**Exhibit10.1**

 

**MASTER LOAN AGREEMENT**

 

# **By andAmong**

 

**PDS GAMING CORPORATION,**

 

**PDS GAMING CORPORATION-NEVADA,**

 

**PDS GAMING CORPORATION-MISSISSIPPI,**

 

**PDS GAMING CORPORATION-COLORADO,**

 

**and**

 

**FIRST STATE BANK OF THERMOPOLIS**

 

# **DATED AS OFMAY 14, 2002**

 

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**MASTERLOAN AGREEMENT**

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**THIS AGREEMENT** is made as of May 14, 2002 by and among **PDS GAMING CORPORATION**, a Minnesota corporation (“***PDS***”), **PDS GAMING CORPORATION-NEVADA**, a Nevadacorporation (“***PDS-NV***”),**PDS GAMING CORPORATION-MISSISSIPPI**,a Mississippi corporation (“***PDS-MS***”), and **PDSGAMING CORPORATION-COLORADO**, a Colorado corporation (“***PDS-CO***”) (PDS,PDS-NV, PDS-MS and PDS-CO are jointly and severally, the “***Borrower***”) and **FIRST STATE BANK OF THERMOPOLIS**, a statechartered bank (the “***LeadLender***”).

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### **RECITALS**

 

**A.           **Whereas,Borrower has requested that Lead Lender make available to Borrower a creditfacility in a principal amount of **ThreeMillion Two Hundred Eighty Thousand and 00/100 Dollars ($3,280,000.00)**(the “***Loan***”)evidenced by a promissory note of Borrower in favor of Lead Lender (the “***Note***”); and

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**B.**            Whereas,the Loan is secured by a Master Security Agreement dated the date hereofbetween Borrower and Lender (as such Master Security Agreement may be amendedfrom time to time, the “***SecurityAgreement***”).

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**C.**            Whereas,pursuant to a Loan Participation and Servicing Agreement of even date herewithamong the Lead Lender and various loan participants in the Loan (the “***Participants***”), theParticipants have appointed the Lead Lender as servicer for the performance ofcertain duties called for in this Agreement.

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**D.**            Lead Lender is willing to makeadvances under the Loan to Borrower upon the terms and subject to theconditions set forth herein.

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

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**1.     Definitions.**

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**a.**“***Addendum andAssignment***” is defined in the Security Agreement.

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**b.**“***Capitalized Cost to Lessee***”means the fair market value of the Equipment as of the date of the Contract asreasonably determined by Borrower in accordance with FASB 13, excluding anycharges for insurance, maintenance, delivery and sales or use taxes.

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**c.**“***Closing Date***”means the date hereof.

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**d.**“***Collateral***”is defined in the Security Agreement.

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**e.**“***Contract***”means any Contract between the Borrower and an Obligor which is identified inan Addendum and Assignment, and which meets the eligibility criteria set forthin **Exhibit “A”** attachedhereto.

 

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**f.     **“***DelinquentContract***” means any Contract where payment in full of allinstallments then due has not been made within 30 days of the due date or whereany other default has occurred and such default has continued for a period ofat least 30 days.

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**g.    **“***Equipment***”is defined in the Security Agreement.

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**h.    **“***Equipment Value***”means, (i) with respect to any Contract which is an installment sales contractor installment note, the sales price of the Equipment subject to such Contract,excluding sales or use tax, delivery charges, installation charges andany security deposit that is or will be applied as a credit against anyinstallment payment in whatever form collected; (ii) with respect to anyContract which is a finance lease, the Capitalized Cost to Lessee, excludingsales or use tax, delivery charges, installation charges and any securitydeposit that is or will be applied as a credit against any rent payment; and(iii) with respect to any Contract which is an operating lease, the CapitalizedCost to Lessee, excluding sales or use tax, delivery charges,installation charges and any security deposit that is or will be applied as acredit against any rent payment.

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**i.     **“***GAAP***”means generally accepted accounting principles as in effect from time to time,which shall include the official interpretations thereof by the FinancialAccounting Standards Board, consistently applied.

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**j.     **“***Loan Documents***” meansthis Agreement, the Note, the Security Agreement, the Addendum and Assignment,the Repossession Agreement, the UCC-1 and UCC-3 Financing Statements, and allother documents, instruments or agreements (excluding the Contracts) necessaryto give effect to this Agreement and the transaction contemplated hereby.

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**k.   **“***Maturity Date***”means **June 1, 2005**.

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**l.     **“***Note***”means the promissory note of the Borrower in the amount of **$3,280,000.00** dated of even date herewithsubstantially in the form of **Exhibit “B”**hereto.

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**m.   **“***Obligor***”means, with respect to any Contract, the person identified on a Contract as thelessee or purchaser.

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**n.    **“***RepossessionAgreement***” means that certain Repossession and RemarketingAgreement by and between Borrower and Lead Lender dated the date hereof, as itmay be amended from time to time.

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**o.    **“***Required Payment Amount***”means as of any Installment Payment Date (as defined in Note), that amountequal to the monthly amount necessary to fully amortize the then outstandingprincipal balance and accrued interest under the Note in equal monthlyinstallments by the Maturity Date, together with payment of the Servicing Feedescribed in the Note.

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**2.     TheCredit Facility.** Subject to and upon the terms and conditions hereof, and in relianceupon the representations and warranties of the Borrower herein, Lender willmake the Loan to Borrower in multiple advances (each an “***Advance***”) from timeto time, but in any event not later than 180 days from the date of thisAgreement, at such time and in such amount as to each “***Advance Request***” (asdefined in Section 3) as Borrower may request up to but not exceeding anaggregate principal amount of $3,280,000.00 for the purpose of fundingContracts 

 

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to certain Obligors, and topay all related transaction costs.  Inthe event the entire $3,280,000.00 is not advanced from the Escrow within 180days from the date of this Agreement, the remaining balance of the Escrow shallbe applied by Lender as a principal balance reduction under the Note.  The Loan will be advanced based on multipleAdvance Requests (as hereafter defined) but will not be a revolving creditfacility and Borrower may not borrow, repay and re-borrow amountsadvanced.  Advances will be made fromthe “***Escrow***”,as defined in Section 3.  TheAdvance amount of any Advance Request shall not exceed ninety percent (90%) ofthe Equipment Value of each Contract identified in the respective AdvanceRequest, or of all the Contracts identified in each such Advance Request, andeach Advance Request shall support an Advance in an amount not less than twohundred fifty thousand dollars ($250,000.00). The Loan shall bear interest at the rate of **eight****percent****(8.0%)** per annum. The Loan shall be payable over a thirty-six (36) month term.  Commencing on **June 1, 2002** and continuing on each Installment Payment Date(as defined in the Note) thereafter, Borrower shall pay installments ofprincipal and interest equal to the Required Payment Amount; provided that theunpaid principal balance of the Note, interest accrued thereon and all chargespayable pursuant to the terms of the Note shall become due and payable in fullon the earlier to occur of the following: (i) the Maturity Date, (ii) theoccurrence of an Event of Default and (iii) the Installment Payment Date (asdefined in the Note) next following the Installment Payment Date on which theunpaid principal balance of the Note declines below $25,000.00.  Any prepayments made on any Contract shallbe used to prepay the Loan to the extent required by the SecurityAgreement.  The Note may not be prepaidin whole or in part during the first year. Thereafter, the Note may be prepaid in whole or in part at any time,provided that any prepayment shall be made on thirty (30) days’ advance writtennotice to Lead Lender and shall be made only on a regularly scheduledInstallment Payment Date and any partial prepayment shall be made indenominations of no less than $25,000.00. After a prepayment, the then outstanding principal balance and accruedinterest will be reamortized over the period remaining between the date ofprepayment and the Maturity Date.  Allamounts paid in respect of the Note shall be applied in accordance with theNote and the Security Agreement.  Allpayments and prepayments of the principal of and interest on the Loan shall bemade by Borrower to Lead Lender pursuant to the terms of the Note and the otherLoan Documents, and shall be made by wire transfer in accordance with LeadLender’s instructions.

