EXHIBIT 10.13

 

FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT

 

THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (“Amendment”) is made and
entered into effective as of December 22, 2003, by and between MGAM SYSTEMS,
INC., a Delaware Corporation, and MEGABINGO, INC., a Delaware Corporation
(collectively “Borrower”) and COMERICA BANK (“Bank”), successor by merger to
Comerica Bank-California.

 

RECITALS:

 

Effective June 25, 2003, Borrower and Bank entered into that certain Loan and
Security Agreement (herein the “Loan Agreement”) governing certain loans to be
made to Borrower by Bank from time to time.

 

In connection with the execution and delivery of the Loan Agreement, Multimedia
Games, Inc., a Texas corporation, and MGAM Services, L.L.C., a Delaware limited
liability company (collectively “Guarantors”) executed and delivery to Bank one
or more guaranty agreements (collectively the “Guaranties”) pursuant to which
Guarantors guaranteed to Bank prompt payment of all indebtedness and obligations
of Borrower to Bank then or thereafter outstanding and prompt performance of all
other obligations of Borrower to Bank then or thereafter outstanding.

 

For good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged and confessed, Borrower and Bank now desire to amend the
Loan Agreement to provide for an increase of $10,000,000.00 to the Capital
Expenditure Line and to make certain changes to other terms and provisions of
the Loan Agreement, all as more particularly set forth herein.

 

AGREEMENTS:

 

Borrower and Bank hereby agree as follows:

 

(1) Section 6.2 of the Loan Agreement is hereby amended and restated in its
entirety to hereafter be and read as follows:

 

“6.2 Financial Statements, Reports, Certificates. Deliver to Bank: (a) as soon
as available, but in any event within 50 days after the end of each fiscal
quarter, except the last quarter, a company prepared consolidated balance sheet,
income statement and statement of cash flows for Multimedia Games, Inc. and all
of its Subsidiaries, including without limitation Borrower, for operations
during such period, prepared in accordance with GAAP, consistently applied, in a
form reasonably acceptable to Bank and certified by a Responsible Officer;
provided, however, that if the Obligations on any day during a

 

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month exceed $15,000,000.00, then for that month and each month thereafter until
a month during which the Obligations do not exceed, on any day, $15,000,000.00,
the foregoing reports shall be delivered on a monthly basis, as soon as
available but in any event within 30 days after the end of the applicable
month(s); (b) as soon as available, but in any event within 95 days after the
end of the fiscal year of Multimedia Games, Inc., audited consolidated financial
statements of Multimedia Games, Inc. and all of its Subsidiaries, including
without limitation Borrower, prepared in accordance with GAAP, consistently
applied, together with an opinion which is unqualified or otherwise consented to
in writing by Bank on such financial statements of an independent certified
public accounting firm reasonably acceptable to Bank (BDO Seidman, LLP being
confirmed as currently reasonably acceptable to Bank); (c) if applicable, copies
of all statements, reports and notices sent or made available generally by
Multimedia Games, Inc. or any of its Subsidiaries, including without limitation
Borrower, to their respective security holders or to any holders of Subordinated
Debt and all reports on Forms 10-K and 10-Q filed with the Securities and
Exchange Commission; (d) promptly upon receipt of notice thereof, a report of
any legal actions pending or threatened against Multimedia Games, Inc. or any of
its Subsidiaries, including without limitation Borrower, that could result in
damages or costs to Multimedia Games, Inc. or any of its Subsidiaries, including
without limitation Borrower, of $100,000 or more; (e) such budgets, sales
projections, operating plans or other financial information generally prepared
by Multimedia Games, Inc. or any of its Subsidiaries, including without
limitation Borrower, in the ordinary course of business as Bank may reasonably
request from time to time; (f) within 30 days of the last day of each fiscal
quarter, a report signed by Borrower, in form reasonably acceptable to Bank,
listing any applications or registrations that Borrower or any Guarantor has
made or filed in respect of any Patents, Copyrights or Trademarks and the status
of any outstanding applications or registrations, as well as any material change
in Borrower’s Intellectual Property Collateral, including but not limited to any
subsequent ownership right of Borrower in or to any Trademark, Patent or
Copyright not specified in Exhibits A, B, and C of each of the Intellectual
Property Security Agreement delivered to Bank by Borrower in connection with
this Agreement; and (g) as soon as available, but in any event no later than
September 15th of each fiscal year, a company prepared pro-forma consolidated
balance sheet and income statement for the next succeeding fiscal year for
Multimedia Games, Inc. and all of its Subsidiaries, including without limitation
Borrower, containing good faith financial projections for the next succeeding
fiscal year, prepared in accordance with GAAP, consistently applied, to the
extent applicable, and otherwise in a form reasonably acceptable to Bank and
certified by a Responsible Officer.

