary, except Sections 12.1(c) and (d) below, no sale or gift of a
Membership Interest to a proposed assignee which is not a Member immediately
prior to the sale or gift shall be permitted or shall be effective without the
prior Consent of all of the remaining Members, which Consent may be given or
withheld in the sole and absolute discretion of such Members; provided,
however, (x) each of Entertainment or Diversified may assign its rights
hereunder, in whole or in part, to one or more corporations, limited liability
companies, partnerships, trusts or other entities which are under common
control with or control through equity ownership and/or voting control by,
Entertainment, Diversified or Jacobs; it being acknowledged that (i) any entity
managed by Jacobs Entertainment Ltd. ("JEL") or Jacobs, (ii) any entity in
which either of JEL or Jacobs is one of the trustees and/or one of the
beneficiaries or (iii) any entity in which either JEL or Jacobs beneficially
owns 15% or more of the outstanding equity securities constitutes common
control and (y) Black Hawk may assign its rights hereunder, in whole or in
part, to one or more corporations, limited liability companies, partnerships,
trusts or other entities which are wholly-owned by Black Hawk.
(b) Further notwithstanding anything contained herein to
the contrary, notwithstanding the Consent of the remaining Members to the sale
or gift of a Membership Interest to an assignee in accordance with Section
9.2(a) above, no assignee (other than a permitted assignee of Entertainment or
Diversified as described in 9.2(a)) which is not a Member immediately prior to
the sale or gift shall have any right to exercise any rights as a Member, to
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participate in the management of the business and affairs of the Company or to
become a Member without the further Consent of all of the remaining Members.
Such assignee shall have only the rights of an assignee under Section 7-80-702
of the Act.
(c) No assignment or transfer of a Member's interest in
the Company shall be effective unless and until Notice (including the name and
address of the proposed assignee and the date of such transfer) has been
provided to the Company and the non-transferring Member(s).
(d) Upon and contemporaneously with any sale or gift of a
Transferring Member's Membership Interest in the Company which does not at the
same time transfer the balance of the rights associated with the Membership
Interest transferred by the Transferring Member (including, without limitation,
the rights of the Transferring Member to participate in the management of the
business and affairs of the Company), all remaining rights and interests
otherwise retained by the Transferring Member which immediately prior to such
sale or gift were associated with the transferred Membership Interest shall
lapse.
(e) The remaining Members may require the Selling Member
or Gifting Member and the proposed assignee to execute, acknowledge and deliver
to the remaining Members such instruments of transfer, assignment and
assumption and such other certificates, representations and documents, and to
perform all such other acts which the remaining Members may deem necessary or
desirable to:
(i) constitute the assignee as a Member, donee or
successor-in-interest as such;
(ii) confirm that the Person desiring to acquire
an interest or interests in the Company, or to be admitted as a
Member, has accepted, assumed and agreed to be subject and bound by
all of the terms, obligations and conditions of this Operating
Agreement, as the same may have been further amended (whether such
Person is to be admitted as a new Member or will merely be an
assignee);
(iii) preserve the Company after the completion of
such sale, transfer, assignment, or substitution under the laws of
each jurisdiction in which the Company is qualified, organized or does
business;
(iv) maintain the status of the Company as a
partnership for federal tax purposes; and
(v) assure compliance with any applicable state
and federal laws including securities laws and regulations.
9.3 Effective Date. Any sale or gift of a Membership Interest or
admission of a Member in compliance with this Article IX shall be deemed
effective as of the later of the last day
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of the calendar month in which the remaining Members' Consent thereto was given
(if such Consent is required) or such date that the assignee complies with
Section 9.2. The Transferring Member agrees, upon request of the remaining
Members, to execute such certificates or other documents and perform such other
acts as may be reasonably requested by the remaining Members from time to time
in connection with such sale, transfer, assignment, or substitution.
9.4 Indemnity. The Transferring Member hereby indemnifies the
Company and the remaining Members against any and all loss, damage or expense
(including, without limitation, reasonable attorney's fees and tax liabilities
or loss of tax benefits) arising directly or indirectly as a result of any
transfer or purported transfer in violation of this Article IX.
ARTICLE X
INDEMNIFICATION AND DAMAGES
10.1 Indemnity of the Manager, Members of the Policy Board,
Employees and Other Agents. To the maximum extent permitted under the Act, the
Company shall indemnify the Manager, members of the Policy Board and the
Members and make advances for expenses to the maximum extent permitted under
the Act. The Company shall indemnify its employees and other agents who are
not managers to the fullest extent permitted by law, provided that such
indemnification in any given situation is approved by the Members. The
Manager, the members of the Policy Board and the Members (and their respective
officers, directors, employees and agents) shall be indemnified by the Company
from any liability resulting from any act omitted or performed by them in good
faith on behalf of the Company and in a manner reasonably believed by them to
be within the scope of the authority conferred upon them by this operating
Agreement and in the best interest of the Company; provided, however, that any
indemnity under this Article X shall be provided out of and be limited to the
extent of the Company assets only and shall not include any liabilities arising
under the Securities Act of 1933, and no Member shall have any personal
liability therefor.
