Agreement of Joint Venture - Eldorado LLC and Galleon Inc.
AGREEMENT OF JOINT VENTURE
OF
CIRCUS AND ELDORADO JOINT VENTURE
This AGREEMENT OF JOINT VENTURE OF CIRCUS AND ELDORADO JOINT
VENTURE is entered into and shall be effective as of the 1st day of
March, 1994, by and between ELDORADO LIMITED LIABILITY COMPANY
("E"), a Nevada limited liability company owned and controlled by
ELDORADO HOTEL ASSOCIATES LIMITED PARTNERSHIP, a Nevada limited
partnership ("EHALP"), and GALLEON, INC., a Nevada corporation
("C"), owned and controlled by CIRCUS CIRCUS ENTERPRISES, INC., a
Nevada corporation ("CC"), pursuant to the provisions of the Nevada
Uniform Partnership Act, on the following terms and conditions:
Section 1
THE JOINT VENTURE
1.1 Formation. The Joint Venture is hereby formed as a
Nevada general partnership between E and C ("Partners") effective
as of the date hereof pursuant to the provisions of the Nevada
Uniform Partnership Act ("Act").
1.2 Name. The name of the Joint Venture shall be
CIRCUS AND ELDORADO JOINT VENTURE and all business of the Joint
Venture shall be conducted in such name. The Joint Venture shall
hold all of its property in the name of the Joint Venture and not
in the name of any Partner.
1.3 Purpose.
(a) The purpose of the Joint Venture is to acquire,
develop, construct, finance, manage, and operate a hotel with up to
approximately 2,000 rooms and an entertainment facility, together
with a casino, restaurants, amusement and other related facilities
("Casino Project"), to be located in Reno, Nevada, on the property
described in Exhibit "A" attached hereto and incorporated herein by
reference (the "Casino Property").
(b) The Joint Venture shall be a partnership only for
the purpose specified in this Section 1.3. Except as otherwise
provided in this Agreement, the Joint Venture shall not engage in
any other activity or business and no Partner shall have any
authority to hold himself out as the agent of the other Partner in
any other business or activity.
1.4 Place of Business. The principal place of business of
the Joint Venture shall be at 430 North Virginia Street, Reno,
Nevada or at such other place within Reno, Nevada, as may be
determined by the Managing Partner.
1.5 Term. The term of the Joint Venture shall commence on
the date hereof and shall continue until the winding up and
liquidation of the Joint Venture following a "Liquidating Event,"
as provided in Section 13 hereof.
1.6 Percentage Interest. The Percentage Interest of each
Partner shall be fifty percent (50%) and shall not be changed
except as provided herein.
1.7 Statutory Compliance. The Joint Venture shall exist
under and be governed by, and this Agreement shall be construed in
accordance with, the applicable laws of the State of Nevada
including the Nevada Gaming Control Act embodied in Chapter 463 of
the Nevada Revised Statutes and the regulations promulgated
thereunder. The Partners shall make all filings and disclosures
required by, and shall otherwise comply with, all such laws. The
Partners shall execute and file in the appropriate records any
assumed or fictitious name certificates and other documents and
instruments as may be necessary or appropriate with respect to the
formation of, and conduct of business by, the Joint Venture.
1.8 Title to Property. All real and personal property owned
by the Joint Venture shall be owned by and in the name of the Joint
Venture as an entity and no Partner shall have any ownership
interest in such property in its individual name or right, and each
Partners's interest in the Joint Venture shall be personal property
for all purposes.
1.9 Payments of Individual Obligations. The Joint Venture's
credit and assets shall be used solely for the benefit of the Joint
Venture, and no asset of the Joint Venture shall be transferred or
encumbered for or in payment of any separate obligation of a
Partner.
1.10 Independent Activities; Transactions With Affiliates.
(a) Each Partner shall be required to devote only such
time to the affairs of the Joint Venture as such Partner determines
in its sole discretion may be necessary to develop, construct,
manage and operate the Joint Venture, and each Partner shall be
free to serve any other Person or enterprise in any capacity that
it may deem appropriate. Nothing in this Agreement shall prevent
either Partner from engaging in other business ventures of every
nature, including, but not limited to, the ownership, management,
improvement, development and operation of any other hotels and/or
casinos wherever located, and this Agreement shall grant neither
the Joint Venture nor any Partner any right in any such independent
venture or business or to the income and profits derived therefrom.
Each Partner specifically acknowledges that the other Partner or an
Affiliate of the other Partner is the owner and operator of a
competing hotel casino adjacent to the Casino Property and to be
connected to the Casino Project and that this Agreement shall not
be deemed or construed to prevent, hinder or inhibit in any way the
present operation or future expansion of said properties.
(b) Each Partner shall pay and discharge when due its
non-Joint Venture debts and obligations unrelated to the Joint
Venture and shall indemnify and save harmless the Joint Venture and
the other party from and against any and all claims, demands,
actions and expenses, including reasonable attorneys' fees,
incurred on account of or with respect to any such non-Joint
Venture debts or obligations.
(c) As used in this Agreement, the term "Affiliate"
shall mean any other entity directly or indirectly controlling,
controlled by or under common control with that of any Partner.
1.11 Expenses of Partners. Except as specifically provided
in this Agreement, including, without limitation, the provisions of
Section 2.9(d), no Partner shall be paid for services rendered to
the Joint Venture by such Partner. However, each party shall be
entitled to reimbursement from the Joint Venture for the actual
out-of-pocket expenses reasonably incurred by such Partner in
furtherance of the Joint Venture's business to the extent such
expenses are contemplated by a budget approved by the Partners ,
upon the presentation of reasonable supporting documentation of the
amount and purpose of such expense.
Section 2
PARTNERS' PERFORMANCE AND CAPITAL CONTRIBUTIONS
2.1 Phase I Performance Requirements. Upon execution of this
Agreement, the Partners shall commence the following activities on
behalf of the Joint Venture toward the development of the Project:
(a) C shall undertake the necessary architectural,
engineering, design and construction drawings for the Casino
Project.
(b) C shall undertake to provide committed CONSTRUCTION
FINANCING as defined in Paragraph 2.4.
(c) Utilizing the preliminary design provided by C, E
shall file and process all applications to obtain all necessary
governmental approvals and entitlements, not including building
permits, or approval of the Nevada gaming authorities, both of
which shall be obtained by the Joint Venture for the Casino
Project.
(d) E, on behalf of the Joint Venture, will undertake
such negotiations as may be required to acquire that certain parcel
of property within the Casino Project site not currently owned by
E, commonly known as the Power Company Property. Both Partners
shall pay one-half (1/2) of all costs, fees, expenses and purchase
price for the acquisition of the Power Company Property and take
title as tenants in common with each Partner holding an undivided
one-half (1/2) interest. In the event that for any reason the
Casino Project does not proceed to Phase II as set forth below
within one (1) year from the date of this Agreement, E shall,
within one (1) year thereafter, purchase C's interest in the Power
Company Property at C's cost, plus interest at the prime rate of
Bank of America as adjusted from time to time. In such event, E
shall indemnify and hold C harmless from all obligations under the
agreement for purchase of the Power Company Property.
(e) E shall obtain all appropriate consents, including
consents required from the Cafferata Trust with respect to the
assignment of the Cafferata Lease and the leasehold estate created
thereby, as described in Paragraph 2.2, to the Joint Venture at E's
sole cost and expense.
(f) E shall provide adequate assurances to C of the
availability of the Subordination Security as defined in the Trust
Agreement between EHALP and the Cafferata Trust at E's sole cost
and expense.
(g) E shall provide assurance to C that upon conveyance
or assignment of the Casino Property, a CLTA Owner's Policy of
title insurance is committed to be issued by First American Title
Company of Nevada insuring title to the parcels vested in the Joint
Venture, except for the Cafferata parcel, as to which a CLTA
leasehold policy of title insurance shall be committed to be issued
in favor of the Joint Venture, showing title to the Casino Property
free and clear of all liens and encumbrances, except those set
forth as Exceptions 1 through 27, with all taxes and assessments
being paid current through the transfer date, 28, 34, 51 and 54 as
set forth on Schedule B to the Preliminary Title Report of First
American Title Company Report Order No. 170763MC, dated as of
October 4, 1993, at 7:30 a.m.
2.2 Phase II Capital Contributions. After the formation of
the Joint Venture and the satisfaction or waiver of the conditions
set forth in Paragraph 2.3 below, the Partners shall make the
following initial CAPITAL CONTRIBUTIONS:
(a) E shall convey, or shall cause to be conveyed fee
title to the parcels comprising the Casino Property (excluding the
Power Company Property and the Cafferata Parcel) to the Joint
Venture by Grant, Bargain and Sale Deed. The parties acknowledge
that Lot 14 in Block B of Original Town, now City of Reno (the
"Cafferata Parcel"), is the subject of a ground lease entered into
by and between EHALP and Gladys A. Cafferata, as Trustee of the
Gladys A. Cafferata Trust U/T/A November 2, 1990 (the "Cafferata
Trust"), evidenced by a Lease Agreement, Memorandum of Lease and
Option to Purchase, Put Option to Purchase and Trust Agreement,
each dated as of the 1st day of October, 1992 (collectively, the
"Cafferata Lease"). E agrees to assign and convey all of its
right, title and interest in and to the Cafferata Lease and
leasehold estate to the Joint Venture. E further covenants and
agrees that upon the exercise of the option to purchase in the
Cafferata Lease by the Joint Venture, E shall be responsible for
payment of the Purchase Price (as therein defined) at E's sole cost
and expense. E shall also be responsible for the Subordination
Security as defined in the Trust Agreement by and between EHALP and
the Cafferata Trust, at E's sole cost and expense. E shall cause
the Casino Property parcels to be deeded or assigned to the Joint
Venture free and clear of all liens and encumbrances, except as set
forth in Section 2.1. Upon the conveyance or assignment of the
Casino Property parcels, E shall cause a CLTA Owner's Policy or
Policies of Title Insurance to be issued by First American Title
Company of Nevada, in the aggregate amount of Twenty-Five Million
Dollars ($25,000,000), insuring title to the parcels vested in the
Joint Venture in fee, except for the Cafferata Parcel as to which
a CLTA Leasehold Policy of Title Insurance shall be issued to the
Joint Venture, free and clear of all liens and encumbrances, except
as approved in writing by both Partners. The premiums for the CLTA
policy(ies) shall be borne equally by the Partners. All rental
payments and other monetary obligations (except for payment of the
Purchase Price for the Cafferata Parcel) under the Cafferata Lease
shall be paid by E pending assignment of the Cafferata Lease and
leasehold estate to the Joint Venture and thereafter shall be the
obligation of the Joint Venture, pending exercise of the option to
purchase by the Joint Venture. Provided, however, that at the
request of the Managing Partner, all rental payments and other
monetary obligations necessary to maintain the Cafferata Lease in
effect following assignment to the Joint Venture shall be paid by
E and repaid by the Joint Venture as a loan from E under
Section 15.9, below.
(b) C shall contribute the sum of $25,000,000 to the
Partnership in cash and/or technology, intellectual property or
equipment of a kind and of value, including holding costs, as set
forth in a written itemized schedule approved and signed by both
Partners, and C's Capital Account shall be credited accordingly.
(c) The Partners shall transfer the Power Company
Property to the Joint Venture, and each party's Capital Account
shall be credited with one-half (1/2) the acquisition costs.
