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<SEC-DOCUMENT>0000950134-04-017771.txt : 20041117
<SEC-HEADER>0000950134-04-017771.hdr.sgml : 20041117
<ACCEPTANCE-DATETIME>20041117154958
ACCESSION NUMBER:		0000950134-04-017771
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		6
CONFORMED PERIOD OF REPORT:	20041003
FILED AS OF DATE:		20041117
DATE AS OF CHANGE:		20041117

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			LAKES ENTERTAINMENT INC
		CENTRAL INDEX KEY:			0001071255
		STANDARD INDUSTRIAL CLASSIFICATION:	SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990]
		IRS NUMBER:				411913991
		STATE OF INCORPORATION:			MN
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-24993
		FILM NUMBER:		041152235

	BUSINESS ADDRESS:	
		STREET 1:		130 CHESHIERE LANE
		CITY:			MINNETONKA
		STATE:			MN
		ZIP:			55305
		BUSINESS PHONE:		6124499092

	MAIL ADDRESS:	
		STREET 1:		130 CHESHIRE LANE
		CITY:			MINNETONKA
		STATE:			MN
		ZIP:			55305

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	LAKES GAMING INC
		DATE OF NAME CHANGE:	19980929
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>c89762e10vq.txt
<DESCRIPTION>FORM 10-Q
<TEXT>
<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                          ----------------------------

                                    FORM 10-Q
                                   (Mark One)

     [X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934

For the quarterly period ended October 3, 2004

                                       OR

     [ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

                           Commission File No. 0-24993

                            LAKES ENTERTAINMENT, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

            Minnesota                                       41-1913991
            ---------                                       ----------
  (State or other jurisdiction                          (I.R.S. Employer
of incorporation or organization)                      Identification No.)

         130 Cheshire Lane
       Minnetonka, Minnesota                                  55305
       ---------------------                                  -----
(Address of principal executive offices)                    (Zip Code)

                                 (952) 449-9092
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                Yes [X]                          No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

                Yes [ ]                          No [X]

As of November 10, 2004, there were 22,250,634 shares of Common Stock, $0.01 par
value per share, outstanding. All share and per share data for periods prior to
May 3, 2004 has been retroactively restated to give effect to a two-for-one
stock split (the "Stock Split") in the form of a 100% stock dividend paid on May
3, 2004 to shareholders of record on April 26, 2004.

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
                                      INDEX

<TABLE>
<CAPTION>
                                                                                  PAGE OF
                                                                                 FORM 10-Q
                                                                                 ---------
<S>                                                                              <C>
PART I.   FINANCIAL INFORMATION

          ITEM 1. FINANCIAL STATEMENTS

                  Condensed Consolidated Balance Sheets as of                         3
                  October 3, 2004 and December 28, 2003

                  Condensed Consolidated Statements of Loss for the                   4
                  three months ended October 3, 2004 and September 28, 2003

                  Condensed Consolidated Statements of Loss for the nine              5
                  months ended October 3, 2004 and September 28, 2003

                  Condensed Consolidated Statements of Cash Flows for
                  the 8 nine months ended October 3, 2004 and September
                  28, 2003                                                            6

                  Notes to Condensed Consolidated Financial Statements                7

          ITEM 2. MANAGEMENT'S DISCUSSION AND                                        24
                  ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS

          ITEM 3. QUANTITATIVE AND QUALITATIVE                                       37
                  DISCLOSURES ABOUT MARKET RISK

          ITEM 4. CONTROLS AND PROCEDURES                                            37

PART II.  OTHER INFORMATION

          ITEM 1. LEGAL PROCEEDINGS                                                  38

          ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                   41
</TABLE>

                                        2

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                      (unaudited)
                                                                                           OCTOBER 3, 2004  DECEMBER 28, 2003
                                                                                           ---------------  -----------------
<S>                                                                                        <C>              <C>
ASSETS
Current Assets:
    Cash and cash equivalents                                                                $ 41,355           $ 25,340
     (balance includes $27.6 million and $0 of WPT Enterprises, Inc. cash)
    Short-term investments
                                                                                                7,188                  -
     (balance includes $6 million and $0 of WPT Enterprises, Inc. short-term investments)
    Accounts receivable, net                                                                      582              1,038
    Deferred tax asset                                                                          1,504              5,385
    Prepaids                                                                                    1,832              2,119
    Other current assets                                                                        1,165              1,645
                                                                                             --------           --------
Total Current Assets                                                                           53,626             35,527
                                                                                             --------           --------
Property and Equipment-Net                                                                      6,641              6,492
                                                                                             --------           --------
Other Assets:
    Land held under contract for sale
                                                                                                4,939              4,612
    Land held for development                                                                  14,195             14,536
    Notes receivable                                                                           90,939             84,682
    Investments                                                                                 7,937              8,717
    Deferred tax asset                                                                         12,024              6,634
    Other long-term assets                                                                      9,393              8,860
                                                                                             --------           --------
Total Other Assets                                                                            139,427            128,041
                                                                                             --------           --------
TOTAL ASSETS                                                                                 $199,694           $170,060
                                                                                             ========           ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:

    Accounts payable                                                                         $  1,428           $  1,906
    Income taxes payable                                                                        6,426              7,215
    Accrued payroll and related costs                                                             573                497
    Deferred revenue                                                                            4,067                505
    Other accrued expenses                                                                      2,504              2,513
                                                                                             --------           --------
Total Current Liabilities                                                                      14,998             12,636
                                                                                             --------           --------
TOTAL LIABILITIES                                                                              14,998             12,636
                                                                                             --------           --------

COMMITMENTS AND CONTINGENCIES

Minority interest                                                                              11,156                  -

Common shares issued by subsidiary subject to repurchase                                          608                  -

Shareholders' Equity:
    Capital stock, $.01 par value; authorized 200,000 shares; 22,247 and 21,474
    common shares issued and outstanding at October 3, 2004, and December 28,
    2003, respectively

                                                                                                  235                215
    Additional paid-in-capital
                                                                                              157,415            132,291
    Retained earnings                                                                          15,282             24,918
                                                                                             --------           --------
Total Shareholders' Equity                                                                    172,932            157,424
                                                                                             --------           --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                   $199,694           $170,060
                                                                                             ========           ========
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.

                                        3

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
                    CONDENSED CONSOLIDATED STATEMENTS OF LOSS
                    (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)

<TABLE>
<CAPTION>
                                                              (unaudited)
                                                           THREE MONTHS ENDED
                                                           ------------------
                                                   OCTOBER 3, 2004  SEPTEMBER 28, 2003
                                                   ---------------  ------------------
<S>                                                  <C>                <C>
REVENUES:
     License fee income                              $  2,974           $    377
                                                     --------           --------
         Total Revenues                                 2,974                377
                                                     --------           --------

COSTS AND EXPENSES:
     Selling, general and administrative                3,710              2,224
     Production costs                                   1,942                280
     Depreciation and amortization                        163                135
                                                     --------           --------
         Total Costs and Expenses                       5,815              2,639
                                                     --------           --------
LOSS FROM OPERATIONS                                   (2,841)            (2,262)
                                                     --------           --------

OTHER INCOME (EXPENSE):
     Interest income                                      104                 98
     Equity in loss of unconsolidated affiliates          (30)               (50)
     Other
                                                            1                  -
                                                     --------           --------
         Total other income, net                           75                 48
                                                     --------           --------
Loss before income taxes                               (2,766)            (2,214)
Benefit for income taxes                               (1,101)              (912)
                                                     --------           --------
Loss before minority interest                          (1,665)            (1,302)
Minority interest                                         (53)                 -
                                                     --------           --------
NET LOSS                                             ($ 1,718)          ($ 1,302)
                                                     ========           ========
BASIC LOSS PER SHARE                                 ($  0.08)          ($  0.06)
                                                     ========           ========
DILUTED LOSS PER SHARE                               ($  0.08)          ($  0.06)
                                                     ========           ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING             22,232             21,278
DILUTIVE EFFECT OF STOCK COMPENSATION PROGRAMS              -                  -
                                                     --------           --------
WEIGHTED AVERAGE COMMON AND DILUTED
  SHARES OUTSTANDING                                   22,232             21,278
                                                     ========           ========
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.

                                       4

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
                    CONDENSED CONSOLIDATED STATEMENTS OF LOSS
                    (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)

<TABLE>
<CAPTION>
                                                              (unaudited)
                                                           NINE MONTHS ENDED
                                                           -----------------
                                                  OCTOBER 3, 2004  SEPTEMBER 28, 2003
                                                  ---------------  ------------------
<S>                                               <C>              <C>
REVENUES:
     License fee income                              $ 11,832         $  3,881
                                                     --------         --------
         Total Revenues                                11,832            3,881
                                                     --------         --------
COSTS AND EXPENSES:
     Selling, general and administrative               10,125            8,063
     Production costs                                   7,059            2,370
     Impairment losses                                  6,407                -
     Reversal of litigation and claims accrual              -           (3,212)
     Depreciation and amortization                        456              394
                                                     --------         --------
         Total Costs and Expenses                      24,047            7,615
                                                     --------         --------
LOSS FROM OPERATIONS                                  (12,215)          (3,734)
                                                     --------         --------
OTHER INCOME (EXPENSE):

     Interest income                                      195              649
     Equity in earnings (loss) of unconsolidated          366             (197)
     affiliates

     Other                                                 43
                                                                           158
                                                     --------         --------
         Total other income, net                          604              610
                                                     --------         --------
Loss before income taxes                              (11,611)          (3,124)
Benefit for income taxes                               (2,028)          (1,284)
                                                     --------         --------
Loss before minority interest                          (9,583)          (1,840)
Minority interest                                         (53)               -
                                                     --------         --------
NET LOSS                                             ($ 9,636)        ($ 1,840)
                                                     ========         ========
BASIC LOSS PER SHARE                                 ($  0.44)        ($  0.09)
                                                     ========         ========
DILUTED LOSS PER SHARE                               ($  0.44)        ($  0.09)
                                                     ========         ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING             22,063           21,278
DILUTIVE EFFECT OF STOCK COMPENSATION PROGRAMS              -                -
                                                     --------         --------
WEIGHTED AVERAGE COMMON AND DILUTED
  SHARES OUTSTANDING                                   22,063           21,278
                                                     ========         ========
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.
                                        5

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                   (UNAUDITED)
                                                                                NINE MONTHS ENDED
                                                                                -----------------
                                                                        OCTOBER 3, 2004  SEPTEMBER 28, 2003
                                                                        ---------------  ------------------
<S>                                                                     <C>              <C>
OPERATING ACTIVITIES:
     Net loss                                                              ($ 9,636)        ($ 1,840)
     Adjustments to reconcile net loss to net cash
      provided by (used in) operating activities:
      Depreciation and amortization                                             456              394
      Unit-based compensation expense                                           545               45
      Equity in (earnings) loss of unconsolidated affiliates                   (366)             197
      Deferred income taxes                                                  (1,509)               -
      Minority interest                                                          53                -
      Impairments                                                             6,407                -
      Changes in operating assets and liabilities:
           Accounts receivable                                                  456             (494)
           Income taxes                                                        (789)            (782)
           Accounts payable                                                    (478)             (48)
           Deferred revenue                                                   3,562              (55)
           Accrued expenses                                                      67           (2,763)
           Other                                                                767             (459)
                                                                           --------         --------
Net Cash Used in Operating Activities                                          (465)          (5,805)
                                                                           --------         --------
INVESTING ACTIVITIES:
     Purchases of short-term investments                                     (8,188)               -
     Sales and maturities of short-term investments                           1,000                -
     Payments for land held under contract for sale                            (327)            (629)
     Payments received on land held under contract for sale                       -           16,766
     Payments received (made) for land held for development                    (158)          13,416
     Advances on notes receivable                                           (12,200)         (12,382)
     Proceeds from repayment of notes receivable                                  -            1,000
     Investment in and notes receivable from unconsolidated affiliates        1,181             (704)
     Decrease in restricted cash                                                  -            5,907
     Increase in other long-term assets                                        (533)            (370)
     Payments for property and equipment, net                                  (605)             (30)
                                                                           --------         --------
Net Cash Provided by (Used in) Investing Activities                         (19,830)          22,974
                                                                           --------         --------
FINANCING ACTIVITIES:
     Proceeds from issuance of common stock                                   3,905               17
     Net proceeds from issuance of common stock by subsidiary                32,405                -
                                                                           --------         --------
Net Cash Provided by Financing Activities                                    36,310               17
                                                                           --------         --------

Net increase in cash and cash equivalents                                    16,015           17,186
Cash and cash equivalents - beginning of period                              25,340           14,106
                                                                           --------         --------
CASH AND CASH EQUIVALENTS - END OF PERIOD                                  $ 41,355         $ 31,292
                                                                           ========         ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
     Cash paid during the period for:
      Interest                                                             $      -         $     74
      Income taxes                                                              165                9
     Noncash operating activities:
      Capitalized television costs related to unit options issued to
         consultants
                                                                                202                -
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.

                                        6

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.    BUSINESS

Lakes Entertainment, Inc., a Minnesota corporation ("Lakes" or the "Company")
was established as a public corporation on December 31, 1998, via a distribution
(the "Distribution") of its common stock, par value $.01 per share (the "Common
Stock") to the shareholders of Grand Casinos, Inc. ("Grand").

Lakes' primary business is to develop and manage Indian-owned casino properties
that offer the opportunity for long-term development of related entertainment
facilities, including hotels, golf courses, theaters, recreational vehicle parks
and other complementary amenities. Lakes provides experienced corporate and
casino management and develops and implements a wide scale of marketing
programs. In conjunction with this part of Lakes' business strategy, Lakes has
entered into development and management agreements relating to one casino
project in Michigan and two casino projects in California, with development of
each subject to regulatory approvals. Lakes has also explored, and will continue
to explore, numerous other possible development projects.

Formed in March 2002 as a joint venture, World Poker Tour, LLC, a majority owned
subsidiary of Lakes, created a circuit of previously-established poker
tournaments affiliated under the "World Poker Tour" name, and produced the World
Poker Tour television series. During August of 2004, WPT Enterprises, Inc.
(WPTE) became a separate public company as a result of the completion of an
initial public offering. Lakes remains a majority shareholder of WPTE, owning
approximately 64% of the outstanding common stock. As a result, Lakes'
consolidated results continue to include WPTE operations. WPTE has an agreement
for a third season with the Travel Channel, LLC ("TRV"), for broadcast of the
World Poker Tour series on cable television. TRV also has options for four
additional seasons. WPTE receives a series of fixed license payments from TRV.

Lakes has recently created a new division to buy, license and/or market new
table game concepts for licensing to casinos. The Company is currently testing
and marketing a number of new games. See also Note 9.

                                       7

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

REVENUE RECOGNITION

License fee income includes the following sources of WPTE revenue.

DOMESTIC TELEVISION: Revenue from the distribution of the World Poker Tour
domestic television series to TRV is recognized as earned under the following
criteria established by the American Institute of Certified Public Accountants
Statement of Position ("SOP") No. 00-2, Accounting by Producers or Distributors
of Films:

- -     Persuasive evidence of an arrangement exists

- -     The show/episode is complete, and in accordance with the terms of the
      arrangement, has been delivered or is available for immediate and
      unconditional delivery

- -     The license period has begun and the customer can begin its exploitation,
      exhibition or sale

- -     The seller's price to the buyer is fixed and determinable

- -     Collectibility is reasonably assured

Revenue is recognized upon receipt and acceptance of completed episodes by TRV
in accordance with the terms of the contract.

INTERNATIONAL TELEVISION: Revenue for international distribution of the
television series is recognized as earned under the criteria of SOP 00-2, which
is noted above. WPTE presents international distribution license fee revenues
net of the distributor's fees, as the distributor is the primary obligator in
the transaction with the ultimate customer.

PRODUCT LICENSING: Product licensing revenues are recognized when the underlying
royalties from the sales of the related products are earned. WPTE recognizes
minimum revenue guarantees ratably over the term of the license or as earned
royalties based on actual sales of the related products, if greater.

HOST FEES: Host fee revenues paid by host casinos are recognized as episodes are
aired.

SPONSORSHIP: Sponsorship revenues are recognized as episodes are aired.

DEFERRED REVENUE

Licensing advances and guaranteed payments collected, but not yet earned by
WPTE, as well as host fee and sponsorship receipts, collected prior to the
airing of episodes, are classified as deferred revenue in the accompanying
balance sheets. Deferred revenue is derived from three primary sources: Domestic
Television, Product Licensing and Host Fees. Deferred revenue represents
advanced payments received from TRV and product licensees, and deposits paid by
casinos in order to secure a poker tournament date with the World Poker Tour as
a host site. Deferred revenue was $4.1 million and $0.5 million at October 3,
2004 and December 28, 2003, respectively. Deferred revenue at October 3, 2004
included $3.2 million from domestic television, $0.6 million from product
licensing and $0.3 million from host fees. The $0.5 million balance at December
28, 2003 related to host fees.

MINORITY INTEREST

As of October 3, 2004, the $11.2 million minority interest balance on the
accompanying balance sheet represents a 36% outside ownership interest in WPTE.

COMMON SHARES SUBJECT TO REPURCHASE

WPTE violated certain securities laws in connection with its initial public
offering by sending out written e-mail communications to individuals that did
not contain all of the information required to be in a prospectus and were not
preceded or accompanied by a prospectus meeting the requirements for a
prospectus. These violations could require WPTE to repurchase shares sold in the
offering to direct recipients of the e-mail communications for a period of up to
one year at the offering price plus interest. WPTE sold 75,200 shares in the
offering that are subject to such repurchase rights, and these shares are
classified as common shares subject to repurchase.

It is possible that indirect recipients of the written e-mail communications
would assert that they have shares subject to repurchase rights with respect to
shares purchased in the offering. WPTE believes that the repurchase rights do
not extend to indirect recipients and would contest any such assertion
vigorously; therefore, no such shares have been recorded in the common shares
subject to repurchase.

LAND HELD UNDER CONTRACT FOR SALE

On December 28, 2001, the Company entered into agreements to sell the Polo Plaza
shopping center property and the rights and obligations in the adjacent
Travelodge property in Las Vegas, to Metroflag Polo, LLC and Metroflag BP, LLC,
respectively ("Metroflag"). These sales were recorded under the deposit method
of accounting. The terms of the agreements were amended in 2002 and 2003,
including the selling prices and required payment dates. The amended sale prices
were $23.8 million and $7.5 million, respectively.

In 2003, the Company received a $16.8 million cash payment on the purchase price
for the Polo Plaza property, at which time the Polo Plaza transaction was
recorded as a sale. As of October 3, 2004, the Company is owed $8 million
(excluding interest) related to the Polo Plaza property through the contractual
requirement that Metroflag Polo, LLC redeem membership interests owned by the
Company. The Company owns a subordinated membership interest that must be
redeemed for $4 million of the purchase price if the secured debt related to the
Travelodge property, which is due on December 28, 2004, is paid, or if the
property is sold or the primary secured debt is refinanced. The Company also
holds a preferred membership interest that the Company can require to be
repurchased anytime after December 24, 2006 for the remaining $4 million
purchase price portion. A total of $7 million in the Metroflag membership
interests owned by the Company is included in "Investments" on the Company's
consolidated balance sheet as of October 3, 2004. The $1 million difference is
due to an impairment charge recorded in the fourth quarter of 2002 related to an
unexercised early payment option on the subordinated membership interest.

                                       8

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

As of October 3, 2004, the Company is contractually owed approximately $5.4
million plus interest related to the Travelodge property, and that amount
becomes due on December 28, 2004. Of this amount, $4.9 million is included in
"Land held under contract for sale" on the Company's consolidated balance
sheets, with an offsetting deposit of $500,000 included in "Other accrued
expenses". The difference between the $5.4 million owed to the Company and the
$4.4 million net amount recorded on the Company's books is due to a $1 million
impairment recorded in the fourth quarter of 2003. This charge was due to an
early payment discount that the Company was considering extending to Metroflag;
however, the discount was never granted.

Company management recently entered negotiations with Metroflag that may result
in further revisions to certain of the payment terms for one or both of the
properties. The Company believes the amounts recorded on its balance sheet are
collectible, as the obligations are supported by agreements documenting the
amounts owed to the Company and the related payment terms and the Company
believes that Metroflag will be able to pay the amounts owed. In addition, the
indebtedness due to Lakes for the Travelodge property is secured by a first
priority deed of trust against the leasehold interest. Therefore, if Metroflag
were to default on its payment obligations related to the Travelodge property,
ownership rights and obligations related to this property, consisting of a
long-term land lease and motel operation, would revert back to Lakes. The
Company believes the security for the Travelodge note receivable is adequate,
based on management's assessment of land, values for similarly situated
properties in Las Vegas, Nevada.

LAND HELD FOR DEVELOPMENT

Included in land held for development is land held for possible transfer to
Indian tribes for use in future casino resort projects in the amount of $14.1
million and $14.5 million as of October 3, 2004 and December 28, 2003,
respectively. In the event that this land is not transferred to the tribes, it
can be sold by the Company. The Company periodically evaluates whether events
and circumstances have occurred that may affect the recoverability of the net
book value of these assets. If such events or circumstances indicate that the
carrying amount of an asset may not be recoverable, the Company estimates the
future cash flows expected to result from the use of the asset. If the sum of
the expected future undiscounted cash flows does not exceed the carrying value
of the asset. the Company will recognize an impairment loss.

During the second quarter of 2004, an impairment related to the land held for
development in the amount of $0.5 million was recorded related to the Nipmuc
Nation casino development project. This amount was included in the total
impairment charge of $6.4 million related to the Nipmuc Nation project which
also included a $5.9 million impairment charge on related notes receivable. This
impairment occurred after the Nipmuc Nation was denied federal recognition as an
Indian Tribe and sovereign government within the meaning of federal law by the
Bureau of Indian Affairs (BIA).

RECENT ACCOUNTING PRONOUNCEMENTS

In March 2004, the FASB issued an exposure draft of a proposed standard entitled
"Share Based Payment", which would amend FAS No. 123, "Accounting for
Stock-Based Compensation", and FAS No. 95, "Statement of Cash Flows". The
proposed standard, if adopted, would require expensing stock options issued by
the Company based on their estimated fair value at the date of grant and would
be effective for the third quarter of 2005. Upon issuance of a final standard,
the Company will evaluate the impact on our consolidated financial position and
results of operations.

                                       9

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

2.    WPT ENTERPRISES, INC. INITIAL PUBLIC OFFERING

On August 9, 2004, the Securities and Exchange Commission declared effective a
registration statement of WPTE that registered the offer and sale of up to
4,000,000 shares of WPTE common stock, at $8.00 per share, in WPTE's initial
public offering and an additional 600,000 shares of WPT common stock that were
sold by the underwriters involved in the offering exercise related to their
over-allotment option. WPTE's common stock was approved for trading on The
Nasdaq Stock Market and began trading on August 10, 2004. Proceeds from the sale
of the 4,600,000 shares were $32.4 million, net of estimated offering expenses
and underwriting discounts. These proceeds have been and will continue to be
used to expand WPTE's entertainment production business and for its working
capital. There were no selling shareholders participating in the offering. Net
proceeds in excess of minority interest have been reflected as additional
paid-in-capital in the Company's financial statements. Lakes did not recognize a
gain on this transaction.

As of October 3, 2004, Lakes' consolidated balance sheet included unrestricted
cash and cash equivalents and short-term investment balances of $48.5 million.
Included in this amount was WPTE cash and cash equivalents and short-term
investments of $33.6 million, which as discussed above, will be used in WPTE's
business and not used in Lakes' business.

3.    BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements include
the accounts of Lakes and its wholly-owned and majority-owned subsidiaries. The
portion of the income applicable to non-controlling interests in the
majority-owned operations is reflected as minority interest in the accompanying
consolidated statement of loss. Investments in unconsolidated affiliates
representing 50% or less of voting interests are accounted for on the equity
method. All significant intercompany balances and transactions have been
eliminated in consolidation.

Lakes' investments in unconsolidated affiliates include a 50 percent ownership
interest in PCG Santa Rosa, LLC, a joint venture formed to develop a casino on
Indian-owned land in California and a 50% ownership interest in 2022 Ranch, LLC,
a joint venture formed to develop and/or sell approximately 2000 acres owned by
the joint venture in Eastern San Diego County. This land was sold during the
first quarter of 2004. The sale of the land reduced Lakes' investment in 2022
Ranch to less than $0.1 million.

The condensed consolidated financial statements have been prepared by the
Company in accordance with accounting principles generally accepted in the
United States of America for interim financial information, in accordance with
the rules and regulations of the Securities and Exchange Commission. Pursuant to
such rules and regulations, certain financial information and footnote
disclosures normally included in the condensed consolidated financial statements
have been condensed or omitted.

In the opinion of management, all adjustments considered necessary for fair
presentation have been included. Operating results for the nine months ended
October 3, 2004 are not necessarily indicative of the results that may be
expected for the year ending January 2, 2005. The condensed consolidated
financial statements should be read in conjunction with the condensed
consolidated financial statements and notes thereto included in the Company's
annual report on Form 10-K for the year ended December 28, 2003.

                                       10

<PAGE>

4.    STOCK-BASED COMPENSATION

At October 3, 2004, the Company has two stock-based employee compensation plans.
The Company accounts for those plans under the recognition and measurement
principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations. No stock-based employee compensation cost is reflected
in net income, as all options granted under those plans had an exercise price
equal to the market value of the underlying common stock on the date of grant.

In connection with the initial public offering of WPTE and the conversion of
World Poker Tour, LLC (see Note 1) into a Delaware corporation named "WPT
Enterprises, Inc.", each of World Poker Tour, LLC's limited liability company
units was converted into shares of common stock. WPTE adopted a 2004 Stock
Incentive Plan that is authorized to grant stock-based awards to purchase up to
3,120,000 shares of WPTE common stock, including options to purchase up to
1,120,000 shares of WPTE common stock issued to WPTE employees and consultants
that were outstanding under World Poker Tour, LLC's 2002 Plan at the time of the
conversion. In addition, during August and September of 2004, WPTE granted stock
options to purchase an additional 1,412,000 shares, including 1,340,000 shares
to employees and 72,000 shares to non-employee directors.

                                       11

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

The Company accounts for the WPTE 2004 stock incentive plan and the World Poker
Tour, LLC 2002 unit-based employee compensation plan under the recognition and
measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. Compensation expense for unit option
grants issued to employees was recorded to the extent the fair market value of
the units on the date of grant exceeds the option price. Compensation expense
for restricted 2002 unit grants was measured based on the fair market value of
the units on the date of grant. The compensation expense was amortized ratably
over the vesting period of the awards.

The Company accounts for WPTE unit-based consultant compensation according to
the recognition and measurement principles of EITF 96-18, Accounting for Equity
Instruments That are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services. Compensation expense for unit
option grants issued to consultants is recorded at the fair market value of the
options at the measurement date, defined as the date the options vest and
services have been provided.

The WPTE options resulting from conversion of the WPTE unit options become
exercisable in quarterly installments on each of the first four anniversaries of
the date of the grant and each installment expires six years after being
exercisable. The employee must be employed by WPTE on the anniversary date in
order to vest in any units that year. If the employee is terminated (voluntarily
or involuntarily) prior to the vesting of any portion of a unit option, the
unvested portion will be forfeited.

For WPTE unit options issued to certain employees in March 2002, deferred stock
compensation for the unit options is measured at the units' fair value in excess
of the exercise price on the date of grant and is being amortized over the
vesting period of four years. For WPTE unit options issued to consultants in
March 2002, compensation expense is measured at the option's fair value. Fair
value is measured when the unit options vest in annual installments on each of
the first four anniversaries of the date of the grant. Compensation expense is
estimated in periods prior to vesting based on the then current fair value.
Changes in the estimated fair value of unvested options are recorded in the
periods the change occurs.

No stock-based employee compensation cost is reflected in net income for WPTE
stock options granted to employees and non-employee directors in August and
September 2004, as all options granted had an exercise price equal to the market
value of the underlying common stock on the dates of grant.

The following table illustrated the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based Compensation, to stock-based
employee compensation under the Lakes' and WPTE option plans and unit-based
employee and consultant compensation under the WPTE Plans (in thousands except
per share data).

                                       12

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED            NINE MONTHS ENDED
                                                           ------------------            -----------------
                                                     OCT. 3, 2004  SEPT. 28, 2003   OCT. 3, 2004   SEPT. 28, 2003
                                                     ------------  --------------   ------------   --------------
<S>                                                  <C>           <C>              <C>            <C>
Net earnings (loss):
    As reported                                      $   (1,718)     $   (1,302)     $   (9,636)     $   (1,840)
    Add:  Unit-based compensation expense                   276               8             545              35
        included in reported net earnings (loss)
    Less:  Total stock-based compensation                  (640)           (421)         (1,627)         (1,235)
        expense determined under the fair
        value method, net of related tax effects
    Pro forma                                            (2,082)         (1,715)        (10,718)         (3,040)
Net earnings (loss) per share:
    As reported -- Basic                             $    (0.08)     $    (0.06)     $    (0.44)     $    (0.09)
    Pro forma -- Basic                                    (0.09)          (0.08)          (0.49)          (0.14)
    As reported -- Diluted                                (0.08)          (0.06)          (0.44)          (0.09)
    Pro forma -- Diluted                                  (0.09)          (0.08)          (0.49)          (0.14)
</TABLE>

5.    MANAGEMENT CONTRACTS FOR INDIAN-OWNED CASINOS

The ownership, development, management and operation of gaming facilities are
subject to extensive federal, state, provincial, tribal and/or local laws,
regulation, and ordinances, which are administered by the relevant regulatory
agency or agencies in each jurisdiction. These laws, regulations and ordinances
vary from jurisdiction to jurisdiction, but generally concern the
responsibility, financial stability and character of the owners and managers of
gaming operations as well as persons financially interested or involved in
gaming operations. The Company is prohibited by the Indian Gaming Regulatory Act
from having an ownership interest in any casino it manages for Indian tribes.

The management contracts govern the relationship between the Company and the
tribes with respect to the management of the casinos. The development portion of
the agreements commences with the signing of the respective contracts and
continues throughout the construction phase until the casino is open for
business; thereafter, the management portion of the respective management
contracts continues for a period up to seven years. Under the terms of the
contracts, the Company, as manager of the casino, receives a percentage of the
distributable profits (as defined in the contract) of the operations as a
management fee after payment of certain priority distributions, a cash
contingency reserve, and guaranteed minimum payments to the tribes.

Lakes has a contract to be the exclusive developer and manager of an
Indian-owned gaming resort near New Buffalo, Michigan with the Pokagon Band of
Potawatomi Indians. The Company has formed partnerships that hold contracts to
develop and manage two casinos to be owned by Indian tribes in California, one
near San Diego with the Jamul Indian Village, and the other near Sacramento with
the Shingle Springs Band of Miwok Indians.

                                       13

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

6.    NOTES RECEIVABLE

The notes receivable from Indian Tribes result from costs incurred by the
Company for the development of gaming properties under which the Company has
signed management contracts. The Company has formal procedures governing its
evaluation of opportunities for potential development projects which it follows
before entering into agreements to provide financial support for the development
of these properties. The repayment terms related to these notes receivable are
specific to each tribe and are largely dependent upon the operating performance
of each gaming property. Repayments of the aforementioned notes receivable are
required to be made only if distributable profits are available from the
operation of the related casinos. Repayments are also subject to certain
distribution priorities specified in the management contracts. In addition,
repayment of the notes receivable and the manager's fees under the management
contracts are subordinated to certain other financial obligations of the
respective tribes.

Notes receivable consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                      Oct. 3, 2004  December 28, 2003
                                                                                      ------------  -----------------
<S>                                                                                   <C>           <C>
Properties under development:

Notes from the Pokagon Band of Potawatomi Indians with variable interest rates
(not to exceed 10%) (5.75% at October 3, 2004), receivable in 60 monthly
installments subsequent to commencement date                                            $  44,115       $  41,729

Notes from the Shingle Springs Band of Miwok Indians with variable interest
rates (6.75% at October 3, 2004), receivable in varying monthly installments
based on contract terms subsequent to commencement date                                    31,687          24,428

Notes from Jamul Indian Village with variable interest rates (6.75% at October
3, 2004), receivable in 60 monthly installments subsequent to commencement date            13,958          12,336

Notes from the Nipmuc Nation with variable interest rates                                       -           4,634

Other                                                                                       1,179           1,555
                                                                                        ---------       ---------
Total notes receivable                                                                  $  90,939       $  84,682
                                                                                        =========       =========
</TABLE>

Interest income on notes receivable from Indian Tribes related to properties
under development is deferred because realizability of the interest is
contingent upon the completion and positive cash flow from operation of the
casino. Interest deferred during the development period is recognized over the
remaining life of the note using the effective interest method. As of October 3,
2004 and December 28, 2003, $19.2 million and $15.2 million of interest on notes
related to properties under development has been deferred.