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**3.     BorrowingProcedure and Disbursement of Loan Proceeds.**   The Loan will be advanced under the Noteand deposited in an interest bearing **MoneyMarket Account** with or maintained by Lead Lender (the “***Escrow***”).  Each time Borrower desires to obtain adisbursement from the Escrow, Borrower shall submit to Lead Lender a writtenadvance request, duly signed by Borrower, substantially in the form of **Exhibit “C”** attached hereto (each an “***Advance Request***”).  Each Advance Request shall be submitted bythe Borrower to Lead Lender at least five (5) business days prior to the dateof the requested Advance.  Each AdvanceRequest shall specify (i) the advance date (which shall be a business day),(ii) the Equipment being acquired or financed therewith and the Equipment Valuethereof, (iii) the terms of and parties to the Contract(s) to which suchEquipment will be sold or leased, and (iv) the amount of the requested Advance,and shall set forth the information requested therein.  Unless Lead Lender reasonably determines anyapplicable condition specified in this Agreement has not been satisfied, LeadLender will make the amount of the requested Advance available to Borrower atLead Lender’s principal office in Thermopolis, Wyoming, not later than 5:00 p.m., Central StandardTime, on the requested advance date. Borrower shall be obligated to repay the Loan 

 

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notwithstanding the fact that the personrequesting any Advance was not in fact authorized to do so.  The proceeds of the Loan will be advanced ordisbursed to Borrower as described herein upon delivery to Lead Lender of thefollowing documents or other items:

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**a.     ItemsNecessary at time this Agreement is Executed:**

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**i.****             **The Loan Documents, each executed by theBorrower in favor of Lead Lender;

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**ii.           **Resolutions of the Executive Committee of theBoard of Directors (together with sufficient documentation of such Committee’sappointment and authority) or of the Board of Directors of each of theBorrowers, authorizing the execution, delivery and performance of the LoanDocuments and related documents and the transactions contemplated thereby;

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**iii.          **Evidence in form and substance acceptable toLead Lender that Borrowers have all licenses necessary to carry on business andto enable them to perform their obligations under the Repossession Agreement,including without limitation all licenses required under Nevada, Colorado,Mississippi and all applicable Indian Tribes, and all applicable state,federal and Tribal gaming laws, rulesand regulations for the operation ofBorrowers’ businesses;

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**iv.           **Articles of Incorporation of PDS, a copy ofthe Bylaws of PDS, and an unqualified certificate of good standing for PDSissued by the Minnesota Secretary of State;

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**v.            **Articles of Incorporation of PDS-NV, a copyof the Bylaws of PDS-NV, and an unqualified certificate of good standing forPDS-NV issued by the Nevada Secretary of State;

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**vi.           **Articles of Incorporation of PDS-MS, a copyof the Bylaws of PDS-MS, and an unqualified certificate of good standing forPDS-MS issued by the Mississippi Secretary of State;

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**vii.          **Articles of Incorporation of PDS-CO, a copyof the Bylaws of PDS-CO, and an unqualified certificate of good standing forPDS-CO issued by the Colorado Secretary of State;

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**viii.        **UCC searches with respect to each Borrower;

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**ix.           **Certificates of insurance and insuranceendorsements required hereby;

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**x.            **The favorable opinion of Borrower’s in-housecounsel as to the due and valid existence of each Borrower; as to the valid andbinding nature of  and enforceability ofall Loan Documents with respect to each Borrower; as to the absence of defaultand conflicts by each Borrower’ and to such other matters incident to thetransactions herein contemplated as Lead Lender may require; and

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**xi.           **Such additional certificates and agreementsas the Lead Lender reasonably determines are necessary or appropriate.

 

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**b.     Borrower ItemsNecessary Before any Advance:**

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**i.             **An Addendum and Assignment and UCC-1 andUCC-3 Financing Statements, each executed by Borrower in favor of Lead Lenderwith respect to the Contract(s) being financed with the requested Advance, andan assignment of Borrower’s interest as secured party with respect to therelated Equipment;

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**ii.           **With respect to each of the Contracts inwhich Borrower is granting a security interest to Lead Lender pursuant to theAddendum and Assignment, the executed original of each such Contract, with allcollateral schedules, and copies of such additional instruments, documents,certificates, searches and reports as Borrower has obtained in connection withsuch Contract;

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**iii.          **A Notice, Consent and Acknowledgment ofAssignment with respect to the Contract(s) being financed with the requestedAdvance, duly executed by Borrower in form and substance acceptable toLead Lender;

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**iv.           **Updated UCC searches with respect to eachBorrower who is requesting an Advance;

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**v.            **Except as to financing statements in favor ofLead Lender, UCC-3 (or other applicable) financing statements terminatingconflicting security interests filed with respect to the Contracts and theEquipment identified in the applicable Advance Request;

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**vi.           **Certificates of insurance and insuranceendorsements required hereby;

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**vii.          **All other items as may be required pursuantto the eligibility criteria set forth in **Exhibit“A”** attached hereto.

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**c.     Obligor ItemsNecessary Before any Advance:**

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**i.             **A Notice, Consent and Acknowledgment ofAssignment duly executed by the Obligor under each Contract being financed withthe requested Advance.  Forpurposes of this Agreement, each Notice, Consent and Acknowledgement ofAssignment and each Contract must contain a limited waiver of sovereignimmunity from suit to allow Borrower or Lead Lender, as the case may be, toenforce the terms of any Contracts and the Loan Documents, and a Consent toSuit and Consent to Jurisdiction in the United States District Court for thejudicial district in which the collateral is located for each Obligor in favorof Borrower and Lead Lender in connection with such Contract;

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**ii.           **UCC-1 Financing Statements, executed by theObligor in favor of Borrower and assigned to the Lead Lender with respect tothe Contract(s) being financed with the requested Advance, and the relatedEquipment and releases, terminations or other appropriate filings, if any;

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**iii.          **Certificates of insurance and insuranceendorsements required hereby;

 

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**iv.           **All other items as may be required pursuantto the eligibility criteria set forth in **Exhibit“A”** attached hereto.

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**4.     Representationsand Warranties of Borrower.**  Inorder to induce Lead Lender to advance the proceeds of the Loan, pursuant toAdvance Requests, Borrower (and each Borrower, as applicable) hereby representsand warrants to Lead Lender as follows:

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**a.    **PDS is a corporation duly organized and validly existing under the lawsof the State of Minnesota.  PDS-NV is acorporation duly organized and validly existing under the laws of the State ofNevada.  PDS-MS is a corporation dulyorganized and validly existing under the laws of the State of Mississippi.  PDS-CO is a corporation duly organized andvalidly existing under the laws of the State of Colorado.  Borrower is duly qualified to do businessand is in good standing in every other jurisdiction wherein the nature of itsbusiness or the character of its properties makes such qualification necessaryand where failure to be so qualified and in good standing, in the aggregate,would not have a material adverse effect on the business, properties,operations, assets, liabilities or condition (financial or otherwise) of suchBorrower.  Borrower (and each Borrower,as applicable) has all requisite power and authority to carry on its businessas now conducted and as presently proposed to be conducted.

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**b.    **Borrower has full power and authority to execute and deliver the LoanDocuments and to incur and perform its obligations hereunder andthereunder.  The execution, delivery andperformance by Borrower of the Loan Documents and any and all other documentsand transactions contemplated hereby or thereby, have been duly authorized byall necessary corporate action, will not violate any provision of law or of theArticles of Incorporation or the Bylaws of Borrower or result in the breach of,constitute a default under, or create or give rise to any lien under, any indentureor other agreement or instrument to which Borrower is a party or by whichBorrower or its property may be bound or affected.  The Loan Documents have been executed and delivered to the LeadLender by an appropriate officer of Borrower who is authorized by and specifiedin Borrower’s Bylaws to execute and so deliver such agreements. Borrower is notin violation of or subject to any contingent liability on account of anystatute, law, rule, ordinance, order, writ, injunction or decree to the extentthat such violation or contingent liability would result in a material adverseeffect on the condition (financial or otherwise), business, properties, orassets of Borrower.  As used herein,material adverse effect means a violation or contingent liability that wouldresult in a cost or loss to Borrower of $500,000.00 or more.