(d) After taking into account all Capital Contributions
made by the Partners, each Partner shall contribute sufficient
additional cash to bring such Partner's capital contribution to
fifteen percent (15%) of the total Casino Project costs, including
land acquisition and preopening expenses which shall be in an
amount not to exceed the final Project budget approved by both
Partners ("Final Budget"), thereby making the total aggregate
capital contributions of the Partners equal to thirty percent (30%)
of the Final Budget. In making the contribution as provided in
this subparagraph, each Partner shall receive a credit for the
property or other assets contributed to the Venture by such Partner
as provided in Paragraph 2.2 (a), (b) and (c) above, and the
remainder of the required Capital Contribution shall be in cash.
Any costs incurred or amounts paid by a Partner in carrying out its
Phase I responsibilities for the Project as provided in
Paragraph 2.1 shall be credited to that Partner's required cash
contribution under this Paragraph 2.2.
(e) The Capital Contributions required under
Subparagraph 2.2(d) shall be made at the time required by the
provider of the Construction Financing if not C or CC, or if the
financing is provided by C or CC, in such amounts and at such time
as the Managing Partner reasonably determines necessary to coincide
with the funding of the construction, preopening expenses and
initial bankroll. In no event shall either Partner have a duty to
make a cash Capital Contribution required by Paragraph 2.2(d) prior
to January 1, 1994. Prior to January 1, 1994, amounts provided to
the Joint Venture shall be loans in accordance with the provisions
of Section 15.9 hereof and shall bear interest at a rate of ten
percent (10%). All such loans shall be repaid upon the payment of
the Capital Contributions as herein provided after January 1, 1994.
No Partner shall have any obligation to provide any such loans to
the Partnership.
(f) Nothwithstanding any other provision of this
Agreement of Joint Venture, if a Partner defaults in the Capital
Contributions required by this Paragraph 2.2, the nondefaulting
party shall have all remedies available in law and in equity.
2.3 Conditions to Capital Contributions. The following are
conditions to be satisfied or waived prior to the requirement that
the Partners make the Capital Contributions set forth in
Paragraph 2.2 above:
(a) All government approvals have been obtained to the
satisfaction of both Partners.
(b) The Partners have agreed on the Final Budget.
(c) The Partners have agreed on the scope of the Casino
Project and the plans and specifications relating thereto.
(d) The Construction Financing has been committed and is
available for the funding of the construction of the Casino
Project.
(e) The consent to the Assignment of the Cafferata Lease
in a form acceptable to the Partners is obtained.
(f) If each of the above conditions has not been
satisfied or waived by July 31, 1994, the Joint Venture shall be
dissolved pursuant to Section 13.
2.4 Construction Financing. Construction Financing is the
financing required for the development, construction and completion
of the Casino Project as provided herein. The terms of the
Construction Financing must be approved by both Partners; provided,
however, that if such Construction Financing is provided by C or
CC, the Construction Financing will be deemed approved if it is on
terms and conditions required herein and carries an interest rate
of ten percent (10%) and a payment schedule, including principal
and interest, based on a twenty (20) year amortization and all due
and payable in ten (10) years. CC guarantees to E and EHALP the
obligation of C to obtain the Construction Financing. EHALP shall
not be required to be a signator to nor guarantor of the
Construction Financing. The Construction Financing, together with
the aggregate of all Capital Contributions of the Partners, shall
be sufficient to pay when due the real estate taxes, assessments
and insurance premiums on the Casino Property during the period
prior to opening of the Casino, all architectural, engineering and
design expenses to the extent not contributed by a Partner, legal
and accounting expenses (not including organizational fees),
demolition, excavation and construction costs, and furniture,
fixtures and equipment in order to complete the Casino Project in
the amount of the Final Budget. C and CC shall be obligated to
provide adequate funds or additional Construction Financing to
cover any and all cost over-runs, extras or additions in excess of
the Final Budget arising during the course of construction unless
caused in whole or in part by E or E's delay or failure in
performance of E's obligations in connection with the Casino
Project. Any such additions, changes, extras or over-runs shall be
subject to the approval of both Partners. To the extent that such
financing is required, if CC is required to guarantee such excess
financing, EHALP agrees to also guarantee such excess financing.
The aggregate amount of all Construction Financing, including the
financing of cost over-runs, will be in the form of a recourse note
against the Partners and may be secured by a Deed of Trust and/or
other security interest in the real and personal property of the
Joint Venture, including, without limitation, the Casino Property;
provided, however, if the Construction Financing is provided by C
or CC, then the note and deed of trust securing the obligation to
C or CC shall provide a one-year right to cure before filing a
Notice of Default and Election to Sell or before other foreclosure
or Trustee sale proceedings on such deed of trust may be
instituted. There shall be no additional Capital Contributions,
other than those required by Paragraph 2.2(d), required until
construction is complete. Either Partner may at any time arrange
for third party financing on commercially reasonable terms for the
Casino Project; provided, however, that neither CC nor EHALP shall
be obligated to provide a personal guarantee for such third party
financing. In the event that it is necessary for C to guarantee
such third party financing and EHALP does not guarantee it, then C
shall be entitled to receive an annual guarantee fee in the amount
of two percent (2%) of the average outstanding principal balance of
such third party financing.
2.5 Revolving Credit Line. Prior to the opening of the
Casino Project, C and CC shall arrange or provide a Revolving
Credit Line for the business of the Joint Venture in the minimum
amount of $10,000,000. If the Revolving Credit Line is provided by
C or CC, interest shall be charged at the rate of ten percent (10%)
per annum on outstanding principal amounts. This revolving credit
line shall be maintained as long as C is the Managing Partner.
EHALP shall not be required to be a signator to or guarantor of the
Revolving Credit Line.
2.6 Additional Capital Contributions.
(a) Additional Capital Contributions may be called for
by the Managing Partner by written demand upon the Partners from
time to time solely for the purpose of defraying an annual net loss
not including depreciation and amortization expenses of the Casino
Project after opening and only after full utilization of the
Revolving Credit Line to fund working capital requirements because
of such losses. Such Additional Capital Contributions shall be
payable in proportion to the Percentage Interests of the Partners.
Each Partner shall contribute its respective share of such
subsequent capital calls within fifteen (15) days of receipt of
notice if the entire amount (including both Partners' shares) of
the capital call is less than or equal to $1,000,000.00; within
thirty (30) days if such amount exceeds $1,000,000.00 but is less
than or equal to $2,000,000.00; within sixty (60) days if such
amount exceeds $2,000,000.00 but is less than or equal to
$3,000,000.00; and within 120 days if such amount of the capital
call is greater than $3,000,000.00. In the event that such annual
net losses exceed a total amount of $10,000,000, then both parties
agree to use their best efforts in order to obtain additional
financing within 120 days for such excess operating losses. The
terms of such financing shall be subject to the approval of both
Partners. If the Partners are unable to obtain financing for such
excess operating losses, then the Managing Partner may require an
Additional Capital Contribution to be paid by each Partner in
proportion to the Percentage Interests.
2.7 Failure to Make Additional Capital Contributions. The
Partners' obligation to make Additional Capital Contributions shall
be a personal obligation of each Partner and shall be enforceable
by this Joint Venture and each of its Partners, but shall not be
enforceable by any third party creditor of the Joint Venture or any
other person. If either Partner fails to make an Additional
Capital Contribution when due under this Agreement (the "Defaulting
Partner"), the Non-Defaulting Partner shall have the following
remedies:
(a) Immediately upon a default by a Partner under this
Section, the Non-Defaulting Partner shall have the right (but not
the obligation) to do any one of the following:
(i) contribute, as a capital contribution of the
Defaulting Partner and as a loan to the Defaulting Partner, the
amount of the Additional Capital Contribution in default, and all
such amounts shall be considered loans to the Defaulting Partner
from such Non-Defaulting Partner. The unpaid principal balance of
the loan shall bear interest from the date of the advance at the
Default Rate. Interest shall be accumulated daily and compounded
on an annual basis. The loan, with interest, shall be repaid by
the Defaulting Partner from its cash distributions pursuant to this
Agreement, or, if the provisions of Section 12.4 become applicable,
the loan shall be repaid out of proceeds received pursuant thereto.
(ii) loan the entire amount of the Additional
Capital Contribution to the Joint Venture, such loan to bear
interest from the date of advance until repaid at the Default Rate.
Interest on any such loan shall be accumulated daily and
compounded on an annual basis. Interest and principal on such loan
shall be paid in accordance with Section 4.1.
(b) If the Non-Defaulting Partner has elected the remedy
described in subparagraph 2.7(a)(i) above, and the loan is not
repaid to the Non-Defaulting Partner within two (2) years of the
date of the loan advance or if a Partner is in default at any time
on two (2) Additional Capital Contributions which remain unpaid or
uncured as provided herein, then, and only then, may the Non-
Defaulting Partner elect to purchase the Defaulting Partner's
interest in the Joint Venture pursuant to and in accordance with
the terms of Section 12.4.
(c) For purposes of this Agreement, the "Default Rate"
of interest shall be the greater of ten percent (10%) or two (2)
percentage points added to the "prime" interest rate of the Bank of
America, as announced from time to time.
2.8 Capital Accounts. An individual Capital Account shall
be established and maintained for each Partner. The Capital
Account of each Partner shall be equal to the aggregate amount of
cash contributed by such Partner to the Joint Venture, increased by
(i) the fair market value of property contributed by such Partner
to the Joint Venture (other than a promissory note by such Partner
who is the maker of such note), net of liabilities secured by such
property that the Joint Venture assumes or takes the property
subject to, (ii) the amount of any Joint Venture liabilities
assumed by such Partner other than liabilities secured by property
distributed to such Partner, (iii) such Partner's distributive
share of Profits of the Joint Venture and (iv) any items in the
nature of income and gain which are excluded from the definitions
of Profits and Losses and allocated to such Partner, and reduced by
(i) such Partner's distributive share of Losses, (ii) the amount of
any distributions of cash to such Partner, (iii) the amount of
liabilities of such Partner assumed by the Joint Venture, other
than liabilities secured by property contributed by such Partner,
(iv) the fair market value of property (net of liabilities assumed
by such Partner and liabilities to which such distributed property
is subject) distributed to such Partner, and (v) any items in the
nature of deductions or losses which are excluded from the
definitions of Profits and Losses and allocated to such Partner.
Upon a distribution of property, other than one described in
Section 3.7(a) hereof, the Capital Account of each Partner shall be
adjusted as provided in Regulations of the Internal Revenue Code of
1986, as amended ("Code") Section 1.704-1(b) (2) (iv) (e). In the
event the Gross Asset Values of Joint Venture assets are adjusted
pursuant to Section 3.7(a) hereof, the Capital Account of each
Partner shall be adjusted simultaneously to reflect the aggregate
net adjustment as if the Joint Venture recognized gain or loss
equal to the amount of such aggregate net adjustment. The
foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to
comply with Regulations Sections 1.704-1(b) and 1.704-2 and shall
be interpreted and applied in a manner consistent with such
Regulations.
2.9 Other Matters.
(a) Except as otherwise provided in this Agreement, no
Partner shall demand or receive a return of his Capital
Contributions or withdraw from the Joint Venture without the
consent of all Partners. Under circumstances requiring a return of
any Capital Contributions, no Partner shall have the right to
receive property other than cash except as may be specifically
provided herein.
(b) No Partner shall receive any interest, salary, or
draws with respect to its Capital Contributions or its Capital
Account or for services rendered on behalf of the Joint Venture or
otherwise in its capacity as Partner, except as otherwise provided
in this Agreement.
(c) Except as provided in Section 10, no Person shall be
admitted to the Joint Venture as a Partner without the unanimous
consent of the Partners.