                                       14

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

The terms of these notes require the casinos to be constructed and to generate
positive cash flows prior to the Company receiving repayment. As such, an
estimate of the fair value of these notes requires an assessment of the timing
of the construction of the related casinos and the profitability of the related
casinos. Due to the significant uncertainty involved in such an assessment, the
Company does not believe that it is practicable to accurately estimate the fair
value of these notes with the degree of precision necessary to make such
information meaningful.

On a monthly basis, Company management evaluates the collectibility of the
Company's receivables, including notes receivable related to the Indian-owned
casino development projects. In the Company's experience, if a project is
successfully completed, the cash flows are more than sufficient to fund the debt
service. Therefore, in evaluating the receivables related to casino projects,
the principal ongoing assessment involves the likelihood of project completion.
If a significant event occurs that causes management to believe that the project
will likely not be successfully completed, then the Company will recognize an
impairment on the related receivables. A portion of the notes due from the
Pokagon Tribe in the approximate amount of $23.6 million resulted from funds
advanced by the Company for the Tribe's purchase of the development project
land. The Company has a first deed of trust against this property which will be
relinquished when the land is placed into trust by the BIA.

As part of the monthly assessment, the current status of each project is
discussed, as well as any recent developments such as contract approvals,
litigation, land in trust issues, or any other developments that may affect the
project's status. Management looks at the same factors it initially considered
with respect to the investment. The Company's policy is to assess assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable and to record an impairment
when the carrying value of the asset exceeds its fair value.

During the second quarter of 2004, the Company recorded an impairment related to
the Nipmuc Nation notes receivable in the amount of $5.9 million. This amount
was included in the total impairment charge of $6.4 million related to the
Nipmuc Nation project. The notes receivable related to amounts advanced by the
Company to the Nipmuc Nation since the Company entered a letter of intent with
the Nipmuc Nation in August 2000.

The impairment was recorded upon issuance by the BIA in June 2004 of its final
determination denying the Nipmuc Nation's application for federal recognition.
Although the determination can be appealed with the Bureau of Indian Affairs,
the Company determined in June 2004 that in the Company's opinion successful
completion of the project is unlikely given that a successful appeal would
involve a challenge to a final determination of the BIA.

                                       15

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

With the exception of the BIA's denial of federal recognition for the Nipmuc
Nation in June 2004, no events have occurred during 2004 that would cause
management to believe that its other projects will not be successfully
completed.

Various litigation and regulatory issues have caused delays to the Company's
current development projects. Management believes that the three pending
projects will ultimately be completed.

                                       16

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

7.    INCOME TAXES

The Company is currently under examination in various states for income and
franchise tax matters. The Internal Revenue Service has completed a field exam
of the Company's tax returns for the years ended December 30, 2001 and December
31, 2000. The Company has recorded a reserve assessment related to these
examinations and other tax matters. The reserve is reflected as part of income
taxes payable on the accompanying consolidated balance sheets.

No income tax benefit was recorded related to impairment losses of $6.4 million
in the second quarter of 2004, due to the uncertainty of realizability.

8.    COMMITMENTS AND CONTINGENCIES:

TRIBAL COMMITMENTS

Our management contracts with our tribal partners require that we provide
financial support related to project development, in the form of loans.

<TABLE>
<CAPTION>
                                            Casino Development Advances/Commitments
                                         ----------------------------------------------
                                                        (in millions)
                                                                            Remaining
                                         Pre-construction  Land Held for    Maximum
                                             Advances       Development    Commitment
                                         as of 10/3/04     as of 10/3/04  as of 10/3/04
                                         -------------     -------------  -------------
<S>                                      <C>               <C>            <C>
Jamul Indian Village                        $14.0             $ 6.6          $ 9.4
Shingle Springs Band of Miwok Indians        31.7               7.4            0.9
Pokagon Band of Potawatomi Indians           44.1                 -           24.4
</TABLE>

For the Pokagon project, the Company has agreed to provide additional financing
from its own funds if financing to the Tribe at an interest rate not to exceed
13% is not available from third parties. If this occurs and Lakes is required to
provide all financing, this would be an additional commitment of up to
approximately $54 million. Currently, it appears that third-party financing will
be available for this project. However, there can be no assurance that
third-party financing will be available and that Lakes will not be required to
provide this additional financing.

Lakes may be required to provide a guarantee of tribal debt financing or
otherwise provide support for the tribal obligations related to any of the
projects. Any guarantees by Lakes or similar off-balance sheet liabilities will
increase Lakes' potential exposure in the event of a default by any of these
tribes.

WPTE EMPLOYEE OBLIGATION

WPTE employee obligation includes the base salaries payable to three WPTE
executives under their respective employment agreements. Total payments of $1.8
million are due within the next three years under these agreements.

                                       17

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

LEASES

The Company leases an airplane, under a non-cancelable operating lease.
Approximate future minimum lease payments, due under this lease as of October 3,
2004, expiring April 30, 2005, are as follows (in thousands):

                                          Operating Leases
                                          ----------------
           2004                                $150
           2005                                 200
                                               $350

INDEMNIFICATION AGREEMENT

As a part of the transaction establishing Lakes as a separate public company on
December 31, 1998, the Company agreed to indemnify Grand through December 28,
2004 against all costs, expenses and liabilities incurred in connection with or
arising out of certain pending and threatened claims and legal proceedings
against Grand and to pay all related settlements and judgments. The Company's
indemnification obligations include the obligation to provide the defense of all
claims made in proceedings against Grand and to pay all related settlements and
judgments. The Company believes that no further payments are required to be made
pursuant to its indemnification obligations. The current carrying amount of the
liability for the Company's indemnification obligations is zero.

As a part of the indemnification agreement, Lakes agreed that it will not
declare or pay any dividends, make any distribution on account of Lakes' equity
interests, or otherwise purchase, redeem, defease or retire for value any equity
interests in Lakes without the written consent of Caesars Entertainment, Inc,
the parent Company of Grand.

LEGAL PROCEEDINGS

SLOT MACHINE LITIGATION

In 1994, William H. Poulos filed a class-action lawsuit in the United States
District Court for the Middle District of Florida against various parties,
including Grand and numerous other parties alleged to be casino operators or
slot machine manufacturers. This lawsuit was followed by several additional
lawsuits of the same nature against the same, as well as additional defendants,
all of which were subsequently consolidated into a single class-action pending
in the United States District Court for the District of Nevada.

                                       18

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

Following a court order dismissing all pending pleadings and allowing the
plaintiffs to re-file a single complaint, a complaint has been filed containing
substantially identical claims, alleging that the defendants fraudulently
marketed and operated casino video poker machines and electronic slot machines,
and asserting common law fraud and deceit, unjust enrichment and negligent
misrepresentation and claims under the federal Racketeering-Influenced and
Corrupt Organizations Act. Various motions were filed by the defendants seeking
to have this new complaint dismissed or otherwise limited. In December 1997, the
Court, in general, ruled on all motions in favor of the plaintiffs. The
plaintiffs then filed a motion seeking class certification and the defendants
opposed it. In June 2002, the District Court entered an order denying class
certification. On August 10, 2004, the Ninth Circuit Court of Appeals affirmed
the District Court's denial of class certification.

Management currently believes the final outcome of this matter is not likely to
have a material adverse effect upon the Company's consolidated financial
position or results of operations, and currently an estimate of any possible
loss cannot be made.

WILLARD EUGENE SMITH LITIGATION

On October 24, 2003, Lakes announced that it had been named as one of a number
of defendants in a counterclaim filed in state court in Harris County, Texas by
Willard Eugene Smith involving Kean Argovitz Resorts, LLC (KAR), related persons
and entities. In the counterclaim, Smith asserts that, under an alleged oral
agreement with Kevin Kean, he is entitled to a percentage of fees to be received
by the KAR entities or their principals relating to the Shingle Springs and
Jamul casinos that Lakes' subsidiaries are developing in California. Smith also
seeks recovery of damages through the remedy of either attachment of the
management fees generated from the projects or avoidance of buyout agreements
between Lakes and KAR based on their conduct with respect to the alleged
agreement.

Lakes believes the counterclaim against it is without merit. Lakes understands
that the alleged oral agreement upon which Smith bases his claim was rendered
null and void in a prior judgment issued against Smith by the Harris County,
Texas state court in October 2000. However, in September 2003, the court vacated
the prior judgment against Smith. Lakes acquired KAR's interests in the Shingle
Springs and Jamul projects on January 30, 2003. In the buyout agreements between
Lakes and certain KAR entities and related principals, the KAR entities
represented to Lakes that the KAR entities and their affiliates had no
continuing agreements with any third party relating to the Shingle Springs and
Jamul projects and agreed to indemnify Lakes and its affiliates from damages
resulting from prior dealings of the KAR entities and related principals
concerning the projects. Lakes will vigorously defend against the allegations
made against it and will pursue its indemnification rights against the KAR
entities and their principals under the buyout agreements if necessary.
Discovery is continuing and the trial is scheduled for March 2005.

Management currently believes the final outcome of this matter is not likely to
have a material adverse effect upon the Company's consolidated financial
position or results of operations, and currently an estimate of any possible
loss cannot be made.

                                       19

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

EL DORADO COUNTY, CALIFORNIA LITIGATION

On January 3, 2003, El Dorado County filed an action in the Superior Court of
the State of California, seeking to prevent the construction of a highway
interchange that was approved by a California state agency. The action does not
seek relief directly against Lakes. However, the interchange is necessary to
permit the construction of a casino to be developed and managed by Lakes through
a joint venture.

The casino will be owned by the Shingle Springs Band of Miwok Indians. The
matter was tried to the court on August 22, 2003. On January 2, 2004, Judge
Lloyd G. Connelly, Judge of the Superior Court for the State of California,
issued his ruling on the matter. The Court denied the petition in all respects
except one. As to the one exception, the Court sought clarification as to
whether the transportation conformity determination used to determine the
significance of the air quality impact of the interchange operations considered
the impact on attainment of the state ambient air quality standard for ozone.
The California Department of Transportation (Caltrans) prepared and filed the
clarification addendum sought by the Court.

Prior to the Court's determination of the adequacy of the clarification, El
Dorado County and Voices for Rural Living appealed Judge Connelly's ruling to
the California Court of Appeals on all of the remaining issues. The Company
believes that appellants have not presented sufficient grounds to justify
overturning the trial court's earlier conclusion and that the Company will
prevail on the consolidated appeals of the County and Voices for Rural Living.

A ruling with respect to the addendum was issued June 21, 2004 by the Superior
Court of California, County of Sacramento. The ruling indicates that the
addendum provided to the court by Caltrans did not provide a quantitative
showing to satisfy the court's earlier request for a clarification on meeting
the state ambient ozone standard. The court recognized that the information
provided by Caltrans does qualitatively show that the project may comply with
the state standard, but concluded that a quantitative analysis is necessary even
though the court recognized that the methodology for that analysis "is not
readily apparent". In addition, the ruling specifically states, "Moreover such
methodology appears necessary for the CEQA analysis of transportation projects
throughout the state, including transportation projects for which respondents
(i.e. Caltrans) have approval authority." Caltrans, the Shingle Springs Tribe
and Lakes responded to the court with a revised submission in August 2004.
Representatives of the California Air Resources Board and the Sacramento Area
Council of Governments filed declarations supporting the revised submission to
the court. Opposition to that revised submission was filed, a hearing on the
revised submission took place on August 20, 2004 and the Court again found the
revised submission of Caltrans, the Shingle Springs Tribe and Lakes to be
inadequate. That ruling has been separately appealed to the California Court of
Appeals.

Management currently believes the final outcome of this matter is not likely to
have a material adverse effect upon the Company's consolidated financial
position or results of operations, as it believes, but there can be no assurance
that, the courts' rulings will ultimately allow the project to commence.

GRAND CASINOS, INC. LITIGATION

In connection with the establishment of Lakes as a public corporation on
December 31, 1998, via a distribution of its common stock to the shareholders of
Grand, the Company and Grand entered into an agreement governing the sharing or
allocation of tax benefits accruing to Grand and certain affiliated companies.

                                       20

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

On August 13, 2004, an arbitrator awarded to the Company partial summary
judgment on certain of the Company's claims against Grand under the tax sharing
agreement. The dollar amount that will be awarded to the Company on these claims
has not been determined, certain other claims by the Company under the agreement
have not been decided, and no hearing date has been set to determine such dollar
amount or decide such claims.

OTHER LITIGATION

Lakes is involved in various other inquiries, administrative proceedings, and
litigation relating to contracts and other matters arising in the normal course
of business. While any proceeding or litigation has an element of uncertainty,
management currently believes that the final outcome of these matters, including
the matters discussed above, is not likely to have a material adverse effect
upon the Company's consolidated financial position or results of operations.

9.    RELATED PARTY TRANSACTIONS

Lakes has entered into a license agreement with Sklansky Games, LLC ("Sklansky)
pursuant to which Lakes is developing a World Poker Tour No Limit Texas Hold `Em
casino table game that uses certain of Sklansky's intellectual property rights.
Lakes had also entered into a license agreement with WPT pursuant to which Lakes
has obtained a license to utilize the World Poker Tour name and logo in
connection with the development of this casino table game. Under the terms of
this agreement, if Lakes elects to proceed with its development of the casino
table game, Lakes will be required to pay WPTE a specified minimum annual
royalty payment of 10% and Sklansky a specified minimum annual royalty payment
of 30% of the gross revenue Lakes receives from its sale or lease of the game,
whichever is greater. In addition to our indirect majority ownership in WPT
Enterprises, Inc. through one of our wholly owned subsidiaries, Lyle Berman and
his son, Brad Berman, own 28% and 44% equity interests in Sklansky,
respectively. Lyle Berman also serves as Chairman and Chief Executive Officer of
WPTE, and Brad Berman is a member of WPTE's Board of Directors.

Effective as of February 24, 2004, WPTE entered into a non-exclusive license
agreement with G-III Apparel Group, Ltd. ("G-III"). Morris Goldfarb, a Lakes
director, is a director, Co-Chairman of the Board and Chief Executive Officer of
G-III. Under the agreement, G-III licenses the World Poker Tour name, logo and
trademark from WPTE in connection with G-III's production of certain types of
apparel for distribution in authorized channels within the United States, its
territories and possessions and in certain circumstances, Canada. As
consideration for this non-exclusive license, G-III pays royalties and certain
other fees to WPTE.

                                       21

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

10.   SEGMENT INFORMATION

Lakes' principal business is the development and management of gaming related
properties. Additionally, the Company is the majority owner of WPT Enterprises,
Inc. (See Note 1). Substantially, all of our operations are conducted in the
United States. Episodes of the World Poker Tour series are distributed
internationally by a third party distributor. Lakes' reportable segments are as
follows (in millions):

<TABLE>
<CAPTION>
                                      Industry Segments
                                Real Estate      WPT             Corporate &     Total
                                Development  Enterprises, Inc.  Eliminations  Consolidated
                                -----------  -----------------  ------------  ------------
<S>                             <C>          <C>                <C>           <C>
Total Assets as of
October 3, 2004                 $ 135.9       $  37.0           $  26.8         $  199.7

Total Assets as of
December 28, 2003                 126.1           2.5              41.5            170.1

For the Three Months Ended/
as of October 3, 2004
Revenue                         $     -       $   3.0           $     -         $    3.0
Net earnings (loss)                   -          (0.5)             (1.2)            (1.7)
Depreciation expense                  -             -               0.2              0.2

For the Three Months Ended/
as of September 28, 2003
Revenue                         $     -       $   0.4           $     -         $    0.4
Net earnings (loss)                   -          (0.4)             (0.9)            (1.3)
Depreciation expense                  -             -               0.1              0.1
</TABLE>

11.   STOCK SPLIT

During April of 2004, the Company's Board of Directors declared a two-for-one
stock split, payable in the form of a 100% stock dividend on Lakes' outstanding
common stock. The stock dividend was paid on May 3, 2004 to shareholders of
record as of April 26, 2004. All share and per share data reflected in this
quarterly report has been retroactively restated to give effect to the stock
split.

                                       22

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

12.   SUBSEQUENT EVENTS

On November 10, 2004, the Company announced that it had signed a Letter of
Intent with the Kickapoo Traditional Tribe of Texas to negotiate an agreement
with the Tribe to consult on the further development and operations of the
Tribe's casino located in Eagle Pass, Texas. Subject to regulatory approval, the
consulting agreement will be replaced by a management contract.

The Tribe recently opened the expanded Luck Eagle Casino in Eagle Pass, Texas,
located approximately 140 miles southwest of San Antonio. The casino currently
consists of approximately 1,000 Class II type gaming devices, ten Kickapoo 21
tables and seventeen poker tables along with two restaurant outlets and a
multi-functional outlet that seats over 2,000 customers.

The Letter of Intent provides that the Tribe and Lakes will negotiate and enter
into a consulting agreement and a management contract. The consulting agreement
will be for a period of seven years or until approval by the National Indian
Gaming Commission of a proposed seven year management contract, which will then
replace the consulting agreement. If Lakes and the Tribe enter into the
agreements, Lakes does not expect to receive any significant fees under these
arrangements for at least twelve months.

                                       23

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

BUSINESS

BUSINESS OVERVIEW

Lakes' primary business is to develop and manage Indian-owned casino properties
that offer the opportunity for long-term development of related entertainment
facilities, including hotels, theaters, recreational vehicle parks and other
complementary amenities designed to enhance the customers' total entertainment
experience and to differentiate facilities managed by lakes from its
competitors. Lakes has entered into contracts with the following Indian Tribes
for the development, management and/or financing of new gaming resorts, all of
which are subject to various regulatory approvals and resolution of any existing
litigation before construction can begin:

      -     Shingle Springs Band of Miwok Indians near Sacramento, California

      -     Pokagon Band of Potawatomi Indians near New Buffalo, Michigan

      -     Jamul Indian Village near San Diego, California

In November 2004, Lakes announced that it had entered into a letter of intent
with an Indian tribe to negotiate a consulting agreement and, subject to
regulatory approval, a management contract, for a casino project in Texas. Lakes
has also explored, and will continue to explore, numerous other possible
development projects.

In addition, Lakes has recently created a new division to buy, license and/or
market new table game concepts for licensing to casinos. The Company is
currently testing and marketing a number of new games.

Lakes also owns a majority interest in WPT Enterprises, Inc., ("WPTE"), a media
and entertainment company engaged in the creation of branded entertainment
through the development, production and marketing of televised programming based
on poker and other gaming themes. WPTE's operations have principally revolved
around the creation of the World Poker Tour brand through the production and
licensing of a television series exhibited on the Travel Channel, LLC ("TRV")
that is based on a circuit of previously-established high-stakes poker
tournaments affiliated under the "World Poker Tour" name.

During August of 2004, WPTE completed an initial public offering that yielded
proceeds to WPTE of approximately $32.4 million, net of offering expenses and
underwriting discounts. WPTE common stock is traded on the Nasdaq National
Market. Lakes remains a majority shareholder of WPTE, owning approximately 64%
of the outstanding common stock. Therefore, Lakes' consolidated results continue
to include WPTE operations. Minority interest, representing the portion of
WPTE's income or loss applicable to non-controlling interests in WPTE, is
reflected in the consolidated statements of loss from the date of completion of
the initial public offering.

FINANCIAL OVERVIEW

In 2003 and 2004, all of Lakes' consolidated revenues have been derived from the
WPTE business, mainly from license fees for United States telecast of World
Poker Tour episodes. License fees have depended on the number of episodes
delivered to TRV in a particular period. Revenues from other parts of the WPTE
business are relatively small but increasing. Lakes' casino operations have not

                                       24
<PAGE>

generated revenues since early 2002, when Lakes' last casino management
agreement that carried over from the Distribution was terminated. The timing of
future revenues from Lakes' casino business will depend on the successful
opening of Lakes' proposed Pokagon, Shingle Springs and Jamul casino projects,
which in turn will depend on the resolution of litigation, necessary regulatory
approvals and other factors that have delayed the construction of those casinos.

For the nine months ended October 3, 2004, Lakes reported a consolidated
operating loss of $12.2 million. Lakes principal costs and expenses in 2003 and
2004 have consisted of the following categories:

- -     WPTE-related costs and expenses. WPTE production costs are generally
      deferred and matched with revenues from completed episodes. WPTE's gross
      margins were 40% for the first nine months of 2004 and 39% in the 2003
      period. WPTE-related selling, general and administrative expenses
      increased significantly in 2004 due to business development and costs of
      WPTE becoming an independent public company.

- -     Selling, general and administrative expenses from Lakes' business
      activities. These expenses have generally been flat, with some
      fluctuations due to litigation expenses.

- -     Lakes impairment charges. Lakes has taken some significant impairment
      charges in recent years related to its investments in its Indian casino
      projects and several real estate holdings that carried over from its
      establishment as a public company via a distribution of its common stock
      to the shareholders of Grand Casinos, Inc. on December 31, 1998
      ("Distribution").

Lakes' impairment charge in the second quarter of 2004, relating to its
investment in the Nipmuc casino project, contributed $6.4 million to the
Company's net loss. The impairment was recorded upon issuance by the BIA in June
2004 of its final determination denying the Nipmuc Nation's application for
federal recognition. The Company believes that this impairment does not
represent a trend as the Company's remaining projects are with tribes that have
received recognition by the Bureau of Indian Affairs. The Company maintains on
its balance sheet an aggregate of $89.8 million in notes receivable and $14.1
million in land held for development relating to the Pokagon, Shingle Springs
and Jamul casino projects. Management believes that although various litigation
and regulatory issues associated with these development projects have caused
delays, the ultimate successful completion of the three pending projects is
still likely. However, the Company diligently monitors ongoing developments of
each prospective casino project to evaluate whether successful completion of the
project remains likely. If a significant event occurs that causes management to
believe that the project will likely not be successfully completed, then the
Company will recognize an impairment on the related receivables.

Lakes also took impairment charges of $3 million in the fourth quarter of 2002
and $1 million in the fourth quarter of 2003 related to the carrying value of
the Polo Plaza and Travelodge properties in Las Vegas. These properties were
owned by Grand at the time of the Distribution and are not part of the Company's
core business. The Company has contracted to sell these properties to Metroflag
and has received an aggregate $16.8 million in payments. The impairment charges
were related to the re-negotiation of the payment amounts and terms. The
properties are currently carried on the Company's balance sheet in the aggregate
amount of $11.9 million, included in investments and land held for sale. Company
management recently entered negotiations with Metroflag that may result in
further revisions to certain of the payment terms for one or both of the
properties. However, the Company believes the amounts recorded on its balance
sheet are collectible and the Company believes that it has adequate security in
the event of non-payment.

As of October 3, 2004, Lakes has an aggregate $48.5 million in cash and cash
equivalents and short-term investments on its balance sheet. Of this amount, an
aggregate $33.6 million consists of WPTE's cash and cash equivalents and
short-term investments, which will be used by WPTE for its business and will not
be available to Lakes. Lakes owns approximately 12.5 million shares, or
approximately 64% of WPTE's outstanding common stock. This stock is currently
restricted under a lock-up agreement with the underwriters of WPTE's public
offering and applicable securities laws. There is no assurance that Lakes will
be able to realize value from its holdings of WPTE shares equal to the market
value of the shares.

                                       25

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

Additionally, Lakes continually evaluates other opportunities to diversify the
Company's activities and bring in new revenue streams.

SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies, which Lakes believes are the most critical
to aid in fully understanding and evaluating its reported financial results,
include the following: revenue recognition and realizability of notes
receivable.

REVENUE RECOGNITION: Revenue from the management of Indian-owned casino gaming
facilities is recognized when earned according to the terms of the management
contracts. Currently all of the Indian-owned casino projects that Lakes is
involved with are in development stages and are not yet open. Therefore, until a
project is open and operating, Lakes will not recognize revenue related to
Indian casino management. Interest income on notes receivable from Indian tribes
related to casino development projects is deferred because realizability of the
interest is contingent upon the completion and generation of cash flow from the
operation of the casino. Interest deferred during the development period is
recognized over the remaining life of the note using the effective interest
method.

WPTE domestic and international television license fee revenues are recognized
as earned by the American Institute of Certified Public Accountants Statement of
Position (SOP) No. 00-2, Accounting by Producers or Distributors of Films.
Revenue is recognized upon receipt and acceptance of episodes by the ultimate
customer once the license period has begun. Currently, for international
television license fees WPTE does not consider collectibility to be reasonably
assured until the distributor has received payment. WPTE presents international
distribution license fee revenues net of the distributor's fees, as the
distributor is the primary obligator in the transaction with the ultimate
customer.

Product licensing revenues are recognized when the underlying royalties from
the sales of the related products are earned. WPTE recognizes minimum revenue
guarantees ratably over the term of the license or as earned royalties based on
actual sales of the related products, if greater.

Host fee revenues paid by host casinos are recognized as episodes are aired.

Sponsorship revenues are recognized as episodes are aired.


                                       26

<PAGE>
 Television costs related to WPTE's production of the World Poker Tour
television series are included in "Other current assets" on the Company's
balance sheet. Television costs include capitalizable direct costs, production
overhead and development costs and are stated at the lower of cost or net
realizable value based on anticipated revenue. WPTE has not currently
anticipated any revenues in excess of those subject to existing contractual
relationships. Marketing, distribution, and general and administrative costs are
expensed as incurred. Capitalized television production costs for each episode
of the World Poker Tour television series are expensed as revenues are
recognized upon delivery and acceptance by the Travel Channel of the completed
episode. WPTE currently estimates that approximately 95% and 100% of capitalized
television costs as of October 3, 2004 are expected to be expensed by the end of
fiscal 2004 and 2005, respectively.

                                       27

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

IMPAIRMENT OF LONG-TERM ASSETS: Currently, the Company's notes receivable from
Indian Tribes are generally for the pre-construction development of gaming
properties to be managed by the Company. The Company has formal procedures
governing its evaluation of opportunities for potential development projects
which it follows before entering into agreements to provide financial support to
those projects. The repayment terms are specific to each tribe and are largely
dependent upon the operating performance of each gaming property. However,
repayments of the notes receivable are required to be made only if distributable
profits are available from the operation of the related casinos. Repayments are
also subject to certain distribution priorities specified in the management
contracts. In addition, repayment of the notes receivable and the manager's fees
under the management contracts are subordinated to certain other financial
obligations of the respective tribes.

On a monthly basis, Company management evaluates the collectibility of the
Company's receivables, including notes receivable related to the Indian-owned
casino development projects. In the Company's experience, if a project is
successfully completed, the cash flows are more than sufficient to fund the debt
service. Therefore, in evaluating the receivables related to casino projects,
the principal ongoing assessment involves the likelihood of project completion.
If a significant event occurs that causes management to believe that the project
will likely not be successfully completed, then the Company will recognize an
impairment on the related receivables.

As part of the monthly assessment, the current status of each project is
discussed, as well as any recent developments such as contract approvals,
litigation, land in trust issues, among other developments that may affect the
project's status. Management looks at the same factors it initially considered
with respect to the investment. The Company's policy is to assess assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable and to record an impairment
if the carrying value of the asset exceeds its fair value.

                                       28

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

The Company currently holds land held for development and land held under
contract for sale and periodically evaluates whether events and circumstances
have occurred that may affect the recoverability of the net book value of these
assets. If such events or circumstances indicate that the carrying amount of an
asset may not be recoverable, the Company estimates the future cash flows
expected to result from the use of the asset. If the sum of the expected future
undiscounted cash flows does not exceed the carrying value of the asset, the
Company will recognize an impairment loss.

The following discussion and analysis should be read in conjunction with the
condensed consolidated financial statements and notes thereto and management's
discussion and analysis included in the Company's Annual Report on Form 10-K for
the year ended December 28, 2003.

RECENT ACCOUNTING PRONOUNCEMENTS

In March 2004, the FASB issued an exposure draft of a proposed standard entitled
"Share Based Payment", which would amend FAS No. 123, "Accounting for
Stock-Based Compensation", and FAS No. 95, "Statement of Cash Flows". The
proposed standard, if adopted, would require expensing stock options issued by
the Company based on their estimated fair value at the date of grant and would
be effective for the third quarter of 2005. Upon issuance of a final standard,
the Company will evaluate the impact on our consolidated financial position and
results of operations.

                                       29

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)

RESULTS OF OPERATIONS

NINE MONTHS ENDED OCTOBER 3, 2004 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
28, 2003

Revenues

Total revenues were $11.8 million for the nine months ended October 3, 2004
compared to $3.9 million for the same period in the prior year. Revenues for the
current and prior year periods were derived primarily from television license
fees related to the World Poker Tour series. WPTE receives fixed license
payments from TRV subject to satisfaction of production milestones and other
conditions. The increase in revenue is primarily due to increased license fees
relating to a greater number of season two episodes delivered to TRV during
2004, compared to the license fees resulting from the season one episodes
delivered to TRV during 2003. In April 2004, TRV exercised its option to
broadcast season three which is the first of a possible five additional seasons.
WPTE is currently in production of season three episodes and plans to begin to
deliver completed season three episodes starting in the fourth quarter of 2004
and expects to begin to recognize revenues at that time. Also contributing to
the increase was revenue of approximately $0.7 million related to WPTE-related
licensing, $0.5 million in sponsorship revenues, $0.9 million in host fees and
$0.2 million in merchandise included in total revenue for the nine months ended
October 3, 2004 compared to $0.3 million in host fees for the nine months ended
September 28, 2003. There were no significant WPTE-related licensing,
sponsorship or merchandise revenues in the 2003 period.

Costs and Expenses

Total costs and expenses were $24.0 million and $7.6 million for the nine months
ended October 3, 2004 and September 28, 2003, respectively. Included in 2004
costs and expenses is an impairment charge of approximately $6.4 million related
to the impairment of Lakes' investment in the Nipmuc Nation casino development
project. $5.9 million of the impairment was related to notes receivable in
connection with the project and the remaining $0.5 million related to land held
for development. This impairment charge was taken in the second quarter of 2004
following the Nipmuc Nation being denied recognition as an Indian Tribe and
sovereign government within the meaning of federal law by the Bureau of Indian
Affairs. The Company believes that this impairment does not represent a trend as
the Company's remaining projects are with tribes that have received recognition
by the Bureau of Indian Affairs. During the nine months ended September 28,
2003, costs and expenses were reduced by a reversal of unused litigation accrual
of $3.2 million under the Company's prior agreement to indemnify Grand Casinos,
Inc. in connection with the Stratosphere litigation matters. This reversal is
not representative of a trend as there are no similar accruals on the Company's
balance sheet.

Selling, general and administrative expenses increased from $8.1 million for the
nine months ended September 28, 2003 to $10.1 million for the nine months ended
October 3, 2004. WPTE selling, general and administrative costs were $1.2
million for the nine months ended September 28, 2003 compared to $3.5 million
for the nine months ended October 3, 2004. This increase is primarily due to an
increase in legal and consulting fees incurred during the 2004 period associated
with WPTE business development and an increase in WPTE payroll costs resulting
from business growth and becoming a separate public company. Lakes' selling,
general and administrative costs were $6.9 million for the nine months ended
September 28, 2003 and $6.6 million for the nine months ended October 3, 2004.
This decrease is primarily due to a decrease in professional fees which were
incurred during the prior year period associated with the sale of property in
Las Vegas, Nevada. WPTE production costs increased from $2.4 million for the
nine months ended September 28, 2003 to $7.1 million for the nine months ended
October 3, 2004. In the current year period, WPTE production costs and related
episode revenues were recognized in the period the relative episode was
delivered to TRV.

                                       30

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)

However, because WPTE did not have an executed agreement in 2002, when a portion
of production costs related to the WPTE episodes delivered during the nine
months ended September 28, 2003 were incurred, such costs were expensed in 2002
rather than being capitalized. The increase was also due to a greater number of
episodes being delivered to TRV during the 2004 period compared to the 2003
period.

Other

Interest income was $0.2 million for the nine months ended October 3, 2004
compared to $0.6 million for the same period in the prior year. This decrease is
primarily due to a decrease in interest earned on amounts owed to Lakes by
Metroflag related to the properties sold to Metroflag by Lakes in Las Vegas,
Nevada.

Taxes

Benefit for income taxes was $2.0 million and $1.3 million for the nine months
ended October 3, 2004 and September 28, 2003, respectively. The effective tax
rates were 17% and 41% for the nine months ended October 3, 2004 and September
28, 2003, respectively. The decrease in the effective rate was due to the
provision of additional valuation allowances for tax benefits associated with
the impairment of capital assets.

Losses Per Common Share and Net Losses

For the nine months ended October 3, 2004, basic and diluted losses per common
share were $0.44, compared to basic and diluted losses of $0.09 per common
share, for the same period in the prior year. Losses for the period ended
October 3, 2004 were $9.6 million compared to $1.8 million for the nine months
ended September 28, 2003. This increase in losses is primarily due to the
impairment charge of $6.4 million taken in the current year period discussed
above.