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**c.    **The Loan Documents constitute the legal, valid and binding obligationsof Borrower, enforceable in accordance with their respective terms.

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**d.    **There is no action, suit or proceeding pending or, to the knowledge ofBorrower, threatened against or affecting Borrower, or any basis therefor,which, if adversely determined, would have a material adverse effect on thecondition (financial or otherwise), business, properties or assets of Borroweror which would question the validity of the Loan Documents or any instrument,document or other agreement related hereto or required hereby, or impair theability of Borrower to perform its obligations under the foregoing agreements.

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**e.    **Borrower possesses adequate licenses, permits, franchises, patents,copyrights, trademarks and trade names, or rights thereto (collectively “***Licenses***”), toconduct its business 

 

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substantially as nowconducted and as presently proposed to be conducted.  Each License is validly issued and in full force and effect.  Borrower has fulfilled and performed all ofits obligations with respect thereto. No event has occurred which: (1) results in, or after notice or lapse oftime or both would result in, suspension, surrender, failure to renew,revocation or termination of any material License; or (2) materially andadversely affects or in the future may (so far as Borrower can now reasonablyforesee) materially adversely affect any of the rights of Borrowerthereunder.  Borrower is not a party toand Borrower does not have any knowledge of any notice of violation, order orcomplaint issued by or before any court or regulatory body or of any otherproceedings which could in any manner result in suspension, surrender, failureto renew, revocation or termination of any material License or otherwisethreaten or adversely affect the validity or continued effectiveness of theLicenses of Borrower.  Borrower has noreason to believe that any Licenses will not be renewed in the ordinarycourse.  Borrower has fully cooperatedwith every regulatory body having jurisdiction over any of the Licenses or theactivities of Borrower with respect thereto, and Borrower has filed allmaterial reports, applications, documents, instruments, and informationrequired to be filed by it pursuant to applicable laws, rules andregulations.  Borrower has posted allrequired bonds required under its Licenses.

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**f.     **Borrower owns the Contracts constituting part of the Collateral,subject to no prior security interests, assignments, liens or encumbrances atthe time of closing.  Lead Lender has(or shall have in the context of each Advance Request) a valid first perfectedsecurity interest in the Collateral subject to no prior security interests orencumbrances.  The security interest ofLead Lender has been recorded with the appropriate recording offices, and theLead Lender’s security interest in the Equipment is a first priority perfectedsecurity interest, subject only to the rights of the Obligors and Borrowersunder the Collateral.

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**g.    **No director, shareholder, officer, employee of or consultant toBorrower is prohibited by law, regulation, contract or the terms of anylicense, franchise, permit, certificate, approval or consent from participatingin the business of Borrower as director, shareholder, officer, employee of oras consultant to Borrower.

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**h.    **Except with respect to reporting and compliance requirements of theregulatory gaming authorities in the jurisdictions in which either Borrower orany Obligor conduct business, no consent, approval, order or authorization of,or registration, declaration or filing with, or notice to, any governmentalauthority or any third party is required in connection with the execution anddelivery of the Loan Documents or any of the agreements or instrumentscontemplated thereby to which Borrower is a party, or in connection with thecarrying out or performance of any of the transactions required or contemplatedhereby or thereby or, if required, such consent, approval, order orauthorization has been obtained or such registration, declaration or filing hasbeen accomplished or such notice has been given prior to the date hereof.

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**i.     **Borrower has filed all local, state, federal and other tax returnsrequired to be filed by it and either paid all taxes shown thereon to be due,including interest and penalties, which are not being contested in good faithand by appropriate proceedings, or provided adequate reserves for payment thereof.  Borrower has no information or knowledge ofany 

 

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objections to or claims foradditional taxes in respect of local, state and federal or other income orexcess profits tax returns of Borrower for prior years.

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**j.     **Borrower does not intend to, or believe that it will, incur debtsbeyond its ability to pay such debts as they mature.

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**k.   **All financial and other information provided to Lead Lender by or onbehalf of Borrower in connection with Borrower’s request for the Loan fairlypresented the financial condition of Borrower as of the dates thereof anddisclosed fully all liabilities of Borrower. Since the date of such financial and other information, there has beenno material adverse change in the financial condition of Borrower.

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**l.     **Each qualified retirement plan of Borrower, if any, presently conformsto and is administered in a manner consistent with the Employee RetirementIncome Security Act of 1974.

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**m.   **As of the date hereof, no Contract is a Delinquent Contract, and eachObligor under each Contract satisfies the Borrower’s standard underwriting andcredit criteria.

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**n.    **Borrower is not engaged in the business of extending credit for thepurpose of purchasing or carrying margin stock (within the meaning ofRegulation U issued by the Board of Governors of the Federal Reserve System),and no proceeds of the Loan will be used to purchase or carry any margin stockor to extend credit to others for the purpose of purchasing or carrying anymargin stock.

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**o.    **No proceeds of the Loan will be used to acquire any security in anytransaction, which is subject to Sections 13 and 14 of the Securities ExchangeAct of 1934.

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**p.    **The transaction evidenced by this Agreement does not violate any lawpertaining to usury or the payment of interest on loans.

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**q.    **Borrower will use the proceeds of the Loan solely for lawful and propercorporate purposes of Borrower.

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**5.     AffirmativeCovenants.** Borrower covenants and agrees as follows:

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**a.    **Borrower will use the proceeds of each Loan solely for the financing ofContracts to certain casino/gaming operators.

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**b.    **Borrower will pay all of its taxes (including payroll and withholdingtaxes), levies, assessments and governmental charges prior to the time when anypenalties or interest accrue, unless contested in good faith with an adequatereserve for payment.

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**c.    **Borrower will continue the conduct of its business, maintain itscorporate existence, maintain all rights, licenses and franchises necessary ordesirable in the normal conduct of its business, comply with all rules,regulations and orders of any governmental or other authority or agency and allapplicable federal and state laws and regulations.  Without in any way limiting the generality of the foregoing, theBorrower will maintain all licenses required under Nevada, Colorado andMississippi gaming laws for the operation of each Borrower’s 

 

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business, and will timelyfile all reports as any applicable gaming commission, or authority, may fromtime to time require or request.

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**d.    **Borrower shall use best efforts to cause each Obligor to maintain andservice the Equipment so as to keep such Equipment in good operating condition,ordinary wear and tear from normal use excepted.

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**e.    **Borrower will deliver to Lead Lender:

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**i.****             **Within one hundred twenty (120) days afterthe end of each fiscal year, the consolidated audited financial statements ofBorrower for such fiscal year, certified (without qualification as to theopinion or scope of examination) by a firm of independent certified publicaccountants selected by Borrower and acceptable to Lead Lender.

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**ii.           **Within forty-five (45) days after the end ofeach fiscal quarter, consolidated quarterly financial statements of Borrower,together with a compliance certificate in the form attached hereto as **Exhibit “D”**.

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**iii.          **Upon the reasonable request of Lead Lender,all backup data regarding the Contracts and the Equipment.

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**iv.           **Copies of any and all reports, filings,financial statements or other information as and when filed with the UnitedStates Securities and Exchange Commission and with any gaming authorities (onlyin connection with the Loan, the Contracts, the Equipment, or Lead Lender), andcopies of all information and notices as and when delivered to Borrower’sshareholders.

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**v.            **Promptly upon becoming aware thereof, noticeof any default with respect to any other indebtedness, whether owed to LeadLender, or any other creditor.

