**Exhibit 10.5**

 

**CBSSECURITY AGREEMENT**

 

This CBS Security Agreement(the “Security Agreement”) is entered into on June 22, 2010 (the “EffectiveDate”) by and between Computerized Bookmaking Systems, Inc. (the “Grantor”),a Nevada corporation, and Alpine Advisors LLC (the “Lender” or the “SecuredParty”), a Nevada limited liability company (individually, Grantor and SecuredParty may be referred to as a “party” or collectively as the “parties”).

 

RECITALS

 

WHEREAS,Grantor is a wholly owned subsidiary of American Wagering, Inc. (“Borrower”),which entered into a Loan Agreement dated as of June 22, 2010 (as amended,supplemented, restated or otherwise modified and in effect from time to time,the “**Loan Agreement**”; capitalized terms usedherein without definition are used as defined or used in the Loan Agreement),with Secured Party, pursuant to which, among other things, Secured Party hasagreed, in its sole discretion, to make loans to Borrower upon the terms andsubject to the conditions specified in the Loan Agreement;

 

WHEREAS,in order to secure all Obligations, Grantor has agreed to execute and deliverto Secured Party a security agreement in substantially the form hereof;

 

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

 

1.               Grant of Security Interest.

 

a)              To secure the payment or performance, asthe case may be, in full of the Obligations, whether at stated maturity, byacceleration or otherwise, Grantor hereby grants to Secured Party a firstpriority and exclusive Lien upon the collateral described in paragraph c) below(the “Collateral”).  As used herein, theterm Lien” shall mean any security interest, mortgage, lien, encumbrance oradverse claim, and any financing statement or similar document filed in respectof same.

 

b)             [reserved]

 

c)              The Collateral is described asfollows:  all of Grantor’s right, title,and interest in and to all present and future (i) accounts, accountsreceivable, and other receivables of Grantor, arising out of or in connectionwith the sale or lease of goods by Grantor, the rendering of services byGrantor, and the licensing of software or other intellectual property byGrantor, whether or not earned by performance; (ii) chattel paper (whethertangible or electronic) arising out of or in connection with the sale or leaseof goods by Grantor, the rendering of services by Grantor, and the licensing ofsoftware or other intellectual property by Grantor; (iii) all contractrights, 

 

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including without limitation all rights under or with respect to allEquipment Purchase and Software License Agreements, all purchase orders,contracts or other agreements relating to the sale, lease and/or maintenance ofequipment or the license and/or maintenance of software, and all othercontracts evidencing, securing or otherwise relating to any of the foregoing; (iv) allbooks and records and other general intangibles relating to or in connectionwith the foregoing; (v) all supporting obligations relating to any of theforegoing; (vi) all deposit accounts; and (vii) all proceeds of allof the foregoing.  Such security interestconstitutes a valid security interest in the Collateral.  Grantor shall take such action, or authorizesSecured Party at Grantor’s sole expense, to file one or more financingstatements (X) describing the Collateral and (Y) containing any otherinformation required by part 5 of Article 9 of the Uniform Commercial Codeas in effect in any jurisdiction (the “UCC”) for the sufficiency or filingoffice acceptance of any initial financing statement or amendment, includingwhether Grantor is an organization, the type of organization and anyorganization identification number issued to Grantor, in any and alljurisdictions where, and with any and all governmental authorities with whom,Secured Party deems such filing to be necessary or appropriate to perfect andestablish 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. Grantor agrees to furnish any such information to Secured Party promptlyupon request.  Grantor agrees tocooperate fully with Lender in establishing and maintaining Secured Party’sperfection of Secured Party’s security interest in the Collateral. Grantor alsoratifies its authorization for Secured Party to have filed in any UCCjurisdiction any like initial financing statements or amendments thereto iffiled prior to the date hereof.

 

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

 

3.               Use of Collateral. For so long as no Event of Default shall have occurred and becontinuing, Grantor shall be entitled to use and possess the Collateral,subject to the rights, remedies, powers, and privileges of Secured Party underthis Agreement.

