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Operating Agreement of New York - New York Hotel LLC - MGM Grand Inc. and PRMA Las Vegas Inc.

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                              OPERATING AGREEMENT

                                      OF

                        NEW YORK - NEW YORK HOTEL, LLC



                                By and Between



                                MGM GRAND, INC.



                                      and


                             PRMA LAS VEGAS, INC.



                                  Dated as of
                               December 26, 1994



--------------------------------------------------------------------------------
<PAGE>
 
                               TABLE OF CONTENTS


                                   ARTICLE I

                          ORGANIZATION OF THE COMPANY........................  1
1.1    Formation.............................................................  1
1.2    Name..................................................................  1
1.3    Purpose...............................................................  1
1.4    Intent................................................................  2
1.5    Term..................................................................  2
1.6    Title to Property.....................................................  2
1.7    Payments of Individual Obligations....................................  2
1.8    Independent Activities................................................  2
1.9    Transactions with Affiliates..........................................  3
1.10   Expenses of Members...................................................  3
1.11   Guarantee by PRMA.....................................................  3
1.12   Registered Office and Agent for Service of Process....................  3
1.13   Definitions...........................................................  4

                                   ARTICLE II
 
                      OWNERSHIP AND CAPITAL CONTRIBUTIONS....................  4
2.1    Membership and Percentage Interests...................................  4
2.2    Initial Capital Contributions.........................................  4
2.3    Third Party Financing.................................................  4
2.4    Additional Capital Contributions......................................  5
2.5    Other Matters.........................................................  5

                                  ARTICLE III
 
                                  ALLOCATIONS................................  5
3.1    Profits...............................................................  5
3.2    Losses................................................................  5
3.3    Special Allocations...................................................  5
3.4    Curative Allocations..................................................  7
3.5    Other Allocation Rules................................................  7
3.6    Tax Allocations:  Code Section 704(c).................................  8
 
                                      i 
<PAGE>
 
                                  ARTICLE IV
 
                                 DISTRIBUTIONS...............................  8
4.1    Net Cash Flow.........................................................  8
4.2    Tax Distributions.....................................................  8

                                   ARTICLE V
 
                                   MANAGEMENT................................  9
5.1    Board of Directors....................................................  9
5.2    Managers.............................................................  13
5.3    Warranted Reliance by Directors and Managers on Others...............  14
5.4    Business Plan........................................................  14
5.5    Insurance............................................................  16
5.6    Unanimous Consent....................................................  17
5.7    Pre-development Matters..............................................  17
5.8    Agreements Regarding Advent Lease and Related PRMA Loans.............  19

                                   ARTICLE VI
 
                                 INDEMNIFICATION............................  20
6.1    Indemnification: Company Actions, Suits and Proceedings other than 
       by Company...........................................................  20
6.2    Indemnification: Actions, Suits and Proceedings by Company...........  21
6.3    Indemnifications: Scope and Authorization............................  21
6.4    Maintenance of Insurance or Other Financial Arrangements.............  22

                                  ARTICLE VII
 
                         REPRESENTATIONS AND WARRANTIES.....................  22
7.1    In General...........................................................  22
7.2    Representations and Warranties.......................................  22

                                  ARTICLE VIII
 
                         ACCOUNTING, BOOKS AND RECORDS......................  24
8.1    Accounting, Books and Records........................................  24
8.2    Reports..............................................................  25
8.3    Tax Returns; Information.............................................  25
8.4    Special Basis Adjustment.............................................  25
8.5    Tax Matters Member...................................................  25
 
                                      ii 
<PAGE>
 
                                  ARTICLE IX
 
                             TRANSFERS OF INTERESTS.........................  26
9.1    Restrictions on Transfers............................................  26
9.2    Permitted Transfers..................................................  26
9.3    Distribution Among Members...........................................  28

                                   ARTICLE X
 
                       WITHDRAWALS; ACTION FOR PARTITION....................  28
10.1   Waiver of Partition..................................................  28
10.2   Covenant Not to Withdraw or Dissolve.................................  28

                                   ARTICLE XI
 
                                    BUY-SELL................................  29
11.1   Buy-Sell Offering Notice.............................................  29
11.2   Exercise of Buy-Sell.................................................  29
11.3   Closing..............................................................  29
11.4   Tax Returns..........................................................  31

                                  ARTICLE XII
 
                            DISSOLUTION AND WINDING UP......................  31
12.1   Liquidating Events...................................................  31
12.2   Winding Up...........................................................  32
12.3   Deemed Distribution and Recontribution...............................  33
12.4   Rights of Members....................................................  33
12.5   Notices of Dissolution...............................................  33

                                  ARTICLE XIII
 
                                 MISCELLANEOUS..............................  34
13.1   Notices..............................................................  34
13.2   Binding Effect.......................................................  34
13.3   Construction.........................................................  34
13.4   Time.................................................................  34
13.5   Titles and Captions..................................................  34
13.6   Severability.........................................................  34
13.7   Incorporation by Reference...........................................  35
13.8   Further Assurance....................................................  35
13.9   Pronouns and Plurals.................................................  35
13.10  Governing Law........................................................  35

                                      iii
<PAGE>
 
13.11  Counterpart Execution................................................  35
13.12  Loans................................................................  35
13.13  No Third Party Rights................................................  35
13.14  Estoppel Certificates................................................  35
13.15  Usury................................................................  36
13.16  Certain Terminology..................................................  36
13.17  Business Days........................................................  36
13.18  Proposing and Adopting Amendments....................................  36
 

EXHIBITS
--------

A   -    Description of Project

                                      iv
<PAGE>
 
                              OPERATING AGREEMENT

                                       OF

                         NEW YORK - NEW YORK HOTEL, LLC
______________________________________________________________________________

          This OPERATING AGREEMENT (this "Agreement") is entered into and shall
be effective as of the ____ day of December, 1994, by and among MGM Grand, Inc.,
a Delaware corporation, ("MGM") as a Member, and PRMA Las Vegas, Inc., a Nevada
corporation ("PRMA-LV") as a Member.  PRMA-LV is a wholly-owned subsidiary of
Primadonna Resorts, Inc., a Nevada corporation ("PRMA").

                                   ARTICLE I

                          ORGANIZATION OF THE COMPANY

          1.1  Formation.  MGM and PRMA-LV hereby intend to form and operate a
limited liability company (the "Company") pursuant to the provisions of Chapter
86 of the Nevada Revised Statutes (the "Act") and in accordance with, the terms
and conditions of this Agreement and the Company's Articles of Organization.
The Company shall exist under and be governed by, and this Agreement shall be
construed in accordance with the laws of the State of Nevada including the
Nevada Gaming Control Act embodied at Chapter 463 of the Nevada Revised Statutes
(the "Gaming Act").  The Members shall promptly make, execute and deliver all
filings, disclosures, and other documentation that are required by law
(including the Gaming Act, and the regulations promulgated thereunder, and the
Act) to enable the Company to comply with all requirements for its continued
operation.

          1.2  Name.  The name of the Company shall be "New York - New York
Hotel, LLC" and all business of the Company shall be conducted in such name or
such other name as the Members, from time to time, shall select.
Notwithstanding the foregoing, the Members agree that such name shall be changed
to "New York - New York Hotel and Casino, LLC" promptly after the Company (and
the Members, as applicable) shall have received all approvals and licenses
required under the Gaming Act and the regulations promulgated thereunder for the
conduct by the Company of gaming at the Property.

          1.3  Purpose.  The purpose of the Company is to acquire, own, develop,
mortgage, encumber, hypothecate, lease, sell, maintain, improve, alter, remodel,
expand, manage, and otherwise operate and deal with part or all of the Project,
including obtaining financing and refinancing for the above purposes, selling,
exchanging, transferring, or otherwise disposing of all or any part of the
Project and investing and reinvesting any undistributed Company funds pursuant
to the terms of this Agreement.  The Company shall be operated only for the
purpose specified in this Section 1.3.  Except as otherwise provided
                          -----------                               
<PAGE>
 
in this Agreement, the Company shall not engage in any other activity or
business and no Member shall have any authority to hold itself out as an agent
of another Member in any other business or activity.

          1.4  Intent.  It is the intent of the Members that the Company be
operated in a manner consistent with its treatment as a "partnership" for
federal and state income tax purposes.  It is also the intent of the Members
that the Company not be operated or treated as a "partnership" for purposes of
Section 303 of the Federal Bankruptcy Code.  No Member shall take any action
inconsistent with the express intent of the parties hereto as set forth in this
Section 1.4.
----------- 

          1.5  Term.  The term of the Company shall commence upon the filing of
the Articles of Organization for the Company with the Nevada Secretary of
State's Office and shall continue until the earlier of (a) the thirtieth
anniversary of such filing, and (b) the date a statement of intent to dissolve
the Company is filed in such office.  The Company shall dissolve and its affairs
shall be wound up in accordance with Section 12 hereof.
                                     ----------        

          1.6  Title to Property.  All real and personal property owned by the
Company shall be owned by the Company as an entity and no Member shall have any
ownership interest in such property in its individual name or right, and each
Member's interest in the Company shall be personal property for all purposes.
Except as otherwise provided in this Agreement, the Company shall hold all of
its real and personal property in the name of the Company and not in the name of
any Member.

          1.7  Payments of Individual Obligations.  The Company's credit and
assets shall be used solely for the benefit of the Company, and no asset of the
Company shall be transferred or encumbered for, or in payment of, any individual
obligation of a Member.

          1.8  Independent Activities.  Each Member shall be required to devote
only such time to the affairs of the Company as may be necessary for the proper
performance of such Member's duties hereunder.  Except to the extent expressly
provided to the contrary in this Agreement, neither the Company's Articles of
Organization nor this Agreement shall:  (a) limit the rights of each Member and
its Affiliates, and such Member's and Affiliate's respective officers,
directors, employees and stockholders ("Related Persons") to serve other Persons
in any capacity, to own interests in other businesses and undertakings, to
pursue and engage in other investments, opportunities and activities, and to
derive and enjoy profits, compensation and other consideration in respect
thereof, whether or not such services, interests, businesses, undertakings,
investments, opportunities and activities (collectively, "Other Interests") are
similar to or competitive with the business or assets of the Company, (b) afford
any Member any right to share in the profits, compensation and other
consideration derived from the Other Interests of the other Member or the other
Member's Related Persons, or to participate in the Other Interests of the other
Member or the other Member's Related Persons, (c) require any Member to disclose
to the other Member or the

                                       2
<PAGE>
 
Company the existence or nature of any such Other Interest, or (d) obligate any
Member to first offer any such Other Interest to the other Member or the
Company, or allow the other Member or the Company to participate therein.

          1.9  Transactions with Affiliates.  To the extent permitted by
applicable law and except as otherwise provided in this Agreement (including
Section 5.1(c) hereof), the Chief Executive Officer, when acting on behalf of
--------------                                                               
the Company, is hereby authorized to purchase property and services from, sell
property and services to, or otherwise deal with any Member, acting on its own
behalf, or any Affiliate of any Member, provided that any such purchase, sale,
or other transaction shall be made on terms and conditions which are no less
favorable to the Company (including as to price, quality and payment terms) than
if the sale, purchase, or other transaction had been entered into with an
independent third party.  It is anticipated that each Member (or Affiliate of
such Member) may possess products, services, or technology which is equal to or
better than comparable products, services, or technology available from third
parties.  In the event the Company acquires such products, services or
technology from a Member (or Affiliate of such Member), the price and terms at
which the same are supplied shall not be less favorable to the Company in the
aggregate than the price and terms available from third parties for similar
products, services or technology (even though the Member's (or Affiliate's)
products, services or technology is or are superior).

          1.10  Expenses of Members.  Except as specifically provided in this
Agreement, no Member (or Affiliate of a Member) shall be paid for services
rendered to the Company by such Member or such an Affiliate.  However, each
Member (or Affiliate of a Member) shall be entitled to reimbursement from the
Company for actual "out of pocket" expenses reasonably incurred by such Member
(or Affiliate) in the furtherance of the Company's business to the extent such
expenses are approved by the Board, or were contemplated by a budget approved by
the Board, in each case upon the presentation of reasonable supporting
documentation of the amount and purpose of such expenses.  The legal,
accounting, due diligence and investigative fees and expenses relating to the
negotiation of this Agreement and gaming licensure fees and costs associated
with each Member's individual licensure investigation shall be borne by such
Member and not by the Company.

          1.11  Guarantee by PRMA.  The obligations of PRMA-LV hereunder are
guaranteed by PRMA pursuant to the Unconditional Guaranty executed and delivered
concurrently herewith.

          1.12  Registered Office and Agent for Service of Process.  The address
of the registered office and the principal place of business of the Company, and
the name and address of the Company's initial agent for service of process, are
as set forth in the Articles of Organization.  Such office address and agent may
be changed from time to time by the Board.  Notwithstanding the foregoing, upon
the opening of the completed Project for

                                       3
<PAGE>
 
business, or upon such earlier date as the Board may determine, such address
shall be changed to the Project's street address, and the location of such
office (and all records that are required to be kept at such office pursuant to
the Articles of Organization or the Act) shall be at the Project.  The Board
shall cause an appropriate certificate of amendment to the Articles of
Organization to be duly filed upon any such change of office address or agent.

