EXHIBIT 10.3


 


PLEDGE
AGREEMENT


 


Southwest Casino Corporation (“Southwest”)  and each of the  parties listed as Co-Signers on Exhibit 1 (the “Co-Signers”) enter into this Pledge Agreement (the “Agreement”) effective March 7, 2008.  Each of the Co-Signers is referred to individually as a “Co-Signer” and collectively, the “Co-Signers”.


 


BACKGROUND


 


A.            Under the terms of Subscription Agreements
among Southwest and the Co-Signers dated the same date as this Agreement
(collectively, the “Subscription Agreements”),
each of the Co-Signers have agreed to co-sign with Southwest a promissory note
(each, a “Note” and collectively,
the “Notes”) or to execute and
deliver a guaranty (each, a “Guaranty”
and collectively, the “Guaranties”)
in favor of Crown Bank (the “Bank”).


 


B.            Southwest is the sole shareholder of
Southwest Casino & Hotel Corp., a Minnesota corporation  (“Casino &
Hotel”) and currently holds 1,000 shares of Casino & Hotel
common stock (the “Shares”).


 


C.            In consideration of co-signing the
Notes or entering into the Guaranties, Southwest has agreed to execute and
deliver this Agreement to the Co-Signers.


 


AGREEMENT


 


In consideration
of the accommodations made and to be made by the Co-Signers to Southwest, the
mutual promises, covenants and agreements contained in this Agreement, and
other good and valuable consideration, the receipt and sufficiency of which
each of the parties to this Agreement acknowledges, Southwest and the
Co-Signers agree as follows:


 


1.                                      THE PLEDGE


 


1.1           The Pledge. 
Southwest pledges and grants to the Co-Signers, as agents for and on
behalf of the Co-Signers, a first priority security interest (the “Pledge”) in the Shares (the “Collateral”), including:


 


a.                                       All securities, instruments, other investment
property and other rights or interests of any kind or description, at any time
issued or issuable as an addition to, in substitution or exchange for, or with
respect to, the Shares, including, without limitation, any shares or other
ownership interest issued as dividends or as the result of any reclassification,
split-up or other reorganization;


 


b.                                      All cash, proceeds, dividends, interest or other
property, paid, payable, received, receivable or otherwise distributed in
respect of, in exchange for, or upon the sale or other disposition of the Shares;
but before the occurrence of an Event of Default, not including any cash
dividends or distributions payable with respect to the Membership Interest,
which will remain the property of Southwest; and


 


c.                                       All records, books, ledgers, computer tapes or disks,
printouts and other information in whatsoever form regarding the Shares.


 


1.2           Secured Obligations.  The Pledge granted in this Agreement is given
to secure (i) all liabilities and obligations incurred by the Co-Signers
under the Notes, (ii) all liabilities and obligations incurred by the
Co-Signers under the Guarantees, and (iii) all amounts expended or
incurred by the Co-


 


 

















 


Signers in negotiating with the Company or Southwest
in conjunction with Southwest’s obligations under this Agreement or in exercising
any rights or remedies consequent upon any default under this Agreement,
including, without limitation, UCC filing fees, court costs, and attorneys fees
and expenses of counsel for the Co-Signers incurred in connection with the
enforcement of this Agreement whether or not suit has been filed (all of which
are referred to in this Agreement collectively as the “Secured Obligations”).


 