 

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

 

a)              Grantor has full right, power, andauthority to enter into this Security Agreement, without the consent, approval,authorization of, or notice to, any other person or entity, including anygovernmental entity or regulatory authority;

 

b)             Grantor has good and marketable title tothe Collateral free and clear of any Lien, except for the Liens in favor ofSecured Party. Grantor has not filed or consented to the filing of (a) anyfinancing statement or analogous document under the UCC or any other applicablelaws covering any Collateral, (b) any assignment in which Grantor assignsany Collateral or any security agreement or similar instrument covering anyCollateral with any foreign governmental, municipal or other office, whichfinancing statement or analogous document, assignment, security agreement orsimilar instrument is still in effect, except, in each case, for the Liens infavor of Secured Party.

 

c)              Grantor is duly organized and validlyexisting as a corporation under the laws of the State of Nevada, and is in goodstanding as a corporation; Grantor has no organizational number; Grantor’sexact legal name is Computerized Bookmaking Systems, Inc.

 

d)             The execution, delivery, and performanceof this Security Agreement and compliance with the terms, conditions and provisionshereof are not prohibited or restricted under Grantor’s Articles ofIncorporation or Bylaws.  The execution,delivery, and performance of this Agreement and the transactions contemplatedhereby (i) do not conflict with or result in any breach or contraventionof any applicable law, regulation, judicial order, or decree to which Grantoris subject, (ii) will not result in the existence or imposition of anyLien nor obligate Grantor to create any Lien (other than the Lien in favor ofSecured 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 ofdefault under, or result in any rights to accelerate or modify any obligationsunder any agreement, instrument, lease, mortgage, or indenture to which Grantoris a party or subject, or to which any of its assets are subject;

 

e)              Grantor has the requisite corporate powerand authority and is duly authorized to execute and deliver this SecurityAgreement and perform the Obligation. This Security Agreement has been duly executed and delivered by Grantorand constitutes a valid and legally binding obligation of Grantor, enforceablein accordance with its terms, except as enforceability is limited bybankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, orother laws relating to or affecting generally the enforcement of creditors’rights and by equitable principles of general applicability (regardless ofwhether such enforceability is considered in a proceeding in equity or at law);

 

f)                The security interest granted hereby inand to the Collateral constitutes a present, valid, binding, and enforceablesecurity interest as collateral security for the Obligation; and

 

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g)             Grantor is a wholly-owned direct subsidiaryof Borrower; Grantor and Borrower share an identity of interests as members ofa combined group of companies; and Grantor will derive substantial direct andindirect benefits from the making of the loans to Borrower Companies by SecuredParty.

 

5.               Covenants ofGrantor.  For as long as the Obligationfrom Borrower to Lender remains outstanding under the Loan Agreement, Grantorhereby covenants:

 

a)              Grantor agrees that withoutthe prior written consent of Secured Party it will not sell, pledge, or otherwisedispose of any Collateral now or in the future owned by Grantor or permit orsuffer to exist any Lien or encumbrance to exist on any Collateral or on any ofGrantor’s present or future inventory in favor of any person other than SecuredParty, or create or assume any obligation for borrowed money, except forborrowings from Secured Party.

 

b)             Grantor will at all timeskeep accurate and complete records of the Collateral, and Secured Party, or anyof its agents, shall have the right at all reasonable times to examine,inspect, and make extracts from Grantor’s books and records, to discuss Grantor’saffairs with the officers of Grantor and its independent accountants, and toverify the validity, amount, quality, quantity, value, condition and status of,or any other matter relating to, the Collateral, including by contactingaccount debtors or others obligated with respect to Collateral or by othermethods.  Grantor will provide to SecuredParty periodic ageings of all accounts and other receivables, including thename of each account debtor, the amount owed by each such account debtor, thedue dates of the accounts and other receivables, the related invoice numbersand if requested by Secured Party copies thereof.  Such ageings shall be in form and substancesatisfactory to Secured Party and shall be delivered to Secured Party on thedate hereof and thereafter monthly, within 5 days after the end of each month,and, after the occurrence of a Default or an Event of Default, whenever SecuredParty requests.