          1.13  Definitions.  Attached to this Agreement immediately following
the signature page is a glossary of defined terms (the "Glossary of Defined
Terms").  Each capitalized term used in this Agreement either is defined in the
Glossary of Defined Terms, or the location of its definition is cross-referenced
in the Glossary of Defined Terms.

                                   ARTICLE II

                      OWNERSHIP AND CAPITAL CONTRIBUTIONS

          2.1  Membership and Percentage Interests.  The names, addresses, and
Percentage Interests of the Members are as follows:

          NAME AND ADDRESS                     PERCENTAGE INTEREST
          -----------------                    -------------------

          MGM Grand, Inc.
          3799 Las Vegas Boulevard South                50%
          Las Vegas, Nevada 89109
          Telecopier No.:  (702) 891-3334

          PRMA Las Vegas, Inc.
          P.O. Box 95997                                50%
          Las Vegas, Nevada 89193-5997
          Telecopier No.:  (702) 874-1554

          2.2  Initial Capital Contributions.  The initial Capital Contributions
of the Members shall be made in accordance with, and subject to, the terms and
conditions set forth in the Contribution Agreement being executed and delivered
concurrently herewith.

          2.3  Third Party Financing.  Except as otherwise provided herein to
the contrary, the Company will obtain, on its own behalf, all additional money
and funds necessary, at anytime, to develop, construct, acquire and operate the
Property (including the Project).  The initial financing for the development and
construction of the Project is contemplated to be without recourse to any Member
or Related Person of a Member, in an amount not less than Two Hundred and Twenty
Million Dollars ($220,000,000.00), and secured solely by the assets of the
Company.  No Member or Affiliate of a Member shall

                                       4
<PAGE>
 
be required to guaranty or make any other financial commitment with respect to
any debt or other obligation of the Company.

          2.4  Additional Capital Contributions.  Additional capital
contributions may be called for by the Board (but only by the unanimous vote or
approval of all Directors), by written demand upon the Members from time to time
("Additional Capital Contributions").  Such Additional Capital Contributions
shall be payable in proportion to the Percentage Interests of the Members.

          2.5 Other Matters.

          (a) Except as otherwise provided in this Agreement, no Member shall
demand or receive a return of his Capital Contributions or withdraw from the
Company without the consent of all Members.  Under circumstances requiring a
return of any Capital Contributions, no Member shall have the right to receive
property other than cash except as may be specifically provided herein.

          (b) No Member shall receive any interest, salary, or draw with respect
to its Capital Contributions or its Capital Account or for services rendered on
behalf of the Company or otherwise in its capacity as Member, except as
otherwise provided in this Agreement.

                                  ARTICLE III

                                  ALLOCATIONS

          3.1  Profits.  After giving effect to the special allocations set
forth in Sections 3.3 and 3.4 hereof, Profits for any Fiscal Year shall be
         --------------------                                             
allocated among the Members in proportion to their Percentage Interests.

          3.2  Losses.  After giving effect to the special allocations set forth
in Sections 3.3 and 3.4 hereof, Losses for any Fiscal Year shall be allocated
   --------------------                                                      
among the Members in proportion to their Percentage Interests.

          3.3  Special Allocations.  The following special allocations shall be
made for income tax purposes in the following order:

          (a) Minimum Gain Chargeback.  Except as otherwise provided in Section
1.704-2(f) of the Regulations, notwithstanding any other provision of this
Article III, if there is a net decrease in Company Minimum Gain during any
Fiscal Year, each Member shall be specially allocated items of Company income
and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an
amount equal to such Member's share of the net decrease in Company Minimum Gain,
determined in accordance with Regulations Section

                                       5
<PAGE>
 
1.704-2(g).  Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Member
pursuant thereto.  The items to be so allocated shall be determined in
accordance with Sections 1.704-2(f)(6) and 1.704-2(j)(2) of the Regulations.
This Section 3.3(a) is intended to comply with the minimum gain chargeback
     --------------                                                       
requirements in the Regulations and shall be interpreted consistently therewith.

          (b) Member Minimum Gain Chargeback.  Except as otherwise provided in
Section 1.704-2(i)(4) of the Regulations, notwithstanding any other provision of
this Article III, if there is a net decrease in Member Nonrecourse Debt Minimum
Gain attributable to a Member Nonrecourse Debt during any Fiscal Year, each
Member who has a share of the Member Nonrecourse Debt Minimum Gain attributable
to such Member Nonrecourse Debt, determined in accordance with Section 1.704-
2(i)(5) of the Regulations, shall be specially allocated items of Company income
and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an
amount equal to such Member's share of the net decrease in Member Nonrecourse
Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in
accordance with Regulations Section 1.704-2(i)(4) and 1.704-2(g)(2).
Allocations pursuant to the previous sentence shall be made in proportion to the
respective amounts required to be allocated to each Member pursuant thereto.
The items to be so allocated shall be determined in accordance with Sections
1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations.  This Section 3.3(b) is
                                                          --------------   
intended to comply with the minimum gain chargeback requirements in the
Regulations and shall be interpreted consistently therewith.

          (c) Nonrecourse Deductions.  Nonrecourse Deductions for any Fiscal
Year shall be specially allocated among the Members in proportion to their
Percentage Interests.

          (d) Member Nonrecourse Deductions.  Any Member Nonrecourse Deductions
for any Fiscal Year shall be specially allocated to the Member who bears the
economic risk of loss with respect to the Member Nonrecourse Debt to which such
Member Nonrecourse Deductions are attributable in accordance with Regulations
Section 1.704-2(i)(1).

          (e) Code Section 754 Adjustment.  To the extent an adjustment to the
adjusted tax basis of any Company asset pursuant to Code Section 734(b) or Code
Section 743(b) is required, pursuant to Regulations Section 1.704-
1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken
            -  -                                           -  -              
into account in determining Capital Accounts as the result of a distribution to
a Member in complete liquidation of his interest in the Company, the amount of
such adjustment to the Capital Accounts shall be treated as an item of gain (if
the adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially allocated to the
Members in accordance with their interests in the Company in the event
Regulations Section

                                       6
<PAGE>
 
1.704-1(b)(2)(iv)(m)(2) applies, or to the Members to whom such distribution was
                  -  -                                                          
made in the event Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
                                                        -  -          

          (f) Qualified Income Offset.  In the event any Member unexpectedly
receives any adjustment, allocation or distribution described in Treasury
Regulation paragraph (4), (5) or (6) of Section 1.704-1(b)(2)(ii)(d), items of
Company income and gain shall be specially allocated to the Members in an amount
and manner sufficient to eliminate, to the extent required by the Treasury
Regulations, the Adjusted Capital Account Deficit of that Member as quickly as
possible.

          3.4  Curative Allocations.  The allocations set forth in Sections
                                                                   --------
3.3(a), 3.3(b), 3.3(c), 3.3(d) and 3.3(e) hereof (the "Regulatory Allocations")
-----------------------------------------                                      
are intended to comply with certain requirements of the Regulations.  It is the
intent of the Members that, to the extent possible, all Regulatory Allocations
shall be offset either with other Regulatory Allocations or with special
allocations of other items of Company income, gain, loss, or deduction pursuant
to this Section 3.4.  Therefore, notwithstanding any other provision of this
        -----------                                                         
Article III (other than the Regulatory Allocations), the Chief Financial Officer
shall make such offsetting special allocations of Company income, gain, loss or
deduction in whatever manner such officer reasonably determines appropriate so
that, after such offsetting allocations are made, each Member's Capital Account
balance is, to the extent possible, equal to the Capital Account balance such
Member would have had if the Regulatory Allocations were not part of the
Agreement and all Company items were allocated pursuant to Sections 3.1 and 3.2
                                                           --------------------
hereof.  In exercising his reasonable judgment and discretion under this Section
                                                                         -------
3.4, the Chief Financial Officer shall take into account future Regulatory
---                                                                       
Allocations under Sections 3.3(a) and 3.3(b) that, although not yet made, are
                  --------------------------                                 
likely to offset other Regulatory Allocations previously made under Sections
                                                                    --------
3.3(c) and 3.3(d).
----------------- 

          3.5 Other Allocation Rules.

          (a) The Members are aware of the income tax and economic consequences
of the allocations made by this Article III and hereby agree to be bound by the
                                -----------                                    
provisions of this Article III in reporting their shares of Company income and
                   -----------                                                
loss for income tax purposes.

          (b) For purposes of determining the Profits, Losses, or any other
items allocable to any period, Profits, Losses, and any such other items shall
be determined on a daily, monthly, or other basis, as determined by the Members
using any permissible method under Code Section 706 and the Regulations
thereunder.


                                       7
<PAGE>
 
          (c) Solely for purposes of determining a Member's proportionate share
of the "excess nonrecourse liabilities" of the Company, within the meaning of
Regulations Section 1.752-3(a)(3), the Members' interests in Company profits are
in proportion to their Percentage Interests.

          (d) To the extent permitted by Section 1.704-2(h)(3) of the
Regulations, the Chief Financial Officer shall endeavor not to treat
distributions of Net Cash Flow as having been made from the proceeds of a
Nonrecourse Liability or a Member Nonrecourse Debt.

          3.6  Tax Allocations:  Code Section 704(c).  In accordance with Code
Section 704(c) and the Regulations thereunder, income, gain, loss, and deduction
with respect to any property contributed to the capital of the Company shall,
solely for tax purposes, be allocated among the Members so as to take account of
any variation between the adjusted basis of such property to the Company for
federal income tax purposes and its initial Gross Asset Value.

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

          Any elections or other decisions relating to such allocations shall be
made by the Members in any manner that reasonably reflects the purpose and
intention of this Agreement.  Allocations pursuant to this Section 3.6 are
                                                           -----------    
solely for purposes of federal, state, and local taxes and shall not affect, or
in any way be taken into account in computing, any Person's Capital Account or
share of Profits, Losses, other items, or distributions pursuant to any
provisions of this Agreement.

                                   ARTICLE IV

                                 DISTRIBUTIONS

          4.1  Net Cash Flow.  Except as provided in Section 12.2 hereof, the
                                                     ------------            
Chief Financial Officer shall cause all Net Cash Flow, if any, to be distributed
to the Members, in proportion to their respective Percentage Interests, not
later than the thirtieth (30th) day after the end of each fiscal quarter.

          4.2  Tax Distributions.  Within ninety (90) days after the conclusion
of each Fiscal Year, the Chief Financial Officer shall determine and provide
written notice to the Members of the amount (the "Tax Liability Shortfall
Amount"), if any, by which (a) the

                                       8
<PAGE>
 
aggregate federal and Nevada state tax liability (if any) incurred by the
Members with respect to the net income of the Company for such preceding Fiscal
Year (which tax liability shall be determined by applying the highest effective
corporate tax rates then in effect for the Fiscal Year in question), exceeds (b)
                                                                     -------    
the aggregate cash distributions made by the Company with respect to such Fiscal
Year (including any distributions made to the Members with respect to the final
fiscal quarter of such Fiscal Year).  Unless otherwise instructed by the Board,
the Chief Financial Officer shall use all reasonable efforts to obtain all
required lender's consents, or to cause the Company to borrow sufficient funds,
to enable the Company to distribute the Tax Liability Shortfall Amount to the
Members.  Each such distribution shall be made to the Members in accordance with
their respective Percentage Interests as soon as practicable after such funds
have been obtained.  Notwithstanding anything contained herein to the contrary,
in no event shall any such borrowing or distribution be obtained or made without
the approval of the Board if such action would cause a breach of or an adverse
change under any contract or undertaking by which the Company is bound, or to
which any of its Property is subject.  It is the objective of the Members that
while the Tax Liability Shortfall Amount will be determined at the end of each
Fiscal Year, to the extent possible and subject to the foregoing, distributions
will be made in respect thereof on a quarterly basis to facilitate the Members'
ability to make quarterly estimated tax payments with respect to their net
income from the Company.  At the end of each Fiscal Year as contemplated above,
final adjustments shall be made to reflect the actual results of such Fiscal
Year, and if required by any lender to the Company, each Member shall
immediately repay any excess amounts distributed to it with respect to the Tax
Liability Shortfall Amount for such Fiscal Year based on such final adjustment.

                                   ARTICLE V

                                   MANAGEMENT

          5.1  Board of Directors.  The Company shall at all times have a board
of directors (the "Board") composed of individuals ("Directors") selected by the
Members who shall vote on Major Decisions and elect, and oversee the performance
of, the Managers.

          (a)  Membership and Voting.

