Exhibit 10.1

 

BRIDGE LOAN AGREEMENT

 

THIS BRIDGE LOAN AGREEMENT (this “Agreement”), is entered into as of April 13,
2011, by and among American Wagering, Inc., a Nevada corporation (“Borrower”),
the Guarantors (as defined herein), and William Hill Holdings Limited, a private
limited company formed under the laws of England and Wales (together with its
successors and permitted assigns, “Lender”).

 

RECITALS

 

WHEREAS, Borrower, William Hill Holdings Limited, a private limited company
formed under the laws of England and Wales (in such capacity, “Parent”) and AW
SUB CO., a Nevada corporation and an indirect wholly-owned Subsidiary of Parent
(“Merger Sub”) have entered into the Acquisition Agreement, pursuant to which,
subject to the terms and conditions set forth therein, Merger Sub will be merged
with and into Borrower, following which Borrower shall continue as the surviving
corporation and a wholly-owned subsidiary of Parent (such transaction, the
“Acquisition”); and

 

WHEREAS, in connection with the Acquisition Agreement, Lender is willing to fund
to Borrower a loan facility to repay certain Existing Debt and for working
capital and other general corporate purposes, upon the terms and subject to the
conditions set forth in this Agreement.

 

NOW THEREFORE, in consideration of the mutual covenants and agreements contained
herein, Borrower and Lender hereby agree as follows:

 

1.                                       The Loans.

 

(a)                                  Subject to the terms and conditions of this
Agreement, Lender agrees to loan to Borrower funds in an aggregated principal
amount of up to Seven Million Two Hundred Fifty Thousand ($7,250,000), in
installments as follows:

 

(i)                         a loan (the “Tranche One Loan”) on the Closing Date
in the amount of $4,250,000.

 

(ii)                      one or more loans (each, a “Tranche Two Loan” and
collectively, the “Tranche Two Loans”), in Lender’s sole discretion upon
Borrower’s written request (each such request, a “Borrowing Request”); from time
to time during the term of this Agreement in an aggregate principal amount not
to exceed $3,000,000; provided that each Borrowing Request must specify the date
and amount of such proposed borrowing and must be received by Lender no later
than noon (PT) one Business Day prior to the date of such proposed borrowing.

 

(b)                                 On the requested date for borrowing of a
Loan, if all conditions to the making of such Loan as set forth in Section 5(a)
or 5(b), as applicable, and Section 5(c) have been satisfied, and, with respect
to any Tranche Two Loan, if Lender, in its sole discretion, has elected to make
such Loan, Lender will deliver to Borrower no later than noon (PT) the proceeds
of the requested Loan in immediately available funds via wire transfer to the
account designated by Borrower in its written request for such borrowing.

 

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(c)                                  The Loans made by Lender shall be evidenced
by one or more accounts or records maintained by Lender in the ordinary course
of business.  The accounts or records maintained by Lender shall be conclusive
absent manifest error of the amount of the Loans made by Lender to Borrower and
the interest and payments thereon.  Any failure to so record or any error in
doing so shall not, however, limit or otherwise affect the obligation of
Borrower hereunder to pay any amount owing with respect to the Obligations. 
Lender will provide to Borrower a monthly statement of Loans, payments, and
other transactions pursuant to this Agreement.  Such statement shall be deemed
correct, accurate, and binding on Borrower and as an account stated, unless
Borrower notifies Lender in writing to the contrary within thirty (30) days
after such statement is rendered.  In the event a timely written notice of
objections is given by Borrower, only the items to which exception is expressly
made will be considered to be disputed by Borrower.

 

2.                                       Interest.

 

(a)                                  Subject to the provisions of subsection (b)
below, the outstanding principal amount of the Loans shall bear interest from
the date of funding thereof through, but excluding, the repayment date thereof,
at the rate of 12.5% per annum.  Interest only shall compound quarterly in
arrears on March 31, June 30, September 30, and December 31 of each year, and
shall be payable in kind in accordance with the terms of the Notes.

 

(b)                                 If any Event of Default (as hereinafter
defined) occurs and is continuing, then, from the date such Event of Default
occurs until the earlier of (x) the date when such Event of Default is cured,
waived or otherwise ceases to exist, and (y) the date when all Obligations
(other than contingent indemnification obligations for which no claim has been
asserted) are paid and performed in full, as the case may be, the outstanding
principal amount of the Loans shall bear interest at the rate that is 2.0% per
annum in excess of the interest rate otherwise applicable pursuant to subsection
(a).  Such accrued and unpaid default interest shall be due and payable in cash
upon demand.

 

(c)                                  Interest charges shall be calculated on the
basis of a 360-day year and actual days elapsed.  Interest hereunder shall be
due and payable in accordance with the terms hereof before and after judgment,
and before and after the commencement of any proceeding under any Debtor Relief
Law.

 

3.                                       Payment; Prepayment.

 

(a)                                  Borrower hereby agrees to pay to Lender the
Outstanding Balance of the Loans, together with any accrued and unpaid interest
thereon (to the extent not otherwise added to the principal amount of the Loans)
at the rate set forth in Section 2, on the Maturity Date.  All payments in
respect hereof shall be made to Lender at its address set forth in Section 19
below or such other place as may be designated in writing by Lender for such
purpose, and all payments shall be made in lawful currency of the United States
in immediately available funds, except as otherwise provided in Section 2.  If
any payment due under this Agreement or the Notes shall be due on a day that is
not a Business Day, then such payment shall be made on the next succeeding
Business Day.

 

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(b)                                 At any time on or after a Prepayment Event,
the occurrence of the NGC Failure Date, or as set forth in Section 26(c),
Borrower may, at its option, prepay all, or any part of, the Outstanding Balance
of the Loans by paying to Lender an amount equal to the principal amount of the
Notes to be prepaid, plus all accrued but unpaid interest thereon through, but
excluding, the prepayment date.  Borrower will give Lender written notice of
each optional prepayment under this Section 3(b) not less than 5 and not more
than 45 days prior to the date fixed for such prepayment.  Each such notice
shall specify such date, the portion of the Outstanding Balance of each Note to
be prepaid on such date, and interest to be paid on the prepayment date with
respect to such principal amount being prepaid.  Other than as expressly set
forth in this Section 3(b), Section 26(c) and Section 5 of the Notes, the Loans
shall not be subject to optional prepayment or redemption prior to the Maturity
Date.

 

4.                                       Optional Redemption.  The Loans shall
be subject to redemption as set forth in Section 5 of the Notes.

 

5.                                       Conditions Precedent.  Lender will not
entertain any request for Loans unless the following conditions precedent have
been satisfied as determined by Lender:

 

(a)                                  Conditions Precedent to Tranche One Loan. 
The making of the Tranche One Loan shall be subject to the satisfaction, as
reasonably determined by Lender, of the following conditions:

 

(i)                         Lender’s receipt of the following, each in form and
substance reasonably satisfactory to Lender:

 

(1)                                  an executed counterpart of this Agreement;

 

(2)                                  an executed counterpart of the Pledge
Agreement in the form attached hereto as Exhibit B;

 

(3)                                  an executed counterpart of the Security
Agreement in the form attached hereto as Exhibit C;

 

(4)                                  an executed Note in favor of Lender in the
form attached hereto as Exhibit A;

 

(5)                                  an executed copy of the Acquisition
Agreement;

 

(6)                                  such certificates of resolutions or other
corporate or limited liability company action, incumbency certificates and/or
other certificates of officers of each Loan Party as Lender may reasonably
require evidencing the identity, authority and capacity of each officer thereof
authorized to act in connection with this Agreement and the other Loan Documents
to which such Loan Party is a party;

 

(7)                                  a favorable written opinion of counsel for
the Loan Parties dated the date hereof, addressed to Lender and covering such
matters relating to the Loan Documents and the Transaction as Lender shall
reasonably request;

 

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(8)                                  a certificate of an authorized officer of
Borrower certifying that the conditions set forth in clauses 5(c)(i), 5(c)(ii)
and 5(c)(iii) below have been satisfied;

 

(9)                                  such documents and certifications as Lender
may reasonably require to evidence that each Loan Party is duly organized or
formed, and that each Loan Party is validly existing, in good standing and
qualified to engage in business in the State of Nevada and has all required
licenses and approvals under Gaming Laws;

 

(10)                            a certificate signed by the Principal Financial
Officer or the treasurer of Borrower attesting that Borrower is, and the Loan
Parties on a consolidated basis are, Solvent before and after giving effect to
the Transaction;

 

(11)                            an executed counterpart of any Intellectual
Property Security Agreement (as defined in the Security Agreement) required
pursuant to Section 5(m) of the Security Agreement;

 

(12)                            evidence that the loans outstanding under the
Existing Debt Agreement have been, or concurrently with the Closing Date are
being, repaid in full and the Existing Debt Agreements have been, or
concurrently with the Closing Date are being, terminated and all Liens securing
obligations under the Existing Debt Agreement have been or concurrently with the
Closing Date are being released;

 

(13)                            a certificate of an authorized officer of
Borrower attaching copies of all consents and approvals required from Nevada
State Bank pursuant to the Nevada State Bank Loan Documents in connection with
the execution, delivery and performance by each Loan Party and the validity
against each Loan Party of the Loan Documents to which it is a party, and
certifying that such consents and approvals are in full force and effect as of
the Closing Date;

 

(14)                            a certificate of an authorized officer of
Borrower attaching evidence that the holders of the majority of issued and
outstanding shares of Borrower have duly approved the Acquisition;

 

(15)                            such other assurances, certificates or documents
as Lender may reasonably require; and

 

(ii)                      All Liens and security interests granted pursuant to
the Loan Documents shall be perfected concurrently with the funding of the
Tranche One Loan to the extent required herein or under the Security Agreement
or the Pledge Agreement and shall be subject to no other Liens or security
interests (whether junior, equal or senior in priority) other than Permitted
Liens.

 

(b)                                 Conditions Precedent to Tranche Two Loans. 
The making of each Tranche Two Loan shall be subject to the satisfaction, as
reasonably determined by Lender, of the following conditions:

 

(i)                         Lender’s receipt of the following, each in form and
substance reasonably satisfactory to Lender:

 

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(1)                                  an executed Note in favor of Lender in the
form attached hereto as Exhibit A;

 

(2)                                  a certificate of an authorized officer of
Borrower stating that the conditions set forth in clauses 5(c)(i), 5(c)(ii) and
5(c)(iii) below have been satisfied; and

 

(3)                                  a proposed spending budget relating to the
proceeds of the Loan being requested.

 

(c)                                  Conditions Precedent to all Loans.

 

(i)                         The representations and warranties of each Loan
Party contained in each Loan Document, shall be true and correct in all material
respects (without duplication of any materiality qualifier contained therein) on
and as of the date of such Loan except to the extent that such representations
and warranties specifically refer to an earlier date, in which case they shall
be true and correct in all material respects (without duplication of any
materiality qualifier contained therein) as of such earlier date;

 

(ii)                      No event or condition that constitutes an Event of
Default or that, with the giving of any notice, the passage of time, or both,
would be an Event of Default (a “Default”), shall have occurred and be
continuing, or would result from such proposed Loan or from the application of
the proceeds thereof; and

 

(iii)                   Since January 31, 2010, no Material Adverse Effect shall
have occurred.

 

6.                                       Conversion.  The Loans are convertible
into Conversion Shares (as defined in the Notes) of Borrower in accordance with
Section 3 of the Notes.

 

7.                                       Representations and Warranties of Loan
Parties.  Each Loan Party hereby represents and warrants to Lender that:

 

(a)                                  Such Loan Party has all requisite power and
authority and is duly authorized to execute, deliver and perform its obligations
under this Agreement and the other Loan Documents to which it is a party,
without the consent, approval, license, authorization of, or notice to (other
than those that have been obtained or delivered, as applicable, and other than
the NGC Approvals), any governmental entity or regulatory authority.

 

(b)                                 Such Loan Party is duly organized and
validly existing under the laws of the State of Nevada, and is in good standing
and qualified to do business in each state in which the nature of its business
or property so requires.

 

(c)                                  The execution, delivery, and performance of
this Agreement and compliance with the terms, conditions and provisions hereof
and the other Loan Documents to which it is a party are not prohibited or
restricted under such Loan Party’s articles or certificate of incorporation,
by-laws, or other organizational or charter documents.  The execution, delivery,
and performance of this Agreement and the other Loan Documents to which it is a
party and the transactions contemplated hereby and thereby (i) subject to
receipt of the NGC Approvals, do not

 

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conflict with or result in any material breach or contravention of any
applicable law, regulation, judicial order, or decree (each, a “Requirement of
Law”) to which such Loan Party is subject and (ii) do not violate, conflict
with, constitute a default or event of default under, or result in any rights to
accelerate or modify any obligations under any agreement, instrument, lease,
mortgage, or indenture to which such Loan Party is a party or subject, or to
which any of its assets are subject.

 

(d)                                 This Agreement and the other Loan Documents
to which it is a party have been duly executed and delivered by such Loan Party
and constitute a valid and legally binding obligation of such Loan Party,
enforceable in accordance with their respective terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, or other laws relating to or affecting generally the enforcement of
creditors’ rights and by equitable principles of general applicability
(regardless of whether such enforceability is considered in a proceeding in
equity or at law), subject to receipt of the NGC Approvals and the Gaming
Approvals;

 

(e)                                  The Liens and security interests granted in
and to the Collateral pursuant to and in accordance with the terms and
provisions of the Loan Documents constitute present, valid, binding, and
enforceable perfected first priority security interests as collateral security
for the Obligations to the extent required under the Loan Documents and are
subject to no other Liens or security interests (whether junior, equal or senior
in priority), except for Permitted Liens.

 

(f)                                    Borrower has made all filings required
pursuant to the Securities Exchange Act of 1934 with the Securities Exchange
Commission and all required filings relating to its listing on the NASDAQ OTC
Bulletin Board.

 

(g)                                 Each Loan Party and its Subsidiaries has
good record and marketable title in fee simple to, or valid leasehold interests
in, all material property necessary or used in the ordinary conduct of its
business.  The property of Borrower and the other Loan Parties is subject to no
Liens, security interests or other encumbrances, other than Liens and security
interests in favor of Lender and other than Permitted Liens.

 

(h)                                 The Loan Parties and their Subsidiaries own,
or possess the right to use, all of the trademarks, service marks, trade names,
copyrights, patents, patent rights, franchises, licenses and other intellectual
property rights that are reasonably necessary for the operation of their
respective businesses, without conflict with the rights of any other person or
entity.  To the best knowledge of the Loan Parties, no slogan or other
advertising device, product, process, method, substance, part or other material
now employed, or now contemplated to be employed, by any Loan Party or any of
their Subsidiaries infringes upon any rights held by any other person or entity.

 

(i)                                     As of the date hereof, each Loan Party
has no Subsidiaries other than those specifically disclosed in Part (a) of
Schedule 7(i), and all of the outstanding equity interests in such Subsidiaries
have been validly issued, are fully paid and non-assessable and are owned by a
Loan Party or a Subsidiary in the amounts specified on Part (a) of Schedule 7(i)
free and clear of all Liens except those created under the Loan Documents. Each
Loan Party has, as of the date

 

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hereof, no equity investments in any other corporation or entity other than
those specifically disclosed in Part (b) of Schedule 7(i). All of the
outstanding Equity Interests in Borrower have been validly issued, are fully
paid and non-assessable and are free and clear of all Liens other than Permitted
Liens.

 

(j)                                     The properties of the Loan Parties and
their Subsidiaries are insured with financially sound and reputable insurance
companies not affiliates of any Loan Party, in such amounts, with such
deductibles and covering such risks as are customarily carried by companies
engaged in similar businesses and owning similar properties in localities where
such Loan Party or the applicable Subsidiary operates.

 

(k)                                  Environmental Compliance

 

(i)                         All facilities and real property (including
underlying groundwater) owned, operated or leased by each Loan Party and each of
their respective Subsidiaries are in compliance with all Environmental Laws,
except for such noncompliance as would not reasonably be expected to result in a
Material Adverse Effect.

 

(ii)                      There are no pending or, to the best knowledge of any
Loan Party, threatened Environmental Claims against any Loan Party or any of
their respective Subsidiaries, except for such Environmental Claims that are not
reasonably likely, either singly or in the aggregate, to result in a Material
Adverse Effect.

 

(iii)                   All use, storage, discharge and disposal of Hazardous
Materials on all facilities and real property owned, operated or leased by each
Loan Party have been conducted in a manner which is in material compliance with
all applicable Environmental Laws, except for any such use, storage, discharge
or disposal which, individually or in the aggregate, would not reasonably be
expected to result in a Material Adverse Effect.

 

(iv)                  Each Loan Party and each of their respective Subsidiaries
have been issued and are in compliance with all permits, certificates,
approvals, licenses and other authorizations required under Environmental Laws
that are necessary for the operation of their businesses as currently conducted,
except to the extent that the failure to have or comply with such permits,
certificates, approvals, licenses and other authorizations would not be
reasonably likely to have a Material Adverse Effect.

 

(v)                     No real property now or, to the best knowledge of any
Loan Party, previously owned, operated or leased by any Loan Party or any of
their respective Subsidiaries is listed or proposed for listing on the National
Priorities List pursuant to CERCLA or any similar state law, or, to the best
knowledge of any Loan Party, is on the CERCLIS or on any similar state list of
sites requiring investigation or clean-up, except, in each case, for any such
listing or proposed listing that, singly or in the aggregate would not
reasonably be expected to have a Material Adverse Effect.

 

(vi)                  To the best knowledge of any Loan Party, no Loan Party nor
any of their respective Subsidiaries has directly transported or directly
arranged for the transportation of any Hazardous Material to any location which
is listed or proposed for listing on the National Priorities List pursuant to
CERCLA, or which is the subject of Federal, state or local

 

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enforcement actions or other investigations which may lead to Environmental
Claims against such Loan Party or Subsidiary except, in each case, to the extent
that any of the foregoing would not reasonably be expected to have a Material
Adverse Effect.

 

(l)                                     ERISA Compliance.

 

(i)                         Except as would not reasonably be expected to result
in a Material Adverse Effect, each Plan is in compliance in all respects with
the applicable provisions of ERISA, the Code and other applicable federal or
state law. To the best knowledge of any Loan Party, nothing has occurred which
would reasonably be expected to cause any Pension Plan which is intended to
qualify under Section 401(a) of the Code to fail to be so qualified. Each of the
Loan Parties and each of their respective ERISA Affiliates has made all required
contributions to any Pension Plan subject to Section 412 of the Code, and no
application for a funding waiver or an extension of any amortization period
pursuant to Section 412 of the Code has been made by the Loan Party or any ERISA
Affiliate within the last five years with respect to any Pension Plan.

 

(ii)                      There are no pending or, to the best knowledge of any
Loan Party, threatened claims, actions or lawsuits, or actions by any
governmental authority, with respect to any Plan which has resulted or would
reasonably be expected to result in a Material Adverse Effect. There has been no
prohibited transaction for which an exemption is not applicable or applied for
or violation of the fiduciary responsibility rules with respect to any Plan
which has resulted or would reasonably be expected to result in a Material
Adverse Effect.

 

(iii)                   (A) No ERISA Event has occurred or is reasonably
expected to occur that would reasonably be expected to have a Material Adverse
Effect; (B) no contribution failure has occurred with respect to a Pension Plan
sufficient to give rise to a Lien under Section 303(k) of ERISA; and (iii)
neither any Loan Party nor any of their respective ERISA Affiliates has
incurred, or reasonably expects to incur, any material liability to the PBGC,
apart from PBGC premiums due but not yet delinquent under Section 4007 of ERISA,
under Title IV of ERISA with respect to any Pension Plan.

 

(m)                               Subject to receipt of the NGC Approvals and
Gaming Approvals, no approval, consent, exemption, authorization, or other
action by, or notice to, or filing with, any governmental authority or any other
person or entity is necessary or required in connection with the execution,
delivery or performance by, or enforcement against, any Loan Party of any Loan
Document.

 

(n)                                 Each Loan Party has in effect all material
rights, privileges, permits, licenses, franchises and approvals (collectively,
“Permits”) necessary or desirable in the normal conduct of its business, and
there has occurred no material violation of, default (with or without notice or
lapse of time or both) under or event giving to others any right of revocation,
non-renewal, adverse modification or cancellation of, with or without notice or
lapse of time or both, any such Permit.  Each Loan Party is in material
compliance with all applicable Requirements of Law.

 

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(o)                                 Except as disclosed to Lender prior to the
date hereof, there are no actions, suits, proceedings, claims or disputes
pending or, to the best knowledge of such Loan Party after due and diligent
investigation, threatened or contemplated, at law, in equity, in arbitration or
before any governmental authority, by or against such Loan Party or any of its
Subsidiaries or against any of its properties or revenues;

 

(p)                                 Such Loan Party is not in default under or
with respect to any material contractual obligation.  No Default or Event of
Default has occurred and is continuing or would result from the consummation of
the transactions contemplated by this Agreement or any other Loan Document;

 

(q)                                 Except as set forth on Schedule 7(q),
Borrower and its Subsidiaries have filed all federal, state and other material
tax returns and reports required to be filed, and have paid all federal, state
and other material taxes, assessments, fees and other governmental charges
levied or imposed upon them or their properties, income or assets otherwise due
and payable, except those which are being contested in good faith by appropriate
proceedings diligently conducted and for which adequate reserves have been
provided in accordance with generally accepted accounting principles (“GAAP”). 
To the best knowledge of Borrower, there is no proposed tax assessment against
Borrower or any of its Subsidiaries.  No Loan Party is party to any tax sharing
agreement.

 

(r)                                    Such Loan Party is not engaged and such
Loan Party will not engage, principally or as one of its important activities,
in the business of purchasing or carrying Margin Stock, or extending credit for
the purpose of purchasing or carrying margin stock. Following the application of
the proceeds of each Loan, not more than 25% of the value of the assets (either
of Borrower only or of Borrower and its Subsidiaries on a consolidated basis)
will be Margin Stock.

 

(s)                                  None of Borrower, any person controlling
Borrower, or any Subsidiary of Borrower is or is required to be registered as an
“investment company” under the Investment Company Act of 1940.

 

(t)                                    The Loan Parties have disclosed to Lender
all agreements, instruments and corporate or other restrictions to which it or
any of its Subsidiaries is subject, and all other matters known to it, that,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.  No report, financial statement, certificate or other
information furnished (whether in writing or orally) by or on behalf of any Loan
Party to Lender in connection with the transactions contemplated hereby and the
negotiation of this Agreement or delivered hereunder or under any other Loan
Document contains any material misstatement of fact or omits to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided that, with
respect to projected financial information, such Loan Party represents only that
such information was prepared in good faith based upon assumptions believed to
be reasonable at the time; it being understood that projections by their nature
are uncertain and no assurance is being given that the results reflected in such
projections will be achieved.  All financial statements furnished to Lender
accurately reflect the financial condition and operations of the Loan Parties at
the times and for the periods indicated in those statements. All such financial
statements show all material

 

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indebtedness and other liabilities, direct or contingent, of Borrower and its
Subsidiaries as of the date thereof, including liabilities for taxes and
material commitments.

 

(u)                                 The Borrower is, and the Loan Parties on a
consolidated basis are, Solvent.

 

8.                                       Affirmative Covenants.  For so long as
any Obligations (other than contingent indemnification obligations for which no
claim has been made) remain outstanding or unsatisfied, and so long as Lender’s
obligation to make Loans hereunder has not expired or been terminated, each Loan
Party shall, and shall cause its Subsidiaries to:

 

(a)                                  Pay or cause to be paid promptly all
material taxes and assessments when due, except those which are being contested
in good faith by appropriate proceedings diligently conducted and for which
adequate reserves have been provided in accordance with GAAP, and all lawful
claims which, if unpaid, would by law become a lien upon its property;

 

(b)                                 Deliver to Lender:

 

(i)                         Notice of the filing of any documents filed with the
SEC, promptly, but in any event within two (2) Business Days, after the filing
thereof;

 

(ii)                      Within twenty (20) Business Days after the end of each
month, a balance sheet, cash flow, profit and loss statement and reconcilement
of surplus of the Loan parties;

 

(iii)                   [Reserved]

 

(iv)                  promptly after the furnishing thereof, copies of any
statement or report furnished to any holder of debt or equity securities of
Borrower;

 

(v)                     promptly, but in any event within two (2) Business Days,
after learning thereof, notice of

 

(1)                                  any litigation commenced or claim asserted
against such Loan Party or any of its Subsidiaries involving an amount in excess
of $25,000, including pursuant to any applicable Environmental Laws;

 

(2)                                  of the occurrence of any ERISA Event;

 

(3)                                  the occurrence of any Default or Event of
Default;

 

(4)                                  any matter that has resulted or could
reasonably be expected to result in a Material Adverse Effect;

 

(5)                                  any obligation of a Loan Party or any of
its Subsidiaries to increase its Cash Reserve Requirement.

 

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Each notice pursuant to this subsection shall be accompanied by a statement of
an officer of Borrower setting forth details of the occurrence referred to
therein and stating what action Borrower has taken and proposes to take with
respect thereto.  Each notice pursuant to clause (3) above shall describe with
particularity any and all provisions of this Agreement and any other Loan
Document that have been breached;

 

(vi)                  promptly, but in any event within two (2) Business Days
after learning thereof, if, to the knowledge of Borrower (which knowledge shall
include but not be limited to preparation or receipt of any forecast or
projection prepared by or for management of Borrower or any affiliate of
Borrower), Borrower’s available cash is insufficient to meet its projected
obligations for the next succeeding 30 calendar days;

 

(vii)               promptly, but in any event within two (2) Business Days,
such additional information regarding the business, financial or corporate
affairs of any Loan Party or any of its Subsidiaries, or compliance with the
terms of the Loan Documents, as Lender may from time to time reasonably request,
but in any event excluding information that is subject to attorney-client
privilege.

 

(c)                                  (i) Preserve, renew and maintain in full
force and effect its legal existence and good standing under the laws of the
jurisdiction of its organization; (ii) take all reasonable action to maintain
all material Permits necessary or desirable in the normal conduct of its
business; and (iii) preserve or renew all of its registered patents, trademarks,
trade names and service marks, the non-preservation or non-renewal of which
could reasonably be expected to have a Material Adverse Effect.

 

(d)                                 Maintain, preserve and protect all of its
properties and equipment necessary in the operation of its business in good
working order and condition, ordinary wear and tear and casualty excepted, and
make all necessary repairs thereto and renewals and replacements thereof, except
in each case where the failure to do so could not reasonably be expected to have
a Material Adverse Effect.