10.2 Liability for Acts and Omissions. No Manager or Member (and
no officer, director, employee or agent of a Manager or a Member) shall be
liable, responsible or accountable, in damages or otherwise, to the Company or
the Members for or as a result of any act, omission or error in judgment which
was taken, omitted or made by them in good faith on behalf of the Company and
in a manner reasonably believed by them to be within the scope of the authority
granted to them by this Operating Agreement and in the best interest of the
Company, except for fraud, deceit, willful misconduct, gross negligence or a
knowing violation of the law. The Manager or Member may consult with such
legal or other professional counsel as it may select. Any action taken or
omitted by it in good faith reliance on, and in accordance with, the opinion or
advice of such counsel shall be full protection and justification to it with
respect to the action taken or omitted.
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10.3 Reimbursement. If (i) a Member ("Paying Member") shall pay
any amount on behalf of or for the account of the Company with respect to any
liability, obligation, undertaking, damage or claim for which the Company shall
or may (pursuant to contract or applicable law) be liable or responsible, or
with respect to making good any loss or damage sustained by, or paying any
duty, costs, claim or damage incurred by, the Company, and (ii) such payment
was made by the Paying Member because the Members authorized such payment by
the Paying Member, then (except as otherwise expressly provided in this
Operating Agreement) the Paying Member shall have a right of contribution from
the Members and the other Members shall reimburse the Paying Member for such
amount as shall have been so paid thereby in accordance with such other
Members' proportionate Membership Interests in the Company.
10.4 Damages. In the event that a Member violates or breaches any
of its representations, warranties or agreements under this Operating
Agreement, becomes a Resigning Member, or is terminated as a result of its
Bankruptcy, resignation, expulsion or dissolution, then, in any such event,
such Member shall be liable to the Company and to the other Members for damages
incurred by the Company and such other Members and arising from such violation,
breach, resignation, Bankruptcy, expulsion or dissolution. Except as otherwise
provided in this Operating Agreement, the foregoing remedy is in addition to
and not in limitation of the right of the Company and the other Members to
recover damages resulting from any default or breach by a Member hereunder and
any other right or remedy of the Company and the other Members at law or in
equity. Each Member acknowledges that the damages suffered by the Company may
include expenses relating to the Company's efforts to exercise its rights and
remedies upon such breach or default. To the extent required to recover the
damages suffered by the Company, the Company and the other Members shall have
the right to set-off any cash or property otherwise payable on account of the
defaulting Member's Membership Interest and to retain such cash or property.
Except as otherwise provided in this Operating Agreement, the selection of
which remedy or remedies to pursue will be made is the sole and absolute
discretion of the other Members, and the pursuit of any remedy shall not
operate as a waiver of the rights of such Members or the Company to pursue any
other remedy against the defaulting Member.
ARTICLE XI
REGULATORY CONCERNS AND MANDATORY REDEMPTION EVENTS
11.1 Government Regulations.
(a) The parties hereto acknowledge that the proposed
business of the Project is subject to stringent government regulation including
supervision by the Division and the Commission.
(b) The parties also acknowledge that Entertainment and
certain of its Affiliates are presently seeking appropriate gaming licenses
from the Division (Jacobs has already obtained
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a key employee license), and that no assurance can be given that such licenses
will be issued or when such licenses may be issued.
(c) If any license, registration, application or other
form of required governmental filing for the Project or otherwise, is denied,
reserved, revoked or suspended for any reason, including but not limited to the
participation of a person unacceptable or unsuitable to the Division and the
Commission or other Governmental Authority (as defined in the Purchase
Agreement), the affected party hereto (each of Black Hawk, Entertainment,
Diversified or the affected Affiliate) shall take all measures necessary to
remedy or correct the deficiency. In the case where the Division, the
Commission or other Governmental Authority denies or reserves approval for
gaming operations or other business operations of a party hereto because of the
participation of an unacceptable or unsuitable person, that party shall
forthwith expel such person(s) and substitute a person(s) acceptable to the
Division, the Commission or other Governmental Authority, or otherwise take
measures to remedy or correct the deficiency.
11.2 Casino Investigation.
(a) In the event that, on or before January 1, 1998, the
Commission has not approved a retail gaming license for the Project casino
("Licensing Approval") and, on or before such date, Entertainment, in its sole
but reasonable discretion, has reason to believe that the Project casino will
not receive such Licensing Approval and such failure to obtain Licensing
Approval is attributable to the Division's and the Jefferson County, Colorado
District Attorney's office's investigation into check cashing and bad check
collection practices of the Gilpin Hotel Casino of which Black Hawk is the
general manager and a joint venture participant and/or certain of the Gilpin
Hotel Casino's personnel and agents (the "Casino Investigation"), Entertainment
shall have the right and option to acquire (the "Purchase Right") all of Black
Hawk's interest in the Company, except that portion that is actually
transferred to the Holder (as defined below) in full satisfaction of the Note
as described in Section 11.2(b).
(b) Entertainment may elect such Purchase Right by
delivering Notice of such election to Black Hawk on or before March 31, 1998.
The purchase price for the Purchase Right shall be an amount equal to 90% of
the fair market value of such interest determined as of the date Entertainment
delivered its Notice. The fair market value of such interest shall be
determined by an Appraisal. The purchase price for the Purchase Right shall be
payable by Entertainment to Black Hawk pursuant to a promissory note which
shall be payable over a ten year period and which shall bear interest at a rate
equal to 2% in excess of the prime rate of interest as announced from time to
time by the Wall Street Journal or shall be discounted (using the same rate) to
present value if an earlier payoff is required under the Colorado Gaming Laws.