 

(a.) Within 30 days after the last day of each month, Borrower shall deliver to
Bank a Borrowing Base Certificate signed by a Responsible Officer in
substantially the form of Exhibit D hereto, together with aged listings by
invoice date of accounts receivable and accounts payable as of the last day of
such month.

 

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(b.) Within 30 days after the last day of each month, Borrower shall deliver to
Bank with the Borrowing Base Certificate, a Compliance Certificate signed by a
Responsible Officer in substantially the form of Exhibit E hereto; provided,
that such monthly Compliance Certificate, except as provided below, shall only
be required to certify as to the “Minimum Cash” and “Revenue Generating EPS
Ratio”. Each Compliance Certificate shall be accompanied by a Covenant
Calculation Worksheet in the form attached as continuation pages to Exhibit E,
appropriately completed with the information required to be certified to in such
Compliance Certificate.

 

(c.) Within 50 days after the last day of each fiscal quarter, Borrower shall
deliver to Bank with the quarterly financial statements, a Compliance
Certificate signed by a Responsible Officer in substantially the form of Exhibit
E hereto with all information completed; provided, however, that if Borrower is
being required to deliver monthly financial statements as provided above, then
the Compliance Certificate under this subsection shall also be required on a
monthly basis and shall be due within 30 days after the last day of each
applicable month. Each Compliance Certificate shall be accompanied by a Covenant
Calculation Worksheet in the form attached as continuation pages to Exhibit E,
appropriately completed with the information required to be certified to in such
Compliance Certificate.

 

(d.) Promptly upon receipt, and in no event more than 3 business day after
receipt, Borrower shall deliver to Bank a true, correct and complete copy of any
Class III Advisory Letter.

 

(e.) As soon as possible and in any event within 3 calendar days after becoming
aware of the occurrence or existence of an Event of Default hereunder, a written
statement of a Responsible Officer setting forth details of the Event of
Default, and the action which Borrower has taken or proposes to take with
respect thereto.

 

(f.) Bank shall have a right from time to time hereafter to audit Borrower’s
Accounts and appraise Collateral at Borrower’s expense, provided that such
audits will be conducted no more often than every 6 months unless an Event of
Default has occurred and is continuing.”

 

(2) Section 6.6 of the Loan Agreement is hereby amended and restated in its
entirety to hereafter be and read as follows:

 

“6.6 Primary Depository. Maintain its primary depository, operating and
investment accounts with Bank or Bank’s affiliates. Borrower shall be permitted
to maintain (a) up to $1,000,000 at Wells Fargo Brokerage Services, LLC, as long
as such funds are held as collateral by Wells Fargo Brokerage Services, LLC for
letter of credit obligations owed by Borrower, and (b) up to $500,000 with
E*Trade.”

 

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(3) Section 6.7(a) of the Loan Agreement is hereby amended and restated in its
entirety to hereafter be and read as follows:

 

“(a) Current Ratio. A ratio of Current Assets to Current Liabilities of at least
1.00 to 1.00. This covenant shall be measured as of the last day of each
calendar quarter; provided, however, that if the Obligations on any day exceed
$15,000,000.00, then the covenant shall also be measured as of the last day of
each calendar month, commencing with the month in which the Obligations first
exceeded $15,000,000 and continuing thereafter on a monthly basis until the
Obligations are again below $15,000,000.00 for an entire calendar month.”

 

(4) Section 6.7(b) of the Loan Agreement is hereby amended and restated in its
entirety to hereafter be and read as follows:

 

“(b) Tangible Net Worth. A Tangible Net Worth of not less than $70,000,000
before December 30, 2003 and not less than $90,000,000 beginning December 31,
2003 and thereafter.”