THREE MONTHS ENDED OCTOBER 3, 2004 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER
28, 2003

Revenues

Total revenues were $3.0 million for the three months ended October 3, 2004,
compared to $0.4 million in the prior year period. Revenues for the current and
prior year periods were primarily derived from television license fees related
to the World Poker Tour series. The increase in revenue is primarily due to
increased license fees relating to a greater number of season two episodes
delivered to TRV during the third quarter of 2004, compared to the license fees
resulting from the season one episodes delivered to TRV during the third quarter
of 2003. Also contributing to the increase was revenue of approximately $0.5
million related to WPTE-related licensing and $0.1 million in host fees included
in total revenue for the three months ended October 3, 2004. There were no
significant WPTE-related licensing and host fees revenues in the 2003 period.

Costs and Expenses

Total costs and expenses were $5.8 million and $2.6 million for the three months
ended October 3, 2004 and September 28, 2003, respectively. WPTE selling,
general and administrative costs were $0.5 million for the three months ended
September 28, 2003 compared to $1.5 million for the three months ended October
3, 2004. This increase is primarily due to an increase in legal and consulting
fees incurred during the 2004 period associated with WPTE business development
and an increase in WPTE payroll costs resulting from growth related to becoming
a separate public company.

                                       31

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)

Lakes' selling, general and administrative costs were $1.7 million for the three
months ended September 28, 2003 and $2.2 million for the three months ended
October 3, 2004. This increase is primarily due to professional fees incurred
related to business development. WPTE production costs increased from $0.3
million for the three months ended September 28, 2003 to $1.9 million for the
three months ended October 3, 2004. This increase in production costs is
primarily due to an increase in the number of episodes delivered to TRV during
the third quarter of 2004, compared to the number of episodes delivered to TRV
during the third quarter of 2003.

Taxes

Benefit for income taxes was $1.1 million and $0.9 million for the three months
ended October 3, 2004 and September 28, 2003, respectively. The effective tax
rates were 40% and 41% for the current and prior year quarters, respectively.

Earnings Per Common Share and Net Earnings

For the three months ended October 3, 2004, basic and diluted losses per common
share were $0.08, compared to basic and diluted losses of $0.06 per share, for
the same period in the prior year. Losses for the three months ended October 3,
2004 were $1.7 million compared to losses of $1.3 million for the three months
ended September 28, 2003. This increase in losses relates primarily to the
increased selling, general and administrative costs incurred by WPTE discussed
above.

Outlook

It is currently contemplated that there will be no operating revenues for 2004
from existing casino development projects. WPTE revenues are expected to result
primarily from broadcast license fees to be received from TRV, which has
exercised its option to license the World Poker Tour Season Three programming
that is currently in production. WPTE currently anticipates generating revenues
of approximately $10.8 million from Season Three license fees under the Travel
Channel agreement, depending on the number of episodes that ultimately comprise
that season. WPTE is expected to recognize approximately $3.1 million of this
revenue during the fourth quarters of fiscal 2004, with the rest being
recognized in fiscal 2005. Other sources of expected revenues during the fourth
quarter of 2004 include international television licensing revenues resulting
from the distribution of the World Poker Tour's Season One and Two and product
licensing fees.

Subsequent to the initial public offering of WPTE, Lakes continues to own a
majority of WPTE's equity. Therefore, WPTE's operating results continue to be
consolidated with our results.

FINANCIAL CONDITION

At October 3, 2004, Lakes' consolidated balance sheet included unrestricted cash
and cash equivalents and short-term investment balances of $48.5 million.
Included in this amount was Lakes' cash of $13.8 million and Lakes'short-term
investments of $1.1 million. Also included was WPTE cash of $27.6 million and
WPTE short-term investments of $6.0 million. WPTE cash and investments will be
used in WPTE's business and not used in Lakes' business. Lakes' has had no
operating revenues from casino operations since the expiration of the management
contract with the Coushatta Tribe in January 2002. In 2003, the operating
revenues derived from WPTE were offset almost entirely by production costs. In
the first nine months of 2004, operating revenues from WPTE operations were
$11.8 million, and WPTE's net income was approximately $1.2 million.

                                       32

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)

In August and September 2004, WPTE raised a total of approximately $32.4 million
in cash proceeds from its initial public offering, net of underwriting discounts
and estimated offering expenses. WPTE's cash resources are expected to be used
for WPTE's business and will not be available for the Company's casino
operations or other non-WPTE businesses. The initial public offering resulted in
the termination of Lakes' obligation to fund WPTE operations under a limited
revolving note receivable. Lakes currently holds 12,480,000 shares or
approximately 64% of WPTE's common stock. Although WPTE common stock is traded
on the Nasdaq National Market, the shares held by Lakes are not liquid assets,
and there is no assurance that Lakes will be able to realize value from these
holdings equal to the current or future market value of the shares.

The Company's primary source of cash for its development of casino projects
during the past two years has been from the planned sale of assets. During the
first quarter of 2004, the 2022 Ranch land, which was owned by Lakes and its
joint venture partner Land Baron West, LLC, was sold. Lakes received cash in the
amount of approximately $1.7 million. Lakes also received proceeds of $16.8
million in May 2003 in connection with the sale of the Polo Plaza property. We
expect that proceeds from the sale of assets will decrease in future periods.

Our management contracts with our tribal partners require that we provide
financial support for project development in the form of loans. These loans are
interest bearing; however, the interest is deferred until the casino is built
and has established profitable operations. In the event that the casinos are not
built, our only recourse is to attempt to liquidate assets of the development,
if any, excluding any land in trust. A portion of the notes due from the Pokagon
Tribe in the approximate amount of $23.6 million resulted from funds advanced by
the Company for the Tribe's purchase of the development project land. The
Company has a first deed of trust against this property which will be
relinquished when the land is placed into trust by the BIA.


We currently believe that our existing casino development projects included in
the table below will be constructed and achieve profitable operation; however,
no assurance can be made that this will occur. If this does not occur, it is
likely that Lakes would incur substantial or complete losses on its
pre-construction advances.

Following is a table summarizing remaining maximum contractual obligations as of
October 3, 2004 (in millions):

<TABLE>
<CAPTION>
                                              Payment Due by Period
                                              ---------------------
                                              Less Than                           More Than
Contractual Obligations             Total       1 Year    1-3 Years   3-5 Years    5 Years
                                    ------      ------    ---------   ---------    -------
<S>                                 <C>       <C>         <C>         <C>         <C>
Remaining Casino
Development Commitment (1) (3)

      Jamul                         $  9.4      $    -      $    -      $    -       $   -
      Shingle Springs                  0.9           -           -           -           -
      Pokagon (2)                     24.4           -           -           -           -
Operating Leases (4)                   0.4         0.4           -           -           -
WPTE Employee Obligation(5)            1.8         1.0         0.8           -           -
                                    ------      ------      ------      ------      ------
                                    $ 36.9      $  1.4      $  0.8      $    -       $   -
                                    ======      ======      ======      ======      ======
</TABLE>

(1)   Remaining Casino Development Commitments are not due by period, but rather
      are expended as progress of each project dictates. Lakes anticipates that
      we will require additional capital through either public or private
      financings to meet the maximum casino development commitments. Currently,
      the Company believes that this will be necessary, when any of Lakes casino
      projects begin construction.

(2)   For the Pokagon project, the Company has agreed to provide additional
      financing from its own funds if financing at an interest rate not to
      exceed 13% is not available from third parties. If this occurs and Lakes
      is required to provide all financing, this would be an additional
      commitment of up to approximately $54 million. Currently, it appears that
      third-party financing will be available for this project. However, there
      can be no assurance that third-party financing will be available and that
      Lakes will not be required to provide this additional financing.

(3)   Lakes may be required to provide a guarantee of tribal debt financing or
      otherwise provide support for the tribal obligations related to any of the
      projects. Any guarantees by Lakes or similar off-balance sheet liabilities
      will increase Lakes' potential exposure in the event of a default by any
      of these tribes. No such guarantees or similar off-balance sheet
      liabilities existed at October 3, 2004.

(4)   The Company leases an airplane, under a non-cancelable operating lease
      expiring April 30, 2005.

(5)   WPTE employee obligation includes the base salaries payable to three WPTE
      executives under their respective employment agreements.

                                       33

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)

Our major use of cash over the past three years has been Pre-construction
Financing provided to our tribal partners. At October 3, 2004, Lakes had
approximately $90.6 million in notes receivable from Indian tribes.

We believe that our cash and cash equivalents, along with expected cash
receipts, will be adequate to fund operating expenses and Pre-construction
Financing for at least the remainder of 2004. It is anticipated that we will
require additional capital through either public or private financings to meet
the maximum casino development commitments outlined in the table above.
Currently, the Company believes that this will be necessary when any of Lakes'
casino projects begin construction.

Lakes anticipates corporate costs, excluding WPTE which is not expected to
require additional capital from Lakes, in the next twelve months to approximate
$12.5 million. Additionally, development project-related costs are expected to
approximate $10 million during the next twelve months. These development costs
do not include possible additional construction-related costs that would be
incurred if any of the projects were to begin construction during the next
twelve months. As discussed above, the Company anticipates that it would be
necessary to raise additional capital when any of the projects begin
construction and believes such financing will be available based on preliminary
discussions with prospective lenders. The Company currently has $14.9 million of
cash and short-term investments exclusive of cash and short-term investments
held by WPTE. The Company anticipates receiving cash payments in the approximate
amount of $9.8 million in the fourth quarter of 2004 related to the sale of the
Travelodge property and repayment of a subordinated interest in the Polo Plaza
property in Las Vegas, Nevada. However, the Company has recently entered
negotiations that may result in revisions to the current payment terms related
to these properties. The Company also anticipates the receipt of a judgement
related to Grand Casinos, Inc. litigation within the next twelve months (see
Part II, Item 1. Legal Proceedings). The dollar amount that the Company will
receive has not been determined. Management also believes that additional
sources of liquidity are available if conditions necessitate additional capital.

As a part of the transaction establishing Lakes as a separate public company on
December 31, 1998, the Company agreed to indemnify Grand through December 28,
2004 against all costs, expenses and liabilities incurred in connection with or
arising out of certain pending and threatened claims and legal proceedings
against Grand and to pay all related settlements and judgments. The Company's
indemnification obligations include the obligation to provide the defense of all
claims made in proceedings against Grand and to pay all related settlements and
judgments. The Company believes that no further payments are required to be made
pursuant to its indemnification obligations. The current carrying amount of the
liability for the Company's indemnification obligations is zero.

As a part of the indemnification agreement, Lakes agreed that it will not
declare or pay any dividends, make any distribution on account of Lakes' equity
interests, or otherwise purchase, redeem, defease or retire for value any equity
interests in Lakes without the written consent of Grand.

SEASONALITY

The Company believes that the operations of all casinos to be managed by the
Company will be affected by seasonal factors, including holidays, weather and
travel conditions. WPTE's license revenues are affected by the timetable for
delivery of episodes to TRV.

                                       34

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)

REGULATION AND TAXES

The Company is subject to extensive regulation by state gaming authorities. The
Company will also be subject to regulation, which may or may not be similar to
current state regulations, by the appropriate authorities in any jurisdiction
where it may conduct gaming activities in the future. Changes in applicable laws
or regulations could have an adverse effect on the Company.

The gaming industry represents a significant source of tax revenues. From time
to time, various federal legislators and officials have proposed changes in tax
law, or in the administration of such law, affecting the gaming industry. It is
not possible to determine the likelihood of possible changes in tax law or in
the administration of such law. Such changes, if adopted, could have a material
adverse effect on the Company's results of operations and financial results.

OFF-BALANCE SHEET ARRANGEMENTS

The Company has no off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on its financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors, except
for the financing commitments previously discussed, and except for Lakes'
investments in unconsolidated affiliates (see Note 3).

PRIVATE SECURITIES LITIGATION REFORM ACT

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this Form 10-K
and other materials filed or to be filed by the Company with the Securities and
Exchange Commission (as well as information included in oral statements or other
written statements made or to be made by the Company) contain statements that
are forward-looking, such as plans for future expansion and other business
development activities as well as other statements regarding capital spending,
financing sources and the effects of regulation (including gaming and tax
regulation) and competition.

Such forward looking information involves important risks and uncertainties that
could significantly affect the anticipated results in the future and,
accordingly, actual results may differ materially from those expressed in any
forward-looking statements made by or on behalf of the Company.

These risks and uncertainties include, but are not limited to, those relating to
possible delays in completion of Lakes' casino projects, including various
regulatory approvals and numerous other conditions which must be satisfied
before completion of these projects; possible termination or adverse
modification of management contracts; continued indemnification obligations to
Grand Casinos;

                                       35

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)

highly competitive industries; possible changes in regulations; reliance on
continued positive relationships with Indian tribes and repayment of amounts
owed to Lakes by Indian tribes; possible need for future financing to meet
Lakes' expansion goals; risks of entry into new businesses; reliance on Lakes'
management; and the fact that the WPTE shares held by Lakes are currently not
liquid assets, and there is no assurance that Lakes will be able to realize
value from these holdings equal to the current or future market value of WPTE
common stock. There are also risks and uncertainties relating to WPTE that may
have a material effect on the Company's consolidated results of operations or
the market value of the WPTE shares held by the Company, including inability to
achieve financial results from the contemplated business expansion of WPTE;
WPTE's relatively short operating history; reliance on the agreement with TRV
for most of our consolidated revenues; possible inability of WPTE's programming
to maintain a sufficient audience and exposure to adverse trends in the
television production business generally; possible increases in production
expenses, compared to fixed license revenues for related episodes; risk of
inability to protect WPTE's proprietary rights or preserve the value of WPTE's
brands; dependence on WPTE's relationships with member casinos and strategic
partners; and reliance on Lakes' and WPTE's management. For further information
regarding the risks and uncertainties, see the "Business -- Risk Factors"
section of the Company's Annual Report on Form 10-K for the fiscal year ended
December 28, 2003.

                                       36

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK;
                             CONTROLS AND PROCEDURES

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's financial instruments include cash and cash equivalents and
marketable securities. The Company's main investment objectives are the
preservation of investment capital and the maximization of after-tax returns on
its investment portfolio. Consequently, the Company invests with only
high-credit-quality issuers and limits the amount of credit exposure to any one
issuer. The Company does not use derivative instruments for speculative or
investment purposes.

The Company's cash and cash equivalents are not subject to significant interest
rate risk due to the short maturities of these instruments. As of October 3,
2004, the carrying value of the Company's cash and cash equivalents approximates
fair value. The Company also holds short-term investments consisting of
marketable debt securities (principally consisting of commercial paper,
corporate bonds, and government securities) having a weighted average duration
of one year or less. Consequently, such securities are not be subject to
significant interest rate risk.

The Company's primary exposure to market risk associated with changes in
interest rates involves the Company's notes receivable related to loans for the
development and construction of Native American owned casinos. The loans and
related note balances earn various interest rates based upon a defined reference
rate. The floating rate receivables will generate more or less interest income
if interest rates rise or fall. Interest income is deferred during development
of the casinos because realizability of the interest is contingent upon the
completion and positive cash flow from operation of the casino. As of October 3,
2004, Lakes had $90.9 million of floating rate notes receivables. Based on the
applicable current reference rates and assuming all other factors remain
constant, deferred interest income for a twelve month period would be $5.7
million. A reference rate increase of 100 basis points would result in an
increase in deferred interest income of $0.9 million. A 100 basis point decrease
in the reference rate would result in a decrease of $0.9 million in deferred
interest income over the same twelve month period.

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including
our chief executive officer and chief financial officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) or Rule 15d - 15(e) promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as of the end of the
period covered by this quarterly report. Based on their evaluation, our chief
executive officer and chief financial officer concluded that Lakes
Entertainment, Inc.'s disclosure controls and procedures are effective.

There have been no significant changes (including corrective actions with regard
to significant deficiencies or material weaknesses) in our internal controls or
in other factors that could significantly affect these controls subsequent to
the date of the evaluation referenced above.

                                       37

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
                                     PART II
                                OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

SLOT MACHINE LITIGATION

In 1994, William H. Poulos filed a class-action lawsuit in the United States
District Court for the Middle District of Florida against various parties,
including Grand and numerous other parties alleged to be casino operators or
slot machine manufacturers. This lawsuit was followed by several additional
lawsuits of the same nature against the same, as well as additional defendants,
all of which were subsequently consolidated into a single class-action pending
in the United States District Court for the District of Nevada. Following a
court order dismissing all pending pleadings and allowing the plaintiffs to
re-file a single complaint, a complaint has been filed containing substantially
identical claims, alleging that the defendants fraudulently marketed and
operated casino video poker machines and electronic slot machines, and asserting
common law fraud and deceit, unjust enrichment and negligent misrepresentation
and claims under the federal Racketeering-Influenced and Corrupt Organizations
Act. Various motions were filed by the defendants seeking to have this new
complaint dismissed or otherwise limited. In December 1997, the Court, in
general, ruled on all motions in favor of the plaintiffs. The plaintiffs then
filed a motion seeking class certification and the defendants opposed it. In
June 2002, the Court entered an order denying class certification. On August 10,
2004, the Ninth Circuit Court of Appeals affirmed the District Court's denial of
class certification.

Management currently believes that the final outcome of this matter is not
likely to have a material adverse effect upon the Company's consolidated
financial position or results of operations, and currently an estimate of any
possible loss cannot be made.

WILLARD EUGENE SMITH LITIGATION

On October 24, 2003, Lakes announced that it had been named as one of a number
of defendants in a counterclaim filed in state court in Harris County, Texas by
Willard Eugene Smith involving Kean Argovitz Resorts, LLC (KAR), related persons
and entities. In the counterclaim, Smith asserts that, under an alleged oral
agreement with Kevin Kean, he is entitled to a percentage of fees to be received
by the KAR entities or their principals relating to the Shingle Springs and
Jamul casinos that Lakes' subsidiaries are developing in California. Smith also
seeks recovery of damages through the remedy of either attachment of the
management fees generated from the projects or avoidance of buyout agreements
between Lakes and KAR based on their conduct with respect to the alleged
agreement.

Lakes believes the counterclaim against it is without merit. Lakes understands
that the alleged oral agreement upon which Smith bases his claim was rendered
null and void in a prior judgment issued against Smith by the Harris County,
Texas state court in October 2000. However, in September 2003, the court vacated
the prior judgment against Smith. Lakes acquired KAR's interests in the Shingle
Springs and Jamul projects on January 30, 2003. In the buyout agreements between
Lakes and certain KAR entities and related principals, the KAR entities
represented to Lakes that the KAR entities and their affiliates had no
continuing agreements with any third party relating to the Shingle Springs and
Jamul projects and agreed to indemnify Lakes and its affiliates from damages of
the KAR entities and related principals concerning the projects. Lakes will
vigorously defend against the allegations made against it and will pursue its
indemnification rights against the KAR entities and their principals under the
buyout agreements if necessary. Discovery is continuing and the trial is
scheduled for March 2005.

                                       38

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
                                     PART II
                          OTHER INFORMATION (CONTINUED)

Management currently believes that the final outcome of this matter is not
likely to have a material adverse effect upon the Company's consolidated
financial position or results of operations, and currently an estimate of any
possible loss cannot be made.

EL DORADO COUNTY, CALIFORNIA LITIGATION

On January 3, 2003, El Dorado County filed an action in the Superior Court of
the State of California, seeking to prevent the construction of a highway
interchange that was approved by a California state agency. The action does not
seek relief directly against Lakes. However, the interchange is necessary to
permit the construction of a casino to be developed and managed by Lakes through
a joint venture.

The casino will be owned by the Shingle Springs Band of Miwok Indians. The
matter was tried to the court on August 22, 2003. On January 2, 2004, Judge
Lloyd G. Connelly, Judge of the Superior Court for the State of California,
issued his ruling on the matter. The Court denied the petition in all respects
except one. As to the one exception, the Court sought clarification as to
whether the transportation conformity determination used to determine the
significance of the air quality impact of the interchange operations considered
the impact on attainment of the state ambient air quality standard for ozone.
The California Department of Transportation (Caltrans) prepared and filed the
clarification addendum sought by the Court.

 Prior to the Court's determination of the adequacy of the clarification, El
Dorado County and Voices for Rural Living appealed Judge Connelly's ruling to
the California Court of Appeals on all of the remaining issues. The Company
believes that appellants have not presented sufficient grounds to justify
overturning the trial court's earlier conclusion, and that the Company will
prevail on the consolidated appeals of the County and Voices for Rural Living.

A ruling with respect to the addendum was issued June 21, 2004 by the Superior
Court of California, County of Sacramento. The ruling indicates that the
addendum provided to the court by Caltrans did not provide a quantitative
showing to satisfy the court's earlier request for a clarification on meeting
the state ambient ozone standard. The court recognized that the information
provided by Caltrans does qualitatively show that the project may comply with
the state standard, but concluded that a quantitative analysis is necessary even
though the court recognized that the methodology for that analysis "is not
readily apparent". In addition, the ruling specifically states, "Moreover such
methodology appears necessary for the CEQA analysis of transportation projects
throughout the state, including transportation projects for which respondents
(i.e. Caltrans) have approval authority." Caltrans, the Shingle Springs Tribe
and Lakes responded to the court with a revised submission in August 2004.
Representatives of the California Air Resources Board and the Sacramento Area
Council of Governments filed declarations supporting the revised submission to
the court. Opposition to that revised submission was filed, a hearing on the
revised submission took place on August 20, 2004, and the Court again found the
revised submission of Caltrans, the Shingle Springs Tribe and lakes to be
inadequate. That ruling has been separately appealed to the California Court of
Appeals.

Management currently believes that the final outcome of this matter is not
likely to have a material adverse effect upon the Company's consolidated
financial position or results of operations as it believes, but there can be no
assurance that, the courts' rulings will ultimately allow the project to
commence.

                                       39

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
                                     PART II
                          OTHER INFORMATION (CONTINUED)

GRAND CASINOS, INC. LITIGATION

In connection with the establishment of Lakes as a public corporation on
December 31, 1998, via a distribution of its common stock to the shareholders of
Grand, the Company and Grand entered into an agreement governing the sharing or
allocation of tax benefits accruing to Grand and certain affiliated companies.
On August 13, 2004, an arbitrator awarded to the Company partial summary
judgment on certain of the Company's claims against Grand under the tax sharing
agreement. The dollar amount that will be awarded to the Company on these claims
has not been determined, certain other claims by the Company under the agreement
have not been decided, and no hearing date has been set to determine such dollar
amount or decide such claims.

OTHER LITIGATION

Lakes is involved in various other inquiries, administrative proceedings, and
litigation relating to contracts and other matters arising in the normal course
of business. While any proceeding or litigation has an element of uncertainty,
management currently believes that the final outcome of these matters, including
the matters discussed above, is not likely to have a material adverse effect
upon the Company's consolidated financial position or results of operations.

                                       40

<PAGE>

                   LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
                                     PART II
                          OTHER INFORMATION (CONTINUED)

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits

      10.1  First Amended and Restated Memorandum of Agreement Regarding Gaming
            Development and Management Agreement between Shingle Springs Band of
            Miwok Indians, a Federally Recognized Tribe and Lakes KAR Shingle
            Springs, LLC, a Delaware Limited Liability Company, dated October
            13, 2003, as amended June 16, 2004, as approved by the National
            Indian Gaming Commission on July 19, 2004.

      10.2  Amendment dated August 18, 2004 to Acquisition Master Agreement
            dated August 22, 2003, by and between The Travel Channel, LLC and
            WPT Enterprises, Inc. (f/k/a World Poker Tour, LLC) (incorporated by
            reference from Exhibit 10.1 to Form 10-Q of WPT Enterprises, Inc.
            for the quarter ended 10/3/04)(portions of this exhibit have been
            omitted pursuant to a request for confidential treatment and have
            been filed separately with the Commission pursuant to Rule 24b-2 of
            the Securities Exchange Act of 1934).

      31.1  Certification of CEO pursuant to Securities Exchange Act Rules
            13a-15(e) and 15d-15(e) as adopted pursuant to Section 302 of the
            Sarbanes-Oxley Act of 2002

      31.2  Certification of CFO pursuant to Securities Exchange Act Rules
            13a-15(e) and 15d-15(e) as adopted pursuant to Section 302 of the
            Sarbanes-Oxley Act of 2002

      32.1  Certification of Chief Executive Officer pursuant to 18 U.S.C.
            Section 1350, as adopted pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002

      32.2  Certification of Chief Financial Officer pursuant to 18 U.S.C.
            Section 1350, as adopted pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002

      ---------------

(b)   Reports on Form 8-K

      (i)   A Form 8-K, Item 7. Financial Statements, Pro Forma Financial
            Information and Exhibits, and Item 9. Regulation FD Disclosure, was
            filed on July 7, 2004

      (ii)  A Form 8-K, Item 7. Financial Statements, Pro Forma Financial
            Information and Exhibits, and Item 9. Regulation FD Disclosure, was
            filed on July 21, 2004

      (iii) A Form 8-K, Item 7. Financial Statements, Pro Forma Financial
            Information and Exhibits, and Item 9. Regulation FD Disclosure, was
            filed on August 10, 2004

                                       41

<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report on Form 10-Q to be signed on its behalf
by the undersigned, thereunto duly authorized.

Dated: November 17, 2004                 LAKES ENTERTAINMENT, INC.
                                         -------------------------
                                         Registrant

                                         /s/ Lyle Berman
                                         ---------------------------------------
                                         Lyle Berman
                                         Chairman of the Board and
                                         Chief Executive Officer

                                         /s/ Timothy J. Cope
                                         ---------------------------------------
                                         Timothy J. Cope
                                         President and
                                         Chief Financial Officer

                                       42

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>2
<FILENAME>c89762exv10w1.txt
<DESCRIPTION>1ST AMENDED/RESTATED MEMORANDUM OF AGREEMENT
<TEXT>
<PAGE>

                                                                    EXHIBIT 10.1

                           FIRST AMENDED AND RESTATED
                             MEMORANDUM OF AGREEMENT

                                    REGARDING

                               GAMING DEVELOPMENT

                                       AND

                                   MANAGEMENT

                                    AGREEMENT

                                     BETWEEN

                      SHINGLE SPRINGS BAND OF MIWOK INDIANS
                          A FEDERALLY RECOGNIZED TRIBE

                                       AND

                         LAKES KAR-SHINGLE SPRINGS, LLC
                      A DELAWARE LIMITED LIABILITY COMPANY

                             DATED: OCTOBER 13,2003

Shingle Springs Development/Management Contract
10/13/03 revision
<PAGE>

      THIS FIRST AMENDED AND RESTATED MEMORANDUM OF AGREEMENT, is made and
entered into this 13 day of October, 2003 by and between the Shingle Springs
Band of Miwok Indians, a federally recognized Indian tribe (hereinafter referred
to as ("the Tribe"), located in the State of California with tribal offices
located at P.O. Box 1340, Shingle Springs, California 95682 and Lakes
KAR-Shingle Springs, LLC, a Delaware limited liability company (hereinafter
referred to as "LKAR"), whose business office is located at 130 Cheshire Lane,
Minnetonka, MN 55305.

                                    RECITALS

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

      B. The United States government holds lands in the State of California in
trust for the benefit of the Tribe ("Tribal Lands") over which the Tribe
possesses sovereign governmental powers, and the Tribe intends to acquire other
lands to be held also in trust for the Tribe by the federal government and over
which the Tribe will possess sovereign governmental powers.

      C. In compliance with the Indian Gaming Regulatory Act of 1988, P.L.
100-497, 25 U.S.C. 2701 et seq. as it may from time to time be amended, the
Tribal Council of the Tribe has enacted a tribal ordinance regulating the
operation of gaming activities on Tribal Lands (hereinafter referred to as the
"Tribal Gaming Ordinance"), creating the Shingle Springs Tribal Gaming
Commission, and authorizing Class II Gaming and Class III Gaming on its Tribal
Lands subject to the provisions of the Tribal Gaming Ordinance and a
Tribal-State Compact.

      D. The Tribe is committed to the use of gaming activities to provide
employment and improve the social, economic, education, and health needs of its
members; to increase the revenues of the Tribe; and to enhance the Tribe's
economic self-sufficiency and self-determination.

      E. The Tribe presently lacks the resources to develop and operate a gaming
facility and enterprise on its own and desires to retain the services of a
developer and manager with knowledge and experience in the gaming industry to
secure financing, develop, manage and operate a Class II Gaming and Class III
Gaming facility and related resort facilities located on its Indian lands in
accordance with the Indian Gaming Regulatory Act of 1988, as amended.

      F. LKAR has represented to the Tribe that it has the managerial and
financial capacity to provide and secure financing for the funds necessary to
develop and construct the Facility, as defined herein, and to commence operation
of the Enterprise, as defined herein; and LKAR agrees to assist the Tribe in
obtaining the capital investment necessary to the development of gaming
facilities, and provide the management expertise necessary to the conducting of
successful tribal gaming operations.

Shingle Springs Development/Management Contract
10/13/03 revision
<PAGE>

      G. Kean Argovitz Resorts-Shingle Springs, L.L.C. ("KARSS") entered into
Development and Management Agreements with the Shingle Springs Band of Miwok
Indians (the "Tribe") dated June 11, 1999 (the "Development and Management
Agreements"), pursuant to which KARSS was to develop and manage a gaming
facility and certain related facilities to be owned by the Tribe. Lakes Gaming,
Inc. and KARSS entered into an agreement under which they agreed to form LKAR to
assume the rights and obligations of KARSS in connection with the Development
and Management Agreements. KARSS has assigned its rights and obligations under
the Development and Management Agreements to LKAR pursuant to the terms of an
Assignment and Assumption Agreement.

      H. In connection with the development and construction of the Facility, as
defined herein, and the operation and management of the Enterprise, as defined
herein, LKAR and the Tribe entered into a Memorandum of Agreement Regarding
Gaming Development and Management Agreement dated May 5, 2000 ("May 5, 2000
Memorandum of Agreement"). Pursuant to the May 5, 2000 Memorandum of Agreement
and by tribal resolution, the Tribe consented to the assignment of the
Development and Management Agreements to LKAR by KARSS and LKAR's assumption of
KARSS's rights and responsibilities under the Development and Management
Agreements.

      I. In accordance with LKAR's assumption of KARSS's rights and
responsibilities under the Development and Management Agreements, the Tribe
granted to LKAR the exclusive right and obligation to develop, manage, operate
and maintain the Facility and Enterprise as described in the May 5, 2000
Memorandum of Agreement, which was intended by the parties thereto to supercede
and replace the Development and Management Agreements.

      J. The May 5, 2000 Memorandum of Agreement (and related exhibit documents)
between the Tribe and LKAR has been submitted for approval to the National
Indian Gaming Commission ("NIGC"); NIGC staff have reviewed the May 5, 2000
Memorandum of Agreement (and related exhibit documents) and have requested
certain modifications to the documents prior to issuing NIGC approval; the Tribe
and LKAR have made such modifications to the documents as they have deemed
necessary; such modifications are incorporated herein and, accordingly, the
Tribe and LKAR agree to enter into this First Amended and Restated Memorandum of
Agreement Regarding Gaming Development and Management Agreement ("Amended
Memorandum Agreement") and related Transaction Documents in connection with the
Project. The parties hereto intend that this Amended Memorandum Agreement is to
supercede and replace the May 5, 2000 Memorandum of Agreement.

      K. This Amended Memorandum Agreement shall become effective when all the
necessary approvals listed in Section 3.19 of this Amended Memorandum Agreement
are received (the "Effective Date") and shall continue for a term of seven (7)
years from the Commencement Date, or as otherwise provided in this Amended
Memorandum Agreement.

Shingle Springs Development/Management Contract
10/13/03 revision

                                       2
<PAGE>

      L. The Tribe and LKAR desire that the preliminary Facility design and
development work will be done (but not the Facility construction or Enterprise
operation) so the Project may proceed prior to receipt of necessary regulatory
approvals.

      M. The Tribe and LKAR desire to take all lawful steps reasonably possible
prior to the receipt of the necessary regulatory approvals: (i) to obtain a
preliminary commitment for financing of the Facility, (ii) to select and develop
the site for the Facility, (iii) to design the Facility, and (iv) to enter into
contracts to construct and equip the Facility so that the Facility can be opened
to the public as soon as possible after the receipt of all necessary regulatory
approvals.

      N. LKAR desires to advance to the Tribe, subject to the terms and
conditions of the Transition Loan described herein, sums sufficient to finance
performance of the preliminary development work described immediately above and
for other purposes. The Tribe and LKAR agree that all sums previously advanced
to the Tribe by KARSS under the superceded Development and Management
Agreements, and by LKAR under the superceded May 5, 2000 Memorandum of
Agreement, shall constitute advances by LKAR to the Tribe hereunder, be credited
to LKAR's obligations hereunder, and shall be subject to the terms of the
Transition Loan or the Land Acquisition Loan herein, as applicable.