(d) The Managing Partner, on behalf of the Joint
Venture, may contract with an Affiliate of the Managing Partner for
the provision of accounting, bookkeeping, computer services and
management information and similar central office services at a
cost not to exceed the reasonable direct costs incurred by such
Affiliate in providing such services.
Section 3
ALLOCATIONS
3.1 Profits and Losses. "Profits" and "Losses" means, for
each fiscal year or other period, an amount equal to the Joint
Venture's taxable income or loss for such year or period,
determined in accordance with Section 703(a) of the Code (for this
purpose, 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:
(a) Any income of the Joint Venture that is exempt from
federal income tax and not otherwise taken into account in
computing Profits or Losses pursuant to this Agreement shall be
added to such taxable income or loss.
(b) Any expenditures of the Joint Venture 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)(l)
("Section 705(a)(2)(B) Expenditure"), and not otherwise taken into
account in computing Profits or Losses pursuant to this Agreement,
shall be subtracted from such taxable income or loss.
(c) In the event the Gross Asset Value of any Joint
Venture asset is adjusted pursuant to this Agreement, 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.
(d) Gain or loss resulting from any disposition of Joint
Venture 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.
(e) 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 or other period.
(f) Notwithstanding any other provisions of this Section
(other than Sections 3.4(a) and 3.4(b)), any items which are
specially allocated pursuant to Sections 3.4 and 3.5 hereof shall
not be taken into account in computing Profits and Losses.
3.2 Profits.
(a) Except as provided in Sections 3.2(b) hereof, the
allocation of Profits among the Partners for any fiscal year shall
be determined in the following manner: (1) The net operating
income of the Joint Venture for financial reporting purposes
(determined in accordance with generally accepted accounting
principles) for such fiscal year, exclusive of interest expense,
shall be credited to C, up to the amount of its Priority Allocation
for such fiscal year, any balance shall be credited to E, up to the
amount of C's Priority Allocation with respect to such fiscal year,
and any remaining balance shall be credited to the Partners in
proportion to their Percentage Interests; (ii) Interest expense of
the Joint Venture (determined in accordance with generally accepted
accounting principles) for such fiscal year shall be charged to the
Partners in proportion to their Percentage Interests; and (iii) The
difference (whether positive or negative) between (A) net operating
income of the Joint Venture for financial reporting purposes
(determined in accordance with generally accepted accounting
principles) for such fiscal year, less the amount of interest
expense of the Joint Venture (determined in accordance with
generally accepted accounting principles) for such fiscal year and
(B) Profits of the Joint Venture for such fiscal year shall be
credited or charged to the Partners, as the case may be, in
proportion to their Percentage Interests. Each Partner shall then
be allocated Profits for such fiscal year in an amount equal to the
net amount credited to such Partner pursuant to the preceding
sentence; provided, however, that in the event the computation
pursuant to the preceding sentence would result in a Partner being
charged a loss, such Partner shall be allocated zero Profits for
such fiscal year and the other Partner shall be allocated all of
the Profits of the Joint Venture for such fiscal year.
(b) Profits attributable to the sale, exchange or other
disposition of all or substantially all of the assets of the Joint
Venture shall be allocated among the Partners as follows: (i)
First, if the Capital Accounts of the Partners are unequal (after
reducing each Partner's Capital Account for any undistributed Net
Cash From Operations distributable to such Partner pursuant to
Section 4.1 hereof and after adjusting each Partner's Capital
Account for any Profits or Losses of the Joint Venture for such
fiscal year allocated to such Partner pursuant to Section 3.2(a) or
3.3(a) hereof, such Profits shall be allocated to the Partner with
the smaller Capital Account (determined after the foregoing
adjustments) until each Partner's Capital Account (as adjusted) is
equal, and (ii) Second, the balance of any such Profits shall be
allocated among the Partners in proportion to their Percentage
Interests.
3.3 Losses.
(a) Except as provided in Section 3.3(b) hereof, Losses
for any fiscal year shall be allocated among the Partners in
proportion to their Percentage Interests.
(b) Losses attributable to the sale, exchange or other
disposition of all or substantially all of the assets of the Joint
Venture shall be allocated among the Partners as follows:
(i) First, if the Capital Accounts of the Partners are unequal
(after reducing each Partner's Capital Account for any
undistributed Net Cash From Operations distributable to such
Partner pursuant to Section 4.1 hereof and after adjusting each
Partner's Capital Account for any Profits or Losses of the Joint
Venture for such fiscal year allocated to such Partner pursuant to
Section 3.2(a) or 3.3(a) hereof), such Losses shall be allocated to
the Partner with the larger Capital Account (determined after the
foregoing adjustments) until each Partner's Capital Account (as
adjusted) is equal, and (ii) Second, the balance of any such Losses
shall be allocated among the Partners in proportion to their
Percentage Interests.
3.4 Special Allocations. The following special allocations
shall be made in the following order:
(a) Minimum Gain Chargeback. Except as otherwise
provided in Section 1.704-2(f) of the Income Tax Regulations
promulgated under the Code, as amended from time to time,
("Regulations") notwithstanding any other provision of this
Agreement, if there is a net decrease in Joint Venture Minimum Gain
during any Joint Venture fiscal year, each Partner shall be
specially allocated items of Joint Venture income and gain for such
fiscal year (and, if necessary, subsequent fiscal years) in an
amount equal to such Partner's share of the net decrease in Joint
Venture Minimum Gain, determined in accordance with Regulations
Section 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 Partner 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
3.4(a) is intended to comply with the minimum gain chargeback
requirement in Section 1.704-1(f) of the Regulations and shall be
interpreted consistently therewith.
(b) Partner Nonrecourse Debt. Any item of Joint Venture
loss, deduction or Section 705(a)(2)(B) Expenditure that is
attributable to Partner Nonrecourse Debt shall be allocated to the
Partner or Partners that bear the economic risk of loss with
respect to such Partner Nonrecourse Debt in accordance with
Regulations Section 1.704-2(i). Notwithstanding any other
provisions of this Agreement except Section 3.4(a) hereof, if there
is a net decrease during any fiscal year in the minimum gain
attributable to a Partner Nonrecourse Debt (within the meaning of
Regulations Section 1.704-2(i)(3)), then any Partner with a share
of the minimum gain attributable to such Partner Nonrecourse Debt
at the beginning of such fiscal year shall be allocated items of
Joint Venture income and gain for such fiscal year (and, if
necessary, for subsequent fiscal years) equal to such Partner's
share of the net decrease in Partner Nonrecourse Debt Minimum Gain
as provided in Regulations Section 1.704-2(i)(4).
(c) Code Section 754 Adjustment. To the extent an
adjustment to the adjusted tax basis of any Joint Venture 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 Regula-
tions 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
Partner in complete liquidation of his interest in the Joint
Venture, 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
Partners in accordance with their interests in the Joint Venture in
the event Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or
to the Partners to whom such distribution was made in the event
Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
(d) Allocations Relating to Taxable Issuance of Joint
Venture Interests. Any income, gain, loss or deduction realized as
a direct or indirect result of the issuance of an interest in the
Joint Venture to a Partner (the "Issuance Items") shall be
allocated among the Partners so that, to the extent possible, the
net amount of such Issuance Items, together with all other
allocations under this Agreement to each Partner, shall be equal to
the net amount that would have been allocated to each such Partner
if the Issuance Items had not been realized.
(e) Limitations on Allocation of Losses. Notwith-
standing the provisions of this Section 3, in no event shall any
allocation of Losses (or any other loss, deduction or
Section 705(a)(2)(B) Expenditure) to any Partner cause such Partner
to have or increase a deficit balance in its Capital Account.
(f) Qualified Income Offset. If a Partner receives an
adjustment, allocation or distribution described in Regulations
Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) which creates or
increases a deficit balance (taking into account distributions,
other than distributions in liquidation of the Joint Venture,
reasonably expected to be made) in the Partner's Capital Account
(as provided in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or
(6)), the Managing Partner shall allocate items of income or gain
(as those terms are used in Regulations Section 1.704-
1(b)(2)(ii)(d)) to Such Partner in an amount and manner to
eliminate the Partner's Capital Account deficit attributable to
such adjustment, allocation or distribution as quickly as possible.
(g) Capital Account Deficits. For purposes of Sections
3.4(a), 3.4(b), 3.4(e) and 3.4(f) hereof, there shall be excluded
from any deficit in a Partner's Capital Account any amount such
Partner is obligated to restore to its Capital Account under
Regulations Section 1.704-1(b)(2)(ii)(c), as well as any addition
thereto pursuant to the penultimate sentences of Regulations
Sections 1.704-2(g)(1) and 1.704-2(i)(5) after taking into account
thereunder any changes during such fiscal year in Minimum Gain and
Partner Nonrecourse Debt Minimum Gain.
(h) Capital Account Adjustment. For purposes of
Sections 3.4(a), 3.4(b) and 3.4(e) hereof, each Partner's Capital
Account shall be reduced by the items described in Regulations
Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
(i) Definitions. For purposes of this Agreement, the
following terms shall have the following meanings:
(i) "Depreciation" means, for each fiscal year or
other period, an amount equal to the depreciation,
amortization or other cost recovery deduction allowable with
respect to an asset for such year or other period, 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
year or other period, 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 year or other period bears to
such beginning adjusted tax basis.
(ii) "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 Partner to the Joint
Venture shall be the gross fair market value of such asset, as
determined by the Partners; and (ii) the Gross Asset Value of
all assets whose Gross Asset Value has been adjusted pursuant
to Section 3.7(a) hereof shall be adjusted pursuant to the
last sentence of Section 3.7(a) hereof.
(iii) "Minimum Gain" means the sum of the
separately computed amount of gain, if any, that would be
realized by the Company if, with respect to each nonrecourse
liability of the Company, the Company disposed of the property
subject to such nonrecourse liability for no other
consideration than full satisfaction of such liability in
accordance with Regulations Section 1.704-2(d). For this
purpose, the term "nonrecourse liability" shall have the
meaning set forth in Regulations Section 1.752-1(a)(2).
(iv) "Partner Nonrecourse Debt" means any Joint
Venture liability to the extent the liability is nonrecourse
for purposes of Regulations Section 1.1001-2, and a Partner
(or a related person within the meaning of Regulations
Section 1.752-4(b)) bears the economic risk of loss (within
the meaning of Regulations Section 1.752-2).
(v) "Partner Nonrecourse Debt Minimum Gain" means
Minimum Gain attributable to Partner Nonrecourse Debt.
3.5 Curative Allocations. The allocations set forth in
Sections 3.4(a), 3.4(b), 3.4(c) and 3.4(d) hereof (the "Regulatory
Allocations") are intended to comply with certain requirements of
the Regulations. It is the intent of the Partners that, to the
extent possible, all Regulatory Allocations shall be offset either
with other Regulatory Allocations or with special allocations of
other items of Joint Venture income, gain, loss, or deduction
pursuant to this Section 3.5. Therefore, notwithstanding any other
provision of this Agreement (other than the Regulatory
Allocations), the Managing Partner shall make such offsetting
special allocations of Joint Venture income, gain, loss or
deduction in whatever manner it determines appropriate so that,
after such offsetting allocations are made, each Partner's Capital
Account balance is, to the extent possible, equal to the Capital
Account balance such Partner would have had if the Regulatory
Allocations were not part of the Agreement and all Joint Venture
items were allocated pursuant to Sections 3.2 and 3.3 hereof. In
exercising his discretion under this Section 3.5, the Managing
Partner shall take into account future Regulatory Allocations under
Section 3.4 that, although not yet made, are likely to offset other
Regulatory Allocations previously made under Section 3.4.