 

(e)                                  Maintain with financially sound and
reputable insurance companies not affiliates of Borrower, insurance with respect
to its properties and business against loss or damage of the kinds customarily
insured against by persons or entities engaged in the same or similar business
and similarly situated, of such types and in such amounts as are customarily
carried under similar circumstances by such other persons or entities.  Such
insurance shall be in such minimum amounts that no Loan Party shall be deemed a
co-insurer under applicable insurance laws, regulations and policies and
otherwise shall be in such amounts, contain such terms, be in such forms and
before such periods as may be reasonably satisfactory to Lender.  Without
limiting the foregoing, each Loan Party shall (i) keep all of its physical
property insured with casualty or physical hazard insurance on an “all risks”
basis, with broad form flood and earthquake coverages and electronic data
processing coverage, with a full replacement cost endorsement and an “agreed
amount” clause in an amount equal to 100% of the full replacement cost of such
property; (ii) maintain all such workers’ compensation or similar insurance as
may be required by law; and (iii) maintain, in amounts and with deductibles
equal to those generally maintained by businesses engaged in similar activities
in similar geographic areas, general public liability insurance against claims
of bodily injury, death or property damage occurring, on, in or

 

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about the properties of such Loan Party; business interruption insurance; and
product liability insurance.

 

(f)                                    Use and operate all of its facilities and
real properties in compliance with all Environmental Laws, keep all necessary
permits, approvals, certificates, licenses and other authorizations required by
Environmental Laws for the operation of the Loan Parties’ business in effect and
remain in material compliance therewith, and handle all Hazardous Materials in
compliance with all applicable Environmental Laws except in each case for any of
the foregoing where the failure to do so would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.

 

(g)                                 Promptly notify Lender and provide copies to
Lender of all written Environmental Claims, and act in a commercially reasonable
fashion to address such Environmental Claims, including Environmental Claims
that allege that Borrower or any of its Subsidiaries is not in compliance with
Environmental Laws, except for Environmental Claims that would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(h)                                 Comply (i) in all material respects with all
Nevada Gaming Laws applicable to it or to its business or property and (ii) in
all respects with all other Requirements of Law applicable to it or to its
business or property, except where the failure to do so would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect or
in such instances in which such Requirement of Law is being contested in good
faith by appropriate proceedings diligently conducted.

 

(i)                                     Maintain proper books of record and
account, in which full, true and correct entries in conformity with GAAP
consistently applied shall be made of all financial transactions and matters
involving the assets and business of Borrower or such Subsidiary, as the case
may be; and maintain such books of record and account in material conformity
with all applicable requirements of any governmental authority having regulatory
jurisdiction over Borrower or such Subsidiary, as the case may be.

 

(j)                                     Subject to applicable Gaming Laws,
permit representatives and independent contractors of Lender, at Lender’s
expense, to visit and inspect any of its properties, to examine its corporate,
financial and operating records, and make copies thereof or abstracts therefrom,
and to discuss its affairs, finances and accounts with its directors, officers,
and independent public accountants (but giving Borrower a reasonable opportunity
to be present), all at such reasonable times during normal business hours and as
often as may be reasonably desired, upon reasonable advance notice to such Loan
Party; provided, however, that when an Event of Default has occurred and is
continuing Lender (or any of its representatives or independent contractors) may
do any of the foregoing at any time during normal business hours and without
advance notice.

 

(k)                                  Use the proceeds of the Tranche One Loan
solely for the purposes set forth on Schedule 8(k), and use the proceeds of the
Tranche Two Loans solely for the purposes described in each Proceeds Budget
delivered to Lender in connection with such Loans and in any event not in
contravention of any Requirement of Law or of any Loan Document.

 

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(l)                                     At Borrower’s expense, execute and
deliver, or cause to be executed and delivered, to Lender such documents and
agreements, and shall take or cause to be taken such actions, as Lender may,
from time to time, reasonably require to carry out the terms and conditions of
this Agreement and the other Loan Documents; provided, that unless an Event of
Default has occurred and is continuing, Borrower shall not be obligated to pay
for or reimburse Lender for the fees of legal counsel to Lender (but, for the
avoidance of doubt, Borrower shall be obligated to pay for or reimburse Lender
for all reasonable out-of-pocket expenses incurred by Lender or its legal
counsel) in connection with any of the foregoing.

 

(m)                               (i)  If, prior to the occurrence of (w) the
NGC Failure Date, if Lender has exercised its option described in the definition
of “Maturity Date” with respect thereto, (x) termination of the Acquisition
Agreement pursuant to Section 7.1(b)(ii) of the Acquisition Agreement, (y) a
Prepayment Event or (z) Lender’s disqualification as set forth in Section 26(c),
Borrower or any of its Subsidiaries desires to incur any Indebtedness for
borrowed money (including, for the avoidance of doubt, any Permitted Refinancing
thereof) (any such incurrence, a “Financing”) and shall have received a bona
fide arms’-length written proposal (a “Bona Fide Proposal”) from a Person other
than an affiliate or Associate of Borrower or any of its Subsidiaries (the
“Offeror”; provided, that in the case of a Permitted Refinancing of Indebtedness
then held by an affiliate or Associate of Borrower or any of its Subsidiaries,
such Person may be the Offeror) with respect to such Financing, Borrower shall
give written notice (the “Option Notice”) to Lender indicating such Borrower’s
or such Subsidiary’s interest in pursuing such Financing and setting forth the
material terms of such Financing, including, without limitation, the name and
address of the Offeror, the type of financing arrangement and, if applicable,
the security being offered, any special corporate governance or other protective
rights to be granted to the Offeror, and the interest, dividend or other yield
rate (but not agency fees) of the proposed Financing contained in the Bona Fide
Proposal and shall be accompanied by a copy of the Bona Fide Proposal (but
excluding, for the avoidance of doubt, any agency fee arrangements related
thereto) and, in the case where the Offeror is not a recognized financing
provider, evidence demonstrating, to the reasonable satisfaction of Lender, the
Offeror’s ability to consummate such transaction.  Upon the giving of such
Option Notice, Lender or any of its affiliates shall have the option (the
“Financing Option”), upon the same or better terms and conditions to those set
forth in the Bona Fide Proposal, to provide all, but not less than all (unless
otherwise agreed upon by Borrower in its sole discretion) of the Financing
specified in the Option Notice, with said Financing Option to be exercised
within ten (10) Business Days following the giving of such Option Notice, by
giving an irrevocable counter-notice (a “Counter-Notice”) to Borrower.

 

(ii)  Subject to clause (iii) of this Section 8(m), if Lender or any of its
affiliates (provided that any such affiliates shall have cash and cash
equivalents in an aggregate amount at least equal to the loan amount set forth
in the Bona Fide Proposal; each such affiliate, an “Eligible Affiliate” and
collectively, “Eligible Affiliates”) elect to provide such Financing (each, an
“Electing Person”), each such Electing Person shall be obligated to consummate
such Financing at a closing to be held on the thirtieth (30th) Business Day
after the giving of the Counter-Notice by such Electing Person at the principal
executive offices of Borrower, or at such other time and place as may be
mutually acceptable to each Electing Person and Borrower.  The closing of any
such Financing by an Electing Person, at the election of any such Person, may be
delayed up to fifteen (15) Business Days in order to permit such Financing to be
made in conformity with applicable laws.

 

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(iii)  If Lender or any its Eligible Affiliates elect not to provide all of the
Financing subject to the Bona Fide Proposal within the ten (10) Business Day
period specified above, then the right of Lender or its Eligible Affiliates to
provide the Financing shall be deemed revoked and Borrower or such Subsidiary,
at any time within a period of 90 days from the date of the delivery of the
Option Notice to Lender, may obtain all (but not less than all) of the Financing
from the Offeror upon the terms and subject to the conditions that are
substantially the same as or better than those contained in the Bona Fide
Proposal; provided, that the material terms agreed to with such Offeror are no
more favorable to such Offeror than the terms set forth in the Option Notice;
provided, further, that any such Financing shall again be subject to this
Section 8(m) if not consummated prior to the end of said 90-day period.

 

(iv)  If, in any instance, Lender or any of its Eligible Affiliates elects not
to exercise its rights hereunder or elects to waive such rights, such election
shall not constitute a waiver of such Person’s rights to receive an Option
Notice in the case of any Financing subsequently proposed by Borrower or any of
its Subsidiaries.

 

(v)  The provisions of this Section 8(m) are in addition to (and not in
derogation of) the restrictions upon Indebtedness set forth in Section 9(b)
hereof.

 

(n)                                 Post-Closing Matters.  Each of Borrower and
the other Loan Parties shall

 

(i)                         use its commercially reasonable efforts to make all
filings with and submissions to, and to obtain, as promptly as practicable, all
consents, licenses, permits, waivers, approvals, authorizations or orders of or
from the Nevada Gaming Authorities as may be required under applicable Gaming
Laws to be obtained by Borrower or any other Loan Party for or in connection
with the authorization, execution and delivery of this Agreement, the
effectiveness of any provision of this Agreement and the consummation of the
transactions contemplated hereby, and to comply with the terms and conditions of
any such consent, license, permit, waiver, approval, authorization or order. 
Without limiting the generality of the foregoing, (i) Borrower and the other
Loan Parties shall take all steps necessary to apply for approval from the
Nevada Gaming Authorities of all restrictions on transfer and agreements not to
encumber the stock or other equity securities of any of the Loan Parties or any
Subsidiary thereof which are licensed by or registered with the Nevada Gaming
Authorities, within five (5) Business Days after the date of execution of this
Agreement and shall use their commercially reasonable efforts to obtain such
approval no later than twenty (20) Business Days after the date of filing of
such application with the Chairman of the Nevada State Gaming Control Board;
(ii) Borrower and the other Loan Parties shall file, as promptly as practicable
but in no event more than ten (10) Business Days after the date of execution of
this Agreement, all applications required in connection with obtaining approval
from the Nevada Gaming Authorities of the pledge of Pledged Equity (as defined
in the Pledge Agreement) of any Loan Party or any Subsidiary thereof which is
licensed by or registered with the Nevada Gaming Authorities, shall act
diligently and promptly to pursue and obtain all such approvals, and shall use
its commercially reasonable efforts to obtain all such approvals no later than
one hundred twenty (120) days after the date of execution of this Agreement (the
“Outside Date”); and (iii) immediately upon receipt of any approvals referenced
in subparagraphs (i) and (ii), Borrower shall furnish copies thereof to Lender. 
If the pledge approvals referenced in clause (ii) above have not been obtained
by the Outside Date, so long as Borrower is working diligently and in

 

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good faith to obtain such approvals as of the Outside Date, Borrower may elect
to extend the date by which such approvals shall be obtained until sixty (60)
days after the Outside Date (such date, the “NGC Final Date”).

 

(ii)                      within thirty (30) days after the date of execution of
this Agreement, at the expense of Borrower (provided, that unless an Event of
Default has occurred and is continuing, Borrower shall not be obligated to pay
for or reimburse Lender for the fees of legal counsel to Lender (but, for the
avoidance of doubt, Borrower shall be obligated to pay for or reimburse Lender
for all reasonable out-of-pocket expenses incurred by Lender or its legal
counsel) in connection therewith), use commercially reasonable efforts to cause
the financial institution at which the AWI Concentration Account is maintained
to deliver to Lender a written agreement in form and substance reasonably
satisfactory to Lender pursuant to which such financial institution agrees to
comply with the instructions originated by Lender directing the disposition of
funds in any such account without the further consent of such Loan Party;
provided however that Lender shall not originate any such instructions unless an
Event of Default has occurred and is continuing.

 

9.                                       Negative Covenants.  For so long as any
Obligations (other than contingent indemnification obligations for which no
claim has been made) remain outstanding or unsatisfied, and so long as Lender’s
obligation to make Loans hereunder has not expired or been terminated, no Loan
Party shall, nor shall it permit any Subsidiary to:

 

(a)                                  Create, incur, assume or suffer to exist
any Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired, other than in favor of Lender, except for Permitted Liens
(subject, solely with respect to the equity securities of any Loan Party for
which such approval is required, to receipt of the approval described in clause
(b) of Annex 1 of the NGC Approvals).

 

(b)                                 Incur or suffer to exist any Indebtedness,
other than Permitted Indebtedness.

 

(c)                                  Make any Investment, other than Permitted
Investments.

 

(d)                                 Merge or consolidate with or into another
person or entity, or liquidate or dissolve, or (subject, solely with respect to
the equity securities of any Loan Party for which such approval is required, to
receipt of the approval described in clause (b) of Annex 1 of the NGC Approvals)
sell or otherwise dispose of (whether in one transaction or in a series of
transactions) any Collateral or all or substantially all of its other assets
(whether now owned or hereafter acquired) to or in favor of any person or
entity, other than Permitted Dispositions.

 

(e)                                  Declare or make, directly or indirectly,
any Restricted Payment, or incur any obligation (contingent or otherwise) to do
so, except that (i) any Subsidiary may make a Restricted Payment to Borrower,
(ii) the Borrower’s preferred stock outstanding on the date hereof may continue
to accrue interest or dividends in the aggregate amounts and at the intervals
required by the terms of its preferred stock as in effect on the date hereof,
and (iii) so long as no default or Event of Default shall have occurred and be
continuing, (x) Victor Salerno may cash dividend checks (received prior to the
date of this Agreement in connection with his ownership

 

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of preferred stock) in an amount equal to $80,000 (or such amount as may be
permitted pursuant to the Acquisition Agreement), and (y) Borrower may declare
and pay cash dividends on its outstanding preferred stock to Judith Zimbelmann
in her capacity as a holder of such preferred stock, in aggregate amounts and at
intervals to the extent required by the terms of such preferred stock as in
effect on the date hereof (provided, however, that any payments required by the
terms of such preferred stock as in effect on the date hereof that are deferred
or otherwise blocked as a result of this Section 9(e)(iii)(y) shall continue to
accrue and shall be allowed to be paid at such time as such Event of Default is
waived, cured, or otherwise ceases to exist).

 

(f)                                    Engage in any material line of business
substantially different from those lines of business conducted by Borrower and
its Subsidiaries on the date hereof or any business substantially related or
incidental thereto.

 

(g)                                 Except as set forth in Schedule 9(g), enter
into any transaction of any kind with any affiliate of any Loan Party, whether
or not in the ordinary course of business, other than on fair and reasonable
terms substantially as favorable to Borrower or such Subsidiary as would be
obtainable by Borrower or such Subsidiary at the time in a comparable arm’s
length transaction with a person or entity other than an affiliate; provided,
for the avoidance of doubt, that the Borrower and its Subsidiaries may (i) in
the ordinary course of business, enter into amendments, amendments and
restatements, supplements and other modifications to affiliate agreements
existing on the Closing Date (which agreements have been disclosed to Lender
prior to the Closing Date) so long as no such amendment, amendment and
restatement, supplement or other modification is adverse to Lender and (ii)
repay in full all liabilities, obligations and other Indebtedness arising under,
and terminate, the Kocienski Reimbursement Arrangement.

 

(h)                                 Enter into any contractual obligation (other
than this Agreement or any other Loan Document) that limits the ability (1) of
any Subsidiary to make Restricted Payments to Borrower or any other Loan Party
or to otherwise transfer property to Borrower or any other Loan Party, (2) of
any Subsidiary to guarantee the Indebtedness of Borrower to Lender or (3) of
Borrower or any Subsidiary to create, incur, assume or suffer to exist Liens on
property of such person or entity in favor of Lender; except (i) any provision
in any document or instrument governing secured Permitted Indebtedness that
limits the ability of the debtor to encumber or dispose of the assets securing
such Indebtedness, (ii) customary provisions restricting subletting or
assignment of any lease governing a leasehold interest, (iii) customary
restrictions and conditions contained in agreements relating to the sale of
assets permitted hereunder provided that such restrictions are limited to the
assets being sold, and (iv) licenses and contracts entered into in the ordinary
course of business which by their terms prohibit the assignment of such
agreements (to the extent such prohibition is enforceable by law) or the
granting of Liens on the rights contained therein.

 

(i)                                     Use the proceeds of any Loan, whether
directly or indirectly, and whether immediately, incidentally or ultimately, to
purchase or carry Margin Stock or to extend credit to others for the purpose of
purchasing or carrying margin stock or to refund Indebtedness originally
incurred for such purpose.

 

(j)                                     (i) Prepay, redeem, defease, purchase or
otherwise retire the principal amount, in whole or in part, of any Indebtedness
other than the Obligations prior to the due date

 

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thereof, except as set forth on Schedule 8(k) or as otherwise consented to by
Lender in its sole discretion, or (ii) modify any document evidencing any
Indebtedness (other than the Obligations) to increase the interest rate
thereunder, accelerate the due date of any payments thereunder, or accelerate
the maturity date of such Indebtedness.

 

(k)                                  Form or acquire any Subsidiary after the
Closing Date.

 

(l)                                     (i) So long as no Prepayment Event has
occurred, subdivide the outstanding shares of Common Stock, (ii) combine the
outstanding shares of Common Stock into a smaller number of shares, or
(iii) issue by reclassification of the shares of Common Stock any shares of
capital stock of Borrower, or (iv) issue any shares of Common Stock or any
rights, warrants, options or other securities convertible into or exchangeable
for shares of Common Stock, or any additional equity securities (or securities
convertible into equity securities), or (v) offer for subscription pro rata to
the holders of its Common Stock any additional shares of stock of any class or
any other right, or effect any capital reorganization or reclassification of the
Common Stock, unless prior to or concurrently with such transaction Borrower and
Lender have mutually in good faith agreed to anti-dilution protection applicable
to the conversion rights under Section 3 of the Note.

 

10.                                 Indemnification; Borrower to Reimburse
Lender’s Expenses.

 

(a)                                  [Reserved].

 

(b)                                 Borrower shall indemnify and hold harmless
Lender and its members, directors, officers, employees, agents and advisors
(each of the foregoing being called an “Indemnitee”) from and against, and hold
each Indemnitee harmless from, any and all loss, damage, liability, or expense,
including reasonable fees and disbursements of counsel for any Indemnitee,
incurred by any Indemnitee or asserted against any Indemnitee by any third party
or by Borrower or any other Loan Party arising out of, in connection with, or as
a result of (i) the execution or delivery of this Agreement, any other Loan
Document or any agreement or instrument contemplated hereby or thereby, the
performance by the parties hereto and thereto of their respective obligations
hereunder or thereunder, the consummation of the transactions contemplated
hereby or thereby, or the administration of this Agreement and the other Loan
Documents, (ii) any Loan or the use or proposed use of the proceeds thereof, or
(iii) any actual or prospective claim, litigation, investigation or proceeding
relating to any of the foregoing, whether based on contract, tort or any other
theory, whether brought by a third party or by Borrower or any Loan Party, and
regardless of whether any Indemnitee is a party thereto; provided that such
indemnity shall not, as to any Indemnitee, be available to the extent that such
losses, claims, damages, liabilities or related expenses (x) are determined by a
court of competent jurisdiction by final and nonappealable judgment to have
resulted from the gross negligence or willful misconduct of such Indemnitee or
(y) result from a claim brought by Borrower or any Loan Party against an
Indemnitee for breach in bad faith of such Indemnitee’s obligations hereunder or
under any other Loan Document, if Borrower or such Loan Party has obtained a
final and nonappealable judgment in its favor on such claim as determined by a
court of competent jurisdiction.

 

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(c)                                  Borrower shall pay for or reimburse Lender
for all out of pocket expenses incurred by Lender after the occurrence and
during the continuance of an Event of Default (including the fees and
disbursements of counsel) in connection with the enforcement or protection of
its rights (A) in connection with this Agreement and the other Loan Documents,
including its rights under this Section, or (B) in connection with the Loans
made hereunder, including all such out of pocket expenses incurred during any
workout, restructuring or negotiations in respect of such Loans.

 

(d)                                 If Lender (which for purposes of this
Section 10(d) includes its assignee, if any) is not a United States person
within the meaning of Code Section 7701(a)(30) (a “Non-U.S. Lender”), Lender
shall deliver to Borrower two accurate and complete original signed copies of
the applicable IRS Form W-8 (or any successor or other applicable form) and, to
the extent applicable, certifying to such Lender’s entitlement to a complete
exemption from, or a reduced rate in, United States withholding tax on interest
payments to be made hereunder or any loan.  To the extent that the Non-US.
Lender is organized under the laws of England and Wales and provides an
applicable IRS W-8BEN (or any successor form) indicating that such Non-U.S.
Lender is eligible to claim tax treaty benefits as a beneficial owner of any
payments of interest pursuant to this Agreement, the parties agree that such
payments (including interest, if any, deemed to be paid on conversion) will not
be subject to any U.S. withholding taxes based on the application of paragraph 1
of Article 11of the Income Tax Treaty between the United States and the United
Kingdom.  If Lender is not a Non-U.S. Lender (and is not taxed as a corporation
for United States federal income tax purposes), Lender shall deliver to Borrower
two properly completed and duly executed copies of IRS Form W-9 (or any
successor or other applicable form) certifying that Lender is exempt from United
States backup withholding tax.  Notwithstanding anything in the Loan Documents
to the contrary, Borrower shall not be required to pay additional amounts to
Lender, or indemnify Lender, with respect to (i) taxes based on income or (ii)
withholding taxes imposed on amounts payable to Lender at the time Lender
becomes a party to this Agreement or to the extent that any such obligations
would not have arisen but for the failure of Lender to comply with this Section
10(d).

 

11.                                 Defaults.  The following shall constitute
events of defaults hereunder (“Event of Default”):

 

(a)                                  Borrower’s failure to pay, (i) when and as
required to be paid herein or in any other Loan Document, any amount of
principal, or (ii) within three days after the same is required to be paid
herein or in any other Loan Document, any amount of interest or fees or any
other amount payable hereunder or under any other Loan Document; or

 

(b)                                 Any warranty or representation made by any
Loan Party in any Loan Document proves to have been false or misleading in any
material respect when made or deemed made; or

 

(c)                                  Any Loan Party’s failure to perform, or
breach of, any other term, obligation or covenant set forth in this Agreement or
any other Loan Document and such failure continues for 30 days after the earlier
of (A) the date upon which any officer of such Loan Party knew of such failure
or (B) the date upon which written notice thereof is given to Borrower by Lender
(but, for the avoidance of doubt, provided that each of the Loan Parties has
otherwise

 

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complied with its obligations and covenants set forth in Section 8(n)(i) hereof,
the occurrence of the NGC Failure Date shall not constitute an Event of
Default); or

 

(d)                                 Borrower or any of its Subsidiaries (i)
fails to make any payment when due (whether by scheduled maturity, required
prepayment, acceleration, demand, or otherwise) in respect of any Indebtedness
(other than Indebtedness hereunder) having an aggregate principal amount of more
than $100,000, or (ii) fails to observe or perform any other agreement or
condition relating to any such Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event occurs,
the effect of which default or other event is to cause, or to permit the holder
or holders of such Indebtedness (or a trustee or agent on behalf of such holder
or holders) to cause, with the giving of notice if required, such Indebtedness
to be demanded or terminated or to become due or to be repurchased, prepaid,
defeased or redeemed (automatically or otherwise), or an offer to repurchase,
prepay, defease or redeem such Indebtedness to be made, prior to its stated
maturity, or cash collateral in respect thereof to be demanded; or

 

(e)                                  Borrower or any of its Subsidiaries
institutes or consents to the institution of any proceeding under any Debtor
Relief Law, or makes an assignment for the benefit of creditors; or applies for
or consents to the appointment of any receiver, trustee, custodian, conservator,
liquidator, rehabilitator or similar officer for it or for all or any material
part of its property; or any receiver, trustee, custodian, conservator,
liquidator, rehabilitator or similar officer is appointed without the
application or consent of such person or entity and the appointment continues
undischarged or unstayed for 60 calendar days; or any proceeding under any
Debtor Relief Law relating to any such person or entity or to all or any
material part of its property is instituted without the consent of such person
or entity and continues undismissed or unstayed for 60 calendar days, or an
order for relief is entered in any such proceeding; or

 

(f)                                    (i) Borrower or any of its Subsidiaries
becomes unable or admits in writing its inability or fails generally to pay its
debts as they become due, or (ii) any writ or warrant of attachment or execution
or similar process is issued or levied against all or any material part of the
property of any such person and is not released, vacated or fully bonded within
30 days after its issue or levy; or

 

(g)                                 There is entered against Borrower or any of
its Subsidiaries (i) a final judgment or order for the payment of money in an
aggregate amount exceeding $25,000 that is not covered by insurance as to which
the insurer does not dispute coverage, or (ii) any one or more non-monetary
final judgments that have, or could reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect and (A) enforcement proceedings
are commenced by any creditor upon such judgment or order, or (B) there is a
period of 30 consecutive days during which a stay of enforcement of such
judgment, by reason of a pending appeal or otherwise, is not in effect; or

 

(h)                                 (i) An ERISA Event occurs with respect to a
Pension Plan or Multiemployer Plan which has resulted or could reasonably be
expected to result in liability, in excess of liability for ongoing costs and
contributions of maintaining the Pension Plan or Multiemployer Plan prior to
such ERISA Event, of Borrower under Title IV of ERISA to the Pension Plan,
Multiemployer Plan or the PBGC in an aggregate amount in excess of $25,000, or

 

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(ii) Borrower or any ERISA Affiliate fails to pay when due, after the expiration
of any applicable grace period, any installment payment with respect to its
withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in
an aggregate amount in excess of $25,000; or

 

(i)                                     Any Loan Document, at any time after its
execution and delivery and for any reason other than as expressly permitted
hereunder or thereunder or satisfaction in full of all the Obligations, ceases
to be in full force and effect; or any Loan Party or any other person or entity
contests in any manner the validity or enforceability of any Loan Document; or
any Loan Party denies that it has any or further liability or obligation under
any Loan Document, or purports to revoke, terminate or rescind any Loan
Document; or

 

(j)                                     Any Lien or security interest purported
to be created under any Loan Document shall cease to be, or shall be asserted by
any Loan Party not to be, a valid and perfected Lien on or security interest in
any Collateral, with the perfection and priority required by this Agreement.

 

12.                                 Continuing Guaranty.

 

(a)                                  Guaranty.  The Guarantors hereby jointly
and severally guarantee, as a primary obligor and not as a surety, as a guaranty
of payment and performance and not merely as a guaranty of collection, prompt
payment when due, whether at stated maturity, by required prepayment, upon
acceleration, demand or otherwise, and at all times thereafter, of any and all
of the Obligations, whether for principal, interest, premiums, fees,
indemnities, damages, costs, expenses or otherwise, of Borrower to Lender, and
whether arising hereunder or under any other Loan Document (including all
renewals, extensions, amendments, refinancings and other modifications thereof
and all costs, attorneys’ fees and expenses incurred by Lender in connection
with the collection or enforcement thereof). Lender’s books and records showing
the amount of the Obligations shall be admissible in evidence in any action or
proceeding, and shall be binding upon the Guarantors, and conclusive for the
purpose of establishing the amount of the Obligations. This Guaranty shall not
be affected by the genuineness, validity, regularity or enforceability of the
Obligations or any instrument or agreement evidencing any Obligations, or by the
existence, validity, enforceability, perfection, non-perfection or extent of any
collateral therefor, or by any fact or circumstance relating to the Obligations
which might otherwise constitute a defense (other than defense of payment or
performance) to the obligations of any Guarantor under this Guaranty, and each
Guarantor hereby irrevocably waives any defenses (other than defense of payment
or performance) it may now have or hereafter acquire in any way relating to any
or all of the foregoing.