               (i) Membership.  The Board will consist of four (4) Directors
with two (2) Directors appointed by MGM, and two (2) Directors appointed by 
PRMA-LV.  One of the Directors shall be designated as the "Chairman of the
Board."  Each Member shall cause its appointed Directors to comply with the
terms of this Agreement to be performed by such Directors.  Each Member may, at
any time, appoint alternate Directors by prior written notice to the other
Directors and such alternates will have all the powers of a regular Director in
the absence or inability of a regular Director to serve.  Each Member will have
the power to remove any Director or alternate Director of the Board appointed by
it.  Vacancies on the Board will be filled by appointment by the Member which

                                       9
<PAGE>
 
appointed the Director previously holding the position which is then vacant.
Each Member shall notify the other Member in writing of its initial appointments
to the Board within five (5) business days of the execution of this Agreement.
The Members may agree to increase or decrease the size of the Board
proportionately, from time to time.

              (ii) Voting.  Each Director shall have one vote on any decision of
the Board.  A Director may give his written proxy to another Director to vote on
his behalf in his absence.  Except as expressly provided to the contrary in this
Agreement, all actions of the Board must be approved, directly or by proxy, by a
majority of the Directors (whether or not present at the meeting at which such
vote occurs).

          (b) Meetings of the Board; Time and Place.  Unless otherwise agreed by
the Board, regular meetings of the Board shall be held monthly at such time and
at such place as the Board shall determine.  At such regular meetings, the
Managers shall report on the financial performance and condition of the Company
on a year-to-date basis (including cash flows, reserves, outstanding loans, and
compliance efforts), progress reports on capital projects, including the
construction of the Project, and the Business Plan, material contracts entered
into, material litigation, marketing efforts and such other matters relevant to
the operation of the Company.  Special meetings of the Board shall be held on
the call of any Director; provided that at least three (3) business days' notice
is given to all Directors (unless written waiver of this requirement by all
Directors is obtained).  A quorum for any Board meeting shall consist of not
less than three (3) Directors present either in person or by proxy.  The Board
may make use of telephones and other electronic devices to hold meetings,
provided that each Director simultaneously participates with all of the other
Directors with respect to all discussions and votes of the Board.  The Board may
act without a meeting if the action taken is reduced to writing and approved by
the Board in accordance with the other voting provisions of this Agreement.
Written minutes shall be taken at each meeting of the Board.  However, any
action taken or matter agreed upon by the Board shall be deemed final, whether
or not written minutes are ever prepared or finalized.  Without limitation on
the voting and approval requirements set forth in this Article V, the Chairman
                                                       ---------              
of the Board shall be entitled to consult with and advise the Managers, from
time to time, and shall not be required to call a meeting of the Board to do so.

          (c) Major Decisions.  No action shall be taken, sum expended, decision
made or obligation incurred by any Manager or Member on behalf of the Company
with respect to any matter within the scope of any of the Major Decisions
enumerated below, unless approved by the Board.  The "Major Decisions" shall
mean and consist of the following:

              (i)   The approval of each Business Plan and each revision or
amendment thereto;

                                      10
<PAGE>
 
              (ii)  The approval of the architectural and engineering plans for
the Project and any material modifications thereof;

              (iii) The selection of a firm of independent certified public
accountants to perform an annual audit and issue an opinion letter with respect
to the financial statements of the Company;

              (iv)  Granting to any individual other than a Manager the
authority to open and draw checks on bank accounts in the name of the Company,
or endorse checks for deposit to such accounts;

              (v)   The purchase, sale, lease or other disposition of Company
Property, other than as contemplated in the Business Plan, and other than in the
ordinary course of the Company's business;

              (vi)  Approving all capital expenditures, other than those
contemplated in the Business Plan;

              (vii) The incurrence of any indebtedness for borrowed money by, or
the refinancing of any indebtedness of, the Company, or the granting of any
mortgage, lien or other encumbrance on any of the Company's Property, the giving
of any Company guaranty, other than construction guarantees, indemnities and
surety bonds given in furtherance of the construction or improvement of the
Project;

              (viii) Approving transactions between the Company and a Member or
Related Person of a Member, other than those contemplated in the Business Plan;

              (ix)   Selecting and removing any Manager;

              (x)    Entering into employment agreements with and determining
the compensation of the Managers;

              (xi)   Filing for bankruptcy protection or similar proceedings;

              (xii)  Selecting any underwriter, broker, consultant or legal
counsel for the Company;

              (xiii) Each other decision or action under this Agreement or the
Articles of Organization that requires the approval, consent, determination or
agreement of the Board;

provided, however, that a transaction of the type described in clause (v), (vi),
--------  -------                                                               
(vii), (viii) or (xii) above (other than real property leases covering Company
Property, which shall always

                                      11
<PAGE>
 
constitute Major Decisions) shall not be a Major Decision if the Chief Executive
Officer reasonably anticipates that such transaction will involve an aggregate
payment or liability of $300,000 or less; moreover the Chief Executive Officer
shall notify the Board if any transaction described in clause (v) is reasonably
anticipated to exceed $150,000.  In addition, any action by the Company to
materially amend, modify, or supplement any document, instrument, transaction or
other matter described above as a Major Decision shall require the approval of
the Board if the same as so amended, modified or supplemented, would be
inconsistent with the terms previously approved with respect thereto by the
Board.  Notwithstanding the above, the Chief Executive Officer shall have the
right and authority to take such actions as he or she, in his or her reasonable
judgment, deems necessary for the protection of life or health or the
preservation of Company assets if, under the circumstances, in the good faith
estimation of the Chief Executive Officer, there is insufficient time to allow
the Chief Executive Officer to obtain the approval of the Board to such action
and any delay would materially increase the risk to life or health or
preservation of assets.  The Chief Executive Officer shall notify the Board of
each such action contemporaneously therewith or as soon as reasonably
practicable thereafter.  Such authority shall lapse and terminate upon reduction
of such risk to life or health or preservation of assets or upon receipt by the
Chief Executive Officer of telephone, facsimile, or written notice from any
director on the Board of its disapproval of any or all of the proposed actions.
As used herein, "Buy-Sell Major Decision" shall mean any Major Decision of the
type described in one or more of clauses (i), (ii), (v), (vi), (vii), (viii),
(ix), (x) and (xi).

          (d) Deadlock Resolution.  In the event the Board is deadlocked over a
Major Decision that is not a Buy-Sell Major Decision, the Members shall promptly
select a mutually acceptable unrelated and independent individual who shall,
after good faith discussions with the Board with the objective of arriving at a
consensus on the issue in question that is acceptable to a majority of the
Directors, resolve the deadlocked matter (including, if necessary, by casting
his or her vote in favor of a proposed resolution in the event no such consensus
can be reached upon the conclusion of such discussions).  In the event the
Members cannot agree on the selection of such individual, any Director shall be
entitled to request that an official of the local office of the American
Arbitration Association ("AAA") appoint such individual, and such Director shall
promptly give written notice to the other Directors that such request has been
made (whereupon no other Director shall be entitled to make a duplicative
request to the AAA).  In such event, the official of the AAA shall be instructed
to use his or her best efforts to appoint an individual who (i) is of good
reputation and possesses a minimum of five (5) years of experience in Las Vegas,
Nevada as a senior executive of a gaming company, and (ii) has no prior
relationship with or to either Member or the Company.  Notwithstanding the
foregoing, the Members agree that either of Mr. Thomas Hartley or Mr. Donald
McGhie shall be a mutually acceptable individual hereunder.  Such appointed
individual shall, after good faith discussions with the Board with the objective
of arriving at a consensus on the issue in question that is acceptable to a
majority of the Directors, resolve the deadlocked matter (including, if
necessary, by casting his or her vote in favor of a proposed resolution in the
event no such consensus can be reached upon the conclusion of such discussions).
The

                                      12
<PAGE>
 
Company shall indemnify and hold harmless any individual selected or appointed
in accordance with the foregoing to the same extent that such Person would be
indemnified under Article VI hereof if such Person were a Director of the
                  ----------                                             
Company.  In no event, however, shall any such individual be designated or
construed to be a Director of the Company.  The provisions of this Section 5.1
                                                                   ------- ---
shall be deemed automatically deleted, without the need for approval of any
further action to be taken by the Members, upon the date occurring six (6)
months after the opening of the Project (the "Deadlock Resolution Flip Date").

          5.2 Managers.

          (a) Management by Managers.  The day-to-day management of the Company
shall be vested in two (2) or more Managers who shall be elected solely by the
Board.  No debt may be contracted or liability incurred by or on behalf of the
Company, except by one or more of the Managers, subject to the restrictions on
its or their authority set forth in Section 5.1.  No Director or Member, unless
                                    -----------                                
also appointed as a Manager, shall participate in the day to day operation of
the business affairs of the Company, and if so appointed, shall participate only
within the scope of authority of such position as defined in this Agreement.

          (b) Election of Managers by Board.  The Company shall have two (2) or
more Managers, one of which shall be designated as General Manager and Chief
Executive Officer (the "Chief Executive Officer"), and another of which shall be
designated as Manager and Chief Financial Officer (the "Chief Financial
Officer").  The initial Managers are designated in the Articles of Organization.
Each Manager shall be selected by the Board and shall serve at the pleasure of
the Board.  Any Manager may be removed by the Board at any time with or without
cause.  Without limitation on the Board's right to select or remove a Manager at
any time, the Managers shall be elected at least annually by the Board.
Directors who are Managers or candidates to be Manager shall be entitled to vote
with respect to each such election, including their own.  Each Manager shall
serve for a term expiring at the earlier of (i) the Board's determination to
terminate such Manager, (ii) the anniversary of such Manager's election, or
(iii) the date on which he or she resigns or becomes disabled and unable to
serve.  The Members anticipate that the Board will select Managers to render
full-time and exclusive services to the Company within a reasonable time prior
to the opening of the Project.  Until such time, the initial Managers designated
in the Articles of Organization shall serve on an interim and non-exclusive
basis as "Interim Managers" hereunder.  Except for the Interim Managers, (A)
Managers shall be compensated solely by the Company, but may retain previously
granted stock options or other emoluments from either Member or its respective
Affiliates, in such Member's sole and absolute discretion; (B) the Managers,
while serving as Managers, shall not be eligible to receive new stock options or
other emoluments from either Member or its respective Affiliates; and (C) the
Managers are expected to render full-time, exclusive services to the Company,
subject only to such exceptions as the Board may approve in its discretion on a

                                      13
<PAGE>
 
case by case basis.  A Manager shall perform his duties as a Manager in good
faith, in a manner he reasonably believes to be in the best interest of Company,
and with such care as an ordinarily prudent person in a like position would use
under similar circumstances.  A person who so performs his or her duties shall
not have any liability by reason or being or having been a Manager of the
Company.

          (c) Duties of the Chief Executive Officer.  The Chief Executive
Officer shall be generally responsible for overseeing and managing the business
and operations of the Company.

          (d) Duties of the Chief Financial Officer.  The Chief Financial
Officer shall have fiduciary responsibility for the safekeeping and use of all
funds and assets of the Company, whether or not in his immediate possession or
control.  The funds of the Company shall not be commingled with the funds of any
other Person and the Chief Financial Officer shall not employ, or permit any
other Person to employ, such funds in any manner except for the benefit of the
Company.  The bank accounts of the Company shall be maintained in such banking
institutions as are approved by the Board and withdrawals shall be made only in
the regular course of Company business and as otherwise authorized in this
Agreement on such signature or signatures as the Board may determine.  All funds
of the Company shall be invested in accordance with the then applicable Business
Plan.  The Chief Financial Officer shall also have the duties described in
Article VIII of this Agreement.
------------                   

          5.3  Warranted Reliance by Directors and Managers on Others.  In
exercising their authority and performing their duties under this Agreement, the
Directors and the Managers shall be entitled to rely on information, opinions,
reports, or statements of the following persons or groups unless they have
actual knowledge concerning the matter in question that would cause such
reliance to be unwarranted:

               (i)  one or more employees or other agents of the Company whom
the Director or Manager, as the case may be, reasonably believes to be reliable
and competent in the matters presented; and

               (ii) any attorney, public accountant, or other person as to
matters which the Director or Manager, as the case may be, reasonably believes
to be within such person's professional or expert competence.