      O. The Tribe has selected LKAR, and the LKAR has agreed, to assist the
Tribe in obtaining permanent financing for the Project, subject to the terms and
conditions of the Facility Loan described herein, and to furnish technical
experience and expertise for the development and design of the Project, and for
contracting for the construction, furnishing and equipping of the Project.

      P. This Amended Memorandum Agreement is entered into pursuant to the
Indian Gaming Regulatory Act of 1988, P.L. 100-497, 25 U.S.C. 2701 et seq. (the
"IGRA") as that statute may be amended. All gaming conducted at the Facility
will at all times comply with the IGRA, applicable tribal law and the
Tribal-State Compact.

      Q. Any dispute regarding this Amended Memorandum Agreement between the
parties or any other Transaction Documents is to be subject to the dispute
resolution and governing law provisions contained herein, as well as the
Resolution of Limited Waiver attached hereto.

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

Shingle Springs Development/Management Contract
10/13/03 revision

                                       3
<PAGE>

                                   ARTICLE 1.
                                  DEFINITIONS

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

      1.1 "Access Land Transfer Agreement" shall mean the Access Land Transfer
Agreement described in Section 2.1(b) to be executed simultaneously herewith by
the parties hereto in connection with providing access to Tribal Lands, together
with all amendments, substitutions and renewals thereof.

      1.2 "Amended Memorandum Agreement" means the two agreements contained in
this document, the Development Agreement and the Management Agreement, and all
amendments hereto.

      1.3 "Approved Construction Budget" means the budget prepared in the manner
set forth in Section 2.2(b) in connection with the development and construction
of the Facility, which has been approved by Developer and the Tribe.

      1.4 "Acquired Tribal Lands" shall have the meaning set forth in Section
2.1(b).

      1.5 "BIA" means the United States Department of Interior Bureau of Indian
Affairs.

      1.6 "Chairperson" means the Tribal Chairperson as defined by the Tribe's
governing documents.

      1.7 "Class II Gaming" means games as defined in 25 U.S.C. Section 2703
(7)(A), as such law may be amended and as defined by the National Indian Gaming
Commission in 25 C.F.R. Section 502.3 and amendments thereto, but only to the
extent such games are authorized by tribal ordinance and licensed by the Tribal
Gaming Commission.

      1.8 "Class III Gaming" means all gaming that is not Class I or Class II
Gaming as defined in the IGRA, including, but not limited to, the forms of
gaming listed as Class III games by the National Indian Gaming Commission in 25
C.F.R. Section 502.4 and amendments thereto, but only to the extent such gaming
is allowed by the Tribal-State Compact, tribal ordinance, and licensed by the
Tribal Gaming Commission.

      1.9 "Commencement Date" means the first day upon which the Facility is
open to the public to engage in gaming activities.

      1.10 "Completion" means the completion of the Facility, or portions
thereof, in substantial accordance with the Plans and Specifications, as
evidenced by a completion certificate from the Architect that the Facility, or
portions thereof, have been substantially completed in accordance with

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the Plans and Specifications, and by the issuance of a certificate of occupancy
by the tribal governmental agency having jurisdiction, and certificates of such
professional designers, inspectors or consultants or opinions of counsel, as
LKAR may reasonably determine to be appropriate, verifying construction and
furnishing of the Facility is in compliance with all Legal Requirements.

      1.11 "Construction Contract" means the contract between the Tribe and the
General Contractor described in Section 2.4(b), together with all amendments,
substitutions and renewals thereof.

      1.12 "Costs of Construction" means all costs incurred by the Tribe or LKAR
pursuant to this Amended Memorandum Agreement in the aggregate to develop,
construct and complete the Facility, including, without limitation, labor,
materials, all furniture, fixtures and equipment (including gaming equipment)
necessary for the opening of the Facility to the public, builder's risk
insurance, surveys, permits, interest on the Facility Loan, Land Acquisition
Loan or Transition Loan incurred prior to the opening of the Facility to the
public, payment and performance bonds, architectural plans and services, and a
resort feasibility study, but excluding Initial Costs of Operation. The final
amount of costs to be included in the Costs of Construction shall be determined
by mutual agreement of the parties and shall be documented in the Approved
Construction Budget.

      1.13 "Costs of Gaming Operations" means the total of all expenses for the
operation of the Enterprise's Class II Gaming and III Gaming activities pursuant
to Generally Accepted Accounting Principles ("GAAP"), including but not limited
to the following: (1) all fees imposed by the Tribal Gaming Commission,
including but not limited to fees based upon the Enterprise's gross receipts
from operation of Class II Gaming and Class III Gaming at the Facility, (2) fees
imposed upon the Enterprise by the National Indian Gaming Commission based upon
its gross receipts from Class II Gaming and Class III Gaming, (3) all funds
required by the Tribal-State Compact to be paid by the Tribe, including but not
limited to any contributions and license/regulatory fee reimbursements payable
to the State pursuant to the Tribal-State Compact, (4) the amount required by
the Tribal-State Compact to fund or support programs for the treatment and
assistance of compulsive gamblers and for the prevention of compulsive gambling,
(5) license or other fees for background investigations upon "key employees" and
"primary management officials", (6) depreciation applicable to the portion of
the Facility in which the Enterprise operates Class II Gaming and Class III
Gaming and depreciable items located therein, (7) costs of administration,
hiring, firing and training employees working in or for the Enterprise's Class
II Gaming and Class III Gaming activities, (8) compensation and benefits to such
employees, (9) management compensation to be paid Manager under Section 6.5(b)
hereof, and (10) total gaming-related costs, fees and expenses, including,
without limitation, materials, supplies, inventory, utilities, repairs,
maintenance, insurance, bonding, marketing, advertising, annual audits,
accounting, legal or other professional and consulting services, security or
guard services, and such other costs, expenses or fees necessarily, customarily
and reasonably incurred in the operation of the Enterprise's Class II Gaming and
Class III Gaming, and necessary travel expenses incurred subsequent

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to the Commencement Date for officers and employees of Manager and authorized
representatives of the Tribe in connection with the Project; provided, however,
that "Costs of Gaming Operations" shall specifically not include any costs of
background investigation of Manager or its employees in connection with the NIGC
or any license fees or costs of background investigations with licensing with
the Tribal Gaming Commission.

      1.14 "Costs of Incidental Operations" means all expenses and costs
pursuant to Generally Accepted Accounting Principles incurred in operating the
hotel, restaurants, food and beverage service, office space, swimming pool,
fitness center, childcare, kids arcade, golf course and other commercial
business areas comprising the Facility in which the Enterprise conducts neither
Class II Gaming nor Class III Gaming, including, without limitation: (1)
depreciation and amortization applicable to such non-gaming facilities based
upon an assumed life consistent with GAAP, and depreciation and amortization of
all other assets (including without limitation all capital replacements and
improvements, and fixtures, furnishings and equipment) located therein in
accordance with GAAP; (2) all employment costs relating to non-gaming employees
working in or for such commercial business facilities; (3) management fees; (4)
non-gaming supplies and materials, insurance and other non-gaming costs
reasonably and customarily incurred in operation of such portion of the
Enterprise in which neither Class II Gaming nor Class III Gaming may be
conducted; provided, however, that no non-commercial operations of the Tribe
(including, without limitation, any school, hospital or library) shall be
directly or indirectly included within the computation of the "Costs of
Incidental Operations".

      1.15 "Design Agreement" means the contract between the Tribe and the
Architect described in Section 2.2(a).

      1.16 "Developer" means Lakes KAR-Shingle Springs, LLC, a Delaware limited
liability company with its business office located at 130 Cheshire Lane,
Minnetonka, MN 55305.

      1.17 "Development Agreement" shall mean those provisions of this Amended
Memorandum Agreement that deals with the development and construction of the
Facility, as the same may be amended or modified. The Development Agreement
shall continue until the earlier of either the Commencement Date or June 11,
2004; provided however, that the Notes and Security Provisions shall continue
until all amounts owing to LKAR with respect thereto have been paid in full.

      1.18 "Dominion Account" shall have the meaning described in Section 3.8(a)
herein.

      1.19 "Dominion Account Agreement" shall mean the Dominion Account
Agreement to be executed by the Tribe in favor of the LKAR in the form agreed to
by the parties thereto, together with all amendments, substitutions and renewals
thereof.

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      1.20 "Effective Date" means the effective date of this Amended Memorandum
Agreement as determined pursuant to Section 3.19.

      1.21 "Enterprise" means the business enterprise of the Tribe created to
engage in Class II Gaming and Class III Gaming at the Facility, and which shall
include any other lawful commercial activity allowed in or near the Facility
including, but not limited to, operating and managing office space, kids arcade,
child care facility, hotel with swimming pool and golf course, restaurant, RV
park, retail stores, entertainment facilities, or the sale of fuel, food,
beverages, alcohol, tobacco, gifts, and souvenirs.

      1.22 "Enterprise Accounts" shall have the meaning described in Section 3.8
herein.

      1.23 "Facility" means the permanent buildings, structures and improvements
used by the Enterprise for its gaming and incidental operations located on the
Gaming Site and all Furnishings and Equipment.

      1.24 "Facility Loan" means the loan arranged by Developer for the Tribe,
as borrower, in an aggregate principal amount not to exceed three hundred
million dollars ($300,000,000) for Initial Costs of Operation and for Costs of
Construction, which Facility Loan shall be further evidenced by the Facility
Note and other loan documentation as further defined herein.

      1.25 "Facility Note" means the promissory note evidencing the Facility
Loan in a form to be agreed to by the parties to the Facility Loan, together
with all amendments, substitutions and renewals thereof.

      1.26 "Fiscal Year" means the accounting year used for the operation of the
Enterprise.

      1.27 "Furnishings and Equipment" shall mean all furniture, furnishings and
equipment required for the operation of the Enterprise in accordance with the
standards set forth in this Amended Memorandum Agreement, including, without
limitation:

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

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

            (iii) office furnishings and equipment;

            (iv) specialized equipment necessary for the operation of any
      portion of the Enterprise for accessory purposes, including equipment for
      kitchens, laundries, dry cleaning,

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      cocktail lounges, restaurants, public rooms, commercial and parking
      spaces, and recreational facilities; and

            (v) hotel equipment (to the extent a hotel is included in the
      Enterprise);

            (vi) all other furnishings and equipment hereafter located and
      installed in or about the Facility which are used in the operation of the
      Enterprise in accordance with the standards set forth in this Amended
      Memorandum Agreement.

      1.28 "Gaming Site" shall mean the Tribal Lands located within the exterior
boundaries of the Tribe's reservation (whose legal description is described in
Exhibit A attached hereto), which are held in trust by the United States
government for the benefit of the Tribe, and upon which Class II Gaming and
Class III Gaming may legally be conducted under IGRA and the Tribal-State
Compact.

      1.29 "General Contractor" shall mean the person or entity selected by the
Tribe and approved by Developer pursuant to Section 2.4 to construct the
Facility.

      1.30 "Generally Accepted Accounting Principles" or "GAAP" means those
principles defined by the Financial Accounting Standards Board consistently
applied to the gaming industry practice.

      1.31 "Governmental Authorities" means the United States federal
government, the BIA, the State, the State Gaming Agency, the Tribal Council, the
National Indian Gaming Commission, the Tribal Gaming Commission, and any court,
agency, department, commission, board, bureau or instrumentality, or any of them
to the extent each has legal jurisdiction over the Class II and Class III Gaming
activities, Tribal Lands, the construction and operation of the Facility and
Enterprise thereon, or LKAR's performance under this Amended Memorandum
Agreement.

      1.32 "Gross Gaming Revenues" means the Enterprise's total revenue from
Class II Gaming and Class III Gaming activities (excluding any insurance
proceeds received other than business interruption insurance proceeds and
insurance proceeds received to reimburse the Enterprise for any claims included,
or to be included, as Costs of Gaming Operations).

      1.33 "Gross Incidental Revenues" means the Enterprise's total receipts
from the sale of food, beverages, souvenirs and any other goods and services
supplied for non-Class II Gaming and non-Class III Gaming activities that are
incidental to the operation of the Enterprise (excluding any insurance proceeds
received other than business interruption insurance proceeds and insurance
proceeds received to reimburse the Enterprise for any claims included, or to be
included, as Costs of Incidental Operations).

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      1.34 "Gross Total Revenues" means the total of Gross Gaming Revenues and
Gross Incidental Revenues of the Enterprise.

      1.35 "IGRA" means the Indian Gaming Regulatory Act of 1988, P.L. 100-497,
as codified at 25 U.S.C. Section 2701 et. seq., as such may be amended from time
to time.

      1.36 "Initial Costs of Operation" means all Costs of Operation advanced to
the Tribe pursuant to Section 2.8 and 6.2, prior to the opening of the Facility
to the public, including, but not limited to, advance payments or deposits to
providers of goods and services, cash for bankrolls and slot hoppers,
pre-opening payroll, cash for payment of prizes, legal, licensing, marketing,
employee hiring and training, all costs associated with grand opening events and
any "fun" nights held prior to the public opening of the Facility, and funding
for the establishment and operation of the Tribal Gaming Commission pursuant to
the terms of Section 4.6.6 of the Management Agreement between the Tribe and KAR
entered on June 11, 1999. Initial Costs of Operation shall also include any
costs incurred by either party for reasonable and necessary travel expenses
incurred subsequent to the execution of the May 5, 2000 Memorandum of Agreement
until the Commencement Date for officers and employees of LKAR or affiliates and
authorized representatives of the Tribe in connection with the Project, and in
obtaining regulatory approval of this Amended Memorandum Agreement (but not any
license fees or costs, including costs pertaining to background investigations
of LKAR or its employees, in connection with licensing by either NIGC or Tribal
Gaming Commission, nor those costs incurred by the parties, prior to execution,
in negotiating the May 5, 2000 Memorandum of Agreement, or any amendments
thereto).

      1.37 "Interim Promissory Note" means the promissory note evidencing the
Transition Loan in the form agreed to by the parties hereto, together with all
amendments, substitutions and renewals thereof.

      1.38 "Land Acquisition Loan" means the loan or advances made to the Tribe
directly by LKAR pursuant to Section 2.3(a)(ii) and evidenced by the Land
Acquisition Note.

      1.39 "Land Acquisition Note" means the promissory note of even date
herewith evidencing the Land Acquisition Loan in the form agreed to by the
parties hereto, together with all amendments, substitutions and renewals
thereof.

      1.40 "Legal Requirements" means any and all present and future judicial,
administrative, and tribal rulings or decisions, and any and all present and
future federal, state, local and tribal laws, ordinances, rules, regulations,
permits, licenses and certificates, in any way applicable to the Tribe, LKAR,
the Tribal Lands, the Gaming Site, the Facility, and the Enterprise, including
without limitation, the IGRA, the Tribal-State Compact, and the Tribal Gaming
Ordinance.

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      1.41 "Lender or Other Lender" means any third party who makes the Facility
Loan to the Tribe under Section 2.5 herein.

      1.42 "Limited Recourse" means that the Facility Loan, Land Acquisition
Loan and Transition Loan advances, and all liabilities and obligations of the
Tribe related to this Amended Memorandum Agreement, the Facility Loan or
Facility Note, the Land Acquisition Note, the Interim Promissory Note, the
Operating Note, any UCC Financing Statements, any other Transaction Documents
and their applicable documentation, the Facility, or the Enterprise contemplated
by this Amended Memorandum Agreement, and any related awards, judgments or
decrees, shall be payable solely out of undistributed and future Net Total
Revenues of the Enterprise or any other Tribal Gaming Enterprise, and shall be a
limited recourse obligation of the Tribe, with no recourse to tribal assets
other than such undistributed and future Net Total Revenues (except as to: (i) a
security interest in the Furnishings and Equipment purchased with Facility Loan
or Transition Loan proceeds or other purchase money agreements; (ii) the
security interest in the undistributed and future Net Total Revenues pursuant to
the Dominion Account Agreement; and as to any mortgages or deeds of trust on the
Acquired Tribal Lands prior to their transfer in trust). In no event shall LKAR
or any Lender or other claimant have recourse to: (a) the physical property of
the Facility (other than Furnishings and Equipment subject to the security
interest securing the Facility Loan or Transition Loan or other purchase money
agreements), (b) Net Total Revenue distributions already made to the Tribe
pursuant to this Amended Memorandum Agreement and/or the Dominion Account
Agreement, (c) assets of the Tribe purchased with its Net Total Revenue
distributions, or (d) any other asset of the Tribe (other than such
undistributed and future Net Total Revenues of the Enterprise or any other
Tribal Gaming Enterprise).

      1.43 "Management Agreement" shall mean those provisions of this Amended
Memorandum Agreement that deals with the management of the Facility and the
Enterprise, as the same may be amended or modified. The Effective Date of the
Management Agreement shall be as set out in Section 3.19.

      1.44 "Manager" means Lakes KAR-Shingle Springs, LLC, a Delaware limited
liability company with its business office is located at 130 Cheshire Lane,
Minnetonka, MN 55305.

      1.45 "Minimum Guaranteed Monthly Payments" means the minimum monthly
amount payable to the Tribe, which amount shall be determined pursuant to
Section 6.3 hereof.

      1.46 "National Indian Gaming Commission" or "NIGC" means the commission
established pursuant to the IGRA.

      1.47 "Net Gaming Revenues" means Gross Gaming Revenues less (1) amounts
paid out as, or paid for, prizes; and (2) Costs of Gaming Operation (excluding
management compensation as set forth in Section 6.5 herein).

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      1.48 "Net Incidental Revenues" means Gross Incidental Revenues less Costs
of Incidental Operations.

      1.49 "Net Total Revenues" means the sum of Net Gaming Revenues plus Net
Incidental Revenues.

      1.50 "NIGC Approval" means written approval by the NIGC Chairman of the
Management Agreement provisions herein.

      1.51 "Non-Gaming Lands Transfer Agreement" shall mean the Non-Gaming Lands
Transfer Agreement described in Section 2.1(b) to be executed simultaneously
herewith by the parties hereto, together with all amendments, substitutions and
renewals thereof.

      1.52 "Notes and Security Provisions" shall have the meaning set forth in
Section 7.4(a) hereof.

      1.53 "Operating Note" means the promissory note evidencing the Minimum
Guaranteed Payment Advances under Section 6.3(b) herein and the Working Capital
Advances under Section 6.7 herein made by Manager, substantially in the form
agreed to by the parties hereto, together with all amendments, substitutions and
renewals thereof.

      1.54 "Plans and Specifications" means the approved plans, drawings, and
specifications for the Facility pursuant to Section 2.2(b).

      1.55 "Project" means the scope of the development project contemplated by
this Amended Memorandum Agreement, established in the Design Agreement and
approved by the parties pursuant to Section 2.2(a).

      1.56 "Property" means the Tribal Lands, agreed to by the parties, upon
which the Tribe will build the Facility, and which land is held by the United
States in trust for the Tribe and upon which Class II Gaming and Class III
Gaming may legally be conducted by the Tribe, and any other land or
rights-of-way acquired for development of the Project.

      1.57 "Replacement" shall have the meaning described in Section 7.4(b)
herein.

      1.58 "Request for Advance" means any request by the Tribe for funds to pay
for Project expenses incurred in connection with either approved Costs of
Construction or Initial Costs of Operation pursuant to either Sections 2.5(a) or
2.5(b).

      1.59 "Resolution of Limited Waiver" refers to the limited waiver of
sovereign immunity to be adopted by the Tribe in the form attached hereto as
Exhibit B and evidencing all approvals required pursuant to the Tribe's
governing documents and applicable law.

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      1.60 "Scope of Project Description Sheet" shall mean the Scope of Project
Description Sheet dated July 15, 2003, which substantially describes the scope
of Project currently contemplated by the Tribe and LKAR.

      1.61 "Secretary" means the Secretary of the Interior of the United States,
or her appropriately designated representative/agent.

      1.62 "Security Agreement" shall mean the Security Agreement to be executed
by the Tribe in favor of LKAR in the form agreed to by the parties thereto,
together with all amendments, substitutions and renewals thereof.

      1.63 "State" means the State of California.

      1.64 "Transaction Documents" shall have the meaning described in Section
10.12(b) herein.

      1.65 "Transition Loan" means the loan or advances made to the Tribe
directly by LKAR pursuant to Section 2.3(a)(i) and evidenced by the Interim
Promissory Note.

      1.66 "Tribal Council" means the governing body of the Tribe.

      1.67 "Tribal Gaming Commission" means the Shingle Springs Tribal Gaming
Commission created by Shingle Springs Tribal Gaming Ordinance, No. 96-4, as such
ordinance now exists or may in the future be amended, with authority to license
and regulate gaming activities on Tribal Lands and which is a subordinate
governmental entity of the Tribe and is entitled to all sovereign governmental
immunity of the Tribe; which ordinance was approved by the NIGC on August 5,
1996.

      1.68 "Tribal Gaming Enterprise" shall mean any gaming operations conducted
by the Tribe which are not a part of the Enterprise.

      1.69 "Tribal Lands" means all lands presently and in the future held in
trust by the United States for the Tribe and all lands within the confines of
the Shingle Springs Reservation and such lands as may be hereafter added
thereto.

      1.70 "Tribal-State Compact" means the agreement between the Tribe and the
State approved on May 16, 2000, as published in the Federal Register, concerning
Class III Gaming and any amendments or other modifications thereto.

      1.71 "Tribe" means the Shingle Springs Band of Miwok Indians.

      1.72 "UCC Financing Statements" means UCC-1 financing statements naming
Tribe as debtor and naming the Lender and LKAR as secured parties, in the form
approved by the parties.

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      1.73 "Working Capital Advances" shall have the meaning described in
Section 6.7 herein.

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                        DEVELOPMENT AGREEMENT PROVISIONS

                                   ARTICLE 2.
                GAMING SITE SELECTION; CONSTRUCTION AND FINANCING

      2.1 Gaming Site Selection.

            (a) The Tribal Council and LKAR have mutually agreed that the site
to be used for constructing the Facility ("Gaming Site") shall be those Tribal
Lands located within the exterior boundaries of the Tribe's reservation (whose
legal description is described in Exhibit A attached hereto), which are held in
trust by the United States government for the benefit of the Tribe, and upon
which Class II Gaming and Class III Gaming may legally be conducted under IGRA
and the Tribal-State compact.

            (b) It is understood that the parties intend that LKAR will transfer
its interests in certain lands held by its designees, nominees or members to the
Tribe pursuant to the terms and conditions of, respectively, the parties' Access
Land Transfer Agreement and their Non-Gaming Lands Transfer Agreement, each of
which is to be executed simultaneously herewith. Lands transferred by LKAR to
the Tribe under the parties' Access Land Transfer Agreement and their Non-Gaming
Lands Transfer Agreement shall be known as "Acquired Tribal Lands".

            (c) Any costs incurred by the Tribe in connection with the
acquisition of the Acquired Tribal Lands described in Section 2.1(b) above may
be financed in advance of the Tribe obtaining any permanent financing of the
Project by advances from LKAR to the Tribe, repayable under the Land Acquisition
Loan on the terms and conditions described in Sections 2.3(a)(ii), (b)(ii) and
(c), and shall be evidenced by the Land Acquisition Note.

      2.2 Architects, Studies, Plans and Specifications.

            (a) As soon as reasonably possible after signing this Amended
Memorandum Agreement, the Tribe, based upon the recommendation and subject to
the approval of LKAR, shall select an architect (the "Architect") for the
purpose of performing certain services in connection with the design and
construction of the Facility, including site development. The Tribe's agreement
with the Architect shall be in the form of a contract (the "Design Agreement")
approved by LKAR and the Tribal Council. The scope of the project contemplated
by this Amended Memorandum Agreement (the "Project"), shall be stated and
established in the Design Agreement, and shall be subject to the mutual approval
of the parties. It is contemplated the scope of the Project will be
substantially as described on the Scope of Project Description Sheet, subject to
such changes as may be necessary or appropriate taking into account competitive
conditions, financing and other circumstances. The parties understand that
market, Tribal-State Compact, governmental or other conditions may change and it
may be necessary to expand or decrease the scope of the Project before
construction is

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commenced. The Design Agreement shall also provide for and establish appropriate
design packages, each pertaining to a discrete portion or phase of the Project.
The Design Agreement shall allow LKAR the right and responsibility to supervise,
direct, control and administer the duties, activities and functions of the
Architect and to efficiently carry out its covenants and obligations under this
Amended Memorandum Agreement.

            (b) The Architect shall be responsible for creating the plans and
specifications for the Facility ("the Plans and Specifications") and a budget
for all Costs of Construction ("Approved Construction Budget"), both of which
shall be subject to the mutual approval of the Tribe and LKAR prior to the
commencement of construction of the Facility. The Costs of Construction budget
shall not be exceeded unless mutually agreed otherwise in writing by the Tribe
and LKAR, except LKAR may in its reasonable discretion reallocate part or all of
the amount budgeted with respect to any line item to another line item. The
Architect shall also supervise the completion of all construction, development
and related activities undertaken pursuant to the terms and conditions of the
Construction Contract with the General Contractor.

            (c) The Tribe, using funds advanced to it under the Facility Loan or
Transition Loan, shall provide funds necessary for the design, construction and
development of the Facility and Enterprise, including architectural and
engineering costs. The fee for the Architect's services shall: (i) be agreed to
by the Tribe and LKAR; (ii) be advanced by LKAR to the Tribe; and (iii) be
repaid by the Tribe to LKAR as part of and according to the terms of the
Transition Loan. Following Completion or in the event of a termination of this
Amended Memorandum Agreement, it is agreed between the parties hereto that the
Plans and Specifications and all other design documents shall be owned by the
Tribe.

            (d) The Facility shall be designed and constructed so as to
adequately protect the environment and the public health and safety. The design,
construction and maintenance of the Facility shall, except to the extent a
particular requirement or requirements may be waived in writing by the Tribal
Council, meet or exceed all reasonable minimum standards pertaining to the Tribe
and national, State and local building codes, fire codes and safety and traffic
requirements (but excluding planning, zoning and Gaming Site use laws,
ordinances, regulations and requirements), which would be imposed on the
Enterprise by existing State or federal statutes or regulations which would be
applicable if the Facility were located outside of the jurisdictional boundaries
of the Tribe, even though those requirements may not apply within the Tribe's
jurisdictional boundaries. To the extent that the Tribe has adopted or may in
the future adopt more stringent requirements, those requirements shall govern.
Nothing in this subsection shall grant to the State or any political subdivision
thereof any jurisdiction (including but not limited to, jurisdiction regarding
zoning or Gaming Site use) over the Facility or Enterprise or its development,
management and operation.

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            (e) Any costs incurred by the Tribe in connection with the
activities described in this Section 2.2 may be financed in advance of the Tribe
obtaining any permanent financing of the Project by advances from LKAR to the
Tribe, repayable under the Transition Loan on the terms and conditions described
in Section 2.3 and evidenced by the Interim Promissory Note.

      2.3 Pre-Construction Advances and Terms of Land Acquisition Loan and
Transition Loan.

            (a)(i) LKAR agrees to make the following pre-construction advances
to the Tribe: (1) two hundred fifty thousand dollars ($250,000) upon execution
of the June 11, 1999 Development and Management Agreements; (2) seventy thousand
dollars ($70,000) each month thereafter until the Commencement Date; (3)
advances for costs incurred in connection with the activities described in
Section 2.2; (4) advances for the establishment and operation of the Tribal
Gaming Commission pursuant to Section 4.6.6 of the Management Agreement between
the Tribe and KAR entered on June 11, 1999; (5) expenses relating to the Tribe's
CNIGA activities, subject to the written approval of LKAR, which approval shall
not be unreasonably withheld; and (6) legal expenses incurred by the Tribe in
connection with eliminating obstacles to the implementation of this Amended
Memorandum Agreement, subject to the written approval of LKAR, which approval
shall not be unreasonably withheld. The Tribe and LKAR agree that all sums
previously advanced to the Tribe by KARSS under the superceded Development and
Management Agreements, and by LKAR under the superceded May 5, 2000 Memorandum
of Agreement (excluding advances for acquisition of the Acquired Tribal Lands),
shall constitute advances by LKAR to the Tribe hereunder, be credited to LKAR's
obligations hereunder, and shall be subject to the terms of the Transition Loan
herein.

            (a)(ii) in accordance with the terms of the Access Land Transfer
Agreement, the Non-Gaming Lands Transfer Agreement and Section 2.1 hereof, LKAR
agrees to make advances to the Tribe to finance the acquisition costs associated
with the Acquired Tribal Lands.

            (b)(i) The total amount of funds advanced to the Tribe directly from
LKAR pursuant to Section 2.3(a)(i) shall equal the total amount of the
Transition Loan. The total amount of the Transition Loan shall be in an amount
not exceeding twenty five million dollars ($25,000,000). The parties agree that
as of _____________, 2003, LKAR has advanced $___________ to the Tribe under the
Transition Loan. The Transition Loan shall accrue interest at the prime interest
rate of Chase Manhattan Bank (or any successor bank by acquisition or merger)
plus two percent (2%), fixed from the date the funds are advanced to the Tribe.
Principal and interest due under the Transition Loan shall be paid as provided
under Section 2.3(c) below.

            (b)(ii) The total amount of funds advanced to the Tribe by LKAR
pursuant to Section 2.3(a)(ii) shall equal the total amount of the Land
Acquisition Loan. The total amount of the Land Acquisition Loan shall be in an
amount not exceeding Ten Million dollars ($10,000,000). The parties agree that
as of ______________, 2003, LKAR has advanced $____________ to the Tribe

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under the Land Acquisition Loan. The Land Acquisition Loan shall accrue interest
at the prime interest rate of Chase Manhattan Bank (or any successor bank by
acquisition or merger) plus two percent (2%), fixed from the date the funds are
advanced to the Tribe in accordance with Section 2.3(a)(ii) hereof. Principal
and interest due under the Land Acquisition Loan shall be paid as provided under
Section 2.3(c) below.

            (c) The Land Acquisition Loan and the Transition Loan shall each (i)
be subject to all the terms and conditions of this Amended Memorandum Agreement;
(ii) subject to the priorities set forth below, principal and interest due under
such loans shall be repaid monthly as follows (collectively, the "Monthly Loan
Payment"): (1) the Tribe shall retain the first $500,000 from any monthly Net
Total Revenue distribution made to the Tribe by the Enterprise; (2) if in any
month the Tribe receives a Net Total Revenue distribution in excess of $500,000,
it shall pay to LKAR the excess over $500,000 up to a total principal and
interest payment of $500,000; and (3) for any month in which the Net Total
Revenue distribution received by the Tribe is in excess of $1,000,000, the Tribe
shall in addition pay to LKAR 50% of the distribution amount which it has
received in excess of $1,000,000 as an additional principal and interest
payment; (iii) the Monthly Loan Payment shall on a prorata basis be applied to
and divided between such loans monthly based on the relative amounts outstanding
under such loans; (iv) such Monthly Loan Payments shall commence on the
thirtieth (30th) day after the Commencement Date and continue on the same day of
each calendar month there after until all amounts owing under such loans and the
related promissory notes are paid in full; and (v) all such obligations shall be
repaid solely as Limited Recourse obligations of the Tribe without any cross
collateralization from other projects of Tribe and without any other liability
or guarantee on the part of the Tribe except for the security interests
described herein. Except for the Minimum Guaranteed Monthly Payment to the Tribe
and repayment of the Operating Note and Facility Loan, repayment of the Land
Acquisition Loan and the Transition Loan shall have first priority on any Net
Gaming Revenues and Net Incidental Revenues generated by the Enterprise or any
other Tribal Gaming Enterprise. Subject to the foregoing, the Tribe agrees to
grant to LKAR a first priority and perfected security interest, including a
Dominion Account arrangement pursuant to the Dominion Account Agreement (in the
form consistent with the terms of this Amended Memorandum Agreement), on any Net
Gaming Revenues and Net Incidental Revenues of the Enterprise or any other
Tribal Gaming Enterprise in order to secure repayment of the Land Acquisition
Note and the Interim Promissory Note, and such Land Acquisition Loan and
Transition Loan shall also be secured on a first priority and perfected basis by
any Furnishings and Equipment financed by proceeds of the Transition Loan or
Facility Loan or other purchase money agreements pursuant to the Security
Agreement; provided that upon request of the lender providing the Facility Loan
or Furnishing and Equipment loan (as applicable), LKAR agrees to subordinate its
security interests in the Furnishing and Equipment and any Net Gaming Revenues
and Net Incidental Revenues of the Enterprise or any other Tribal Gaming
Enterprise (as applicable) pursuant to a subordination agreement in form and
substance acceptable to LKAR and such lender. The Tribe agrees not to encumber
any of the assets of the Facility or the Enterprise without the written consent
of LKAR, which consent will not be

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unreasonably withheld; except that the Tribe shall have the right without the
consent of LKAR to grant security interests in the Enterprise's revenues which
are subordinate to LKAR's and Other Lenders' interests under this Amended
Memorandum Agreement and all related Transaction Documents pursuant to a
subordination agreement in form and substance acceptable to LKAR and any Other
Lender. The Tribe agrees to enter into a limited, transactional waiver of
sovereign immunity and consent to jurisdiction and arbitration as to LKAR and in
connection with the Land Acquisition Loan and the Transition Loan, as provided
in the Resolution of Limited Waiver.