The closing of the Purchase Right shall occur on a date mutually agreed to by
Entertainment and Black Hawk, which date shall be within 15 days following the
completion of the Appraisal. At such time as Entertainment provides Notice of
the election of its Purchase Right, Black Hawk shall be deemed to be in default
of the Note. For four months thereafter or such longer period as the parties
shall agree, so long as the Appraisal and purchase process is ongoing and not
stayed, Diversified or any
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other related entity that is a Member and is holding the Note by permitted
assignment from Diversified (collectively, the "Holder") shall take no
enforcement action on the Note (other than the collection of accrued but unpaid
interest thereon and sending any notices or filing any claims it deems
appropriate.) Concurrently with the closing of the Purchase Right, Black Hawk
shall transfer to the Holder in exchange for the cancellation of the Note, and
the Holder shall accept in full satisfaction of its rights under the Note, the
following property (collectively, the "Note Satisfaction Property"): 40% of
each of Black Hawk's (a) Capital Interest, (b) Membership Interest, and (c)
interest in Net Profits, Net Losses, and Net Cash Flow of the Company; together
with all membership rights associated with any of the foregoing, and all
proceeds and products of any of the foregoing. On the Closing Date, Black Hawk
shall cease to be a Member, shall cease to have any management function in the
Company, and the members of the Policy Board appointed by it shall be
terminated and replaced by designees of the Holder and Entertainment.
(c) In the event Entertainment has exercised the Purchase
Right, within two years of the opening of the Project casino, Black Hawk shall
have the right to reacquire its 75% Membership Interest in the Company on the
terms and subject to the conditions hereinafter set forth. Provided Black Hawk
can prove to Entertainment, in Entertainment's sole but reasonable discretion,
that the involvement of Black Hawk in the Project will not detrimentally affect
the Project casino and provided Black Hawk obtains Licensing Approval, Black
Hawk shall have the right and option to reacquire its 75% Membership Interest
in the Company (the "Repurchase Right"). Black Hawk may elect such Repurchase
Right by delivering Notice to Entertainment of the exercise of such Repurchase
Right. The purchase price for the Repurchase Right representing 60% of its
Membership Interest shall be an amount equal to the purchase price for the
Purchase Right, plus an amount equal to Black Hawk's proportionate share of any
additional capital contributions made to the Company from and after the closing
of the Purchase Right. In addition, the purchase price for the Repurchase
Right representing 40% of its Membership Interest shall be 1,142,857 Shares (as
adjusted in accordance with Section 2(e) of the Purchase Agreement) to be
issued by Black Hawk to the Holder. The closing of the Repurchase Right shall
occur on a date mutually agreed to by Black Hawk and Entertainment, which date
shall be within 30 days after the date which Black Hawk gave Notice to
Entertainment and Holder of the Repurchase Right and at such time, the economic
and control position of Black Hawk, Entertainment and Holder, as to both the
Company and Black Hawk, shall be made to be equivalent to what would have been
the positions of such parties immediately following the Conversion Date.
(d) The parties acknowledge that the redemption
provisions contained in this Article XI and the terms hereof (including price
and payment terms) are subject to the Colorado Gaming Laws (as defined below)
and the discretion of the Commission and the Division.
11.3 Automatic Divestiture.
(a) If, prior to the issuance by the Commission of
appropriate gaming licenses to the Company for the Project casino, any of the
following occur to a Member, all interests of that Member (the "Affected
Member") will automatically and immediately terminate, and the Affected
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Member will cease to be a Member, all subject only to any contrary requirements
of the Colorado Gaming Laws (as defined below.) The divestiture events are as
follows:
(i) The Affected Member is charged with or
convicted of any criminal offense, if a conviction of the offense in question
would, pursuant to the Colorado gaming laws (C.R.S. Section 12-47.1-101 et
seq., as the same may be amended or supplemented from time to time, together
with the regulations promulgated thereunder -- collectively, the "Colorado
Gaming Laws") disqualify the Affected Member from obtaining a gaming license.
However, where a Member is only charged with a criminal offense and not
convicted, and where the Commission and the Division upon request have agreed
to defer pursuing any action based upon such charges against the Company's
application for a gaming license, or where any such actions of the Division or
Commission are subject to a stay order, then the Affected Member's Membership
Interest shall not be subject to divestiture under this subdivision (i).
(ii) The Affected Member, or any Entity that it owns
or controls, incurs a revocation of any Colorado gaming or alcohol beverage
license, and it is determined through arbitration pursuant to Section 15.2
below, that such revocation has a material adverse affect upon the issuance to
the Company of a gaming or alcohol beverage license.
(iii) The Division issues a formal recommendation
against the issuance to the Company of an operator or retail gaming license,
which recommendation cites the participation of the Affected Member as a
material factor in the decision.
(iv) The Commission denies the issuance to the
Company of an operator or retail gaming license, citing the participation of
the Affected Member as a factor in the decision, or the Commission conditions
the issuance of a retail gaming license on the Company removing the Affected
Member in the Company or its casino operations.