 

(b)                                 Rights of Lenders.  Each Guarantor consents
and agrees that Lender may, at any time and from time to time, without notice or
demand to guarantors, and without affecting the enforceability or continuing
effectiveness hereof: (i) amend, extend, renew, compromise, discharge,
accelerate or otherwise change the time for payment or the terms of the
Obligations or any part thereof; (i) take, hold, exchange, enforce, waive,
release, fail to perfect, sell, or otherwise dispose of any security for the
payment of this Guaranty or any Obligations; (iii) apply such security and
direct the order or manner of sale thereof as Lender in its sole discretion may
determine; and (iv) release or substitute one or more of any endorsers or other
guarantors of any of the Obligations. Without limiting the generality of the
foregoing, each Guarantor consents to

 

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the taking of, or failure to take, any action which might in any manner or to
any extent vary the risks of such Guarantor under this Guaranty or which, but
for this provision, might operate as a discharge of such Guarantor.

 

(c)                                  Certain Waivers. Each Guarantor waives (i)
any defense arising by reason of any disability or other defense of Borrower or
any other guarantor (other than defense of payment or performance), or the
cessation from any cause whatsoever (including any act or omission of Lender) of
the liability of Borrower; (ii) any defense based on any claim that such
Guarantor’s obligations exceed or are more burdensome than those of Borrower;
(iii) the benefit of any statute of limitations affecting such Guarantor’s
liability hereunder; (iv) any right to proceed against Borrower, proceed against
or exhaust any security for the Indebtedness, or pursue any other remedy in the
power of Lender whatsoever; (v) any benefit of and any right to participate in
any security now or hereafter held by Lender; and (vi) to the fullest extent
permitted by law, any and all other defenses (other than defense of payment or
performance) or benefits that may be derived from or afforded by applicable law
limiting the liability of or exonerating guarantors or sureties.  Each Guarantor
expressly waives all setoffs and counterclaims and all presentments, demands for
payment or performance, notices of nonpayment or nonperformance, protests,
notices of protest, notices of dishonor and all other notices or demands of any
kind or nature whatsoever with respect to the Obligations, and all notices of
acceptance of this Guaranty or of the existence, creation or incurrence of new
or additional Obligations.

 

(d)                                 Obligations Independent. The obligations of
each Guarantor hereunder are those of primary obligor, and not merely as surety,
and are independent of the Obligations and the obligations of any other
guarantor, and a separate action may be brought against any Guarantor to enforce
this Guaranty whether or not Borrower or any other person or entity is joined as
a party.

 

(e)                                  Subrogation. No Guarantor shall exercise
any right of subrogation, contribution, indemnity, reimbursement or similar
rights with respect to any payments it makes under this Guaranty until all of
the Obligations (other than contingent indemnification obligations for which no
claim has been made) and any amounts payable under this Guaranty have been
indefeasibly paid and performed in full. If any amounts are paid to any
Guarantor in violation of the foregoing limitation, then such amounts shall be
held in trust for the benefit of Lender and shall forthwith be paid to Lender to
reduce the amount of the Obligations, whether matured or unmatured.

 

(f)                                    Termination; Reinstatement. This Guaranty
is a continuing, absolute, irrevocable and unconditional, joint and several
guaranty of all Obligations now or hereafter existing and shall remain in full
force and effect until all Obligations (other than contingent indemnification
obligations for which no claim has been made) and any other amounts payable
under this Guaranty are indefeasibly paid in full in cash. Notwithstanding the
foregoing, this Guaranty shall continue in full force and effect or be revived,
as the case may be, if any payment by or on behalf of Borrower or any Guarantor
is made, or Lender exercises its right of setoff, in respect of the Obligations
and such payment or the proceeds of such setoff or any part thereof is
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required (including pursuant to any settlement entered into by Lender in its
discretion) to be repaid to a

 

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trustee, receiver or any other party, in connection with any proceeding under
any Debtor Relief Law or otherwise, all as if such payment had not been made or
such setoff had not occurred and whether or not Lender is in possession of or
has released this Guaranty and regardless of any prior revocation, rescission,
termination or reduction. The obligations of the Guarantors under this paragraph
shall survive termination of this Guaranty.

 

(g)                                 Subordination. Each Guarantor hereby
subordinates the payment of all obligations and Indebtedness of Borrower owing
to such Guarantor, whether now existing or hereafter arising, including but not
limited to any obligation of Borrower to such Guarantor as subrogee of Lender or
resulting from such Guarantor’s performance under this Guaranty, to the
indefeasible payment in full in cash of all Obligations. If Lender so requests,
any such obligation or Indebtedness of Borrower to any Guarantor shall be
enforced and performance received by such Guarantor as trustee for Lender and
the proceeds thereof shall be paid over to Lender on account of the Obligations,
but without reducing or affecting in any manner the liability of such Guarantor
under this Guaranty.

 

(h)                                 Stay of Acceleration. If acceleration of the
time for payment of any of the Obligations is stayed, in connection with any
case commenced by or against any Guarantor or Borrower under any Debtor Relief
Laws, or otherwise, all such amounts shall nonetheless be payable such Guarantor
immediately upon demand by Lender.

 

(i)                                     Condition of Borrower. Each Guarantor
acknowledges and agrees that it has the sole responsibility for, and has
adequate means of, obtaining from Borrower and any other guarantor such
information concerning the financial condition, business and operations of
Borrower and any such other guarantor as such Guarantor requires, and Lender has
no duty, and such Guarantor is not relying on Lender at any time, to disclose to
such Guarantor any information relating to the business, operations or financial
condition of Borrower or any other guarantor (each Guarantor waiving any duty on
the part of Lender to disclose such information and any defense relating to the
failure to provide the same).

 

(j)                                     Additional Guarantor Waivers and
Agreements. Each Guarantor understands and acknowledges that if Lender
forecloses judicially or nonjudicially against any real property security for
the Obligations, that foreclosure could impair or destroy any ability that such
Guarantor may have to seek reimbursement, contribution, or indemnification from
Borrower or others based on any right such Guarantor may have of subrogation,
reimbursement, contribution, or indemnification for any amounts paid by such
Guarantor under this Guaranty.

 

13.                                 Rights and Remedies of Lender.  Upon the
occurrence of an Event of Default, Lender may exercise any one or more of the
following rights and remedies:

 

(a)                                  declare the Commitment of Lender to make
Loans to be terminated, whereupon Lender’s Commitment to make Loans shall be
terminated and no further Loans shall be made hereunder;

 

(b)                                 declare all or any portion of the unpaid
principal amount of all outstanding Loans, all interest accrued and unpaid
thereon, and all other amounts owing or payable hereunder or under any other
Loan Document to be immediately due and payable, without presentment,

 

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demand, protest or other notice of any kind, all of which are hereby expressly
waived by Borrower;

 

(c)                                  Pursue and enforce all of the rights and
remedies provided to a secured party with respect to the Collateral under the
Uniform Commercial Code; or

 

(d)                                 Pursue any other rights or remedies
available to Lender at law or in equity including recovery of all costs of
collection incurred by Lender due to the Event of Default, including, without
limitation, reasonable attorneys’ fees and expenses;

 

provided, however, that upon the occurrence of any event with respect to
Borrower or any Subsidiary described in Section 11(e) above, the Commitment of
Lender to make Loans shall be automatically terminated and no further Loans
shall be made hereunder, and the unpaid principal amount of all outstanding
Loans and all interest and other amounts as aforesaid shall automatically become
due and payable without further act of Lender.

 

14.                                 Waiver.  Borrower, except as otherwise
specifically set forth herein, for itself and for its successors, transferees,
and assigns, hereby irrevocably waives diligence, presentment, and demand for
payment, protest, notice, notice of protest and nonpayment, dishonor and notice
of dishonor and all other demands or notices of any and every kind whatsoever in
connection with this Agreement, any other Loan Document, and the Collateral and
the benefit of all statutes, ordinances, judicial rulings, and other legal
principles of any kind, now or hereafter enacted or in force, affording any
right of redemption or cure or any right to a stay of execution or extension of
time for payment or exempting any property of such person from levy and sale
upon execution of any judgment obtained by Lender or any successor or assignee
of Lender in respect of this Agreement, any other Loan Document, and the
Collateral.  Borrower hereby agrees that the Loans and any or all payments
coming due hereunder may be extended from time to time in the sole discretion of
Lender without in any way affecting or diminishing Borrower’s liabilities
hereunder or under any other Loan Document.

 

15.                                 Full Recourse.  The liability of Borrower
and the Guarantors for the Obligation shall not be limited to the Collateral. 
Borrower and the Guarantors shall remain fully liable for indefeasible repayment
in full of the Obligations in cash and, specifically, any remaining Obligations
in the event that sale or other liquidation of the Collateral is deficient to
satisfy the Obligations in full.

 

16.                                 Representation of Counsel.  The parties
acknowledge that they have consulted with or have had the opportunity to consult
with their own legal counsel prior to executing this Agreement.  This Agreement
has been freely negotiated by the parties and any rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of this Agreement.

 

17.                                 Governing Law, Jurisdiction and Venue.

 

(a)                                  Governing Law.  This Agreement and the
transactions contemplated hereby, and all disputes between the parties under or
relating to this Agreement or the facts and circumstances leading to its
execution, whether in contract, tort or otherwise, shall be construed in
accordance with and governed by the laws (including statutes of limitation) of
the State of

 

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New York, without regard to conflicts of law principles that would require the
application of the laws of another jurisdiction.

 

(b)                                 Submission to Jurisdiction.  Each Loan Party
hereby irrevocably and unconditionally submits, for itself and its property, to
the nonexclusive jurisdiction of the Supreme Court of the State of New York
sitting in New York County and of the United States District Court of the
Southern District of New York, and any appellate court from any thereof, in any
action or proceeding arising out of or relating to any Loan Document, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such New York State
court or, to the fullest extent permitted by applicable law, in such Federal
court.  Each of the parties hereto agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law. 
Nothing in this Agreement or any other Loan Document shall affect any right that
Lender may otherwise have to bring any action or proceeding relating to this
Agreement or any other Loan Document against any Loan Party or its properties in
the courts of any jurisdiction.  Each Loan Party hereby waives any right to a
jury trial.

 

(c)                                  Venue.  Each Loan Party hereby irrevocably
and unconditionally waives, to the fullest extent permitted by applicable law,
any objection which it may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement or any
other Loan Document in any court referred to in Section 17 (b).  Each of the
parties hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, the defense of an inconvenient forum to the maintenance of such
action or proceeding in any such court.

 

18.                                 Successors and Assigns.  Neither this
Agreement nor any of the rights or obligations hereunder shall be assignable or
delegable by Borrower or any Loan Party without the written consent of Lender or
its assignee first obtained and any attempted assignment without such written
consent shall be void and confer no rights upon any third party.  Lender may not
assign or otherwise transfer any of its rights or obligations under this
Agreement and the other Loan Documents without the prior written consent of
Borrower (such consent not to be unreasonably withheld or delayed), except that
Lender may freely assign or transfer such rights and obligations to any of
Lender’s affiliates, subject to compliance with applicable law.  Lender may at
any time pledge or assign a security interest in all or any portion of its
rights under this Agreement and the other Loan Documents to secure obligations
of Lender; provided that no such pledge or assignment shall release Lender from
any of its obligations hereunder or substitute any such pledgee or assignee for
Lender as a party hereto.  Subject to the foregoing, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective representatives, successors and permitted assigns.

 

19.                                 Notices.  All notices under this Agreement
shall be in writing and shall be given by personal delivery, or by registered or
certified United States mail, postage prepaid, return receipt requested, or sent
by telecopier or electronic mail to the addresses set forth below or to such
other person or persons or to such other address or addresses as Lender and Loan
Parties or their respective successors or assigns may hereafter furnish to the
other party by notice similarly

 

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given.  Notices, if personally delivered, shall be deemed to have been received
on the date of delivery, and if given by registered or certified mail, shall be
deemed to have been received on the third business day after mailing, and if
sent by telecopier shall be deemed to have been received when sent (except that,
if not given during normal business hours for the recipient, shall be deemed to
have been received at the opening of business on the next business day for the
recipient), and if sent by electronic mail shall be deemed to have been received
upon sender’s receipt of an acknowledgment from the intended recipient (such as
by the “return receipt requested” function, as available, return email or other
written acknowledgment).

 

If to Lender:

 

c/o William Hill Organization Limited

Greenside House

50 Station Road

Wood Green

London N22 7TP

United Kingdom

Facsimile: 020 8918 3775

E-mail: tmurphy@williamhill.co.uk

 

If to Borrower:

 

American Wagering, Inc.

Attn: General Counsel

675 Grier Drive

Las Vegas, Nevada 89119

Facsimile: 702-735-0142

E-mail: Info@americanwagering.com

 

with a copy to:

 

Kirkland & Ellis LLP

Attn: Laura Rupenian

555 California Street

San Francisco, CA 94104

Facsimile: (415) 439-1491

E-mail: lrupenian@kirkland.com

 

and a copy to:

 

Kirkland & Ellis LLP

Attn: Linda Myers

300 North LaSalle

Chicago, IL 60654

Facsimile: (312) 862-2200

E-mail: linda.myers@kirkland.com

 

If to any other Loan Party:

 

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c/o American Wagering, Inc.

Attn: General Counsel

675 Grier Drive

Las Vegas, Nevada 89119

Facsimile: 702-735-0142

E-mail:

 

with a copy to:

 

Kirkland & Ellis LLP

Attn: Laura Rupenian

555 California Street

San Francisco, CA 94104

Facsimile: (415) 439-1491

E-mail: lrupenian@kirkland.com

 

and a copy to:

 

Kirkland & Ellis LLP

Attn: Linda Myers

300 North LaSalle

Chicago, IL 60654

Facsimile: (312) 862-2200

E-mail: linda.myers@kirkland.com

 

20.                                 Setoff.  In the event that Parent or any of
its affiliates is obligated to pay to Borrower any Reverse Termination Fee (as
defined in the Acquisition Agreement) pursuant to Section 7.3(b) of the
Acquisition Agreement, such amount shall be subject to setoff against any
amounts owed by Borrower to Lender hereunder.

 

21.                                 Severability.  In case any provision of this
Agreement shall be invalid, illegal or unenforceable in any jurisdiction then,
as to such jurisdiction only, such provision shall to the extent of such
prohibition or unenforceability be deemed severed from the remainder of such
agreement and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.

 

22.                                 Section Headings.  The various headings used
in this Agreement are inserted for convenience of reference only and shall not
affect the meaning or interpretation of this Agreement or any provision hereof.

 

23.                                 Amendments.  No amendment or modification of
any provision of this Agreement shall be effective without the written agreement
of the parties, and no termination or waiver of any provision of this Agreement,
or consent to any departure by any Loan Party therefrom shall in any event be
effective without the written concurrence of Lender, which concurrence Lender
shall have the right to grant or withhold at its sole discretion.

 

24.                                 Counterparts.  This Agreement may be
executed in any number of counterparts, each constituting an original, but all
together one and the same instrument. Delivery of an

 

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executed counterpart of a signature page of this Agreement by telecopy shall be
effective as delivery of a manually executed counterpart of this Agreement

 

25.                                 Entire Agreement.  This Agreement, together
with the other Loan Documents, constitutes the sole and entire agreement of the
parties with respect to the subject matter contained herein, and supersedes all
prior and contemporaneous understandings and agreements, both written and oral,
with respect to such subject matter.

 

26.                                 Application of Gaming Laws.

 

(a)                                  This Agreement and the other Loan Documents
are subject to Gaming Laws. Without limiting the foregoing, Lender acknowledges
that (i) it may be called forward by the Nevada Gaming Authorities, in their
discretion, for licensing or findings of suitability or to file or provide other
information, and (ii) all rights, remedies and powers in or under this Agreement
and the other Loan Documents, including with respect to the Collateral, the
Pledged Equity (as defined in the Pledge Agreement), and the ownership and
operation of gaming facilities may be exercised only to the extent that the
exercise thereof does not violate any applicable provisions of the Gaming Laws
and only to the extent that required approvals (including prior approvals) are
obtained from the relevant Nevada Gaming Authorities.

 

(b)                                 Lender agrees to cooperate with all Nevada
Gaming Authorities in connection with the provision in a timely manner of such
documents or other information as may be requested by such Nevada Gaming
Authorities relating to the Loans or the Loan Documents.

 

(c)                                  Lender acknowledges and agrees that if
Borrower receives a notice from any applicable Nevada Gaming Authority that
Lender is a disqualified holder (and Lender is notified by Borrower in writing
of such disqualification), Borrower shall, following any available appeal of
such determination by such Nevada Gaming Authority (unless the rules of the
applicable Nevada Gaming Authority do not permit such Lender to retain its Loans
pending appeal of such determination), have the right to (i) cause Lender to
transfer and assign all of its interests, rights and obligations in its Loans or
(ii) prepay Lender’s Loans. Notice to Lender shall be given at least five (5)
days prior to the required date of assignment or prepayment, as the case may be,
and shall be accompanied by evidence demonstrating that such transfer or
prepayment is required pursuant to the Gaming Laws. If reasonably requested by
Lender, Borrower will use commercially reasonable efforts to cooperate with
Lender in seeking to appeal such determination and to afford Lender an
opportunity to participate in any proceedings relating thereto. Notwithstanding
anything herein to the contrary, any prepayment of a Loan shall be at an amount
that, unless otherwise directed by a Nevada Gaming Authority, shall be equal to
the sum of the principal amount of such Loan and interest (including default
interest, if any) to the date such Lender or holder became a disqualified holder
(plus any fees and other amounts accrued for the account of Lender to the date
such Lender became a disqualified holder).

 

(d)                                 If, during the existence of an Event of
Default hereunder or any of the other Loan Documents, it shall become necessary
or, in the opinion of Lender, advisable for an agent, supervisor, receiver or
other representative of Lender to become licensed or found suitable under any
Gaming Law as a condition to receiving the benefit of any Collateral encumbered
by the Loan Documents or to otherwise enforce the rights of the Lender under the
Loan Documents,

 

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Borrower hereby agrees to consent and to cause the other Loan Parties to consent
to the application for such license or finding of suitability and to execute
such further documents as may be required in connection with the evidencing of
such consent.

 

27.                                 Defined Terms.  As used herein, the
following terms will be deemed to have the meanings set forth below:

 

“Acquisition” has the meaning set forth in the recitals.

 

“Acquisition Agreement” means that certain Agreement and Plan of Merger dated as
of April 13, 2011 among Parent, AW SUB CO., a Nevada corporation and the Issuer,
as amended, supplemented or otherwise modified from time to time.

 

“Associate” means, when used to indicate a relationship with any Person, (a) any
other Person of which such Person is an officer, director or partner or is,
directly or indirectly, the beneficial owner of ten percent (10%) or more of any
class of equity securities issued by such other Person, (b) any trust or estate
in which such Person has a substantial beneficial interest or as to which such
Person serves as a trustee or in a similar fiduciary capacity, and (c) any
spouse of such Person, or any relative of such Person who has the same home as
such Person.

 

“AWI Concentration Account” means the deposit account #153790572819  maintained
by Computerized Bookmaking Systems, Inc. with US Bank, together with any
replacement account thereof.

 

“Bona Fide Proposal” has the meaning set forth in Section 8(m).

 

“Borrower” has the meaning set forth in the Preamble.

 

“Business Day” means any day other than a Saturday, Sunday or other day on which
banks in New York City are authorized or required by law to close.

 

“Cash Reserve Requirement” means the reserve (in cash, surety bonds or
irrevocable standby letters of credit) required to be maintained by Borrower
pursuant to Nevada Gaming Commission Regulation 22.040 and any other cash
reserve requirement under Gaming Laws.

 

“CERCLA” means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980.

 

“CERCLIS” means the Comprehensive Environmental Response, Compensation and
Liability Information System maintained by the U.S. Environmental Protection
Agency.

 

“Closing Date” means the first date on which all the conditions precedent in
Section 5(a) are satisfied or waived in accordance with Section 14.

 

“Code” means the Internal Revenue Code of 1986.

 

“Collateral” means, collectively, “Collateral” as defined in the Security
Agreement, and “Pledged Collateral” as defined in the Pledge Agreement.

 

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“Commitment” means Lender’s obligation to make Loans to Borrower pursuant to
Section 1 in the principal amount set forth in Section 1.

 

“Common Stock” means the common stock of Borrower, par value $0.01 per share.

 

“Counter-Notice” has the meaning set forth in Section 8(m).

 

“Debtor Relief Law” means the Bankruptcy Code of the United States, and all
other liquidation, conservatorship, bankruptcy, assignment for the benefit of
creditors, moratorium, rearrangement, receivership, insolvency, reorganization,
or similar debtor relief laws of the United States or other applicable
jurisdictions from time to time in effect and affecting the rights of creditors
generally.

 

“Default” has the meaning set forth in Section 5(c).

 

“Electing Person” has the meaning set forth in Section 8(m).

 

“Eligible Affiliate” has the meaning set forth in Section 8(m).

 

“Environmental Claims” means all claims, however asserted, by any Governmental
Authority or other Person alleging potential liability under any Environmental
Law or responsibility for violation of any Environmental Law, or for a release
(as such term is defined in CERCLA) into the environment.

 

“Environmental Laws” means any and all Federal, state and local statutes, laws,
regulations, ordinances, rules, judgments, orders, decrees, permits, licenses,
agreements or governmental restrictions relating to pollution and the protection
of the environment or the release of any Hazardous Materials into the
environment, including those related to hazardous substances or wastes, air
emissions and discharges to waste or public systems.

 

“ERISA” means the Employee Retirement Income Security Act of 1974.

 

“ERISA Affiliate” means any trade or business (whether or not incorporated)
under common control with Borrower within the meaning of Section 414(b) or (c)
of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions
relating to Section 412 of the Code).

 

“ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) a
withdrawal by Borrower or any ERISA Affiliate from a Pension Plan subject to
Section 4063 of ERISA during a plan year in which it was a substantial employer
(as defined in Section 4001(a)(2) of ERISA) or during which a substantial
cessation of operations is treated as such a withdrawal under Section 4062(e) of
ERISA; (c) a complete or partial withdrawal by Borrower or any ERISA Affiliate
from a Multiemployer Plan or receipt by Borrower or any ERISA Affiliate of
notification that a Multiemployer Plan is in reorganization; (d) the filing by
Borrower or any ERISA Affiliate of a notice of intent to terminate a Pension
Plan, the treatment of a Pension Plan amendment as a termination under Section
4041 of ERISA, or the commencement of proceedings by the PBGC to terminate a
Pension Plan; (e) receipt by Borrower or any ERISA Affiliate of a notice of
intent to terminate a Multiemployer Plan, including the treatment of a

 

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plan amendment or withdrawal by every employer as a termination under Section
4041A, or the commencement of proceedings by the PBGC to terminate a
Multiemployer Plan; (f) receipt by Borrower or any ERISA Affiliate of notice
from the PBGC of an event or condition which might reasonably be expected to
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Pension Plan or Multiemployer Plan;
or (g) the imposition by a governmental authority or court of any material
liability under Title IV of ERISA, other than for PBGC premiums due but not
delinquent under Section 4007 of ERISA, upon Borrower or any ERISA Affiliate.

 

“Existing Debt” means all outstanding obligations of Borrower and any other Loan
Parties under the Existing Debt Agreement.

 

“Existing Debt Agreement” means that certain Loan Agreement dated as of June 22,
2010 by and between Borrower and Alpine Advisors LLC.

 

“Event of Default” has the meaning set forth in Section 11.

 

“Financing” has the meaning set forth in Section 8(m).

 

“Financing Option” has the meaning set forth in Section 8(m).

 

“GAAP” has the meaning set forth in Section 7(o).

 

“Gaming Laws” means, collectively, the Nevada Gaming Control Act, as codified in
Nevada Revised Statutes Chapter 463, as amended from time to time, and the
regulations of the Nevada Gaming Authorities promulgated thereunder, as amended
from time to time, the various Clark County ordinances and regulations
applicable to gaming activities, and all other laws pursuant to which the Nevada
Gaming Authorities hold regulatory, licensing or permit authority over gambling,
gaming or casino activities conducted by any Loan Party within its jurisdiction.

 

“Gaming Approvals” means all material licenses, approvals, authorizations,
findings of suitability, waivers and registrations required to be obtained by
Parent and/or all officers, directors and/or affiliates of Parent from the
Nevada Gaming Authorities in order for Parent to hold an equity position in
Borrower or to exercise its remedies under any Loan Documents.

 

“Guarantor” means each direct or indirect domestic Subsidiary of Borrower other
than AWI Gaming, Inc.

 

“Hazardous Materials” means all explosive or radioactive substances or wastes
and all hazardous or toxic substances, wastes or other pollutants, including
petroleum or petroleum distillates, asbestos or asbestos-containing materials,
polychlorinated biphenyls, radon gas, infectious or medical wastes and all other
substances or wastes of any nature regulated pursuant to any Environmental Law.

 

“Indebtedness” means, as to any Person at a particular time, without
duplication, all of the following, whether or not included as indebtedness or
liabilities in accordance with GAAP: (a) all indebtedness of such Person for
borrowed money; (b) all obligations issued, undertaken or assumed by such Person
as the deferred purchase price of property or services (other than trade

 

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payables entered into and accrued expenses arising in the ordinary course of
business and any contingent obligation to pay a purchase price (including
without limitation any such obligations constituting an earnout obligation) so
long as such obligation remains contingent); (c) all non-contingent
reimbursement or payment obligations of such Person with respect to any letters
of credit (including standby and commercial), banker’s acceptances, bank
guaranties, surety bonds and similar instruments; (d) all obligations of such
Person evidenced by notes, bonds, debentures or similar instruments; (e) all
indebtedness of such Person created or arising under any conditional sale or
other title retention agreement, or incurred as financing, in either case with
respect to property acquired by such person (even though the rights and remedies
of the seller or lender under such agreement in the event of default are limited
to repossession or sale of such property); (f) all obligations of such Person
with respect to any capital lease (the amount of such Indebtedness being equal
to the capitalized amount thereof that would appear on a balance sheet of such
person prepared as of such date in accordance with GAAP); (g) all indebtedness
of the kinds referred to in clauses (a) through (f) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien upon or in property (including accounts
receivable and contract rights) owned by such Person, even though such Person
has not assumed or become liable for the payment of such Indebtedness; and (h)
all guarantees of such Person in respect of indebtedness or obligations of
others of the kinds referred to in clauses (a) through (g) above.