            (d) The Tribe shall retain the right to prepay each of the Land
Acquisition Loan and the Transition Loan, in whole or in part, without
imposition of any prepayment penalty.

            (e) It is the understanding of the parties that each of the Land
Acquisition Loan and the Transition Loan will be the sole responsibility of
Tribe, will be a Limited Recourse obligation of the Tribe, and will not be
subject to any other guarantee or obligation on the part of the Tribe except the
security interests and liens described herein.

      2.4 Construction.

            (a) LKAR shall arrange financing for the Costs of Construction
pursuant to Section 2.5.

            (b) As soon as reasonably possible after the approval of the Plans
and Specifications and the budget for the Costs of Construction, the Tribe, with
the assistance of the Architect, shall enter into a contract with a General
Contractor pertaining to the construction of the Facility (the "Construction
Contract"), subject to the approval of such contract by LKAR. The General
Contractor must (i) exhibit the financial capability to complete the work, (ii)
have the ability to obtain adequate payment and performance bonds and builder's
risk insurance in amounts requested by LKAR and Tribe, (iii) provide an
acceptable bid, as mutually agreed upon by Tribe and LKAR, (iv) be capable of
meeting the construction schedule and (v) construct quality facilities. The
General Contractor shall be responsible for providing, including through
subcontractors, all material, equipment and labor to construct and initially
equip the Facility as necessary in conformance with the Plans and
Specifications, including site development.

            (c) The Construction Contract shall contain such provisions for the
protection of the Tribe and LKAR as the parties deem appropriate, and shall
provide that construction of the Facility shall commence within thirty days of
the parties receiving NIGC Approval, and any necessary Tribal Gaming Commission
approvals (not to be unreasonably withheld), following and subject to the
granting of all approvals necessary to commence construction and obtaining the
Facility Loan; and shall also provide that the General Contractor, and all its
subcontractors, shall exert its best efforts to complete construction within
such time as the Tribe and LKAR agree, but which shall not exceed one

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year following NIGC Approval. The Construction Contract shall provide that LKAR
shall be responsible and obligated for all construction administration during
the construction phases of the Project. LKAR shall act as the Tribe's designated
representative and shall have full power and complete authority to act on behalf
of the Tribe in connection with the Construction Contract. To the extent allowed
by the Construction Contract, LKAR shall have control and charge of any persons
performing work on the Project site, and shall interpret and decide on matters
concerning the performance of any requirements of the Construction Contract.
LKAR shall have the authority and obligation to reject work which does not
conform to the Construction Contract. LKAR shall conduct inspections to
determine the date or dates of substantial completion and the date of
Completion. LKAR shall observe and evaluate or authorize the observation and
evaluation of Project work performed, review or authorize review of applications
for payment for submission to the tribe and review or authorize review and
certification of the amounts due the contractors and/or the General Contractor.
The General Contractor shall, at a minimum, warrant its work to be performed
free of defects and unworkmanlike labor pursuant to industry standards for not
less than the maximum period subsequent to Completion customary in the industry
or as required by State law or the Tribal-State Compact. The General Contractor
shall also be required to obtain before construction commences and maintain
until Completion a policy of insurance of at least equal to the estimated Cost
of Construction of the Facility naming the Tribe as an additional insured; said
policy to be issued by an insurance company licensed by the State and having an
AM Best rating of A7 or better. General Contractor shall also provide
comprehensive general liability insurance in the amount of not less than ten
million dollars ($10,000,000), naming the Tribe as an additional insured.

            (d) Construction change orders to the Plans and Specifications or to
the Construction Contract shall require written approval of the Architect, Tribe
and LKAR and a representative of the Tribal Gaming Commission if required by
applicable law. It is agreed that if completion of the construction, equipping
and furnishing of the Facility cannot be reasonably accomplished within the
budget for Costs of Construction to be agreed upon pursuant to Section 2.2(b)
above, then, Tribe, upon receiving advice from LKAR and Architect, shall
promptly determine which components of the Facility shall be deleted or reduced
in size, such that the total expenditures for Costs of Construction shall not
exceed the approved budget.

            (e) LKAR and the Tribe each reserves to itself the right, as a Cost
of Construction, to inspect the Facility prior to the disbursement of each
requested advance of funds, and (i) approve the progress and the workmanship of
the construction; (ii) verify compliance with the Plans and Specifications;
(iii) verify the percentage of the Completion as set forth in requests for
advance; and (iv) satisfy itself that all work for which such advance is
requested has been performed and all materials for which such advance is
requested are in place or, as to stored materials, are owned by the Tribe and
suitably safeguarded. Such inspection will be performed in a timely manner and
not unreasonably delay the disbursement of any advance.

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

            (g) LKAR, with the assistance of the Architect, shall submit to the
Tribal Council, for its review and approval, the specifications for Furnishings
and Equipment . Thereafter, LKAR shall select and procure vendors for purchase
by the Tribe of Furnishings and Equipment required to operate the Enterprise in
conformity with such specifications. The cost of Furnishings and Equipment shall
be financed through the Facility Loan. Alternatively, in the sole discretion of
the Tribe, LKAR may arrange for the procurement of Furnishings and Equipment on
lease terms consistent with the terms provided as to the Facility Loan.

            (h) The Tribe shall keep the Facility and Gaming Site free and clear
of all mechanic's and other liens resulting from the construction of the
Facility, which shall at all times remain the property of the Tribe. If such
lien is claimed or filed, it shall be the responsibility of the Enterprise to
discharge or take reasonable steps to otherwise cause the removal of the lien
within thirty days after receiving written notice of such claim. The Enterprise
shall indemnify and hold the Tribe and LKAR harmless for any pre-existing
conditions on the Gaming Site. Tribe shall indemnify and hold LKAR harmless from
any and all liability alleged to arise from any prior agreements entered into by
the Tribe with any persons or entities in connection with development of the
Facility and the Enterprise, including but not limited to, Chris Anderson, Sharp
Image Gaming and Excelsior Gaming; provided, however, that in the event that
Lakes Gaming, Inc. is sued in its individual capacity based upon any alleged
relationship with Sharp Image prior to the formation of LKAR, and not as a
member of LKAR, this indemnification and hold harmless obligation shall not
apply to Lakes Gaming.

      2.5 Financing Obligation and Terms of Facility Loan.

            (a) Commencing on the Effective Date of this Amended Memorandum
Agreement, and subject to satisfaction of each of the conditions set forth in
Section 2.6(a) below, LKAR will, upon LKAR's approval of requests to advance
funds ("Requests for Advance"), arrange for a Lender to loan to the Tribe under
the Facility Loan or, in its discretion, LKAR may advance directly to the Tribe
for the benefit of the Tribe funds for the actual Costs of Construction up to an
aggregate of the Approved Construction Budget approved by the parties. Such
amounts loaned or advanced for Costs of Construction shall be payable and accrue
interest on terms as set forth in the Facility Note, in the form agreed to by
the Tribe and the Lender or by the Tribe and LKAR, as applicable. All advances
of Costs of Construction made by LKAR shall be recorded by LKAR on a schedule to
be attached to the Facility Note.

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            (b) Commencing on the Effective Date of this Amended Memorandum
Agreement, and subject to satisfaction of each of the conditions set forth in
Section 2.6(b) below, LKAR will arrange to have a Lender loan the Tribe under
the Facility Loan or, in its discretion, LKAR may advance directly to the Tribe
funds up to the amount of the approved budget to finance the Initial Costs of
Operation. All amounts loaned or advanced for Initial Costs of Operation shall
be payable and accrue interest on terms as set forth in the Facility Note. All
advances of Initial Costs of Operations made by LKAR shall be recorded by LKAR
on a schedule to be attached to the Facility Note.

            (c) The Costs of Construction and Initial Costs of Operation shall
equal the total cost of the Facility Loan. The total amount of the Facility
Loan, or total advances if made directly by LKAR, shall be in an amount up to
but not exceeding three hundred million dollars ($300,000,000). Advances for
Costs of Construction and Initial Costs of Operation, if made directly by LKAR,
shall accrue interest at the prime interest rate of Chase Manhattan Bank (or any
successor bank by acquisition or merger) plus two percent (2%), fixed from the
date the funds are advanced to the Tribe; with repayment of principal and
interest to be made in equal monthly installments over a term of seven (7) years
commencing on the thirtieth (30th) day after the Commencement Date, or five (5)
years if the Tribe exercises its right under Section 3.19 of this Amended
Memorandum Agreement.

            (d) The Facility Loan, or total advances if made directly by LKAR,
shall (i) be subject to all the terms and conditions of this Amended Memorandum
Agreement; (ii) be evidenced by the Facility Note executed by Tribe (in a form
consistent with the terms of this Development Agreement if LKAR makes the
advances); and (iii) be repaid solely as a Limited Recourse obligation of the
Tribe without any cross collateralization from other projects of Tribe and
without any other liability or guarantee on the part of the Tribe except the
security interests described herein. Except for the Minimum Guaranteed Monthly
Payment to the Tribe and repayment of the Operating Note, repayment of the
Facility Loan, or total advances if made directly by LKAR, shall have first
priority on any Net Gaming Revenues and Net Incidental Revenues generated by the
Enterprise or any other Tribal Gaming Enterprise. Subject to the foregoing, the
Tribe agrees to grant to the Lender, or to LKAR to the extent LKAR makes
advances directly to the Tribe, a first priority and perfected security
interest, including a Dominion Account arrangement pursuant to the Dominion
Account Agreement (in a form consistent with the terms of this Development
Agreement), on any Net Gaming Revenues and Net Incidental Revenues of the
Enterprise or any other Tribal Gaming Enterprise in order to secure repayment of
the Facility Note, and such Facility Loan shall also be secured on a first
priority and perfected basis by any Furnishings and Equipment financed by
proceeds of the Facility Loan or Transition Loan or other purchase money
agreements pursuant to the Security Agreement. The Tribe agrees not to encumber
any of the assets of the Facility or the Enterprise without the written consent
of LKAR and the holder of the Facility Note, which consent will not be
unreasonably withheld; except that the Tribe shall have the right without the
consent of LKAR and such holder to

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grant security interests in the Enterprise's revenues which are subordinate to
LKAR's or such holder's interests under this Amended Memorandum Agreement and
all related documents and agreements pursuant to a subordination agreement in
form and substance acceptable to LKAR and any Other Lender. The Tribe agrees to
enter into a limited, transactional waiver of sovereign immunity and consent to
jurisdiction and arbitration as to the holder of the Facility Note, or to LKAR
to the extent LKAR makes advances directly to the Tribe, as provided in the
Resolution of Limited Waiver.

            (e) The Tribe shall retain the right to prepay the Facility Loan, or
total advances if made directly by LKAR, in whole or in part, without imposition
of any prepayment penalty.

            (f) It is the understanding of the parties that the Facility Loan,
or total advances if made directly by LKAR, will be the sole responsibility of
Tribe, will be a Limited Recourse obligation of the Tribe, and will not be
subject to any other guarantee or obligation on the part of the Tribe except the
security interests and liens described herein.

      2.6 Conditions Precedent to Facility Loan.

            (a) The obligation of LKAR to arrange for the issuance of the
Facility Loan to the Tribe, or to make direct advances to the Tribe, for the
initial or any subsequent advance of Costs of Construction pursuant to Section
2.5(a) above is subject to the following conditions:

                  (i) The Facility Loan and related Facility Note, UCC Financing
            Statements or other related documentation required shall be dated
            and duly executed and delivered by the Tribe and shall have been
            approved by the BIA or National Indian Gaming Commission if required
            by applicable law.

                  (ii) This Amended Memorandum Agreement shall have become
            effective pursuant to Section 3.19 and LKAR shall have received an
            opinion of counsel for the Tribe concerning the enforceability of
            this Amended Memorandum Agreement and the other Transaction
            Documents against the Tribe and the authority of the Tribe to
            execute each of the same.

                  (iii) LKAR shall have received and approved the Plans and
            Specifications, the budget for the Costs of Construction, and the
            executed Construction Contract in accordance with Sections 2.2 and
            2.4.

                  (iv) LKAR shall have received evidence that the Gaming Site is
            held in trust by the United States of America, as trustee for the
            Tribe.

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                  (v) LKAR shall have received and approved evidence of the
            bonds and insurance required of the General Contractor pursuant to
            Section 2.4(b).

                  (vi) Tribe shall have furnished to LKAR an ALTA/ACSM survey of
            the Gaming Site and any other Tribal Lands on which the Enterprise
            will be located in a form acceptable to LKAR, which survey shall
            locate all property lines, existing access ways, building setback
            lines and easements affecting the Gaming Site and other applicable
            Tribal Lands identified by book and page of recording, where
            applicable, water, electric and sewer lines, and other physical
            matters, including encroachments, if any, affecting the title and
            use of such property. The survey shall set forth the exact legal
            description of the Gaming Site and any other applicable Tribal Lands
            used with respect to the Enterprise. The Tribe further agrees to
            furnish to LKAR a copy of the recorded plat, if any, applicable to
            the Gaming Site and any other applicable Tribal Lands. All surveys
            required hereunder shall contain a certificate in favor of, and in
            form and substance satisfactory to, LKAR.

                  (vii) LKAR shall have received satisfactory evidence that all
            permits or other authorizations, including, and without limitation,
            the building permit(s), required by any applicable Governmental
            Authority to authorize construction of the Facility have been issued
            and are in full force and effect. If all permits are not available
            prior to the closing of the Facility Loan, it shall be within LKAR's
            discretion to arrange for the advance by a lender of such sums under
            the Facility Loan for work for which all applicable permits have
            been received. At LKAR's option, the Tribe shall furnish LKAR
            reasonable evidence that all other permits required in order to
            construct the Facility in accordance with the Plans and
            Specifications, and within the Approved Construction Budget, will be
            available when necessary.

                  (viii) LKAR shall have received satisfactory evidence of the
            availability of adequate water, electricity, telephone, sanitary
            sewer, and, if applicable, storm sewer service to the Facility to be
            provided as part of the Costs of Construction or otherwise as agreed
            to by the parties.

                  (ix) All representations and warranties of the Tribe shall be
            true and correct, this Amended Memorandum Agreement shall remain in
            effect, and the Tribe shall not be in default under this Amended
            Memorandum Agreement on the date of each advance.

                  (x) There shall be no pending or threatened litigation, claim
            or dispute which, in LKAR's good faith judgment, might materially
            adversely affect the ability of the Tribe to timely perform its
            obligations under this Amended Memorandum

                                       23
<PAGE>

            Agreement, including, without limitation, a ruling that the
            Tribal--State Compact is void for purposes of the IGRA. Further, the
            Tribe shall not be the subject of any pending or threatened
            bankruptcy, insolvency, reorganization or similar proceedings which,
            in LKAR's good faith judgment, would materially adversely affect the
            security for the Facility Loan or the Tribe's ability to perform its
            obligations under this Amended Memorandum Agreement or the Facility
            Note.

                  (xi) LKAR shall have received satisfactory evidence that the
            Gaming Site is free from environmental contamination of any nature
            whatsoever or any other environmental condition that would require
            any remediation pursuant to any applicable Legal Requirement.

            (b) The obligation of the LKAR to arrange for a Lender to make the
initial or any subsequent advances for Initial Costs of Operation, or to make
such advances directly to the Tribe, is subject to the conditions precedent set
forth above in subparagraphs 2.6(a) (i), (ii), (ix), (x) and (xi).

      2.7 Advances for Costs of Construction. Nothing herein contained shall
obligate LKAR to arrange for a Lender to advance the Costs of Construction, or
make advances directly to the Tribe, for payment of any item not included in or
in an amount in excess of the Approved Construction Budget.

            (a) Subject to the provisions of Section 2.7 (c) relating to
retainage, LKAR shall arrange for a Lender to make advances, or make advances
directly, to the Tribe for materials purchased by the Tribe and stored on or off
the Gaming Site but not yet incorporated into the Facility only if the Tribe
provides evidence satisfactory to LKAR that such stored materials are protected
against theft and damage.

            (b) Unless it otherwise agrees, LKAR shall not be required to
arrange for a Lender to make advances, or make advances directly to the Tribe,
for Costs of Construction under the Facility Note more often than once monthly.
Advances for Costs of Construction will be made based upon the progress of
construction as verified by Requests for Advance approved and certified by the
Architect.

            (c) Subject to the provisions of the Construction Contract, LKAR may
retain from each advance for payment of Costs of Construction to the General
Contractor an amount equal to ten percent (10%) (or other lower retainage as may
be agreed upon by LKAR and set forth in the Construction Contract with the
General Contractor) of the amount of each Request for Advance. Upon Completion,
any amounts remaining from such retainage shall be paid to the Tribe or the
Contractor for Costs of Construction less such reasonable amounts to be escrowed
for payment of punchlist items.

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<PAGE>

            (d) LKAR shall not be obligated to arrange for a Lender to make the
final advance, or make the final advance directly to the Tribe, for Costs of
Construction until the following conditions have been satisfied: (i) all
conditions stated in this Section 2.7 and Section 2.4(f) shall have been
satisfied; and (ii) LKAR shall have received the following: (1) evidence that
all work requiring inspection by any Governmental Authorities having
jurisdiction over the Facility has been inspected and approved by such
authorities and that all other required certificates and approvals have been
issued; (2) an as-built survey showing the Gaming Site, the Facility, including,
without limitation, the building, parking areas (including parking spaces
designated as regular, compact or handicapped spaces), walkways, driveways,
access ways to public streets, signs, and any encroachments; and (3) a
certificate from the Architect to the effect that the Facility (including
landscaping and on-site and any off-site improvements) have been completed
substantially in accordance with the Plans and Specifications and that direct
connection has been made to all appropriate utility facilities.

      2.8 Advances for Initial Costs of Operation. Advances under the Facility
Note for Initial Costs of Operation will be arranged by LKAR with a Lender, or
made directly by LKAR to the Tribe, upon written request by the Tribe within the
budget for Initial Costs of Operation approved pursuant to Section 6.1(b) and if
supported by invoices or other documentation as LKAR may reasonably require. In
addition, LKAR is hereby authorized to make direct payments for Initial Costs of
Operation incurred by LKAR in its role as agent for the Tribe, subject to the
accounting and record keeping provisions of Section 3.4(d). LKAR shall provide
the Tribe with monthly reports of all advances for Initial Costs of Operation
that shall compare actual advances with the budget for Initial Costs of
Operation prepared pursuant to Section 6.1(b).

      2.9 Title to Facility. The Facility, the Enterprise and all related
improvements and assets shall be the sole and exclusive property of the Tribe,
subject to no liens or encumbrances except for any UCC and other liens permitted
in favor of the Lender and LKAR to be granted pursuant to the provisions of this
Amended Memorandum Agreement or any loan or other financing agreements between
the Lender or LKAR and the Tribe entered into after the date the parties execute
this Amended Memorandum Agreement.

      2.10 No Liens. During the term of this Amended Memorandum Agreement,
neither the Tribe nor LKAR shall act in any way whatsoever, either directly or
indirectly, to cause any other party to lease or to become a lienholder of the
Gaming Site, the Facility, the Enterprise, or any related assets except as
expressly agreed to by the parties or permitted herein.

      2.11 Limited Waiver of Sovereign Immunity. By this Amended Memorandum
Agreement, the Tribe does not waive, limit, or modify its sovereign immunity
from unconsented suit except as provided in the Resolution of Limited Waiver as
simultaneously executed, delivered and attached hereto as Exhibit B. The Tribe
understands that its agreement to adopt an enforceable Resolution of

                                       25
<PAGE>

Limited Waiver is a material inducement to the LKAR's execution of this Amended
Memorandum Agreement and is a condition precedent to any of the respective
obligations of the parties under this Amended Memorandum Agreement. The Tribe
further agrees that it will not amend or alter or in any way lessen the rights
of the Lender or LKAR as set forth in the Resolution of Limited Waiver, which is
attached hereto as Exhibit B and incorporated here by reference. This Section
2.11 shall survive the termination of this Amended Memorandum Agreement,
regardless of the reason for the termination.

      2.12 Exclusivity. During the term of this Amended Memorandum Agreement,
the Tribe shall have an exclusive relationship with LKAR regarding the
development of the Facility and the Enterprise; provided however, that LKAR
acknowledges that it is aware of the Tribe's pre-existing relationship with
Sharp Image and waives the application of this section and Section 2.6(a)(x)
with respect to that relationship to the extent the Tribe may have existing
enforceable legal obligations to Sharp Image but only on the following
conditions: (i) any monies payable to Sharp Image or another entity or person
from the Tribe based upon present or past relationships, and the Tribe's legally
required performance thereunder in connection with the operation of the
Enterprise shall be paid solely by the Tribe, and any monies paid in settlement
of any claims or judgments held by Sharp Image shall be paid by the Tribe and
shall not be a considered a Cost of Gaming Operations or Cost of Incidental
Operations; (ii) in the event that the Enterprise has to pay any monies to
settle any claims or judgments held by Sharp Image, then the Tribe shall repay
such amounts to the Enterprise; and (iii) if an enforceable legal obligation is
found by a court of competent jurisdiction to exist between the Tribe and Sharp
Image or another entity or person based upon present or past relationships in
connection with the operation of the Enterprise, and the Tribe's legally
required performance thereunder results in LKAR being terminated or discontinued
as Manager of the Enterprise before expiration of the term period contained in
Section 3.19, then the Tribe shall be obligated to pay to LKAR an amount equal
to the sum of its actual costs incurred to the date of such termination, plus
interest at a rate to be determined through arbitration if the parties cannot
agree on said rate, plus such additional amount, if any, as an arbitrator may
find necessary under all the circumstances to compensate LKAR for the value it
has contributed to the enterprise through its efforts and expertise. The Tribe
and LKAR will vigorously and in good faith defend against any action by Sharp
Image to establish and enforce such obligations. Subject to all Legal
requirements, the Tribe also agrees that, during the term of this Amended
Memorandum Agreement, the tribe may pursue other commercial, gaming and economic
development opportunities on Tribal Lands; provided it grants to LKAR the right
of first refusal to participate with the Tribe upon the terms and conditions
proposed by the Tribe, with prompt response by LKAR required, but in no event
later than thirty (30) days after written notice from the Tribe. In the event
that LKAR declines to participate with the Tribe upon such terms and conditions,
the Tribe shall have the right to pursue such opportunity but may not offer to
an unrelated third party terms and conditions more favorable than those offered
to LKAR. If the Tribe does not enter into a signed agreement with such unrelated
third party regarding the other commercial, gaming and economic development
opportunity which has been declined by LKAR within one (1) year of such
declination, then LKAR's right of first refusal granted herein is reinstated for
that

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opportunity. Except for the restrictions in Section 10.21, nothing herein shall
be deemed to restrict LKAR's gaming activities related to commercial or Indian
gaming.

      2.13 Intentionally Omitted.

      2.14 Term of Development Agreement. Unless sooner terminated as provided
in this Amended Memorandum Agreement, the term of the Development Agreement
shall run until the earlier of either (i) the Commencement Date; or (ii) June
11, 2004; provided however, that the Notes and Security Provisions shall
continue until all amounts owing to LKAR with respect thereto have been paid in
full.

      2.15 Tribal Representatives. The Tribe hereby acknowledges and agrees that
to the extent any authorization, consent or other approval of the Tribe or the
Tribal Council is required under this Amended Memorandum Agreement or any
related Transaction Documents and the Tribe shall provide to LKAR a tribal
resolution naming any individual or individuals authorized to represent the
Tribe and the Tribal Council for purposes or for the purpose of the operation
and performance of this Amended Memorandum Agreement and related Transaction
Documents, then LKAR shall be entitled to rely on all decisions, authorizations,
consents, and approvals provided by such individual or individuals, as
applicable, until such time as the Tribe shall deliver to LKAR an additional
tribal resolution revoking or otherwise modifying such authority.

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                         MANAGEMENT AGREEMENT PROVISIONS

                                   ARTICLE 3.
                           AUTHORITY AND DUTY OF LKAR

      3.1 Appointment as Agent. Subject to the terms and conditions of this
Amended Memorandum Agreement, the Tribe hereby appoints LKAR to act as the
exclusive agent for the Tribe for all non-governmental matters related to the
Facility and the Enterprise during the term of the Management Agreement. LKAR's
agency responsibilities shall include, among other things, maintenance and
improvement of the Facility, management and operation of the Enterprise's Class
II Gaming and Class III Gaming activities within the Facility, and all other
revenue producing activities that are conducted by the Enterprise, such as the
sale of food and beverages in the Facility. LKAR accepts such appointment as the
Tribe's exclusive agent for the term of this Management Agreement. Subject to
the provisions of this Amended Memorandum Agreement and specifically the
restrictions in this Article 3 and the budget provisions of Article 6 hereof,
LKAR shall have, and the Tribe does hereby grant to LKAR, the power and
authority as agent for the Tribe, to exercise the non-governmental rights of the
Tribe under and to execute, modify, or amend any contracts associated with the
operations of the Facility and Enterprise, including, without limitation,
purchase orders, equipment and retail leases, contracts for services, including
utilities, and maintenance and repair services, relating to the operation of the
Facility and the Enterprise (except for this Amended Memorandum Agreement and
contracts or compacts between the Tribe and the State or its political
subdivisions, which shall remain the sole authority of the Tribe). The duties
and authorities of LKAR shall be subject in all events to receipt of all
necessary licenses, consents or approvals from the Tribal Gaming Commission.

      3.2 Limitations. LKAR shall have no authority to waive or impair the
Tribe's sovereign immunity or any other attribute of its sovereign governmental
powers. Except as stated herein, LKAR shall have no authority as the Tribe's
agent under this Amended Memorandum Agreement without the prior written approval
of the Tribe (not to be unreasonably withheld): (a) to incur costs which are
materially in excess of the expenditures to be agreed upon in the operating
budget or capital expenditure budget to be developed pursuant to Section 6.1(c)
herein; (b) to sell, encumber or otherwise dispose of any personal property or
equipment located in the Facility, except for inventory sold in the regular
course of business and other items which must be replaced due to age,
obsolescence, or wear and tear; (c) to purchase any goods or services from LKAR
or any of LKAR's affiliated companies as a Costs of Gaming Operations, Costs of
Incidental Operations or Costs of Construction unless such arrangement is
specifically approved in writing by the Tribal Council. Except as specifically
authorized in this Article 3, LKAR shall not hold itself out to any third party
as the agent or representative of the Tribe.

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      3.3 LKAR's Authority and Responsibility.

            (a) LKAR shall conduct and direct all business and affairs in
connection with the day-to-day operation, management and maintenance of the
Enterprise and the Facility, including the establishment of operating days and
hours, in accordance with the requirements of this Amended Memorandum Agreement.
It is the parties' intention that the Enterprise be open 24 hours daily, seven
days a week. LKAR is hereby granted the necessary power and authority to act,
through the Enterprise's general manager, in order to fulfill all of its
responsibilities under this Amended Memorandum Agreement. Nothing herein grants
or is intended to grant LKAR any title or ownership interest to the Facility or
to the Enterprise. LKAR hereby accepts such retention and engagement. The Tribe
shall have the sole proprietary interest in and ultimate responsibility for the
conduct of all Class II Gaming and Class III Gaming conducted by the Enterprise,
subject to the rights and responsibilities of LKAR under this Amended Memorandum
Agreement.

            (b) In managing, operating, maintaining and repairing the Enterprise
and the Facility, LKAR's duties shall include, without limitation, the
following: (i) using reasonable measures for the orderly physical
administration, management, and operation of the Enterprise and the Facility,
including without limitation cleaning, painting, decorating, plumbing,
carpeting, grounds care and such other maintenance and repair work as is
reasonably necessary; (ii) complying with all duly enacted statutes, regulations
and ordinances of the Tribe; and (iii) complying with all applicable provisions
of the Internal Revenue Code including, but not limited to, the prompt filing of
any cash transaction reports and W-2G reports that may be required by the
Internal Revenue Service of the United States or under the Tribal-State Compact.

      3.4 Compliance with Laws.

            (a) LKAR shall assist the Tribe in compliance with all terms and
conditions of the Tribal-State Compact, the Tribal Gaming Ordinance, IGRA and
any gaming regulations (collectively, the "Governing Laws"), the violation of
which would materially impair the conduct of gaming permitted to be conducted
under IGRA by the Enterprise. Without limiting the foregoing, LKAR, as agent for
the Tribe, shall supply the NIGC with all information necessary to comply with
the National Environmental Policy Act, as it may be amended from time to time,
and comply with the NIGC's regulations relating thereto. LKAR shall ensure
compliance with requirements concerning the reporting and withholding of taxes
with respect to the winnings from gaming operations pursuant to this Amended
Memorandum Agreement. The Tribe agrees to cooperate with LKAR and to aid LKAR in
ensuring compliance with the foregoing laws, regulations and requirements.

            (b) The parties shall use their best efforts to obtain all necessary
approvals of Governmental Authorities of this Amended Memorandum Agreement.

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      3.5 Security. LKAR shall provide for appropriate security for the
operation of the Enterprise. All aspects of Facility security shall be the
responsibility of LKAR. Upon agreement of the Tribe and LKAR, any security
officer may be bonded and insured in an amount commensurate with his or her
enforcement duties and obligations. The cost of any charge for security and
increased public safety services will be a Costs of Gaming Operations or Costs
of Incidental Operations, as appropriate.

      3.6 Accounting, Financial Records, and Audits.

            (a) LKAR shall maintain full and accurate records and books of
account for operations of gaming activities and related incidental operations
managed hereunder. Such records shall be maintained at the Enterprise's general
manager's office located within the Facility and shall be made available for
immediate inspection and verification at all times. Inspection or verification
by the Governmental Authorities shall be coordinated through the Tribal Gaming
Commission.

            (b) At least three months prior to the Commencement Date, and
subject to the approval of the Tribal Council and the Tribal Gaming Commission,
which approvals shall not be unreasonably withheld and which shall occur prior
to the Commencement Date, LKAR shall establish and maintain such approved
accounting systems and procedures that shall: (i) include procedures for
internal accounting controls; (ii) permit the preparation of financial
statements in accordance with generally accepted accounting principles; (iii) be
susceptible to audit; (iv) allow the Enterprise, the Tribe and NIGC to calculate
the annual fee under 25 CFR Section 514.1; (v) permit the calculation of LKAR's
compensation under Section 6.5(b) herein; and (vi) provide for the allocation of
operating expenses or overhead expenses among the Tribe, the Enterprise and
LKAR, or any other user of shared facilities or services. Supporting records and
the agreed upon accounting system shall be sufficiently detailed to permit the
calculation and payment of any fee or contribution computations required under
IGRA, the Tribal-State Compact and other applicable laws or regulations.

            (c) Net Gaming Revenues, Net Incidental Revenues, and Net Total
Revenues will be calculated by LKAR for purposes of distribution monthly in
accordance with Section 6.5 and copies of such calculations shall be promptly
supplied to the Tribal Council as required by Section 6.4 herein.

            (d) All records shall be maintained so as to permit the preparation
of financial statements in accordance with generally accepted accounting
principles consistently applied and in accordance with procedures to be mutually
agreed upon by the parties. LKAR shall, as a Costs of Gaming Operations, furnish
to the Tribe and the Tribal Gaming Commission, monthly financial reports in
accordance with Section 6.4. Such reports shall provide reasonable detail as
requested by the Tribe and the Tribal Gaming Commission with respect to revenues
and expenses of each profit center of the Enterprise. In addition, all gaming
operations conducted within the Facility shall be

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subject to special outside annual audits, which the Tribal Gaming Commission may
cause to be conducted, and all contracts or subcontracts for supplies, services
or concessions for a contract amount in excess of $25,000 annually relating to
gaming activities within Facility shall be subject to audits which the Tribal
Gaming Commission may cause to conducted by an independent certified public
accountant selected and approved by the Tribal Gaming Commission. The cost of
such audits and audit reports (including the annual audit under Section 6.6)
shall constitute Costs of Gaming Operations. LKAR, shall make any reports or
presentations to the Tribal Council as are requested by the Tribe.

      3.7 Cash Monitoring. As a Cost of Construction, LKAR shall install a video
surveillance system and computerized systems for monitoring the Gross Gaming
Revenues on a daily basis. LKAR through the enterprise's general manager will
promulgate, and all parties and their respective employees, agents, and
representatives will obey operational policies consistent with the Gaming
Control Ordinance respecting the handling of cash, security systems, and access
to cash cage, counting rooms, and other places where cash is kept and handled.
The Tribe and the Tribal Gaming Commission and their authorized representatives
shall have the right to monitor and investigate systems for cash management
implemented by the Enterprise's general manager in order to prevent any skimming
of receipts or losses of the proceeds and to verify daily Gross Gaming Revenues,
Gross Incidental Revenues, and Gross Total Revenues.