(v) The Company's alcoholic beverage license
applications are denied by either the state or local licensing authority,
citing the participation of the Affected Member as a material factor in the
decision.
(vi) The Affected Member is found to be an
"unsuitable person" within the meaning of the Colorado Gaming Laws.
(vii) The Commission or the Division advise the
Company in writing, or it is otherwise determined through arbitration pursuant
to Section 15.2 below, that a decision on the Company's gaming license
application is being delayed beyond the later of (x) one year following the
filing of the Company's application for a retail gaming license or (y) January
1, 1998, and the Company is advised before or after said date that the sole
reason for further delay is the participation of or concerns about the Affected
Member.
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(b) The Company shall continue in existence
notwithstanding the automatic termination of any Member pursuant to Section
11.3(a) above, notwithstanding any provision of this Operating Agreement to the
contrary. The occurrence of any of the events enumerated in Section 11.3(a)
above, if the Affected Member is Black Hawk, shall constitute an Event of
Default under the Note, and the Note shall automatically be accelerated, all
without notice or other action of any kind by the Holder. The automatic
termination of the Membership Interest shall cause the percentage Membership
Interest of the Holder to increase by an amount equal to 40% of the percentage
Membership Interest of Black Hawk as it existed immediately prior to its
automatic termination. For example, if Diversified is the Holder,
Diversified's percentage Membership Interest would increase to 31% (1% + the
product of (75% x 40%)). The percentage Membership Interest of Entertainment
shall increase by an amount equal to 60% of the percentage Membership Interest
of Black Hawk as it existed immediately prior to its automatic termination.
For example, Entertainment's Membership Interest would increase to 69% (24% +
the product of (75% x 60%)). The Company shall be liable to Black Hawk for the
value of its terminated Membership Interest as follows. The Company shall pay
in full for 40% of the terminated Membership interest by canceling the Note,
which the Holder shall immediately contribute to the Company to enable the
Company to make payment. The Company shall pay in full for the remaining 60%
of the terminated Membership Interest as follows: the Company and Black Hawk
shall determine the fair market value of that portion of the Membership
Interest by an Appraisal. Upon determination, the Company shall deliver a note
(the "Payoff Note") to Black Hawk for 90% of the value found by the Appraisal.
The Payoff Note shall be payable over a ten year period and shall bear interest
at a rate equal to 2% in excess of the prime rate of interest as announced
from time to time by the Wall Street Journal or shall be discounted (using the
same rate) to present value if an earlier payoff is required under the Colorado
Gaming Laws. Entertainment agrees to contribute to the Company, in time for
payments to be made under the Payoff Note, additional capital in an amount
equal to the payments to be made, which additional capital shall be used solely
for that purpose. On request of Black Hawk, Entertainment will also execute a
guaranty of the Payoff Note, and any payments made pursuant to the guaranty
will be deducted from the additional capital requirements that it would
otherwise have. In the event the Affected Member is either Entertainment or
Diversified, both will be treated as being the Affected Member. The percentage
Membership Interest of Black Hawk shall increase by an amount equal to the
percentage Membership Interest of both Entertainment and Diversified as such
Membership Interests existed immediately prior to their automatic termination.
The Company shall be liable to the Affected Member (both Entertainment and
Diversified) for the value of their terminated Membership Interest by the
Appraisal method and issuance of the Payoff Note in the same manner as
described above. Black Hawk agrees to contribute to the Company, in time for
payments to be made under the Payoff Note, additional capital in an amount
equal to the payments to be made, which additional capital shall be used solely
for that purpose. On request of the Affected Member, Black Hawk will also
execute a guaranty of the Payoff Note, and any payments made pursuant to the
guaranty will be deducted from the additional capital requirements that it
would otherwise have. On the date of automatic termination pursuant to this
Section 11.3(b), the Affected Member shall cease to be a Member, shall cease to
have any management function in the Company and the members of the
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Policy Board appointed by it shall be terminated and replaced by designees of
the other Member(s) of the Company.
(c) Subject only to the contrary requirements of the
Colorado Gaming Laws, the Affected Member pursuant to this Section 11.3 shall
have, for a period of two years from and after the event causing the
involuntary termination, the right to reacquire its Membership Interest on the
same terms described above in Section 11.2(c); provided, however, that if
Entertainment or Diversified is the Affected Member, no Shares shall be issued
as part of the purchase price for the repurchase right described in this
Section 11.3(c) (the "11.3(c) Repurchase Right") and Diversified and
Entertainment shall have the right to reacquire 100% of their respective
Membership Interests that was divested by paying to Black Hawk an amount equal
to what Black Hawk paid for such Membership Interests, plus an amount equal to
their proportionate share of any additional capital contributions made to the
Company from and after the date of the event causing the involuntary
termination. The closing of the 11.3(c) Repurchase Right shall occur on a date
mutually agreed to by Black Hawk, Diversified and Entertainment, which date
shall be within 30 days after the date which Diversified and Entertainment gave
Notice to Black Hawk of the 11.3(c) Repurchase Right and at such time, the
economic and control position of Black Hawk, Entertainment and Diversified, as
to both the Company and Black Hawk, shall be made to be equivalent to what
would have been the positions of such parties immediately following the
Conversion Date.