3.6 Code Section 704(c) Allocations.
(a) Solely for federal income tax purposes and not
with respect to determining any partner's capital account,
distributive share of profits or losses, distributions or other
items, a partner's distributive share of income, gain, loss, or
deduction with respect to any property (other than money)
contributed to the Joint Venture shall be determined in accordance
with Code Section 704(c) and Regulations thereunder.
(b) For purposes of allocation of income, gain,
loss, or deduction under Code Section 704(c), the Joint Venture
adopts the "traditional method with curative allocations" as
identified in Proposed Regulation 1.704-3(c). If this Proposed
Regulation is modified or changed when issued in final form, the
Managing Partner shall select the method which most closely
resembles the traditional method with curative allocations.
(c) In the event the Gross Asset Value of any Joint
Venture property is adjusted (other than for Depreciation)
subsequent allocations of income, gain, loss and deduction with
respect to such property shall take account of any variation
between the adjusted basis of such property and its Gross Asset
Value in the same manner as under Section 704(c) and the
Regulations thereunder. Any elections or other decisions relating
to such allocation shall be made in a manner that reasonably
reflects the purpose and intention of this Agreement.
3.7 Other Allocation Rules.
(a) The Gross Asset Values of all Joint Venture assets
may be adjusted by the Managing Partner in accordance with
Regulations Section 1.704-1(b)(2)(iv) to equal their respective
gross fair market values as reasonably determined by the Managing
Partner as of the following times: (i) the acquisition of an
additional interest in the Joint Venture by any new or existing
Partner in exchange for more than a de minimis capital
contribution; (ii) the distribution by the Joint Venture to a
retiring or continuing Partner as consideration for an interest in
the Joint Venture of more than a de minimis amount of money or
other Joint Venture property; and (iii) the liquidation of the
Joint Venture. In such event, if the Gross Asset Value of an asset
does not equal its adjusted basis for federal income tax purposes,
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.
(b) The Partners are aware of the income tax
consequences of the allocations made by this Section 3 and agree to
be bound by the provisions of this Section 3 in reporting their
shares of Joint Venture income and loss for income tax purposes.
(c) 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 Managing Partner using any permissible
method under Code Section 706 and the Regulations thereunder.
3.8 Priority Allocation of Operating Income.
(a) For so long as E selects the General Manager of the
Casino Project, as provided in Section 5.10, C shall be entitled to
a priority allocation of operating income, as determined in
accordance with this Section3.8, equal to fifteen percent (15%) of
the Initial Investment (as defined below) in the Casino Project,
adjusted each year for depreciation and repayment of principal on
the Construction Financing. C's right to this Priority Allocation
is non-cumulative and shall commence on an annual basis after the
first full year of operation of the Casino Project. The Priority
Allocation shall be calculated as follows:
The "Initial Investment" shall be equal to the total
Project cost, excluding only preopening expenses and initial
bankroll, but shall not exceed $290,000,000. The Initial
Investment shall be adjusted at the end of each year by subtracting
(i) the depreciation on the Initial Investment taken in such year
(in accordance with the depreciation schedule agreed to by the
Partners in the initial year) and (ii) the principal payments made
in repayment of any Construction Financing. The average of the
Initial Investment at the beginning of each year and the Initial
Investment at the end of each year (the "Average Investment") shall
be multiplied by fifteen percent (15%) which sum shall be divided
by sixty-five percent (65%). The resulting number multiplied by
the Percentage Interest of C shall be the amount of C's Priority
Allocation. If, in any year, the Casino Project generates
insufficient operating income to allocate C its full Priority
Allocation, C shall be entitled to such allocation only to the
extent the operating income is available, and the Priority
Allocation shall not be cumulative.
If, however, the Casino Project reports sufficient
operating income to allocate C all or a portion of its Priority
Allocation, but sufficient cash is unavailable (i.e., not on hand)
to distribute to C its Priority Allocation, C shall be entitled to
receive the next cash available for distribution to satisfy the
Priority Allocation which has been allocated to it.
(b) For purposes of the above calculation, the purchase
of new assets shall not be considered. Prior to the purchase of
income producing assets, the parties shall negotiate in good faith
to adjust net income to take into account the net income produced
from such assets.
(c) This Priority Allocation set forth in subparagraph
(a) above shall be distributed to C to the extent available as
provided in Section 4.1.
Section 4
DISTRIBUTIONS
4.1 Net Cash From Operations. The term "Net Cash From
Operations" shall mean the gross cash proceeds from all Joint
Venture operations, less the following amounts agreed to by the
Partners as set forth in the operating and capital budgets for the
businesses of the Joint Venture: (i) Cash operating expenses and
payments of other expenses and obligations of the Joint Venture,
including interest and scheduled principal payments on Venture
indebtedness, including the Construction Financing, not including
cost overruns, and the Revolving Credit Line (in accordance with
commercial business practices), other than indebtedness owed to
Partners or Affiliates as set forth below, and not including
depreciation expense; and (ii) Such reasonable reserves as the
Partners deem necessary in good faith and in the best interests of
the Joint Venture to meet anticipated future obligations and
liabilities of the Joint Venture. Net Cash From Operations shall
be subject to the annual audit of the Joint Venture. The Net Cash
From Operations with respect to each fiscal year shall be
distributed not later than the forty-fifth (45th) day after the end
of each fiscal quarter as follows:
(a) At the end of the first year of operation only, to
each Partner, an amount equal to (or in proportion if less than)
such partner's Tax Liability (as determined pursuant to Section 4.2
hereof) with respect to such fiscal year.
(b) Payment of interest on all loans to the Joint
Venture from Partners and Affiliates, including, without
limitation, loans to the Joint Venture made as a result of a
Defaulting Partner pursuant to Section 2.7(a)(ii).
(c) Payment of principal on any loan(s), except the
Construction Financing, made by a Partner or an Affiliate to the
Joint Venture, including a loan made by a Non-Defaulting Partner
made to the Joint Venture pursuant to Section 2.7(a)(ii).
(d) Payment of interest and principal on any loan(s) a
Non-Defaulting Partner made on behalf of a Defaulting Partner
pursuant to Section 2.7(a)(i) as a distribution to the Defaulting
Partner, plus an additional distribution to the Non-Defaulting
Partner in an equal amount.
(e) If C or CC provides the Construction Financing, to
the payment of the construction cost overruns in the amount that
the total Construction Financing Loan exceeds seventy percent (70%)
the Final Budget.
(f) At the end of the first year of operation only, the
entire balance shall be paid toward the principal of the
Construction Financing, not including cost overruns. The amount of
such payment shall reduce the Initial Investment for the purpose of
calculating the Priority Allocation as provided in Paragraph 3.8.
(g) To the extent earned and available, an amount to C
up to the amount of the Priority Allocation defined in Section 3.8
with respect to such fiscal year. Any shortfall in the Priority
Allocation shall not be cumulative from year to year.
(h) To the extent earned and available, an amount to E
up to the amount distributed to C under Subparagraph (g) from year
to year, above, with respect to such fiscal year. Any shortfall in
this distribution shall not be cumulative.
(i) After the first year of operation, to each Partner,
an amount equal to (or in proportion if less than) such Partner's
Tax Liability (as determined pursuant to Section 4.2 hereof) with
respect to such fiscal year. In the event that for such fiscal
year there is not adequate cash available to distribute to E an
amount equal to E's Tax Liability for such fiscal year, CC agrees
to loan such amount to E, to be repaid, plus interest at the prime
rate of Bank of America, from time to time, from future
distributions to E.
(j) The entire balance, unless otherwise agreed by the
Partners, shall be applied to the payment of the Construction
Financing if provided by C or CC until said loan is paid in full or
refinanced; provided, however, in the event that such Construction
Financing is not repaid in full within five (5) years after the
commencement of operation of the Project, then the outstanding
principal balance shall be refinanced on a commercially reasonable
basis so as to allow the maximum distribution to the Partners in
accordance with their Percentage Interests.
(k) After satisfaction of the above obligations, any
remaining balance of the Net Cash From Operations shall be
distributed to the Partners in proportion to their Percentage
Interests.
4.2 Tax Liability. A Partner's "Tax Liability" for any
fiscal year shall be an amount equal to the Profits of the Joint
Venture allocated to such Partner with respect to such fiscal year
multiplied by a percentage (initially, 39.6%) equal to the greater
of the maximum marginal federal income tax rate applicable to
individuals for such fiscal year or the maximum marginal federal
income tax rate applicable to corporations for such fiscal year.
Section 5
MANAGEMENT
5.1 Day-to-Day Management by Managing Partner. C shall be
and hereby is appointed the Managing Partner for the Joint Venture
and is hereby charged with and C hereby agrees to assume the
responsibility and authority for the prudent day-to-day management
of the business affairs of the Joint Venture, except as otherwise
designated to the General Manager in accordance herewith.
Subject to the limitations and restrictions set forth in this
Agreement and the Annual Business Plan, the Managing Partner may
exercise the following specific rights and powers without any
further consent of the other Partners being required:
(a) Oversee and manage the day-to-day operations of the
Casino Project and other Joint Venture business.
(b) Direct and oversee the legal, architectural,
engineering, construction and other work necessary for the
development, construction, completion, opening,care and improvement
of the Casino Project and the Casino Property and other Joint
Venture business.
(c) Prepare budgets and appropriate development
schedules for the development, construction, opening, repair,
improvement and operation of the Casino Project and Casino
Property.
(d) Negotiate with and enter into contracts for the
development, construction, completion, opening, care and
improvement of the Casino Project and to supervise all such work.
(e) Implement decisions made by both of the Partners.
(f) Utilize due diligence to operate, on behalf of and
for the sole benefit of Joint Venture, a hotel, casino, and
entertainment complex as contemplated by the description of the
Casino Project and such other business and activities which are
customary and usual in connection with such operation;
(g) Care for and distribute Joint Venture funds in
accordance with the provisions of this Agreement.
(h) Contract on behalf of the Joint Venture for the
services of independent contractors such as lawyers and
accountants.
(i) Establish, maintain and supervise the deposit of
monies or securities of the Joint Venture with federally insured
banking institutions or other banking institutions as may be
selected by the Managing Partner. The Managing Partner is
authorized to sign on behalf of the Joint Venture on all accounts
with such banking institutions.
(j) After consultation with the Executive Committee,
prepare and submit the Annual Business Plan for review and approval
of the Executive Committee as provided herein.
(k) Acquire by purchase, lease, or otherwise such
personal property which may be necessary, convenient, or incidental
to the accomplishment of the purposes of the Joint Venture
consistent with the Annual Business Plan;
(l) Execute any and all agreements, contracts,
documents, certifications, and instruments necessary or convenient
in connection with the management, maintenance, and operation of
the Casino Project, or in connection with managing the affairs of
the Joint Venture, including, without limitation, adequate
insurance as provided in the Annual Business Plan.