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**f.     **Upon reasonable notice of not less than 48 hours, Borrower will permitany officer, employee, attorney or accountant for Lead Lender or anyParticipant to review, make extracts from, or copy any and all corporate andfinancial books and records of Borrower relating to the Contracts at all timesduring ordinary business hours, to send and discuss with any Obligor requestsfor verification of amounts owed to Borrower if Lead Lender or any Participanthas a reasonable basis for believing such a verification is necessary, and todiscuss the affairs of Borrower with any of its officers.  After the occurrence of an Event of Default,the rights to review and copy books and records shall not be limited to thoserelating to the Contracts but will be all of Borrower’s books and records, andno prior notice to Borrower shall be required.

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**g.    **Borrower will provide Lead Lender with an insurance certificate, issuedby each Obligor’s insurer, in form and content and from insurers acceptable toLead Lender, providing in each case for ten (10) days’ written notice to Lead Lender of cancellation ornon-renewal (without qualification), and evidencing the following categoriesand amounts of coverage:

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**i.             **Comprehensive public liability coverage forthe Obligor.

 

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**ii.           **Comprehensive physical damage insurance forthe full insurable value of the Equipment, naming the Lead Lender as losspayee, as its interests may appear.

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**iii.          **If circumstances warrant, warehouse andtransportation insurance on the Equipment which is being stored or transported,as the case may be, for the full insurable value of the Equipment naming theLead Lender as loss payee.

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**iv.           **With respect to any Equipment which islocated on any ship or which is otherwise subject to any maritime laws,shipwreck, piracy, abandonment and hull insurance in such amounts as LeadLender may request, with lender’s loss payable endorsement provided to LeadLender.

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**h.    **Borrower will notify Lead Lender promptly of (i) any material disputesor claims by any Obligor; (ii) any Equipment returned to or recovered byBorrower or damaged, destroyed or stolen from Borrower or an Obligor; (iii) anychange in the persons constituting the directors or officers of any Borrower;(iv) the occurrence of any breach, default or event of default by or attributableto any Borrower under this Agreement or any of the Loan Documents; (v) theoccurrence of any breach, default or event of default by or attributable to anyObligor under the Obligor’s Contract; and (vi) any event which may have anyeffect on the enforceability or priority of any lien in favor of Lead Lender,or on the ability of Borrower or the Obligor to perform its obligations underthe Loan Documents or any Contract, as the case may be.

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**i.     **Borrower will notify Lead Lender in writing promptly after thecommencement of any lawsuit, legal proceeding or proceedings before anygovernmental or regulatory agency against Borrower, which may have a materialadverse effect on the Loan, the Contracts, the Equipment, Lead Lender or anyParticipant or the business of Borrower. As used herein, material adverse effect means a lawsuit or proceedinginvolving a potential cost or loss of $500,000.00 or more.

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**j.     **With respect to any Delinquent Contract, Borrower shall comply withSection 7 of this Agreement.

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**k.   **Borrower will keep full and complete books of record and accounts foritself and other records reflecting the results of each Borrower’s operations,all in accordance with GAAP.

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**l.     **At any time upon request from Lead Lender after the occurrence of anEvent of Default, Borrower will cause the Obligors under the Contracts whichconstitute a part of the Collateral to be notified to make payment directly toLead Lender, or Lead Lender may effect such notice, and Lead Lender shall beentitled to take control of any proceeds thereof.

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**m.   **After the occurrence of an Event of Default, all proceeds of Collateralnot released from the lien of the Security Agreement pursuant to the SecurityAgreement, including without limitation, proceeds from the sale or re-leasingof the Equipment, proceeds of insurance and all other unscheduled recoveries,shall be paid by Borrower into a collateral account administered by Lead Lenderin the manner described in the Security Agreement.

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**n.    **In the event any Equipment has been repossessed, Borrower shall paypromptly to Lead Lender the proceeds of the sale or other disposition of theEquipment, together 

 

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with a cash payment equal toany additional amount necessary to fully pay the unamortized amount of the Loanproceeds advanced with respect to Contract(s) relating to such Equipment.

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**o.    **In the event any Equipment is damaged, destroyed, lost or stolen,Borrower shall pay promptly to Lead Lender the proceeds of any insurance on theEquipment, together with a cash payment equal to any additional amountnecessary to fully pay the unamortized amount of the Loan proceeds advancedwith respect to Contract(s) relating to such Equipment.

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**p.    **Borrower shall service the Contracts, which form a part of theCollateral in accordance with the industry standards applicable to servicers ofsuch contracts, and Borrower shall have ultimate responsibility for suchservicing.  If Borrower shall fail inany material respect in the performance of its duties hereunder, and suchfailure shall continue for thirty (30) days, Lead Lender shall appoint aservicer, chosen at the discretion of Lead Lender (which may include, but notbe limited to, Lead Lender), to perform such duties, and Borrower shallpromptly make available to such servicer all books and records in any and allformats with respect to the Collateral, and shall also make available to theservicer without fee any and all computer software necessary to service theCollateral.  Fees of such replacementservicer shall be paid in the manner described in the Security Agreement.

** **

**q.    **Borrower will provide notice to all applicable gaming authorities, tothe extent required by the applicable gaming law, of Lead Lender’s securityinterest in the Contracts and the Equipment.

** **

**r.    **After the occurrence of an Event of Default and not later than two (2)days prior to a date on which a payment is due under the Note, Borrower shallprovide Lead Lender with a detailed report with respect to all monies, if any,deposited in the collateral account pursuant to the Security Agreement,including amounts paid in respect of Payments on all Contracts (as due and as aprepayment) and amounts paid in respect of interest.  The report shall be prepared in such manner as may be required byLead Lender for purposes of properly applying funds in accordance with theSecurity Agreement, if applicable.

** **

**s.    **With respect to each of the Contracts, Borrower shall:  (i) perform all acts necessary to preservethe validity and enforceability of each such Contract; (ii) take all actionsreasonably necessary to assist Lead Lender in collecting when due all amountsowing to Borrower with respect to each such Contract; (iii) at all times keepaccurate and complete records of performance by Borrower and the Obligor undereach such Contract; and (iv) upon request of Lead Lender verify with theObligor under each Contract the payments due to Borrower under such Contract,except that (A) prior to the occurrence of an Event of Default or an eventwhich with the passage of time or the giving of notice, or both, would be anEvent of Default, such requests shall not occur any more frequently than onceeach year and (B) after the occurrence and during the continuance of an Eventof Default or an event which with the passage of time or the giving of notice,or both, would be an Event of Default such requests may occur as often as LeadLender shall require.

** **

**t.     **Borrower will store the Equipment (which isnot in the possession of an Obligor) only in the Borrower’s warehouses or inbonded warehouses.

 

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**u.    **Borrower shall maintain at all times atangible net worth (“***TangibleNet Worth***”) in an amount of not less than $7,000,000.00 plus 15%of positive Net Income earned after December 31, 2001.  For the purposes of this subsection, “TangibleNet Worth” shall mean at any date of determination, the difference between: (a)the total assets appearing on Borrower’s balance sheet (without duplication) atsuch date prepared in accordance with GAAP after deducting adequate reserves ineach case where, in accordance with GAAP, a reserve is proper; and (b) thetotal liabilities appearing on such balance sheet, excluding amounts due toBorrower; excluding, however, from the determination of total assets: (i)goodwill, organizational expenses, research and development expenses,trademarks, trade names, copyrights, patents, patent applications, Licenses andrights in any thereof, covenants not to compete, training costs and othersimilar intangibles; (ii) all deferred charges or unamortized debt discount andexpense other than deferred income taxes; (iii) securities which are notreadily marketable; (iv) unless reflected in the Borrower’s audited financialstatements, any write-up in the book value of any assets resulting from areevaluation thereof; (v) amounts due from officers or affiliates; and (vi) anyasset acquired subsequent to the date of this Agreement which Lender, in itssole discretion, determines to be an intangible asset.

** **

**v.    **Borrower shall have a Cash Flow Ratio of not less than 1.5 to 1.0 as ofthe end of each calendar quarter measured on a trailing twelve (12) monthbasis.  As used herein, “***Cash Flow Ratio***”means the ratio of (a) net income plus interest expense, income taxes, depreciationand amortization to (b) interest expense plus dividends.