 

c)              Grantor agrees to deliver toSecured Party when requested, and in any event not less frequently than onceeach per month, a balance sheet, profit and loss statement, and reconcilementof surplus of Grantor.

 

d)             Grantor represents andwarrants to Secured Party that all financial statements furnished to SecuredParty have and will accurately reflect the financial condition and operationsof Grantor at the times and for the periods indicated in those statements.

 

e)              With respect to anyCollateral held by Secured Party as security for the liabilities, Grantorassents to all extensions or postponements of the time of payment or any otherindulgence in connection with the Collateral, to each substitution, exchange orrelease of Collateral, to the addition or release of any party primarily orsecondarily liable, to the acceptance of partial payments on the Collateral andthe settlement, compromise, or adjustment of them, all in such manner and atsuch time or times as Secured Party shall deem advisable. Secured Party shallhave no duty as to the collection or protection of Collateral or any income 

 

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from the Collateral, nor asto the preservation of rights against prior parties, nor as to the preservationof any right pertaining to the Collateral, beyond the safe custody ofCollateral in the possession of Secured Party. Secured Party shall not be deemed to have waived any of its rights inany Collateral unless the waiver be in writing and no delay or omission bySecured Party in exercising any right shall operate as a waiver of that rightor of any other right. Secured Party shall have, in addition to all otherrights and remedies, the rights and remedies of a secured party under theUniform Commercial Code.

 

f)                Grantor agrees, from time totime at its expense, to execute, deliver, file, and record all such notices,affidavits, assignments, financing statements, and other instruments, and takeall further action, as shall in the judgment of Secured Party be necessary oras Secured Party may reasonably request, to evidence, perfect and protect theLien of Secured Party in the Collateral, and Secured Party shall also have theright to notify any person or persons owing any receivable and to demand andreceive payment of it directly to Secured Party, but Secured Party shall haveno duty so to do.

 

g)             Grantor shall pay or causeto be paid promptly all taxes and assessments on the Collateral when due.

 

h)             Grantor shall not change itstype of organization, jurisdiction of organization or other legal structure.Without providing at least 30 days prior written notice to Secured Party,Grantor shall not change its name.  IfGrantor obtains an organizational identification number after the date hereof,Grantor shall forthwith notify Secured Party of such organizational identificationnumber.

 

i)                 If Grantor shall at any timehold or acquire any promissory notes or tangible chattel paper constitutingCollateral, Grantor shall, forthwith after the occurrence of a Default or Eventof Default and upon Secured Party’s request before the occurrence of a Defaultor Event of Default if Secured Party deems itself insecure, endorse, assign anddeliver the same to Secured Party, accompanied by such instruments of transferor assignment duly executed in blank as Secured Party may from time to timespecify and with respect to any such Collateral in the possession or control ofSecured Party, Grantor waives any restriction or obligation imposed on SecuredParty by Sections 9-207(c)(1) and 9-207(c)(2) of the UniformCommercial Code as in effect in the State of Nevada from time to time (the “NVUCC”).

 

j)                 For each deposit accountthat Grantor at any time opens or maintains, Grantor shall, forthwith after theoccurrence of a Default or Event of Default and at Secured Party’s requestbefore the occurrence of a Default or Event of Default if Secured Party deemsitself insecure, either (i) cause the depositary bank to enter into awritten agreement or other authenticated record with Secured Party, in form andsubstance satisfactory to Secured Party, pursuant to which such depositary bankshall agree, among other things, to comply at any time with instructions fromSecured Party to such depositary bank directing the disposition of funds fromtime to time credited to such deposit account, without further consent ofGrantor, or (ii) arrange for Secured Party to become the customer of thedepositary bank with respect to the deposit 

 

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account.  The foregoing provisions of this sectionshall not apply to deposit accounts specially and exclusively used for payroll,payroll taxes and other employee wage and benefit payments to or for thebenefit of Grantor’s salaried employees. With respect to any deposit accounts,rights arising under deposit accounts or proceeds thereof in the possession orwithin the control of Secured Party, Grantor waives any restriction orobligation imposed on Secured Party by Sections 9-207(c)(1), 9-207(c)(2) and9-208 of the NVUCC.