1.3           Limitations
on Pledged Securities. 
Southwest represents and warrants to Co-Signers that Southwest holds
title to the shares of Southwest Casino and Hotel Corp. common stock free and
clear of any liens, pledges or encumbrances, except liens in favor of the
Co-Signers.  Provided, however, that
Southwest Casino and Hotel Corp. owns a 50% membership interest in North Metro
Harness Initiative, LLC (the “North Metro
Interest”) and Southwest Casino and Hotel Corp.’s ownership of the
North Metro Interest is subject to a prior pledge of the North Metro Interest
to Black Diamond Commercial Finance, LLC (the “Black Diamond Pledge”). 
Any attempt by Southwest Casino and Hotel Corp. or by Co-Signers to
transfer the North Metro Interest is subordinate to the prior Black Diamond
Pledge and cannot occur without the consent of Black Diamond Commercial
Finance, LLC, which Black Diamond may withhold in its sole discretion.  The North Metro Interest is also subject to
the terms of the North Metro Harness Initiative, LLC Member Control Agreement
dated June 4, 2004 that further limits the ability of Southwest Casino and
Hotel Corp. to dispose of the North Metro Interest.  In addition to the consent of Black Diamond
Commercial Finance, LLC, Southwest Casino and Hotel Corp. or Co-Signers must
obtain the consent of MTR-Harness, Inc., which also holds a 50% membership
interest in North Metro an may also withhold its consent in its sole
discretion, prior to any transfer of the North Metro Interest.


 


1.4           Proxies, Stock Powers,
Other Endorsements. 
After the occurrence of an Event of Default and upon demand of
Co-Signers representing a majority of the total principal amount of the Notes
and the Guarantees, Southwest will execute, assign and endorse to the
Co-Signers all proxies, endorsements, applications, acceptances, powers,
documents, instruments or other evidences of payment or writing constituting or
relating to any of the Collateral.  All
assignments and endorsements will be in form and substance reasonably
satisfactory to the Co-Signers.


 


1.5           Duty of the Co-Signers.  The Co-Signers are not be obligated to take
any action to exercise any rights, warrants or options with respect to the
Collateral, to present any coupon(s) for payment, to effect redemption of,
or to make any presentment, protest, notice of protest or to otherwise protect
any optional right(s) on the Collateral.


 


1.6           Security Interest is
Continuing. 
Southwest agrees and acknowledges that the Pledge granted in this
Agreement is a continuing security interest and must continue in full force and
effect until all of the Secured Obligations are paid in full.  Except as expressly provided in this
Agreement, the Co-Signers must release their interest in the Collateral only
upon payment in full of all of the Secured Obligations and the indefeasible
termination, release and discharge of the Guaranties; provided, however, that
the Co-Signers will execute and deliver to Southwest the proper instruments
(including UCC termination statements) acknowledging the termination of this
Agreement, and will duly assign, transfer and deliver to Southwest any
Collateral that may be in the possession of the Co-Signers and has not been
disposed of, applied or released.


 


1.7           Actions Not Affecting the
Pledge.  The
Co-Signers may (and each of the Co-Signers is authorized to make from time to
time, without notice to anyone) without impairing or affecting the Pledge
granted in this Agreement:


 


 

















 


a.                                       Sell, pledge, surrender, compromise,
settle, release, renew, extend, grant an indulgence, alter, substitute, change,
modify, or otherwise dispose of any of the Secured Obligations or any contract
evidencing the same or any part of the Secured Obligations or any security
interest for the Secured Obligations;


 


b.                                      Accept additional security for or
additional parties or other Co-Signers upon any of the Secured Obligations or
release any portion of the Collateral or any maker, endorser, security or
Co-Signer or other party liable on any portion of the Secured Obligations;


 


c.                                       Apply any and all payments a Co-Signer
receives on account of the Secured Obligations and the proceeds of the
Collateral or any other security for the Collateral against any item or items
of the Secured Obligations as the Co-Signers, each in its sole discretion, may
determine, whether the same is then due or not; and


 


d.                                      Settle or compromise any liability
secured by this Agreement, any security for that liability or any liability
(including any of those under this Agreement) incurred directly or indirectly
in respect of the liability secured by this Agreement, and may subordinate the
payment of all or part of that liability to the payment of any liability of
Southwest to creditors of Southwest, other than the Co-Signers.


 


2.                                      WARRANTIES AND REPRESENTATIONS OF SOUTHWEST


 


2.1           Power and Authority.  Southwest has full power and authority to
execute and deliver this Agreement and to perform its obligations under this
Agreement.