      3.8 Bank Accounts, Reserve Funds and Permitted Investments.

            (a) On or prior to the Commencement Date, the Tribe and LKAR shall
execute the Dominion Account Agreement and create the dominion Account
("Dominion Account") described therein. Gross Gaming Revenues and Gross
Incidental Revenues shall be deposited daily into the Dominion Account, which
shall be subject to the lien of the Dominion Account Agreement and established
at a commercial bank, of the Tribe's choice, organized under the laws of the
United States of America or any state thereof provided such bank is a member of
the Federal Deposit Insurance Corporation and has combined capital, undivided
profits and surplus of at least $500,000,000. LKAR, through the Enterprise's
general manager, shall also establish other segregated bank accounts with the
approval of the Tribe for the operation of the Enterprise (the "Enterprise
Accounts"), which accounts must indicate the custodial nature of the accounts.
The signature of the Enterprise's general manager, (or his designated
representative) shall be the only signature required to make withdrawals (by
check or otherwise) from such accounts, provided that the monies withdrawn are
to be used only for the purposes set forth herein, and provided further that if
the amount of any single withdrawal exceeds $250,000 (excluding payout and
prizes and transfers to any designated payroll accounts, taxes, and purchases of
currency, or LKAR's compensation under Section 6.5 herein), then the signature
of the Tribe's designated representative will also be required.

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            (b) LKAR agrees that subject to the terms of Sections 6.3(b) and
7.4(a) hereof and the Dominion Account Agreement, LKAR shall make or permit
timely transfers from the Dominion Account to the Enterprise Accounts of all
funds needed to pay (i) Costs of Gaming Operations; (ii) Costs of Incidental
Operations; (iii) required debt service on the Land Acquisition Loan, the
Transition Loan and the Facility Loan, as well as any other third party loans to
which LKAR has consented in writing pursuant to the terms of this Amended
Memorandum Agreement or other agreement; (iv) the Minimum Guaranteed Monthly
Payment; (v) Minimum Guaranty Payment Advances; and (vi) disbursements required
pursuant to Section 6.5 hereof. Upon the termination of this Amended Memorandum
Agreement and so long as: (a) any amounts remain owing to LKAR hereunder or with
respect to any related Transaction Documents, and (b) the Enterprise shall
continue in operation pursuant to the terms of Section 7.4 hereof, then LKAR
shall continue to permit transfers from the Dominion Account to the Enterprise
Accounts for payment of the amounts described above, including any Costs of
Gaming Operations or Costs of Incidental Operations (but specifically excluding
any such costs otherwise payable to the Tribe or any political subdivision or
other affiliate of the Tribe which is not a reasonable gaming license fees, and
any costs or expense which is not associated with the provision of reasonable
supplies and/or services provided by the Tribe to the Enterprise).

            (c) Surplus funds deposited in such account may be invested by LKAR
in the following permitted investments: (i) a money market mutual fund
registered under the Investment Company Act of 1940 that invests exclusively in
(1) marketable direct obligations issued or unconditionally guaranteed by the
United State Government or issued by an agency thereof and backed by the full
faith and credit of the United States, (2) commercial paper having, at the time
of acquisition, a rating of A-1 or P-1 or better from either Standard & Poor's
Corporation or Moody's Investors Service, Inc., respectively; or (ii) other
investments as may be directed by LKAR with the prior written consent of Tribe.

      3.9 Enforcement of Rights.

            (a) During the term of this Amended Memorandum Agreement, except as
otherwise provided in Section 3.9 (b), the Tribe and LKAR shall mutually agree
with respect to the handling of the defense, prosecution or settlement of civil
disputes with third parties relating to gaming and other management activities
conducted or contracts executed by LKAR, as agent for the Tribe. The parties
will assist and cooperate with each other with respect to such third-party
claims and disputes. All uninsured liabilities incurred or expenses incurred by
the Tribe and LKAR or any of the employees, officers or directors of any party
in defending such claims by third parties or prosecuting claims against third
parties shall be considered either Costs of Gaming Operation or Costs of
Incidental Operations, depending upon the circumstances and nature of the claim,
except with respect to claims and liabilities resulting from criminal
misconduct, which shall be governed by Article 8 herein.

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            (b) All claims brought against the LKAR or any of the employees,
officers or directors of LKAR or the Enterprise arising out of or relating to
gaming or other operations conducted pursuant to this Amended Memorandum
Agreement that may be settled and released for a total settlement amount of less
than $100,000 may be paid and settled by LKAR, as agent for and on behalf of the
Tribe and/or in accordance with LKAR's good faith business judgment.

      3.10 Fire and Safety Services. LKAR shall be responsible for obtaining
adequate coverage for fire and safety services and may, with the consent of the
Tribe, which consent shall not be unreasonably withheld, have such services
provided on a contractual basis by the local Fire and Police Departments. The
costs of any fire and safety protection services shall be appropriately
allocated between Costs of Gaming Operation and Costs of Incidental Operations,
and, if provided by a Department of the Tribe, shall not exceed the actual cost
to the Tribe of providing such services.

      3.11 Timely Payment of Costs of Gaming Operations and Costs of Incidental
Operations. LKAR shall be responsible for paying Costs of Gaming Operation and
Costs of Incidental Operations from the bank account(s) established pursuant to
Section 3.8 so as to avoid any late-payment penalties, except those incurred as
a result of good faith payment disputes.

      3.12 Acquisition of Gaming and Other Equipment.

            (a) All gaming equipment shall, subject to the approval of the Tribe
(not to be unreasonably withheld), be acquired by the Enterprise from Tribal
Gaming Commission licensed distributors and manufacturers.

            (b) All acquisitions of new equipment after the public opening of
the Facility shall, subject to the approval of the Tribe, which approval shall
not be unreasonably withheld, be purchased by Enterprise on a cash on delivery
basis, unless otherwise agreed by the Tribe.

      3.13 Hours of Operation. Unless otherwise agreed by the parties, the
Facility and Enterprise shall be operated for the maximum days per week and
hours per day, subject to any restrictions in the IGRA and the Tribal-State
Compact.

      3.14 Access to Operations. LKAR, through the Enterprise's general manager,
shall provide immediate access by appropriate officials of the Tribal Gaming
Commission and the Tribe's designated representative to the gaming operation,
including all books and records in addition to those listed in the access
requirements set forth in Sections 3.6 and 3.7.

      3.15 Increased Public Safety Services. The parties agree that increased
actual costs of law enforcement and police protection services required as a
result of the Class II Gaming and Class III Gaming in the Facility shall be paid
as Costs of Gaming Operation.

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      3.16 Advertising. LKAR, through the Enterprise's general manager, shall
contract for and place advertising, subject to prior approval of the general
concepts of the advertising by the Tribe. Advertising costs will be included in
the operating budgets prepared in accordance with Article 6.

      3.17 Certain Meetings. The parties agree that, to facilitate oversight of
the activities conducted pursuant to this Management Agreement and to maintain
communication generally between the individuals who will be involved in
supervising those activities, the Tribal Council or its designated
representative and the LKAR's principal individuals will meet at least monthly
to review operations of the Facility and Enterprise and any current issues
pertaining thereto.

      3.18 Maintenance. LKAR will cause the Facility to be repaired and
maintained and operated in a clean, good and orderly condition. Repairs and
maintenance will be paid as Costs of Gaming Operation if related to the gaming
operations of the Enterprise, or as Costs of Incidental Operation if related to
the other operations of the Enterprise.

      3.19 Term. Notwithstanding the date of signature of the parties hereto,
this Amended Memorandum Agreement shall become effective upon the last of the
following events to occur (the "Effective Date"): (i) written approval of the
Tribal Gaming Ordinance and this Amended Memorandum Agreement by the Chairman of
the National Indian Gaming Commission; (ii) approval by the Secretary and
publication in the federal register of the Tribal-State Compact; or (iii)
issuance by the Tribal Gaming Commission to LKAR of all applicable license(s)
required by IGRA, the Tribal Gaming Ordinance or the Tribal--State Compact. The
Commencement Date shall be the first day upon which the Facility is open to the
public to engage in Class II Gaming and Class III Gaming activities. Unless
sooner terminated as provided in this Amended Memorandum Agreement, this Amended
Memorandum Agreement shall continue for a period of seven (7) years from the
Commencement Date because the capital investment required and the income
projections for development of the Facility and Enterprise beyond the scope
initially planned will require additional time beyond five (5) years; provided
that the Tribe shall have the right to terminate this Amended Memorandum
Agreement after five (5) years (effective upon thirty (30) days written notice
to LKAR), but only in the event LKAR has not completed at least one of the
following within five (5) years of the Commencement Date: (a) develops a gaming
facility and related amenities with a cost in excess of One Hundred Million
Dollars ($100,000,000); (b) obtains a Facility Loan with a term seven (7) years
or more; or (c) completes a Facility with all of the following: (i) 120,000
square feet of building space, (ii) 2,000 compacted Class III gaming devices,
and 40 table games (assuming allowed by Tribal-State Compact), (iii) parking
garage and flat parking totaling 1,500 parking spaces, (iv) specialty
restaurant, (v) food buffet restaurant, (vi) 24 hour coffee shop, (vii) snack
bar, (viii) retail area, (ix) multi-purpose entertainment room, (x) meeting
rooms, (xi) child care center, (xii) video arcade facility, (xiii)
administrative offices, (xiv) hotel with an indoor pool, (xv) RV park, and (xvi)
convenience store/gas station; and provided further that the Notes and Security
Provisions, including without limitation, each of (a) the Security Agreement,
Dominion Account Agreement and UCC

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Financing Statements, and (b) Sections 3.8 and Article 8 hereof shall each
survive and remain effective until terminated under Article 7 hereof and the
amounts owing to LKAR by the Tribe under this Amended Memorandum Agreement and
related Transaction Documents have been paid in full. Any dispute as to whether
LKAR has completed the above described items shall be subject to the dispute
resolution provisions contained in Article 11 hereof.

                                   ARTICLE 4.
                                PERSONNEL MATTERS

      4.1 Employees. All employees involved with operation of the Enterprise's
Class II Gaming and Class III Gaming activities and related activities
throughout the Facility subject to management under this Management Agreement
shall be employees of the Tribe. Subject to the applicable requirements in the
Tribal-State Compact, the employment relationship shall be governed by Tribe
substantive law, and any applicable federal law, subject to the Tribe's
reasonable Indian preference policies, and all matters will be subject to
dispute resolution procedures in the manner described in this Amended Memorandum
Agreement. LKAR, through the Enterprise's general manager, shall be solely
responsible for the hiring, training, promoting, and firing of all such
employees (except for the general manager as agreed to by the Tribe and LKAR,
whose employment, advancement and termination shall be subject to approval of
the Tribe, such approval not to be unreasonably withheld). LKAR, through the
Enterprise's general manager, shall develop a policy and procedure in
conjunction with the Tribe, to implement an executive development program for
employees who are members of the Tribe whereby Tribe members will be prepared
through training and education to assume key management positions within the
gaming and non-gaming operations of the Enterprise. All salaries, wages,
employee insurance, worker compensation premiums, employment taxes, government
exactions of any kind related to employment, benefits, and overhead related to
the hiring, supervising, and discharge of employees, will be Costs of Gaming
Operations or Costs of Incidental Operations, as appropriate.

      4.2 Enterprise Employee Policies. LKAR, through the Enterprise's general
manager, shall prepare a draft of personnel policies and procedures (the
"Enterprise Employee Policies"), including a job classification system with
salary levels and scales, which policies and procedures shall be subject to
approval by the Tribal Council. The Enterprise Employee Policies shall include a
grievance procedure in order to establish fair and uniform standards for the
Enterprise employees, which will include procedures for the resolution of
disputes between the Enterprise and Enterprise employees. At a minimum, the
Enterprise Employee Policies shall provide for an employee grievance process
which provides the following:

      A written "Board of Review" process will be created by the Enterprise's
      general manager to provide Enterprise employees with a procedure for
      bringing work related issues to the attention of Enterprise management so
      they may be promptly and permanently resolved in a fair and equitable
      manner. The Board of Review process will be available to all Enterprise

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      employees except: (1) employees at the director level and above, and (2)
      employees discharged for actions involving violations of tribal gaming
      regulations or law, or federal, state, or local law. Enterprise employees
      will be eligible to use the Board of Review process if they have: (a)
      completed thirty (30) work shifts, and progressed through the chain of
      command in their home department in the Enterprise, (b) brought the work
      related issue to the attention of the Enterprise's human resources
      department, and (c) completed a Board of Review hearing request form
      within the allotted time frame. The Enterprise's human resources
      department shall be responsible for selecting hearing panel members as
      outlined in written procedures to be adopted. The Board of Review will be
      empowered to make the full range of decisions available and appropriate
      (i.e. providing back pay and an apology to the employee, or upholding the
      employee's discharge). The Board of Review's decision on the work related
      issue will final and binding, and there will be no appeal beyond the Board
      of Review.

LKAR, through the Enterprise's general manager, shall be responsible for
administering the Enterprise Employee Policies. Any revisions to the Enterprise
Employee Policies shall not be effective unless they are approved by the Tribal
Council. All such actions shall comply with applicable tribal law, subject to
the applicable requirements in the Tribal-State Compact.

      4.3 Employee Background Checks. A background investigation shall be
conducted by the Tribal Gaming Commission in compliance with all Legal
Requirements, to the extent applicable, on each applicant for employment as soon
as reasonably practicable. No individual whose prior activities, criminal
record, if any, or reputation, habits and associations are known to pose a
threat to the public interest, the effective regulation of Class II Gaming or
Class III Gaming, or to the gaming licenses of LKAR or the Enterprise, or to
create or enhance the dangers of unsuitable, unfair, or illegal practices and
methods and activities in the conduct of Enterprise gaming activities, shall
knowingly be employed by Enterprise or the Tribe. The background investigation
procedures employed by the Tribal Gaming Commission shall be formulated in
consultation with LKAR and shall satisfy all regulatory requirements
independently applicable to LKAR; provided, however, that this provision shall
not be deemed to limit or impair the exclusive authority of the Tribal Gaming
Commission pursuant to the Tribal Gaming Ordinance or the exercise of its
discretion thereunder. Any cost associated with obtaining such background
investigations shall constitute an Costs of Gaming Operations.

      4.4 Indian Preference. LKAR, through the Enterprise's general manager,
shall adhere in regard to recruitment, employment, reduction in force,
promotion, training and related employment actions to a publicly announced
policy and practice of Indian Preference as approved by the Tribe.

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      4.5 Conflict of Interest.

            (a) LKAR covenants that it will not unduly interfere with, or
attempt to influence the internal affairs or government decisions of the Tribe
for its gain or advantage.

            (b) LKAR hereby certifies that no payments have been made or will be
made in the future by LKAR to any Tribe official, member of the Tribal Council,
relative of any tribal official or tribal government employee for the purpose of
obtaining any special privilege, gain, advantage or consideration for LKAR,
except for the fees payable to the Tribal Gaming Commission and amounts payable
to the Tribe pursuant to this Amended Memorandum Agreement. However, nothing in
this provision shall prohibit LKAR from making contributions to community
organizations within the Tribe or to the Tribe for the purpose of funding
community activities.

            (c) No member of the Tribal Gaming Commission, or any tribal court
official may be employed by the Enterprise or LKAR, or be a "Party in Interest"
as defined in Section 9.1 (a) herein with respect to this Amended Memorandum
Agreement or a gaming equipment agreement or have any direct or indirect
financial interest in the gaming to be operated pursuant to this Amended
Memorandum Agreement. Members of the Tribal Council and their relatives shall
not be eligible for employment at the Facility and Enterprise but shall be
eligible to enter into contracts for the provision of goods or services for the
Facility and Enterprise.

            (d) LKAR further agrees to comply with all conflict of interest
rules set forth in regulations or ordinances of the Tribe.

      4.6 Participation in Tribe Functions. LKAR acknowledges that personnel who
are members of the Tribe have cultural and religious responsibilities to perform
in regard to Tribe rituals and similar activities. LKAR, through the
Enterprise's general manager, will schedule working hours and take other
actions, with the assistance and advice of the Tribe, to accommodate Tribe
members in performing these responsibilities without affecting their employment
status or position.

                                   ARTICLE 5.
                                    INSURANCE

      5.1 Duty to Maintain. LKAR, acting as agent for the Tribe, shall maintain
during the course of this Amended Memorandum Agreement, appropriately allocated
as a Cost of Gaming Operation or a Cost of Incidental Operations, insurance
coverages in forms and amounts that will adequately protect the Tribe and LKAR,
but in no case less than the amounts set forth in this Article, or as required
by the Tribal-State Compact.

      5.2 Workers' Compensation. LKAR, acting as agent for the Tribe, shall
maintain adequate workers' compensation insurance in accordance with all
applicable laws, including

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employer's liability insurance, in the amounts agreed to by the LKAR and Tribe,
and as required by the Tribal-State Compact.

      5.3 Commercial General Liability. LKAR, acting as agent for the Tribe,
shall maintain commercial general liability insurance covering operations of the
Enterprise, including blanket contractual liability coverage, broad form
property liability coverage, and personal injury coverage in the amount of
$1,000,000 per person/$3,000,000 per occurrence for bodily injury and $1,000,000
per person/$3,000,000 per occurrence for property damage, or as required by the
Tribal-State Compact or Tribal Gaming Commission.

      5.4 Automobile. LKAR, acting as agent for the Tribe, shall maintain
comprehensive automobile liability insurance covering operations of the
Enterprise, including all owned, hired and non-owned automobiles, trucks, buses,
trailers, motorcycles or other equipment licensed for highway use with limits
and coverage approved by the LKAR and Tribe.

      5.5 Tribe and LKAR to be Insured. Insurance set forth in Sections 5.3 and
5.4 shall name the Tribe and LKAR as insureds, and such policies shall be
endorsed to prohibit the insurer from raising tribal sovereign immunity as a
defense to the payment of claim by the insurer.

      5.6 Property Insurance. LKAR, acting as agent for the Tribe, shall procure
replacement value all-risk casualty and extended hazard insurance in appropriate
coverage amounts which shall insure the Facility and any fixtures, improvements
and contents located therein against lost or damage by fire, theft and
vandalism. Such casualty insurance policy or policies shall name the Tribe and
LKAR, and the Facility Loan lenders as insureds. All such casualty insurance
proceeds shall be applied to the immediate replacement of the applicable
Facility part or fixture, improvements or contents therein unless the parties
agree otherwise. Subject to the terms of Sections 7.4 and 7.6 hereof, any excess
insurance proceeds that are not used to repair, replace or reconstruct the
applicable damaged Enterprise assets shall be deposited into the Dominion
Account and disbursed in accordance with the same terms and provisions
applicable to Gross Total Revenues, provided however that such excess proceeds
(except business interruption insurance proceeds) shall be excluded from Net
Total Revenues for purposes of calculating the management compensation of LKAR
under Section 6.5(b) hereof.

      5.7 Fidelity Bond. LKAR, as agent for the Tribe, shall maintain fidelity
bonds on such employees and in such amounts as LKAR and Tribe shall deem
reasonable.

      5.8 Unemployment Insurance. LKAR, as agent for the Tribe, shall maintain
adequate unemployment compensation/disability insurance with respect to the
Enterprise employees in compliance with the Tribal-State Compact.

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      5.9 Evidence of Insurance. Prior to the opening of the Facility to the
public and commencing operations of the Enterprise and from time to time as
reasonably requested by the Tribe, LKAR, as agent for the Tribe, shall supply to
the Tribe and any necessary Governmental Authorities copies of the insurance
policies applicable to the Facility or Enterprise operations as required by this
Article.

      5.10 Insurance Proceeds. Subject to the terms of Sections 7.4 and 7.6
hereof, any insurance proceeds received with respect to the Enterprise, except
as provided in Section 5.6 hereof, shall be deposited into the Dominion Account
and disbursed in accordance with the same terms and provisions applicable to
Gross Total Revenues, provided, however, that if there is any insurance recovery
for a claim related to the operation of the Enterprise for which either the
Tribe or LKAR has previously paid from its own separate funds, then, to the
extent of amounts paid by either of such parties, the insurance proceeds will be
paid over to them and the balance shall be deposited into the Dominion Account
as above.

                                   ARTICLE 6.
                     BUDGETS, COMPENSATION AND REIMBURSEMENT

      6.1 Projections and Budgets.

            (a) The parties have used their best efforts to project expected
revenues and expenses for the first three (3) years of operation of the
Enterprise, and the projections, as described in the business plan to be
submitted to the NIGC with this Amended Memorandum Agreement, represent the
parties' mutual expectations.

            (b) LKAR shall prepare a budget for the Initial Costs of Operation
and submit such budget to the Tribe, for approval by the Tribal Council or its
designated representative, within one hundred twenty (120) days of execution of
this Amended Memorandum Agreement. LKAR shall also prepare an initial operating
budget for the first Fiscal year and submit the same to the Tribe for approval
by the Tribal Council at least ninety (90) days prior to the Commencement Date.
Annual operating budgets shall be submitted by the Enterprise's general manager
to the Tribe thereafter by no later than thirty (30) days prior to the
commencement of each succeeding Fiscal Year. The proposed initial operating
budget and each subsequent annual operating budget shall be subject to approval
or disapproval within thirty (30) days of submission to the Tribe, such approval
not to be unreasonably withheld. The parties recognize that mutually agreeable
adjustments may be made to previously approved operating budgets from time to
time during any Fiscal Year, to reflect the impact of unforeseen circumstances,
financial constraints, or other events. LKAR, shall keep the Tribe informed
regarding any items of revenue or expense that are reasonably anticipated to
cause a material change to the operating budget previously approved by the
Tribe.

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            (c) LKAR shall prepare an annual capital expenditure budget and
submit such budget to the Tribe, for approval by the Tribal Council or its
designated representative, at least ninety (90) days prior to the Commencement
Date. Annual capital expenditure budgets shall be submitted by the Enterprise's
general manager to the Tribe thereafter by no later than thirty (30) days prior
to the commencement of teach succeeding Fiscal Year. The proposed capital
expenditure budgets shall be subject to approval or disapproval within thirty
(30) days of submission to the Tribe for approval, such approval not to be
unreasonably withheld. The parties recognize that mutually agreeable adjustments
may be made to previously approved capital expenditure budgets from time to time
during any budget year, to reflect the impact of unforeseen circumstances,
financial constraints, or other events. LKAR, through the Enterprise's general
manager, shall keep the Tribe informed and obtain the Tribe's approval regarding
any projects or expenditures that are reasonably anticipated to cause a material
change to the capital expenditure budget previously approved by the Tribe.

      6.2 Initial Costs of Operation. The budget for the Enterprise's Initial
Costs of Operations shall contain amounts approved by LKAR and the Tribe, which
amounts shall be included as pre-opening costs and not as Costs of Gaming
Operations or Costs of Incidental Operations.

      6.3 Minimum Guaranteed Monthly Payments.

            (a) During the term of this Management Agreement, the Enterprise
shall, subject to the provisions of Section 6.3(b) below, pay the Tribe Five
Hundred Thousand Dollars ($500,000) per month on a cumulative Fiscal Year basis
(the "Minimum Guaranteed Monthly Payment"), beginning on the Commencement Date
and continuing for the remainder of the term of this Management Agreement. The
Minimum Guaranteed Monthly Payment shall be payable to the Tribe in arrears on
the twentieth (20th) day of each calendar month following the month in which the
Commencement Date occurs, which payment shall have priority over the Operating
Note, Facility Loan, Land Acquisition Loan or Transition Loan repayment and
payment of LKAR's compensation. If the Commencement Date is a date other than
the first day of a calendar month, the first payment will be prorated from the
Commencement Date to the end of the month. The Minimum Guaranteed Monthly
Payment shall be prorated if gaming is conducted at the Facility for any other
partial months.

            (b) Minimum Guaranteed Monthly Payments shall be deducted from any
disbursements of Net Total Revenues received by the Tribe under Section 6.5
hereof in any given month; provided, however, that if the Net Total Revenues of
the Enterprise in a given month are less than $500,000, LKAR shall advance the
funds necessary to compensate for the deficiency from its own funds (the
"Minimum Guaranteed Payment Advances", which advances shall not accrue interest
but shall be evidenced by an Operating Note in a form agreed to by the Tribe and
LKAR), and provided further that the Minimum Guaranteed Monthly Payments shall
be reduced to $10,000 per month for the remaining months in a Fiscal Year after
the Tribe has received in such Fiscal Year Total Net Revenue distributions of
$6,000,000. LKAR shall be entitled to recoup any Minimum Guaranteed

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Payment Advances made under this subsection from the Net Total Revenues of the
Enterprise in succeeding months during the term hereof, as provided in Section
6.5 hereof. In no event shall this recoupment payment for Minimum Guaranteed
Payment Advances result in the Tribe receiving less than its Minimum Guaranteed
Monthly Payment in any month, and in no event shall LKAR be allowed or entitled
to interest on any Minimum Guaranteed Payment Advances. Minimum Guaranteed
Monthly Payments shall be prorated with respect to any months (or portions
thereof) that Class II Gaming or Class III Gaming is suspended or terminated at
the Facility, and no Minimum Guaranteed Monthly Payments shall be required with
respect to any months that no Class II Gaming or Class III Gaming is conducted
at the Facility or accrue subsequent to termination of this Management
Agreement.

            (c) Any obligations owing by the Tribe under the Operating Note
shall be repaid solely as a Limited Recourse obligation of the Tribe without any
cross collateralization from other projects of Tribe and without any other
liability or guarantee on the part of the Tribe except for the security
interests described herein. Except for the Minimum Guaranteed Monthly Payment to
the Tribe, repayment of the Operating Note obligations shall have first priority
on any Net Gaming Revenues and Net Incidental Revenues generated by the
Enterprise or any other Tribal Gaming Enterprise. Subject to the foregoing, the
Tribe agrees to grant to LKAR a first priority and perfected security interest,
including a Dominion Account arrangement pursuant to the Dominion Account
Agreement (in a form consistent with the terms of this Amended Memorandum
Agreement), on any Net Gaming Revenues and Net Incidental Revenues of the
Enterprise or any other Tribal Gaming Enterprise in order to secure repayment of
the Operating Note, and such Operating Note shall also be secured on a first
priority and perfected basis by any Furnishings and Equipment financed by
proceeds of the Facility Loan and Transition Loan pursuant to the Security
Agreement. The Tribe agrees not to encumber any of the assets of the Facility or
the Enterprise without the written consent of LKAR, which consent will not be
unreasonably withheld; except that the Tribe shall have the right without the
consent of LKAR to grant security interests in the Enterprise's revenues which
are subordinate to LKAR's interests under this Amended Memorandum Agreement and
all related Transaction Documents pursuant to a subordination agreement in form
and substance acceptable to LKAR. The Tribe agrees to enter into a limited,
transactional waiver of sovereign immunity and consent to jurisdiction and
arbitration as to LKAR and in connection with the Operating Note, as provided in
the Resolution of Limited Waiver.

      6.4 Daily and Monthly Statements. LKAR shall furnish to the Tribe's
designated representative statements identifying for each day the Gross Gaming
Revenues attributable to the Enterprise's Class II Gaming and Class III Gaming
on each day that such reports are normally available. Within fifteen (15) days
after the end of each calendar month, LKAR, shall provide a verifiable financial
statements in accordance with GAAP to the Tribe and the Tribal Gaming Commission
covering the preceding month's operations of the Enterprise, including operating

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statements, balance sheets, income statements and statements reflecting the
amounts computed to be distributed in accordance with Section 6.5 hereof.

      6.5 Distribution of Net Total Revenues.

            (a) All Net Total Revenues shall be disbursed on a monthly basis as
set forth below, paid on the twentieth day of each calendar month for the
preceding month. Such Net Total Revenues shall be disbursed from the Enterprise
Bank Account(s) to the extent available for payment of the following accounts in
the following order of priority:

                  (i) The Minimum Guaranteed Monthly Payment described in
            Section 6.3 hereof;

                  (ii) All outstanding Minimum Guaranteed Payment Advances and
            Working Capital Advances (and accrued interest thereon) or any other
            amounts owing to LKAR under the Operating Note or to the Tribe under
            Section 6.7 hereof;

                  (iii) Current principal, accrued interest and any other
            payments due on Facility Loan;

                  (iv) Current principal, accrued interest and any other
            payments due on the Land Acquisition Loan and the Transition Loan;

                  (v) Management compensation due LKAR under Section 6.5(b)
            below; provide that if the distribution under this subsection in any
            month is insufficient to fund such payment in full, the unpaid
            amount shall be deferred and paid under subsection (vi) below;

                  (vi) Any amounts deferred (including accrued interest on any
            deferred management compensation which interest shall accrue at the
            rate of the prime interest rate of Chase Manhattan Bank, N.A. (or
            any successor bank) plus two percent (2%) from the date the
            management compensation is deferred) under subsections (ii), (iii),
            (iv) and (v) above;

                  (vii) Any monthly capital replacement or other reserve
            contributions which have been created with the written approval of
            LKAR and the Tribe;

                  (viii) Any indemnification or other obligations then owing by
            the Tribe to LKAR under any Transaction Document and not paid as
            Costs of Gaming Operations or Costs of Incidental Operations
            (provided LKAR has provided written notice to the

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            Tribe that above amounts are owed under the Transaction Documents,
            and the Tribe has not disputed the same or such amounts have been
            determined to be owing through an arbitration proceeding under
            Article 11 hereof); and

                  (ix) All remaining Net Total Revenues shall be disbursed to
            the Tribe on the same date the Management compensation is paid,
            subject to the rights of the LKAR under the Dominion Account
            Agreement upon the occurrence of a Material Breach by the Tribe.

            (b) As compensation for LKAR's services, LKAR shall receive thirty
percent (30%) of Net Total Revenues for the prior calendar month, for so long as
this Amended Memorandum Agreement shall remain in effect during the term hereof,
as provided in this Amended Memorandum Agreement. Any amounts owing to LKAR
hereunder shall be Limited Recourse obligations of the Tribe and shall be
subject to the security provisions described in Section 6.3(c) hereof, including
the Dominion Account Agreement and Security Agreement.

            (c) LKAR, as agent for the Tribe, shall ensure that the Enterprise's
general manager is responsible for making the Net Total Revenues disbursements
to the appropriate party.

      6.6 Annual Audit. With respect to each Fiscal Year, the Tribe shall cause
an audit to be conducted by an independent certified public accountant from a
Big Five accounting firm, who is licensed in California, has more than five (5)
years experience in audits of gaming enterprise operations, and is to be
selected and approved by the Tribe. On or before one hundred twenty (120) days
after the end of such year, such accounting firm shall issue a report with
financial statements in accordance with GAAP with respect to the preceding
Fiscal Year (or portion of the year in the case of the first year) operations of
the Enterprise, including operating statements, balance sheets, income
statements and statements reflecting the amounts computed to be distributed in
accordance with Section 6.5 hereof. In addition, upon termination of this
Management Agreement portion of this Amended Memorandum Agreement in accordance
with its terms, such accounting firm shall conduct an audit, and on or before
ninety (90) days after the termination date, shall issue a report setting forth
the same information as is required in the annual report, in each case with
respect to the portion of the Fiscal Year ending on the termination date. If the
Net Total Revenues or other amounts paid to the Tribe or LKAR in accordance with
Section 6.5 (b) above for relevant period are different from the amount which
should have been paid to such party based on the report prepared by the
accounting firm and based upon the provisions of this Management Agreement, then
to the extent either party received an overpayment, it shall repay and deposit
the amount of such overpayment into the bank account referenced in Section 3.8
(a) hereof within twenty-five (25) days of the receipt by such party of the
accountant's report, and to the extent either party received an underpayment, it
shall receive a distribution from the bank account referenced in Section 3.8 (a)
hereof of the amount of such underpayment within ten (10) days of the receipt by
such party of the accountant's report. LKAR, as

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agent for the Tribe, shall ensure that the Enterprise's general manager may make
adjustment to future payments to correct a discrepancy if required distributions
are not made.