5.2 Annual Business Plan. No later than forty-five (45) days
prior to the end of the then current Fiscal Year, after
consultation with the Executive Committee, the Managing Partner and
the General Manager shall prepare a business plan (the "Annual
Business Plan") for the next Fiscal Year. The Annual Business Plan
shall be subject to the review and approval of the Executive
Committee. After approval of the Business Plan, there shall be no
material changes in the Annual Business Plan without the approval
of the Executive Committee. The Annual Business Plan shall
include, but not be limited to, the following:
(a) A narrative description of any activities proposed
to be undertaken including the physical development of the Casino
Project;
(b) A projected annual income statement (accrual basis)
on a monthly basis for upcoming Fiscal Year and subsequent Fiscal
Year;
(c) A projected balance sheet as of the end of the
upcoming Fiscal Year and subsequent Fiscal Year;
(d) A capital budget and an operating budget for the
Casino Project by department, including the establishment and
amount of working capital, capital improvement, and contingency
reserves;
(e) A schedule of projected operating cash flow,
including itemized operating revenues, Casino Project costs,
expenses, a schedule of projected operating deficits and capital
calls for Additional Capital Contributions, if any;
(f) A marketing plan indicating the nature, type and
timing of advertising, public relations, complementaries, and
promotions (e.g. print,television, food/beverage, billboard,
signage, and other media), contemplated distribution and amounts
payable to contractors;
(g) An operating plan, including executive and other key
employee and department staffing needs;
(h) An entertainment plan and budget;
(i) Proposed personal property acquisitions;
(j) Anticipated insurance needs of the Joint Venture,
including comprehensive, general liability, casualty, fire and
extended coverage, workers' compensation, fidelity insurance
protecting against employee loss or theft and business interruption
insurance in an amount agreed to by all Partners, together with
assurance that each Partner is named as an additional insured on
the Joint Venture insurance policies.
5.3 Restrictions on the Partners. The following shall
require the unanimous approval of all Partners:
(a) The admission of an additional Partner;
(b) The purchase of additional real property;
(c) Any other transaction which is unrelated to the
purposes of the Joint Venture;
(d) Except as otherwise provided herein, incurring any
indebtedness that encumbers the real property of the Casino
Project;
(e) Sales or other dispositions of all or substantially
all of the assets of the Joint Venture;
(f) Capital improvements in the aggregate in excess of
$250,000, not included in the approved Annual Business Plan ;
(g) Refinancing of the Construction Financing;
(h) Any obligation, contract, agreement, or commitment
of any type whatsoever with a Partner or an Affiliate of a Partner,
other than those specifically described in this Agreement;
(i) Except as provided in Section 10, the sale,
assignment, pledge, mortgage, encumbrance or disposal of all or any
portion of such Partner's interest in the Venture. Except as
specifically provided herein, nothing herein shall prohibit or
limit a Partner's right to assign or pledge its proceeds from the
Joint Venture;
(j) The assignment, pledge or transfer of any debt in
excess of $250,000 due the Venture or the release of any such debt,
except on payment in full, other than in the ordinary course of the
business of the Venture;
(k) The compromise of any claim due to the Venture in
excess of $250,000 or submission to arbitration of any dispute or
controversy involving the Venture, other than in the ordinary
course of the business of the Venture;
(l) The Managing Partner shall select the Project
Controller subject to the approval of the other Partner, which
approval shall not be unreasonably withheld;
(m) Transfer or conveyance of any of the Casino Property
or the grant of easements or other property rights relating to the
Casino Property;
(n) Cancellation of any insurance as set forth in the
approved Annual Business Plan.
5.4 Replacement of Managing Partner.
(a) Except as provided herein, the Managing Partner may
only be changed by the unanimous agreement of all Partners. If the
actual net operating results of the business of the Joint Venture
for any four (4) consecutive quarters are less than eighty percent
(80%) of the projected amount as set forth in the approved Annual
Business Plan, after appropriate adjustments for factors affecting
similar business in the vicinity of the Project, then the other
Partner may require the Managing Partner to resign. Provided,
however, that as long as E appoints the General Manager, E shall
not be entitled to require CC to resign as Managing Partner. In
the event that a Partner exercises its option to require the
Managing Partner to resign, then that Partner shall become the
Managing Partner of the Joint Venture and assume all obligations of
the Managing Partner as required by this Agreement.
(b) In the event that there is any dispute with respect
to whether the Managing Partner has performed in accordance with
the standards set forth in Section 5.4(a), such dispute shall be
submitted to the CPA firm of Arthur Andersen for resolution.
Arthur Andersen shall consider the positions of both Partners and
shall render a decision with respect to the performance of the
Managing Partner, which decision shall be final and binding on the
Partners. In the event that Arthur Andersen is unable or unwilling
to undertake this dispute resolution, then the dispute will be
resolved by another qualified CPA firm as appointed by Arthur
Andersen.
(c) The Managing Partner reserves the right to resign as
the Managing Partner. In the event that the Managing Partner
resigns, the other Partner will have the right and option to become
the Managing Partner of the Joint Venture and assume all the
obligations of the Managing Partner as required by this Agreement.
In the event that the other Partner does not exercise its option to
become the Managing Partner, then the Partners shall attempt to
appoint a third party ("Manager") to manage and operate the
property. In the event that the Partners are unable to agree on
the Manager, then the Joint Venture shall be dissolved and
liquidated in accordance with the provisions of Section 13, with
the last active Managing Partner being responsible for the
dissolution and liquidation as provided in Section 13.
5.5 Implementation of Annual Business Plan. The Managing
Partner shall use due diligence to implement the Annual Business
Plan. The Joint Venture will be conducted consistent with prudent
business practices, with the objective of maximizing the profits of
the Joint Venture, and each Partner will use due diligence to
achieve that objective. The Managing Partner shall promptly notify
the other Partner of any transaction, notice, event or proposal
relating to the management and operation of the Casino Project
which could significantly affect, either adversely or favorably,
the Casino Project or the Joint Venture or otherwise cause a
significant deviation from the Annual Business Plan.
5.6 Executive Committee. There shall be established an
Executive Committee. The Executive Committee shall consult with,
review, monitor and oversee the performance of the Managing Partner
and the General Manager. The Managing Partner and the General
Manager shall consult with the Executive Committee on a periodic
basis as provided herein and seek the input and counsel of the
Executive Committee prior to the preparation of the Annual Business
Plan.
5.7 Membership; Voting Executive Committee.
(a) Membership. The Executive Committee will initially
consist of five (5) members, with three (3) members appointed by
the Managing Partner and two (2) members appointed by the other
Partner. In the event that neither of the Partners are the
Managing Partner, then the Executive Committee shall consist of
five (5) members, with two (2) members appointed by each party, and
the Manager appointed pursuant to Section 5.4(c) shall be the fifth
member of the Executive Committee. Each Partner may, at any time,
appoint alternate members to the Executive Committee and such
alternates will have all the powers of a regular committee member
in the absence or inability of a regular committee member to serve.
Each Partner shall notify the other Partner in writing of its
appointments to the Executive Committee within ten (10) business
days of the execution of this Agreement.
(b) Voting. Each member of the Executive Committee
shall have one vote on any decision of the Executive Committee. A
member of the Executive Committee may give his written proxy to
another member of the Executive Committee to vote on his behalf in
his absence. All actions of the Executive Committee must be
approved by a majority of all of the members of the Executive
Committee, present or voting by proxy.
5.8 Meetings of the Executive Committee; Time and Place.
Unless otherwise requested by a Partner after completion of the
Casino Project, regular meetings of the Executive Committee shall
be held quarterly at such time and at such place as the Executive
Committee shall determine. During construction of the Casino
Project, the Executive Committee shall meet at least once every
other week. At such regular meetings, the Managing Partner's
representatives and the General Manager shall report on the
financial performance and condition of the Joint Venture on a year-
to-date basis (including cash flows, reserves, outstanding loans,
and compliance efforts), give progress reports on capital projects
including construction of the Project, compliance with the Annual
Business Plan, material contracts entered into, material
litigation, marketing efforts and such other matters relevant to
the operation of the Joint Venture. The Executive Committee may
make use of telephones and other electronic devices to hold
meetings, provided that each member of the Executive Committee may
simultaneously participate with all of the other members of the
Executive Committee with respect to all discussions and votes of
the Executive Committee. The Executive Committee may act without
a meeting if the action taken is reduced to writing (either prior
to or thereafter) and approved by members of the Executive
Committee in accordance with the voting provisions of this
Agreement. Written minutes shall be taken at each meeting of the
Executive Committee. Any Partner may call for a special meeting of
the Executive Committee by giving three (3) days prior written
notice to all members of the Executive Committee.
5.9 Duties of the Executive Committee. The duties of the
Executive Committee shall include, but not be limited to, the
following:
(a) Reviewing, adjusting, approving, developing, and
supervising the Annual Business Plan, including budgeting for the
construction of the Casino Project;
(b) Reviewing development progress of the Casino
Project;
(c) Reviewing and approving the terms of any loans made
to the Joint Venture;
(d) Determining, except as otherwise provided in this
Agreement, the capital requirements of the Joint Venture;
(e) Appointment 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 Joint
Venture;
(f) Appointment of those individuals, other than the
Managing Partner and General Manager, who will have the authority
to open and draw checks on bank accounts in the name of the Joint
Venture, or endorse checks for deposit to such accounts;
(g) Approving all material purchases, sales, leases or
other dispositions of Joint Venture Property other than in the
ordinary course of business; and
(h) Determine the compensation of the General Manager
and the Controller.
5.10 General Manager.
(a) E shall select the General Manager of the Casino
Project, subject to the approval of C, which shall not be
unreasonably withheld.
(b) The General Manager shall perform those functions of
the Managing Partner set forth in Sections 5.1(a), (e), (f), (h),
(i), (j), (k), (l), 5.2, 5.5, including restrictions with respect
to the Annual Business Plan, and such other duties and
responsibilities as the Managing Partner may assign to the General
Manager.
(c) The General Manager shall consult with the Managing
Partner on a weekly basis and review results of operations and
proposals for future operations.
(d) The General Manager shall continue to be selected by
E so long as the annual results of operations are within the
standards and criteria set forth in Section 5.4 or so long as C is
allocated its Priority Allocation as defined in Section 3.8. In
the event that the General Manager does not meet the performance
standards set forth in this paragraph, C may replace the General
Manager. If the General Manager is replaced by C without E's
consent, C shall not receive the Priority Allocation set forth in
Section 3.8.
(e) In the event that C, as Managing Partner, and the
Executive Committee do not approve the Annual Business Plan as
proposed by the General Manager, then the General Manager may
resign, in which event, C shall no longer receive the Priority
Allocation as set forth in Section 3.8. In the event that the
General Manager resigns, the Managing Partner shall appoint the new
General Manager. In the event that the General Manager does not
resign, the General Manager shall implement the Annual Business
Plan as revised and approved by the Managing Partner and the
Executive Committee and the Priority Allocation shall remain in
effect.
Section 6
INDEMNIFICATION OF PARTNERS
6.1 General. The Joint Venture shall indemnify, save
harmless, and pay all judgments and claims of third parties against
each Partner or any officer, shareholder, member, partner, or
director of such Partner and members of the Executive Committee
relating to any liability or damage, including attorneys' fees to
be paid as incurred, arising by reason of any act performed or
omitted to be performed by such Partner, officer, director or
member in connection with the business of the Joint Venture, except
for any conduct of a Partner that constitutes fraud, bad faith or
breach of fiduciary duty.
6.2 Joint Venture Expenses.
(a) The Joint Venture shall indemnify, hold harmless,
and pay all expenses, costs, or liabilities of any Partner who for
the benefit of the Joint Venture makes any deposit, acquires any
option, or makes any other similar payment or assumes any
obligation in connection with any property proposed to be acquired
by the Joint Venture in accordance with this Agreement and who
suffers any financial loss as the result of such action.
(b) Notwithstanding anything to the contrary in any of
Sections 6.1 and 6.2, in the event that any provision in any of
such Sections is determined to be invalid in whole or in part, such
Section shall be enforced to the maximum extent permitted by law.