** **

**w.   **Borrower shall maintain at all times a Leverage Ratio not to exceed7:1.  Leverage Ratio is defined as:total debt (total liabilities less subordinated debt, non-recourse debt, and deferredfunds) divided by Tangible Net Worth.

** **

**6.     NegativeCovenants.** Borrower (and each Borrower, as applicable) covenants and agrees that,except with the prior written approval of Lead Lender:

** **

**a.    **Borrower will not create, incur or cause to exist any mortgage,security interest, encumbrance, lien or other charge of any kind upon any ofthe Collateral, whether now owned or hereafter acquired, except for thesecurity interests created by the Loan Documents.  Except as permitted by the Security Agreement, Borrower will notsell, dispose of, lease, mortgage, assign, sublet or transfer all or any partof Borrower’s right, title or interest in or to all or any portion of theCollateral.

** **

**b.    **Borrower will not substantially alter the general nature of the businessin which it is engaged, or engage in any line of business materially differentin relation to the transactions contemplated by this Loan Agreement from itscurrent business.

** **

**c.    **Borrower will not permit any material breach, default or event ofdefault to occur under any note, loan agreement, indenture, lease, mortgage,contract for deed, security agreement or other contractual obligation bindingupon Borrower which is not cured within the applicable cure provisions thereof.

** **

**d.    **Other than negotiating termination value as may be set forth in anyContract “Purchase Options”, Borrower will not materially amend, supplement,modify, compromise or waive any of the terms of any Contract, without the priorwritten consent of Lead Lender, 

 

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provided that Borrower willhave the right to substitute Equipment subject to any Contract with otherEquipment that is like-kind in value as long as Borrower files an amended orupdated UCC financing statement signed by Lead Lender as to the substitutedEquipment within the time period required by the law of the applicablejurisdiction to perfect a purchase money security interest and delivers suchfiled financing statements to Lead Lender.

** **

**e.    **Borrower will not make any payments on any of Borrower’s indebtednessto any of Borrower’s affiliated entities, or to any of Borrower’s shareholders,officers, directors or employees, following the occurrence of and during thecontinuance of an Event of Default or a failure to comply with a covenantcontained in Section 5 or this Section 6.

** **

**f.     **After delivery of the Equipment to Obligor, Borrower will not cause orallow any movement of the Equipment, except as permitted in this Agreement orin connection with any repossession by Borrower of such Equipment.

** **

**7.     DelinquentContracts.**  Solong as no Event of Default or event which with the giving of notice or thepassage of time would constitute an Event of Default has occurred under thisAgreement, Delinquent Contracts that are in monetary default only may remainpart of the Collateral provided that (i) Borrower gives written notice to LeadLender within thirty (30) days of each monthly monetary default; and (ii) thedefaults by the Obligor do not exceed three (3) consecutive monthly payments ora total of six (6) nonconsecutive monthly payments.  With respect to Delinquent Contracts that are in monetary defaultbeyond the limitations of the foregoing sentence, Borrower shall within thirty(30) days, either (i) pay to Lead Lender an amount equal to the outstandingbalance of the Loan proceeds advanced with respect to such Contract, and suchpayment shall be applied to the unpaid principal balance of the Note, or (ii)execute and deliver to Lead Lender an Addendum and Assignment (and appropriate UCCfinancing statements and the other documents described in Section 4hereof) respecting one or more other Contracts with an aggregate EquipmentValue multiplied by 90% that is equal to or greater than the outstandingbalance of the Loan proceeds advanced with respect to such Delinquent Contract,and Obligor Acknowledgment(s) relating to such Contract(s) duly executed byeach Obligor under such Contract, and all such other documents, instruments andagreements as required under this Agreement or as Lead Lender may request.

** **

**8.     ReplacementRights.** Borrower may, during any calendar year, upon ten (10) days prior writtennotice to Lead Lender, obtain a release of a particular Contract from theCollateral (the “***ReleasedContract***”) and substitute one or more other Contracts (the “***Replacement Contract***”),provided that (i) neither the Released Contract or the Replacement Contractsare Delinquent Contracts; and (ii) Borrower executes and delivers to LeadLender an Addendum and Assignment (and appropriate UCC financing statements)respecting the Replacement Contracts(s) with an aggregate Equipment Valuemultiplied by 90% that is equal to or greater than the outstanding balance ofthe Loan proceeds advanced with respect to the Released Contract (the “***Unamortized Advance***”),and Obligor Acknowledgment(s) relating to the Replacement Contract(s) dulyexecuted by each Obligor under such Contract(s), and all such other documents,instruments and agreements as required under this Agreement or as Lead Lendermay request.

** **

**9.     ReturnedEquipment.** Certain Contracts that may be funded pursuant to the Loan will contain aprovision giving the Obligor the right, under certain circumstances, to returnand 

 

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replace some portion of theEquipment that is subject to a particular Contract.  In that event, Borrower has agreed with the Obligor to amend theContract to reduce the obligations of the Obligor thereunder and create a newContract for replacement Equipment. Borrower agrees that, in such event, in exchange for Lead Lender’srelease of its security interest in the returned Equipment (the “***Returned Equipment***”),Borrower will make a prepayment on the Note equal to the outstanding balance ofthe amount advanced by Lead Lender with respect to the Returned Equipment underthe applicable Contract.  Borroweragrees to provide Lead Lender with a written certification (i) identifying theReturned Equipment, (ii) the aggregate Equipment Value of the ReturnedEquipment, (iii) 90% of such aggregate Equipment Value that was advanced byLead Lender in respect of the Returned Equipment and (iv) the outstandingbalance of the amount advanced in respect of the Returned Equipment.  Borrower also agrees to provide UCC-3Releases to be executed by Lead Lender to release such Equipment.

** **

**10.      Eventof Default.**  Eachof the following occurrences shall constitute an Event of Default under thisAgreement and under the Loan Documents (herein called an “***Event of Default***”):

** **

**a.    **Borrower (and each Borrower, as the case may be) shall fail to pay anyor all of the indebtedness arising out of this Agreement or Loan Documents (the“***Obligations***”)when due or, if payable on demand, on demand and such failure shall continuefor a period of five (5) days after such payment becomes due; or

** **

**b.    **Borrower (and each Borrower, as the case may be) shall fail to observeor perform any covenant or agreement binding on Borrower under this Agreementor under any other assignment, conveyance, instrument or agreement now ineffect or hereafter made between Borrower and Lead Lender, or under the LoanDocuments for a period of thirty (30) days; or

** **

**c.    **Borrower (and each Borrower, as the case may be) shall make anyrepresentations or warranties in this Agreement or in any such other assignment,conveyance, instrument, agreement, financial statements, reports orcertificates heretofore or at any time hereafter submitted by or on behalf ofBorrower to Lead Lender, and such representations or warranties, shall prove tohave been false or materially misleading when made; or

** **

**d.    **As a result of a default or failure by Borrower, payment of anysubstantial indebtedness of Borrower (other than the Obligations and other thanindebtedness of Borrower to the extent the indebtedness is non-recourse to Borrower)shall be demanded, or the maturity of any substantial indebtedness shall beaccelerated, or any precondition or circumstance permitting any creditor ofBorrower (acting individually or with the consent of other creditors) toaccelerate the maturity of any substantial indebtedness shall have occurred;for this purpose indebtedness shall be deemed substantial if it exceeds$250,000.00; or

** **

**e.    **Any Borrower shall become insolvent or shall commit an act ofbankruptcy under the United States Bankruptcy Act, or shall file or have filedagainst it, voluntarily or involuntarily, a petition in bankruptcy or forreorganization or for the adoption of an arrangement or plan under the UnitedStates Bankruptcy Act or shall procure or suffer the appointment of a receiverfor any substantial portion of its properties, or shall initiate or haveinitiated against it, voluntarily or involuntarily, any act, process orproceeding under any insolvency law or other statute or law providing for themodification or adjustment of the rights of creditors and such 

 

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petition,receiver, act, process or proceeding shall not be dismissed or dischargedwithin ninety (90) days; or

** **

**f.     **A garnishment summons or writ of attachment for an amount in excess of$250,000.00 shall have been issued against or served upon Lead Lender or anyParticipant for the attachment of any property of Borrower in the Lead Lender’sor such Participant’s possession or any indebtedness owing Borrower; or

** **

**g.    **Any Borrower shall have been dissolved, whether voluntarily or byoperation of law; or

** **

**h.    **Any of Borrower’s gaming licenses, material to this Agreement, arerevoked or rescinded, lapse, or otherwise are no longer maintained by oravailable to Borrower.