11.4 Right of First Participation. In the event that the right of
first participation asserted by Black Hawk's partners at the Gilpin Hotel
Casino is determined in a final adjudication (whether by arbitration or
declaratory judgment action or otherwise), and the outcome of such
determination provides Black Hawk's partners at the Gilpin Hotel Casino with a
50% Membership Interest in the Company, thereafter, Entertainment shall have
the right to acquire 50% of Black Hawk's then Membership Interest. If such
determination provides Black Hawk's partners with a 25% interest in the
Company, thereafter Entertainment shall have the right to acquire 25% of Black
Hawk's then Membership Interest. The price and payment terms for such
Membership Interest shall be as agreed to by the parties.
11.5 Addition of Member. Notwithstanding anything to the contrary
contained in this Article XI, if, upon the occurrence of any event described in
this Article XI, there is only one remaining Member, then such Member shall be
entitled to cause one or more additional persons to become members in order to
enable the existence of the Company to continue.
ARTICLE XII
DISSOLUTION AND TERMINATION
12.1 Dissolution.
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(a) The Company shall be dissolved upon the occurrence of
any of the following events:
(i) expiration of the period fixed for the
duration of the Company pursuant to Section 2.6 hereof;
(ii) the unanimous written agreement of all
Members; or
(iii) upon the death, retirement, resignation,
removal, expulsion, Bankruptcy or dissolution of a Member or
occurrence of any other event which terminates the continued
Membership of a Member in the Company (a "Withdrawal Event"), unless
the business of the Company is continued by the consent of all the
remaining Members within 90 days after the Withdrawal Event.
(b) As soon as possible following the occurrence of any
of the events specified in this Section 12.1 effecting the dissolution of the
Company, the Liquidator shall execute a certificate of dissolution in such form
as shall be prescribed by the Act and the Colorado Secretary of State and file
the same with the Colorado Secretary of State's office.
(c) If a Member who is an individual dies or a court of
competent jurisdiction adjudges him to be incompetent to manage his person or
his property, the Member's executor, administrator, guardian, conservator, or
other legal representative ("Successor") may exercise all of the Member's
rights for the purpose of settling his estate or administering his property,
provided, however, that for purposes of Section 9.2 and Section 12.1(a) (iii),
the Successor shall not be considered a Member and shall have no right to vote,
approve or consent to any matter pursuant to such provisions.
(d) Except as expressly permitted in this Operating
Agreement, a Member shall not voluntarily withdraw or resign or take any other
voluntary action which directly causes a Withdrawal Event. Unless otherwise
approved by all of the other Members, a Member who attempts to withdraw or
resign (a "Resigning Member") or whose Membership Interest is otherwise
terminated by virtue of a Withdrawal Event, regardless of whether such
Withdrawal Event was the result of a voluntary act by such Resigning Member,
shall become an assignee and be entitled to receive only those distributions to
which such Resigning Member would have been entitled had such Resigning Member
remained a Member (and only at such times as such distribution would have been
made had such Resigning Member remained a Member). Damages for breach of this
Section 12.1(d) may be offset against distributions by the Company to which the
Resigning Member would otherwise be entitled.
(e) Notwithstanding anything to the contrary contained in
this Article 12, if, upon the occurrence of any event described in this Section
12.1, there is only one remaining Member, then such Member shall be entitled to
cause one or more additional persons to become Members in order to enable the
existence of the Company to continue.
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12.2 Effect of Filing of Certificate of Dissolution. Upon the
filing with the Colorado Secretary of State of a certificate of dissolution,
the Company shall cease to carry on its business, except insofar as may be
necessary for the winding up of its business or as may be otherwise permitted
under the Act, but its separate existence shall continue until the winding up
of its affairs is completed.
12.3 Winding Up, Liquidation and Distribution of Assets.
(a) Upon dissolution, an accounting shall be made by the
Company's independent accountants of the accounts of the Company and of the
Company's assets, liabilities and operations, from the date of the last
previous accounting until the date of dissolution. The Liquidator shall
immediately proceed to wind up the affairs of the Company.
(b) If the Company is dissolved and its affairs are to be
wound up, the Liquidator shall:
(i) Sell or otherwise liquidate all of the
Company's assets as promptly as practicable (except to the extent the
Members may determine to distribute any assets to the Members in
kind);
(ii) Allocate any Net Profit or Net Loss resulting
from such sales to the Members' and assignees' in accordance with
Section 8.1 hereof;
(iii) Discharge all liabilities of the Company,
including liabilities to Members and assignees who are also creditors,
to the extent otherwise permitted by law, other than liabilities to
Members and assignees for distributions and the return of capital, and
establish such Reserves as may be reasonably necessary to provide for
contingent liabilities of the Company (for purposes of determining the
Capital Accounts of the Members and assignees, the amounts of such
Reserves shall be deemed to be an expense of the Company); and
(iv) Distribute the remaining assets in the
following order:
(1) If any assets of the Company are to
be distributed in kind, the net fair market value of such
assets as of the date of dissolution shall be determined by
Appraisal or by agreement of the Members. Such assets shall
be deemed to have been sold as of the date of dissolution for
their fair market value, and the Capital Accounts of the
Members and assignees shall be adjusted pursuant to the
provisions of Article VIII and Section 7.4 of this Operating
Agreement to reflect such deemed sale.