Section 7
REPRESENTATIONS AND WARRANTIES
7.1 Representations and Warranties. Each Partner hereby
represents and warrants that:
(a) If such Partner is a corporation, limited liability
company, or a partnership, it is duly organized, validly existing,
and in good standing under the laws of the jurisdiction of its
incorporation or formation and has the corporate, company,
statutory, or partnership 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.
(b) Such Partner has the individual, corporate, company,
statutory, or partnership power and authority to execute and
deliver this Agreement and to perform its obligations hereunder
and, if such partner is a corporation, limited liability company,
or partnership, the execution, delivery, and performance of this
Agreement has been duly authorized by all necessary corporate,
company, statutory, or partnership action.
(c) This Agreement constitutes the legal, valid, and
binding obligation of such Partner, CC and EHALP and is enforceable
in accordance with its terms and does not violate the terms and
conditions of any law, regulation, order or award of any court or
governmental agency or otherwise violate or result in a breach or
default of the terms and conditions of any mortgage, agreement or
other written document by which a Partner may be bound.
Section 8
ACCOUNTING, BOOKS AND RECORDS
8.1 Accounting, Books and Records. The Joint Venture shall
maintain at its principal place of business separate books of
account for the Joint Venture 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 Joint Venture 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 Joint Venture
shall use the accrual method of accounting in preparation of its
annual reports and for tax purposes and shall keep its books
accordingly. The Joint Venture's books and records shall be
independently audited annually at the Joint Venture's expense.
Each Partner shall, at its sole expense, have the right, without
notice to any other Partner, to examine, copy, and audit the Joint
Venture's books and records during normal business hours.
8.2 Reports.
(a) In General. The Managing Partner, the General
Manager and the Controller shall be responsible for the preparation
of financial reports of the Joint Venture and the coordination of
financial matters of the Joint Venture with the Joint Venture's
accountants.
(b) Reports. Within sixty (60) days after the end of
each Fiscal Year and within forty-five (45) days after the end of
any fiscal quarter, and within twenty (20) days after the end of
any calendar month, the Managing Partner shall cause each Partner
to be furnished with a copy of the balance sheet of the Joint
Venture as of the last day of the applicable period, a statement of
income or loss for the Joint Venture for such period, and a
statement of the Joint Venture's cash flow for such period. The
Managing Partner shall determine the fiscal year of the Joint
Venture for financial reporting requirements and for Federal Income
Tax purposes. Annual statements shall also include a statement of
the Partners' Capital Accounts and changes therein for such Fiscal
Year. Annual statements shall be examined by the Joint Venture's
independent accountants.
8.3 Tax Returns; Information. The Managing Partner shall
cause the Joint Venture's accountants to prepare all income and
other tax returns of the Joint Venture and shall cause the same to
be filed in a timely manner. The Managing Partner shall furnish to
each Partner a copy of each such return, together with any
schedules or other information which each Partner may require in
connection with such Partner's own tax affairs.
8.4 Tax Matters Partner. The Managing Partner is specially
authorized to act as the "Tax Matters Partner" under the Code and
any state or local law.
Section 9
AMENDMENTS
9.1 Amendments. This Joint Venture Agreement may only be
amended by the consent and approval of both Partners. Any such
amendment shall be in writing and executed by both Partners.
Section 10
TRANSFERS OF INTERESTS
10.1 Restrictions on Transfers. Except as expressly permitted
by this Agreement, no Partner shall transfer all or any portion of
its interest in the Joint Venture or any rights therein without the
unanimous consent of the Partners. Any transfer or attempted
transfer by any Partner in violation of the preceding sentence
shall be null and void and of no force or effect whatever. The
Partners acknowledge and agree that they are relying on the
experience, expertise, reputation and financial condition of the
other Partner in entering into this Agreement and that the nature
of the relationship between the parties is personal. Each Partner
hereby acknowledges the reasonableness of the Restrictions on
Transfers imposed by this Agreement in view of the Joint Venture
purposes and the relationship of the Partners. Accordingly, the
Restrictions on Transfers contained herein shall be specifically
enforceable. Each Partner hereby further agrees to hold the Joint
Venture and each Partner (and each Partner's successors and
assigns) wholly and completely harmless from any cost, liability,
or damage (including, without limitation, liabilities for income
taxes and costs of enforcing this indemnity) incurred by any of
such indemnified Partners as a result of a transfer or an attempted
transfer in violation of this Agreement.
10.2 Permitted Transfers.
(a) General. A Partner shall be entitled to transfer or
convey all or any portion of its interest in this Joint Venture to
any of the following persons or entities ("Permitted Transferee"):
(i) An Affiliate of such Partner, subject to the
provisions of Paragraph 10.3;
(ii) Members of the Partner's family, which
includes the Partner's spouse, natural or adoptive lineal
descendants, and trusts for their benefit.
(iii) Any other partner.
(iv) A personal representative of such Partner,
which includes any person or entity who succeeds to the Partner's
estate as a result of the Partner's death, legal incompetence or
bankruptcy.
(v) Any person or entity approved by the unanimous
consent of the Partners.
(b) Admission of Permitted Transferee as a Partner. A
Permitted Transferee of an interest in the Joint Venture shall be
admitted as a Partner in the Joint Venture only upon the unanimous
consent of the Partners. The rights of a Permitted Transferee who
is not admitted as a Partner shall be limited to the right to
receive allocations and distributions from the Joint Venture with
respect to the interest transferred, as provided by this Agreement.
A Permitted Transferee that is not admitted as a Partner shall not
be a Partner with respect to such interest, and, without limiting
the foregoing, shall not have the right to inspect the Joint
Venture's books, act for or bind the Joint Venture, or otherwise
interfere in its operations.
(c) Effect of Permitted Transfer on Joint Venture. The
Partners intend that the Permitted Transfer of an interest in the
Joint Venture shall not cause the dissolution of the Joint Venture
under the Act; however, if determined by a court of competent
jurisdiction that a dissolution has occurred, the Partners shall
continue to hold the Joint Venture's assets and operate its
business in Joint Venture form under this Agreement as if no such
dissolution had occurred.
(d) Notice and Costs of Transfer. In the event of any
Permitted Transfer, the Partner making the transfer shall notify
the other Partner of the transfer and shall furnish the Joint
Venture with the Transferee's tax identification number and
sufficient information to determine the Transferee's interest and
tax basis in the Joint Venture and any other information reasonably
necessary to permit the Joint Venture to file all required federal
and state tax returns. The Partner making a transfer permitted
hereunder of all or a portion of his Joint Venture interest shall
pay all costs and expenses incurred by the Joint Venture in
connection with such transfer.
10.3 Limitation on Ownership of Partners.
(a) Unless otherwise agreed by C, Donald L. Carano or a
member of his immediate family acceptable to C, which acceptance
will not be unreasonably withheld, or an Affiliate controlled by
Donald L. Carano or a member of his immediate family acceptable to
C, which acceptance will not be unreasonably withheld, shall be the
manager of and shall control E. Nothing herein shall prohibit,
restrict or otherwise limit EHALP's or an Affiliate's right and
ability to become a publicly traded entity so long as the above
restriction on control of E is met.
(b) Unless otherwise agreed by E, which shall not be
unreasonably withheld, C shall be controlled by CC.
(c) In the event that the provisions of this
Section 10.3 are breached, the Non-Defaulting Partner shall have
the right to exercise the Buy-Sell provisions of Section 12.1. 12.2
and 12.3.
Section 11
WITHDRAWALS; ACTION FOR PARTITION;
BREACHES
11.1 Waiver of Partition and Covenant Not to Withdraw. Each
Partner hereby covenants and agrees that the Partners have entered
into this Agreement based on their mutual expectation that both
Partners will continue as Partners and carry out the duties and
obligations undertaken by them hereunder and that, except as
otherwise expressly required or permitted hereby, each Partner
hereby covenants and agrees not to (a) take any action to require
partition or to compel any sale with respect to its Joint Venture
interest, (b) take any action to file a certificate of dissolution
or its equivalent with respect to itself, (c) take any action that
would cause a Bankruptcy of such Partner, (d) withdraw or attempt
to withdraw from the Joint Venture, (e) exercise any power under
the Act to dissolve the Joint Venture, (f) transfer all or any
portion of its interest in the Joint Venture (other than as
permitted hereunder), (g) petition for judicial dissolution of the
Joint Venture, or (h) demand a return of such Partner's
contributions or profits (or a bond or other security for the
return of such contributions or profits) without the unanimous
consent of the Partners.
11.2 Consequences of Violation of Covenants. If a Partner (a
"Breaching Partner") attempts to (i) cause a partition or (ii)
withdraw from the Joint Venture or dissolve the Joint Venture or
take any action in breach of Section 11.1 hereof, the Joint Venture
shall continue and such Breaching Partner shall be subject to this
Section 11.2. In such event, the following shall occur;
(a) The Breaching Partner shall immediately cease to
have the authority to act as a Partner and shall have no further
power to act for or bind the Joint Venture;
(b) The other Partner shall continue to have the right
to possess the Joint Venture's property and goodwill and to conduct
its business and affairs;
(c) The Breaching Partner shall be liable in damages,
without requirement of a prior accounting, to the Joint Venture for
all costs and liabilities that the Joint Venture or any Partner may
incur as a result of such breach;
(d) Distributions to the Breaching Partner shall be
reduced to seventy-five percent (75%) of the Distributions
otherwise payable to the Breaching Partner. The Joint Venture
may apply any distributions otherwise payable to the Breaching
Partner to satisfy any claims it may have against the Breaching
Partner.
(e) The Breaching Partner shall continue to be liable to
the Joint Venture for any unpaid Capital Contributions required
hereunder with respect to such interest and to be jointly and
severally liable with the other Partners for any debts and
liabilities (whether actual or contingent, known or unknown) of the
Joint Venture existing at the time the Breaching Partner withdraws
or dissolves.
(f) If E is a Breaching Partner, then the limitations on
foreclosure of any deed of trust for the benefit of C or CC for the
Construction Financing shall no longer be applicable.
Section 12
BUY-SELL AND BUY-OUT ON DEFAULT
12.1 Conditions Precedent to Buy-Sell. The Buy-Sell
provisions of this Agreement may not be instituted by any Partner
until each of the following events or conditions have taken place:
(a) The initial Construction Financing has been paid in
full;
(b) Except as otherwise provided herein, ten (10) years
from the date of commencement of operation of the Casino Project;
and
(c) Such Partner is not in default of any of the
provisions of this Agreement.
12.2 Exercise of Right to Buy or Sell. At any time after the
occurrence of the conditions precedent set forth in Paragraph 12.1,
either Partner may make an offer to purchase ("Offer") the interest
of the other Partner. The Offer shall be in writing and shall set
forth the proposed price ("Price") to be paid for the other
Partner's interest in the Partnership. The Offer shall constitute
an irrevocable offer by the Partner giving the Offer either to (i)
purchase all, but not less than all, of the interest in the Joint
Venture of the other Partner free of liens and encumbrances for the
Price, or (ii) sell all, but not less than all, of its interest in
the Joint Venture free of liens and encumbrances to the other
Partner for the Price. The Partner receiving the Offer shall have
a period of two (2) months to accept the Offer to purchase at the
Price or, in the alternative, to require that the Offering Partner
sell its interest to the other Partner at the Price. If, at the
time of the Offer, the Percentage Interests are not equal, then the
Purchase Price for the respective interests shall be prorated
proportionately without any premium for a controlling interest.