 

k)              Grantor shall not, withoutSecured Party’s prior written consent, grant any extension of the time of paymentof any of the Collateral consisting of accounts, chattel paper, instruments orpayment intangibles, compromise, compound or settle the same for less than thefull amount thereof, release, wholly or partly, any obligor liable for thepayment thereof or allow any credit or discount whatsoever thereon, other thanextensions, credits, discounts, compromises or settlements granted or made inthe ordinary course of business and consistent with its good faith businessjudgment.

 

l)                 Grantor, at its sole costand expense, shall maintain or cause to be maintained insurance withfinancially sound and reputable insurers insurance with respect to itsproperties and business against such casualties and contingencies as shall bein accordance with general practices of businesses engaged in similaractivities in similar geographic areas. Such insurance shall be in such minimum amounts that Grantor shall notbe deemed a co-insurer under applicable insurance laws, regulations andpolicies and otherwise shall be in such amounts, contain such terms, be in suchforms and be for such periods as may be reasonably satisfactory to SecuredParty.  Without limiting the foregoing,Grantor shall (i) keep all of its physical property insured with casualtyor physical hazard insurance on an “all risks” basis, with broad form flood andearthquake coverages and electronic data processing coverage, with a fullreplacement cost endorsement and an “agreed amount” clause in an amount equalto 100% of the full replacement cost of such property; (ii) maintain allsuch workers’ compensation or similar insurance as may be required by law; and (iii) maintain,in amounts and with deductibles equal to those generally maintained bybusinesses engaged in similar activities in similar geographic areas, generalpublic liability insurance against claims of bodily injury, death or propertydamage occurring, on, in or about the properties of Grantor; businessinterruption insurance; and product liability insurance.

 

6.               Confidentialityof CBS Related Contracts. Grantor provides confidentiality to certain of its account debtors toprotect the physical contracts as well as the information containedtherein.  Secured Party acknowledges andagrees that pursuant to the terms of this Security Agreement the securityinterest in Grantor’s contracts does not extend to the examining or possessingthe actual agreements unless an Event of Default occurs.  However, nothing in this section in any wayalters Grantor’s obligation to provide ageings of its accounts and otherreceivables required pursuant to Section 5(b) above.

 

7.               Expenses. Grantoragrees to pay to Secured Party on demand all expenses, including reasonableattorney’s fees, incurred by Secured Party in protecting or enforcing itsrights in the Collateral.

 

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8.               Secured Party’sObligations and Duties. Anything herein to the contrary notwithstanding, Grantor shall remainliable under each contract or agreement comprised in the Collateral to beobserved or performed by Grantor thereunder. Secured Party shall not have any obligation or liability under any suchcontract or agreement by reason of or arising out of this Security Agreement orthe 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 theobligations of Grantor under or pursuant to any such contract or agreement, tomake inquiry as to the nature or sufficiency of any payment received by SecuredParty in respect of the Collateral or as to the sufficiency of any performanceby any party under any such contract or agreement, to present or file anyclaim, to take any action to enforce any performance or to collect the paymentof any amounts which may have been assigned to Secured Party or to whichSecured Party may be entitled at any time or times.  Secured Party’s sole duty with respect to thecustody, safe keeping and physical preservation of the Collateral in itspossession, under Section 9-207 of the NVUCC or otherwise, shall be todeal with such Collateral in the same manner as Secured Party deals withsimilar property for its own account.