** **

**11.      Rightsand Remedies Upon Default.** Uponthe occurrence of an Event of Default and at any time thereafter, subject tothe gaming laws of any jurisdiction in which any of the Collateral is located,the Lead Lender may exercise one or more of the following rights and remedies:

** **

**a.    **Lead Lender may declare all unmatured Obligations to be immediately dueand payable, and the same shall thereupon be immediately due and payable,without presentment or other notice or demand;

** **

**b.    **Subject to the rights of the Obligors, Lead Lender may exercise andenforce any and all rights and remedies available upon default to a securedparty under the Uniform Commercial Code including, without limitation, theright to take possession of the Collateral, or any evidence thereof, proceedingwithout judicial process or by judicial process (without a prior hearing ornotice thereof, which Borrower hereby expressly waives) and the right to sell,lease or otherwise dispose of any or all of the Collateral, and Borrower agreesto make the Collateral available to Lead Lender at a place to be designated byLead Lender which is reasonably convenient to both parties.  If notice to Borrower of any intendeddisposition of the Collateral or any other intended action is required by lawin a particular instance, such notice shall be deemed commercially reasonableif given at least ten (10) calendar days prior to the date of intendeddisposition or other action;

** **

**c.    **Lead Lender may request Borrower to, and upon such request Borrowerwill, assist Lead Lender in repossessing and selling the Equipment incompliance with all applicable laws and in accordance with the RepossessionAgreement (this provision in no way limits Lead Lender’s ability to use anyother person or entity to repossess and sell the Equipment);

** **

**d.    **Without notice or demand, Lead Lender may offset any indebtedness LeadLender or any Participant’s, or any of Lead Lender’s or such Participant’ssuccessors or assigns then owe to Borrower whether or not then due, against anyObligation then owed to Lead Lender or any of its successors or assigns byBorrower, whether or not then due;

** **

**e.    **Lead Lender may exercise the recourse rights of Borrower against theObligor on any Contracts; and

 

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**f.     **Lead Lender may exercise or enforce any and all other rights orremedies available by law or agreement against the Collateral, against Borroweror against any other person or property.

** **

**12.      Miscellaneous.** Borrower (and each Borrower, as the case may be) agrees that:

** **

**a.    **The performance or observance of any promise or condition set forth inthis Agreement may be waived in writing by Lead Lender, but not otherwise.  No delay in the exercise of any power, rightor remedy of Lead Lender, shall operate as a waiver thereof, nor shall anysingle or partial exercise thereof or the exercise of any other power, right orremedy operate as a waiver thereof.

** **

**b.    **This Agreement shall be binding upon Borrower and its successors andassigns and shall inure to the benefit of Lead Lender, each Participant and thesuccessors and assigns of any of them, provided that Borrower may not transferor assign its rights hereunder without the prior written consent of LeadLender.  This Agreement shall beeffective the date written above.  Allrights and powers specifically conferred upon Lead Lender may be transferred ordelegated by Lead Lender to any of its Participants and to Lead Lender’s andParticipant’s successors or assigns. Except to the extent otherwise required by law, this Agreement and thetransactions evidenced hereby shall be governed by the substantive laws of theState of Nevada without regard to principles of conflicts of laws.  If any provision or application of thisAgreement is held unlawful or unenforceable in any respect, such illegality orunenforceability shall not affect other provisions or applications which can begiven effect, and this Agreement shall be construed as if the unlawful orunenforceable provision or application had never been contained herein or prescribedhereby.  All representations andwarranties contained in this Agreement or in any other agreement betweenBorrower and Lead Lender, and each Participant, shall survive the execution,delivery and performance of this Agreement and the creation and payment of anyindebtedness to Lead Lender and each Participant.  This Agreement may be executed in any number of counterparts,each of which is to be deemed to be an original and all of which constitute oneagreement.

** **

**13.      Notices.**  Allnotices, consents, requests, demands and other communications hereunder shallbe given to or made upon the respective parties hereto at their respectiveaddresses specified below or, as to any party, at such other address as may bedesignated by it in a written notice to the other party.  All notices, requests, consents and demandshereunder shall be effective when personally delivered or five (5) days afterdepositing in the United States mail, certified or registered, postage prepaid,or when sent by confirmed facsimile, or when delivered by overnight courier.

####  

| If to Borrower: |   | PDS Gaming Corporation                 |
|-----------------|--------|----------------------------------------|
|            |   | PDS  Gaming Corporation-Nevada         |
|            |   | PDS  Gaming Corporation-Mississippi    |
|            |   | PDS  Gaming Corporation-Colorado       |
|            |   | 6171  McLeod Drive                     |
|            |   | Las  Vegas, NV  89120             |
|            |   | Attn:  Peter D. Cleary, President |
|            |   | Telephone:  (702) 736-0700        |
|            |   | Fax:  (702) 740-8692              |

 

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| If to Lead Lender: |   | First State Bank of  Thermopolis        |
|--------------------|--------|-----------------------------------------|
|               |   | 435 Arapahoe                            |
|               |   | Thermopolis, WY 82443-1232              |
|               |   | Attn:  Brian Yarrington, President |
|               |   | Telephone: (307)  864-5561              |
|               |   | Fax:  (307) 864-9326               |

 

**14.      Jurisdiction.**  TheBorrower hereby submits itself to the jurisdiction of the State of Nevada andthe federal courts of the United States located in such state in respect of allactions arising out of or in connection with the interpretation or enforcementof this Agreement and the documents related thereto.

** **

**15.      Dutiesof Lead Lender With Respect to Collateral.**  Except with respect to the exercise ofremedies under this Agreement or the Security Agreement, Lead Lender shall haveno duty, responsibility or obligation of any nature whatsoever to service,collect, administer, enforce or account for the Contracts.  Borrower shall service, account for,administer, collect all payments and enforce all rights with respect to suchContracts.  Upon the occurrence of anEvent of Default, Borrower shall deposit such payments promptly upon receiptand in the form received in the collateral account established by Lead Lenderpursuant to the Security Agreement.

** **

**16.      Indemnification.** Except for losses, claims, damages or liability arising out of the grossnegligence or willful misconduct of Lead Lender or any Participant, Borroweragrees to indemnify and hold harmless Lead Lender or any Participant, and suchLead Lender’s or Participant’s officers, agents (including outside legalcounsel) and employees, against any and all losses, claims, damages orliability to which Lead Lender or any Participant, and such Lead Lender’s orParticipant’s officers, agents and employees, may become subject under any lawin connection with the carrying out of the transactions contemplated by thisAgreement or any other Loan Document, or the conduct of any activity related tothe Equipment and to reimburse Lead Lender or any Participant, and such LeadLender’s or Participant’s officers, agents and employees, for any out-of-pocketlegal and other expenses (including reasonable attorneys’ fees, whetherincurred at trial, on appeal, in bankruptcy proceedings, or otherwise) incurredby Lead Lender or any Participant, and such Lead Lender’s or Participant’sofficers, agents and employees, in connection with investigating any suchlosses, claims, damages or liabilities or in connection with defending anyactions relating thereto.  Lead Lender agrees,at the request and reasonable expense of Borrower, to cooperate in the makingof any investigation in defense of any such claim and promptly to assert any orall of the rights and privileges and defenses, which may be available to LeadLender or such Participant.  Borrowerfurther releases and agrees to hold harmless Lead Lender and each Participant,and such Lead Lender’s and such Participant’s officers, agents and employees,from and against all losses, damages, penalties, liabilities, or expenses(including reasonable legal fees, whether incurred at trial, on appeal, inbankruptcy proceedings, or otherwise) due to or arising out of anymisrepresentation of information furnished to Servicer by Borrower or out of abreach of any covenant, representation or undertaking of Borrower contained inthis Agreement or any other Loan Document.  Borrower’s liability hereunder shall not be limited to the extent ofsuch insurance or subject to any 

 

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exclusions from coverage inany insurance policy.  The provisions ofthis Section shall survive the payment of the Note and the Loan.