          5.4  Business Plan.

          (a)  Preparation and Approval.  Not later than forty-five (45) days
prior to the end of the then current Fiscal Year, the Managers shall prepare for
the approval of the Board a business plan (the "Business Plan") for the next
Fiscal Year.  Within sixty (60) days of the date hereof, the Managers shall
prepare a Business Plan for the Company for Fiscal

                                      14
<PAGE>
 
Year 1995.  No material changes or departures from any item in an approved
Business Plan shall be made by the Managers without the prior approval of the
Board.  Each Business Plan shall include the following:

               (i)    A narrative description of any activities proposed to be
undertaken including the physical development of the Project;

               (ii)   A projected annual income statement (accrual basis) on a
quarter-by-quarter basis for the upcoming Fiscal Year and the subsequent Fiscal
Year;

               (iii)  A projected balance sheet as of the end of the upcoming
Fiscal Year and subsequent Fiscal Year;

               (iv)   A capital budget and an operating budget for the Project,
including the establishment and amount of working capital, capital improvement,
and contingency reserves;

               (v)    A schedule of projected operating cash flow (including
itemized operating revenues, Project costs, and Project expenses) for such
Fiscal Year on a quarter-by-quarter basis, including a schedule of projected
operating deficits and capital calls for Additional Capital Contributions, if
any;

               (vi)   A marketing plan indicating the nature, type, timing and
cost of advertising, public relations, complementaries, and promotions
contemplated (e.g. print,television, food/beverage, billboard, signage, and
other media), contemplated distribution and amounts payable to contractors;

               (vii)  A personnel plan indicating executive and key employee
staff, organizational charts, employee census, hiring estimates, turnover,
payroll, schedule of benefits, and labor relations agreements;

               (viii) An entertainment plan indicating the nature, type and cost
of entertainment to be conducted as part of the Project including special
events, and to the extent ascertainable, scheduled dates and entertainers;

               (ix)   A description of any material proposed construction,
capital expenditures, installations including projected dates for commencement
and completion of the foregoing;

               (x)    A development schedule identifying the projected
development periods as well as the times for completion of the various stages of
the Project and the costs attributable to each such stage;

                                      15
<PAGE>
 
               (xi)   A narrative description of the proposed investment of any
funds of the Company which are (or are expected to become) available for
investment;

               (xii)  Such other information, plans, maps, descriptions of
contracts, or other materials necessary in order to inform the Board of all
matters relevant to the development, operation, management, and maintenance of
the Project, or to enable the Board to make an informed decision with respect to
its approval of such Business Plan or as may be desired by the Board;

               (xiii) A schedule identifying proposed property (real or
personal) acquisitions and dispositions with a cost or sales price, as the case
may be, in excess of $250,000.00, the aggregate cost of all such acquisitions
and the aggregate sales price of all such dispositions; and

               (xiv)  A five year strategic plan for the further strategic
development, diversification and positioning of the Company so it remains
competitive in a dynamic marketplace.

          (b)  Implementation of Business Plan by Managers.  The Managers shall,
subject to the limitations contained herein and the availability of operating
revenues and other funds, use all reasonable efforts to conduct the Company's
business in material compliance with the then applicable Business Plan.

          5.5  Insurance.

          (a)  Coverage.  The Chief Executive Officer shall procure and
maintain, or cause to be procured and maintained, insurance sufficient to enable
the Company to comply with applicable laws, regulations, and contractual
requirements (including the requirements of Persons providing financing to the
Company), including as a minimum and without limitation, the following:

               (i)   Comprehensive general liability insurance in the amounts
and upon terms customary for businesses and assets comparable to the Project;

               (ii)  With respect to completed improvements, fire and extended
coverage insurance (including earthquake coverage), and, whenever construction
of any improvement is taking place, builders' risk insurance, in each case, on a
replacement cost basis of not less than one hundred percent (100%) of the full
replacement cost of such improvements;

               (iii) Worker's compensation insurance as required by law
including employer's liability;

                                      16
<PAGE>
 
               (iv)  Fidelity insurance in an amount to protect against losses
due to employee dishonesty, theft by a property manager or any other third
parties, and mysterious disappearances; an d

               (v)   Such additional insurance against other risks of loss to
the Project as, from time to time, may be required by any lender making a loan
to the Company or which may be required by law.

          The Chief Executive Officer shall furnish the Board, no less
frequently than annually, a schedule of such insurance and copies of
certificates evidencing the same.  All Members must consent to the establishment
or modification of any self insurance or deductibles which exposes the Company
to uninsured liability.  Each Director, Manager and Member shall be named as an
additional insured to the Company's comprehensive general liability insurance
policies.

          5.6  Unanimous Consent.  Notwithstanding anything to the contrary in
this Agreement, the Company may take any action contemplated under this
Agreement if approved by the unanimous consent of the Members, such consent to
be provided in the manner required by Section 13 hereof.  Any Manager may
                                      ----------                         
require response to any request for approval within a specified time period, but
not less than ten (10) Business Days, which approval shall be deemed given by a
Member upon the expiration of such time period (but only if the applicable
request for approval specifically advised such Member that its failure to
respond within the specified time period would result in such deemed approval)
unless written notice to the requesting Manager has been earlier given
indicating such Member's approval or disapproval.

          5.7 Pre-development Matters.

          (a) Entitlements.  The Managers shall promptly commence, and with due
diligence proceed, to use all reasonable efforts to obtain the issuance or
approval of each of the following (collectively, the "Entitlements"), to the
extent necessary for the development and construction of the Project, in
compliance with all applicable laws:  environmental impact reports or negative
declarations, master plan/guide changes, Paradise Town specific plan changes,
zoning changes, variances, special or conditional use permits, acceptable
conditions to variance and to special use permits, all flood control approvals,
building permits, F.A.A. and McCarran Airport height approvals and
"determinations of no hazard," subdivision or parcel maps, dedications, special
assessment districts, and all similar items or arrangements (other than state
and local gaming licensure matters).  Each Member shall diligently and in good
faith cooperate with the Managers in the Managers' efforts to

                                      17
<PAGE>
 
obtain, on behalf of the Company, the Entitlements.  The Company shall pay and
be solely responsible for any and all costs and expenses ("Entitlements Costs")
incurred with respect to the performance of the undertakings described in this
subsection (a) above.
--------------       

          (b) Liquor and Gaming Approvals.  The Managers shall promptly commence
and with due diligence proceed to use all reasonable efforts to obtain, on
behalf of the Company, all liquor and gaming licenses and approvals (the "Liquor
and Gaming Approvals") necessary for the contemplated use and operation of the
Project, including the execution, delivery and processing of all necessary or
appropriate applications, agreements, documents and other instruments. Each
Member shall diligently and in good faith cooperate with the Managers in the
Managers' efforts to obtain, on behalf of the Company, the Liquor and Gaming
Approvals. Any and all costs and expenses (including reasonable attorneys' fees
and costs) incurred by any Manager or Member in connection with obtaining the
Liquor and Gaming Approvals (the "Liquor and Gaming Costs") shall be paid by the
Company, except that each Member shall bear the costs and expenses incurred in
connection with its obtaining a gaming license and approval in its capacity as a
Member in the Company.

          (c) Reimbursement of Shared Costs.  As contemplated by that certain
Due Diligence and Cost-Sharing Agreement, dated October 13, 1994, by and among
the Members and PRMA (the "Cost-Sharing Agreement"), the Chief Financial Officer
shall promptly cause the Company to reimburse each Member for any and all
"Shared Costs" (as defined in the Cost-Sharing Agreement) that have been borne
by such Member upon the Chief Financial Officer's receipt of supporting
documentation evidencing that such costs have been paid and calculating such
Member's share thereof.  All such Shared Costs that have accrued but remain
unpaid as of the date hereof shall be assumed and paid by the Company when due.

          (d) Unwind Conditions and Procedures.  At any time during the thirty
(30) day period following May 1, 1995, as such date may be extended from time to
time by the Board (the "Outside Date"), either Member, acting through its
respective Directors at a meeting of the Board, shall have the unilateral right
to cause the dissolution of the Company if all of the following conditions
precedent have not been satisfied by such Outside Date:

              (i) The Company shall have received a written loan commitment for
     construction financing for the Project, in an amount not less than
     $220,000,000.00, which shall be without recourse to any Member or any
     Member's assets and secured solely by the assets of the Company, and which
     shall contain such other terms and conditions acceptable to each Member in
     each such party's reasonable business judgement.


                                      18
<PAGE>
 
              (ii) Each Member shall be satisfied, in each such party's
     reasonable business judgement, that the necessary Liquor and Gaming
     Approvals and the Entitlements are obtainable by the Company.

          If the Company is not dissolved in accordance with the foregoing
during such thirty day period, each Member shall be deemed to have waived its
rights under this Section 5.7, and thereafter the Company may be dissolved only
                  -----------                                                  
upon the other dissolution events described in Section 12.1.  If the Company is
                                               ------------                    
dissolved in accordance with this Section 5.7, the business of the Company shall
                                  -----------                                   
be wound up and liquidated, provided that, notwithstanding anything contained in
Section 12.2 to the contrary, the following liquidating distributions and
------------                                                             
payments shall be made after the payment and discharge of all of the Company's
debts and liabilities to creditors:  (A) the "MGM Contribution Property" (as
defined in the Contribution Agreement) component of the Company's Property shall
be distributed solely to MGM, (B) the "Theme Rights" (as defined in the
Contribution Agreement) shall be reconveyed and assigned to PRMA-LV,  (C) all
other components of the Company's Property shall be sold and reduced to cash,
(D) all of the Company's cash (including such cash that are generated by the
sales referred to in clause (C) above) shall be distributed solely to PRMA-LV,
and (E) MGM shall make a cash payment to PRMA-LV in an amount equal to one half
of the difference between (x) $40,000,000, and (y) the aggregate amount of cash
distributed to PRMA-LV pursuant to clause (D) above (which cash payment, for
income tax purposes only, shall be deemed to have been contributed to the
Company and then distributed to PRMA-LV), within fifteen (15) business days
after such aggregate amount is determined by the Chief Financial Officer.

          5.8  Agreements Regarding Advent Lease and Related PRMA Loans.  Prior
to the Close of Escrow (as defined in the Contribution Agreement), the Company
will receive an assignment of all of PRMA's right, title and interest in and to
the Advent Option Agreement, and will assume all of PRMA's obligations
thereunder (excluding, however, PRMA's obligations set forth in Paragraph 2(f)
thereof).  PRMA has heretofore advanced a loan to Advent, and may hereafter
provide certain additional financing to Advent and/or guarantee certain
additional third party financing that may be obtained by Advent in connection
with the build-out, furnishing and fixturing of the Advent Lease Premises
(collectively, the "Advent/PRMA Obligations").  In the event of the termination
of the Advent Lease, the Company shall concurrently therewith purchase from PRMA
the Advent/PRMA Obligations for a purchase price equal to the PRMA Recoupment
Amount, provided that the entire purchase price shall be evidenced by an
unsecured promissory note given by the Company in favor of PRMA that shall be
repayable solely out of the Company receipts and revenues derived from its
ownership, operation and use of the Advent Premises.  In the event that PRMA
forecloses on its collateral for the Advent/PRMA Obligations, or accepts a deed
and assignment in lieu of such foreclosure, the Company shall promptly
thereafter purchase PRMA's entire right, title and interest in and to such
collateral for a purchase price equal to the PRMA Recoupment Amount, provided
that the entire purchase price shall be evidenced by an unsecured promissory
note given by the Company in favor

                                      19
<PAGE>
 
of PRMA that shall be repayable solely out of the Company receipts and revenues
derived from its ownership, operation and use of the Advent Premises.  As used
herein, "PRMA Recoupment Amount" shall mean an amount, calculated on an after-
tax basis to PRMA (assuming the highest corporate rate of state, if any, and
federal taxation), equal to the amount PRMA would have received under the
Advent/PRMA Obligations at the time of such termination, foreclosure, or deed
and assignment in lieu of foreclosure (as the case may be) if the Advent/PRMA
Obligations had been satisfied in full; such amount shall accrue interest at a
per annum rate equal to the reference rate announced from time to time by Bank
of America, Nevada, which interest shall cumulate and compound monthly until the
entire PRMA Recoupment Amount has been repaid in full.



                                   ARTICLE VI

                                INDEMNIFICATION

          6.1  Indemnification:  Actions, Suits and Proceedings other than by
Company.  The Company shall, to the extent of its existing capital, its assets
and, if insured for such purposes, its insurance coverage for such purposes,
indemnify any person who was or is a party, or is threatened to be made a party,
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, except an action, suit or
proceeding by or in the right of the Company, by reason of the fact that such
person is or was a Director, Manager, Member, employee or agent of the Company,
or by reason of the fact that such person at the request of the Company is or
was serving as a manager, director, officer, employee or agent of another
limited-liability company, corporation, partnership, joint venture, trust or
other enterprise, against all expenses, including, without limitation,
attorneys' fees, judgments, fines and amounts paid in settlement, actually and
reasonably incurred by such Person in connection with such action, suit or
proceeding if such Person in relation to the facts, events and circumstances on
which such action, suit or proceeding is based (i) acted in good faith and in a
manner that such Person reasonably believed to be in or not opposed to the best
interests of the Company and (ii) with respect to a criminal action or
proceeding had no reasonable cause to believe that such Person's conduct was
unlawful.  The Company shall pay for or reimburse the reasonable expenses
incurred by a Director, Manager, Member, employee or agent of the Company who is
a party to such an action, suit or proceeding in advance of its final
disposition if (a) such Person furnishes the Company with a written affirmation
of such Person's good faith belief that in relation to the facts, events and
circumstances on which such action, suit or proceeding is based such Person
satisfied all applicable standards of conduct described in this Agreement, (b)
such Person furnishes the Company with a written undertaking, executed
personally or on such Person's behalf, to repay in full to the Company all
amounts so advanced upon the ultimate determination by a court of competent
jurisdiction that in relation to the facts, events and circumstances on which
such action, suit

                                      20
<PAGE>
 
or proceeding is based such Person failed to satisfy all applicable standards of
conduct described in this Agreement and therefore is not entitled to be
indemnified by the Company pursuant hereto and (c) a determination is made by
the Board that it knows of no fact or circumstance that would preclude
indemnification of such Person under applicable law and this Agreement.  The
provisions of the immediately-preceding sentence hereof shall not affect any
other right to advancement of expenses to which personnel of the Company may be
entitled under any contract or otherwise by law.  The termination of any action,
suit or proceeding by judgment, order, settlement or conviction, or upon a plea
of nolo contendere or its equivalent, does not and shall not, of itself, create
a presumption that in relation to the facts, events and circumstances on which
such action, suit or proceeding was or is based (1) such Person did not act in
good faith and in a manner that such Person reasonably believed to be in or not
opposed to the best interests of the Company or (2) with respect to any criminal
action or proceeding, such Person had reasonable cause to believe that such
Person's conduct was unlawful.