 


2.2           Enforceability.  This Agreement is the legal, valid and
binding obligation of Southwest, enforceable against Southwest according to its
terms, subject only to bankruptcy, insolvency, moratorium, reorganization or
similar laws, rulings or decisions at the time in effect affecting the
enforceability of rights of creditors generally and to applicable equitable
principles.


 


2.3           Title to the Collateral.  Southwest warrants and represents to the
Co-Signers that it holds title to the Collateral free and clear of any liens,
pledges or encumbrances, except liens or encumbrances in favor of the
Co-Signers, and no financing statement or registration of pledge covering all
or any part of the Collateral is on file in any public office or private office,
except those in favor of the Co-Signers.


 


3.                                      EVENTS OF DEFAULT AND REMEDIES


 


3.1           Events
of Default.  An “Event of Default” will occur if the Bank
requires and any co-signer makes any payment on a Note or the Bank calls all or
any portion of any Guaranty given by any of the Co-Signers and Southwest is
unable to reimburse the amount paid by the Co-Signer or Co-Signers within 30
days.  After occurrence of an Event of
Default and upon written demand from Co-Signers representing a majority in
interest of the total amount co-signed or guaranteed, Southwest will assign to
the Co-Signers, that portion of the Collateral reasonably determined by
Co-Signer to be of value necessary to repay to Co-Signer any amounts paid by
Co-Signer in connection with the Event of Default.  Southwest and Co-Signer agree that the intent
of this provision is to reimburse Co-Signer only for amounts actually paid in
connection with an Event of Default.  For
that reason, strict foreclosure in accordance with Section 9-620 of the
Uniform Commercial Code (“UCC”) is
not available to Co-Signers.  If
Co-Signer disposes of the assigned Collateral in accordance with Section 3.2
of this Agreement within 90 days of its assignment to Co-Signer and does not
receive sufficient value to repay to Co-Signer any 


 


 

















 


amounts paid by Co-Signer in connection with the Event
of Default, Co-Signer shall have the right to assignment of additional
Collateral in accordance with the terms of this Agreement.


 


3.2           Co-Signer’s Right to Sell
the Collateral. 
Subject to the terms and conditions of the Black Diamond Pledge and the
Member Control Agreement, upon the occurrence of an Event of Default and
assignment of the Collateral, each Co-Signer:


 


a.                                       will be entitled to sell that portion of
the Collateral reasonably necessary to repay to Co-Signer any amounts paid by
Co-Signer in connection with the Event of Default.  The disposition of the Collateral after an
Event of Default shall be by public proceedings under UCC 9-610, and not by
private proceeding, unless consented to by Southwest in writing subsequent to
an Event of Default; or


 


b.                                      may cause that portion of the Collateral
assigned to that Co-Signer to be registered in the Co-Signer’s name and to
receive all dividends, interest and other distributions on that portion of the
Collateral and apply the same to the Secured Obligations as the Co-Signer deems
appropriate.


 


3.3           Waiver of Redemption; No
Liability for Value Decline.  Any and all sales of the Collateral held by
the Co-Signers under Section 3.2 above will be free from any right of
redemption, which Southwest expressly waives. 
In addition, the Co-Signers will have no liability for any increase or
decrease in the value of any of the Collateral at any time.


 


3.4           Application of Sales
Proceeds.  The
proceeds of the sale(s) of the Collateral under Section 3.2 above
will be applied as follows:


 


a.                                       First, to the payment of all costs and
expenses incurred by the Co-Signers under this Agreement, including all costs
and expenses of collection, whether or not a suit has been filed, including,
but not limited to, all sales commissions, brokers’ fees and attorneys’ fees;


 


b.                                      Second, to the satisfaction of the
Secured Obligations;


 


c.                                       Third, to the payment of any other
amounts required by applicable law; and


 


d.                                      Fourth, any balance then remaining will
be paid to Southwest, unless it is the subject of tax lien or levy, attachment,
restraining order, injunction or other such distraint.