      6.7 Advances for Working Capital. Where amounts in bank accounts
established pursuant to Section 3.8 are insufficient to meet Costs of Gaming
Operations or Costs of Incidental Operation, during the first twelve (12) months
after the Commencement Date, the LKAR shall advance monies to the Enterprise
sufficient to meet Costs of Gaming Operations and Costs of Incidental
Operations. Thereafter, the Tribe shall advance such monies to the Enterprise
sufficient to meet Costs of Gaming Operations and Costs of Incidental
Operations. If LKAR makes any advances hereunder ("Working Capital Advances",
which advances shall be evidenced by an Operating Note in a form agreed to by
the Tribe and LKAR and shall accrue interest rate of the prime interest rate of
Chase Manhattan Bank, N.A. (or any successor bank) plus two percent (2%) from
the date the advances are made), LKAR shall be repaid as provided in Section 6.5
hereof (and any amounts outstanding on account of Working Capital Advances at
the end of the term of this Management Agreement shall be immediately due and
payable by the Tribe). Any Working Capital Advances shall be Limited Recourse
obligations of the Tribe and shall be subject to the security provisions
described in Section 6.3(c) hereof, including the Dominion Account Agreement and
Security Agreement. Any advances made by the Tribe hereunder shall accrue
interest at the same rate as applies to the Transition Loan as described in
Section 2.3(c) hereof and shall be repaid pursuant to Section 6.5 hereof.

      6.8 Development and Construction Cost Repayment. The maximum dollar amount
for repayment of development and construction costs for the Facility and
Enterprise shall be three hundred sixty five million dollars ($365,000,000).
Subject to any applicable Legal Requirements, the parties may increase the
maximum repayment amount by mutual written agreement.

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                          PROVISIONS APPLICABLE TO BOTH
                    THE DEVELOPMENT AND MANAGEMENT AGREEMENTS

                                   ARTICLE 7.
                                   TERMINATION

      7.1 Termination for Cause.

            (a) Subject to the provisions of Section 9.2, either party may
terminate this Amended Memorandum Agreement if the other party commits or allows
to be committed a Material Breach (as hereinafter defined) of this Amended
Memorandum Agreement and fails to cure or to take steps to substantially cure
such breach within thirty (30) calendar days after receipt of a written notice
from the non-breaching party identifying the nature of the Material Breach in
specific detail and its intention to terminate this Amended Memorandum
Agreement. Termination is not an exclusive remedy for breach, and the
non-breaching party shall be entitled to other rights and remedies as may be
available. For purposes of this Amended Memorandum Agreement, a "Material
Breach" is any of the following circumstances: (i) failure of LKAR to provide
the Tribe with the Minimum Guaranteed Monthly Payments pursuant to Section 6.3,
(ii) material failure of either party to perform in accordance with this Amended
Memorandum Agreement for reasons not excused under Section 10.6 (Force Majeure),
(iii) if any of LKAR's employees commits theft, embezzlement or crime of moral
turpitude and if, after knowledge of such act or, if disputed, after
determination by arbitration under Article 11, LKAR does not remove such
employee from connection with Class II Gaming or Class III Gaming operations of
the Enterprise within thirty (30) days after receipt of written notice, (iv)
default under the Facility Note, the Land Acquisition Note, the Interim
Promissory Note, the Operating Note, any other Transaction Document or any
document or agreement related thereto by the Tribe, or (v) any representation or
warranty made pursuant to Section 10.11 or 10.12 proves to be knowingly false or
erroneous in any material way when made. Any final notice of termination
hereunder shall be in writing detailing the reason the party considers the
Material Breach not to be cured and must be delivered to the other party before
such termination becomes effective.

            (b) Notwithstanding any provision to the contrary herein, the
parties agree that, for so long as the Tribe owes any amounts under the Facility
Note, the Land Acquisition Note, the Interim Promissory Note or the Operating
Note, the Tribe agrees that it will not terminate this Amended Memorandum
Agreement without cause.

      7.2 Mutual Consent. This Amended Memorandum Agreement may be terminated at
any time upon the mutual written consent and approval of the parties.

      7.3 Involuntary Termination Due to Changes in Law or Tribal-State Compact.
The parties hereby agree to use their best efforts to conduct Class II Gaming
and Class III Gaming activities in

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accordance with this Amended Memorandum Agreement and to ensure that such
activities and this Amended Memorandum Agreement conform to and comply with all
applicable laws and the Tribal-State Compact. The Tribe agrees that, except as
may be required by federal law, the Tribe will not enact or pass any new
ordinances subsequent to the execution of this Amended Memorandum Agreement that
would materially impair the rights of LKAR under this Amended Memorandum
Agreement. The Tribe will not enact any tax ordinance that will put the Facility
or the Enterprise, or any portion thereof, at a competitive disadvantage with
businesses in the same or like industries. In the event of any change in state
or federal laws that results in a final determination by the Secretary, the
National Indian Gaming Commission, or a court of competent jurisdiction that
this Amended Memorandum Agreement is unlawful, the Tribe and LKAR shall use
their best efforts to amend this Amended Memorandum Agreement in a mutually
satisfactory manner which will comply with the change in applicable laws and not
materially change the rights, duties and obligations of the parties hereunder.
In the event such amendment is not practical, performance of this Amended
Memorandum Agreement shall be automatically suspended effective upon the date
that performance of this Amended Memorandum Agreement becomes unlawful, and
either party shall have the right to terminate such suspended Amended Memorandum
Agreement (except the Notes and Security Provisions, as defined in Section 7.4
(a)), upon thirty (30) days written notice to the other party.

      7.4 Ownership of Assets and Repayment of Notes on Termination.

            (a) Upon termination, except in connection with LKAR's and Lender's
security interests in the Net Total Revenues of the Enterprise pursuant to the
Tribe's Limited Recourse obligations under the Facility Note, the Land
Acquisition Note, Interim Promissory Note and Operating Note (if not yet
satisfied), or any other security interests or liens in any Furnishings and
Equipment purchased with Facility Loan and Transition Loan proceeds or other
purchase money agreements, the Tribe will retain full ownership of the Facility,
Plans and Specifications therefor, and the Enterprise and its assets; and LKAR
will have no rights to the Enterprise and its assets or the Facility (or any
equipment, books and records, materials or furnishings therein that were
purchased with Costs of Gaming Operations, Costs of Incidental Operations or
Costs of Construction) except as to the security interests and liens recited
above or as may be established otherwise by a proceeding pursuant to Article 11
hereof. In the event of any termination (whether voluntary or involuntary), the
Tribe shall continue to have the obligation to pay unpaid principal and interest
and other amounts due under either the Facility Note, the Land Acquisition Note,
Interim Promissory Note or Operating Note executed in connection herewith,
together with any unpaid compensation owed to LKAR under Section 6.5(b) hereof
(if not yet satisfied), each of which shall become due and payable on such
termination date. Any and all obligations and provisions contained in this
Amended Memorandum Agreement concerning indemnity obligations or repayment of
the Facility Note, Land Acquisition Note, Interim Promissory Note or Operating
Note, and the security therefor, including the Security Agreement and Dominion
Account Agreement, together with any unpaid compensation owed to LKAR under
Section 6.5(b) hereof and the terms and provisions set forth in Articles 10 and
11 hereof

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excluding Sections 10.21 and 10.22 (collectively, the "Notes and Security
Provisions"), shall survive termination of this Amended Memorandum Agreement.

            (b) Subject to the provisions of Section 7.1 (b), in the event of
termination of this Amended Memorandum Agreement for any reason prior to the
full repayment to LKAR of any amounts owed to it by the Tribe under the
Transaction Documents, including without limitation, the Facility Note, Land
Acquisition Note, Interim Promissory Note or Operating Note, the Tribe shall, as
promptly as reasonably possible, appoint a person or entity to manage the
Facility and operate the Enterprise (the "Replacement") and use its best efforts
to obtain approvals of all required Governmental Authorities for such
Replacement. The Tribe agrees to keep full and accurate financial records of
operations of the Enterprise by such Replacement and to allow LKAR to audit such
records at reasonable times prior to full repayment to LKAR of any amounts owed
to it by the Tribe under either the Facility Note, Land Acquisition Note, the
Interim Promissory Note or the Operating Note, and that Tribe's compliance with
this paragraph shall not preclude the LKAR from exercising any of its other
rights and remedies hereunder or any Transaction Documents, including, without
limitation, rights under the Facility Note, Land Acquisition Note, Interim
Promissory Note or Operating Note.

      7.5 Notice of Termination. In the event of termination pursuant to this
Article, the Tribe shall provide notice of the termination to the Secretary or
other appropriate Governmental Authorities within ten (10) days after the
termination.

      7.6 Cessation of Either Class II Gaming or Class III Gaming at the
Facility.

            (a) If, during the term of this Amended Memorandum Agreement, either
Class II Gaming or Class III Gaming cannot be lawfully conducted at the Facility
by reason of the application of any legislation or court or administrative
agency order or decree adopted or issued by a governmental entity having the
authority to do so, LKAR shall, within sixty (60) days after such legislation,
order or decree becomes effective, elect to:

                  (i) retain LKAR's interest in this Amended Memorandum
            Agreement and suspend both Class II and Class III Gaming operations
            until such date on which both Class II Gaming and Class III Gaming
            at the Facility becomes lawful (during which period the term of the
            Management Agreement will be tolled until both Class II Gaming and
            Class III Gaming at the Facility becomes lawful, and the period of
            cessation shall not be deemed to have been part of the term of the
            Management Agreement and the term shall be extended by the length of
            time of the cessation); or

                  (ii) retain LKAR's interest in this Amended Memorandum
            Agreement, suspend both Class II Gaming and Class III Gaming
            operations until such date on which both Class II Gaming and Class
            III Gaming at the Facility becomes lawful

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            (during which period the term of the Management Agreement will be
            tolled until Class III Gaming at the Facility becomes lawful, and
            the period of cessation shall not be deemed to have been part of the
            term of the Management Agreement and the term shall be extended by
            the length of time of the cessation), and with the prior approval of
            the Tribe, which approval shall not be unreasonably withheld, use
            the Facility for any other lawful purpose pursuant to a use
            agreement containing terms reasonably acceptable to LKAR and the
            Tribe; or

                  (iii) terminate both Class II Gaming and Class III Gaming
            operations and terminate this Amended Memorandum Agreement.

      LKAR shall give the Tribe written notice of LKAR's election within such
sixty (60) day period.

            (b) If LKAR elects to retain its interest in this Amended Memorandum
Agreement under Section 7.6 (a)(i) or (ii) above, LKAR shall have the right (but
not the obligation) to commence either Class II Gaming and Class III Gaming
operations within sixty (60) days after the date on which both Class II Gaming
and Class III Gaming becomes lawful. LKAR may exercise such right by giving the
Tribe written notice of such exercise within thirty (30) days after the date on
which both Class II Gaming and Class III Gaming becomes lawful. Any reasonable
payment to any third party made during the period during which either Class II
Gaming or Class III Gaming is unlawful to preserve or eliminate any leasehold or
purchase contract rights of the Facility shall be paid by LKAR as Costs of
Gaming Operations or Costs of Incidental Operations and reimbursed after both
Class II Gaming and Class III Gaming is recommenced.

            (c) If LKAR elects to terminate this Amended Memorandum Agreement
under this Section 7.6, the provisions of Section 7.4 above shall apply.

            (d) If, during the term of this Amended Memorandum Agreement, the
Facility is damaged by casualty or other occurrence to the extent, as reasonably
determined by LKAR, that either Class II or Class III Gaming cannot be conducted
at the Facility, LKAR shall, within sixty (60) days after such casualty or
occurrence, elect to:

                  (i) retain LKAR's interest in this Amended Memorandum
            Agreement pending repair or reconstruction of the Facility, suspend
            both Class II Gaming and Class III Gaming operations pending the
            repair or reconstruction of the Facility (during which period the
            term of the Management Agreement will be tolled until Class III
            Gaming is recommenced at the Facility, and the period of cessation
            shall not be deemed to have been part of the term of the Management
            Agreement and the term

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            shall be extended by the length of time of the cessation), and
            arrange for such repair or reconstruction in the manner described in
            this Section 7.6; or

                  (ii) terminate both Class II Gaming and Class III Gaming
            operations and terminate this Amended Memorandum Agreement, such
            termination to be effective on the thirtieth (30th) day after
            written notice of termination has been delivered to the Tribe.

            LKAR shall give the Tribe written notice of LKAR's election within
such sixty (60) day period.

            (e) If LKAR elects to retain its interest in this Amended Memorandum
Agreement under Section 7.6(d)(i) above, LKAR shall promptly verify the amount
of insurance or other proceeds available to pay the cost of repair, replacement
or reconstruction. LKAR is hereby granted the authority to submit, adjust and
settle, on behalf of the Tribe, all insurance claims associated with the
casualty or occurrence; provided, however, that LKAR shall obtain the Tribe's
prior written consent (which consent shall not be unreasonably withheld) to any
settlement. LKAR shall provide copies of all settlement documents to the Tribe.

      7.7 Renewal Option. Subject to Section 3.19, the parties by mutual
agreement may decide to renew or extend the Management Agreement of this Amended
Memorandum Agreement. Any such renewal or extension shall only become effective
upon approval by the NIGC and appropriate licensing by the Tribal Gaming
Commission.

      7.8 Buyout Option. Beginning forty eight (48) months after commencement of
gaming operations at the Enterprise, the Tribe shall have the option to buy out
the LKAR's remaining rights and obligations under this Amended Memorandum
Agreement for the Buy-Out Purchase Price (as hereinafter established), provided
the Tribe has paid off in full the Land Acquisition Loan and the Transition Loan
at the time it exercises its option. The Tribe may exercise such option by
giving LKAR at least twelve (12) months prior written notice of such exercise.
The Buy-Out Purchase Price shall equal the monthly average of the last forty
eight (48) months of revenue received by LKAR under Section 6.5 (b) or the
monthly average of the last twelve months of revenue received by LKAR under
Section 6.5 (b), whichever is greater, multiplied by the number of months
remaining on the NIGC approved contract term, less five percent (5%) of that
amount, representing LKAR's overhead savings from not having to perform
management services after the buy out date, plus seven and one-half percent
(7.5%) of the average monthly revenue received by the LKAR multiplied by the
number of months between June 1999 and the Commencement Date, representing
compensation to LKAR for all work completed prior to the generation of revenues
of the Enterprise. The Buy-Out Purchase Price is to be paid in cash, less a
discount for present value at the Chase Manhattan Bank (or any successor bank)
prime interest rate plus two percent (2%) not to exceed ten percent (10%).

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                                   ARTICLE 8.
                              RELEASE AND INDEMNITY

      8.1 Third-Party Claims. Except for Section 2.4(h) and except for claims
resulting from the other party's own gross negligence or willful or criminal
misconduct, neither party shall be entitled to recover from, and expressly
releases, the other party, its agents, officers and employees, from or for any
third-party damages, claims, causes of action, losses and/or expenses of
whatever kind or nature, including attorneys' fees and expenses incurred in
defending such claims in connection with the lawful operation of the Facility
and Enterprise in accordance with the terms of this Amended Memorandum
Agreement, and such claims, damages, losses or expenses shall be considered
either Costs of Gaming Operations or Costs of Incidental Operations, depending
on the circumstances and nature of the claim, payable from the bank account
established pursuant to Section 3.8(a).

      8.2 Indemnity from LKAR. Notwithstanding Section 8.1, LKAR shall indemnify
and hold the Tribe harmless against any and all damages, claims, losses or
expenses of whatever kind or nature, including reasonable attorneys' fees
resulting from the criminal misconduct and intentional torts of LKAR, its
officers and directors in connection with LKAR's performance of this Amended
Memorandum Agreement, and no such damages, losses or expenses shall be paid from
the bank accounts established pursuant to Section 3.8(a), nor shall such losses
or expenses be considered Costs of Gaming Operations or Costs of Incidental
Operations.

      8.3 Indemnity from Tribe. Notwithstanding Section 8.1, Tribe shall
indemnify and hold LKAR harmless against any and all damages, claims, losses or
expenses of whatever kind or nature, including reasonable attorneys' fees
resulting from the criminal misconduct and intentional torts of the Tribe, its
officers, directors, or tribal government employees, in connection with Tribe's
performance of this Amended Memorandum Agreement, and no such damages, losses or
expenses shall be paid from the bank accounts established pursuant to Section
3.8(a), nor shall such losses or expenses be considered Costs of Gaming
Operations or Costs of Incidental Operations.

      8.4 Indemnity Against Unauthorized Debt and Liabilities. The parties
expressly agree that neither this Amended Memorandum Agreement nor its
performance creates or implies a partnership between the parties or authorizes
either party to act as agent for the other except to the extent expressly
provided herein. LKAR hereby agrees to indemnify and hold the Tribe harmless
from any third-party claims, actions and liabilities, including reasonable
attorneys' fees on account of obligations or debts of LKAR that LKAR is not
authorized to undertake as agent for the Tribe pursuant to the terms of this
Amended Memorandum Agreement. The Tribe likewise agrees to indemnify and hold
LKAR harmless from any third-party claims, actions and liabilities on account of
any of the separate obligations or debts of the Tribe that are not authorized
Costs of Gaming Operations, Costs of Incidental Operations or Costs of
Construction pursuant to this Amended Memorandum Agreement.

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                                   ARTICLE 9.
                               PARTIES IN INTEREST

      9.1 Payment of Fees and Submission of Information for Background
Investigations. Upon execution of this Amended Memorandum Agreement, LKAR shall
pay from its own funds the fees required by federal and Tribe's regulations for
background investigations for the "Parties in Interest" as defined herein, and
it shall submit the information required by this Section in duplicate to the
National Indian Gaming Commission and the Tribal Gaming Commission and update
such information at any time that changes occur in prior submissions so as to
allow complete background investigations. However, in no event shall the cost of
background investigations under this Section relating to Tribal Gaming
Commission regulations exceed ten thousand dollars ($10,000) per individual,
without the mutual consent of the parties, which consent shall not be
unreasonably withheld.

            (a) As used in this Section 9.1, the term "Parties in Interest"
includes any person or entity with a financial interest in, or having management
responsibility for, this Amended Memorandum Agreement or for which background
investigations are required by 25 C.F.R. Part 537, or by tribal or federal law,
or the Tribal-State Compact and any amendments thereto.

            (b) LKAR shall require sufficient information and identification
from each "Party in Interest" to perform a background investigation for the
purpose of determining the suitability of such persons for employment in a Class
II Gaming and Class III Gaming operation, including, at a minimum, the
information required by the National Indian Gaming Commission as set forth in 25
C.F.R. Part 537, by federal and tribal law, and by the Tribal-State Compact, and
any amendments thereto.

            (c) Without limiting the foregoing, LKAR shall obtain a current set
of fingerprints on each person for whom background investigations are required
by the Tribal Gaming Commission and the National Indian Gaming Commission, using
forms supplied by the National Indian Gaming Commission and/or the Tribal Gaming
Commission, which shall be referred to the Federal Bureau of Investigation (FBI)
Fingerprint Identification Division or other law enforcement agency designated
by the Tribal Gaming Commission.

            (d) The parties hereby agree that a listing of all "Parties in
Interest" as defined in Section 9.1 (a) above shall be submitted to the NIGC.
All such "Parties in Interest", as such listing shall be supplemented from time
to time, shall be required to furnish the information required by this Section
9.1 prior to obtaining such interest. All necessary Governmental Authorities
must approve any change in the "Parties in Interest". Any deletion of a person
listed as one of the "Parties in Interest" shall not constitute a change in
persons with a financial interest in or management responsibility for a
management contract.

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      9.2 Removal; Divestiture. Should the Tribal Gaming Commission or the
National Indian Gaming Commission, by agency action, find that any person or
entity with either a "direct or indirect financial interest" in this Amended
Memorandum Agreement (as defined in 25 C.F.R. Section 502.17, and any amendments
thereto) or with management authority hereunder, whose prior activities,
criminal record, if any, or reputation, habits, and associations pose a threat
to the public interest, or the tribal interest, or the effective regulation of
gaming, or create or enhance the dangers of unsuitable, unfair, or illegal
practices and methods and activities in the conduct of gaming or the carrying on
of related business and financial arrangements, or should such agency revoke the
license of such person or entity, and should either agency notify LKAR or the
Tribe of such finding or revocation, then LKAR shall immediately take all
necessary steps to require such person or entity to divest their interest in
this Amended Memorandum Agreement and shall immediately remove such person or
entity from all association with operations under this Amended Memorandum
Agreement upon receipt of such notice; provided that any person or entity
subject to such removal/divestiture shall be permitted to be revested and able
to associate with operations in the event the agency action is reversed upon
agency administrative or judicial appeal. In addition, if any person or entity
with "direct or indirect financial interest" in this Amended Memorandum
Agreement (as defined in 25 C.F.R. Section 502.17, and any amendments thereto)
or with management authority hereunder: (a) has been or is subsequently
convicted of a felony relating to gaming, (b) knowingly or willfully provided
materially false statements to the Tribe, the Tribal Gaming Commission or the
National Indian Gaming Commission, or refused to respond to questions from
either of such agencies, or (c) attempts to unduly interfere or unduly influence
for their gain or advantage any decision or process of tribal government
relating to Class II Gaming or Class III Gaming, and if LKAR becomes aware of
such conflicts or prohibited actions, then LKAR shall notify Tribe of such event
and immediately take all necessary steps to cause such person or entity to
divest their interest in LKAR. No person or entity required under this provision
to divest itself of its interest in LKAR or this Amended Memorandum Agreement,
or subject to removal under this provision, shall as a result thereof have any
legal or other recourse against the Tribe or any officer, employee, or agent of
the Tribe as a result of such divestiture except as provided in Article 11 or
pursuant to applicable law or regulations.

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                                   ARTICLE 10.

                                  MISCELLANEOUS

      10.1 Assignment and Subcontractors. The rights and obligations under this
Amended Memorandum Agreement shall not be assigned or subcontracted by any party
without the prior written consent of the other party and without first obtaining
prior approval by the National Indian Gaming Commission or the BIA, if
applicable, and any other necessary regulatory approvals. However, the Tribe
reserves the right to assign its rights and obligations under this Amended
Memorandum Agreement to a tribally chartered entity or an IRA section 17
corporation that it wholly owns and controls and the LKAR reserves the right to
assign its rights and obligations under this Amended Memorandum Agreement to a
wholly owned subsidiary, provided that LKAR shall have received prior approval
from the NIGC and any other necessary regulatory approvals. Other than as
expressly provided herein or in Section 10.2 below, any attempted assignment or
subcontracting without such consent and approval shall be void. Approval of any
assignment or subcontract to any new party must be preceded by a complete
background investigation of the new party as required by Section 9.1. Subject to
the preceding requirements, this Amended Memorandum Agreement shall be binding
upon and shall inure to the benefit of the parties and their respective
successors and assigns.

      10.2 Change of Control in Ownership Interest; Severability. LKAR is a
Delaware limited liability company whose members are Lakes Shingle Springs, Inc.
and Kean Argovitz Resorts- Shingle Springs, LLC. In the event that either of
LKAR's members, as an entity, either: (i) has its gaming license withdrawn or
fails to obtain a gaming license, each after exhaustion of all available
administrative and other legal due process, and fails, despite good faith
efforts to do so, to cure the condition causing the license withdrawal or
failure to obtain a license within the time frames contained in Section 7.1; or
(ii) for any reason is rendered legally incapable of continuing its
participation in this Amended Memorandum Agreement, the Tribe agrees and
consents to the cessation of all participation by that member of LKAR in this
Amended Memorandum Agreement and to the assumption by the remaining member of
LKAR of all rights and obligations pursuant to this Amended Memorandum
Agreement. In the event that either of LKAR's members, as an entity, with the
consent of the other member requests permission from the Tribe to withdraw from
participation in this Amended Memorandum Agreement, the Tribe shall consider in
good faith granting its consent, which consent shall not be unreasonably
withheld. In granting such consent, the Tribe agrees and consents to the
cessation of all participation by that member of LKAR in this Amended Memorandum
Agreement and to the assumption by the remaining member of LKAR of all rights
and obligations pursuant to this Amended Memorandum Agreement. Any Change of
Control (as defined herein) in LKAR shall require prior written consent of the
Tribe and be subject to Legal Requirements, or this Amended Memorandum Agreement
shall be terminated. For purposes of this Amended Memorandum Agreement, a
"Change of Control" means the acquisition by any legal entity,

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person or affiliated group of persons not presently members of LKAR of
beneficial ownership of fifty one percent (51%) or more of membership interest
in LKAR.

      10.3 Notices. Any notice, consent or any other communication permitted or
required by this Amended Memorandum Agreement shall be in writing and shall be
effective on the date sent and shall be delivered by personal service, via
telecopier with reasonable evidence of transmission, express delivery or by
certified or registered mail, postage prepaid, return receipt requested, and,
until written notice of a new address or addresses is given, shall be addressed
as follows:

      If to the Tribe:     Shingle Springs Band of Miwok Indians
                           P.O. Box 1340
                           Shingle Springs, CA 95682
                           Attention: Chairman

      With a copy to:      Anthony Cohen, Esq.
                           Clement, Fitzpatrick & Kenworthy
                           3333 Mendocino Ave.
                           Suite 200
                           Santa Rosa, CA 95403

      If to the LKAR:      Lakes KAR-Shingle Springs, LLC
                           130 Cheshire Lane
                           Minnetonka, MN 55305
                           Attention: Timothy J. Cope

      With a copy to:      Kevin C. Quigley, Esq.
                           Hamilton Quigley Twait & Foley PLC
                           W1450 First National bank Building
                           332 Minnesota Street
                           St. Paul, MN 55101-1314

           and             Brian Klein, Esq.
                           Maslon, Edelman, Borman & Brand, LLP
                           3300 Wells Fargo Center
                           90 South Seventh Street
                           Minneapolis, MN 55402-4140

      Copies of any notices shall be given to the Tribal Gaming Commission.

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      10.4 Amendments. This Amended Memorandum Agreement may be amended only by
written instrument duly executed by all of the parties hereto and with any and
all necessary regulatory approvals previously obtained.

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

      10.6 Force Majeure. No party shall be in default in performance due
hereunder if such failure or performance is due to causes beyond its reasonable
control, including acts of God, war, fires, floods, or accidents causing damage
to or destruction of the Facility or property necessary to operate the Facility,
or any other causes, contingencies, or circumstances not subject to its
reasonable control which prevent or hinder performance of this Amended
Memorandum Agreement.

      10.7 Time is Material. The Parties agree that time is of the essence and
the time and schedule requirements set forth in this Amended Memorandum
Agreement are material terms of this Amended Memorandum Agreement.

      10.8 Further Assurances. The parties hereto agree to do all acts and
deliver necessary documents as shall from time to time be reasonably required to
carry out the terms and provisions of this Amended Memorandum Agreement.

      10.9 Severability. In the event that any provision of this Amended
Memorandum Agreement is, by final order of a court of competent jurisdiction or
Government Authority, held to be illegal or void, the validity of the remaining
provisions of the Amended Memorandum Agreement shall be enforced as if the
Amended Memorandum Agreement did not contain such illegal or void clauses or
provisions, and the parties shall use their best efforts to negotiate an
amendment to this Amended Memorandum Agreement which will comply with the
judicial order and maintain the originally contemplated rights, duties and
obligations of the parties hereunder.

      10.10 Sovereign Immunity. Except as described in the Resolution of Limited
Waiver attached hereto as Exhibit B and incorporated herein by reference,
nothing in this Amended Memorandum Agreement shall be deemed or construed to
constitute a waiver of sovereign immunity of the Tribe and the only applicable
waivers of sovereign immunity shall be those expressly provided and executed by
the Tribe's duly authorized representative and substantially conforming to the
form as approved by the parties. The parties agree that they will not amend or
alter the Resolution of Limited Waiver in any way which will lessen the rights
of any party as set forth in the Resolution of Limited Waiver. This Section
10.10 shall survive termination of this Amended Memorandum Agreement, regardless
of the reason for the termination.

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      10.11 Representations and Warranties of LKAR. The LKAR hereby represents
and warrants as follows:

            (a) This Amended Memorandum Agreement has been duly executed and
      delivered by LKAR and, when approved by necessary Governmental Authorities
      as set forth (where applicable), will constitute a valid and binding
      obligation, enforceable against LKAR in accordance with its terms.

            (b) The execution and delivery of this Amended Memorandum Agreement,
      the performance by LKAR of its obligations hereunder and the consummation
      by LKAR of the transactions contemplated hereby will not violate any
      contract or agreement to which LKAR or any of its affiliated companies is
      a party or any law, regulation, rule or ordinance or any order, judgment
      or decree of any federal, state, tribal or local court or require any
      regulatory approval beyond those contemplated herein.

            (c) LKAR has the full legal right, power and authority and has taken
      all action necessary to enter into this Amended Memorandum Agreement, to
      perform its obligations hereunder, and to consummate all other
      transactions contemplated by this Amended Memorandum Agreement.

            (d) LKAR has conducted due diligence investigations and has
      satisfied itself as to the present and past relationships between Tribe
      and all other entities in connection with the Tribe's economic development
      activities, including but not limited to Sharp Image Gaming, Inc., and,
      subject to the provisions in Section 2.12, waives any claim that such
      relationships and the Tribe's legally required performance thereunder, if
      any, constitute a breach of this contract or an actionable tort.

      10.12 Representations and Warranties of Tribe. The Tribe hereby represents
and warrants as follows:

            (a) The Tribe is duly organized Indian tribe under the laws of the
      Tribe and the United States.

            (b) The Tribe has full legal right, power and authority under the
      laws for the Tribe and has taken all official Tribal Council action
      necessary (i) to enter into this Amended Memorandum Agreement and
      authorize the Tribe to execute and deliver this Amended Memorandum
      Agreement, the Operating Note, Dominion Account Agreement, Security
      Agreement, the Facility Loan documentation, Facility Note, Land
      Acquisition Note and Interim Promissory Note, and any and all other
      documents and agreements related thereto (collectively and as amended,
      renewed, or extended from time to time, the "Transaction

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      Documents"), (ii) to perform its obligations hereunder, and (iii) to
      consummate all other transactions contemplated by this Amended Memorandum
      Agreement and other Transaction Documents.

            (c) This Amended Memorandum Agreement (and the other Transaction
      Documents), when executed and delivered by Tribe and approved by necessary
      Governmental Authorities, if required, including the Tribe, will
      constitute a valid and binding obligation, enforceable against Tribe in
      accordance with their terms.

            (d) Subject to the provisions of Section 10.11(d), the execution and
      delivery of this Amended Memorandum Agreement (and other Transaction
      Documents), the performance by Tribe of its obligations hereunder and
      thereunder, and the consummation by Tribe of the transactions contemplated
      hereby will not violate any contract or agreement to which Tribe is a
      party, law, regulation, rule or ordinance or any order judgment or decree
      of any federal, state, tribal or local court, or require any approval by
      Governmental Authorities beyond those contemplated herein.

      10.13 Governing Law. This Amended Memorandum Agreement has been
negotiated, made and executed at the Tribe's office located in the State of
California and shall be construed in accordance with the applicable laws of the
State of California, without regard to its conflict of laws provisions, and
applicable Tribe and federal laws.

      10.14 Entire Agreement. This Amended Memorandum Agreement, including all
exhibits, represents the entire agreement between the parties and supersedes all
prior agreements relating to the subject matter of Class II Gaming and Class III
Gaming to be developed and conducted by the Tribe at the Facility and operations
of the Enterprise. The parties hereto intend that this Amended Memorandum
Agreement (and related Transaction Documents) is to supercede and replace the
May 5, 2000 Memorandum of Agreement and any other prior agreements between the
parties in connection with the Project.

      10.15 Representatives of Tribe. The Tribal Council shall furnish to LKAR a
list of the authorized representatives who are empowered to act on behalf of the
Tribe for the purposes of this Amended Memorandum Agreement and the Tribe shall
keep such list current. The Tribe hereby acknowledges and agrees that to the
extent any authorization, consent or other approval of the Tribe or the Tribal
Council is required under this Amended Memorandum Agreement or any related
Transaction Documents and the Tribe shall provide to LKAR a tribal resolution
naming any individual or individuals authorized to represent the Tribe and the
Tribal Council for purposes or for the purpose of the operation and performance
of this Amended Memorandum Agreement and related Transaction Documents, then
LKAR shall be entitled to rely on all decisions, authorizations, consents,

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and approvals provided by such individual or individuals, as applicable, until
such time as the Tribe shall deliver to LKAR an additional tribal resolution
revoking or otherwise modifying such authority.

      10.16 Limitations of Liability. LKAR expressly agrees that the Tribe's
total aggregate liability for damages for breach of the Amended Memorandum
Agreement shall be limited in accordance with the Resolution of Limited Waiver
attached hereto as Exhibit B and incorporated herein by reference. The Tribe
shall bear no liability for further damages.

      10.17 Approvals. Unless otherwise provided herein, all approvals or
consents required by either party hereunder shall not be unreasonably withheld
or delayed, unless otherwise provided herein. Approval by the Tribal Council or
its duly authorized representative shall be deemed to constitute approval by the
Tribe and approval by the duly authorized President of LKAR shall be deemed to
constitute approval by the LKAR.

      10.18 Best Efforts. LKAR and the Tribe shall use their best efforts to
perform and fulfill their obligations under this Amended Memorandum Agreement in
the manner required by this Amended Memorandum Agreement.

      10.19 Request for NIGC Approval. The parties specifically request that the
NIGC, or the Secretary where appropriate, approve this Amended Memorandum
Agreement and other Transaction Documents, if required, or declare that such
approval is not required.