** **

**17.      AttorneysFees and Taxes.** Borrower shall reimburse Lead Lender, upon demand, for all reasonablecosts and expenses actually incurred, including without limitation reasonableattorney’s fees paid or incurred by Lead Lender in connection with:

** **

**a.    **The preparation or review of the Loan Documents (provided, however,that Borrower’s obligation to pay legal fees to Lead Lender for legal servicesrendered by counsel for Lead Lender in connection with the preparation andreview of the Loan Documents shall not exceed $10,000.00 and shall be supportedby a reasonably itemized statement of services rendered), the perfection,protection, enforcement or foreclosure of the security interests created by theLoan Documents, the protection or enforcement of the interests and collateralsecurity of Lead Lender, as agent and servicer on behalf of the Participants,in any litigation or bankruptcy or insolvency proceeding or the prosecution ordefense of any action or proceeding relating in any way to the transactionscontemplated by this Agreement, travel to and from the offices and place ofbusiness of Borrower, the negotiation and preparation of the Loan Documents andall other documents necessary or desirable in connection with the originalexecution and delivery of Loan Documents;

** **

**b.    **Subsequent to the initial Closing, Borrower shall pay all fees andexpenses of Lead Lender including reasonable attorney’s fees in connection witheach Advance Request and in connection with the negotiation of any amendmentsor modifications to any of the Loan Documents requested by or consented to byBorrower or, if an Event of Default has occurred and is continuing, requestedby Lead Lender, and any related documents, instruments or agreements and thepreparation of any and all documents necessary or desirable to effect suchamendments or modifications; and

** **

**c.    **The enforcement by Lead Lender during the term hereof or thereafter ofthe rights or remedies of Lead Lender hereunder or under any of the foregoingdocuments, instruments or agreements, including without limitation reasonablecosts and expenses of collection in the Event of Default, whether or not suitis filed with respect thereto and whether such costs are paid or incurred, orto be paid or incurred, prior to or after entry of judgment.

** **

**d.    **Borrower agrees to pay all stamp, document, transfer, recording orfiling taxes or fees and similar impositions now or hereafter reasonablydetermined by Lead Lender to be payable in connection with the Loan Documents,or any other documents, instruments or transactions pursuant to or inconnection herewith or therewith, and Borrower agrees to save Lead Lender andany Participant harmless from and against any and all present or future claims,liabilities or losses with respect to or resulting from any omission to pay ordelay in paying any such taxes, fees or impositions, unless such omission ordelay is due to gross negligence or willful misconduct on the part of LeadLender.  All such expenses, taxes orattorney’s fees shall be payable to Lead Lender on demand.  The obligations of Borrower under thisSection shall survive the repayment of the Note and Loan.

** **

**18.      Placement Fee.**  TheBorrower shall pay to Miller Johnson Steichen Kinnard, Inc., on or beforeClosing, a placement fee equal to **threepercent (3.0%)** of the Loan, which shall be deducted from the Loanproceeds.

 

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**19.      RelationshipAmong Borrowers.**

** **

**a.    **Joint and Several Liability.  BYSIGNING THIS AGREEMENT, EACH OF BORROWERS AGREES THAT IT IS LIABLE, JOINTLY ANDSEVERALLY WITH THE OTHER BORROWERS, FOR THE PAYMENT OF THE NOTE AND ALL OTHEROBLIGATIONS OF BORROWERS UNDER THIS AGREEMENT, AND THAT LEAD LENDER CAN ENFORCESUCH OBLIGATIONS AGAINST EITHER BORROWER, IN LEAD LENDER’S SOLE AND UNLIMITEDDISCRETION.

** **

**b.    **Lead Lender’s Rights to Administer the Loan. Lead Lender may at any time and from timeto time, without the consent of, or notice to, any Borrower, without incurringresponsibility to any Borrower, and without affecting, impairing or releasingany of the obligations of any Borrower hereunder:

** **

**i.****             **Alter, change, modify, extend, release,renew, cancel, supplement or amend in any manner the Loan Documents provided atleast one Borrower has consented thereto, and Borrowers’ joint and severalliability shall continue to apply after giving effect to any such alteration,change, modification, extension, release, renewal, cancellation, supplement oramendment;

** **

**ii.           **Sell, exchange, surrender, realize upon,release (with or without consideration) or otherwise deal with in any mannerand in any order any property of any person or entity mortgaged to Lead Lenderor otherwise securing Borrowers’ joint and several liability, or otherwiseproviding recourse to Lead Lender with respect thereto;

** **

**iii.          **Exercise or refrain from exercising anyrights against either Borrower or others with respect to Borrowers’ joint andseveral liability, or otherwise act or refrain from acting;

** **

**iv.           **Settle or compromise any of Borrowers’ jointand several liability, any security therefor or other recourse with respectthereto, or subordinate the payment or performance of all or any part thereofto the payment of any liability (whether due or not) of either Borrower to anycreditor of either Borrower, including without limitation, Lead Lender andeither Borrower;

** **

**v.            **Apply any sum received by Lead Lender fromany source in respect of any liabilities of either Borrower to Lead Lender toany of such liabilities, regardless of whether the Note remains unpaid;

** **

**vi.           **Fail to set off and/or release, in whole orin part, any balance of any account or any credit on its books in favor ofeither Borrower, or of any other person, and extend credit in any mannerwhatsoever to either Borrower, and generally deal with either Borrower and anysecurity for Borrowers’ joint and several liability or any recourse withrespect thereto as Lead Lender may see fit; and/or

** **

**vii.          **Consent to or waive any breach of, or anyact, omission or default under, this Agreement or any other Loan Document,including, without limitation, any agreement providing collateral security forthe payment of Borrowers’ joint and several liability or any other indebtednessof either Borrower.

 

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**c.    **Primary Obligation.  Noinvalidity, irregularity or unenforceability of all or any part of eitherBorrower’s joint and several liability or of any security therefor or otherrecourse with respect thereto shall affect, impair or be a defense to the otherBorrower’s joint and several liability, and all obligations under the Note andthis Agreement are primary obligations of each Borrower.

** **

**d.    **Payments Recovered From Lead Lender.  Ifany payment received by Lead Lender and applied to any obligations issubsequently set aside, recovered, rescinded or required to be returned for anyreason (including, without limitation, the bankruptcy, insolvency orreorganization of a Borrower or any other obligor), the obligations to whichsuch payment was applied shall be deemed to have continued in existence,notwithstanding such application, and each Borrower shall be jointly andseverally liable for such obligations as fully as if such application had neverbeen made.  References in this Agreementto amounts “irrevocably paid” or to “irrevocable payment” refer to paymentsthat cannot be set aside, recovered, rescinded or required to be returned forany reason.