 

“Indemnitee” has the meaning set forth in Section 10(b).

 

“Investment” means, as to any Person, any direct or indirect acquisition or
investment by such Person in another Person, whether by means of (i) the
purchase or other acquisition of equity interests of another Person, (ii) a
loan, advance or capital contribution to, guarantee or assumption of debt of, or
purchase or other acquisition of any other debt or interest in, another Person,
or (iii) the purchase or other acquisition (in one transaction or a series of
transactions) of assets of another Person that constitute a business unit or all
or substantially all of the business of, such Person.

 

“Kocienski Reimbursement Arrangement” means the transactions in connection with
that certain Reimbursement Agreement for Pledged Certificate of Deposit dated as
of December 10, 2009 by and between Leroy’s Horse and Sports Place and Robert
and Tracey Kocienski, a married couple (including, without limitation, the
pledge of certificates of deposit by Robert and Tracey Kocienski on behalf of
Leroy’s Horse and Sports Place as described in that certain Pledged Certificate
of Deposit Statement dated November 15, 2009 delivered by Robert and Tracey
Kocienski to the Nevada Gaming Control Board).

 

 “Lien” means any mortgage, pledge, hypothecation, assignment as security,
deposit arrangement, encumbrance, lien (statutory or other), charge, or other
security interest or preferential arrangement in the nature of a security
interest of any kind or nature whatsoever in respect of any property (including
any conditional sale or other title retention agreement, any easement, right of
way or other encumbrance on title to real property, and any financing lease
having substantially the same economic effect as any of the foregoing), but not
including the interest of a lessor under any operating lease.

 

“Lender” has the meaning set forth in the Preamble.

 

31

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“Loan Documents” means this Agreement, the Notes, the Pledge Agreement and the
Security Agreement.

 

“Loan Parties” means Borrower and the Guarantors.

 

“Loans” means, collectively, the Tranche One Loan and the Tranche Two Loans.

 

“Material Adverse Effect” means a (a) material adverse effect upon the business,
operations, financial condition, properties or prospects of Borrower or and
Subsidiaries taken as a whole or (b) a material adverse effect upon the
legality, validity, binding effect or enforceability against any Loan Party of
any Loan Document to which it is a party; provided, however, that with respect
to clause (a), Material Adverse Effect shall not include any event, change,
circumstance, occurrence, effect or state of facts (1) generally affecting the
sportsbook accounting solutions and sportsbook operator industries, or the
economy or the financial or securities markets, in the United States, including
effects on such industries, economy or markets resulting from any regulatory and
political conditions or developments in general, (2) any outbreak or escalation
of hostilities or declared or undeclared acts of war or terrorism, or
(3) reflecting or resulting from changes in law or GAAP; provided, that, with
respect to clauses (1), (2) and (3), the impact of such event, change,
circumstances, occurrence, effect or state of facts is not disproportionately
adverse to the Loan Parties and their Subsidiaries, taken as a whole.

 

“Maturity Date” means the earlier of (i) consummation of the Acquisition (ii)
termination of the Acquisition Agreement and (iii) December 31, 2013; provided,
however, that if the Acquisition Agreement is terminated due to the occurrence
of a Prepayment Event, or pursuant to Section 7.1(b)(ii) of the Acquisition
Agreement, the Maturity Date shall be the date that is six months after the date
of such termination; and provided further, that if the NGC Failure Date occurs,
the Maturity Date shall at the option of Lender and upon written notice to
Borrower, be the date that is 6 months after the date of such notice.

 

“Merger Sub” has the meaning set forth in the Recitals.

 

“Multiemployer Plan” means any employee benefit plan of the type described in
Section 4001(a)(3) of ERISA, to which Borrower or any ERISA Affiliate makes or
is obligated to make contributions, or during the preceding five plan years, has
made or been obligated to make contributions.

 

“Nevada Gaming Authorities” means, collectively, the Nevada Gaming Commission,
the Nevada State Gaming Control Board, the Clark County Liquor and Gaming
Licensing Board and any other applicable local gaming or regulatory authority,
body or agency with jurisdiction over any of the Loan Parties.

 

“Nevada State Bank Loan Documents” means that certain Business Loan Agreement
dated as of September 4, 2010 between AWI Gaming, Inc. and Nevada State Bank,
together with all Related Documents (as defined therein) as the same may be
amended, restated, supplemented, refinanced or modified from time to time to the
extent not prohibited herein.

 

32

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“NGC Approvals” means the notice requirements of, and the approvals required to
be obtained by the Loan Parties from, the Nevada Gaming Authorities as set forth
on Annex I hereto.

 

“NGC Failure Date” means the NGC Final Date, if Borrower has not obtained the
approvals described in Section 8(n)(i) on or prior to the NGC Final Date.

 

“Non-U.S. Lender” has the meaning set forth in Section 10(d).

 

“Note” means a 12.5% Secured Convertible PIK Promissory Note made by Borrower in
favor of Lender evidencing the Loans, substantially in the form of Exhibit A.

 

“Obligations” means all loans, advances, liabilities, obligations, covenants,
duties, and Indebtedness owing by Borrower or any other Loan Party to Lender
arising under this Agreement or any other Loan Document, whether or not
evidenced by any note or other instrument, agreement or document, whether
arising from an extension of credit, opening of a letter of credit, acceptance,
loan, guaranty, indemnification, absolute or contingent, now existing or
hereafter arising, primary or secondary, as principal or guarantor, and
including, without limitation, all interest, charges, expenses, fees, attorneys’
fees, filing fees and any other sums chargeable to Borrower or any other Loan
Party hereunder, under any other Loan Document.  The term includes, without
limitation, interest accruing during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding.

 

“Offer Notice” has the meaning set forth in Section 8(m).

 

“Offeror” has the meaning set forth in Section 8(m).

 

“Outstanding Balance” with respect to any Note means the original principal
amount of such Note, plus any PIK Interest which has been added thereto, to the
extent not previously converted pursuant to the terms of such Note, less any
repayments or prepayments thereof.

 

“Parent” has the meaning set forth in the Recitals.

 

“PBGC” means the Pension Benefit Guaranty Corporation.

 

“Pension Plan” means any “employee pension benefit plan” (as such term is
defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is
subject to Title IV of ERISA and is sponsored or maintained by Borrower or any
ERISA Affiliate or to which Borrower or any ERISA Affiliate contributes or has
an obligation to contribute, or in the case of a multiple employer or other plan
described in Section 4064(a) of ERISA, has made contributions at any time during
the immediately preceding five plan years.

 

“Permit” has the meaning set forth in Section 7(l).

 

“Permitted Dispositions” means:

 

33

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(a)                                  dispositions of (x) inventory and (y)
worn-out, surplus, or no longer used or useful equipment, in each case in the
ordinary course of business;

 

(b)                                 dispositions of cash equivalents in the
ordinary course of business;

 

(c)                                  transfers of assets (i) by a Loan Party or
a Subsidiary of a Loan Party to a Loan Party, and (ii) by any Subsidiary of a
Loan Party that is not a Loan Party to any other Subsidiary of a Loan Party that
is not a Loan Party;

 

(d)                                 dispositions or lapse of Intellectual
Property no longer used or useful in the conduct of the business of any Loan
Party or any Subsidiary thereof or to the extent no longer economically
desirable in the conduct of their business;

 

(e)                                  write-offs or grants of discounts or
forgiveness of accounts, without recourse, or sale, without recourse, of
accounts which are at least 90 days past due in connection with the compromise
or collection thereof in the ordinary course of business; and

 

(f)                                    dispositions resulting from (i) any loss,
destruction or damage to property or (ii) any condemnation or seizure procedure
or exercise of eminent domain.

 

“Permitted Indebtedness” means:

 

(a)                                  the Obligations;

 

(b)                                 Indebtedness existing on the Closing Date
and set forth on Schedule 9(b) including Permitted Refinancings thereof;

 

(c)                                  Indebtedness not to exceed $200,000 in the
aggregate at any time outstanding, consisting of capital lease obligations
acquired in the ordinary course of business within the limitations set forth in
clause (g) of the definition of “Permitted Liens” and Permitted Refinancings
thereof;

 

(d)                                 unsecured intercompany Indebtedness
permitted pursuant to clause (b) of the definition of “Permitted Investments”;

 

(e)                                  Indebtedness consisting of surety and
appeal bonds, performance bonds, bid bonds, completion guarantee and similar
obligations incurred in the ordinary course of business;

 

(f)                                    [Reserved];

 

(g)                                 Indebtedness consisting of financing of
insurance premiums in the ordinary course of business;

 

(h)                                 Indebtedness in respect of netting services,
overdraft protection and similar arrangements in connection with deposit
accounts in the ordinary course of business; and

 

(i)                                     Indebtedness constituting Permitted
Investments.

 

34

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“Permitted Investments” means:

 

(a)                                  Investments held by the Loan Parties and
their Subsidiaries in the form of cash and cash equivalents;

 

(b)                                 Investments by (i) any Loan Party or any
Subsidiary of any Loan Party in any Loan Party, provided that if any such
Investments are evidenced by notes, such notes shall be pledged to Lender, and
(ii) by any Subsidiary that is not a Loan Party in any other Subsidiary that is
not a Loan Party;

 

(c)                                  Investments existing on the Closing Date
and set forth on Schedule 9(c);

 

(d)                                 to the extent constituting Investments,
earnest money deposits made in connection with the acquisitions of property and
assets not prohibited hereunder;

 

(e)                                  to the extent constituting Investments,
deposit and securities accounts maintained in the ordinary course of business
and in compliance with the provisions of the Loan Documents;

 

(f)                                    Investments received as the non-cash
portion of consideration received in connection with the transactions permitted
by clause (b) of the definition of “Permitted Dispositions”; and

 

(g)                                 other Investments not to exceed $100,000 in
the aggregate at any time outstanding.

 

“Permitted Liens” means:

 

(a)                                  any Lien existing on the property, assets
or revenues of a Loan Party or a Subsidiary of a Loan Party on the Closing Date
and set forth in Schedule 9(a) securing Indebtedness outstanding on such date,
including replacement Liens on the property, assets or revenues currently
subject to such Liens;

 

(b)                                 Liens for taxes, fees, assessments or other
governmental charges (including, for the avoidance of doubt, such Liens imposed
by ERISA) (i) which are not delinquent or remain payable without penalty or (ii)
which are being contested in good faith and by appropriate proceedings
diligently conducted, if adequate reserves with respect thereto are maintained
on the books of the applicable Person in accordance with GAAP; provided, that no
notice of lien has been filed or recorded under the Code.

 

(c)                                  carriers’, warehousemen’s, mechanics’,
landlords’, materialmen’s, repairmen’s or other similar Liens arising in the
ordinary course of business which relate to sums not delinquent for more than
ninety (90) days or remain payable without penalty or which are being contested
in good faith and by appropriate proceedings diligently prosecuted, which
proceedings have the effect of preventing the forfeiture or sale of the
property, assets or revenues subject thereto and for which adequate reserves in
accordance with GAAP are being maintained;

 

35

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

 

(d)                                 Liens (other than any Lien imposed by ERISA)
consisting of pledges or deposits required in the ordinary course of business in
connection with workers’ compensation, unemployment insurance and other social
security legislation or to secure the performance of tenders, statutory
obligations, surety, stay, customs and appeals bonds, bids, leases, governmental
contracts, trade contracts, performance and return of money bonds and other
similar obligations (exclusive of obligations for the payment of borrowed money)
or to secure liability to insurance carriers;

 

(e)                                  Liens consisting of judgment or judicial
attachment liens (other than for payment of taxes, assessments or other
governmental charges), not constituting an Event of Default under Section 11(g);

 

(f)                                    easements, encroachments, covenants,
equitable servitudes, rights-of-way, zoning, land use, building and other
restrictions, minor defects or other irregularities in title, and other similar
encumbrances incurred in the ordinary course of business which, either
individually or in the aggregate do not in any case interfere in any material
respect with the ordinary conduct of the businesses of any Loan Party or any
Subsidiary of any Loan Party;

 

(g)                                 Liens on any property or assets acquired or
held by any Loan Party or any Subsidiary of any Loan Party securing Indebtedness
incurred or assumed for the purpose of financing all or any part of the cost of
acquiring such property or assets and permitted under clause (c) of the
definition of “Permitted Indebtedness”; provided, that, (i) any such Lien
attaches to such property or assets concurrently with or within thirty (30) days
after the acquisition thereof, (ii) such Lien does not at any time encumber any
property or assets other than the property or assets acquired in such
transaction and the proceeds thereof, and (iii) the principal amount of the debt
secured thereby does not exceed 100% of the cost of such property or assets;

 

(h)                                 non-exclusive licenses and sublicenses
granted by a Loan Party or any Subsidiary of a Loan Party to third parties in
the ordinary course of business not interfering in any material respect with the
business of the Loan Parties or any of their Subsidiaries;

 

(i)                                     Liens in favor of collecting banks
arising under Section 4-210 of the Uniform Commercial Code or, with respect to
collecting banks located in the State of New York, under Section 4-208 of the
Uniform Commercial Code and customary rights of set-off, revocation, refund or
chargeback under deposit agreements or under the Uniform Commercial Code of
banks or other financial institutions and Liens (including the right of set-off)
in favor of a bank or other depository institution arising as a matter of law
encumbering deposits; provided that such deposit account is not intended by any
Loan Party or any of their Subsidiaries to provide collateral to such bank or
depositary institution;

 

(j)                                     Liens of counterparties attaching solely
to cash earnest money deposits made by the Loan Parties or any of their
respective Subsidiaries in connection with any letter of intent or purchase
agreement entered into with respect to capital expenditures otherwise permitted
hereunder; and

 

(k)                                  Liens securing the Obligations; and

 

36

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(l)                                     other Liens not described above that
secure obligations other than Indebtedness for borrowed money; provided, that
the aggregate outstanding amount of the obligations secured thereby does not
exceed $100,000 at any time outstanding.

 

“Permitted Refinancing” means Indebtedness constituting a refinancing, renewal
or extension of Indebtedness permitted hereunder that (a) has an aggregate
outstanding principal amount not greater than the aggregate principal amount of
the Indebtedness being refinanced, or extended, except to the extent of (i)
capitalization of any interest outstanding at such time or (ii) an amount equal
to a reasonable premium or other reasonable amount paid and fees and expenses
reasonably incurred in connection with such refinancing, (b) has a weighted
average maturity (measured as of the date of such refinancing or extension) and
maturity no shorter than that of the Indebtedness being refinanced, renewed or
extended, (c) is not secured by a Lien on any assets other than the collateral
securing the Indebtedness being refinanced or extended, and (d) the Indebtedness
being refinanced, renewed or extended is not recourse to any Person that is
liable on account of such Indebtedness other than those Persons which were
obligated to the Indebtedness being refinanced, renewed or extended.

 

“Person” means any natural person, corporation, limited liability company,
trust, joint venture, association, company, partnership, Governmental Authority
or other entity.

 

“PIK Interest” means any pay-in-kind interest which has been added to the
principal amount of such note pursuant to the terms thereof.

 

“Plan” means any “employee benefit plan” (as such term is defined in Section
3(3) of ERISA) established by Borrower or, with respect to any such plan that is
subject to Section 412 of the Code or Title IV of ERISA, any ERISA Affiliate.

 

“Pledge Agreement” means the Pledge Agreement dated of even date herewith made
by each Loan Party, in favor of Lender, as amended, supplemented or otherwise
modified from time to time.

 

“Prepayment Event” shall mean the occurrence of either of the following: (i) the
Acquisition Agreement has been terminated pursuant to the terms of Section
7.1(d)(i) thereof as a result of Parent’s and/or Merger Sub’s breach of its
obligations thereunder or (ii) any Nevada Gaming Authority has made a final
determination pursuant to applicable Gaming Laws denying the Gaming Approvals.

 

“Reportable Event” means an event described in Section 4043(c) of ERISA with
respect to which notice has not been waived under applicable regulations.

 

“Requirement of Law” has the meaning set forth in Section 7(c).

 

“Restricted Payment” means a dividend or other distribution (whether in cash,
securities or other property) with respect to any capital stock or other equity
interest of Borrower or any of its Subsidiaries, or any payment (whether in
cash, securities or other property), including any sinking fund or similar
deposit, on account of the purchase, redemption, retirement, acquisition,
cancellation or termination of any such capital stock or other equity interest,
or on account of any

 

37

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

 

return of capital to Borrower’s stockholders, partners or members (or the
equivalent person or entity thereof).

 

“Security Agreement” means the Security Agreement dated of even date herewith
made by each Loan Party, in favor of Lender, as amended, supplemented or
otherwise modified from time to time.

 

“Solvent” means, with respect to any person on any date of determination, that
on such date (a) the fair value of the tangible and intangible property of such
person is greater than the total amount of liabilities, including contingent
liabilities, of such person, (b) the present fair salable value of the tangible
and intangible assets of such person is not less than the amount that will be
required to pay the probable liability of such person on its debts as they
become due in the ordinary course of business, (c) such person does not intend
to, and does not believe that it will, incur debts or liabilities beyond such
person’s ability to pay such debts and liabilities as they mature, (d) such
person is not engaged in business or a transaction, and is not about to engage
in business or a transaction, for which such person’s property would constitute
an unreasonably small capital, and (e) such person is able to pay its debts and
liabilities, contingent obligations and other commitments as they mature in the
ordinary course of business. The amount of contingent liabilities at any time
shall be computed as the amount that, in the light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability.

 

“Subsidiary” of a person means a corporation, partnership, joint venture,
limited liability company or other business entity of which a majority of the
shares of securities or other interests having ordinary voting power for the
election of directors or other governing body (other than securities or
interests having such power only by reason of the happening of a contingency)
are at the time beneficially owned, or the management of which is otherwise
controlled, directly, or indirectly through one or more intermediaries, or both,
by such person. Unless otherwise specified, all references herein to a
“Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of
Borrower.

 

“Tranche One Loan” has the meaning set forth in Section 1(a)(i).

 

“Tranche Two Loan” has the meaning set forth in Section 1(a)(ii).

 

“Transaction” means, collectively, (a) the entering into by the Loan Parties of
the Loan Documents to which they are or are intended to be a party as of the
Closing Date, (b) the refinancing of the Existing Debt Agreement and the
termination of all commitments with respect thereto, and (c) the payment of the
fees and expenses incurred in connection with the consummation of the foregoing.

 

[signature page follows]

 

38

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.

 

 

BORROWER:

 

 

American Wagering, Inc.

 

 

 

 

 

By:

/s/ Victor Salerno

 

 

Name:

Victor Salerno

 

 

Its:

President

 

 

 

 

 

 

 

 

GUARANTORS:

 

 

 

 

 

AWI Manufacturing, Inc.

 

Computerized Bookmaking Systems, Inc.

 

 

 

 

 

 

By:

/s/ Victor Salerno

 

By:

/s/ Victor Salerno

Name:

Victor Salerno

 

Name:

Victor Salerno

Its:

President

 

Its:

President

 

 

 

 

Leroy’s Horse & Sports Place, Inc.

 

Sports Mobile Fantasy, LLC

 

 

 

 

 

 

By:

/s/ Victor Salerno

 

By:

/s/ John Salerno

Name:

Victor Salerno

 

Name:

John Salerno

Its:

President

 

Its:

Manager

 

 

 

ExactGeo Media, LLC

 

 

 

 

 

 

 

 

By:

/s/ Thomas Willer

 

 

Name:

Thomas Willer

 

 

Its:

Manager

 

 

 

 

 

 

 

 

LENDER:

 

 

 

39

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

 

William Hill Holdings Limited,

 

 

a private limited company formed under the laws of England and Wales

 

 

 

 

 

By:

/s/ Neil Cooper

 

 

Name:

Neil Cooper

 

 

Its:

Director

 

 

 

40

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

 

ANNEX I

 

NGC APPROVALS

 

(a)                                  Approval of the Nevada Gaming Authorities
is required for the pledge of stock, member’s interests or other equity
securities issued by a privately held entity that is subject to Gaming Laws to
be effective.

 

(b)                                 Restrictions on the ability to transfer
and/or encumber the equity securities issued by a privately held corporation
that holds or is the beneficiary of a gaming license or by a privately-held
entity registered as a holding or intermediary company under Gaming Laws must be
approved in advance in order to be effective.

 

(c)                                  Pursuant to Nevada Gaming Commission
Regulation 8.130, certain of the Loan Parties may be required to file
informational transaction reports with respect to the transactions contemplated
by the Loan Documents with the Nevada Gaming Authorities within 30 days after
the end of the calendar quarter in which the transactions evidenced thereby are
consummated.

 

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

 

EXHIBIT A

 

FORM OF NOTE

 

[See Attached]

 

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

 

NOTE

 

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF SUCH ACT OR SUCH LAWS.  THE SALE, ASSIGNMENT, TRANSFER, PLEDGE
OR OTHER DISPOSITION OF THIS NOTE OR ANY OF THE CONVERSION SHARES SHALL BE
INEFFECTIVE UNLESS APPROVED IN ADVANCE BY THE NEVADA GAMING AUTHORITIES.  THE
CONVERSION OF THIS NOTE, IN WHOLE OR IN PART, INTO ANY EQUITY SECURITIES OF THE
COMPANY SHALL BE INEFFECTIVE UNLESS APPROVED IN ADVANCE BY THE NEVADA GAMING
AUTHORITIES.

 

THIS NOTE IS ISSUED WITH ORIGINAL ISSUE DISCOUNT (“OID”) AS DEFINED BY SECTION
1273(a)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED.  A HOLDER OF THE
NOTE MAY CONTACT THE ISSUER, AT TELEPHONE NUMBER:(702) 735-5529, OR BY
FACSIMILE: (702) 735-0142, FOR INFORMATION CONCERNING THE ISSUE PRICE, AMOUNT OF
OID AND YIELD TO MATURITY OF THIS NOTE.

 

28.

AMERICAN WAGERING, INC.

 

 

12.5% SECURED CONVERTIBLE PIK PROMISSORY NOTE

 

 

No.        

                    , 2011

 

SECTION 1.                                Payment Obligation.  AMERICAN
WAGERING, INC., a Nevada corporation (herein called the “Issuer”), for value
received, hereby promises to pay to
                                                            , or registered
permitted assigns (hereinafter referred to as the “Holder”), the principal sum
of                                                          Dollars
($                    ) (or, if less, the Outstanding Balance herein) on the
Maturity Date, and to pay interest thereon from the date hereof quarterly in
arrears on March 31, June 30, September 30, and December 31 of each year,
commencing                         , 20     (each, an “Interest Payment Date”),
at the Coupon Rate to the person in whose name this Note is registered as
permitted under the Bridge

 

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

 

Loan Agreement at the close of business on the Business Day immediately
preceding the date such payment is due.  Any payments due hereunder that fall
due on a day that is not a Business Day shall be payable on the first succeeding
Business Day and such extension of time shall be included in the computation of
interest due hereunder.  Interest accrued on this Note in accordance with this
Section 1 will be paid by being added to the Outstanding Balance hereunder on
each Interest Payment Date and thereafter will bear interest at the Coupon Rate.

 

SECTION 2.                                Definitions.  Terms defined in the
Bridge Loan Agreement referred to below and not otherwise defined herein are
used herein as therein defined.  As used herein, the following terms will be
deemed to have the meanings set forth below:

 

“Board” means the board of directors of the Issuer.

 

“Bridge Loan Agreement” means that certain Bridge Loan Agreement dated as of
April 13, 2011 between the Issuer and the Holder, as amended, supplemented,
restated, refinanced or otherwise modified from time to time.

 

“Common Stock” means the common stock of the Issuer, par value $0.01 per share.

 

“Conversion Price” means $0.60 per share of Common Stock, subject to adjustment
as provided for herein.

 

“Conversion Ratio” means the number of Conversion Shares to be delivered upon
conversion of One Hundred Dollars ($100) of principal amount of this Note.
 Subject to the provisions for adjustment set forth herein (or agreed by the
parties pursuant to Section 3(f)), the Conversion Ratio shall be determined as
the quotient of (i) One Hundred Dollars ($100), divided by (ii) the Conversion
Price.

 

“Conversion Shares” means fully paid and nonassessable shares of Common Stock
issuable upon conversion of the Indebtedness evidenced by this Note.

 

“Coupon Rate” means twelve and one-half percent (12.5%) per annum calculated on
the basis of a 360 day year and actual days elapsed.

 

“Current Market Price” when used with reference to shares of Common Stock, shall
mean the fair market value per share of Common Stock as determined in good faith
by the Board, which determination shall be evidenced by a resolution of the
Board, certified by the Secretary of the Issuer and delivered to Holder.

 

“Issue Date” shall mean [                           ], 2011.

 

“Major Transaction” shall mean:

 

(a)                                  the Issuer enters into any transaction of
reorganization, merger, or consolidation (or agrees to do any of the foregoing
at any future time), in each case, with respect to which all or substantially
all the individuals and entities who were the respective beneficial owners of
the voting securities of the Issuer immediately prior to such proposed
reorganization, merger or consolidation do not, following such

 

44

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

 

reorganization, merger or consolidation beneficially own, directly or
indirectly, more than 50% of the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors of the
Issuer resulting from such reorganization, merger or consolidation; or

 

(b)                                 the sale or other disposition of all or
substantially all the assets or property of the Issuer and its Subsidiaries,
taken as a whole, in one transaction or a series of related transactions;

 

provided, that the Acquisition shall not constitute a Major Transaction.

 

“Note” means this convertible promissory note issued by the Issuer.

 

“Optional Conversion Notice” means a written notice substantially in the form of
the notice attached hereto as Exhibit A and incorporated herein by this
reference.

 

SECTION 3.                                Optional Conversion.

 

(a)                                  Subject to and upon compliance with the
provisions of this Note and subject to applicable Gaming Laws, and the receipt
by the Holder of all required Gaming Approvals, the Holder is entitled, at its
option, on the Maturity Date, to convert all or a portion of the Outstanding
Balance evidenced by this Note into Conversion Shares; provided, however, that
if a Prepayment Event has occurred, the Holder shall have no right to convert
the Outstanding Balance under this Section 3.

 

(b)                                 The principal amount of the Indebtedness
evidenced by this Note or any portion of the principal amount of the
Indebtedness evidenced hereby that is One Thousand Dollars ($1,000), an integral
multiple of One Thousand Dollars ($1,000), or the remaining balance of the
principal amount of the Indebtedness evidenced by this Note may be converted
into Conversion Shares.  Subject to the provisions for adjustment set forth
hereinafter (or agreed by the parties pursuant to Section 3(f)), the
Indebtedness evidenced by the Note shall be convertible into Conversion Shares
at a price per share equal to the Conversion Price and the number of Conversion
Shares to be deliverable to the Holder upon conversion of One Hundred Dollars
($100) of the principal amount of this Note shall be equal to the Conversion
Ratio.