      10.20 Non-disclosure. The parties agree not to divulge to third parties
the terms of this Amended Memorandum Agreement or any other proprietary or
confidential information exchanged between the parties pursuant to this Amended
Memorandum Agreement, unless (i) the information is required to be disclosed
pursuant to judicial or Legal Requirements, (ii) the information is at the time
of disclosure already in the public domain, or (iii) to the extent required in
order to obtain financing. This prohibition shall not apply to disclosures by
either party to their attorneys, accountants, or other professional advisers. In
situations where disclosure of the terms of this Amended Memorandum Agreement to
regulatory, governmental or judicial entities is required by law or regulations,
the parties will make reasonable efforts to secure confidential treatment of the
terms of this Amended Memorandum Agreement by such entities; provided, however,
this disclosure restriction shall not prohibit LKAR making any SEC filings it
deems legally necessary. The parties agree to consult with each other and
cooperate regarding any press releases regarding this Amended Memorandum
Agreement and the relationships described herein. LKAR understands that as a
tribal government, the Tribe is obligated to fully inform, consult with, and
obtain the consent of its membership to its entry into and performance of this
Amended Memorandum Agreement. LKAR also understands that the Tribe has no
control over the distribution by its members of this Amended Memorandum
Agreement or their dissemination of other confidential information. LKAR
therefore agrees that this section is intended only to bind the Tribe as a legal
entity, and its officers and agents, and the Tribe shall have no liability for
failure of any other person to comply with this provision.

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      10.21 Non-Competition. LKAR agrees that, during the term of this Amended
Memorandum Agreement, it will not finance, manage, or consult in connection with
any facility where Class II Gaming or Class III Gaming is or will be conducted
within a radius of fifty (50) miles from the Gaming Site or in the Lake Tahoe
area without the prior written consent of the Tribe (excluding Lyle Berman and
his involvement with Park Place Entertainment, Inc.). The Tribe agrees that,
during the term of this Amended Memorandum Agreement, it will not solicit or
enter into any negotiations or agreements with any person or company with
respect to any Class II Gaming or Class III Gaming conducted within fifty (50)
miles of the Gaming Site without the prior written consent of LKAR.

      10.22 Other Business Opportunities. LKAR agrees that, in an effort to
develop a long-lasting business relationship with the Tribe, LKAR will make its
best efforts to present appropriate business and investment opportunities to the
Tribe.

      10.23 Use of Trade Marks and Trade Names. To assure that the Tribe can
continue operation of the Facility and Enterprise without disruption in the
event that this Amended Memorandum Agreement is terminated or not renewed, LKAR
agrees that it will not use any trade mark or trade name to identify any portion
of the Facility or Enterprise or services offered within the Facility or
Enterprise unless such trade mark or trade name is registered in the name of the
Tribe.

                                   ARTICLE 11.
                               DISPUTE RESOLUTION

      11.1 Disputes Between the Enterprise and Patrons. Disputes that arise
between the Enterprise and any patron of the Facility shall be resolved in
accordance with the Tribal-State Compact and tribal ordinances, if applicable.

      11.2 Disputes Between the Enterprise and Enterprise Employees. The Tribe
and LKAR shall jointly develop an employee dispute resolution policy and LKAR,
as agent of the Tribe, shall ensure that the enterprise's general manager shall
implement and administer the employee dispute resolution policy after its
adoption.

      11.3 Disputes Between the Tribe and LKAR. Disputes between the Tribe and
LKAR with respect to this Amended Memorandum Agreement, the Land Acquisition
Note, the Interim Promissory Note, the Facility Note, Operating Note, or any
other Transaction Document or a party's performance hereunder or thereunder,
shall be resolved by the following dispute resolution process herein and
pursuant to the Resolution of Limited Waiver attached hereto.

            (a) The parties shall first meet and confer in a good faith attempt
to resolve the dispute through negotiations not later than ten (10) calendar
days after receipt of written notice of the dispute, unless both parties agree
in writing to an extension of time.

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            (b) If the dispute is not resolved to the satisfaction of the
parties within thirty (30) calendar days after the first meeting in Section
11.3(a) above, then any claim, controversy or dispute arising out of or relating
to this Amended Memorandum Agreement, Facility Note, Land Acquisition Note, the
Interim Promissory Note, the Operating Note, or any other Transaction Document,
or any alleged default hereunder or breach of any provisions thereof, shall be
submitted to binding arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association in effect at the time of
submission; except that: (a) the question whether or not a dispute is arbitrable
under this Amended Memorandum Agreement or any other Transaction Document shall
be a matter for binding arbitration by the arbitrators, such question shall not
be determined by any court and, in determining any such question, all doubts
shall be resolved in favor of arbitrability; and (b) discovery shall be
permitted in accordance with the Federal Rules of Civil Procedure, subject to
supervision as to scope and appropriateness by the arbitrators. Judgment on any
arbitration award may be entered in any court having jurisdiction over the
parties pursuant to the Resolution of Limited Waiver attached hereto as Exhibit
B and incorporated herein by reference.

            (c) Unless the parties hereto otherwise agree in writing prior of
the submission of such claim, controversy or dispute to arbitration, arbitration
proceedings under this Article 11 shall be held in Sacramento, California.

            (d) Either party may, at any time prior to the selection of an
arbitrator or arbitrators, require that the arbitrator or arbitrators selected
be an attorney or attorneys licensed to practice law in California and that the
attorneys have experience in Indian gaming regulatory and development issues.

            (e) Unless the parties hereto otherwise agree in writing, any matter
to be arbitrated shall be submitted to a panel of three arbitrators. One
arbitrator shall be selected by the Tribe, one arbitrator shall be selected by
LKAR and the third arbitrator shall be selected by mutual agreement of the two
arbitrators selected by the parties hereto.

            (f) The arbitration award shall be in writing signed by each of the
arbitrators, and shall state the basis for the award. The arbitration award
shall be set forth in reasonable detail as to its findings of fact and law, and
basis of determination of award form and amount. In connection with any
arbitration award, the arbitrators shall be empowered to take the actions and
enforce the judicial remedies described in Paragraph 5 of the Resolution of
Limited Waiver; provided however, that although the arbitrators may award
damages in the event the Tribe or the Tribal Gaming Commission do not to comply
with the award, the arbitrators may not require the Tribe or the Tribal Gaming
Commission to take or modify any governmental legislative decision or action
which the arbitrators have determined has resulted in the dispute between the
parties and is contrary to the parties rights, liabilities or obligations under
this Amended Memorandum Agreement, the Facility Note, the Land Acquisition Note,
the Interim Promissory Note, the Operating Note, or any other Transaction

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Document ("Specific Performance Restriction"). Provided further, that: (a)
should the arbitrators determine that there has been an intentional bad faith
violation of a party's rights under this Amended Memorandum Agreement or any
other transaction Document by the Tribe or Tribal Gaming Commission, and if the
Tribe or the Tribal Gaming Commission do not reverse such intentional bad faith
violation through governmental legislative decision or action within thirty (30)
days after the being notified by the arbitrators of such determination, then the
arbitrators shall award one-and-half (1-1/2 ) times damages to LKAR, or other
claimant, as applicable, for damages suffered as a consequence of the Tribe's or
Tribal Gaming Commission's intentional bad faith violation; and (b) such
Specific Performance Restriction shall not prevent LKAR, or other claimant, as
applicable, from enforcing the Facility Note, the Land Acquisition Note, the
Interim Promissory Note, the Operating Note, the Security Agreement, the
Dominion Account Agreement, or the liens and security interests granted
thereunder, nor from realizing on collateral encumbered thereby.

            (g) Except to the extent such enforcement will be inconsistent with
a specific provision of this Amended Memorandum Agreement, arbitration awards
made pursuant to this Article 11 shall be enforceable in federal court under
Title 9 of the United States Code and any applicable tribal, federal or state
law governing the enforcement of arbitration awards.

            (h) In addition to any basis for appeal of an arbitration award
stated in Title 9 of the United States Code or any applicable law governing the
enforcement of arbitration awards, either party hereto may appeal an arbitration
award on the basis that the arbitrator or arbitrators incorrectly decided a
question of law in making the award, or the award was made in an arbitrary or
capricious manner or in manifest disregard of the factual evidence.

            (i) Either party hereto, without having to exhaust any tribal
remedies first, shall have the right to seek and obtain a court order from a
court having jurisdiction over the parties requiring that the circumstances
specified in the order be maintained pending completion of the arbitration
proceeding, to the extent permitted by applicable law.

            (j) The parties agree that: (1) in the event that a dispute
submitted to arbitration under this section involves the right of LKAR to
continue to receive compensation under Section 6.5 hereof, or (2) in the event
that LKAR appeals an agency decision under Section 9.2 for removal/divestiture,
then any compensation which is asserted to be due to LKAR during such dispute
shall, if not paid to LKAR, be deposited into an interest bearing escrow account
with the entity that is designated as the "Depository" under the Dominion
Account Agreement and LKAR shall be granted a security interest in said escrow
account which interest is contingent, as follows: such escrow funds shall be
released to LKAR upon an arbitration award being issued in its favor or on the
date the agency action under Section 9.2 is reversed by agency administrative or
judicial appeal; provided that upon final conclusion of such arbitration or
agency administrative or judicial appeal, any portion of

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such escrowed funds not expressly awarded to LKAR shall be immediately released
unconditionally to the Tribe.

        [Rest of page left blank intentionally; signature page to follow]

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      IN WITNESS WHEREOF, the parties hereto have executed this Amended
Memorandum Agreement, subject to separate written approval of all exhibits
referred to herein and related Transaction Documents.

      Shingle Springs Band of                   Lakes KAR-Shingle Springs, LLC
      Miwok Indians

      By: signature illegible                   By: Timothy Cope
          ----------------------                    ----------------------
      Its: Tribal Chairman                      Its: President

      By: signature illegible
          ----------------------
      Its: vice-chairman

Approved pursuant to 25 U.S.C. Section 2711

National Indian Gaming Commission

By: _____________________________
Print Name: Philip N. Hogen
Its Chairman

Shingle Springs Development/Management Contract
10/13/03 revision

                                       63
<PAGE>

                                LIST OF EXHIBITS

Pursuant to Item 601(b) of Regulation S-K, certain Exhibits have been omitted
from this Agreement. The Registrant will furnish a copy of any omitted Exhibit
to the Commission upon request.

Exhibit A     Legal Description of Gaming Site

Exhibit B     Resolution of Limited Waiver of Immunity from Suit

<PAGE>

                           JUNE 16, 2004 AMENDMENT TO

                           FIRST AMENDED AND RESTATED
                             MEMORANDUM OF AGREEMENT

                                    REGARDING

                               GAMING DEVELOPMENT

                                       AND

                                   MANAGEMENT

                                    AGREEMENT

                                     BETWEEN

                      SHINGLE SPRINGS BAND OF MIWOK INDIANS
                          A FEDERALLY RECOGNIZED TRIBE

                                       AND

                         LAKES KAR-SHINGLE SPRINGS, LLC
                      A DELAWARE LIMITED LIABILITY COMPANY

                             DATED: OCTOBER 13, 2003

June 16, 2004 Amendment to
October 13, 2003 Amended Memorandum Agreement

06/16/04 revision

                                       1
<PAGE>

      THIS AMENDMENT ("AMENDMENT") to the October 13, 2003 FIRST AMENDED AND
RESTATED MEMORANDUM OF AGREEMENT, by and between the Shingle Springs Band of
Miwok Indians, a federally recognized Indian tribe (hereinafter referred to as
("the Tribe"), located in the State of California with tribal offices located at
P.O. Box 1340, Shingle Springs, California 95682 and Lakes KAR-Shingle Springs,
LLC, a Delaware limited liability company (hereinafter referred to as "LKAR"),
whose business office is located at 130 Cheshire Lane, Minnetonka, MN 55305, is
made and entered into this 16th day of June, 2004 by the parties.

                                    RECITALS

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

      B. In compliance with the Indian Gaming Regulatory Act of 1988, P.L.
100-497, 25 U.S.C. 2701 et seq. as it may from time to time be amended, the
Tribal Council of the Tribe has enacted a tribal ordinance regulating the
operation of gaming activities on Tribal Lands (hereinafter referred to as the
"Tribal Gaming Ordinance"), creating the Shingle Springs Tribal Gaming
Commission, and authorizing Class II Gaming and Class III Gaming on its Tribal
Lands subject to the provisions of the Tribal Gaming Ordinance and a
Tribal-State Compact.

      C. The Tribe is committed to the use of gaming activities to provide
employment and improve the social, economic, education, and health needs of its
members; to increase the revenues of the Tribe; and to enhance the Tribe's
economic self-sufficiency and self-determination.

      D. The Tribe presently lacks the resources to develop and operate a gaming
facility and enterprise on its own and desires to retain the services of a
developer and manager with knowledge and experience in the gaming industry to
secure financing, develop, manage and operate a Class II Gaming and Class III
Gaming facility and related resort facilities located on its Indian lands in
accordance with the Indian Gaming Regulatory Act of 1988, as amended.

      E. To assist with the financing, development, management and operations of
its planned gaming facility and enterprise (the "Project"), the Tribe and LKAR
agreed to enter into their First Amended and Restated Memorandum of Agreement
Regarding Gaming Development and Management Agreement ("Amended Memorandum
Agreement") and related Transaction Documents dated October 13, 2003 in
connection with the Project.

      F. The October 13, 2003 Amended Memorandum Agreement (and related exhibits
and Transaction Documents) between the Tribe and LKAR has been submitted for
approval to the National Indian Gaming Commission ("NIGC"); NIGC staff have
reviewed the October 13, 2003 Amended Memorandum Agreement (and related exhibits
and Transaction Documents) and have requested certain modifications to the
documents prior to issuing NIGC approval; the Tribe and

June 16, 2004 Amendment to
October 13, 2003 Amended Memorandum Agreement

06/16/04 revision

                                       2
<PAGE>

LKAR have made such modifications to the documents as they have deemed
necessary, including those made necessary by changes in circumstances related to
increased financing needs of the Project; such modifications are incorporated
herein and, accordingly, the Tribe and LKAR agree to enter into this June 16,
2004 Amendment to the October 13, 2003 First Amended and Restated Memorandum of
Agreement Regarding Gaming Development and Management Agreement in connection
with the Project.

      G. This June 16, 2004 Amendment to the October 13, 2003 Amended Memorandum
Agreement shall become effective when all the necessary approvals listed in
Section 3.19 of the Amended Memorandum Agreement are received (the "Effective
Date") and shall continue for a term of seven (7) years from the Commencement
Date, or as otherwise provided in the October 13, 2003 Amended Memorandum
Agreement.

      H. Any dispute regarding this June 16, 2004 Amendment to the October 13,
2003 Amended Memorandum Agreement between the parties is to be subject to the
dispute resolution and governing law provisions contained in the October 13,
2003 Amended Memorandum Agreement, as well as the Resolution of Limited Waiver
attached as Exhibit B thereto.

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

      1. Section 2.3(b)(i) of the October 13, 2003 Amended Memorandum Agreement
is amended to state as follows:

            (b)(i) The total amount of funds advanced to the Tribe directly from
LKAR pursuant to Section 2.3(a)(i) shall equal the total amount of the
Transition Loan. The total amount of the Transition Loan shall be in an amount
not exceeding thirty million dollars ($30,000,000). The parties agree that as of
May 30, 2004, LKAR has advanced $29,143,769.02 to the Tribe under the Transition
Loan. The Transition Loan shall accrue interest at the prime interest rate of
Chase Manhattan Bank (or any successor bank by acquisition or merger) plus two
percent (2%), fixed from the date the funds are advanced to the Tribe. Principal
and interest due under the Transition Loan shall be paid as provided under
Section 2.3(c) below.

      2. Section 2.3(b)(ii) of the October 13, 2003 Amended Memorandum Agreement
is amended to state as follows:

            (b)(ii) The total amount of funds advanced to the Tribe by LKAR
pursuant to Section 2.3(a)(ii) shall equal the total amount of the Land
Acquisition Loan. The total amount of the Land Acquisition Loan shall be in an
amount not exceeding Ten Million dollars ($10,000,000). The parties agree that
as of May 30, 2004, LKAR has advanced $7,429,454.73 to the Tribe under the Land
Acquisition Loan. The Land Acquisition Loan shall accrue interest at the prime
interest rate of Chase

June 16, 2004 Amendment to
October 13, 2003 Amended Memorandum Agreement

06/16/04 revision

                                       3
<PAGE>

Manhattan Bank (or any successor bank by acquisition or merger) plus two percent
(2%), fixed from the date the funds are advanced to the Tribe in accordance with
Section 2.3(a)(ii) hereof. Principal and interest due under the Land Acquisition
Loan shall be paid as provided under Section 2.3(c) below.

      3. Section 2.14 of the October 13, 2003 Amended Memorandum Agreement is
amended to state as follows:

      Term of Development Agreement. Unless sooner terminated as provided in
this Amended Memorandum Agreement, the term of the Development Agreement shall
run until the earlier of either (i) the Commencement Date; or (ii) December 11,
2005; provided however, that the Notes and Security Provisions shall continue
until all amounts owing to LKAR with respect thereto have been paid in full.

      4. Section 6.5(b) of the October 13, 2003 Amended Memorandum Agreement is
amended to state as follows:

      (b) As compensation for LKAR's services, LKAR shall receive thirty percent
(30%) of Net Total Revenues for the prior calendar month, for the first five (5)
years of the term of this Amended Memorandum Agreement, and in years six (6) and
seven (7) of the term of this Amended Memorandum Agreement, shall receive 25% of
the first $90 million of Net Total Revenues per year, then 15% of the next $60
million of Net Total Revenues per year and 5% of all Net Total Revenues over
$150 million per year, as provided in this Amended Memorandum Agreement. Any
amounts owing to LKAR hereunder shall be Limited Recourse obligations of the
Tribe and shall be subject to the security provisions described in Section
6.3(c) hereof, including the Dominion Account Agreement and Security Agreement.

      5. Section 2.11 of the October 13, 2003 Amended Memorandum Agreement is
amended to state as follows:

      Limited Waiver of Sovereign Immunity. By this Amended Memorandum
Agreement, the Tribe does not waive, limit, or modify its sovereign immunity
from unconsented suit except as provided in tribal Resolution 2003-12 dated
October 13, 2003 attached hereto as Exhibit B and in tribal Resolution 2004-xx
dated June 16, 2004 attached hereto as Exhibit C. The Tribe understands that its
agreement to adopt enforceable resolutions of limited waiver is a material
inducement to the LKAR's execution of this Amended Memorandum Agreement and is a
condition precedent to any of the respective obligations of the parties under
this Amended Memorandum Agreement. The Tribe further agrees that it will not
amend or alter or in any way lessen the rights of the Lender or LKAR as set
forth in the resolutions of limited waiver, which are attached hereto as Exhibit
B and Exhibit C, both of which are incorporated here by reference. This Section
2.11 shall survive the termination of this Amended Memorandum Agreement,
regardless of the reason for the termination.

June 16, 2004 Amendment to
October 13, 2003 Amended Memorandum Agreement

06/16/04 revision

                                       4
<PAGE>

      6. Section 10.10 of the October 13, 2003 Amended Memorandum Agreement is
amended to state as follows:

      Sovereign Immunity. Except as described in the resolutions of limited
waiver attached hereto as Exhibit B and Exhibit C, both of which are
incorporated herein by reference, nothing in this Amended Memorandum Agreement
shall be deemed or construed to constitute a waiver of sovereign immunity of the
Tribe and the only applicable waivers of sovereign immunity shall be those
expressly provided and executed by the Tribe's duly authorized representative
and substantially conforming to the form as approved by the parties. The parties
agree that they will not amend or alter the resolution of limited waiver
attached hereto as Exhibit B and Exhibit C in any way which will lessen the
rights of any party as set forth in the resolutions of limited waiver. This
Section 10.10 shall survive termination of this Amended Memorandum Agreement,
regardless of the reason for the termination.

      7. Section 11.3(b) of the October 13, 2003 Amended Memorandum agreement is
amended to state as follows:

            (b) If the dispute is not resolved to the satisfaction of the
parties within thirty (30) calendar days after the first meeting in Section
11.3(a) above, then any claim, controversy or dispute arising out of or relating
to this Amended Memorandum Agreement, Facility Note, Land Acquisition Note, the
Interim Promissory Note, the Operating Note, or any other Transaction Document,
or any alleged default hereunder or breach of any provisions thereof, shall be
submitted to binding arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association in effect at the time of
submission; except that: (a) the question whether or not a dispute is arbitrable
under this Amended Memorandum Agreement or any other Transaction Document shall
be a matter for binding arbitration by the arbitrators, such question shall not
be determined by any court and, in determining any such question, all doubts
shall be resolved in favor of arbitrability; and (b) discovery shall be
permitted in accordance with the Federal Rules of Civil Procedure, subject to
supervision as to scope and appropriateness by the arbitrators. Judgment on any
arbitration award may be entered in any court having jurisdiction over the
parties pursuant to the resolutions of limited waiver attached hereto as Exhibit
B and Exhibit C, both of which are incorporated herein by reference.

      8. Section 11.3(f) of the October 13, 2003 Amended Memorandum agreement is
amended to state as follows:

            (f) The arbitration award shall be in writing signed by each of the
arbitrators, and shall state the basis for the award. The arbitration award
shall be set forth in reasonable detail as to its findings of fact and law, and
basis of determination of award form and amount. In connection with any
arbitration award, the arbitrators shall be empowered to take the actions and
enforce the judicial remedies described in Paragraph 5 of the resolutions of
limited waiver attached hereto as Exhibit B

June 16, 2004 Amendment to
October 13, 2003 Amended Memorandum Agreement

06/16/04 revision

                                       5
<PAGE>

and Exhibit C, both of which are incorporated herein by reference; provided
however, that although the arbitrators may award damages in the event the Tribe
or the Tribal Gaming Commission do not to comply with the award, the arbitrators
may not require the Tribe or the Tribal Gaming Commission to take or modify any
governmental legislative decision or action which the arbitrators have
determined has resulted in the dispute between the parties and is contrary to
the parties rights, liabilities or obligations under this Amended Memorandum
Agreement, the Facility Note, the Land Acquisition Note, the Interim Promissory
Note, the Operating Note, or any other Transaction Document ("Specific
Performance Restriction"). Provided further, that: (a) should the arbitrators
determine that there has been an intentional bad faith violation of a party's
rights under this Amended Memorandum Agreement or any other transaction Document
by the Tribe or Tribal Gaming Commission, and if the Tribe or the Tribal Gaming
Commission do not reverse such intentional bad faith violation through
governmental legislative decision or action within thirty (30) days after the
being notified by the arbitrators of such determination, then the arbitrators
shall award one-and-half (1-1/2 ) times damages to LKAR, or other claimant, as
applicable, for damages suffered as a consequence of the Tribe's or Tribal
Gaming Commission's intentional bad faith violation; and (b) such Specific
Performance Restriction shall not prevent LKAR, or other claimant, as
applicable, from enforcing the Facility Note, the Land Acquisition Note, the
Interim Promissory Note, the Operating Note, the Security Agreement, the
Dominion Account Agreement, or the liens and security interests granted
thereunder, nor from realizing on collateral encumbered thereby.

      9. The List of Exhibits page of the October 13, 2003 Amended Memorandum
Agreement is amended to state as follows:

                                LIST OF EXHIBITS

      Exhibit A      Legal Description of Gaming Site

      Exhibit B      Resolution 2003-12 concerning Limited Waiver of Immunity
                     from Suit

      Exhibit C      Resolution 2004-xx concerning Limited Waiver of Immunity
                     from Suit

      10. Section 10.14 of the October 13, 2003 Amended Memorandum Agreement is
amended to state as follows:

      Entire Agreement. This Amended Memorandum Agreement (including all its
exhibits and related Transaction Documents, along with tribal Resolution 2004-18
approving the establishment of the Foothills Oaks Tribal Gaming Authority and
its related Ordinance, the June 16, 2004 Amendment to the October 13, 2003
Amended Memorandum Agreement, the June 16, 2004 Consent Agreement

June 16, 2004 Amendment to
October 13, 2003 Amended Memorandum Agreement

06/16/04 revision

                                       6
<PAGE>

entered into by the parties, and tribal Resolution 2004-xx concerning the June
16, 2004 Amendment and Consent Agreement), represents the entire agreement
between the parties and supersedes all prior agreements relating to the subject
matter of Class II Gaming and Class III Gaming to be developed and conducted by
the Tribe at the Facility and operations of the Enterprise. The parties hereto
intend that this Amended Memorandum Agreement (and related Transaction
Documents) is to supercede and replace the May 5, 2000 Memorandum of Agreement
and any other prior agreements between the parties in connection with the
Project.

      11. The Tribe and LKAR agree that any dispute in connection with this June
16, 2004 Amendment to the October 13, 2003 Amended Memorandum Agreement shall be
subject to the dispute resolution procedures and limited waiver of sovereign
immunity contained in the October 13, 2003 Amended Memorandum Agreement and the
Resolution of Limited Waiver attached thereto as Exhibit B, the terms of which
are incorporated by reference herein.

      12. The Tribe and LKAR agree that capitalized terms used herein and not
defined shall have the meanings given them in the October 13, 2003 Amended
Memorandum Agreement.

      13. The Tribe and LKAR agree that this Amendment shall be construed in
accordance with and governed by the internal laws and decisions of the State of
California, without giving effect to its choice of law principles.

      14. The Tribe and LKAR agree that no modification, amendment or change to
this Amendment shall be valid unless the same is in writing and signed by the
party against which the enforcement of such modification, amendment or change is
sought.

      15. Except as amended above, all other provisions of the October 13, 2003
Amended Memorandum Agreement shall remain in full force and effect as originally
stated and are equally applicable hereto.

June 16, 2004 Amendment to
October 13, 2003 Amended Memorandum Agreement

06/16/04 revision

                                       7
<PAGE>

      IN WITNESS WHEREOF, the parties hereto have executed this June 16, 2004
Amendment to the October 13, 2003 Amended Memorandum Agreement of the parties.

      Shingle Springs Band of                Lakes KAR-Shingle Springs, LLC
      Miwok Indians

      By:   signature illegible              By:    Timothy Cope
          ------------------------------         -------------------------------
      Its: Tribal Chairman                   Its: President

      By:   signature illegible
          ------------------------------
      Its: vice chair

Approved pursuant to 25 U.S.C. Section 2711

National Indian Gaming Commission

By:
    ------------------------------------
Print Name: Philip N. Hogen
Its Chairman

June 16, 2004 Amendment to
October 13, 2003 Amended Memorandum Agreement

06/16/04 revision

                                       8
<PAGE>

Pursuant to Item 601(b) of Regulation S-K, certain Exhibits have been omitted
from this Agreement. The Registrant will furnish a copy of any omitted Exhibit
to the Commission upon request.

June 16, 2004 Amendment to
October 13, 2003 Amended Memorandum Agreement

06/16/04 revision

                                       9

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>3
<FILENAME>c89762exv31w1.txt
<DESCRIPTION>CERTIFICATION OF CEO PURSUANT TO SECTION 302
<TEXT>
<PAGE>

                                                             Exhibit 31.1

                                 CERTIFICATIONS

I, Lyle Berman, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Lakes Entertainment,
      Inc.;

2.    Based on my knowledge, this quarterly report does not contain any untrue
      statements of a material fact or omit to state a material fact necessary
      to make the statement made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this quarterly report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this quarterly report, fairly present in all
      material respects the financial condition, results of operations and cash
      flows of the registrant as of, and for, the periods presented in this
      quarterly report;

4.    Lakes Entertainment, Inc.'s other certifying officer and I are responsible
      for establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for Lakes
      Entertainment, Inc., and have:

      a.    designed such disclosure controls and procedures, or caused such
            disclosure controls and procedures to be designed under our
            supervision, to ensure that material information relating to Lakes
            Entertainment, Inc., including its consolidated subsidiaries, is
            made known to us by others within those entities, particularly
            during the period in which this quarterly report is being prepared;

      b.    evaluated the effectiveness of Lakes Entertainment, Inc.'s
            disclosure controls and procedures and presented in this report our
            conclusions about the effectiveness of the disclosure controls and
            procedures, as of the end of the period covered by this report based
            on such evaluation; and

      c.    disclosed in this report any change in Lakes Entertainment, Inc.'s
            internal control over financial reporting that occurred during Lakes
            Entertainment, Inc.'s most recent fiscal quarter that has materially
            affected, or is reasonably likely to materially affect, Lakes
            Entertainment, Inc.'s internal control over financial reporting;

5.    Lakes Entertainment, Inc.'s other certifying officer and I have disclosed,
      based on our most recent evaluation of internal control over financial
      reporting, to Lakes Entertainment, Inc.'s auditors and the audit committee
      of Lakes Entertainment, Inc.'s board of directors or persons performing
      the equivalent functions):

      a.    all significant deficiencies and material weaknesses in the design
            or operation of internal control over financial reporting which are
            reasonably likely to adversely affect Lakes Entertainment, Inc.'s
            ability to record, process, summarize and report financial
            information; and

      b.    any fraud, whether or not material, that involves management or
            other employees who have a significant role in Lakes Entertainment,
            Inc.'s internal control over financial reporting.

Date: November 17, 2004                        /s/Lyle Berman
                                               ---------------------------------
                                               Lyle Berman
                                               Chief Executive Officer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>4
<FILENAME>c89762exv31w2.txt
<DESCRIPTION>CERTIFICATION OF CFO PURSUANT TO SECTION 302
<TEXT>
<PAGE>

                                                            Exhibit 31.2

                                 CERTIFICATIONS

I, Timothy J. Cope, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Lakes Entertainment,
      Inc.;

2.    Based on my knowledge, this quarterly report does not contain any untrue
      statements of a material fact or omit to state a material fact necessary
      to make the statement made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this quarterly report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this quarterly report, fairly present in all
      material respects the financial condition, results of operations and cash
      flows of the registrant as of, and for, the periods presented in this
      quarterly report;

4.    Lakes Entertainment, Inc.'s other certifying officer and I are responsible
      for establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for Lakes
      Entertainment, Inc., and have:

      a.    designed such disclosure controls and procedures, or caused such
            disclosure controls and procedures to be designed under our
            supervision, to ensure that material information relating to Lakes
            Entertainment, Inc., including its consolidated subsidiaries, is
            made known to us by others within those entities, particularly
            during the period in which this quarterly report is being prepared;

      b.    evaluated the effectiveness of Lakes Entertainment, Inc.'s
            disclosure controls and procedures and presented in this report our
            conclusions about the effectiveness of the disclosure controls and
            procedures, as of the end of the period covered by this report based
            on such evaluation; and

      c.    disclosed in this report any change in Lakes Entertainment, Inc.'s
            internal control over financial reporting that occurred during Lakes
            Entertainment, Inc.'s most recent fiscal quarter that has materially
            affected, or is reasonably likely to materially affect, Lakes
            Entertainment, Inc.'s internal control over financial reporting;

5.    Lakes Entertainment, Inc.'s other certifying officer and I have disclosed,
      based on our most recent evaluation of internal control over financial
      reporting, to Lakes Entertainment, Inc.'s auditors and the audit committee
      of Lakes Entertainment, Inc.'s board of directors (or persons performing
      the equivalent functions):

      a.    all significant deficiencies and material weaknesses in the design
            or operation of internal control over financial reporting which are
            reasonably likely to adversely affect Lakes Entertainment, Inc.'s
            ability to record, process, summarize and report financial
            information; and

      b.    any fraud, whether or not material, that involves management or
            other employees who have a significant role in Lakes Entertainment,
            Inc.'s internal control over financial reporting.

Date: November 17, 2004                             /s/Timothy J. Cope
                                                    ----------------------------
                                                    Timothy J. Cope
                                                    Chief Financial Officer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>5
<FILENAME>c89762exv32w1.txt
<DESCRIPTION>CERTIFICATION OF CEO PURSUANT TO SECTION 906
<TEXT>
<PAGE>

                                                            Exhibit 32.1

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. Section 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Lakes Entertainment, Inc. (the
"Company") on Form 10-Q for the period ended October 3, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Lyle
Berman, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:

      1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

      2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

                                   /s/Lyle Berman
                                   -------------------------------------
                                   Lyle Berman
                                   Chief Executive Officer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>6
<FILENAME>c89762exv32w2.txt
<DESCRIPTION>CERTIFICATION OF CFO PURSUANT TO SECTION 906
<TEXT>
<PAGE>

                                                        Exhibit 32.2

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. Section 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Lakes Entertainment, Inc. (the
"Company") on Form 10-Q for the period ended October 3, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Timothy
J. Cope, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:

      1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

      2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

                                   /s/Timothy J. Cope
                                   ---------------------------------
                                   Timothy J. Cope
                                   Chief Financial Officer

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