 

9.               ContinuingObligation.  Theliability of Grantor and the Lien created under this Agreement shall beabsolute and unconditional irrespective of: (i) any change in the manner, place or terms of payment orperformance, and/or any change or extension of the time of payment orperformance of, renewal or alteration of, any Obligation, any securitytherefor, or any liability incurred directly or indirectly in respect thereof,or any other amendment or waiver of or any consent to departure from the LoanAgreement or any other Loan Document, including any increase in the Obligationsresulting from the extension of additional credit to Borrower or otherwise; (ii) anysale, exchange, release, surrender, realization upon any property by whomsoeverat any time pledged or mortgaged to secure, or howsoever securing, all or anyof the Obligations, and/or any offset thereagainst, or failure to perfect, orcontinue the perfection of, any Lien in any such property, or delay in theperfection of any such Lien, or any amendment or waiver of or consent todeparture from any other guaranty for all or any of the Obligations; (iii) anyexercise or failure to exercise any rights against Borrower or others(including 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 anysubordination of the payment of all or any part thereof to the payment of anyObligation (whether due or not) of Borrower to creditors of Borrower other thanGrantor; (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 ofany Collateral for all or any of the Obligations or any other assets ofBorrower; (vi) any change, restructuring or termination of the existenceof Borrower; or (vii) any other agreements or circumstance of any naturewhatsoever which might otherwise constitute a defense available to, or adischarge of, this Agreement and/or obligations of Grantor hereunder, or adefense to, or discharge of, Borrower or any other person or party relating tothis Agreement or the obligations of Grantor hereunder or otherwise withrespect to the Loans to Borrower.

 

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10.         Appointment andPowers of Secured Party.

 

a)              Grantor hereby irrevocablyconstitutes and appoints Secured Party and any member, director, officer oragent thereof, with full power of substitution, as its true and lawfulattorneys-in-fact with full irrevocable power and authority in the place andstead of Grantor or in Secured Party’s own name, for the purpose of carryingout the terms of this Security Agreement, to take any and all appropriateaction and to execute any and all documents and instruments that may benecessary or desirable to accomplish the purposes of this Security Agreementand, without limiting the generality of the foregoing, hereby gives saidattorneys the power and right, on behalf of Grantor, without notice to orassent by Grantor, to do the following:

 

i)                 upon the occurrence andduring the continuance of an Event of Default, generally to sell, transfer,pledge, license, lease, otherwise dispose of, make any agreement with respectto or otherwise deal with any of the Collateral in such manner as is consistentwith the NVUCC and as fully and completely as though Secured Party were theabsolute owner thereof for all purposes, and to do at Grantor’s expense, at anytime, or from time to time, all acts and things which Secured Party deems necessaryto protect, preserve or realize upon the Collateral and the Lien therein, inorder to effect the intent of this Security Agreement, all as fully andeffectively as Grantor might do, including, without limitation:  (i) making, settling and adjustingclaims in respect of Collateral under policies of insurance, endorsing the nameof Grantor on any check, draft, instrument or other item of payment for theproceeds of such policies of insurance and for making all determinations anddecisions with respect thereto; and (ii) executing, delivering andrecording, in connection with any sale or other disposition of any Collateral,of the endorsements, assignments or other instruments of conveyance or transferwith respect to such Collateral; and

 

ii)              to the extent that Grantor’sauthorization given in Section 1 above is not sufficient, to file suchfinancing statements with respect hereto, with or without Grantor’s signature,or a photocopy of this Security Agreement in substitution for a financingstatement, as Secured Party may deem appropriate and to execute in Grantor’sname such financing statements and amendments thereto and continuationstatements which may require Grantor’s signature.

 

b)             To the extent permitted bylaw, Grantor hereby ratifies all that said attorneys shall lawfully do or causeto be done by virtue of this Section. This power of attorney is a power coupled with an interest and isirrevocable.

 

c)              The powers conferred onSecured Party, its members, directors, officers and agents pursuant to this Section aresolely to protect Secured Party’s interests in the Collateral and shall notimpose any duty upon any of them to exercise any such powers.  Secured Party shall be accountable only forthe amounts that it actually receives as a result of the exercise of suchpowers, and neither it nor any of its officers, directors, employees or agentsshall be responsible to Grantor for any act or failure to act, except forSecured Party’s own gross negligence or willful misconduct.