 

(5) Section 6.7(e) of the Loan Agreement is hereby amended and restated in its
entirety to hereafter be and read as follows:

 

“(e) Fixed Charge Coverage. A ratio of earnings before interest, taxes and
depreciation amortization to the sum of cash capital expenditures plus the
current portion of all long-term Indebtedness plus interest expense plus cash
income tax expense of at least 1.00 to 1.00. Fixed Charge Coverage ratio shall
be calculated on a rolling 4-quarter basis.”

 

(6) Section 6.7(f) of the Loan Agreement is hereby amended and restated in its
entirety to hereafter be and read as follows:

 

“(f) Revenue Generating EPS Ratio. The ratio of the total outstanding Capital
Expenditure Advances to Revenue Generating EPS shall not exceed $2,000 to 1.
This covenant shall be measured as of the last day of each calendar month.

 

Bank shall have the right, in its sole discretion, to reset any of the financial
covenants as often as annually.”

 

(7) Section 7.7 of the Loan Agreement is hereby amended and restated in its
entirety to hereafter be and read as follows:

 

“7.7 Investments. Directly or indirectly acquire or own, or make any Investment
in or to any Person, other than Permitted Investments and Permitted Development
Agreements, or maintain or invest any of its property with a Person other than
Bank or Bank’s affiliates, other than pursuant to Permitted Development
Agreements, unless such Person has entered into a control agreement with Bank,
in form and substance satisfactory to Bank, or suffer

 

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or permit any Subsidiary to be a party to, or be bound by, an agreement that
restricts such Subsidiary from paying dividends or otherwise distributing
property to Borrower; provided, however, that Permitted Development Agreements
and investments thereunder shall only be permitted if, and shall otherwise
constitute an Event of Default unless, (a) Borrower and/or Multimedia Games
have, and will continue to have after funding 100% of the investments under the
proposed Permitted Development Agreement, a balance of Cash at Bank of not less
than $2,000,000, and (b) Borrower shall have delivered Bank a pro forma
calculation of its Current Ratio after giving effect to the funding of 100% of
the investment under the proposed Permitted Development Agreement, in a form
reasonably acceptable to Bank and certified by a Responsible Officer, which
calculation shall reflect that no default will occur under the Current Ratio
requirements of this Agreement as a result of the funding of the investment
under the proposed Permitted Development Agreement.”

 

(8) There is hereby added to the definitions contained in Exhibit A to the Loan
Agreement a new definition of Current Assets and the current definitions of
Capital Expenditure Line and Revenue Generating EPS are hereby amended and
restated in their entirety to hereafter be and read as follows:

 

“Capital Expenditure Line” means a Credit Extension of up to $20,000,000.
Aggregate advances for software under the Capital Expenditure Line shall not
exceed 10% of all Capital Expenditure Advances.

 

“Current Assets” means, as of any applicable date, all amounts that should, in
accordance with GAAP, be included as current assets on the consolidated balance
sheet of Borrower and its Subsidiaries as at such date. Current Assets shall
exclude any investments under Permitted Development Agreements.

 

“Revenue Generating EPS” means all revenue-generating assets owned by MegaBingo,
Inc. from time to time (i) for which a Class III Adverse Letter from the
National Indian Gaming Commission or similar governing entity shall not have
been received by Borrower or any customer of such assets, (ii) which shall have
generated for a period of at least 30 consecutive days, net revenues for
MegaBingo, Inc. of not less than $500 per machine per month, (iii) which are
subject to a first priority perfected security interest in favor of Bank and
(iv) which, if located on Indian land, the applicable Native American tribe has
given a waiver of sovereign immunity and has a credit rating acceptable to Bank
in both cases. Revenue Generating EPS shall not include any assets that have
been pledged to lender other than the Bank.

 

(9) The last paragraph in the definition of Permitted Indebtedness that begins
“Notwithstanding the foregoing, Borrower shall be allowed to incur additional
indebtedness not exceeding $20,000,000 in the aggregate …” is hereby deleted in
its entirety.