(2) The positive balance (if any) of
each Member's and assignees Capital Account(as determined
after taking into account all Capital Account
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adjustments for the Company's taxable year during which the
liquidation occurs) shall be distributed to the Members,
either in cash or in kind, with any assets distributed in kind
being valued for this purpose at their fair market value. Any
such distributions to the Members in respect of their Capital
Accounts shall be made in accordance with the time
requirements set forth in Section 1.704-1(b)(2)(ii)(b)(2) of
the Treasury Regulations.
(c) Notwithstanding anything to the contrary in this
operating Agreement, upon a liquidation within the meaning of Section
1.704-1(b)(2)(ii)(g) of the Treasury Regulations, if any Member has a Deficit
Capital Account (after giving effect to all contributions, distributions,
allocations and other Capital Account adjustments for all taxable years,
including the year during which such liquidation occurs), such Member shall
have no obligation to make any Capital Contribution, and the negative balance
of such Member's Capital Account shall not be considered a debt owed by such
Member to the Company or to any other Person for any purpose whatsoever.
(d) Upon completion of the winding up, liquidation and
distribution of the assets, the Company shall be deemed terminated.
(e) The Liquidator shall comply with any applicable
requirements of applicable law pertaining to the winding up of the affairs of
the Company and the final distribution of its assets.
12.4 Return of Contribution Nonrecourse to Other Members. Except
as provided by law or as expressly provided in this operating Agreement, upon
dissolution, each Member shall look solely to the assets of the Company for the
return of its Capital Contribution. If the Company property remaining after
the payment or discharge of the debts and liabilities of the Company is
insufficient to return the cash contribution of one or more Members, such
Member or Members shall have no recourse against any other Member.
ARTICLE XIII
MEETINGS OF MEMBERS
13.1 Meetings of Members.
(a) Annual Meetings. An annual meeting of Members may be
held if so desired, and if held shall be at such time and on such date in the
first three months of each year (commencing in 1997) as may be fixed by the
Manager and stated in the notice of the meeting.
(b) Special Meetings. Special meetings of the Members
shall be called upon the written request of the Manager, acting either with or
without a meeting, or by any Member. Calls for such meetings shall specify the
purposes thereof. No business other than that specified in the call shall be
considered at any special meeting.
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(c) Notices of Meetings. Unless waived, written notice
of each annual or special meeting stating the time, place, and the purposes
thereof shall be given by personal delivery or by mail to each Member of record
entitled to vote at or entitled to notice of the meeting, not more than sixty
(60) days nor less than seven (7) days before any such meeting. If mailed,
such notice shall be directed to the Member at its address as the same appears
upon the records of the Company. Any Member, either before or after any
meeting, may waive any notice required to be given by law or under this
Agreement. The giving of notice shall be deemed to have been waived by any
Member who shall participate in any annual or special meeting.
(d) Place of Meetings. Meetings of Members shall be held
at the principal office of the Company unless the Manager determines that a
meeting shall be held at some other place within or without the State of
Colorado and causes the notice thereof to so state.
(e) Quorum. Members holding a Required Interest present
in person or by proxy, shall constitute a quorum for the transaction of
business to be considered at such meeting; provided, however, that no action
required by law or by the Articles or this Operating Agreement to be authorized
or taken by the holders of a designated proportion of the Membership Interests
may be authorized or taken by the holders of a designated proportion of the
Membership Interests may be authorized or taken by a lesser proportion. The
holders of a majority of the voting Membership Interests represented at a
meeting, whether or not a quorum is present, may adjourn such meeting from time
to time, until a quorum shall be present.
(f) Record Date. The Manager may fix a record date for
any lawful purpose, including without limiting the generality of the foregoing,
the determination of Members entitled to (i) receive notice of or to vote at
any meeting, (ii) receive payment of any distribution, (iii) receive or
exercise rights of purchase of or subscription for, or exchange or conversion
of, certificates or other securities, subject to any contract right with
respect thereto, or (iv) participate in the execution of written consents,
waivers or releases. Said record date shall not be more than sixty (60) days
preceding the date of such meeting, the date fixed for the payment of any
distribution or the date fixed for the receipt or the exercise of rights, as
the case may be. If a record date shall not be fixed, the record date for the
determination of Members who are entitled to notice of, or who are entitled to
vote at, a meeting of Members, shall be the close of business on the date next
preceding the day on which notice is given, or the close of business on the
date next preceding the day on which the meeting is held, as the case may be.
(g) Proxies. A person who is entitled to attend a
Members' meeting, to vote thereat, or to execute consents, waivers or releases,
may be represented at such meeting or vote thereat, and execute consents,
waivers and releases, and exercise any of its other rights, by proxy or proxies
appointed by a writing signed by such person.
(h) Written Action. Any action may be decided or
approved, without notice, by written action signed by all of the Members.
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ARTICLE XIV
DEBT FINANCING
14.1 It is contemplated by the parties that certain Affiliates of
Entertainment will be providing guarantees for the Company's debt financing
with Wells Fargo Bank, N.A. or such other lenders as may be selected by the
Company. In the event that Entertainment's Affiliates provide such guarantees,
the Company shall pay Entertainment an annual fee in an amount equal to 2% of
the amount so guaranteed. The fee required to be paid pursuant to this Section
14.1 shall be paid on an annual basis in arrears on or before March 31.