 

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11.         Rights and Remediesof Secured Party.  Upon theoccurrence of an Event of Default, Secured Party may exercise any one or moreof the following rights and remedies:

 

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

 

b)             Have in any jurisdiction inwhich enforcement hereof is sought, in addition to all other rights andremedies, all of the rights and remedies provided to a secured party withrespect to the Collateral under the NVUCC or the UCC of any other jurisdictionin which Collateral is located, including, without limitation, the right totake possession of the Collateral, and for that purpose Secured Party may, sofar as Grantor can give authority therefor, enter upon any premises on whichthe Collateral may be situated and remove the same therefrom.  Secured Party may in its discretion requireGrantor to assemble all or any part of the Collateral at such location orlocations within the jurisdiction(s) of Grantor’s principal office(s) orat such other locations as Secured Party may reasonably designate.  Unless the Collateral is perishable orthreatens to decline speedily in value or is of a type customarily sold on arecognized market, Secured Party shall give to Grantor at least 10 days’ priorwritten notice of the time and place of any public sale of Collateral or of thetime after which any private sale or any other intended disposition is to bemade.  Grantor hereby acknowledges that10 days prior written notice of such sale or sales shall be reasonable notice.  In addition, Grantor waives any and allrights that it may have to a judicial hearing in advance of the enforcement ofany of Secured Party’s rights hereunder, including, without limitation, itsright following an Event of Default to take immediate possession of theCollateral and to exercise its rights with respect thereto. The provisions of Section 9-209of the NVUCC shall not apply to any account, chattel paper or paymentintangible as to which notification of assignment has been sent to the accountdebtor.

 

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

 

d)             Notification to AccountDebtors and Other Persons Obligated on Collateral.  At the request of Secured Party, notifyaccount debtors and other persons obligated on any of the Collateral of theLien of Secured Party in any account, chattel paper, general intangible,instrument or other Collateral and that payment thereof is to be made directlyto Secured Party, or to the Lock Box established pursuant to Section 11(e) belowor to any other financial institution designated by Secured Party as SecuredParty’s agent therefor, and Secured Party may itself, without notice to ordemand upon Grantor, so notify account debtors and other persons obligated onCollateral.  After the making of such arequest or the giving of any such notification, Grantor shall hold any proceedsof collection of accounts, chattel paper, general intangibles, instruments andother Collateral received by Grantor as trustee for Secured Party withoutcommingling the same with other funds of Grantor and shall turn the same over toSecured Party in the identical form received, together with any necessaryendorsements or assignments.  SecuredParty may apply the proceeds of collection of accounts, chattel paper, 

 

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general intangibles,instruments and other Collateral received by Secured Party to the Obligationsor hold such proceeds as additional Collateral, at the option of Secured Party.The provisions of Section 9-209 of the NVUCC shall not apply to anyaccount, chattel paper or payment intangible as to which notification of assignmenthas been sent to the account debtor or other person obligation on theCollateral; and

 

e)              Lock Box.  Cause that all collections and proceeds ofCollateral shall be made to a lock box and remitted in kind to SecuredParty.  Grantor hereby confirms toSecured Party that a post office box (the “Lock Box”) under the sole dominionand control of Secured Party shall be established by Grantor and that WellsFargo Bank, N.A. (“Bank”) or another bank selected by Secured Party shall haveaccess to the items deposited in the Lock Box from time to time.  Grantor agrees and acknowledges that the LockBox is for the purpose of receiving all checks and other forms of payment,amounts and cash from all account debtors and other persons and entities andthird party payors and obligors of Grantor relating to the Collateral.  Grantor hereby confirms to Secured Party thatupon the written request of Secured Party, a special, separate account number(the “Lock Box Account”) under the sole dominion and control of Secured Partywill be established solely for the purpose of (i) depositing checks andall other forms of payment, amounts and cash received relating to theCollateral in the Lock Box, and (ii) receiving electronic fund transfersfrom the CBS Payors.  All fees, costs andexpenses charged by Bank for the Lock Box and the Lock Box Account shall be inaccordance with Bank’s customary practices and shall be payable byGrantor.  Secured Party shall not bearany responsibility for such amounts.