          6.2  Indemnification:  Actions, Suits and Proceedings by Company.  The
Company may indemnify any Person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding
by or in the right of the Company to procure a judgment in its favor by reason
of the fact that such Person is or was a Director, Manager, Member, employee or
agent of the Company, or is or was serving at the request of the Company as a
manager, director, officer, employee or agent of another limited-liability
company, corporation, partnership, joint venture, trust or other enterprise,
against expenses, including amounts paid in settlement and attorneys' fees,
actually and reasonably incurred by such Person in connection with the defense
or settlement of such action, suit or proceeding if such Person, in relation to
the facts, events and circumstances on which such action, suit or proceeding is
based, acted in good faith and in a manner in which such Person reasonably
believed to be in or not opposed to the best interests of the Company.
Notwithstanding the immediately foregoing, the Company shall not provide
indemnification for any claim, issue or matter as to which such a Person has
been adjudged by a court of competent jurisdiction, after exhaustion of all
appeals therefrom, to be liable to the Company or for amounts paid in settlement
to the Company, unless and only to the extent that the court in which the action
or suit was brought or other court of competent jurisdiction determines upon
application that in view of all of the circumstances of the case such Person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.

          6.3  Indemnifications:  Scope and Authorization.  To the extent that a
Director, Manager, Member, employee or agent of the Company has been successful
on the merits or otherwise in the defense of any action, suit or proceeding
described in this Article VI, or in the defense of any claim, issue or matter
                  ----------                                                 
therein, the Company shall indemnify such Person against all expenses, including
attorneys' fees, actually and reasonably incurred in connection with such
defense.  Any indemnification pursuant to this Article VI, unless ordered by a
                                               ----------                     
court of competent jurisdiction, shall be made by the Company only as

                                      21
<PAGE>
 
authorized in the specific case upon a determination by the Board that
indemnification of the Director, Manager, Member, employee or agent of the
Company is proper in the circumstances.  Notwithstanding anything to the
contrary provided in this Agreement or the Articles of Organization, the
Company's indemnity obligations hereunder shall be limited to the Company's
capital and assets and insurance existing as of the date on which the Company
receives a demand for indemnity.  In furtherance of such indemnity obligations,
no Member shall be required to contribute any additional capital to the Company
or otherwise to fund the Company's indemnity obligations under this Article VI.
                                                                    ---------- 

          6.4  Maintenance of Insurance or Other Financial Arrangements.  In
compliance with applicable law, the Company (acting with the approval of its
Board) may purchase and maintain insurance or make other financial arrangements
on behalf of any Person who is or was a Director, Manager, Member, employee or
agent of the Company, or at the request of the Company is or was serving as a
manager, director, officer, employee or agent of another limited-liability
company, corporation, partnership, joint venture, trust or other enterprise, for
any liability asserted against such Person and liability and expenses incurred
by such Person in such Person's capacity as a Director, Manager, Member,
employee or agent, or arising out of such Person's status as such, whether or
not the Company has the authority to indemnify such Person against such
liability and expenses.  The decision of the Company as to the propriety of the
terms and conditions of any insurance or other financial arrangement made
pursuant to the immediately-preceding sentence hereof and the Company's choice
of Person to provide such insurance or other financial arrangement is and shall
be conclusive, and such insurance or other financial arrangement is not and
shall not be void or voidable and does not and shall not subject any Director,
Manager or Member of the Company approving such insurance or other financial
arrangement to personal liability for such Person's action, even if such Person
approving such insurance or other financial arrangement is a beneficiary of such
approved insurance or other financial arrangement.

                                  ARTICLE VII

                         REPRESENTATIONS AND WARRANTIES

          7.1  In General.  As of the date hereof, each of the Members hereby
makes each of the representations and warranties applicable to such Member as
set forth in Section 7.2 hereof, and such warranties and representations shall
             -----------                                                      
survive the execution of this Agreement.

          7.2  Representations and Warranties.  Each Member hereby represents
and warrants that:

          (a)  Due Incorporation or Formation; Authorization of Agreement.  It
is a corporation, duly organized, validly existing, and in good standing under
the laws of the

                                      22
<PAGE>
 
jurisdiction of its incorporation or formation and has the corporate power and
authority to own its property and carry on its business as owned and carried on
at the date hereof and as contemplated hereby.  Such Member is duly licensed or
qualified to do business and in good standing in each of the jurisdictions in
which the failure to be so licensed or qualified would have a material adverse
effect on its financial condition or its ability to perform its obligations
hereunder.  Such Member has the corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder and, the
execution, delivery, and performance of this Agreement has been duly authorized
by all necessary corporate action.  This Agreement has been duly executed and
delivered by such Member and constitutes the legal, valid, and binding
obligation of such Member enforceable in accordance with its terms.

          (b) No Conflict with Restrictions; No Default.  Neither the execution,
delivery, and performance of this Agreement nor the consummation by such Member
of the transactions contemplated hereby (i) will conflict with, violate, or
result in a breach of any of the terms, conditions, or provisions of any law,
regulation, order, writ, injunction, decree, determination, or award of any
court, any governmental department, board, agency, or instrumentality, domestic
or foreign, or any arbitrator, applicable to such Member or any of its
Affiliates, (ii) will conflict with, violate, result in a breach of, or
constitute a default under any of the terms, conditions, or provisions of the
articles of incorporation, or bylaws of such Member or any of its Affiliates, or
any material agreement or instrument to which such Member or any of its
Affiliates is a party or by which such Member or any of its Affiliates is or may
be bound or to which any of its material properties or assets is subject, (iii)
will conflict with, violate, result in a breach of, constitute a default under
(whether with notice or lapse of time or both), accelerate or permit the
acceleration of the performance required by, give to others any material
interests or rights, or require any consent, authorization or approval under,
any indenture, mortgage, lease agreement, or instrument to which such Member or
any of its Affiliates is a party or by which such Member or any of its
Affiliates is or may be bound, or (iv) will result in the creation or imposition
of any lien upon any of the material properties or assets of such Member or any
of its Affiliates.

          (c) Governmental Authorizations.  Any registration, declaration or
filing with, or consent, approval, license, permit or other authorization or
order by, any governmental or regulatory authority, domestic or foreign, that is
required in connection with the valid execution, delivery and acceptance by such
Member under this Agreement has been completed, made or obtained on or before
the effective date of this Agreement.  Each Member, at its own cost and expense,
shall apply for and obtain any equity licenses necessary to non-restricted
gaming by the Company.

          (d) Litigation.  There are no actions, suits, proceedings or
investigations pending or, to the knowledge of such Member, threatened against
or affecting such Member or any of its Affiliates or any of their properties,
assets, or businesses in any court or before or by any governmental department,
board, agency, or instrumentality, domestic or foreign,

                                      23
<PAGE>
 
or any arbitrator which could, if adversely determined (or, in the case of an
investigation could lead to any action, suit, or proceeding, which if adversely
determined could) reasonably be expected to materially impair such Member's
ability to perform its obligations under this Agreement or to have a material
adverse effect on the consolidated financial condition of such Member; and such
Member or any of its Affiliates has not received any currently effective notice
of any default, and such Member or any of its Affiliates is not in default,
under any applicable order, writ, injunction, decree, permit, determination, or
award of any court, any governmental department, board, agency or
instrumentality, domestic or foreign, or any arbitrator which could reasonably
be expected to materially impair such Member's ability to perform its
obligations under this Agreement or to have a material adverse effect on the
consolidated financial condition of such Member.

          (e) Investment Company Act; Public Utility Holding Company Act.
Neither such Member nor any of its Affiliates is, nor will the Company as a
result of such Member holding an Interest be, an "investment company" as defined
in, or subject to regulation under, the Investment Company Act of 1940.  Neither
such Member nor any of its Affiliates is, nor will the Company as a result of
such Member holding an interest in the Company be, a "holding company," "an
affiliate of a holding company," or a "subsidiary of a holding company" as
defined in, or subject to regulation under, the Public Utility Holding Company
Act of 1935.

          (f) Investigation.  Such Member is acquiring its Interest based upon
its own investigation, and the exercise by such Member of its rights and the
performance of its obligations under this Agreement will be based upon its own
investigation, analysis and expertise.  Such Member's acquisition of its
Interest is being made for its own account for investment, and not with a view
to the sale or distribution thereof.

                                  ARTICLE VIII

                         ACCOUNTING, BOOKS AND RECORDS

          8.1  Accounting, Books and Records.  The Company shall maintain at its
principal place of business separate books of account for the Company which
shall show a true and accurate record of all costs and expenses incurred, all
charges made, all credits made and received, and all income derived in
connection with the operation of the Company business in accordance with
generally accepted accounting principles and casino industry guidelines
consistently applied and, to the extent inconsistent therewith, in accordance
with this Agreement.  The Company shall use the accrual method of accounting in
preparation of its annual reports and for tax purposes and shall keep its book
accordingly.  Each Member shall, at its sole expense, have the right, at any
time, without notice to any other Member, to examine, copy, and audit the
Company's books and records during normal business hours.

                                      24
<PAGE>
 
          8.2 Reports.

          (a) In General.  The Chief Financial Officer shall be responsible for
the preparation of financial reports of the Company and the coordination of
financial matters of the Company with the Company's accountants.

          (b) Reports.  Within sixty (60) days after the end of each Fiscal Year
and within thirty (30) days after the end of each of the first three (3) fiscal
quarters, and within twenty (20) days after the end of each calendar month, the
Chief Financial Officer shall cause each Member and each Board member to be
furnished with a copy of the balance sheet of the Company as of the last day of
the applicable period, a statement of income or loss for the Company for such
period, and a statement of the Company's cash flow for such period.  Annual
statements shall also include a statement of the Members' Capital Accounts and
changes therein for such Fiscal Year.  Annual statements shall be audited by the
Company's accountants, and shall be in such form as shall enable the Members to
comply with all reporting requirements applicable to either of them or their
Affiliates under the Securities Exchange Act of 1934, as amended.

          8.3  Tax Returns; Information.  The Chief Financial Officer shall
arrange for the preparation and timely filing of all income and other tax
returns of the Company. Within sixty (60) days after the end of each Fiscal
Year, the Chief Financial Officer shall cause the Company's accountants to
prepare and submit to the Board for its review and approval the Company's tax
returns.  The Chief Financial Officer shall furnish to each Member a copy of
each approved return, together with any schedules or other information which
each Member may require in connection with such Member's own tax affairs.

          8.4  Special Basis Adjustment.  In connection with any Permitted
Transfer of a Company interest, the Chief Financial Officer shall cause the
Company, at the written request of the transferor or the transferee, on behalf
of the Company and at the time and in the manner provided in Regulations Section
1.754-1(b), to make an election to adjust the basis of the Company's property in
the manner provided in Sections 734(b) and 743(b) of the Code, and such
transferee shall pay all costs incurred by the Company in connection therewith,
including, without limitation, reasonable attorneys' and accountants' fees.

          8.5  Tax Matters Member.  PRMA-LV is specially authorized and
appointed to act as the "Tax Matters Partner" under the Code and in any similar
capacity under state or local law.

                                      25
<PAGE>
 
                                 ARTICLE IX

                             TRANSFERS OF INTERESTS

          9.1  Restrictions on Transfers.  Except as expressly permitted or
required by this Agreement, no Member shall Transfer all or any portion of its
Interest without the unanimous prior written consent of the Members, which
consent may be withheld by a Member in its sole and absolute discretion.  Any
Transfer or attempted Transfer by any Member in violation of the preceding
sentence shall be null and void and of no force or effect whatever.  Each Member
hereby acknowledges the reasonableness of the restrictions on Transfer imposed
by this Agreement in view of the Company purposes and the relationship of the
Members.  Accordingly, the restrictions on Transfer contained herein shall be
specifically enforceable.  Each Member hereby further agrees to hold the Company
and each Member wholly and completely harmless from any cost, liability, or
damage (including liabilities for income taxes and costs of enforcing this
indemnity) incurred by any of such indemnified Persons as a result of a Transfer
or an attempted Transfer in violation of this Agreement.