 

(c)                                  Conversion of all or a portion of the
Indebtedness evidenced by this Note may be effected by the Holder upon the
surrender to the Issuer at the principal office of the Issuer in the State of
Nevada or at the office of any agent or agents of the Issuer, as may be
designated by the Board, of this Note, duly endorsed or assigned to the Issuer
or in blank, accompanied by a Optional Conversion Notice to the Issuer that the
Holder elects to convert the principal amount of the Indebtedness evidenced by
this Note or, if less than the entire principal amount of the Indebtedness
evidenced by this Note is to be converted, the portion thereof to be converted. 
Such Optional Conversion Notice shall specify the name or names in which the
Holder wishes the certificate or certificates for shares of Common Stock to be
issued or such shares of Common Stock to be transferred by book-entry transfer. 
In case such notice shall specify a name or names other than that of the Holder,
such notice shall be accompanied by payment of all transfer taxes payable upon
the issuance of shares of Common Stock in such name or names.  Other than such
taxes, the Issuer will pay any and all issue and other taxes (other than (i)
taxes based on income

 

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and (ii) withholding taxes imposed on amounts payable to Holder at the time
Holder becomes a party to this Note or to the extent that any such obligations
would not have arisen but for the failure of Holder to comply with Section 10(d)
of the Bridge Loan Agreement) that may be payable in respect of any issue or
delivery of shares of Common Stock on conversion of the Indebtedness evidenced
by this Note.

 

As promptly as practicable, and in any event within five (5) Business Days after
the surrender of this Note and the receipt of such notice relating thereto and,
if applicable, payment of all transfer taxes (or the demonstration to the
satisfaction of the Holder that such taxes have been paid), subject to the prior
approval of the applicable Nevada Gaming Authorities, the Issuer shall deliver
or cause to be delivered, either by personal delivery or by certified or
registered mail or by a recognized overnight courier service, in any such case,
properly insured, to the Holder in accordance with the written instructions of
the Holder (i) certificates representing the number of Conversion Shares to
which the Holder shall be entitled (or cause such Conversion Shares to be
transferred by book entry), and (ii) if less than the entire principal amount of
Indebtedness evidenced by this Note is being converted, a new promissory note,
in the form of this Note, for the balance of the Indebtedness that is not being
so converted.  Such conversion shall be deemed to have been made at the close of
business on the date of giving such notice and of such surrender of this Note so
that the rights of the Holder (as a noteholder) with respect to the principal
amount being converted shall cease, and the person or persons entitled to
receive the Conversion Shares issuable upon conversion shall be treated for all
purposes as the record holder or holders of such Common Stock as of such day. 
All accrued but unpaid interest through the Business Day immediately preceding
the date of such conversion with respect to the principal amount of the
Indebtedness evidenced by this Note being converted shall be included in such
principal amount for purposes of determining the number of Conversion Shares
issuable upon conversion.

 

(d)                                 In connection with the conversion of the
Indebtedness evidenced by this Note, no fractional shares of Common Stock shall
be issued, but in lieu thereof the Issuer shall pay a cash adjustment in respect
of such fractional interest in an amount equal to such fractional interest
multiplied by the Current Market Price per share of Common Stock on the day on
which such Indebtedness evidenced by this Note is deemed to have been
converted.  If more than one note shall be surrendered for conversion by the
Holder at the same time, the number of full shares of Common Stock issuable on
conversion thereof shall be computed on the basis of the total amount of
Indebtedness to be converted.

 

(e)                                  (i)                                     The
Issuer shall at all times reserve and keep available for issuance upon the
conversion of the Indebtedness evidenced by this Note, free from any preemptive
rights, such number of its authorized but unissued shares of Common Stock as
will from time to time be sufficient to permit the conversion of all of the
Indebtedness evidenced by this Note, and shall take all action required to
increase the authorized number of shares of Common Stock if necessary to permit
the conversion of all of the Indebtedness evidenced by this Note.

 

(ii)                                  If the Issuer shall issue shares of Common
Stock upon conversion of Indebtedness evidenced by this Note as contemplated by
this Section 3, the Issuer shall issue together with each such share of Common
Stock any rights issued to holders of Common Stock of the Issuer, irrespective
of whether such rights shall be exercisable at such time, but only if

 

46

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such rights are issued and outstanding and held by other holders of Common Stock
of the Issuer at such time and have not expired.

 

(f)                                    In the event that the Issuer desires to
consummate any event or transaction of the type described in Section 9(l) of the
Bridge Loan Agreement, the Conversion Ratio will be subject to adjustment as
mutually and reasonably agreed upon in good faith by the Issuer and the Holder
prior to or concurrently with such proposed event or transaction.

 

(g)                                 [Reserved].

 

(h)                                 In case at any time or from time to time
there shall be any consolidation or merger of the Issuer with or into another
corporation or other entity, or any sale or conveyance to another corporation or
other entity of the assets or property of the Issuer as an entirety or
substantially as an entirety, or there shall be a voluntary or involuntary
dissolution, liquidation, or winding up of the Issuer, then, in any one or more
of said cases the Issuer shall give at least 20 days prior written notice (the
time of mailing of such notice shall be deemed to be the time of giving thereof)
to the Holder at the address of the Holder as shown on the books of the Issuer
as of the date of which such reorganization, reclassification, consolidation,
merger, sale, conveyance, dissolution, liquidation, or winding up shall take
place, as the case may be.  Such notice also shall specify the date as of which
the holders of the Common Stock of record shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, or conveyance or
participate in such dissolution, liquidation, or winding up, as the case may be.

 

SECTION 4.                                Maturity Date.  The Outstanding
Balance hereunder together with all accrued interest hereon shall be due and
payable on the Maturity Date.

 

SECTION 5.                                Optional Redemption.

 

(a)                                  This Note and the Indebtedness evidenced
hereby may be prepaid, in whole or in part, at the option of the Issuer in
accordance with Section 3(b) of the Bridge Loan Agreement.

 

(b)                                 In the case of any Major Transaction
occurring at any time, the Issuer may, at its option, redeem, and Holder shall
have the right, at its option and upon delivery of written notice to the Issuer
(the “Redemption Notice”), to require Issuer to redeem, during the term hereof,
the Outstanding Balance of this Note for cash on the Major Transaction
Redemption Date at a redemption price equal to the greater of (i) the
Outstanding Balance of this Note, plus all accrued but unpaid interest thereon,
and (ii) the number of Conversion Shares that would be issuable if the Note were
converted on the Business Day immediately prior to the occurrence of such Major
Transaction, multiplied by the price per share of Common Stock to be paid upon
the consummation of such Major Transaction (including, on a pro rata basis, the
cash, securities, or property received by holders of Common Stock in any tender
or exchange offer that is a step in such Major Transaction); provided, however,
that Holder shall have no redemption rights pursuant to this subsection (b), and
such redemption rights shall be available to Issuer (and solely Issuer) if a
Prepayment Event has occurred.  “Major Transaction Redemption Date” shall mean,
in the case of redemption at the option of the Issuer, the date determined by
the Issuer,

 

47

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and, in the case of redemption at the option of Holder, a date that is not more
than ten (10) calendar days after the date of delivery of the Redemption Notice.

 

SECTION 6.                                Acceleration.  This Note and the
Indebtedness evidenced hereby is subject to acceleration under the terms and
conditions set forth in the Bridge Loan Agreement.

 

SECTION 7.                                Security.  This Note and the
obligations of the Issuer hereunder and under the other Loan Documents to which
it is a party are secured by the security interests granted by the Issuer in the
Collateral of the Issuer under the Security Agreement and the Pledge Agreement. 
This Note is guaranteed by the Guarantors, and the obligations of each Guarantor
under its guarantee are secured by the security interests granted by such
Guarantor in the Collateral of each such Guarantor under the Security Agreement
and the Pledge Agreement.

 

SECTION 8.                                Nevada Gaming Matters. 
Notwithstanding anything to the contrary expressed or implied in this Note, the
sale, assignment, transfer, pledge or other disposition of all or any portion of
this Note or any of the Conversion Shares, or the exercise of conversion rights
hereunder (any such sale, assignment, transfer, pledge, or other disposition or
conversion, a “Transfer”) shall be ineffective unless approved in advance by the
Nevada Gaming Authorities.

 

SECTION 9.                                Miscellaneous.

 

(a)                                  Any notice required by the provisions of
this Note to be given to the Holder or the Issuer shall be given and deemed
received or delivered in accordance with the provisions of Section 19 of the
Bridge Loan Agreement.

 

(b)                                 In the event of prepayment or conversion of
this Note in part only, a new note or notes for the unpaid or unconverted
portion hereof will be issued in the name or names requested by the Holder upon
the cancellation hereof.

 

(c)                                  The transfer of this Note is registrable on
the books of the Issuer upon surrender of this Note for registration of transfer
at the offices of the Issuer in Las Vegas, Nevada duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Issuer duly executed by, the Holder or its attorney duly authorized in writing,
and thereupon one or more new notes of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.  This Note is exchangeable for a like aggregate principal amount of
notes of a different authorized denomination, as requested by the Holder.  No
service charge shall be made for any such registration of transfer or exchange,
but the Issuer may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.

 

(d)                                 Prior to the due presentment of this Note
for registration of transfer, the Issuer and any agent of the Issuer may treat
the person in whose name this Note is registered as the owner hereof for all
purposes, irrespective of whether this Note be overdue, and neither the Issuer
nor any such agent shall be affected by notice to the contrary.

 

(e)                                  This Note shall be deemed to be a contract
made under the laws of the State of New York and for all purposes shall be
governed by, construed under, and enforced in accordance with the laws of the
State of New York.

 

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(f)                                    The Issuer agrees, to the extent
permitted by law, to pay to the Holder all costs and expenses (including
attorneys’ fees) incurred by it in the collection hereof or the enforcement of
any right or remedy provided for herein (including such costs and expenses
incurred in connection with a workout or an insolvency or bankruptcy
proceeding).

 

(g)                                 The provisions of the Sections 8 and 9 of
the Bridge Loan Agreement are hereby incorporated into this Note by this
reference.

 

(h)                                 In no event shall the interest rate or rates
payable under this Note exceed the highest rate permissible under any law that a
court of competent jurisdiction shall, in a final determination, deem
applicable.  The Issuer by its issuance hereof and the Holder by its acceptance
hereof intend to legally agree upon the rate of interest and manner of payments
stated herein; provided, however, that, anything contained herein to the
contrary notwithstanding, if said rate or rates of interest or manner of payment
exceeds the maximum rate allowable under applicable law, then, ipso facto as of
the date of this Note, the Issuer is and shall be liable only for the payment of
such maximum amount as allowed by law, and payment received from the Issuer in
excess of such legal maximum, whenever received, shall be applied to reduce the
principal balance of this Note to the extent of such excess.

 

[Remainder of page intentionally left blank.]

 

49

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IN WITNESS WHEREOF, the undersigned has executed this Note effective as of the
date first above written.

 

 

 

AMERICAN WAGERING, INC.,

 

 

a Nevada corporation

 

 

 

 

 

 

 

 

By:

/s/ Victor Salerno

 

 

Name:

Victor Salerno

 

 

Title:

President

 

 

 

 

 

 

 

 

ATTEST:

 

 

 

 

 

 

 

 

 

 

 

/s/ John Salerno

 

 

 

Name:

John Salerno

 

 

 

Title:

Secretary

 

 

 

 

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29.

 

Exhibit A

[FORM OF OPTIONAL CONVERSION NOTICE]

 

TO:                           

 

The undersigned owner of the attached Note hereby gives notice that, in
accordance with the terms and conditions of such Note and the Bridge Loan
Agreement dated [March     ], 2011, as amended, among American Wagering, Inc., a
Nevada corporation (the “Issuer”), and [                          ], a
[                          ], it hereby exercises its right to convert such
Note, or portion hereof (which is $1,000 or an integral multiple thereof) below
designated, into shares of Common Stock of the Issuer and directs that the
shares issuable and deliverable upon the conversion, and any notes representing
any unconverted principal amount thereof, be issued and delivered to the
registered holder of such Note unless a different name has been indicated
below.  If shares or a new note representing unconverted principal are to be
issued in the name of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto.

 

 

[Name of Holder]

 

 

Dated:

 

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

 

Principal Amount to be converted (in an

 

integral multiple of $1,000, if less than all):

 

 

 

$                     

 

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Fill in for registration of shares
of Common Stock and note if to be
issued other than to the
registered Holder.

 

 

 

Name

 

 

 

 

 

Address

 

 

 

 

 

Please print name and address

 

(including zip code number)

 

 

 

SOCIAL SECURITY OR OTHER TAXPAYER

 

IDENTIFYING NUMBER

 

 

52

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EXHIBIT B

 

FORM OF PLEDGE AGREEMENT

 

[See Attached]

 

53

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PLEDGE AGREEMENT

 

This PLEDGE AGREEMENT (“Pledge Agreement”), dated as of April 13, 2011, between
American Wagering, Inc., a Nevada corporation (“Company”), the other persons
listed on the signature pages hereof, (the Company and the persons so listed
being, collectively, “Pledgors” and each, a “Pledgor”), and William Hill
Holdings Limited, a private limited company formed under the laws of England and
Wales (“Secured Party”).

 

WHEREAS, Pledgors have entered into a Bridge Loan Agreement dated as of the date
hereof (as amended, supplemented, restated or otherwise modified and in effect
from time to time, the “Bridge Loan Agreement”), with Secured Party, pursuant to
which, among other things, Secured Party has agreed to make loans to Company
upon the terms and subject to the conditions specified in the Bridge Loan
Agreement;

 

WHEREAS, in order to secure all Obligations, Pledgors have agreed to execute and
deliver to Secured Party a pledge agreement in substantially the form hereof;

 

NOW, THEREFORE, in consideration of the premises and for other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:

 

Section 1                                               DEFINITIONS.

 

1.01                           Definition of Terms Used Herein Generally.  All
capitalized terms used but not defined herein shall have the meanings set forth
in the Bridge Loan Agreement.  All terms used herein and defined in the UCC
shall have the same definitions herein as specified therein; provided, however,
that if a term is defined in Article 9 of the UCC differently than in another
Article of the UCC, the term has the meaning specified in Article 9 of the UCC.

 

1.02                           Definition of Certain Terms Used Herein.  As used
herein, the following terms shall have the following meanings:

 

 “Bridge Loan Agreement” shall have the meaning assigned to such term in the
preliminary statement of this Pledge Agreement.

 

“event” shall have the meaning assigned to such term in Section 8.03(a).

 

“Indemnified Party” shall have the meaning assigned to such term in Section
8.04.

 

“Pledged Collateral” shall have the meaning assigned to such term in Section
2.01.

 

“Pledged Securities” shall have the meaning assigned to such term in Section
2.02(a).

 

“Securities Act” shall have the meaning assigned to such term in Section
8.01(d).

 

“Security Interests” shall have the meaning assigned to such term in Section 7.

 

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

 

“UCC” means the Uniform Commercial Code as in effect, from time to time, in the
State of New York; provided that, if perfection or the effect of perfection or
non-perfection or the priority of the security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, “UCC” means the Uniform Commercial Code as in effect
from time to time in such other jurisdiction for purposes of the provisions
hereof relating to such perfection, effect of perfection or non-perfection or
priority.

 

1.03                           Rules of Interpretation.  References to
“sections”, “Exhibits” and “Schedules” shall be to Sections, Exhibits and
Schedules, respectively, of this Pledge Agreement unless otherwise specifically
provided.  Any of the terms defined in this Pledge Agreement may, unless the
context otherwise requires, be used in the singular or the plural depending on
the reference. All references to statutes and related regulations shall include
(unless otherwise specifically provided herein) any amendments of the same and
any successor statutes and regulations.

 

Section 2                                               PLEDGE.

 

2.01                           Grant of Security Interest.  To secure the
payment or performance, as the case may be, in full of the Obligations, whether
at stated maturity, by acceleration or otherwise, each Pledgor hereby pledges to
Secured Party, and grants to Secured Party a first priority (subject to
Permitted Liens) Security Interest in, the collateral described in Section 2.02
(collectively, the “Pledged Collateral”).

 

2.02                           Description of Pledged Collateral.

 

(a)                      The Pledged Collateral is described as follows and on
any separate schedules at any time furnished by any Pledgor to Secured Party
(which schedules are hereby deemed part of this Pledge Agreement):

 

(i)                                     all right, title and interest of each
Pledgor as a holder (whether now or in the future) in shares, member’s interests
or other equity interests in any person (including, without limitation, those
persons described on Schedule 2 hereto), or any warrants to purchase or
depositary shares or other rights in respect of any such interests, and all
shares of stock, certificates, instruments or other documents evidencing or
representing the same (collectively, the “Pledged Equity”);

 

(ii)                                  all right, title and interest of each
Pledgor in and to all present and future payments, proceeds, dividends,
distributions, instruments, compensation, property, assets, interests and rights
in connection with or related to the collateral listed in clause (i) above, and
all monies due or to become due and payable to such Pledgor in connection with
or related to such collateral or otherwise paid, issued or distributed from time
to time in respect of or in exchange therefor, and any certificate, instrument
or other document evidencing or representing the same (including, without
limitation, all proceeds of dissolution or liquidation);

 

(iii)                               all Indebtedness from time to time owed to
such Pledgor (including, without limitation, Indebtedness described on Schedule
2 hereto)  (such Indebtedness, the “Pledged Debt” and, collectively with the
Pledged Equity, the “Pledged Securities”) and the instruments, if any,
evidencing such Indebtedness, and all interest, cash, instruments and other

 

55

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property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such Indebtedness;

 

(iv)                              any and all rights, powers, remedies and
privileges of such Pledgor under or with respect to any of the foregoing,
including all Liens securing and guarantees and other support obligations
supporting the Pledged Debt;

 

(v)                                 all proceeds of all of the foregoing, of
every kind, and all proceeds of such proceeds.

 

2.03                           Delivery of Certificates, Instruments, Etc.

 

(a)                      Each Pledgor shall deliver to Secured Party:

 

(i)                                     all original shares of stock,
certificates, instruments (other than checks received in the ordinary course of
business) and other documents evidencing or representing the Pledged Securities
concurrently with the execution and delivery of this Pledge Agreement, except
that the certificates, instruments and other documents evidencing the Pledged
Equity of any issuer that is licensed by or registered with the Nevada Gaming
Authorities shall be delivered upon the receipt of all approvals requested
therefor, and

 

(ii)                                  the original shares of stock,
certificates, instruments (other than checks received in the ordinary course of
business) or other documents evidencing or representing all Pledged Collateral
within ten (10) days after such Pledgor’s receipt thereof, except that the
certificates, instruments and other documents evidencing the Pledged Equity of
any issuer that is licensed by or registered with the Nevada Gaming Authorities
shall be delivered upon the receipt of all approvals requested therefor.

 

(iii)                               all Pledged Securities that are certificated
securities shall be in suitable form for transfer by delivery, or shall be
accompanied by duly executed instruments of transfer or assignment in blank, all
in form and substance reasonably satisfactory to Secured Party.

 

(d)                                 Registration.  At any time and from time to
time upon and during the continuance of an Event of Default and subject to
applicable Gaming Laws, Secured Party may cause all or any of the Pledged
Securities to be transferred to or registered in its name or the name of its
nominee or nominees.

 

(e)                                  Authorization to File Financing
Statements.  Each Pledgor hereby irrevocably authorizes Secured Party at any
time and from time to time to file in any appropriate jurisdiction in which the
UCC has been adopted any initial financing statements and amendments thereto
that (a) describe the Pledged Collateral, and (b) contain any other information
required by part 5 of Article 9 of the UCC for the sufficiency or filing office
acceptance of any initial financing statement or amendment, including whether
such Pledgor is an organization, the type of organization and any organization
identification number issued to such Pledgor. Each Pledgor agrees to furnish any
such information to Secured Party promptly upon request.

 

56

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Section 3                                               REPRESENTATIONS AND
WARRANTIES OF PLEDGOR.

 

Each Pledgor hereby represents and warrants to Secured Party that:

 

3.01                           Pledgor’s Legal Status.  (a) Such Pledgor’s type
of organization, and jurisdiction of organization, is set forth in Schedule 1
hereto; and (b) Schedule 1 hereto sets forth such Pledgor’s organizational
identification number or states that such Pledgor has none.

 

3.02                           Pledgor’s Legal Name.  Such Pledgor’s exact legal
name is that set forth in Schedule 1 hereto and on the signature page hereof.

 

3.03                           [Reserved]

 

3.04                           Authority; Binding Obligation; No Conflict.  Such
Pledgor has all requisite power and authority and is duly authorized to execute,
deliver and perform its obligations in accordance with the terms of this Pledge
Agreement and to grant to Secured Party the Security Interest in the Pledged
Collateral pursuant hereto, without the consent or approval of any other person
or entity other than any consent or approval which has been obtained and is in
full force and effect, other than the NGC Approvals.  This Pledge Agreement has
been duly executed and delivered by such Pledgor and constitutes a valid and
binding obligation of such Pledgor, enforceable against such Pledgor in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium, or similar laws or equitable principles
relating to or limiting creditor’s rights generally and except that the gaming
approvals listed in paragraphs (a) and (b) of the NGC Approvals must be obtained
for certain provisions hereof to be effective under Gaming Laws.  The granting
to Secured Party of the Security Interest in the Pledged Collateral hereunder,
the execution by such Pledgor of this Pledge Agreement and the performance by
such Pledgor of its obligations hereunder do not and will not (a) result in the
existence or imposition of any Lien nor obligate such Pledgor to create any Lien
(other than such Security Interest) in favor of any person or entity over all or
any of its assets; (b) violate, conflict with, constitute a default or event of
default under, or result in any rights to accelerate or modify any obligations
under any agreement, instrument, lease, mortgage, bond or indenture to which
such Pledgor is a party or subject or to which any of its assets are subject;
(c) conflict with such Pledgor’s articles or certificate of incorporation,
by-laws, or other organizational or charter documents; or (d) subject to receipt
of the NGC approvals, conflict with any law, regulation or judicial order
binding on such Pledgor or any of the Pledged Collateral.

 

3.05                           Title to Collateral.  Such Pledgor is the legal
and beneficial owner of the Pledged Collateral of such Pledgor free and clear of
any Lien, except for Permitted Liens described in clauses (b) and (e) of the
definition thereof. Such Pledgor has not filed or consented to the filing of (a)
any financing statement or analogous document under the UCC or any other
applicable laws covering any Pledged Collateral, (b) any assignment in which the
Pledgor assigns any Pledged Collateral or any security agreement or similar
instrument covering any Pledged Collateral with any foreign governmental,
municipal or other office, which financing statement or analogous document,
assignment, security agreement or similar instrument is still in effect.

 

3.06                           Pledged Collateral.  Set forth on Schedule 2
hereto is a complete and accurate list of all Pledged Equity and Pledged Debt as
of the date hereof.

 

57

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3.07                           Percentage Ownership of Pledged Equity.  The
Pledged Equity of each issuer specifically identified on Schedule 2 hereto
constitutes, and until all Obligations (other than contingent obligations for
which no claim has been made) have been irrevocably paid in cash and performed
in full shall continue to constitute, the percentage of the outstanding equity
of each such issuer as indicated on Schedule 2 hereto.

 

3.08                           Amount of Pledged Debt.  As of the date hereof,
the Pledged Debt identified on Schedule 2 hereto constitutes all of the
outstanding Indebtedness described in clauses (a) and (d) of the definition
thereof owed to such Pledgor by the maker thereof and is outstanding in the
principal amount indicated on Schedule 2 hereto.

 

3.09                           Due Authorization, Etc., of Stock; Not Margin
Stock.  The Pledged Securities listed on Schedule 2 hereto have been duly
authorized and validly issued and (to the extent applicable) are fully paid and
non-assessable and are not subject to any options to purchase or similar rights
of any person, and none of the Pledged Securities constitutes Margin Stock.

 

3.10                           Required Consents.  Except as may be required in
connection with any disposition of any portion of the Pledged Securities by laws
affecting the offering and sale of securities generally and except for the NGC
Approvals, no consent of any person (including, without limitation, partners,
shareholders or creditors of such Pledgor or of any subsidiary of such Pledgor)
and no license, permit, approval or authorization of, exemption by, notice or
report to, or registration, filing (except as provided under applicable law with
respect to the filing of amended financing statements or continuation
statements) or declaration with, any governmental instrumentality is required in
connection with (i) the execution, delivery, performance, validity or
enforceability of this Pledge Agreement, (ii) the perfection or maintenance of
the Security Interest created hereby (including the first priority nature
(subject to Permitted Liens) of such Security Interest), or (iii) the exercise
by Secured Party of the rights provided for in this Pledge Agreement.

 

3.11                           Nature of Security Interest.  Upon the delivery
of the Pledged Securities to Secured Party properly endorsed for transfer to the
Secured Party in blank (or accompanied by duly executed instruments of transfer
or assignment in blank), the pledge of the Pledged Collateral pursuant to this
Pledge Agreement creates a valid and perfected first priority Security Interest
in the Pledged Collateral, securing the prompt and complete payment, performance
and observance of the Obligations.

 

Section 4                                               COVENANTS OF PLEDGORS.

 

4.01                           Pledgor’s Legal Status.  No Pledgor shall change
its type of organization, jurisdiction of organization or other legal structure.

 

4.02                           Pledgor’s Name.  Without providing at least ten
(10) days prior written notice to Secured Party, no Pledgor shall change its
name.

 

4.03                           Pledgor’s Organizational Number.  Without
providing at least ten (10) days prior written notice to Secured Party, no
Pledgor shall change its organizational identification number if it has one.  If
such Pledgor does not have an organizational identification

 

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number and later obtains one, such Pledgor shall forthwith notify Secured Party
of such organizational identification number.

 

4.04                           Restriction on Certain Changes Affecting
Collateral.  No Pledgor shall, without the prior written consent of Secured
Party, adjust, settle or compromise the amount or payment of any material
Pledged Debt, release wholly or partly any obligor upon any Pledged Debt, or
allow any credit or discount thereon.

 

4.05                           Title to Collateral.  (a) Except for the Security
Interest herein granted, such Pledgor shall be the owner of the Pledged
Collateral of such Pledgor free from any Lien (other than any Permitted Liens
described in clauses (b) and (e) of the definition thereof), and such Pledgor,
at its sole cost and expense, shall defend the same against all claims and
demands of all persons at any time claiming the same or any interests therein
materially adverse to Secured Party; and (b) such Pledgor shall not sell or
otherwise dispose of, or pledge, mortgage or create, or suffer to exist a Lien
on, the Pledged Collateral in favor of any person other than Secured Party and
the inclusion of “proceeds” of the Pledged Collateral under the Security
Interest granted herein shall not be deemed a consent by Secured Party to any
sale or other disposition of any Pledged Collateral.

 

4.06                           [Reserved].