The Partner receiving the Offer shall give written notice (Notice
of Election) of its acceptance of the Offer to sell or purchase to
the Offering Partner within two (2) months of the receipt of the
Offer. Failure to give the Notice of Election shall constitute an
acceptance of the offer to sell to the Offering Partner on the
terms set forth in the Offer. The closing of the transaction for
the sale or purchase of the Joint Venture Interest shall occur not
later than six (6) months after the Notice of Election or at such
other time as may be required by the Nevada Gaming Authorities.
The Purchasing Partner shall be entitled to encumber the Joint
Venture Property in order to finance the purchase. The Purchasing
Partner may elect to pay the purchase price in cash or on terms
which require at least a twenty-five percent (25%) down payment
with the balance to be paid quarterly on a five (5) year
amortization, plus interest at the prime rate of Bank of America
from time to time. In the event that the Purchasing Partner elects
to finance the purchase, the obligation to the Selling Partner may
be secured by a Deed of Trust on the Partnership Property, which
Deed of Trust will only be subordinate to the Joint Venture debt in
the amount encumbering the Joint Venture Property that existed on
the date of the Offer to Purchase. If such Deed of Trust is not
allowed by the First Deed of Trust Holder, then the Selling Partner
may require a pledge of the Partnership interest of the Purchasing
Partner as security for the financing of the purchase or such other
security of the Purchasing Partner as may be reasonably required by
the Selling Partner.
12.3 Closing.
(a) At the closing, the Partners shall execute such
documents and instruments of conveyance as may be necessary or
appropriate to confirm the transaction contemplated hereby,
including, without limitation, the transfer of the Joint Venture
interest of the Selling Partner and the assumption by the
Purchasing Partner of the Selling Partner's obligations with
respect to the Joint Venture interest transferred. The reasonable
costs of such transfer and closing, including, without limitation,
attorneys' fees and filing fees, shall be divided equally between
the Purchasing and Selling Partner.
(b) The closing of the purchase and sale of the
Partner's interest shall be subject to the approval of the Nevada
Gaming Board and Commission. The Purchasing Partner shall file all
necessary applications for approval of the transaction with the
Nevada Gaming Board and Commission within sixty (60) days after
the Notice of Election. The Purchasing Partner shall pay all costs
and fees in connection with the approval of the Nevada Gaming Board
and Commission.
(c) At the close of the transaction contemplated under
the provisions of Section 12.2, the Selling Partner shall assign to
the Purchasing Partner all of the interest of the Selling Partner
in the Joint Venture, free and clear of all liens, claims,
encumbrances, and, at the request of the Purchasing Partner, shall
convey and transfer to the Purchasing Partner, subject only to all
matters of record at the time of the conveyance which have been
approved by the Purchasing Partner, an undivided percentage
interest in the assets of the Joint Venture equal to the Selling
Partner's interest therein, and shall execute and deliver to the
Purchasing Partner an amended Certificate of Fictitious Name (or
cancellation thereof), together with all other documents as may be
reasonably be required to give effect to the transfer of the
Selling Partner's interest in the Joint Venture. In connection
with such transfer, the Partners shall take all necessary action to
discharge or release any Affiliate from any guarantee of any debt
of the Joint Venture.
(d) The Purchasing Partner shall use the assets of the
Joint Venture to discharge to the extent possible all loans and
other indebtedness, liabilities or other obligations of the Joint
Venture (but shall not be required to prepay any obligations under
any permanent loans secured by the Property) for which the Selling
Partner has any personal or corporate liability or otherwise obtain
the release of the Selling Partner from any such liability. The
Purchasing Partner shall also cause the Joint Venture to repay to
the Selling Partner any loans that were made by the Selling Partner
to the Joint Venture or to the Purchasing Partner, together with
unpaid accrued interest thereon.
(e) The Purchasing Partner shall indemnify and hold
harmless the Selling Partner from all indebtedness, liabilities and
other obligations of the Venture, whether the same arose prior to
or after the purchase, except that such indemnification shall not
apply to liabilities, if any, of the Joint Venture which were
created by the Selling Partner while acting in fraud of either the
Joint Venture or the rights of the Purchasing Partner or in
violation of the terms of this Agreement.
12.4 Buy-Out on Default.
(a) Right to Purchase. In the event that a Partner is
in default on Additional Capital Contributions required by the
Managing Partner as provided in Paragraph 2.6 and the Non-
Defaulting Partner has elected the remedy described in
Paragraph 2.7(a)(i) and such loan is not repaid to the Non-
Defaulting Partner within two (2) years of the date of the loan
advance or if a Partner is in default at any time on two (2)
Additional Capital Contributions which remain unpaid or uncured as
provided herein, including payments from distributions on behalf of
the Defaulting Partner pursuant to Section 4, or if any deed of
trust for the benefit of C or CC for the Construction Financing is
in default, then the Non-Defaulting Partner or CC, as the case may
be, shall have the right to purchase the interest in the Joint
Venture of the Defaulting Partner for a purchase price that is
equal to the Net Equity of the Defaulting Partner's interest in the
Joint Venture less any amounts paid on behalf of the Defaulting
Partner pursuant to Section 2.7(a)(i).
(b) Notice of Election to Purchase. The Non-Defaulting
Partner may exercise its right to purchase under this Section 12.4
at any time that such default remains unpaid or uncured, either
through payments by the Partner or distributions in accordance with
Section 4. The Non-Defaulting Partner shall give written notice of
its election to purchase the Defaulting Partner's interest. The
Defaulting Party shall have a period of sixty (60) days after
receipt of such Notice of Election in order to cure the entire
default, plus accrued interest. In the event that the Defaulting
Partner does not cure within said 60-day period, then the Partners
shall proceed to determine the Net Equity of the Defaulting
Partner's interest in the Joint Venture in accordance with the
procedures set forth below, and the Defaulting Partner shall have
no further right to cure.
(c) Net Equity. The "Net Equity" of a Partner's
interest in the Joint Venture shall be the amount that would be
distributed to such Partner in liquidation of the Joint Venture
pursuant to Section 13 if (1) all the Joint Venture's assets were
sold for their Gross Appraised Values; (2) the Joint Venture paid
its unpaid liabilities and established reserves for the payment of
reasonably anticipated contingent and unknown liabilities; and (3)
the Joint Venture distributed the remaining proceeds to the
Partners in liquidation. The Net Equity of a Partner's interest in
the Joint Venture shall be determined from the books and records of
the Joint Venture by the firm of independent certified public
accountants regularly employed by the Joint Venture. The Net
Equity of a Partner's interest shall be determined within thirty
(30) days after receipt in writing of the Gross Appraised Value of
the Casino Project and Property. The amount of such Net Equity
shall be disclosed in writing to the Joint Venture and each of the
Partners. The Net Equity determination of such accountants shall
be final and binding in the absence of a showing of gross
negligence or willful misconduct.
(d) Gross Appraised Value. "Gross Appraised Value"
shall be equal to the fair market value of the Casino Project and
Property as determined by qualified appraisers in accordance with
the procedures set forth herein and shall represent the amount that
a single buyer would reasonably be expected to pay for the entire
Casino Project and Property (business and assets), free and clear
of all liens and encumbrances, in a single cash purchase, taking
into account the current condition, use, zoning and net income of
the Casino Project and Property.
(e) Procedure for Determining Gross Appraised Value.
The Partners shall attempt to agree to appoint a mutually
acceptable MAI appraiser to determine the Gross Appraised Value of
the Casino Project and Property. If the Partners agree on such
appraiser, that appraiser's determination of Gross Appraised Value
shall be final and binding on the Partners. In the event that the
Partners are unable to agree on a single MAI appraiser, then the
Non-Defaulting Partner shall appoint an MAI appraiser and give
written notice thereof to the Defaulting Partner. The Defaulting
Partner shall then have twenty (20) days to appoint a second MAI
appraiser. In the event that the Defaulting Partner fails or
refuses to appoint a second appraiser within twenty (20) days, then
the Defaulting Partner agrees to be bound by the determination of
Gross Appraised Value as established by the appraiser appointed by
the Non-Defaulting Partner. If the second appraiser is timely
designated, the first and second appraisers shall meet within ten
(10) days and shall select a third MAI appraiser. The Gross
Appraised Value shall be the amount determined and agreed to by at
least two (2) of the three (3) appraisers. If at least two of the
appraisers are not able to agree on an appraised value, then each
appraiser shall independently undertake to determine the Gross
Appraised Value of the Project. The Gross Appraised Value to be
used pursuant to the terms of this Agreement to determine the Net
Equity for the purposes of Paragraph 12.4 shall be the average of
the two (2) closest appraisals. The appraisers shall complete
their appraisals and give written notice of their determinations of
the Gross Appraised Value within sixty (60) days after appointment
of the third appraiser. The costs and fees of the appraiser(s)
shall be divided equally between the Partners.
(f) Closing. The closing of the purchase and sale of
the interest of the Defaulting Partner, pursuant to this
Section 12.4, shall occur not later than ninety (90) days after the
determination of the Net Equity of the Defaulting Partner. The
Purchase Price shall be equal to the Net Equity of the Defaulting
Partner and shall be paid in full in cash at the time of closing.
At closing, the Partners shall execute such documents and
instruments of conveyance as may be necessary or appropriate to
confirm the transactions contemplated hereby, including, without
limitation, the transfer of the Joint Venture interest of the
Defaulting Partner to the Non-Defaulting Partner and the assumption
by the Non-Defaulting Partner of the obligations with respect to
Defaulting Partner's interest in the Joint Venture. The reasonable
costs of transfer and closing, including, without limitation,
attorneys' fees and filing fees shall be divided equally between
the Defaulting and the Non-Defaulting Partners except as provided
with respect to appraisal costs. The Defaulting Partner shall
deliver to the Non-Defaulting Partner good title to its Partnership
interest, free and clear of any liens, claims, encumbrances,
security interests or options.
Section 13
DISSOLUTION AND WINDING UP
13.1 Liquidating Events. The Joint Venture shall dissolve and
commence winding up and liquidating upon the first to occur of any
of the following ("Liquidating Events"):
(a) Failure to proceed to Phase II of the Casino Project
by July 31, 1994;
(b) January 1, 2053;
(c) The sale of all or substantially all of the
Property;
(d) The unanimous vote of the Partners to dissolve, wind
up, and liquidate the Joint Venture;
(e) The happening of any other event that makes it
unlawful or impossible to carry on the business of the Joint
Venture;
(f) The occurrence of an event of bankruptcy of a
Partner.
The Partners hereby agree that, notwithstanding any provision
of the Act, the Joint Venture shall not dissolve prior to the
occurrence of a Liquidating Event. If it is determined, by a court
of competent jurisdiction, that the Joint Venture has dissolved
prior to the occurrence of a Liquidating Event, the Partners hereby
agree to continue the business of the Joint Venture without a
winding up or liquidation.
13.2 Winding Up. Upon the occurrence of a Liquidating Event,
the Joint Venture 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 Partners and no Partner
shall take any action that is inconsistent with, or not necessary
to or appropriate for, winding up the Joint Venture's business and
affairs. To the extent not inconsistent with the foregoing, all
covenants and obligations in this Agreement shall continue in full
force and effect until such time as the Property has been
distributed pursuant to this Section and the Joint Venture has
terminated. The Managing Partner shall be responsible for
overseeing the winding up and liquidation of the Joint Venture,
shall take full account of the Joint Venture's liabilities and
assets, shall cause the assets to be liquidated as promptly as is
consistent with obtaining the fair market value thereof, and shall
cause the proceeds therefrom, to the extent sufficient therefor, to
be applied and distributed in the following order:
(a) First, to the payment and discharge of all of the
Joint Venture's debts and liabilities to creditors other than
Partners;
(b) Second, to the payment and discharge of all of the
Joint Venture's debts and liabilities to Partners; and
(c) The balance, if any, to the Partners in the amount
of their respective Capital Accounts, after giving effect to all
contributions, distributions, and allocations for all periods.