          9.2  Permitted Transfers.

          (a)  General.  Subject to the conditions and restrictions set forth in
this Section 9.2, a Member shall have the right to Transfer all (but not less
     -----------                                                             
than all) of its Interest by means of a Permitted Transfer.

          (b)  Definition of Permitted Transfer; Permitted Transferees.

              (i)   A "Permitted Transfer" is any Transfer by a Member of all of
its Interest to a Permitted Transferee, provided that such Transfer otherwise
complies with the conditions and restrictions of this Section 9.2.
                                                      ----------- 

              (ii)  A "Permitted Transferee" of a Member is any Person who is
sole shareholder of such Member, or a wholly owned subsidiary of such Member, or
any Person approved as a Permitted Transferee by the unanimous consent of the
Members.

          (c)  Conditions to Permitted Transfers. A Transfer otherwise permitted
under this Section 9.2 shall not be a Permitted Transfer and any attempted
           -----------                                                    
Transfer of a Member's Interest to a Permitted Transferee shall be null and void
and of no force or effect whatever unless and until the following conditions are
satisfied:

              (i)   The transferor and transferee shall execute such documents
and instruments of conveyance and assumption as may be necessary or appropriate
in the opinion of counsel to the Company and counsel to the non-transferring
Member to effect such Transfer and to confirm the Permitted Transferee's
agreement to be bound by the

                                      26
<PAGE>
 
provisions of this Article IX and assumption of all obligations of the
                   ----------                                         
transferor Member with respect to the Interest being transferred.

              (ii)  The Company shall receive, prior to such Transfer, an
opinion of counsel satisfactory to the Company and the non-transferring Member
confirming that such Transfer will not terminate the Company for federal income
tax purposes.

              (iii) The transferor and transferee shall furnish the Company and
the non-transferring Member with the transferee's taxpayer identification
number, sufficient information to determine the transferee's initial tax basis
in the Interest transferred, and any other information reasonably necessary to
permit the Company to file all required federal and state tax returns and other
legally required information statements or returns. Without limiting the
generality of the foregoing, the Company shall not be required to make any
distribution otherwise provided for in this Agreement with respect to any
transferred Interest until it has received such information.
 
              (iv)  The Transfer and Permitted Transferee have been approved by
the Nevada Gaming Commission to the extent such approval is required under
applicable law or regulations.

              (v)   A Member making a Permitted Transfer and the Permitted
Transferee shall pay all reasonable costs and expenses incurred by the Company
in connection with such Transfer.

              (vi)  A Member making a Permitted Transfer to a Permitted
Transferee that is a wholly owned Affiliate shall guarantee for the benefit of
the Company and the other Member all of such Permitted Transferee's contractual
undertakings hereunder pursuant to a guaranty in form reasonably satisfactory to
such other Member.

          (d) Admission of Permitted Transferee as a Member.  A Permitted
Transferee of an Interest shall be admitted as a Member in the Company only upon
the unanimous written consent of the Members.  The rights of a Permitted
Transferee who is not admitted as a Member shall be limited to the right to
receive allocations and distributions from the Company with respect to the
Interest transferred, as provided by this Agreement.  The transferor of such
Interest shall not be a Member with respect to such Interest, and, without
limiting the foregoing, shall not have the right to inspect the Company's books,
act for or bind the Company, or otherwise interfere in its operations unless and
until it is admitted as a Member in accordance with this Agreement.

          (e) Effect of Permitted Transfer on Company.  The Members intend that
the Permitted Transfer of an interest in the Company shall not cause the
dissolution of the Company.

                                      27
<PAGE>
 
          9.3  Distribution Among Members.  Upon the occurrence of a Permitted
Transfer of an Interest during any Fiscal Year, Profits, Losses, each item
thereof, and all other items attributable to such interest for such Fiscal Year
shall be divided and allocated between the transferor and the transferee by
taking into account their varying interests during the Fiscal Year in accordance
with Code Section 706(d), using any conventions permitted by law and selected by
the Chief Financial Officer.  All distributions on or before the date of a
Permitted Transfer shall be made to the transferor, and all distributions
thereafter shall be made to the transferee.  Solely for purposes of making such
allocations and distributions, the Company shall recognize a Permitted Transfer
upon the Chief Financial Officer's receipt of written notice stating the date
such Interest was transferred and such other information as the Chief Financial
Officer may reasonably require.  The Chief Financial Officer and the Company
shall incur no liability for making allocations and distributions in accordance
with the provisions of this Section 9.3, whether or not the Chief Financial
                            -----------                                    
Officer or the Company has knowledge of any Transfer of ownership of any
interest in the Company.

                                   ARTICLE X

                       WITHDRAWALS; ACTION FOR PARTITION

          10.1  Waiver of Partition.  No Member shall, either directly or
indirectly, take any action to require partition of any Company property, and
notwithstanding any provisions of applicable law to the contrary, each Member
hereby irrevocably waives any and all rights it may have to maintain any action
for partition or to compel any sale with respect to its Company interest, or
with respect to any assets or properties of the Company, except as expressly
provided in this Agreement.

          10.2  Covenant Not to Withdraw or Dissolve.  Each Member hereby
covenants and agrees that the Members have entered into this Agreement based on
their mutual expectation that all Members will continue as Members and carry out
the duties and obligations undertaken by them hereunder and that, except as
otherwise expressly required or permitted hereby, each Member hereby covenants
and agrees not to (a) take any action to file a certificate of dissolution or
its equivalent with respect to itself, (b) take any action that would cause a
Bankruptcy of such Member, (c) withdraw or attempt to withdraw from the Company,
(d) exercise any power under the Act to dissolve the Company, (e) Transfer all
or any portion of its interest in the Company (other than to a Permitted
Transferee), (f) petition for judicial dissolution of the Company, or (g) demand
a return of such Member's contributions or profits (or a bond or other security
for the return of such contributions or profits) without the unanimous consent
of the Members, or except as otherwise specifically allowed under this
Agreement.

                                      28
<PAGE>
 
                                 ARTICLE XI

                                    BUY-SELL

          11.1  Buy-Sell Offering Notice.  Either Member may exercise its rights
under this Article XI at the following times:  (a) prior to the Deadlock
           ----------                                                   
Resolution Flip Date, at any time after a deadlock over a Buy-Sell Major
Decision that is not resolved within thirty (30) days after the Board meeting at
which the same is voted upon, and (b) after the Deadlock Resolution Flip Date,
at any time during the Term as a Member shall desire to exercise such rights in
its sole and absolute discretion.  At any time during the Term, either Member
(the "Initiating Member") may give written notice (the "Offering Notice") to the
other (the "Responding Member") of its intent to purchase all, but not less than
all, of the Responding Member's Interest.  In such event, the provisions set
forth in this Article XI shall apply.  The Initiating Member shall specify in
              ----------                                                     
its Offering Notice the all cash purchase price ("Purchase Price") at which the
Initiating Member would be willing to purchase all of the Responding Member's
Interest as of the date the Offering Notice is given ("Date of Value").  Once
given, an Offering Notice may not be revoked or withdrawn by an Initiating
Member without the written consent of the Responding Member, which consent may
be withheld in its sole and absolute discretion.

          11.2 Exercise of Buy-Sell.  Upon receipt of the Offering Notice, the
Responding Member shall then be obligated either:

          (a)  To sell to the Initiating Member its Interest for the Purchase
Price; or

          (b)  To purchase the Interest of the Initiating Member for the
Purchase Price.

The Responding Member shall notify the Initiating Member of its election within
thirty (30) days after the Date of Value.  Failure to give notice within the
required time period shall be deemed an election to sell.  For purposes of this
Section 11 the term "Purchasing Member" shall mean the Member who is obligated
----------                                                                    
to purchase the other Member's Interest pursuant to either Section 11.2(a) or
                                                           ---------------   
Section 11.2(b) (whether such Member is the Initiating Member or the Responding
---------------                                                                
Member) and the term "Selling Member" shall mean the Member who is obligated to
sell its Interest to the Purchasing Member.

          11.3 Closing.

          (a)  The Members shall meet and exchange documents and pay any amounts
due, and otherwise do all things necessary to conclude the transaction set forth
herein at the closing of such purchase (the "Closing").  The Closing shall occur
at the office of the Purchasing Member's legal counsel at 9:00 a.m., on the
first Wednesday after the ninetieth (90th) day after the Date of Value unless
that day is a national or state holiday

                                      29
<PAGE>
 
and, in that event, on the next business day.  At the Closing, the Selling
Member shall deliver to the Purchasing Member a duly executed assignment of its
Interest and all Repayment Rights (as defined), if any, and shall also, upon the
request of the Purchasing Member, concurrently therewith (or at any time and
from time to time thereafter) execute and deliver such other documents and
records as the Purchasing Member determines are reasonably necessary or
desirable to conclude the Closing and to otherwise allow the Purchasing Member
to complete the Project or otherwise develop, use, sell, rent or dispose of the
Property.  The Purchasing Member shall deliver to the Selling Member cash for
the full amount of the Purchase Price, and shall also, upon the request of the
Selling Member, concurrently therewith (or at any time and from time to time
thereafter) execute and deliver such other documents and records as the Selling
Member determines are reasonably necessary or desirable to conclude the Closing.
Further, on the Closing, the Selling Member and/or its Affiliates shall be
released from its liability under any third party loans to the Company and any
guarantees made in connection therewith.  If a Company creditor refuses to so
release the Selling Member and/or its Affiliates, the Purchasing Member shall
indemnify the Selling Member and/or its Affiliates from liability under such
loans and guarantees.  In addition, any and all outstanding loans, fees and
reimbursements owed by the Company or the Purchasing Member to the Selling
Member or any of its Affiliates ("Repayment Rights") shall be satisfied in full
by the Purchasing Member out of its own funds at Closing, and the satisfaction
of all Repayment Rights, if any, shall be a condition precedent to the Selling
Member's obligation to close hereunder.  Without limitation on the foregoing, if
PRMA-LV is the Selling Member, upon the Closing the Purchasing Member shall
purchase the Advent/PRMA Obligations from PRMA, for an all cash purchase equal
to the outstanding balance thereof (together with all accrued and unpaid
interest and all other documents due thereunder), and PRMA shall be released
from its liability under any and all guarantees and loan documents relating
thereto (and if any party refuses to so release PRMA, the Purchasing Member
shall indemnify PRMA from liability under such guarantees and loan documents).
If the Selling Member's Interest is subject to any lien, claim or encumbrance,
the same shall constitute a default and the Purchasing Member may elect (a) to
cause the purchase price (or a portion thereof) to be applied to discharge such
lien, claim or encumbrance, (b) to take the Interest subject to such lien, claim
or encumbrance and to reduce the purchase price otherwise payable to the
Purchasing Member to the Selling Member by the amount of such lien, claim or
encumbrance, or (c) to terminate the buy-sell proceedings under this Article XI
                                                                     ----------
because of the existence of such lien, claim or encumbrance and in such event
pursue any and all remedies available at law and equity.  Notwithstanding
anything in this Agreement to the contrary, (i) the Purchasing Member shall be
entitled to designate any Affiliate or third party to be the transferee of such
interest or obtain financing from any third party with respect to such purchase,
provided that the foregoing shall not delay the closing of any such transaction
and (ii) the Selling Member's appointments to the Board shall be automatically
terminated effective as of the Closing.  The reasonable costs of the Closing
shall be divided equally between the Selling Member and the Purchasing Member,
provided that each such Member shall bear its own attorneys' fees and costs.

                                      30
<PAGE>
 
          (b)  If for any reason the Purchasing Member fails to close as
aforesaid, in addition to any other remedies available under this Agreement or
at law or in equity by reason thereof, the Selling Member shall have the right,
exercisable by written notice to the Purchasing Member given within thirty (30)
days of the date set for the Closing, to purchase under this Section 11.3 the
                                                             ------------    
Interest of the Purchasing Member.  If the Selling Member exercises such option,
the Purchase Price used for the purposes of this Section 11.3 shall be ninety
                                                 ------------                
percent (90%) of the Purchase Price then established by the Offering Notice
previously given.

          (c)  The Members acknowledge and agree that each Member's Interest is
extraordinary and unique, and the provisions of this Article XI shall be
                                                     ----------         
specifically enforceable.

          11.4 Tax Returns.  The Company's accountants shall deliver to the
Members prepared as of the date of Closing, all necessary state and federal tax
returns.  The Purchasing Member shall execute (on behalf of the Company) and
file all such state and federal tax returns.  The Selling Member shall continue,
after the Closing, to have access during normal business hours, to the books and
records of the Company to the extent reasonably necessary in connection with the
preparation, review or audit of the Selling Member's state and federal returns.