 

4.07                           Further Assurances.  Such Pledgor will, from time
to time, at its expense, promptly execute and deliver all further instruments
and documents and take all further action that may be necessary, or that Secured
Party may reasonably request, in order to perfect and protect any Security
Interest granted or purported to be granted hereby or to enable Secured Party to
exercise and enforce its rights and remedies hereunder with respect to any
Pledged Collateral.

 

Section 5                                               VOTING RIGHTS AND
CERTAIN PAYMENTS

 

5.01                           Voting Rights Prior to an Event of Default.  So
long as no Event of Default shall have occurred and be continuing (or, for the
avoidance of doubt, immediately upon the cure or waiver of any Event of Default
in accordance with terms of the Bridge Loan Agreement), each Pledgor shall be
entitled to exercise, as it shall think fit, but in a manner not inconsistent
with the terms hereof, the voting power with respect to the Pledged Collateral
of such Pledgor, and for that purpose Secured Party shall (if any Pledged
Securities shall be registered in the name of Secured Party or its nominee)
execute or cause to be executed from time to time, at the expense of such
Pledgor, such proxies or other instruments in favor of such Pledgor or its
nominee, in such form and for such purposes as shall be reasonably required by
such Pledgor and shall be specified in a written request therefor, to enable it
to exercise such voting power with respect to the Pledged Securities.

 

5.02                           Payments and Distributions.

 

(a)                      Upon the occurrence and during the continuance of an
Event of Default, in case any payments, proceeds, dividends, distributions,
monies, compensation, property, assets, instruments or rights upon or with
respect to any of the Pledged Collateral is paid or payable (including, without
limitation, cash paid with respect to the principal of, or in

 

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redemption or exchange of, any Pledged Debt), then and in any such event,
subject to applicable Gaming Laws, such sum shall be paid by the applicable
Pledgor over to Secured Party promptly, and in any event within ten (10) days
after receipt thereof, to be held by Secured Party as additional collateral
hereunder.

 

(b)                     In case any stock dividend shall be declared with
respect to any of the Pledged Collateral, or any shares of stock or fractions
thereof shall be issued pursuant to any stock split involving any of the Pledged
Collateral, or any distribution of capital shall be made on any of the Pledged
Collateral, or any shares, obligations or other property shall be distributed
upon or with respect to the Pledged Collateral, in each case pursuant to a
recapitalization or reclassification of the capital of the issuer thereof, or
pursuant to the dissolution, liquidation (in whole or in part), bankruptcy or
reorganization of such issuer, or to the merger or consolidation of such issuer
with or into another corporation, the shares, obligations or other property so
distributed and to the extent certificated (and subject to applicable Gaming
Laws) shall be delivered by the applicable Pledgor to Secured Party promptly,
and in any event within ten (10) days after receipt thereof, to be held by
Secured Party as additional collateral hereunder subject to the terms of this
Pledge Agreement, and all of the same shall constitute Pledged Collateral for
all purposes hereof.

 

5.03                           Voting Rights and Ordinary Payments After an
Event of Default.  Upon the occurrence and during the continuance of any Event
of Default, all rights of each Pledgor to exercise or refrain from exercising
the voting and other consensual rights that it would otherwise be entitled to
exercise pursuant to Section 5.01 hereof shall cease, and thereupon, subject to
applicable Gaming Laws, Secured Party shall be entitled to exercise all voting
power with respect to the Pledged Securities during such Event of Default and
otherwise to act with respect to the Pledged Collateral as outright owner
thereof.

 

5.04                           Exercise of Remedies Relating to Pledged Debt. 
No Pledgor shall accelerate, demand, sue for, collect, enforce any claim for or
set off with respect to principal, premium, interest or any other amount
constituting or payable with respect to Pledged Debt, foreclose any Lien
securing Pledged Debt or otherwise exercise any remedy under the Pledged Debt or
otherwise available to it with respect thereto (including filing, taking or
maintaining any proceeding under any Debtor Relief Law against or with respect
to the obligor under any Pledged Debt) or take any other action against any
obligor under any Pledged Debt or the property of such obligor with respect to
such Pledged Debt, without Secured Party’s prior written consent (which consent
shall not be unreasonably withheld, conditioned or delayed); provided that such
Pledgor may take any of the foregoing actions in the ordinary course of business
consistent with past practice that involve only amounts not in excess of $25,000
individually or $50,000 in the aggregate; and provided further that such Pledgor
shall file a proof of claim in respect of the Pledged Debt in any proceeding
under any Debtor Relief Law or any similar proceeding as and when required
therein.  So long as an Event of Default shall exist, Secured Party, upon notice
to such Pledgor, shall have the right to exercise any or all of the foregoing
rights and remedies and to hold as Pledged Collateral any and all cash and other
property received in connection therewith.

 

Section 6                                               ALL PAYMENTS IN TRUST. 
All payments, proceeds, dividends, distributions, monies, compensation,
property, assets, instruments

 

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or rights that are received by any pledgor contrary to the provisions of Section
5 hereof shall be received and held in trust for the benefit of secured party,
shall be segregated by such pledgor from other funds of such pledgor and shall
be forthwith paid over to secured party as pledged collateral in the same form
as so received (with any necessary endorsement).

 

Section 7                                               EXPENSES.  Pledgors
shall pay all expenses incurred by secured party in connection with the
amendment, waiver, renegotiation, enforcement or collection of this pledge
agreement or the exercise of remedies hereunder, including, without limitation,
reasonable attorney’s fees, advertising costs, fees and expenses of advisors and
investment bankers and other experts, on the same basis the borrower has agreed
to pay such costs and expenses as set forth in Section 10(c) of the bridge loan
agreement.  If any pledgor fails promptly to pay any portion of the above
expenses when due or to perform any other obligation of such pledgor under this
pledge agreement, secured party may, at its option, but shall not be required
to, pay or perform the same and charge such pledgor for all costs and expenses
incurred therefor, and such pledgor agrees to reimburse secured party therefor
on demand.  All sums so paid or incurred by secured party for any of the
foregoing, any and all other sums for which any pledgor may become liable
hereunder and all such costs and expenses incurred by secured party in enforcing
or protecting the security interests created under this pledge agreement (the
“security interests”) or any of its rights or remedies under this pledge
agreement shall be payable by pledgor on demand, shall constitute obligations,
shall bear interest until paid at a rate of 14.5% per annum, calculated on the
basis of a 360-day year and actual days elapsed.

 

Section 8                                               REMEDIES.

 

8.01                           Disposition Upon Default and Related Provisions.

 

(a)                      Upon the occurrence and during the continuance of an
Event of Default, and subject to applicable Gaming Laws, Secured Party may
exercise in respect of the Pledged Collateral, in addition to other rights and
remedies provided for herein or otherwise available to it, all rights of voting,
exercise and conversion with respect to the Pledged Collateral and all of the
rights and remedies of a secured party on default under the UCC at that time
(whether or not applicable to the affected Pledged Collateral) and may also,
without obligation to resort to other security, at any time and from time to
time sell, resell, assign and deliver, in its sole discretion, all or any of the
Pledged Collateral, in one or more parcels at the same or different times, and
all right, title and interest, claim and demand therein and right of redemption
thereof, on any securities exchange on which any Pledged Collateral may be
listed, or at public or private sale, for cash, upon credit or for future
delivery, and in connection therewith Secured Party may grant options.

 

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(b)                     If any of the Pledged Collateral is sold by Secured
Party upon credit or for future delivery, Secured Party shall not be liable for
the failure of the purchaser to purchase or pay for the same and, in the event
of any such failure, Secured Party may resell such Pledged Collateral. In no
event shall Pledgor be credited with any part of the proceeds of sale of any
Pledged Collateral until cash payment therefor has actually been received by
Secured Party.

 

(c)                      Secured Party may purchase any Pledged Collateral at
any public sale and, if any Pledged Collateral is of a type customarily sold in
a recognized market or is of the type that is the subject of widely distributed
standard price quotations, Secured Party may purchase such Pledged Collateral at
private sale, and in each case may make payment therefor by any means,
including, without limitation, by release or discharge of Obligations in lieu of
cash payment.

 

(d)                     Each Pledgor recognizes that Secured Party may be unable
to effect a public sale of all or part of the Pledged Collateral consisting of
securities by reason of certain prohibitions contained in the Securities Act of
1933, as amended (the “Securities Act”), or in applicable Blue Sky or other
state securities laws, as now or hereafter in effect, but may be compelled to
resort to one or more private sales to a restricted group of purchasers who will
be obliged to agree, among other things, to acquire such securities for their
own account, for investment and not with a view to the distribution or resale
thereof. Each Pledgor agrees that any such Pledged Collateral sold at any such
private sale may be sold at a price and upon other terms less favorable to the
seller than if sold at public sale and that each such private sale shall be
deemed to have been made in a commercially reasonable manner.  Secured Party
shall have no obligation to delay the sale of any such securities for the period
of time necessary to permit the issuer of such securities, even if such issuer
would agree, to register such securities for public sale under the Securities
Act.  Each Pledgor agrees that private sales made under the foregoing
circumstances shall be deemed to have been made in a commercially reasonable
manner.

 

(e)                      No demand, advertisement or notice, all of which are
hereby expressly waived, shall be required in connection with any sale or other
disposition of any part of the Pledged Collateral that threatens to decline
speedily in value or that is of a type customarily sold on a recognized market;
otherwise Secured Party shall give Pledgors at least ten days’ prior notice of
the time and place of any public sale and of the time after which any private
sale or other disposition is to be made, which notice each Pledgor agrees is
commercially reasonable.

 

(f)                        Secured Party shall not be obligated to make any sale
of Pledged Collateral if it shall determine not to do so, regardless of the fact
that notice of sale may have been given. Secured Party may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for
sale, and such sale may, without further notice, be made at the time and place
to which the same was so adjourned

 

(g)                     In addition, during the existence of an Event of
Default, Secured Party or its employees or agents may, without notice to any
Pledgor and at such time or times as Secured Party in its discretion may
determine, in any Pledgor’s or in Secured Party’s name, collect any and all
amounts due to any Pledgor from obligors with respect to any Pledged Debt by
legal proceedings or otherwise;

 

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(h)                     The remedies provided herein in favor of Secured Party
shall not be deemed exclusive, but shall be cumulative, and shall be in addition
to all other remedies in favor of Secured Party existing at law or in equity.

 

(i)                         To the extent that applicable law imposes duties on
Secured Party to exercise remedies in a commercially reasonable manner, each
Pledgor acknowledges and agrees that it is not commercially unreasonable for
Secured Party (i) to advertise dispositions of Pledged Collateral through
publications or media of general circulation; (ii) to contact other persons,
whether or not in the same business as Pledgors, for expressions of interest in
acquiring all or any portion of the Pledged Collateral; (iii) to hire one or
more professional auctioneers to assist in the disposition of Pledged
Collateral; (iv) to dispose of Pledged Collateral by utilizing Internet sites
that provide for the auction of assets of the types included in the Pledged
Collateral or that have the reasonable capability of doing so, or that match
buyers and sellers of assets; (v) to disclaim disposition warranties, or (vi) to
the extent deemed appropriate by Secured Party, to obtain the services of
brokers, investment bankers, consultants and other professionals to assist
Secured Party in the disposition of any of the Pledged Collateral. Each Pledgor
acknowledges that the purpose of this clause (i) is to provide non-exhaustive
indications of what actions or omissions by Secured Party would not be
commercially unreasonable in Secured Party’s exercise of remedies against the
Pledged Collateral and that other actions or omissions by Secured Party shall
not be deemed commercially unreasonable solely on account of not being indicated
in this clause (i).  Without limiting the foregoing, nothing contained in this
clause (i) shall be construed to grant any rights to any Pledgor or to impose
any duties on Secured Party that would not have been granted or imposed by this
Pledge Agreement or by applicable law in the absence of this clause (i).

 

8.02                           Secured Party Appointed Attorney-in-Fact

 

(a)                      To effectuate the terms and provisions hereof, subject
to applicable Gaming Laws, each Pledgor hereby appoints Secured Party as
Pledgor’s attorney-in-fact for the purpose, from and after the occurrence and
during the continuance of an Event of Default, of carrying out the provisions of
this Pledge Agreement and taking any action and executing any instrument that
Secured Party from time to time in Secured Party’s reasonable discretion may
deem necessary or advisable to accomplish the purposes of this Pledge
Agreement.  Without limiting the generality of the foregoing, Secured Party
shall, upon the occurrence and during the continuance of an Event of Default,
have the right and power to:

 

(i)                                     receive, endorse and collect all checks
and other orders for the payment of money made payable to such Pledgor
representing any interest or dividend or other distribution or amount payable in
respect of the Pledged Collateral or any part thereof and to give full discharge
for the same;

 

(ii)                                  execute endorsements, assignments or other
instruments of conveyance or transfer with respect to all or any of the Pledged
Collateral;

 

(iii)                               exercise all rights of such Pledgor as owner
of the Pledged Collateral including, without limitation, the right to sign any
and all amendments, instruments, certificates, proxies, and other writings
necessary or advisable to exercise all rights and

 

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privileges of (or on behalf of) the owner of the Pledged Collateral, including,
without limitation, all voting rights with respect to the Pledged Securities;

 

(iv)                              ask, demand, collect, sue for, recover,
compound, receive and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Pledged Collateral;

 

(b)                     file any claims or take any action or institute any
proceedings that Secured Party may deem necessary or desirable for the
collection of any of the Pledged Collateral or otherwise to enforce the rights
of Secured Party with respect to any of the Pledged Collateral; and

 

(i)                                     generally to sell, transfer, pledge,
make any agreement with respect to or otherwise deal with any of the Pledged
Collateral as fully and completely as though Secured Party were the absolute
owner thereof for all purposes, and to do, at Secured Party’s option and such
Pledgor’s expense, at any time or from time to time, all acts and things that
Secured Party deems reasonably necessary to protect, preserve or realize upon
the Pledged Collateral.

 

(c)                      each Pledgor hereby ratifies and approves all acts of
Secured Party made or taken pursuant to this Section 8.02 (provided, that such
Pledgor does not, by virtue of such ratification, release any claim that such
Pledgor may otherwise have against Secured Party for any such acts made or taken
by Secured Party through gross negligence, willful misconduct or bad faith).
Neither Secured Party nor any person designated by Secured Party shall be liable
for any acts or omissions or for any error of judgment or mistake of fact or
law, except such as may result from Secured Party’s gross negligence, bad faith
or willful misconduct.  This power, being coupled with an interest, is
irrevocable so long as this Pledge Agreement shall remain in force.

 

8.03                           Secured Party’s Duties of Reasonable Care.

 

(a)                      Secured Party shall have the duty to exercise
reasonable care in the custody and preservation of any Pledged Collateral in its
possession, which duty shall be fully satisfied if such Pledged Collateral is
accorded treatment substantially equal to that which Secured Party accords its
own property and, upon exercise of any of Secured Party’s rights under Section
5, with respect to any calls, conversions, exchanges, redemptions, offers,
tenders or similar matters relating to any such Pledged Collateral (herein
called “events “),

 

(i)                                     Secured Party exercises reasonable care
to ascertain the occurrence and to give reasonable notice to Pledgors of any
events applicable to any Pledged Securities that are registered and held in the
name of Secured Party or its nominee,

 

(ii)                                  Secured Party gives Pledgors reasonable
notice of the occurrence of any events of which Secured Party has received
actual knowledge, which events are applicable to any securities that are in
bearer form or are not registered and held in the name of Secured Party or its
nominee (each Pledgor agreeing to give Secured Party reasonable notice of the
occurrence of any events of which such Pledgor has knowledge, which events are
applicable to any securities in the possession of Secured Party), and

 

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(iii)                               Secured Party endeavors to take such action
with respect to any of the events as any Pledgor may reasonably and specifically
request in writing in sufficient time for such action to be evaluated and taken
or, if Secured Party reasonably believes that the action requested would
adversely affect the value of the Pledged Collateral as collateral or the
collection of the Obligations, or would otherwise prejudice the interests of
Secured Party, Secured Party gives reasonable notice to such Pledgor that any
such requested action will not be taken and, if Secured Party makes such
determination or if such Pledgor fails to make such timely request, Secured
Party takes such other action as it deems advisable in the circumstances.

 

(iv)                              Except as hereinabove specifically set forth,
Secured Party shall have no further obligation to ascertain the occurrence of,
or to notify any Pledgor with respect to, any events and shall not be deemed to
assume any such further obligation as a result of the establishment by Secured
Party of any internal procedures with respect to any securities in its
possession, nor shall Secured Party be deemed to assume any other responsibility
for, or obligation or duty with respect to, any Pledged Collateral or its use of
any nature or kind, or any matter or proceedings arising out of or relating
thereto, including, without limitation, any obligation or duty to take any
action to collect, preserve or protect its or any Pledgor’s rights in the
Pledged Collateral or against any prior parties thereto, but the same shall be
at such Pledgor’s sole risk and responsibility at all times.

 

8.04                           Indemnification.  Pledgor hereby releases Secured
Party and the officers, shareholders, members, directors, employees and agents
thereof (each, an “Indemnified Party”) from any claims, causes of action and
demands at any time arising out of or with respect to this Pledge Agreement, the
Obligations, the Pledged Collateral and its use and/or any actions taken or
omitted to be taken by such Indemnified Party with respect thereto (except such
claims, causes of action and demands arising from the bad faith, gross
negligence or willful misconduct of such Indemnified Party) and Pledgor hereby
agrees to hold each Indemnified Party harmless from and with respect to any and
all such claims, causes of action and demands (except such claims, causes of
action and demands arising from the gross negligence or willful misconduct or
bad faith of such Indemnified Party).

 

8.05                           Prior Recourse.  Secured Party’s prior recourse
to any Pledged Collateral shall not constitute a condition of any demand, suit
or proceeding for payment or collection of the Obligations.

 

8.06                           Secured Party May Perform.  If Pledgor fails to
perform any agreement contained herein, Secured Party may itself perform or
cause performance of such agreement, and the expenses of Secured Party incurred
in connection therewith shall be treated as provided in Section 7 hereof.

 

Section 9                                               SURETYSHIP WAIVERS BY
PLEDGORS; OBLIGATIONS ABSOLUTE.

 

(a)                      Each Pledgor waives demand, notice, protest, notice of
acceptance of this Pledge Agreement, notice of loans made, credit extended,
collateral received or delivered or other action taken in reliance hereon and
all other demands and notices of any description. thereof, all in such manner
and at such time or times as the Secured Party may deem advisable.  The Secured
Party shall have no duty as to the collection or protection of the Pledged
Collateral

 

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or any income thereon, nor as to the preservation of rights against prior
parties, nor as to the preservation of any rights pertaining thereto beyond the
safe custody thereof as set forth in Section 8.03.

 

(b)                     All rights of the Secured Party hereunder, the Security
Interests and all obligations of each Pledgor hereunder shall be absolute and
unconditional irrespective of (i) any lack of validity or enforceability of the
Bridge Loan Agreement, any other Loan Document, any agreement with respect to
any of the Obligations or any other agreement or instrument relating to any of
the foregoing, (ii) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to any departure from the Bridge Loan Agreement, any
other Loan Document, or any other agreement or instrument, (iii) any exchange,
release or non-perfection of any Lien on other collateral, or any release or
amendment or waiver of or consent under or departure from or any acceptance of
partial payment thereon and or settlement, compromise or adjustment of any
Secured Obligation or of any guarantee, securing or guaranteeing all or any of
the Obligations, or (iv) any other circumstance that might otherwise constitute
a defense (other than defense of payment) available to, or a discharge of, such
Pledgor in respect of the or this Pledge Agreement.

 

Section 10                                         MARSHALLING.  Secured party
shall not be required to marshal any present or future collateral security
(including but not limited to this pledge agreement and the pledged collateral)
for, or other assurances of payment of, the obligations or any of them or to
resort to such collateral security or other assurances of payment in any
particular order, and all of its rights hereunder and in respect of such
collateral security and other assurances of payment shall be cumulative and in
addition to all other rights, however existing or arising.  To the extent that
it lawfully may, each pledgor hereby agrees that it shall not invoke any law
relating to the marshalling of collateral which might cause delay in or impede
the enforcement of secured party’s rights under this pledge agreement or under
any other instrument creating or evidencing any of the obligations or under
which any of the obligations is outstanding or by which any of the obligations
is secured or payment thereof is otherwise assured, and, to the extent that it
lawfully may, each pledgor hereby irrevocably waives the benefits of all such
laws.

 

Section 11                                         PROCEEDS OF DISPOSITIONS. 
Any proceeds of collection or sale of the obligations or collateral shall, to
the extent actually received in cash, be applied to the payment of the remaining
obligations first, to pay all advances, charges, costs and expenses payable to
secured party pursuant to the loan documents (including, without limitation,
pursuant to Section 7), including all amounts payable to secured party in
connection with any indemnity under the loan documents (including without
limitation Section 8.04 hereof and Section 10 of the bridge loan agreement), and
second, for

 

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application against or on account of the remaining obligations, proper allowance
and provision being made for any obligations not then due or held as additional
collateral.  Upon the final payment and satisfaction in full of all of the
obligations (other than contingent indemnification obligations for which no
claim has been made) and the termination of the secured party’s commitment to
make loans under the bridge loan agreement and after making any payments
required by Sections 9-608(a)(1)(c) or 9-615(a)(3) of the ucc, any excess shall
be returned to pledgors, and in any event pledgors shall remain liable for any
deficiency in the payment of the obligations.

 

Section 12                                         REINSTATEMENT.  The
obligations of pledgors pursuant to this pledge agreement shall continue to be
effective or automatically be reinstated, as the case may be, if at any time
payment of any of the obligations is rescinded or otherwise must be restored or
returned by secured party upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of any pledgor or any other obligor or otherwise,
all as though such payment had not been made.

 

Section 13                                         MISCELLANEOUS.

 

13.01                     Notices.   All notices and other communications
provided for hereunder shall be in writing and shall be sent in accordance with
Section 19 of the Bridge Loan Agreement.

 

13.02                     Governing Law.  This Pledge Agreement and the
transactions contemplated hereby, and all disputes between the parties under or
relating to this Pledge Agreement or the facts and circumstances leading to its
execution, whether in contract, tort or otherwise, shall be construed in
accordance with and governed by the laws (including statutes of limitation) of
the State of New York, without regard to conflicts of law principles that would
require the application of the laws of another jurisdiction.  Notwithstanding
the foregoing, this Pledge Agreement is subject to Gaming Laws to the extent
applicable.

 

13.03                     Termination.  Upon (i) the indefeasible payment in
full in cash of the Obligations (other than contingent indemnification
obligations for which no claim has been made) and (ii) the termination in full
in cash of the Commitments, the security interest granted hereby shall terminate
and all rights to the Collateral shall revert to the applicable Pledgor;
provided that all indemnities set forth herein including, without limitation, in
Section 8.04 hereof, shall survive any such termination. Upon any such
termination as contemplated in this Section 13.03, the Secured Party will, at
the applicable Pledgor’s expense, execute and deliver to such Pledgor such
documents as such Pledgor shall reasonably request to evidence such termination.

 

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13.04                     Counterparts. This Pledge Agreement may be executed in
two or more separate counterparts, each of which shall constitute an original
and all of which shall collectively and separately constitute one and the same
agreement.

 

13.05                     Headings.  The headings of each section of this Pledge
Agreement are for convenience only and shall not define or limit the provisions
thereof.

 

13.06                     No Strict Construction.  The parties hereto have
participated jointly in the negotiation and drafting of this Pledge Agreement. 
In the event an ambiguity or question of intent or interpretation arises, this
Pledge Agreement shall be construed as if drafted jointly by the parties hereto
and no presumption or burden of proof shall arise favoring or disfavoring any
party by virtue of the authorship of any provisions of this Pledge Agreement.

 

13.07                     Severability.  In the event any one or more of the
provisions contained in this Pledge Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision in a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction).

 

13.08                     Survival of Agreement.  All covenants, agreements,
representations and warranties made by the Pledgor herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Pledge Agreement shall be considered to have been relied upon
by the Secured Party and shall survive the execution and delivery of the Bridge
Loan Agreement and the advance of all extensions of credit contemplated thereby,
regardless of any investigation made by the Secured Party, and shall continue in
full force and effect until this Pledge Agreement shall terminate (or thereafter
to the extent expressly provided herein).

 

13.09                     Binding Effect; Several Agreement.  This Pledge
Agreement is binding upon the Pledgors and the Secured Party and their
respective successors and assigns, and shall inure to the benefit of the
Pledgor, the Secured Party and their respective successors and assigns, except
that each party’s right to assign or transfer its rights or obligations
hereunder or any interest herein shall be in accordance with Section 18 of the
Bridge Loan Agreement.

 

13.10                     Waivers; Amendment.

 

(a)                      No failure or delay of the Secured Party in exercising
any power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power.  The
rights and remedies of the Secured Party hereunder and of the Secured Party
under the other Loan Documents are cumulative and are not exclusive of any
rights or remedies that they would otherwise have.  No waiver of any provisions
of this Pledge Agreement or consent to any departure by any Pledgor therefrom
shall in any event be effective unless the same shall be permitted by paragraph
(b) below, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given.  No notice to or demand
on any Pledgor in

 

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any case shall entitle such Pledgor to any other or further notice or demand in
similar or other circumstances.

 

(b)                     Neither this Pledge Agreement nor any provision hereof
may be waived, amended or modified except pursuant to an agreement or agreements
in writing entered into by the Secured Party and the Pledgors in accordance with
Section 23 of the Bridge Loan Agreement.

 

Section 13.11                          Gaming Approvals.  Notwithstanding
anything to the contrary set forth in this Pledge Agreement, Secured Party
acknowledges that:

 

(a)                                  to the extent the Pledged Equity includes
stock or member’s interests in an entity or entities licensed by or registered
with the Nevada Gaming Authorities, the pledge of such Pledged Equity under this
Pledge Agreement and any restrictions on transfer or agreements not to encumber
such Pledged Equity hereunder shall not be effective without the prior approval
of the Nevada Gaming Authorities, and the relevant Pledgor may not deliver to
Secured Party or its agent in Nevada any certificates evidencing such Pledged
Equity until such approval has been obtained;

 

(b)                                 any amendment of this Pledge Agreement shall
not be effective without the approval of the applicable Nevada Gaming
Authorities;

 

(c)                                  Secured Party shall be required to maintain
the certificates evidencing the Pledged Equity of any gaming licensee or
registered company at a location in Nevada provided to the Nevada Gaming
Authorities, and Secured Party shall permit agents or employees of the Nevada
Gaming Authorities to inspect such certificates upon request during normal
business hours; and

 

(d)                                 the exercise by Secured Party of certain of
its rights and remedies hereunder, including foreclosure or transfer of any
interest in such Pledged Equity (except back to the relevant Pledgor), the
exercise of certain voting and consensual rights, and enforcement of the
security interest in such Pledged Equity, such action may require the approval
of the applicable Nevada Gaming Authorities unless such requirement is waived
thereby.