 

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(10) Exhibit A to the Schedule of Exceptions is hereby amended and restated in
its entirety to hereafter be in the form attached hereto as Schedule A.

 

(11) The obligation of Bank to make the first Credit Extension under the Capital
Expenditure Line after the date hereof is subject to the condition precedent
that Bank shall have received, in form and substance satisfactory to Bank, the
following:

 

(a) A counterpart of this Amendment duly executed by Borrower and Guarantors;

 

(b) A commitment fee for the increase in the Capital Expenditure Line equal to
$100,000.00 ($50,000.00 of which has previously been paid), which shall be
nonrefundable;

 

(c) Confirmation of payment by Borrower of all Bank Expenses incurred through
the date of this Amendment, other than the legal fees for preparation of this
Amendment that will be paid by Bank;

 

(d) An officer’s certificate of each Borrower with respect to incumbency and
resolutions authorizing the execution and delivery of this Amendment;

 

(e) An officer’s certificate of each Guarantor with respect to incumbency and
resolutions authorizing the execution and delivery of this Amendment; and

 

(f) Such other documents, and completion of such other matters, as Bank may
reasonably deem necessary or appropriate.

 

(12) Except as, and to the extent, set forth herein: (i) Bank hereby reserves
all remedies, powers, rights and privileges that Bank may have under the Loan
Agreement or the other Loan Documents, at law (including under the Uniform
Commercial Code), in equity, or otherwise; and (ii) all terms, conditions and
provisions of the Loan Agreement and the other Loan Documents are and shall
remain in full force and effect and nothing herein shall operate as a consent to
or a waiver, amendment, or forbearance in respect of any matter (including any
event of default that may currently exist or hereafter occur under the Loan
Agreement or other Loan Documents) or any other right, power, or remedy of Bank
under the Loan Agreement and the other Loan Documents. No delay on the part of
Bank in the exercise of any remedy, power, right or privilege shall impair such
remedy, power, right, or privilege or be construed to be a waiver of any
default, nor shall any partial exercise of any such remedy, power, right or
privilege preclude further exercise thereof or of any other remedy, power, right
or privilege. Borrower represents and warrants to Bank that the representations
and warranties contained in the Loan Agreement and the other Loan Documents are
true and correct in all material respects on and as of the date thereof as
though made on and as of such date. Borrower further represents and warrants to
Bank that Borrower and Guarantors have not made or filed any applications or
registrations with respect to their respective intellectual property, other than
as shown on

 

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Exhibits A, B and C of the Intellectual Property Security Agreement each
executed at the time of execution of the Loan Agreement and other than as shown
in the quarterly Intellectual Property reports delivered by Borrower to Bank
under Section 6.2(f) of the Loan Agreement.

 

(13) Each of Borrower and Guarantors acknowledges that Bank would not enter into
this Amendment without Borrower’s and Guarantors’ assurances that each has no
claims against Bank or any of Bank’s officers, directors, employees or agents.
Except for the obligations arising hereafter under the Loan Agreement, each of
Borrower and Guarantors releases Bank, any person or entity that has obtained
any interest from Bank under the Loan Agreement and the other Loan Documents,
and each of Bank’s and entity’s officers, directors and employees from any known
or unknown claims which any of Borrower and Guarantors now have against Bank of
any nature, including any claims that any of Borrower and Guarantors, their
respective successors, counsel, and advisors may in the future discover they
would have now had if they had known facts not now known to them, whether
founded in contract, in tort or pursuant to any other theory of liability,
including but not limited to any claims arising out of or related to this
Amendment, the Loan Agreement, and the other Loan Documents, or the transactions
contemplated thereby. Each of Borrower and Guarantors waives the provisions of
California Civil Code section 1542, which states:

 

A general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known by him must have materially affected his settlement with debtor.

 

Each of Borrower and Guarantors hereby further covenants and agrees that the
provisions, waivers and releases set forth in this section are binding upon
Borrower and Guarantors and each of their respective shareholders, agents,
employees, assigns and successors in interest. The provisions, waivers and
releases of this section shall inure to the benefit of Bank and its agents,
employees, officers, directors, assigns and successors in interest.