 


3.5           Rights Cumulative.  All remedies of the Co-Signers under this
Agreement are in addition to remedies afforded to the Co-Signers under any
other document evidencing or securing any of the Secured Obligations or any
other document or under law.  All
remedies are cumulative and may be exercised by the Co-Signers concurrently or
consecutively.  No failure or omission of
the Co-Signers to exercise any right or remedy will constitute a waiver.


 


4.                                      MISCELLANEOUS


 


4.1           Agreement Binding.  This Agreement binds the successors and
assigns of Southwest and the insolvency, bankruptcy, or release of any such
party will not release or discharge any other borrower, pledgor, endorser, or
Co-Signer from liability under this Agreement; provided, however, that the
rights of Southwest under this Agreement may not be assigned without the prior
written consent of the Co-Signers.


 


 

















 


4.2           Severability.  If one or more provisions of this Agreement
should be declared to be invalid, illegal or unenforceable in any respect by a
court of competent jurisdiction, the validity, legality and enforceability of
the remaining provisions in this Agreement will not in any way be affected or
impaired.


 


4.3           Regarding
the Secured Parties.  All actions taken by the Co-Signers
under this Agreement will be taken only upon the mutual agreement of Co-Signers
representing a majority of the total amount Guaranteed under the Subscription
Agreements.


 


4.4           Attorney in Fact.  Effective upon the occurrence of an Event of
Default, Southwest appoints the Co-Signers as Southwest’s attorney-in-fact for
the purpose of carrying out the terms of this Agreement and taking any action
and executing any instrument which it may deem advisable or necessary to
accomplish the purposes of this Agreement, which appointment is irrevocable and
coupled with an interest.  Without
limiting the generality of the foregoing, upon the occurrence of an Event of
Default, the Co-Signers have the right, power and authority to endorse and
collect all checks and other orders for the payment of money made payable to
Southwest representing any dividend, interest payment or other distribution in
respect of the Collateral or any part of the Collateral.


 


4.5           Notices.  Any notice required under this Agreement will
be deemed given on the third banking day after deposit in the U.S. Mail, proper
postage prepaid addressed to Southwest and to the Co-Signers at the following
addresses:


 


Southwest Casino
Corporation


2001 Killebrew Drive, Suite 350


Minneapolis, MN 55425


Attn: Thomas E. Fox,
President


 


The Co-Signers:


At the address listed on Exhibit 1
to this Agreement.


 


Any changes in a party’s
address may be made by giving written notice to the other parties in accordance
with this Section.


 


4.6           Governing Law;
Jurisdiction. 
This Agreement must be construed, interpreted and governed according to
the laws of the State of Minnesota.  Southwest and each of the Co-Signers consent
to the personal jurisdiction of the state and federal courts located in the
State of Minnesota in connection
with any controversy related to this Agreement, waive any argument that venue
in such forums is not convenient and agree that any litigation instigated in
connection with this Agreement must be venued in either the District Courts of Hennepin County, Minnesota, or the
United States District Court for the District
of Minnesota, Fourth Division.


 


4.7           Further Assurances.  Southwest agrees to do any further act and
things, and to execute and deliver any additional conveyances, assignments,
agreements and instruments, as the Co-Signers may at any time request in
connection with the administration or enforcement of this Agreement or related
to the Collateral or any part of the Collateral or in order better to assure
and confirm unto the Co-Signers its rights, powers and remedies under this
Agreement.  Southwest consents and agrees
that the issuers of or obligors in respect of the Collateral or any registrar
or transfer agent or trustees for any of the Collateral are entitled to accept
the provisions of this Agreement as conclusive evidence of the right of the
Co-Signers to effect any transfer, notwithstanding any other notice or direction
to the contrary given by Southwest or any other person to any issuers or
obligors or to any registrar or transfer agent or trustees.


 


 

















 


Signature Page for


Pledge Agreement


 


 


IN WITNESS WHEREOF, the parties to this Agreement have executed this
instrument as of the day and year first above written.


 


	
  SOUTHWEST
  CASINO CORPORATON

  	
   

  	
  CO-SIGNER
  or GUARANTOR

  



 


	
  By:

  	
   

  	
   

  	
   

  	
   

  



 


	
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