 

[signature page follows]

 

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IN WITNESS WHEREOF, intending to be legally bound, each of the undersigned
Pledgors has caused this Pledge Agreement to be duly executed as of the date
first above written.

 

PLEDGORS:

 

American Wagering, Inc.

 

Computerized Bookmaking Systems, Inc.

 

 

 

 

 

 

 

 

By:

/s/ Victor Salerno

 

By:

/s/ Victor Salerno

Name:

Victor Salerno

 

Name:

Victor Salerno

Its:

President

 

Its:

President

 

 

 

 

 

Leroy’s Horse & Sports Place, Inc.

 

AWI Manufacturing, Inc.

 

 

 

 

 

 

 

 

 

 

By:

/s/ Victor Salerno

 

By:

/s/ Victor Salerno

Name:

Victor Salerno

 

Name:

Victor Salerno

Its:

President

 

Its:

President

 

 

 

 

 

ExactGeo Media, LLC

 

Sports Mobile Fantasy, LLC

 

 

 

 

 

 

 

 

 

 

By:

/s/ Thomas Willer

 

By:

/s/ John Salerno

Name:

Thomas Willer

 

Name:

John Salerno

Its:

Manager

 

Its:

Manager

 

 

Accepted and Agreed:

 

William Hill Holdings Limited,

as Secured Party

 

By:

/s/ Neil Cooper

 

 

 

Name:

Neil Cooper

 

 

 

Its:

Director

 

 

 

 

Signature Page to Pledge Agreement

 

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

 

EXHIBIT C

 

FORM OF SECURITY AGREEMENT

 

[See Attached]

 

Signature Page to Pledge Agreement

 

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

 

SECURITY AGREEMENT

 

This SECURITY AGREEMENT (“Security Agreement”) is entered into on April 13, 2011
(the “Effective Date”) by and between American Wagering, Inc., a Nevada
corporation (“Company”), and the other persons listed on the signature pages
hereof (the Company and the persons so listed being, collectively, “Grantors”
and each, a “Grantor”), and William Hill Holdings Limited, a private limited
company formed under the laws of England and Wales (“Secured Party”).

 

RECITALS

 

WHEREAS, Grantors have entered into a Bridge Loan Agreement dated as of the date
hereof (as amended, supplemented, restated or otherwise modified and in effect
from time to time, the “Bridge Loan Agreement”), with Secured Party, pursuant to
which, among other things, Secured Party has agreed to make loans to Company
upon the terms and subject to the conditions specified in the Bridge Loan
Agreement;

 

WHEREAS, in order to secure all of their respective Obligations under the Loan
Documents, Grantors have agreed to execute and deliver to Secured Party a
security agreement in substantially the form hereof;

 

WHEREAS, terms defined in the Bridge Loan Agreement and not otherwise defined in
this Security Agreement are used in this Security Agreement as defined in the
Bridge Loan Agreement.  Further, unless otherwise defined in this Security
Agreement or in the Bridge Loan Agreement, terms defined in Article 8 or 9 of
the UCC (as defined below) are used in this Security Agreement as such terms are
defined in such Article 8 or 9. “UCC” means the Uniform Commercial Code as in
effect, from time to time, in the State of New York; provided that, if
perfection or the effect of perfection or non-perfection or the priority of the
security interest in any Collateral is governed by the Uniform Commercial Code
as in effect in a jurisdiction other than the State of New York, “UCC” means the
Uniform Commercial Code as in effect from time to time in such other
jurisdiction for purposes of the provisions hereof relating to such perfection,
effect of perfection or non-perfection or priority.

 

NOW, THEREFORE, in consideration of the promises and for other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:

 

1.                                       Grant of Security Interest.

 

(a)                                  To secure the payment or performance, as
the case may be, in full of the Obligations, whether at stated maturity, by
acceleration or otherwise, each Grantor hereby grants to Secured Party a first
priority Lien (subject to Permitted Liens) upon such Grantor’s right, title and
interest in and to the following, in each case, as to each type of property
described below, whether now owned or hereafter acquired by such Grantor,
wherever located, and whether now or hereafter existing or arising
(collectively, the “Collateral”):

 

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

 

(i)                                     all accounts (including, without
limitation, health-care-insurance receivables), accounts receivable, deposit
accounts, letter-of-credit rights, agreements, documents, instruments, general
intangibles (including, without limitation, payment intangibles) and other
obligations of any kind, whether or not arising out of or in connection with the
sale or lease of goods or the rendering of services and whether or not earned by
performance, and all rights now or hereafter existing in and to all supporting
obligations and in and to all security agreements, mortgages, Liens, leases,
letters of credit and other contracts securing or otherwise relating to the
foregoing property;

 

(ii)                                  chattel paper (including, without
limitation, tangible chattel paper and electronic chattel paper);

 

(iii)                               all equipment in all of its forms,
including, without limitation, all machinery, tools, motor vehicles, vessels,
aircraft, furniture and fixtures, and all parts thereof and all accessions
thereto, including, without limitation, computer programs and supporting
information that constitute equipment within the meaning of the UCC;

 

(iv)                              all goods and inventory in all of its forms,
including, without limitation, (A) all raw materials, work in process, finished
goods and materials used or consumed in the manufacture, production, preparation
or shipping thereof, (B) goods in which such Grantor has an interest in mass or
a joint or other interest or right of any kind (including, without limitation,
goods in which such Grantor has an interest or right as consignee) and (C) goods
that are returned to or repossessed or stopped in transit by such Grantor, and
all accessions thereto and products thereof and documents therefor, including,
without limitation, computer programs and supporting information that constitute
inventory within the meaning of the UCC;

 

(v)                                 the following (collectively, the
“Intellectual Property Collateral”):

 

(1)                                  all patents, patent applications, utility
models and statutory invention registrations, all inventions claimed or
disclosed therein and all improvements thereto (“Patents”);

 

(2)                                  all trademarks, service marks, domain
names, trade dress, logos, designs, slogans, trade names, business names,
corporate names and other source identifiers, whether registered or
unregistered, together, in each case, with the goodwill symbolized thereby
(“Trademarks”);

 

(3)                                  all copyrights, including, without
limitation, copyrights in Computer Software (as hereinafter defined), internet
web sites and the content thereof, whether registered or unregistered
(“Copyrights”);

 

(4)                                  all computer software, programs and
databases (including, without limitation, source code, object code and all
related applications and data files), firmware and documentation and materials
relating thereto, together

 

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with any and all maintenance rights, service rights, programming rights, hosting
rights, test rights, improvement rights, renewal rights and indemnification
rights and any substitutions, replacements, improvements, error corrections,
updates and new versions of any of the foregoing (“Computer Software”);

 

(5)                                  all confidential and proprietary
information, including, without limitation, know-how, trade secrets,
manufacturing and production processes and techniques, inventions, research and
development information, databases and data, including, without limitation,
technical data, financial, marketing and business data, pricing and cost
information, business and marketing plans and customer and supplier lists and
information (collectively, “Trade Secrets”), and

 

(6)                                  all other intellectual, industrial and
intangible property of any type, including, without limitation, industrial
designs and mask works;

 

(7)                                  all registrations and applications for
registration for any of the foregoing, including, without limitation, those
registrations and applications for registration set forth in Schedule 2 hereto
(as such Schedule 2 may be supplemented from time to time), together with all
reissues, divisions, continuations, continuations-in-part, extensions, renewals
and reexaminations thereof;

 

(8)                                  all tangible embodiments of the foregoing,
all rights in the foregoing provided by international treaties or conventions,
all rights corresponding thereto throughout the world and all other rights of
any kind whatsoever of such Grantor accruing thereunder or pertaining thereto;

 

(9)                                  all written agreements to which any Grantor
is a party and pursuant to which any Grantor is a licensee of any rights under
any intellectual property owned by any third party and all rights of any Grantor
with respect to such agreements, including, without limitation, the agreements
set forth on Schedule 2 hereto (the “Inbound Licenses”);

 

(10)                            all written agreements to which any Grantor is a
party and pursuant to which any third party is (i) a licensee of any rights
under any intellectual property owned by such Grantor or (ii) granted a license
by such Grantor of any rights under any intellectual property exclusively
licensed to such Grantor, and all rights of any Grantor with respect to such
agreements, including, without limitation, the agreements set forth on Schedule
2 hereto (the “Outbound Licenses” and, collectively with the Inbound Licenses,
the “IP Licenses”); and

 

(11)                            any and all claims for damages and injunctive
relief for past, present and future infringement, dilution, misappropriation,
violation,

 

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misuse or breach with respect to any of the foregoing, with the right, but not
the obligation, to sue for and collect, or otherwise recover, such damages;

 

(vi)                              all commercial tort claims described in
Schedule 4 hereto and any commercial tort claims as to which the Grantors have
complied with the requirements of Section 5(i)(iii);

 

(vii)                           all right, title and interest of each Grantor as
a holder (whether now or in the future) in shares or other equity interests in
any person, or any warrants to purchase or depositary shares or other rights in
respect of any such interests, and all shares of stock, certificates,
instruments or other documents evidencing or representing the same, except the
Pledged Equity covered by the Pledge Agreement to the extent issued by an entity
which is licensed or registered with the Nevada Gaming Authorities (the “Pledged
Gaming Company Equity”) (collectively, the “Pledged Equity”),

 

(viii)                        all right, title and interest of each Grantor in
and to all present and future payments, proceeds, dividends, distributions,
instruments, compensation, property, assets, interests and rights in connection
with or related to the collateral listed in clause (vii) above, and all monies
due or to become due and payable to such Grantor in connection with or related
to such collateral or otherwise paid, issued or distributed from time to time in
respect of or in exchange therefor, and any certificate, instrument or other
document evidencing or representing the same (including, without limitation, all
proceeds of dissolution or liquidation);

 

(ix)                                all indebtedness from time to time owed to
such Grantor (such indebtedness, the “Pledged Debt”) and the instruments
(including, without limitation, promissory notes), if any, evidencing such
indebtedness, and all interest, cash, instruments and other property from time
to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such indebtedness;

 

(x)                                   any and all rights, powers, remedies and
privileges of such Grantor under or with respect to any of the foregoing,
including all Liens securing and guarantees and other support obligations
supporting the Pledged Debt;

 

(xi)                                all securities accounts, all security
entitlements with respect to all financial assets from time to time credited to
any securities account, and all financial assets, and all dividends,
distributions, return of capital, interest, cash, instruments and other property
from time to time received, receivable or otherwise distributed in respect of or
in exchange for any or all of such security entitlements or such financial
assets and all warrants, rights or options issued thereon or with respect
thereto;

 

(xii)                             all other investment property (including,
without limitation, all (A) securities, whether certificated or uncertificated,
(B) security entitlements and (C)

 

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securities accounts) in which such Grantor has now, or acquires from time to
time hereafter, any right, title or interest in any manner, and the certificates
or instruments, if any, representing or evidencing such investment property, and
all dividends, distributions, return of capital, interest, cash, instruments and
other property from time to time received, receivable or otherwise distributed
in respect of or in exchange for any or all of such investment property and all
warrants, rights or options issued thereon or with respect thereto, other than
the Pledged Gaming Company Equity;

 

(xiii)                          all cash and cash equivalents;

 

(xiv)                         all books and records relating to or in connection
with the foregoing;

 

(xv)                            all supporting obligations relating to any of
the foregoing; and

 

(xvi)                         all proceeds and accessions with respect to any of
the foregoing (including, without limitation, all payments under insurance
(whether or not the Lender is the loss payee thereof)).

 

Notwithstanding anything to the contrary contained in this clause (a), the Lien
created by this Security Agreement shall not extend to, and the term
“Collateral” shall not include, any property that is Excluded Property.

 

“Excluded Property” means

 

(a)                                  any agreement with a third party existing
on the date hereof, or any such agreement hereafter existing that is permitted
under the Loan Documents, to the extent such agreement prohibits the grant of a
Lien on (but not merely the assignment of or of any interest in) such agreement
or any of the Grantor’s rights thereunder without the consent of such third
party (which consent has not been obtained), except to the extent any such
restriction, prohibition and/or requirement of consent is rendered ineffective
by applicable law (including, without limitation, pursuant to Sections 9-401,
9-406, 9-407, 9-408 or 9-409 of the UCC, and any successor provision thereto or
any other applicable law including the Bankruptcy Code or principles of equity);

 

(b)                                 equipment owned by any Grantor on the date
hereof or hereafter acquired that is subject to a Permitted Lien securing a
purchase money obligation or capitalized leases permitted to be incurred
pursuant to Section 9 of the Bridge Loan Agreement if the contract or other
agreement in which such Permitted Lien is granted (or the documentation
providing for such purchase money obligation or capitalized lease) validly
prohibits the creation of any other Lien on such equipment;

 

(c)                                  United States intent-to-use trademark and
service mark applications to the extent that, and solely during the period in
which, the grant of a security interest therein would impair the validity or
enforceability of such intent-to-use trademark applications under applicable
federal law;

 

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provided, however, that: (i) Excluded Property shall not include any proceeds,
substitutions or replacements of any Excluded Property referred to above (unless
such proceeds, substitutions or replacements would constitute Excluded Property
referred to above) and (ii) for the avoidance of doubt, property which
constitutes Excluded Property pursuant to clause (a) above shall cease being
Excluded Property immediately upon any such restriction, prohibition and/or
requirement of consent either being no longer effective and enforceable under
applicable law or being rendered ineffective by applicable law (including,
without limitation, pursuant to Sections 9-401, 9-406, 9-407, 9-408 or 9-409 of
the UCC).

 

(b)                                 Such security interest constitutes a valid
security interest in the Collateral.  Each Grantor shall take such action, or
authorizes Secured Party at such Grantor’s sole expense, to file one or more
financing statements (X) describing the Collateral as “all assets” of such
Grantor or words of similar effect, and (Y) containing any other information
required by part 5 of Article 9 of the UCC for the sufficiency or filing office
acceptance of any initial financing statement or amendment, including whether
such Grantor is an organization, the type of organization and any organization
identification number issued to such Grantor, in any and all jurisdictions
where, and with any and all governmental authorities with which, Secured Party
in its reasonable judgment deems such filing to be necessary or appropriate to
perfect and establish the priority of the Liens granted herein (including any
amendments, modifications, extensions, or renewals thereof) including, without
limitation, the Secretary of State of the State of Nevada.  Each Grantor agrees
to furnish any such information to Secured Party promptly upon Secured Party’s
request.

 

2.                                       Grantor Remains Liable.  Anything
herein to the contrary notwithstanding, (a) each Grantor shall remain liable
under the Collateral to the extent set forth therein to perform all of its
duties and obligations thereunder to the same extent as if this Security
Agreement had not been executed, (b) the exercise by Secured Party of any of the
rights hereunder shall not release any Grantor from any of its duties or
obligations under the contracts and agreements included in the Collateral, and
(c) Secured Party shall not have any obligations or liability under the
contracts and agreements included in the Collateral by reason of this Security
Agreement or the Loan Agreement, nor shall Secured Party be obligated to perform
any of the obligations or duties of any Grantor thereunder or to take any action
to collect or enforce any claim for payment assigned hereunder.

 

3.                                       Use of Collateral.  For so long as (i)
no Event of Default shall have occurred and be continuing and (ii) Secured Party
has not either (A) exercised remedies or commenced any enforcement actions under
this Security Agreement or any other Loan Document or (B) given notice to any
Grantor (which notice may be given telephonically) of its intent to exercise any
such remedies or commence any such enforcement action, each Grantor shall be
entitled to use and possess the Collateral, subject to the rights, remedies,
powers, and privileges of Secured Party under this Security Agreement and the
other Loan Documents.

 

4.                                       Representations and Warranties of
Grantors.  Each Grantor hereby represents and warrants to Secured Party that:

 

(a)                                  Such Grantor has all requisite power, and
authority to enter into this Security Agreement, and is duly authorized to
execute, deliver and perform its obligations under this Security Agreement,
without the consent, approval, authorization of, or notice to (other than

 

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those that have been obtained or delivered, as applicable, and other than the
NGC Approvals), any other person or entity, including any governmental entity or
regulatory authority;

 

(b)                                 Such Grantor has good and marketable title
to the Collateral free and clear of any Lien, except for the Liens in favor of
Secured Party and Permitted Liens.  Such Grantor has not filed or consented to
the filing of (i) any financing statement or analogous document under the UCC or
any other applicable laws covering any Collateral, (ii) any assignment in which
such Grantor assigns any Collateral or any security agreement or similar
instrument covering any Collateral with any foreign governmental, municipal or
other office, which financing statement or analogous document, assignment,
security agreement or similar instrument is still in effect, except, in each
case, for the Liens in favor of Secured Party and Permitted Iens.

 

(c)                                  Such Grantor is duly organized and validly
existing under the laws of the State of Nevada, and is in good standing and
qualified to do business in each state in which the nature of its business or
property so requires; such Grantor’s type of organization, and jurisdiction of
organization, is set forth in Schedule 1 hereto; and Schedule 1 hereto sets
forth such Grantor’s organizational identification number or states that such
Grantor has none.

 

(d)                                 The execution and delivery of, and
performance by each Grantor of its obligations under, this Security Agreement
and compliance with the terms, conditions and provisions hereof are not
prohibited or restricted under such Grantor’s articles or certificate of
incorporation, by-laws, or other organizational or charter documents.  The
execution and delivery of, and performance by each Grantor of its obligations
under, this Security Agreement and the transactions contemplated hereby (i)
subject to receipt of the NGC Approvals, do not conflict with or result in any
material breach or contravention of any Requirement of Law to which such Grantor
is subject, (ii) will not result in the existence or imposition of any Lien nor
obligate such Grantor to create any Lien (other than the Lien in favor of
Secured Party) in favor of any person or entity over all or any of its assets,
and (iii) do not violate, conflict with, constitute a default or event of
default under, or result in any rights to accelerate or modify any obligations
under any agreement, instrument, lease, mortgage, or indenture to which such
Grantor is a party or subject, or to which any of its assets are subject;

 

(e)                                  This Security Agreement has been duly
executed and delivered by such Grantor and constitutes a valid and legally
binding obligation of such Grantor, enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, or other laws relating to or
affecting generally the enforcement of creditors’ rights and by equitable
principles of general applicability (regardless of whether such enforceability
is considered in a proceeding in equity or at law), subject to receipt of the
NGC Approvals and the Gaming Approvals;

 

(f)                                    The security interest granted hereby in
and to the Collateral constitutes a present, valid and binding security interest
as collateral security for the Obligations;

 

(g)                                 Company and the other Grantors share an
identity of interests as members of a combined group of companies; and each
Grantor will derive substantial direct and indirect benefits from the making of
the loans to Company by Secured Party;

 

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(h)                                 To such Grantor’s knowledge, the operation
of such Grantor’s business as currently conducted or as contemplated to be
conducted and the use of the Intellectual Property Collateral in connection
therewith do not conflict with, infringe, misappropriate, dilute, misuse or
otherwise violate the intellectual property rights of any third party, except to
the extent any such infringement, misappropriation, dilution, misuse or other
violation could not reasonably be expected to result in a Material Adverse
Effect;

 

(i)                                     Such Grantor is the exclusive owner of
all right, title and interest in and to the Intellectual Property Collateral
owned by such Grantor, except to the extent that the failure to so own such
Intellectual Property Collateral could not reasonably be expected to result in a
Material Adverse Effect;

 

(j)                                     Such Grantor has the right under the
Inbound Licenses to use, exploit or otherwise commercialize all intellectual
property owned by third parties as used, exploited or otherwise commercialized
in the operation of its business;

 

(k)                                  The Intellectual Property Collateral set
forth on Schedule 2 hereto includes all material registered patents, patent
applications, domain names, trademark registrations and applications (excluding
any intent-to-use trademark or service mark applications), copyright
registrations and applications owned by such Grantor as of the date hereof, as
well as all Outbound Licenses and all Inbound Licenses (other than (i)
non-exclusive licenses granted by such Grantor to its customers in the ordinary
course of business and (ii) standard end user license agreements for
commercially available off-the-shelf software involving total license fees,
royalties or similar payments by Company or its Subsidiaries of not more than
$50,000);

 

(l)                                     (i) The IP Licenses are, valid, binding
and in full force and effect, (ii) no Grantor is in default or breach
thereunder, and (iii) there is no event or circumstance that with notice or
lapse of time or both would constitute a default or event of default on the part
of such Grantor or, to the knowledge of such Grantor, any other party thereto or
give to any other party thereto the right to terminate or modify any IP License,
except in each case as could not reasonably be expected to have a Material
Adverse Effect;

 

(m)                               The Intellectual Property Collateral owned by
each Grantor is subsisting and has not been adjudged invalid or unenforceable in
whole or in part, and to the best of such Grantor’s knowledge, is valid and
enforceable, except to the extent that any such failure to subsist, invalidity
or unenforceability could not reasonably be expected to result in a Material
Adverse Effect;

 

(n)                                 Such Grantor has made or performed all
filings, recordings and other acts and has paid all required fees and taxes to
maintain and protect its interest in each and every such item of Intellectual
Property Collateral owned by such Grantor in full force and effect throughout
the United States, and to protect and maintain its interest therein including,
without limitation, recordations of any of its interests in the Patents and
Trademarks with the U.S. Patent and Trademark Office, and recordation of any of
its interests in the Copyrights with the U.S. Copyright Office, except to the
extent that any failure to make or perform such filings, recording or other
acts, to pay such required fees and taxes or to maintain and protect such
interest so could not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.

 

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Such Grantor has used proper statutory notice in connection with its use of each
patent, trademark and copyright in the Intellectual Property Collateral, except
to the extent that any such failure to use proper statutory notice could not
reasonably be expected to result in a Material Adverse Effect;

 

(o)                                 Except as set forth on Schedule 3 hereto, no
claim, action, suit, investigation, litigation or proceeding has been asserted
or is pending or to such Grantor’s knowledge threatened against such Grantor (i)
based upon or challenging or seeking to deny or restrict the Grantor’s rights in
or use of any of the Intellectual Property Collateral, (ii) alleging that the
Grantor’s rights in or use of the Intellectual Property Collateral or that any
services provided by, processes used by, or products manufactured or sold by,
such Grantor infringe, misappropriate, dilute, misuse or otherwise violate any
patent, trademark, copyright or any other proprietary right of any third party,
or (iii) alleging that the Intellectual Property Collateral is being licensed or
sublicensed in violation or contravention of the terms of any license or other
agreement if in any such case an adverse determination could reasonably be
expected to result in a Material Adverse Effect. To such Grantor’s knowledge, no
person is engaging in any activity that infringes, misappropriates, dilutes,
misuses or otherwise violates the Intellectual Property Collateral or the
Grantor’s rights in or use thereof where such activity could reasonably be
expected to result in a Material Adverse Effect. Except as set forth on Schedule
2 hereto, as of the date hereof, such Grantor has not granted any release,
covenant not to sue, non-assertion assurance, or other right to any Person with
respect to any part of the Intellectual Property Collateral. The consummation of
the transactions contemplated by the Loan Documents will not result in the
termination or material impairment of any of the material Intellectual Property
Collateral;

 

(p)                                 As of the date hereof, the Grantor has no
commercial tort claims (as defined in Section 9-102(13) of the UCC) seeking
damages, individually or in the aggregate, in excess of $25,000 of which it is
aware other than those listed in Schedule 4 hereto.

 

5.                                       Covenants of Grantors.  For as long as
the Obligations (other than contingent indemnification obligations for which no
claim has been made) from Company to Secured Party remains outstanding under the
Bridge Loan Agreement, each Grantor hereby covenants:

 

(a)                                  Such Grantor agrees that, other than in the
case of a Permitted Disposition, Permitted Lien, or Permitted Indebtedness,
without the prior written consent of Secured Party it will not sell, pledge, or
otherwise dispose of any Collateral now or in the future owned by such Grantor
or permit or suffer to exist any Lien or encumbrance to exist on any Collateral
in favor of any person other than Secured Party, or create or assume any
obligation for borrowed money, except for borrowings from Secured Party.

 

(b)                                 So long as Secured Party exercises
reasonable care with respect to any Collateral in its possession, custody or
control, Secured Party shall have no duty as to the collection or protection of
Collateral or any income from the Collateral, nor as to the preservation of
rights against prior parties, nor as to the preservation of any right pertaining
to the Collateral.  Secured Party shall be deemed to have exercised reasonable
care within the meaning of the preceding sentence if the Collateral in the
possession, custody or control of Secured Party is accorded treatment
substantially equal to that which Secured Party accords its own property, it
being understood that Secured Party shall not have any responsibility for:  (a)
ascertaining or taking

 

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action with respect to calls, conversions, exchanges, maturities, tenders or
other matters relating to any Collateral, whether or not Secured Party has or is
deemed to have knowledge of such matters; or (b) taking any necessary steps to
preserve rights against any Person with respect to any Collateral.  Secured
Party shall not be deemed to have waived any of its rights in any Collateral
unless the waiver be in writing and no delay or omission by Secured Party in
exercising any right shall operate as a waiver of that right or of any other
right. Secured Party shall have, in addition to all other rights and remedies,
the rights and remedies of a secured party under the UCC.

 

(c)                                  Such Grantor agrees, from time to time at
its expense (provided, that unless an Event of Default has occurred and is
continuing, such Grantor shall not be obligated to pay for or reimburse Secured
Party for the fees of legal counsel to Secured Party (but, for the avoidance of
doubt, such Grantor shall be obligated to pay for or reimburse Secured Party for
all reasonable out-of-pocket expenses incurred by Secured Party or its legal
counsel) in connection with this clause (c)), to execute, deliver, file, and
record all such notices, affidavits, assignments, financing statements, and
other instruments, and take all further action, as shall in the judgment of
Secured Party be necessary or as Secured Party may reasonably request, to
evidence, perfect and protect the Lien of Secured Party in the Collateral, and
Secured Party shall also have the right, upon the occurrence and during the
continuance of an Event of Default, to notify any person or persons owing any
receivable and to demand and receive payment of it directly to Secured Party,
but Secured Party shall have no duty so to do.

 

(d)                                 Such Grantor shall not change its type of
organization, jurisdiction of organization or other legal structure.  Without
providing at least ten (10) days prior written notice to Secured Party, such
Grantor shall not change its name.  Without providing at least ten (10) days
prior written notice to Secured Party, no Grantor shall change its
organizational identification number if it has one.  If such Grantor does not
have an organizational identification number and later obtains one, such Grantor
shall forthwith notify Secured Party of such organizational identification
number.

 

(e)                                  If such Grantor shall at any time hold or
acquire any tangible chattel paper constituting Collateral with an aggregate
face value in excess of $25,000, Grantor shall, forthwith (i) after the
occurrence of a Default or Event of Default and (ii) promptly (and in any event
within 2 Business Days) upon Secured Party’s request before the occurrence of a
Default or Event of Default if Secured Party reasonably deems itself insecure,
endorse, assign and deliver the same to Secured Party, accompanied by such
instruments of transfer or assignment duly executed in blank as Secured Party
may from time to time reasonably specify.