 

Each of Borrower and Guarantors warrants and represents that they are the sole
and lawful owner of all right, title and interest in and to all of the claims
released hereby and none have heretofore voluntarily, by operation of law or
otherwise, assigned or transferred or purported to assign or transfer to any
person any such claim or any portion thereof. Each of Borrower and Guarantors
shall indemnify and hold harmless Bank from and against any claim, demand,
damage, debt, liability (including payment of attorneys’ fees and costs actually
incurred whether or not litigation is commenced) based on or arising out of any
assignment or transfer.

 

The provisions of this section shall survive payment in full of the obligations
owing Borrower to Bank, full performance of all the terms of this Amendment, the
Loan Agreement, and the other Loan Documents, and/or Bank’s actions to exercise
any remedy available under this Amendment, the Loan Agreement and the other Loan
Documents, or otherwise.

 

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(14) Borrower acknowledges that, as of the date of this Amendment, Borrower owes
Bank an amount equal to $12,111,111.12 (principal balance) plus accrued and
unpaid interest thereon. Borrower hereby reaffirms all of its obligations to
Bank under the Loan Agreement and the other Loan Documents and forever waives
and relinquishes any and all claims, off sets or defenses that Borrower may now
have with respect to the payment of sums due to Bank and the performance of
other obligations under the Loan Agreement and the other Loan Documents. Each of
Borrower and Guarantors hereby ratifies and confirms that each security
agreement, collateral assignment and other collateral document executed by any
of them in favor of Bank in connection with the indebtedness and obligations
which are the subject of the Loan Agreement are in full force and effect, and
continue to secure any and all indebtedness of Borrower to Bank now or hereafter
owed by Borrower to Bank.

 

(15) Guarantors also hereby join in this Amendment to evidence Guarantors
consent to execution by Borrower of this Amendment, to confirm that the
Guaranties which each executed apply and shall continue to apply to all
indebtedness of Borrower to Bank now or hereafter outstanding, including without
limitation indebtedness under the increased Capital Expenditure Line of Credit,
and to acknowledge that without such consent and confirmation, Bank would not
execute this Amendment or otherwise consent to the transactions contemplated
hereby.

 

(16) Borrower and Guarantors each hereby represents and warrants to Bank that
(a) the execution and delivery of this Amendment is within its corporate powers,
has been duly authorized by all necessary corporate action, and is not in
contravention of any law, rule or regulation, or any order, judgment, decree,
writ, injunction, or award of any arbitrator, court or governmental authority,
or of the terms of its charter or bylaws, or of any contract or undertaking to
which it is a party or by which any of its properties may be bound or affected,
and (b) this Amendment and the Loan Agreement, as amended by this Amendment,
constitute each party’s legal, valid and binding obligations, enforceable
against each party in accordance with their respective terms.

 

(17) This Amendment may be executed in any number of counterparts, all of which
taken together shall constitute one and the same instrument and any of the
parties hereto may execute this Amendment by signing any such counterpart.
Delivery of an executed counterpart of this Amendment by telefacsimile shall be
equally as effective as delivery of an original executed counterpart of this
Amendment. Any party delivering an executed counterpart of this Amendment by
telefacsimile also shall deliver an original executed counterpart of this
Amendment but the failure to deliver an original executed counterpart shall not
affect the validity, enforceability, and binding effect of this Amendment.

 

[SIGNATURES ON FOLLOWING PAGE(S)]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
day and year first above written.

 

BORROWER

 

MGAM SYSTEMS, INC.

By:  

/s/    Craig S. Nouis

   

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Name:

  Craig S. Nouis    

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Title:

  CFO    

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MEGABINGO, INC. By:  

/s/    Craig S. Nouis

   

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Name:

  Craig S. Nouis    

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Title:

  CFO    

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GUARANTORS

 

MULTIMEDIA GAMES, INC.

By:  

/s/    Craig S. Nouis

   

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Name:

  Craig S. Nouis    

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Title:

  CFO    

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MGAM SERVICES, L.L.C. By:  

/s/    Craig S. Nouis

   

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Name:

  Craig S. Nouis    

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Title:

  CFO    

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BANK

 

COMERICA BANK

By:  

/s/    Phillip A. Wright

   

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Name:

 

Phillip A. Wright

   

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Title:

 

Vice President

   

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