Notwithstanding the foregoing, one-half of the fee payable for 1997 pursuant to
this Article XIV shall be deferred and paid in two (2) equal installments on or
before March 31, 1999 and March 31, 2000, respectively.
ARTICLE XV
MISCELLANEOUS PROVISIONS
15.1 Notices. All Notices and communications required or permitted
under this Operating Agreement to be sent to the Members shall be expressed in
writing and delivered in person and sent and confirmed by certified or
registered mail, return receipt requested, or sent by overnight courier service
such as Federal Express, or sent by facsimile (receipt confirmed) to the
Members at the following addresses, or at such other addresses as the parties
shall designate by Notice to the other:
If to Black Hawk: Black Hawk Gaming &
Development Company, Inc.
2060 Broadway, Suite 400
Boulder Colorado 80302
Attention: Stephen R. Roark, President
Fax No. (303) 444-7968
with a copy to:
Jones & Keller, P.C.
1625 Broadway, Suite 1600
Denver, Colorado 80202
Attention: Samuel E. Wing, Esq.
Fax No. (303) 825-8537
If to Entertainment or
Diversified: c/o Jacobs Entertainment Ltd.
425 Lakeside Avenue
Cleveland, Ohio 44114
Attention: Jeffrey P. Jacobs
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Fax No. (216) 861-6315
with a copy to:
Hahn Loeser & Parks
3300 BP America Building
200 Public Square
Cleveland, Ohio 44114
Attention: Stephen P. Owendoff, Esq.
Fax No. (216) 241-2824
15.2 Arbitration. If any dispute shall arise between the parties
pursuant to this Operating Agreement, such dispute shall be settled by
arbitration pursuant to this Section 15.2. In such event, either party hereto
may serve upon the other party a written notice demanding that the dispute be
resolved pursuant to this Section 15.2. To the extent that any provision
herein is inconsistent with any rule of the American Arbitration Association
(the "AAA"), this Agreement shall prevail. The dispute or claim shall be heard
in Chicago, Illinois by one (1) neutral arbitrator, if the parties can agree on
the selection of said arbitrator, or if unable to agree, each party shall
select (1) arbitrator and the two arbitrators chosen shall select the third
arbitrator. If the dispute shall be heard by three (3) arbitrators, one (1)
arbitrator will be selected by the party initiating the arbitration at the time
of the submission to arbitration. Within seven (7) days after submission, the
other party will select an arbitrator. Within seven (7) days after the first
two (2) arbitrators are chosen, the third arbitrator will be selected. The
third arbitrator selected shall not have any relationship to either of the
parties. The arbitrators shall apply the internal law of the State of
Colorado. Said arbitrator(s) shall be sworn faithfully and fairly to determine
the question at issue. The arbitrator(s) shall afford to the parties a hearing
and the right to submit evidence, with the privilege of cross examination and
the right to compel testimony by applying for subpoena powers to appropriate
judicial authority, on the question at issue, and shall, with all possible
speed, make his/their determination in writing and shall give notice to the
parties hereto of such determination. The concurring determination of the
arbitrator, if heard by one, or of any two of said three arbitrator(s) shall be
binding upon the parties hereto, or, in case no two of the arbitrators shall
render a concurring determination, then the determination of the third
arbitrator appointed shall be binding upon the parties hereto. The decision of
the arbitrators shall be final and binding upon the parties hereto and shall be
enforceable in any court having jurisdiction. Any arbitration shall be
conducted in accordance with the then prevailing Commercial Rules of the AAA,
or the successor party thereto from time to time in existence. The fees and
expenses of the arbitrator(s) shall be divided equally between the parties so
involved. The parties shall each bear their own expenses (including, but not
limited to, attorneys' and witnesses' fees and expenses) in any arbitration
proceedings.
15.3 Development Fee. The Company shall pay Entertainment or its
nominee the remaining portion of the development fee, which is estimated at
$370,000.
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15.4 Abrahamson and Rich. Any amounts paid or to be paid to Robert
S. Rich or Ron Abrahamson pursuant to certain Settlement Agreements shall be
treated as expenses of the Company.
15.5 Books of Account and Records. Proper and complete records and
books of account shall be kept or shall be caused to be kept by the Manager in
which shall be entered fully and accurately all transactions and other matters
relating to the Company's business in such detail and completeness as is
customary and usual for businesses of the type engaged in by the Company. Such
books and records shall be maintained as provided in Section 5.3. The books
and records shall at all times be maintained at the principal executive office
of the Company and shall be open to the reasonable inspection and examination
of the Members, assignees or their duly authorized representatives during
reasonable business hours.
15.6 Application of Colorado Law. This Operating Agreement, and
the application and interpretation hereof, shall be governed exclusively by its
terms and by the laws of the State, and specifically the Act.
15.7 Waiver of Action for Partition. Each Member and assignee
irrevocably waives during the term of the Company any right that it may have to
maintain any action for partition with respect to the property of the Company.
15.8 Amendments. This Operating Agreement may not be amended
except by the written agreement of all of the Members. Further, without the
Consent of the Member or former Member, no amendment shall be adopted which
prejudices the rights of a Member or former Member from exercising any
repurchase or similar right described in this Operating Agreement.