 

(f)                                    (i) Within thirty (30) days after request
by Secured Party, at the expense of such Grantor, use commercially reasonable
efforts to cause any financial institution at which any Grantor maintains any
deposit or similar account or accounts at any time not swept daily into the AWI
Concentration Account and with a cash balance at any time in excess of $25,000
individually or in the aggregate (all such accounts existing as of the Closing
Date being listed on Schedule 5(f)) (except for any such accounts exclusively
used for payroll, payroll taxes and other employee wage and benefit payments to
or for the benefit of such Loan Party’s salaried employees and accounts used to
cash collateralize or otherwise secure wagering obligations to the extent
required by Gaming Laws) to deliver to Secured Party a written agreement in form
and

 

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substance reasonably satisfactory to Secured Party pursuant to which such
financial institution agrees to comply with the instructions originated by
Secured Party directing the disposition of funds in any such account without the
further consent of such Grantor; provided however that Secured Party shall not
originate any such instructions unless an Event of Default has occurred and is
continuing.

 

(ii) Notify Secured Party within ten (10) days of opening any deposit or similar
account.

 

(g)                                 For each securities account with an average
daily balance in excess of $25,000 that such Grantor at any time opens or
maintains, such Grantor shall, within thirty (30) days after request by Secured
Party, at the expense of such Grantor, use commercially reasonable efforts to,
cause the securities intermediary with respect to such securities account either
(i) to identify in its records Secured Party as the entitlement holder of such
security entitlement against such securities intermediary or (ii) to agree in an
authenticated record with such Grantor and Secured Party that such securities
intermediary will comply with entitlement orders (that is, notifications
communicated to such securities intermediary directing transfer or redemption of
the financial asset to which such Grantor has a security entitlement) originated
by Secured Party without further consent of such Grantor, such authenticated
record to be in form and substance reasonably satisfactory to Secured Party;
provided however that Secured Party shall not originate any such instructions
unless an Event of Default has occurred and is continuing.

 

(h)                                 Such Grantor shall not, without Secured
Party’s prior written consent, grant any extension of the time of payment of any
of the Collateral consisting of accounts, chattel paper, instruments or payment
intangibles, compromise, compound or settle the same for less than the full
amount thereof, release, wholly or partly, any obligor liable for the payment
thereof or allow any credit or discount whatsoever thereon, other than
extensions, credits, discounts, compromises or settlements granted or made in
the ordinary course of business and consistent with its good faith business
judgment.

 

(i)                                     So long as any Loan or any other
Obligation (other than contingent indemnification obligations for which no claim
has been made) of any Loan Party under any Loan Document shall remain unpaid,
any letter of credit issued pursuant thereto shall be outstanding (and not cash
collateralized in an amount equal to 105% of the obligations thereunder then
outstanding), or Secured Party shall have any commitment to make any Loans under
any Loan Document:

 

(i)                                     Subject to Section 5(i)(iv), each
Grantor will maintain all (1) electronic chattel paper so that Secured Party has
control of the electronic chattel paper in the manner specified in Section 9-105
of the UCC and (2) all transferable records, so that Secured Party has control
of the transferable records in the manner specified in Section 16 of the Uniform
Electronic Transactions Act, as in effect in the jurisdiction governing such
transferable record (“UETA” );

 

(ii)                                  Subject to Section 5(i)(iv), each Grantor
will maintain all Letter-of-Credit Rights so that Secured Party has control of
the Letter-of-Credit Rights in the manner specified in Section 9-107 of the UCC;
and.

 

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(iii)                               Each Grantor will, within forty-five (45)
days after the end of each fiscal quarter of such Grantor, give notice to
Secured Party of any commercial tort claim that such Grantor has elected to
prosecute and will promptly thereafter execute or otherwise authenticate a
supplement to Schedule 4 of this Security Agreement, and otherwise take all
commercially reasonable action, to subject such commercial tort claim to the
first priority security interest created under this Security Agreement.

 

(iv)                              Notwithstanding anything to the contrary
herein, no Grantor shall have any obligation to comply with the requirements of
subclause (i) or (ii) above unless the aggregate principal amount of all
electronic chattel paper and the aggregate face amount of all Letter-of-Credit
Rights in which the Grantors have any right, title or interest is in the
aggregate in excess of $25,000.

 

(j)                                     With respect to each registration (or
application for registration) included in the Intellectual Property Collateral,
each Grantor agrees to take, at its expense, all necessary steps, including,
without limitation, in the U.S. Patent and Trademark Office, the U.S. Copyright
Office and any other governmental authority, to (i) maintain the validity and
enforceability of such Intellectual Property Collateral and maintain such
Intellectual Property Collateral in full force and effect, and (ii) pursue the
registration and maintenance of each patent, trademark, or copyright
registration or application, now or hereafter included in such Intellectual
Property Collateral of such Grantor, including, without limitation, the payment
of required fees and taxes, the filing of responses to office actions issued by
the U.S. Patent and Trademark Office, the U.S. Copyright Office or other
governmental authorities, the filing of applications for renewal or extension,
the filing of affidavits under Sections 8 and 15 of the U.S. Trademark Act, the
filing of divisional, continuation, continuation-in-part, reissue and renewal
applications or extensions, the payment of maintenance fees and the
participation in interference, reexamination, opposition, cancellation,
infringement and misappropriation proceedings, unless in any such case the
failure to so maintain or pursue the registration and maintenance of any such
Intellectual Property Collateral could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. No Grantor shall,
without the written consent of Secured Party, discontinue use of or otherwise
abandon any Intellectual Property Collateral, or abandon any right to file an
application for patent, trademark, or copyright, unless in any such case such
Grantor shall have previously determined that such use or the pursuit or
maintenance of such Intellectual Property Collateral is no longer desirable in
the conduct of such Grantor’s business and that the loss thereof would not be
reasonably likely to have a Material Adverse Effect.

 

(k)                                  Each Grantor agrees, within forty-five (45)
days after the end of each fiscal quarter, to notify Secured Party if such
Grantor becomes aware during such fiscal quarter (i) that any item of the
Intellectual Property Collateral may have become abandoned, placed in the public
domain, invalid or unenforceable, or of any adverse determination or development
regarding such Grantor’s ownership of any of the Intellectual Property
Collateral or its right to register the same or to keep and maintain and enforce
the same, or (ii) of any adverse determination or the institution of any
proceeding (including, without limitation, the institution of any proceeding in
the U.S. Patent and Trademark Office or any court) regarding any item of the
Intellectual Property Collateral and, in each case, such occurrence could
reasonably be expected to result in a Material Adverse Effect.

 

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(l)                                     In the event that any Grantor becomes
aware that any material item of the Intellectual Property Collateral is being
infringed or misappropriated by a third party, such Grantor shall, within
forty-five (45) days after the end of the fiscal quarter in which such Grantor
becomes so aware, notify Secured Party and shall take such commercially
reasonable actions, at its expense, as such Grantor reasonably determines to be
appropriate under the circumstances to protect or enforce such Intellectual
Property Collateral, including, without limitation (where appropriate), suing
for infringement or misappropriation and for an injunction against such
infringement or misappropriation.

 

(m)                               With respect to its registered Intellectual
Property Collateral and applications therefor as of the date hereof, each
Grantor agrees to execute or otherwise authenticate an agreement in form and
substance reasonably satisfactory to Secured Party (an “Intellectual Property
Security Agreement”), for recording the security interest granted hereunder to
Secured Party in such Intellectual Property Collateral with the U.S. Patent and
Trademark Office, the U.S. Copyright Office and any other governmental
authorities in the United States necessary to perfect the security interest
hereunder in such Intellectual Property Collateral.

 

(n)                                 Each Grantor agrees that should it obtain an
ownership interest in any item of the type set forth in Section 1(v) that is not
on the date hereof a part of the Intellectual Property Collateral
(“After-Acquired Intellectual Property”) (i) the provisions of this Security
Agreement shall automatically apply thereto, and (ii) any such After-Acquired
Intellectual Property and, in the case of trademarks, the goodwill symbolized
thereby, shall automatically become part of the Intellectual Property Collateral
subject to the terms and conditions of this Security Agreement with respect
thereto. Within forty-five (45) days after the end of each fiscal quarter of any
Grantor, such Grantor shall give written notice to Secured Party identifying the
After-Acquired Intellectual Property acquired since the delivery of the last
such report, and such Grantor shall contemporaneously therewith execute and
deliver to Secured Party with such written notice, or otherwise authenticate, an
agreement in form and substance reasonably satisfactory to Secured Party (an “IP
Security Agreement Supplement”) covering such After-Acquired Intellectual
Property which IP Security Agreement Supplement shall be recorded with the U.S.
Patent and Trademark Office, U.S. Copyright Office and any other governmental
authorities necessary to perfect the security interest hereunder in such
After-Acquired Intellectual Property.

 

6.                                       Confidentiality of CBS Related
Contracts.  Computerized Bookmaking Systems, Inc. (“CBS”) provides
confidentiality to certain of its account debtors to protect the physical
contracts as well as the information contained therein (the “Confidential
Contracts”).  Secured Party acknowledges and agrees that pursuant to the terms
of this Security Agreement the security interest in the Confidential Contracts
does not extend to the examination or possession of such Confidential Contracts
unless an Event of Default occurs.

 

7.                                       Expenses.  Each Grantor agrees to pay
to Secured Party on demand all expenses, including reasonable attorney’s fees,
incurred by Secured Party in protecting or enforcing its rights in the
Collateral, on the same basis the Borrower has agreed to pay such costs and
expenses as set forth in Section 10(c) of the Bridge Loan Agreement.

 

8.                                       Secured Party’s Obligations and Duties.
Anything herein to the contrary notwithstanding, each Grantor shall remain
liable under each contract or agreement comprised in the Collateral to

 

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be observed or performed by such Grantor thereunder.  Secured Party shall not
have any obligation or liability under any such contract or agreement by reason
of or arising out of this Security Agreement or the receipt by Secured Party of
any payment relating to any of the Collateral, nor shall Secured Party be
obligated in any manner to perform any of the obligations of any Grantor under
or pursuant to any such contract or agreement, to make inquiry as to the nature
or sufficiency of any payment received by Secured Party in respect of the
Collateral or as to the sufficiency of any performance by any party under any
such contract or agreement, to present or file any claim, to take any action to
enforce any performance or to collect the payment of any amounts which may have
been assigned to Secured Party or to which Secured Party may be entitled at any
time or times.  Secured Party’s sole duty with respect to the custody, safe
keeping and physical preservation of the Collateral in its possession, under
Section 9-207 of the UCC or otherwise, shall be to deal with such Collateral in
the same manner as Secured Party deals with similar property for its own
account.

 

9.                                       Continuing Obligation.  The liability
of each Grantor and the Lien created under this Security Agreement shall be
absolute and unconditional irrespective of:  (i) any change in the manner, place
or terms of payment or performance, and/or any change or extension of the time
of payment or performance of, renewal or alteration of, any Obligation, any
security therefor, or any liability incurred directly or indirectly in respect
thereof, or any other amendment or waiver of or any consent to departure from
the Bridge Loan Agreement or any other Loan Document, including any increase in
the Obligations resulting from the extension of additional credit to Company or
otherwise; (ii) any sale, exchange, release, surrender, realization upon any
property by whomsoever at any time pledged or mortgaged to secure, or howsoever
securing, all or any of the Obligations, and/or any offset there against, or
failure to perfect, or continue the perfection of, any Lien in any such
property, or delay in the perfection of any such Lien, or any amendment or
waiver of or consent to departure from any other guaranty for all or any of the
Obligations; (iii) any exercise or failure to exercise any rights against
Company or others (including such Grantor); (iv) any settlement or compromise of
any Obligation, any security therefor or any liability (including any of those
hereunder) incurred directly or indirectly in respect thereof or hereof, and any
subordination of the payment of all or any part thereof to the payment of any
Obligation (whether due or not) of Company to creditors of Company other than
such Grantor; (v) any manner of application of Collateral, or proceeds thereof,
to all or any of the Obligations, or any manner of sale or other disposition of
any Collateral for all or any of the Obligations or any other assets of Company;
(vi) any change, restructuring or termination of the existence of Company; or
(vii) any other agreements or circumstance of any nature whatsoever which might
otherwise constitute a defense (other than a defense of payment) available to,
or a discharge of, this Security Agreement and/or obligations of such Grantor
hereunder, or a defense (other than a defense of payment) to, or discharge of,
Company or any other person or party relating to this Security Agreement or the
obligations of such Grantor hereunder or otherwise with respect to the Loans to
Company.

 

10.                                 Appointment and Powers of Secured Party.

 

(a)                                  Subject to applicable Gaming Laws, each
Grantor hereby irrevocably constitutes and appoints Secured Party and any
member, director, officer or agent thereof, with full power of substitution, as
its true and lawful attorneys-in-fact with full irrevocable power and authority
in the place and stead of such Grantor or in Secured Party’s own name, for the
purpose of carrying

 

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out the terms of this Security Agreement, to take, upon the occurrence and
during the continuance of an Event of Default, any and all appropriate action
and to execute any and all documents and instruments that may be necessary or
desirable to accomplish the purposes of this Security Agreement and, without
limiting the generality of the foregoing, hereby gives said attorneys the power
and right, on behalf of such Grantor, without notice to or assent by such
Grantor, to do the following:

 

(i)                                     upon the occurrence and during the
continuance of an Event of Default, generally to sell, transfer, pledge,
license, lease, otherwise dispose of, make any agreement with respect to or
otherwise deal with any of the Collateral in such manner as is consistent with
the UCC and as fully and completely as though Secured Party were the absolute
owner thereof for all purposes, and to do at such Grantor’s expense, at any
time, or from time to time, all acts and things which Secured Party deems
necessary to protect, preserve or realize upon the Collateral and the Lien
therein, in order to effect the intent of this Security Agreement, all as fully
and effectively as such Grantor might do, including, without limitation:  (i)
making, settling and adjusting claims in respect of Collateral under policies of
insurance, endorsing the name of such Grantor on any check, draft, instrument or
other item of payment for the proceeds of such policies of insurance and for
making all determinations and decisions with respect thereto; and (ii)
executing, delivering and recording, in connection with any sale or other
disposition of any Collateral, of the endorsements, assignments or other
instruments of conveyance or transfer with respect to such Collateral; and

 

(ii)                                  to the extent that such Grantor’s
authorization given in subclause (i) above is not sufficient, to file such
financing statements with respect hereto, with or without such Grantor’s
signature, or a photocopy of this Security Agreement in substitution for a
financing statement, as Secured Party may deem appropriate and to execute in
such Grantor’s name such financing statements and amendments thereto and
continuation statements which may require such Grantor’s signature.

 

(b)                                 To the extent permitted by law, such Grantor
hereby ratifies all that said attorneys shall lawfully do or cause to be done by
virtue of this Section.  This power of attorney is a power coupled with an
interest and is irrevocable until this Security Agreement is terminated or the
security interests created hereby are released.

 

(c)                                  The powers conferred on Secured Party, its
members, directors, officers and agents (“Related Parties”) pursuant to this
Section are solely to protect Secured Party’s interests in the Collateral and
shall not impose any duty upon any of them to exercise any such powers.  Secured
Party shall be accountable only for the amounts that it actually receives as a
result of the exercise of such powers, and neither it nor any of its officers,
directors, employees or agents shall be responsible to such Grantor for any act
or failure to act, except for Secured Party’s or any Related Party’s own gross
negligence, willful misconduct or breach in bad faith of its obligations
hereunder.

 

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11.                                 Rights and Remedies of Secured Party.  Upon
the occurrence and during the continuance of an Event of Default, and subject to
applicable Gaming Laws, Secured Party may exercise any one or more of the
following rights and remedies:

 

(a)                                  Without demand, notice or legal process of
any kind, declare this Security Agreement to be in default;

 

(b)                                 Have in any jurisdiction in which
enforcement hereof is sought, in addition to all other rights and remedies, all
of the rights and remedies provided to a secured party with respect to the
Collateral under the UCC, including, without limitation, the right to take
possession of the Collateral, and for that purpose Secured Party may, so far as
any Grantor can give authority therefor, enter upon any premises on which the
Collateral may be situated and remove the same therefrom.  Secured Party may in
its discretion require any each Grantor to assemble all or any part of the
Collateral at such location or locations within the jurisdiction(s) of such
Grantor’s principal office(s) or at such other locations as Secured Party may
reasonably designate.  Unless the Collateral is perishable or threatens to
decline speedily in value or is of a type customarily sold on a recognized
market, Secured Party shall give to Grantors at least 10 days’ prior written
notice of the time and place of any public sale of Collateral or of the time
after which any private sale or any other intended disposition is to be made. 
Each Grantor hereby acknowledges that 10 days prior written notice of such sale
or sales shall be reasonable notice.  In addition, each Grantor waives any and
all rights that it may have to a judicial hearing in advance of the enforcement
of any of Secured Party’s rights hereunder, including, without limitation, its
right following an Event of Default to take immediate possession of the
Collateral and to exercise its rights with respect thereto.

 

(c)                                  Pursue any other rights or remedies
available to Secured Party at law or in equity including recovery of all costs
of collection incurred by Secured Party due to the Event of Default, including,
without limitation, reasonable attorneys’ fees and expenses; and

 

(d)                                 At the request of Secured Party, notify
account debtors and other persons obligated on any of the Collateral of the Lien
of Secured Party in any account, chattel paper, general intangible, instrument
or other Collateral and that payment thereof is to be made directly to Secured
Party or to any other financial institution designated by Secured Party as
Secured Party’s agent therefor, and Secured Party may itself, without notice to
or demand upon any Grantor, so notify account debtors and other persons
obligated on Collateral.  After the making of such a request or the giving of
any such notification, each Grantor shall hold any proceeds of collection of
accounts, chattel paper, general intangibles, instruments and other Collateral
received by such Grantor as trustee for Secured Party without commingling the
same with other funds of such Grantor and shall turn the same over to Secured
Party in the identical form received, together with any necessary endorsements
or assignments.  Secured Party may apply the proceeds of collection of accounts,
chattel paper, general intangibles, instruments and other Collateral received by
Secured Party to the Obligations or hold such proceeds as additional Collateral,
at the option of Secured Party.

 

12.                                 Standards for Exercising Remedies.  To the
extent that applicable law imposes duties on Secured Party to exercise remedies
in a commercially reasonable manner, each Grantor acknowledges and agrees that
it is not commercially unreasonable for Secured Party (a) to fail to

 

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incur expenses reasonably deemed significant by Secured Party to prepare
Collateral for disposition or to postpone any such disposition pending any such
preparation; (b) to fail to obtain third party consents for access to Collateral
to be disposed of, or to obtain or, if not required by other law, to fail to
obtain governmental or third party consents for the collection or disposition of
Collateral to be collected or disposed of; (c) to fail to exercise collection
remedies against account debtors or other persons obligated on Collateral or to
remove any Lien on or any adverse claims against Collateral; (d) to exercise
collection remedies against account debtors and other persons obligated on
Collateral directly or through the use of collection agencies and other
collection specialists; (e) to advertise dispositions of Collateral through
publications or media of general circulation, whether or not the Collateral is
of a specialized nature; (f) to contact other persons, whether or not in the
same business as such Grantor, for expressions of interest in acquiring all or
any portion of the Collateral; (g) to hire one or more professional auctioneers
to assist in the disposition of Collateral, whether or not the collateral is of
a specialized nature; (h) to dispose of Collateral by utilizing Internet sites
that provide for the auction of assets of the types included in the Collateral
or that have the reasonable capability of doing so, or that match buyers and
sellers of assets; (i) to disclaim disposition warranties; (j) to purchase
insurance or credit enhancements to insure Secured Party against risks of loss,
collection or disposition of Collateral or to provide to Secured Party a
guaranteed return from the collection or disposition of Collateral; or (k) to
the extent deemed appropriate by Secured Party, to obtain the services of other
brokers, investment bankers, consultants and other professionals to assist
Secured Party in the collection or disposition of any of the Collateral.  Each
Grantor acknowledges that the purpose of this Section is to provide
non-exhaustive indications of what actions or omissions by Secured Party would
not be commercially unreasonable in Secured Party’s exercise of remedies against
the Collateral and that other actions or omissions by Secured Party shall not be
deemed commercially unreasonable solely on account of not being indicated in
this Section.  Without limiting the foregoing, nothing contained in this Section
shall be construed to grant any rights to any Grantor or to impose any duties on
Secured Party that would not have been granted or imposed by this Security
Agreement or by applicable law in the absence of this Section.

 

13.                                 Waiver.  Each Grantor, except as otherwise
specifically set forth herein or in the other Loan Documents, for itself and for
its successors, transferees, and assigns, hereby irrevocably waives diligence,
presentment, and demand for payment, protest, notice, notice of protest and
nonpayment, dishonor and notice of dishonor and all other demands or notices of
any and every kind whatsoever in connection with this Security Agreement, the
other Loan Documents, and the Collateral and the benefit of all statutes,
ordinances, judicial rulings, and other legal principles of any kind, now or
hereafter enacted or in force, affording any right of redemption or cure or any
right to a stay of execution or extension of time for payment or exempting any
property of such person from levy and sale upon execution of any judgment
obtained by Secured Party or any successor or assignee of Secured Party in
respect of this Security Agreement, the other Loan Documents, or the Collateral.
Each Grantor hereby agrees that this Security Agreement, the other Loan
Documents, and the Collateral, and any or all payments coming due hereunder may
be extended from time to time in accordance with Section 23 of the Bridge Loan
Agreement without in any way affecting or diminishing such Grantor’s liabilities
hereunder.

 

14.                                 Survival of Agreement.  All covenants,
agreements, representations and warranties made by Grantor herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Security Agreement shall be considered to have been relied upon
by

 

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Secured Party and shall survive the execution and delivery of this Security
Agreement, the Bridge Loan Agreement and the advance of all extensions of credit
contemplated thereby, regardless of any investigation made by Secured Party, and
shall continue in full force and effect until this Security Agreement shall
terminate (or thereafter to the extent expressly provided herein).

 

15.                                 Notices.   All notices and other
communications provided for hereunder shall be in writing and shall be sent in
accordance with Section 19 of the Bridge Loan Agreement.

 

16.                                 General Provisions.

 

(a)                                  This Security Agreement and the
transactions contemplated hereby, and all disputes between the parties under or
relating to this Security Agreement or the facts and circumstances leading to
its execution, whether in contract, tort or otherwise, shall be construed in
accordance with and governed by the laws (including statutes of limitation) of
the State of New York, without regard to conflicts of law principles that would
require the application of the laws of another jurisdiction and this Security
Agreement shall be binding upon each Grantor and the heirs, executors,
administrators, successors, and assigns of such Grantor except that such Grantor
shall have no right to delegate, assign or transfer its rights or obligations
hereunder or any interest herein (and any such assignment or transfer shall be
void).

 

(b)                                 This Security Agreement may be executed in
two or more separate counterparts, each of which shall constitute an original
and all of which shall collectively and separately constitute one and the same
agreement. Delivery by telecopier of an executed counterpart of any amendment or
waiver of any provision of this Security Agreement shall be effective as
delivery of an original executed counterpart thereof.

 

(c)                                  The headings of each section of this
Security Agreement are for convenience only and shall not define or limit the
provisions thereof.

 

(d)                                 The parties hereto have participated jointly
in the negotiation and drafting of this Security Agreement.  In the event an
ambiguity or question of intent or interpretation arises, this Security
Agreement shall be construed as if drafted jointly by the parties hereto and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Security Agreement.

 

(e)                                  In the event any one or more of the
provisions contained in this Security Agreement should be held invalid, illegal
or unenforceable in any respect, the validity, legality and enforceability of
the remaining provisions contained herein shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision in a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction).

 

(f)                                    No failure or delay of Secured Party in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power.  The rights and remedies of Secured Party hereunder and of
Secured Party under the other Loan Documents are

 

89

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cumulative and are not exclusive of any rights or remedies that it would
otherwise have.  No amendment of this Security Agreement, and no waiver of any
provisions of this Security Agreement or consent to any departure by any Grantor
therefrom, shall in any event be effective except pursuant to a writing entered
into by Secured Party and each Grantor in accordance with subsection (h) below,
and then any such waiver or consent shall be effective only in the specific
instance and for the purpose for which given.  No notice to or demand on any
Grantor in any case shall entitle such Grantor to any other or further notice or
demand in similar or other circumstances.

 

(g)                                 Neither this Security Agreement not any
provision hereof may be waived, amended or modified except pursuant to an
agreement or agreements in writing entered into by the Secured Party and the
Grantors in accordance with Section 23 of the Bridge Loan Agreement.

 

(h)                                 Upon (i) the indefeasible payment in full in
cash of the Obligations (other than contingent indemnification obligations for
which no claim has been made) and (ii) the termination in full of the
Commitments, the security interest granted hereby shall terminate and all rights
to the Collateral shall revert to the applicable Grantor; provided that all
indemnities set forth herein shall survive any such termination. Upon any such
termination as contemplated in this Section 16(h), the Secured Party will, at
the applicable Grantor’s expense, execute and deliver to such Grantor such
documents as such Grantor shall reasonably request to evidence such termination.

 

(i)                                     This Security Agreement and the exercise
of rights, powers and remedies hereunder are subject to applicable Gaming Laws. 
To the extent any approval of the Nevada Gaming Authority is required for the
exercise of any right or remedy, such right or remedy shall be subject thereto.

 

[signature page follows]

 

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IN WITNESS WHEREOF, intending to be legally bound, each of the undersigned
Grantors has caused this Security Agreement to be duly executed as of the date
first above written.

 

GRANTORS:

 

American Wagering, Inc.

 

Computerized Bookmaking Systems, Inc.

 

 

 

 

 

 

 

 

By:

/s/ Victor Salerno

 

By:

/s/ Victor Salerno

Name:

Victor Salerno

 

Name:

Victor Salerno

Its:

President

 

Its:

President

 

 

 

 

 

Leroy’s Horse & Sports Place, Inc.

 

AWI Manufacturing, Inc.

 

 

 

 

 

 

 

 

 

 

By:

/s/ Victor Salerno

 

By:

/s/ Victor Salerno

Name:

Victor Salerno

 

Name:

Victor Salerno

Its:

President

 

Its:

President

 

 

 

 

 

ExactGeo Media, LLC

 

Sports Mobile Fantasy, LLC

 

 

 

 

 

 

 

 

 

 

By:

/s/ Thomas Willer

 

By:

/s/ John Salerno

Name:

Thomas Willer

 

Name:

John Salerno

Its:

Manager

 

Its:

Manager

 

 

Accepted and Agreed:

 

William Hill Holdings Limited,

as Secured Party

 

By:

/s/ Neil Cooper

 

 

 

Name:

Neil Cooper

 

 

 

Its:

Director

 

 

 

 

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