So a modeller would ahve to make three complete ships for every release, a nice thing about the exporter is that if you do not have other models to assign to the export slots it will assign the orginal model for you to those slots. Now only the exporter made for Max let you do this, the other exporters for GMax, MS, etc did not have this ability and only export a 1 model.
So now back to your question:
I make a LOD1 model and assign textures to it, I can make a LOD2 model and assign the same textures or make reduced textures for it and assign them. Note if you rescale them, the textures by the way will need fixing after you do this. One way for making a LOD2 is to run the ship through a poly reducer, note this will cause mesh errors that have to be corrected. In both these cases the errors can be so severe that it will be easy to make a new one than correct the current mesh.
So a LOD is a complete model, with textures, damage points, hardpoints, and mapping. Depending on the camera distance from the target will determine which LOD is used. Only a export from 3DMax versions 2-5 will allow you to place multiple models into the exported MOD file.
Yeah I know clear as mud, but hope it helps ask away where you need it clearified.
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Not the only way to do it....
I make three sepearate models, then using the freeware MFCSFCED modelling tool, copy and insert each model in place of each LOD layer in a three LOD model, usually a Taldren original game model. I then rename the model. All hardpoints are as set on each model before overlaying into each LOD.
I use the same process to convert downloaded SFC 2 and SFC 3 models so that I can run them on SFC 1. Some require hours of texture re-mapping and patience, others convert in under a minute. I have converted an SFC 3 model to SFC 1 and added in LODs for it before now.