15.9 Execution of Additional Instruments. Each Member hereby
agrees to execute such other and further statements of interest and holdings,
designations, powers of attorney and other instruments and documents, and to
provide such information, necessary to comply with any laws, rules or
regulations, and to effectuate the provisions of this Operating Agreement.
15.10 Construction. Whenever the singular number is used in this
Operating Agreement and when required by the context, the same shall include
the plural and vice versa, and the masculine gender shall include the feminine
and neuter genders and vice versa.
15.11 Headings and Pronouns. The headings in this operating
Agreement are inserted for convenience only and are in no way intended to
describe, interpret, define, or limit the scope, extent or intent of this
Operating Agreement or any provision hereof. All pronouns and only variations
thereof shall be deemed to refer to masculine, feminine, or neuter, singular or
plural as the identity of the Person or Persons may require.
15.12 Waivers. The failure of any party to seek redress for
violation of or to insist upon the strict performance of any covenant or
condition of this Operating Agreement shall not
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constitute a waiver or prevent a subsequent act, which would have originally
constituted a violation, from having the effect of an original violation.
15.13 Rights and Remedies Cumulative. The rights and remedies
provided by this Operating Agreement are cumulative and the use of any one
right or remedy by any party shall not preclude or waive the right to use any
or all other remedies. Said rights and remedies are given in addition to any
other rights the parties may have by law, statute, ordinance or otherwise.
15.14 Severability. If any provision of this Operating Agreement or
the application thereof to any Person or circumstance shall be invalid, illegal
or unenforceable to any extent, the remainder of this Operating Agreement and
the application thereof shall not be affected and shall be enforceable to the
fullest extent permitted by law.
15.15 Heirs, Successors and Assigns. Each and all of the covenants,
terms, provisions and agreements herein contained shall be binding upon and
inure to the benefit of the parties hereto and, to the extent permitted by this
Operating Agreement, their respective heirs, legal representatives, and
permitted successors and assigns.
15.16 Creditors. None of the provisions of this Operating Agreement
shall be for the benefit of or enforceable by any creditor of the Company.
15.17 Counterparts. This Operating Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
15.18 Investment Representations. The undersigned Members and
assignees, if any, understand (i) that the Membership Interests evidenced by
this Operating Agreement have not been registered under the Securities Act of
1933, the Colorado or the Ohio Securities Act or any other state securities
laws (the "Securities Acts") because the Company is issuing these Membership
Interests in reliance upon the exemptions from the registrations requirements
of the Securities Acts providing for issuance of securities not involving a
public offering, (ii) that the Company has relied upon the fact that the
Membership Interests are to be held by each Member for investment, and (iii)
that exemption from registrations under the Securities Acts would not be
available if the Membership Interests were acquired by a Member with a view to
distribution.
Accordingly, each Member and assignee hereby confirms to the Company
that such Member or assignee is acquiring the Membership Interests for such own
Member's or assignee's account, for investment and not with a view to the
resale or distribution thereof. Each Member and assignee agrees not to
transfer, sell or offer for sale any portion of the Membership Interests unless
(i) there is an effective registration or other qualification relating thereto
under the Securities Acts, or (ii) the holder of Membership Interests delivers
to the Company an opinion of counsel, satisfactory to the Company, that such
registration or other qualification under such Act and applicable state
securities laws is not required in connection with such transfer, offer or
sale. Each Member and assignee understands that the Company is under no
obligation to register the
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Membership Interests or to assist such Member or assignee in complying with any
exemption from registration under the Securities Acts if such Member or
assignee should at a later date, wish to dispose of the Membership Interest.
Furthermore, each Member realizes that the Membership Interests are unlikely to
qualify for disposition under Rule 144 of the Securities and Exchange
commission unless such Member is not an "affiliate" of the Company and the
Membership Interest has been beneficially owned and fully paid for by such
Member for at least three years.
Prior to acquiring the Membership Interests, each Member and assignee
has made an investigation of the Company and its business and has had made
available to each other Member and assignee all information with respect
thereto which such other Member or assignee needed to make an informed decision
to acquire the Membership Interest. Each Member and assignee considers himself
or itself to possess experience and sophistication as an investor which are
adequate for the evaluation of the merits and risks of such Member's or
assignee's investment in the Membership Interest.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK.]
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CERTIFICATE
The undersigned hereby agree, acknowledge and certify that the
foregoing Operating Agreement, consisting of 45 pages, excluding the Table of
Contents and attached Exhibits, constitutes the Operating Agreement of Black
Hawk/Jacobs Entertainment, LLC adopted by the Members of the Company as of
November 12, 1996.
MEMBERS: BLACK HAWK GAMING & DEVELOPMENT
COMPANY, INC.
By:/s/ Robert D. Greenlee
-------------------------------------------
Robert D. Greenlee, Chairman
BH ENTERTAINMENT LTD.
By: Jacobs Entertainment Ltd., its manager
By:/s/ David C. Grunenwald
-------------------------------------------
Title: Vice President
---------------------------------------
DIVERSIFIED OPPORTUNITIES GROUP LTD.
By: Jacobs Entertainment Ltd., its manager
By:/s/ David C. Grunenwald
-------------------------------------------
Title: Vice President
---------------------------------------
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