                                  ARTICLE XII

                           DISSOLUTION AND WINDING UP

          12.1 Liquidating Events.  The Company shall dissolve and commence
winding up and liquidating upon the first to occur of the following
("Liquidating Events"):

          (a)  The thirtieth (30th) anniversary of the date of the filing of the
Articles of Organization;

          (b)  The sale of all or substantially all of the Property;

          (c)  The unanimous written agreement of all Members to dissolve, wind
up, and liquidate the Company;

          (d)  The death, retirement, resignation, expulsion, bankruptcy or
dissolution of a Member or the occurrence of any other event which terminates a
Member's continued membership in the Company, unless the business of the Company
is continued by the remaining Member under a right to do so stated in the
Articles of Organization;

          (e)  The election of a Member made in accordance with Section 5.7; and
                                                                -----------

                                      31
<PAGE>
 
          (f)  The happening of any other event that makes it unlawful or
impossible to carry on the business of the Company.

          The Members hereby agree that the Company shall not dissolve prior to
the occurrence of a Liquidating Event.  If it is determined, by a court of
competent jurisdiction, that the Company has dissolved prior to the occurrence
of a Liquidating Event, the Members hereby agree to continue the business of the
Company without a winding up or liquidation.

          12.2  Winding Up.  Unless the business of the Company is continued
pursuant to Section 12.1, the provisions of this Section 12.2 shall apply upon
            ------------                         ------------                 
the occurrence of a Liquidating Event (except as provided in Section 5.7 above).
                                                             -----------
The Company shall continue solely for the purpose of winding up its affairs in
an orderly manner, liquidating its assets, and satisfying the claims of its
creditors and Members, and no Member shall take any action that is inconsistent
with, or not necessary to or appropriate for, winding up the Company's business
and affairs.  To the extent consistent with this Article XII, all covenants and
                                                 -----------                   
obligations in this Agreement (including those relating to the control,
management and operation of the Company) shall continue in full force and effect
until such time as the Property has been distributed pursuant to this Section
                                                                      -------
12.2 and the Company has terminated.  The Chief Executive Officer shall be
----                                                                      
responsible for overseeing the winding up and liquidation of the Company, shall
take full account of the Company's liabilities and Property, shall cause the
Property to be liquidated as promptly as is consistent with obtaining the fair
market value thereof.  The Chief Executive Officer shall apply and distribute as
soon as practicable all Net Cash Flow and all other Company cash on hand in the
following order of priority, unless otherwise required by applicable law:

          (a)  First, to the payment and discharge of all of the Company's debts
and liabilities to creditors, in the order of priority as provided by law,
except to the Members in respect of their respective Percentage Interests; and

          (b)  The balance, if any, to the Members in accordance with their
respective Percentage Interests.

          The Managers shall not receive any additional compensation for any
services performed pursuant to this Section 12.  Each Member understands and
                                    ----------                              
agrees that by accepting the provisions of this Section 12.2 setting forth the
                                                ------------                  
priority of the distribution of the assets of the Company to be made upon its
liquidation, such Member expressly waives any right which it, as a creditor of
the Company, might otherwise have under the Act to receive distributions of
assets pari passu with the other creditors of the Company in connection with a
       ---- -----                                                             
distribution of assets of the Company in satisfaction of any liability of the
Company, and hereby subordinates to said creditors any such right.


                                      32
<PAGE>
 
          In the discretion of the Chief Executive Officer, a pro rata portion
of the distributions that would otherwise be made to the Members pursuant to
Section 12.2(b) hereof may be:
---------------               

          (a)  distributed to a trust established for the benefit of the Members
for the purposes of liquidating Company assets, collecting amounts owed to the
Company, and paying any contingent or unforeseen liabilities or obligations of
the Company or of the Members arising out of or in connection with the Company.
The assets of any such trust shall be distributed to the Members from time to
time, in the reasonable discretion of the Chief Executive Officer, in the same
proportions as the amount distributed to such trust by the Company would
otherwise have been distributed to the Members pursuant to Section 12.2 hereof;
                                                           ------------        
or

          (b)  withheld to provide a reasonable reserve for Company liabilities
(contingent or otherwise) provided that such withheld amounts shall be
distributed to the Members as soon as practicable.

          12.3 Deemed Distribution and Recontribution.  Notwithstanding any
other provisions of this Section 12, in the event the Company is liquidated
                         ----------                                        
within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g) but no
                                                            -        
Liquidating Event has occurred, the Property shall not be liquidated, the
Company's liabilities shall not be paid or discharged, and the Company's affairs
shall not be wound up.  Instead, the Company shall be deemed to have distributed
the Property in kind to the Members, who shall be deemed to have assumed and
taken subject to all Company liabilities, all in accordance with their
respective Capital Accounts.  Immediately thereafter, the Members shall be
deemed to have recontributed the Property in kind to the Company, which shall be
deemed to have assumed and taken subject to all such liabilities.

          12.4 Rights of Members.  Except as otherwise provided in this
Agreement, (a) each Member shall look solely to the assets of the Company for
the return of its Capital Contributions, and (b) no Member shall have priority
over any other Member as to the return of its Capital Contributions,
distributions, or allocations.

          12.5 Notices of Dissolution.  In the event a Liquidating Event occurs
or an event occurs that would, but for provisions of Section 12.1 hereof, result
                                                     ------------               
in a dissolution of the Company, the Chief Executive Officer shall, within
thirty (30) days thereafter, (a) provide written notice thereof to each of the
Members and to all other parties with whom the Company regularly conducts
business (as determined in the discretion of the Chief Executive Officer), and
(b) comply, in a timely manner, with all filing and notice requirements under
the Act, the Gaming Act, or any other applicable law.

          12.6 Reasonable Time for Winding Up.  A reasonable time shall be
allowed for the orderly winding up of the business and affairs of the Company
and the liquidation

                                      33
<PAGE>
 
of its assets in order to minimize any losses that might otherwise result from
such winding up.

                                  ARTICLE XIII

                                 MISCELLANEOUS

          13.1 Notices.  Notices may be delivered either by private messenger
service, by mail, or facsimile transmission.  Any notice or document required or
permitted hereunder to a Member shall be in writing and shall be deemed to be
given on the date received by the Member; provided, however, that all notices
and documents mailed to a Member in the United States Mail, postage prepaid,
certified mail, return receipt requested, addressed to the Member at its
respective address as shown in the records of the Company, shall be deemed to
have been received five (5) days after mailing and provided further, that the
sender of any such notice or document by facsimile transmission shall bear the
burden of proof as to proper transmission and date of transmission of such
facsimile.  The address and the telecopier number of each of the Members shall
for all purposes be as set forth at Section 2.1 hereof unless otherwise changed
                                    -----------                                
by the applicable Member by notice to the other as provided herein.

          13.2 Binding Effect.  Except as otherwise provided in this Agreement,
every covenant, term, and provision of this Agreement shall be binding upon and
inure to the benefit of the Members and their respective successors,
transferees, and assigns.

          13.3 Construction.  Every covenant, term, and provision of this
Agreement shall be construed simply according to its fair meaning and not
strictly for or against any Member.

          13.4 Time.  Time is of the essence in the performance of each and
every obligation herein imposed.

          13.5 Titles and Captions.  Section, and paragraph titles and captions
contained in this Agreement are for reference purposes only and are not intended
to describe, interpret, define, or limit the scope, extent, or intent of this
Agreement or any provision hereof.

          13.6 Severability.  Every provision of this Agreement is intended to
be severable.  If any term or provision hereof is illegal or invalid for any
reason whatsoever, such illegality or invalidity shall not affect the validity
or legality of the remainder of this Agreement.

                                      34
<PAGE>
 
          13.7 Incorporation by Reference.  The Glossary of Defined Terms and
every exhibit, schedule, and other appendix attached to this Agreement and
referred to herein is incorporated in this Agreement by reference.

          13.8 Further Assurance.  Each Member agrees to perform all further
acts and execute, acknowledge, and deliver any documents which are or may become
necessary, appropriate, or desirable to effectuate and to carry on the business
contemplated by this Agreement.

          13.9 Pronouns and Plurals.  All pronouns and any variations thereof
shall be deemed to refer to masculine, feminine, or neuter, singular or plural,
as the identity of the Person(s) may require.

          13.10 Governing Law.  This Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada.

          13.11 Counterpart Execution.  This Agreement may be executed in any
number of counterparts with the same effect as if all of the Members had signed
the same document.  All counterparts shall be construed together and shall
constitute one agreement.

          13.12 Loans.  Any Member may, with the approval of the Board or as
otherwise provided by this Agreement, lend or advance money to the Company.  If
any Member shall make any loan or loans to the Company, the amount of any such
loan or advance shall not be treated as a contribution to the capital of the
Company but shall be a debt due from the Company.  Except as otherwise provided
herein, no Member shall be obligated to make any loan or advance to the Company.

          13.13 No Third Party Rights.  This Agreement is intended to create
enforceable rights between the parties hereto only, and creates no rights in, or
obligations to, any other Persons whatsoever.  Without limiting the generality
of the foregoing, as to any third party, a deficit capital account of a Member
shall not be deemed to be a liability of such Member nor an asset or property of
the Company.

          13.14 Estoppel Certificates.  Upon the written request of a Member,
the other Member shall, within fifteen (15) days of its receipt of such request,
execute and deliver a written statement certifying:  (a) that this Agreement is
unmodified and in full force and effect (or, if modified, that this Agreement is
in full force and effect as modified and, stating any and all modifications),
(b) that such Member is not in default hereunder and, to its actual knowledge,
the requesting Member is not in default hereunder, in each case except as
specified in such statement and, (c) that to its actual knowledge, no event has
occurred which with the passage of time or the giving of notice, or both, would
ripen into a default hereunder, except as specified in such statement.

                                      35
<PAGE>
 
          13.15 Usury.  If any return, interest payment, or other charge
payable under this Agreement shall at any time exceed the maximum amount
chargeable by applicable law, then the applicable rate of return or interest
shall be the maximum rate permitted by applicable law.

          13.16 Certain Terminology.  Whenever the words "including", "include"
or "includes" are used in this Agreement, they should be interpreted in a non-
exclusive manner as though the words "but [is] not limited to" immediately
followed the same.

          13.17 Business Days.  Any reference in this Agreement to "business
days" shall mean all calendar days except Saturday, Sundays, and Nevada or
federal legal holidays.

          13.18 Proposing and Adopting Amendments.  Amendments to this
Agreement or the Articles of Organization may be proposed by any Director by his
or her submitting to the Board a verbatim statement of the proposed amendment,
and such Director shall include in any such submission a recommendation as to
the proposed amendment.  A proposed amendment shall be adopted and be effective
as an amendment hereto or to the Articles of Organization, as the case may be,
upon the approval of the Board.

          IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the day first above set forth.

MGM Grand, Inc.,                       PRMA Las Vegas, Inc.,
a Delaware corporation                 a Nevada corporation



By: /s/ Robert R. Maxey                By: /s/ Gary Primm
    ---------------------------------      -----------------------------

Its: President/CEO                     Its:                                   
     ---------------------------------      -----------------------------

                                      36
<PAGE>
 
Accepted and Agreed to as to
Section 5.8.
----------- 


PRIMADONNA RESORTS, INC.,
a Nevada corporation


By: /s/ Gary Primm
   ----------------------------------

Its:
    ---------------------------------
<PAGE>
 
                           GLOSSARY OF DEFINED TERMS

         (a) "Act" means Chapter 86 of the Nevada Revised Statutes, as amended
from time to time (or any corresponding provisions of succeeding law).

         (b) "Additional Capital Contribution" is defined in Section 2.4.
                                                             ----------- 

         (c) "Adjusted Capital Account Deficit" means, the deficit balance, if
any, in a Member's Capital Account as of the end of the taxable year, after
giving effect to the following adjustments:
 
             (i)  credit to such Capital Account any amount which such Member is
obligated to restore under Treasury Regulation Section 1.704-1(b)(2)(ii)(c) or
is deemed obligated to restore pursuant to the penultimate sentences of Treasury
Regulation Sections 1.704-2(g)(1) or 1.704-2(i)(5); and

             (ii) debit to such Capital Account the items described in Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6) of
the Treasury Regulations.

         (d) "Advent" means The Advent Group, LLC, a Nevada limited-liability
company.

         (e) "Advent Lease" means the lease to be executed by and between the
Company and Advent subject to the conditions and pursuant to the terms set forth
in the Advent Option Agreement.

         (f) "Advent Leased Premises" means the premises covered by the Advent
Lease from time to time.

         (g) "Advent Option Agreement"  means that certain Option Agreement,
dated as of December 15, 1994, by and between PRMA and Advent.

         (h) "Advent/PRMA Obligations" is defined in Section 5.8.
                                                     ----------- 

         (i) "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.
In no event, however, shall the term "Affiliate" refer to the Company.  For
purposes of this definition, the term "controls," "is controlled by," or "is
under common

                                       1
<PAGE>
 
control with" shall mean the possession, 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.

         (j) "Agreement" means this operating agreement of the Company, as
amended from time to time.  Words such as "herein", "hereinafter", "hereof",
"hereto", and "hereunder" refer to this Agreement as a whole, unless the context
otherwise requires.

         (k) "Articles of Organization" means the articles of organization filed
with the Nevada Secretary of State for the purpose of forming the Company
pursuant to the Act, as amended from time to time in accordance with this
Agreement and the Act.