 

12.         Standards forExercising Remedies.  To theextent that applicable law imposes duties on Secured Party to exercise remediesin a commercially reasonable manner, Grantor acknowledges and agrees that it isnot commercially unreasonable for Secured Party (a) to fail to incurexpenses reasonably deemed significant by Secured Party to prepare Collateralfor disposition or to postpone any such disposition pending any suchpreparation; (b) to fail to obtain third party consents for access toCollateral to be disposed of, or to obtain or, if not required by other law, tofail to obtain governmental or third party consents for the collection ordisposition of Collateral to be collected or disposed of; (c) to fail toexercise collection remedies against account debtors or other persons obligatedon Collateral or to remove any Lien on or any adverse claims againstCollateral; (d) to exercise collection remedies against account debtorsand other persons obligated on Collateral directly or through the use ofcollection agencies and other collection specialists; (e) to advertisedispositions of Collateral through publications or media of generalcirculation, whether or not the Collateral is of a specialized nature;(f) to contact other persons, whether or not in the same business as 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 thedisposition of Collateral, whether or not the collateral is of a specializednature; (h) to dispose of Collateral by utilizing Internet sites thatprovide for the auction of assets of the types included in the Collateral orthat have the reasonable capability of doing so, or that match buyers andsellers of assets; (i) to disclaim disposition warranties; (j) topurchase insurance or credit 

 

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enhancementsto insure Secured Party against risks of loss, collection or disposition ofCollateral or to provide to Secured Party a guaranteed return from thecollection or disposition of Collateral; or (k) to the extent deemed appropriateby Secured Party, to obtain the services of other brokers, investment bankers,consultants and other professionals to assist Secured Party in the collectionor disposition of any of the Collateral. Grantor acknowledges that the purpose of this Section is to providenon-exhaustive indications of what actions or omissions by Secured Party wouldnot be commercially unreasonable in Secured Party’s exercise of remediesagainst the Collateral and that other actions or omissions by Secured Partyshall not be deemed commercially unreasonable solely on account of not beingindicated in this Section.  Withoutlimiting the foregoing, nothing contained in this Section shall beconstrued to grant any rights to Grantor or to impose any duties on SecuredParty that would not have been granted or imposed by this Security Agreement orby applicable law in the absence of this Section.

 

13.         Waiver.  Grantor, except as otherwise specifically setforth 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 ofdishonor and all other demands or notices of any and every kind whatsoever inconnection with this Agreement, the other Loan Documents, and the Collateraland the benefit of all statutes, ordinances, judicial rulings, and other legalprinciples of any kind, now or hereafter enacted or in force, affording anyright of redemption or cure or any right to a stay of execution or extension oftime for payment or exempting any property of such person from levy and saleupon execution of any judgment obtained by Secured Party or any successor orassignee of Secured Party in respect of this Agreement, the other Loan Documents,or the Collateral. Grantor hereby agrees that this Agreement, the other LoanDocuments, and the Collateral, and any or all payments coming due hereunder maybe extended from time to time in the sole discretion of Secured Party withoutin any way affecting or diminishing Grantor’s liabilities hereunder.

 

14.         Survival ofAgreement.  Allcovenants, agreements, representations and warranties made by Grantor hereinand in the certificates or other instruments prepared or delivered inconnection with or pursuant to this Security Agreement shall be considered tohave been relied upon by Secured Party and shall survive the execution anddelivery of this Security Agreement, the Loan Agreement and the advance of allextensions of credit contemplated thereby, regardless of any investigation madeby Secured Party, and shall continue in full force and effect until thisSecurity Agreement shall terminate (or thereafter to the extent providedherein).

 

15.         Notices*.*  Except as otherwise provided herein, allnotices and other communications provided for hereunder shall be in writing(including telecopier) and, mailed, telecopied, cabled, couriered or deliveredby hand to Grantor or to Secured Party, as the case may be, in each caseaddressed to it at its address set forth below the name of such party on thesignature pages hereof, or, as to any party, at such other address asshall be designated by such party in a written notice to each other partycomplying as to delivery with the terms of 

 

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thisSection.  All such notices and othercommunications shall, when mailed, be effective three days after beingdeposited in the mails, when telecopied or cabled, be effective when telecopiedor delivered to the cable company, respectively, and when couriered ordelivered by hand, be effective when received; except that notices and othercommunications to Secured Party shall not be effective until received bySecured Party.