The Managing Partner shall not receive any additional
compensation for any services performed pursuant to this Section
but shall be entitled to reimbursement for all costs and expenses
incurred in connection therewith. Each Partner understands and
agrees that by accepting the provisions of this Section setting
forth the priority of the distribution of the assets of the Joint
Venture to be made upon its liquidation, such Partner expressly
waives any right which it, as a creditor of the Joint Venture,
might otherwise have to receive distributions of assets pari passu
with the other creditors of the Joint Venture in connection with a
distribution of assets of the Joint Venture in satisfaction of any
liability of the Joint Venture, and hereby subordinates to said
creditors any such right.
Any gains or losses on the disposition of properties of the
Joint Venture in the process of liquidation shall be credited or
charged to the Partners in accordance with Section 3. Any property
distributed in kind in the liquidation shall be valued by agreement
of the Partners and treated as though the property were sold and
the cash proceeds distributed. The difference between the agreed
value of the property distributed in kind and its book value shall
be treated as a gain or loss on sale of the property and shall be
credited or charged to the Partners in accordance with Section 3.
13.3 Compliance With Certain Requirements of Regulations. In
the event the Joint Venture is "liquidated" within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g), (a) distributions shall
be made pursuant to this Section to the Partners who have positive
Capital Accounts in compliance with Regulations Section
1.704-1(b)(2)(ii)(b)(2).
13.4 Reserve for Contingent and Unforeseen Liabilities. In
the discretion of the Managing Partner, a pro rata portion of the
distributions that would otherwise be made to the Partners pursuant
to this Section 13 may be:
(a) distributed to a trust established for the benefit
of the Partners for the purposes of liquidating Joint Venture
assets, collecting amounts owed to the Joint Venture, and paying
any contingent or unforeseen liabilities or obligations of the
Joint Venture or of the Partners arising out of or in connection
with the Joint Venture. The assets of any such trust shall be
distributed to the Partners from time to time, in the reasonable
discretion of the Managing Partner, in the same proportions as the
amount distributed to such trust by the Joint Venture would
otherwise have been distributed to the Partners pursuant to this
Section; or
(b) withheld to provide a reasonable reserve for Joint
Venture liabilities (contingent or otherwise) and to reflect the
unrealized portion of any installment obligations owed to the Joint
Venture, provided that such withheld amounts shall be distributed
to the Partners as soon as practicable.
13.5 Rights of Partners. Except as otherwise provided in
this Agreement, (a) each Partner shall look solely to the assets of
the Joint Venture for the return of his Capital Contributions and
shall have no right or power to demand or receive property other
than cash from the Joint Venture and (b) no Partner shall have
priority over any other Partner as to the return of his Capital
Contributions, distributions, or allocations.
13.6 Notice of Dissolution. In the event a Liquidating Event
occurs, the Managing Partner shall, within thirty (30) days
thereafter, (a) provide written notice thereof to each of the
Partners and to all other parties with whom the Joint Venture
regularly conducts business (as determined in the discretion of the
Managing Partner), and (b) publish notice of such dissolution in a
newspaper of general circulation in each place in which the Joint
Venture regularly conducts business.
Section 14
BANKRUPTCY OR DISSOLUTION OF A PARTNER
14.1 Event of Bankruptcy. Considering the personal nature of
the relationship between the Partners of this Joint Venture, upon
occurrence of an Event of Bankruptcy with respect to a Partner, the
remaining Partner shall have the right and option to dissolve and
liquidate the Joint Venture in accordance with Section 13 of this
Agreement.
For the purposes of this Agreement, any of the following
shall constitute an "Event of Bankruptcy" with respect to the
Partner involved:
(i) The filing of an involuntary petition under the
United States Bankruptcy Act or any other United States or state
bankruptcy statute, as now in effect or as hereafter amended,
against a Partner, which involuntary petition is not dismissed
within 120 days after the filing thereof;
(ii) The commencement by a Partner of any
proceeding of any type under the United States Bankruptcy Act or
any other United States or state bankruptcy statute; or
(iii) If a Partner makes an assignment for the
benefit of creditors, or allows the appointment of a receiver,
trustee, conservator or liquidator of all or any Portion of the
partner or its assets.
14.2 Status of Bankruptcy Assignee. After the date of an
Event of Bankruptcy, the successor to the bankrupt Partner shall be
considered an Assignee of the bankrupt Partner's interest in the
Joint Venture but shall not be entitled to interfere in management
or administration of the Joint Venture business or affairs, to
receive or require information or an accounting with respect to the
Joint Venture transactions or to inspect the books of the Joint
Venture; provided, however, that the successor to the bankrupt
Partner's interest in the Joint Venture may inspect the books of
the Joint Venture at reasonable times with reasonable notice for
the sole purpose of assuring that the successor receives the
appropriate distribution of profits and losses.
Section 15
MISCELLANEOUS
15.1 Notices. Unless otherwise provided, all notices, demands
or other communications hereunder shall be in writing and shall be
deemed to have been given or submitted upon personal delivery or
upon deposit in the United States mail by certified or registered
mail, postage prepaid, with return receipt requested and addressed
as follows:
(a) If to C, at Galleon, Inc.
c/o Circus Circus Enterprises, Inc.
2880 Las Vegas Blvd. South
Las Vegas, Nevada 89109
Attention: General Counsel
(b) If to E, at Eldorado Limited Liability Company
c/o Eldorado Hotel Casino
345 N. Virginia Street
P.O. Box 3399
Reno, Nevada 89505
with a copy to:
McDonald, Carano, Wilson, McCune,
Bergin, Frankovich & Hicks
P.O. Box 2670
Reno, Nevada 89505
Notices shall be deemed received upon personal delivery or three
(3) days following deposit in the mail, if sent through the mail.
Each Partner may designate, from time to time, another address in
place of the address hereinabove set forth by notifying the other
Partners of the new address in writing.
15.2 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 Partners and
their respective heirs, legatees, legal representatives,
successors, transferees, and assigns.
15.3 Time. Time is of the essence with respect to this
Agreement.
15.4 Headings. Section and other headings 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.
15.5 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.
15.6 Further Action. Each Partner agrees to perform all
further acts and execute, acknowledge, and deliver any documents
which may be reasonably necessary, appropriate, or desirable to
carry out the provisions of this Agreement.
15.7 Attorneys' Fees. In case of any action or proceeding to
compel compliance with, or for a breach of, the provisions of this
Agreement, the prevailing party shall be entitled to recover all
costs of such action or proceeding, including, but not limited to,
reasonable attorneys' fees and court costs as determined by the
court.
15.8 Governing Law. The laws of the State of Nevada shall
govern the validity of this Agreement, the construction of its
terms, and the interpretation of the rights and duties of the
Partners.
15.9 Loans. Any Partner may, with the approval of the Part-
ners or as provided by this Agreement, lend or advance money to the
Joint Venture. If any Partner shall make any loan or loans to the
Joint Venture or advance money on its behalf, the amount of any
such loan or advance shall not be treated as a contribution to the
capital of the Joint Venture but shall be a debt due from the Joint
Venture. The amount of any such loan or advance by a lending
Partner shall be repaid in accordance with Section 4.1. Except as
otherwise provided herein, none of the Partners shall be obligated
to make any loan or advance to the Joint Venture.
15.10 Use of Walkways to Adjacent Property. Part of the
Casino Project will include the utilization of space within
walkways over Fourth and Fifth Streets to the adjacent respective
properties of CC and EHALP. The connection of these walkways to
the adjacent facilities will require modification of the existing
facilities of CC and EHALP. Portions of the area within the
walkway structure will be for the exclusive use of the adjacent
properties of EHALP and CC, and other portions will be for the
exclusive use of the Casino Project. The air space and the
structural facility connecting the Casino Project to the adjacent
property of CC shall belong to CC. The air space and the
structural facility connecting the Casino Project to the adjacent
property of EHALP shall belong to EHALP. CC and EHALP agree that
that portion of the walkway structure connecting to their
respective adjacent facilities intended to be utilized by the
Casino Project as shown on the approved plans shall be leased to
the Joint Venture on commercially reasonable terms. E shall be
responsible for the construction of the walkway structure connect-
ing the Casino Project to the adjacent property of EHALP and C
shall be responsible for the construction of the walkway structure
connecting the Casino Project to the adjacent property of CC. The
Joint Venture shall be responsible for all improvements, equipment,
furniture and fixtures placed in such walkways which are utilized
as part of the operation of the Casino Project as shown on the
approved plans. All improvements, equipment, furniture and
fixtures placed on the walkway structures in areas which are for
the exclusive use of EHALP or CC shall be paid by the respective
entity utilizing such space.
15.11 Access to Adjacent Properties. Each of the Partners
recognizes and acknowledges that the Casino Project shall have
reasonably equivalent entrances and access to each Partner's
Affiliate's properties located generally north and south of the
Casino Project and under no circumstances, including, without
limitation, a buy-out or dissolution, shall the Joint Venture or
any successor in interest in any way hinder reasonable access to
such entrances between the Casino Project and such Affiliate's
property or otherwise interfere with or claim control or ownership
of the equipment or facilities servicing such Affiliate's adjacent
property.
IN WITNESS WHEREOF, the parties have entered into this
Agreement of Joint Venture as of the day first above set forth.
ELDORADO LIMITED LIABILITY
COMPANY GALLEON, INC.
a Nevada limited liability a Nevada corporation
company
By: ELDORADO HOTEL ASSOCIATES By: CLYDE T. TURNER
LIMITED PARTNERSHIP Its: President
Its Managing Member
By: RECREATIONAL ENTERPRISES,
INC., General Partner
By: DONALD L. CARANO
Its: President
and
By: HOTEL-CASINO MANAGEMENT, INC.
General Partner
By: RAYMOND J. PONCIA JR.
Its: President
The undersigned are executing this Agreement only with respect to
Sections 2.4, 2.5, 7.1, 10.3, 12.4 and 15.10:
ELDORADO HOTEL ASSOCIATES CIRCUS CIRCUS ENTERPRISES, INC.,
LIMITED PARTNERSHIP, A Nevada Corporation
A Nevada Limited Partnership
By: RECREATIONAL ENTERPRISES,
INC., A Nevada Corporation By: CLYDE T. TURNER
General Partner Its President
By: DONALD L. CARANO
Its President
HOTEL-CASINO MANAGEMENT, INC. APPROVED BY:
A Nevada Corporation CIRCUS CIRCUS ENTERPRISES, INC.
General Partner
WILLIAM G BENNETT
William G. Bennett
By: RAYMOND J. PONCIA JR. Chairman of the Board
Its President
a:jointven.za1
Exhibit "A"
PROJECT C LEGAL DESCRIPTIONS
PARCEL 1: All of Block A of the Original Town, now City, of Reno,
Nevada, according to the map thereof filed in the office of the
Recorder of Washoe County, State of Nevada, on June 27, 1871.
Assessor's Parcel Nos. 007-291-01, 007-291-18, 007-291-15 and 007-
291-19.
PARCEL 2: All of Block B of the Original Town, now City, of Reno,
Nevada, according to the map thereof filed in the office of the
Recorder of Washoe County, State of Nevada, on June 27, 1871.
Assessor's Parcel Nos. 007-293-01, 007-293-02, 007-293-03, 007-293-
04, 007-293-05, 007-293-06, 007-293-07 and 007-293-08.