         (l) "Bankruptcy" means, with respect to any Person, the inability of
such Person generally to pay its debts as such debts become due, or an admission
in writing by such Person of its inability to pay its debts generally or a
general assignment by such Person for the benefit of creditors; the filing of
any petition or answer by such Person seeking to adjudicate it a bankrupt or
insolvent, or seeking for itself any liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of such Person or
its debts under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking, consenting to, or acquiescing in the entry of an
order for relief or the appointment of a receiver, trustee, custodian, or other
similar official for such Person or for any substantial part of its property; or
corporate action taken by such Person to authorize any of the actions set forth
above.

         (m) "Board" is defined in Section 5.1.
                                   ----------- 

         (n) "Business Day" is defined in Section 13.17.
                                          ------------- 

         (o) "Business Plan" is defined in Section 5.5.
                                           ----------- 

         (p) Buy-Sell Major Decision" is defined in Section 5.1(c).
                                                    -------------- 

         (q) "Capital Account" means, with respect to any Member, the Capital
Account maintained for such Member in accordance with the following provisions:

             (i)   To each Member's Capital Account there shall be credited such
Member's Capital Contributions, such Member's distributive share of Profits and
any items in the nature of income or gain which are specially allocated pursuant
to Section 3.3 or Section 3.4 hereof, and the amount of any Company liabilities
   -----------    -----------                                                  
assumed by such Member or which are secured by any Property distributed to such
Member.

             (ii)  To each Member's Capital Account there shall be debited the
amount of cash and the Gross Asset Value of any Property distributed to such
Member

                                       2
<PAGE>
 
pursuant to any provision of this Agreement, such Member's distributive share of
Losses and any items in the nature of expenses or losses which are specially
allocated pursuant to Section 3.3 or Section 3.4 hereof, and the amount of any
                      -----------    -----------                              
liabilities of such Member assumed by the Company or which are secured by any
property contributed by such Member to the Company.

             (iii) In the event any interest in the Company is transferred in
accordance with the terms of this Agreement, the transferee shall succeed to the
Capital Account of the transferor to the extent it relates to the transferred
interest.

             (iv)  In determining the amount of any liability for purposes of
this definition, there shall be taken into account Code Section 752(c) and any
other applicable provisions of the Code and Regulations.

         The foregoing provisions and the other provisions of the Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner
consistent with such Regulations.  In the event the Chief Executive Officer
shall determine that it is prudent to modify the manner in which the Capital
Accounts, or any debits or credits thereto (including, without limitation,
debits or credits relating to liabilities which are secured by contributed or
distributed property or which are assumed by the Company or the Members), are
computed in order to comply with such Regulations, the Chief Executive Officer
may make such modification, provided that is not likely to have a material
effect on the amounts distributable to any Member pursuant to Section 12 hereof
                                                              ----------       
upon the dissolution of the Company.  The Chief Executive Officer also shall (i)
make any adjustments that are necessary or appropriate to maintain equality
between the Capital Accounts of the Members and the amount of Company capital
reflected on the Company's balance sheet, as computed for book purposes in
accordance with Regulations Section 1.704-1(b)(2)(iv)(g), and (ii) make any
                                                      -                    
appropriate modifications in the event unanticipated events might otherwise
cause this Agreement not to comply with Regulations Section 1.704-1(b).

         (r) "Capital Contributions" means, with respect to any Member, the
amount of money and the initial Gross Asset Value of any property (other than
money) contributed to the Company with respect to the Company interest held by
such Member pursuant to the terms of this Agreement.

         (s) "Chief Executive Officer" is defined in Section 5.2.
                                                     ----------- 

         (t) "Chief Financial Officer" is defined in Section 5.2.
                                                     ----------- 

         (u) "Closing" is defined in Section 11.3.
                                     ------------ 

                                       3
<PAGE>
 
         (v)  "Code" means the Internal Revenue Code of 1986, as amended from
time to time (or any corresponding provisions of succeeding law.)

         (w)  "Company" means the limited liability company formed by this
Agreement and the company continuing the business of this Company in the event
of dissolution as herein provided.

         (x)  "Company Minimum Gain" has the meaning or "partnership minimum
gain" set forth in Regulations Sections 1.704-2(b)(2) and 1.704-2(d).

         (y)  Contribution Agreement" means that certain agreement being
executed and delivered concurrently herewith, by and among the Members and PRMA,
providing for the terms and conditions upon which the initial Capital
Contributions will be made.

         (z)  "Date of Value" is defined in Section 11.1.
                                           ------------ 

         (aa) "Deadlock Resolution Flip Date" is defined in Section 5.1(d).
                                                            ---------------

         (ab) "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
Chief Financial Officer.

         (ac) "Directors" is defined in Section 5.1.
                                        ----------- 

         (ad) "Fiscal Year" means (i) the period commencing on the effective
date of this Agreement and ending on December 31st, (ii) any subsequent twelve
(12) month period commencing on January 1st and ending on December 31st, or
(iii) any portion of the period described in clause (ii) for which the Company
is required to allocate Profits, Losses and other items of Company income, gain,
loss or deduction pursuant to Article III hereof.
                              -----------        

         (ae) "Gross Asset Value" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:

              (i)   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 Members;

                                       4
<PAGE>
 
              (ii)   The Gross Asset Values of all Company assets shall be
adjusted to equal their respective gross fair market values, as reasonably
determined by the Chief Financial Officer, as of the following times: (a) the
acquisition of an additional interest in the Company by any new or existing
Member in exchange for more than a de minimis Capital Contribution; (b) the
                                   ----------
distribution by the Company to a Member of more than a de minimis amount of
                                                       ----------
Property as consideration for an interest in the Company; and (c) the
liquidation of the Company within the meaning of Regulations 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 Chief Financial Officer reasonably
determines that such adjustments are necessary or appropriate to reflect the
relative economic interests of the Members in the Company;

              (iii) 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 distributee and the Chief
Financial Officer, provided that if the distributee is the Chief Financial
Officer, the determination of the fair market value of the distributed asset
shall require the consent of a majority of the other Members; and

              (iv)  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 Regulations Section 1.704-1(b)(2)(iv)(m) and subsections (vi) in the
                                                  -      ----------------       
definition of "Profits" and "Losses" below and Section 3.3(e) hereof; provided,
                                               --------------                  
however, that Gross Asset Values shall not be adjusted pursuant to this
subsection to the extent the Chief Financial Officer reasonably determines that
an adjustment pursuant to subsection (ii) of this definition is necessary or
                          ---------------                                   
appropriate in connection with a transaction that would otherwise result in an
adjustment pursuant to this subsection (iv).
                            --------------- 

         If the Gross Asset Value of an asset has been determined or adjusted
pursuant to subsections(i),(ii), or (iv) of this definition of Gross Asset
            ----------------------------                                  
Value, such Gross Asset Value shall thereafter be adjusted by the Depreciation
taken into account with respect to such asset for purposes of computing Profits
and Losses.

         (af) "Initiating Member" is defined in Section 11.1.
                                                ------------ 

         (ag) "Interest" shall mean the entire interest of a Member in the
Company, including all of such Member's rights, powers and privileges under this
Agreement and the Act.

         (ah) "Liquidating Event" is defined in Section 12.1.
                                                ------------ 

         (ai) "Major Decisions" is defined in Section 5.1.
                                              ----------- 

                                       5
<PAGE>
 
         (aj) "Managers" means the managers of the Company elected pursuant to
Section 5.2.
----------- 

         (ak) "Member Nonrecourse Debt" has the meaning of "partner nonrecourse
debt" set forth in Section 1.704-2(b)(4) of the Regulations.

         (al) "Member Nonrecourse Debt Minimum Gain" means an amount, with
respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that
would result if such Member Nonrecourse Debt were treated as a Nonrecourse
Liability, determined in accordance with Section 1.704-2(i)(3) of the
Regulations.

         (am) "Member Nonrecourse Deductions" has the meaning of "partner
nonrecourse deductions" set forth in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of
the Regulations.

         (an) "Members" means those entities executing this Agreement as
Members.

         (ao) "Net Cash Flow" means with respect to any period, the excess, if
                                                                    ------    
any, of (a) all cash revenues and funds received by the Company from any and all
sources during such period, including reductions of Company reserves established
in accordance with this Agreement, but excluding security deposit and other
refundable deposits unless and until earned or applied, over (b) the sum
                                                        ----            
(without duplication) of all operating or other cash expenditures of the Company
paid during such period, plus all payments of principal, interest, fees and
related costs with respect to Company indebtedness made during such period, plus
all additions to Company reserves established in accordance with this Agreement.
"Net Cash Flow" shall not be reduced by depreciation, amortization, cost
recovery deductions, or similar non-cash allowances.

         (ap) "Nonrecourse Deductions" has the meaning set forth in Section
1.704-2(b)(1) of the Regulations.

         (aq) "Nonrecourse Liability" has the meaning set forth in Section
1.704-2(b)(3) of the Regulations.

         (ar) "Percentage Interest" means, with respect to any Member, the
percentage interest set forth opposite such Member's name in Section 2.1.  In
                                                             -----------     
the event any Company interest is transferred in accordance with the provisions
of this Agreement, the transferee of such interest shall succeed to the
Percentage Interest of his transferor to the extent it relates to the
transferred interest.

         (as) "Permitted Transfer" is defined in Section 9.2(b)(i) hereof.
                                                 -----------------        

         (at) "Permitted Transferee" is defined in Section 9.2(b)(ii) hereof.
                                                   ------------------        

                                       6
<PAGE>
 
         (au) "Person" means any individual, company (general or limited),
limited liability company, corporation, trust, or other entity.

         (av) "PRMA Recoupment Amount"  is defined in Section 5.8.
                                                      ----------- 

         (aw) "Profits" and "Losses" means, for each Fiscal Year, an amount
equal to the Company's taxable income or loss for such Fiscal Year, determined
in accordance with Code Section 703(a) (for this purposes, all items of income,
gain, loss, or deduction required to be stated separately pursuant to Code
Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:

              (i)   Any income of the Company that is exempt from federal income
tax and not otherwise taken into account in computing Profits or Losses pursuant
to this definition shall be added to such taxable income or loss;

              (ii)  Any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account
in computing Profits or Losses pursuant to this definition shall be subtracted
from such taxable income or loss;

              (iii) In the event the Gross Asset Value of any Company asset is
adjusted pursuant to subsection (ii) or (iii) of the definition of Gross Asset
                     ---------------    -----                                 
Value above, the amount of such adjustment shall be taken into account as gain
or loss from the disposition of such asset for purposes of computing Profits or
Losses;

              (iv)  Gain or loss resulting from any disposition of Property with
respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the Property disposed
of, notwithstanding that the adjusted tax basis of such Property differs from
its Gross Asset Value;

              (v)   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;

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

                                       7
<PAGE>
 
              (vii) Notwithstanding any other provision of this definition, any
items which are specially allocated pursuant to Sections 3.3 and 3.4 hereof
                                                --------------------       
shall not be taken into account in computing Profits or Losses.

         The amounts of the items of Company income, gain, loss or deduction
available to be specially allocated pursuant to Sections 3.3 and 3.4 hereof
                                                --------------------       
shall be determined by applying rules analogous to those set forth in subsection
                                                                      ----------
(i) through (vi) of this definition above.
---         ----                          

         (ax) "Project" means the real property, development and business
activities described on Exhibit "A" attached hereto and incorporated by
                        -----------                                    
reference herein.

         (ay) "Property" means all real and personal property owned by the
Company from time to time, and shall include both tangible and intangible
property.

         (az) "Purchase Price" is defined in Section 11.1.
                                             ------------ 

         (ba) "Purchasing Member" is defined in Section 11.2.
                                                ------------ 

         (bb) "Regulations" means the Income Tax Regulations, including
Temporary Regulations, promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).

         (bc) "Regulatory Allocations" has the meaning set forth in Section 3.4
                                                                    -----------
hereof.

         (bd) "Related Person" is defined in Section 1.8.
                                             ----------- 

         (be) "Repayment Rights" is defined in Section 11.3.
                                               ------------ 

         (bf) "Responding Member is defined in Section 11.1.
                                               ------------ 

         (bg) "Selling Member" is defined in Section 11.2.
                                             ------------ 

         (bh) "Tax Liability Shortfall Amount" is defined in Section 4.3.
                                                             ----------- 

         (bi) "Transfer" means, as a noun, any voluntary or involuntary
transfer, sale, other disposition or hypothecation, and, as a verb, voluntarily
or involuntarily to transfer, sell, otherwise dispose of or hypothecate.  The
term Transfer shall also include any voluntary or involuntary transfer, sale,
other disposition or hypothecation of any kind, or any other transaction
regardless of its form or structure, whereby MGM's or PRMA-LV's, as the case may
be, Interest ceases to be a 50% interest in the Company.

                                       8
<PAGE>
 
                                  Exhibit "A"

                            DESCRIPTION OF PROJECT
                            ----------------------


         An approximately 2000 room casino-hotel at the intersection of
Tropicana Avenue and Las Vegas Boulevard South.








                                  Exhibit A-1