 

16.         Generalprovisions.

 

a)              This agreement shall begoverned by and construed in accordance with the laws of the State of Nevada in all respects, includingmatters of construction, validity and performance, shall inure to the benefitof Secured Party, its successors, and assigns and to any other holder whoderives from Secured Party title to or an interest in any liabilities, andshall be binding upon Grantor and the heirs, executors, administrators,successors, and assigns of Grantor except that Grantor shall have no right todelegate, assign or transfer its rights or obligations hereunder or anyinterest herein (and any such assignment or transfer shall be void).

 

b)             ThisSecurity Agreement may be executed in two or more separate counterparts, eachof which shall constitute an original and all of which shall collectively andseparately constitute one and the same agreement.  Delivery by telecopier of an executedcounterpart of any amendment or waiver of any provision of this SecurityAgreement shall be effective as delivery of an original executed counterpartthereof.

 

c)              Theheadings of each section of this Security Agreement are for convenience onlyand shall not define or limit the provisions thereof.

 

d)             Theparties hereto have participated jointly in the negotiation and drafting ofthis Security Agreement.  In the event anambiguity or question of intent or interpretation arises, this SecurityAgreement shall be construed as if drafted jointly by the parties hereto and nopresumption or burden of proof shall arise favoring or disfavoring any party byvirtue of the authorship of any provisions of this Security Agreement.

 

e)              Inthe event any one or more of the provisions contained in this SecurityAgreement should be held invalid, illegal or unenforceable in any respect, thevalidity, legality and enforceability of the remaining provisions containedherein shall not in any way be affected or impaired thereby (it beingunderstood that the invalidity of a particular provision in a particularjurisdiction shall not in and of itself affect the validity of such provisionin any other jurisdiction).

 

f)                No failure or delay ofSecured Party in exercising any power or right hereunder shall operate as awaiver thereof, nor shall any single or partial exercise of any such right orpower, or any abandonment or discontinuance of steps to enforce such a right orpower, preclude any other or further exercise thereof or the exercise of anyother right or power.  The rights andremedies of Secured Party hereunder and of Secured Party under the other LoanDocuments are cumulative and are not exclusive of any rights or remedies thatit would otherwise have.  No amendment ofthis Security Agreement, and no waiver of any provisions of this Security 

 

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Agreement or consent to anydeparture by Grantor therefrom, shall in any event be effective except pursuantto a writing entered into by Secured Party and Grantor, and then any suchwaiver or consent shall be effective only in the specific instance and for thepurpose for which given.  No notice to ordemand on Grantor in any case shall entitle Grantor to any other or furthernotice or demand in similar or other circumstances.

 

INWITNESS WHEREOF, intending to be legally bound, Grantor has caused thisSecurity Agreement to be duly executed as of the date first above written.

 
| American  Wagering, Inc. |                              |
|-------------------------------|-----------------------------------|
|                          |                              |   |
|                          |                              |   |
| By:                           | /s/  Victor Salerno               |   |
|                          | Victor  Salerno                   |   |
|                          | Chief  Executive Officer          |   |
|                          |                              |
| Address:                      | 675 Grier Drive                   |   |
|                          | Las Vegas, Nevada 89119           |   |
| Attention:                    |  General  Counsel            |   |
| Telecopier  No.:              |    (702)  735-0142 |   |
|                          |                              |   |
| **Accepted and Agreed:**      |                              |
|                          |                              |   |
| Alpine Advisors LLC,          |                              |
| as Secured Party              |                              |
|                          |                              |   |
|                          |                              |   |
| By:                           | /s/  Don R. Kornstein             |   |
|                          | Don  R. Kornstein                 |   |
|                          | Managing  Member                  |   |
|                          |                              |
| Address:                      | 825  Lakeshore Blvd               |   |
|                          | Incline Village, Nevada 89119     |   |
| Attention:                    | Don R. Kornstein                  |   |
| Telecopier No.:               |    (702)  831-3229 |   |
|                               |                                   |  |  |

 

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