** **

**e.    **No Release.  Until the Note and all otherobligations under this Agreement have been paid in full and each and every oneof the covenants and agreements of this Agreement are fully performed, theobligations of either Borrower hereunder shall not be released, in whole or inpart, by any action or thing (other than irrevocable payment in full) whichmight, but for this provision of this Agreement, be deemed a legal or equitabledischarge of a surety or guarantor, or by reason of any waiver, extension,modification, forbearance or delay or other act or omission of Lead Lender orits failure to proceed promptly or otherwise, or by reason of any action takenor omitted by Lead Lender whether or not such action or failure to act variesor increases the risk of, or affects the rights or remedies of, eitherBorrower, nor shall any modification of any Note or this Agreement or releaseof any security therefor by operation of law or by the action of any thirdparty affect in any way the obligations of either Borrower hereunder, and each Borrowerhereby expressly waives and surrenders any defense to its liability hereunderbased upon any of the foregoing acts, omissions, things, agreements, or waiversof any of them.  Neither Borrower shallbe exonerated with respect to its liabilities under this Agreement by any actor thing except irrevocable payment and performance of the obligations, itbeing the purpose and intent of this Agreement that the obligations constitutethe direct and primary obligations of each Borrower and that the covenants,agreements and all obligations of each Borrower hereunder be absolute,unconditional and irrevocable.

** **

**f.     **Actions Not Required. Each Borrower hereby waives any and all right to cause a marshalling ofthe other Borrower’s assets or any other action by any court or othergovernmental body with respect thereto insofar as the rights of Lead Lender andany Participant hereunder are concerned or to cause Lead Lender or anyParticipant to proceed against any security for Borrowers’ joint and severalliability or any other recourse which Lead Lender or any Participant may havewith respect thereto, and further waives any and all requirements that LeadLender or any Participant institute any action or proceeding at law or inequity against the other Borrower or anyone else, or with respect to thisAgreement, the Loan Documents, or any collateral security for  Borrowers’ joint and several liability, as acondition precedent to making demand on, or bringing an action or obtainingand/or enforcing a judgment against, any Borrower.  Each Borrower further waives any requirement that Lead Lender orany Participant seek performance by the other Borrower or any other person, ofany obligation under this 

 

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Agreement,the Loan Documents or any collateral security for Borrowers’ joint and severalliability as a condition precedent to making a demand on, or bringing an actionor obtaining and/or enforcing a judgment against, any Borrower.  No Borrower shall have any right of setoffagainst Lead Lender or any Participant with respect to any of its obligationshereunder.  Any remedy or right herebygranted which shall be found to be unenforceable as to any person or under anycircumstance, for any reason, shall in no way limit or prevent the enforcementof such remedy or right as to any other person or circumstance, nor shall suchunenforceability limit or prevent enforcement of any other remedy or righthereby granted.

** **

**g.    **Deficiencies. Each Borrower specifically agrees that in the event of a foreclosureunder the Security Agreement, any other security agreement or other similaragreement held by Lead Lender which secures any part or all of Borrowers’ jointand several liability and in the event of a deficiency resulting therefrom,each Borrower shall be, and hereby is expressly made, liable to Lead Lender forthe full amount of such deficiency notwithstanding any other provision of thisAgreement or provision of such agreement, any document or documents evidencingthe indebtedness secured by such agreement or any other document or anyprovision of applicable laws which might otherwise prevent Lead Lender fromenforcing and/or collecting such deficiency. Each Borrower hereby waives any right to notice of a foreclosure underany security agreement or other similar agreement given to Lead Lender by anyother Borrower, which secures any part or all of Borrowers’ joint and severalliability.

** **

**h.    **Borrowers Bankruptcy. Each Borrower expressly agrees that its liability and obligations underthe Note and this Agreement shall not in any way be affected by the institutionby or against the other Borrower or any other person or entity of anybankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,or any other similar proceedings for relief under any bankruptcy law or similarlaw for the relief of debtors, or any action taken or not taken by Lead Lenderin connection therewith, and that any discharge of any Borrower’s joint andseveral liability pursuant to any such bankruptcy or similar law or other lawsshall not discharge or otherwise affect in any way the obligations of any otherBorrower under the Note and this Agreement, and that upon or at any time afterthe institution of any of the above actions, at Lead Lender’s sole discretion,Borrowers’ joint and several obligations shall be enforceable against anyBorrower that is not itself the subject of such proceedings.  Each Borrower expressly waives any right toargue that Lead Lender’s enforcement of any remedies against that Borrower isstayed by reason of the pendency of any such proceedings against any otherBorrower.

** **

**i.     **No Subrogation. Notwithstanding any payment or payments made by any Borrower hereunderor any setoff or application of funds of any Borrower by Lead Lender, suchBorrower shall not be entitled to be subrogated to any of the rights of LeadLender against any other Borrower or any other guarantor or any collateralsecurity or guaranty or right of offset held by Lead Lender for the payment ofthe obligations, nor shall such Borrower seek or be entitled to seek anycontribution or reimbursement from any other Borrower or any other guarantor inrespect of payments made by such Borrower hereunder, until all amounts owing toLead Lender by the Borrowers on account of the obligations are irrevocably paidin full.  If any amount shall be paid toa Borrower on account of such subrogation rights at any time when all of theobligations shall not have been irrevocably paid in full, such amount shall beheld by that Borrower, and shall, forthwith upon receipt by Borrower, be turnedover to Lead Lender in the exact form received by Borrower (duly endorsed byBorrower to Lead Lender, if required), to be 

 

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appliedagainst the obligations, whether matured or unmatured, in such order as LeadLender may determine.

** **

**j.     **Relationship of Borrowers. Each Borrower represents that it expects to derive benefits from theextension of credit accommodations to Borrowers by Lead Lender and finds itadvantageous, desirable and in its best interests to execute and deliver thisAgreement and the Note to Lead Lender.

** **

**20.      Amendments.**  Noamendment, modification or waiver of any provision of the Loan Documents and noconsent to any departure by Borrower therefrom shall in any event be effectiveunless the same shall be in writing and signed by Lead Lender, and then suchamendment, modification, waiver or consent shall be effective only in thespecific instance and for the purpose for which given.  Neither this Agreement nor any provisionhereof may be changed, waived, discharged or terminated orally, but only by aninstrument in writing signed by the party against whom enforcement of thechange, waiver, discharge or termination is sought.

** **

**21.      Marshalling;Payments Set Aside.**  LeadLender shall be under no obligation to marshal any assets in favor of Borroweror any other Person or against or in payment of the Loan and other Indebtednessof Borrower to Lead Lender.  To theextent that Borrower makes a payment or payments to Lead Lender or Lead Lenderexercises its rights of setoff, and such payment or payments or the proceeds ofsuch setoff or any part thereof are subsequently invalidated, declared to befraudulent or preferential, set aside and/or required to be repaid to atrustee, receiver or any other party under any bankruptcy law, state or federallaw, common law or equitable cause, then to the extent of such recovery, theobligation or part thereof originally intended to be satisfied shall be revivedand continued in full force and effect as if such payment had not been made orsuch enforcement or setoff had not occurred.

** **

**22.      InvalidProvisions.**  Iffulfillment of any provision hereof, or any transaction related thereto at thetime performance of any such provision shall be due, shall involve transcendingthe limit of validity prescribed by law, then, ipso facto, the obligation to befulfilled shall be reduced to the limit of such validity; and such clause orprovision shall be deemed invalid as though not herein contained, and theremainder of this Agreement shall remain operative in full force and effect.

** **

**23.      NotJoint Ventures.**  LeadLender and each Participant are not, and shall not by reason of any provisionof any of the Loan Documents be deemed to be, joint venturers with or partnersor agents of Borrower.

** **

**24.      EstoppelCertificate.**  Atany time and from time to time, within fifteen (15) Business Days after receiptfrom the other party hereto of a written request therefor, Borrower or LeadLender, as the case may be, shall prepare, execute and deliver to such party,and/or any other party which Borrower or Lead Lender, as the case may be, maydesignate, an estoppel certificate stating: (a) the amount of the unpaid principal balance and accrued interest onthe date thereof; (b) the date upon which the last payment was made and thedate the next payment is due; and (c) that Borrower has no defenses, claims oroffsets against full enforcement hereof according to the terms hereof, or listingand describing any such amendments, changes, defaults, events of default,defenses, claims or offsets which do exist.

 

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**25.      Noticeof Change of Location.** Borrower shall promptly notify Lead Lender of any change in location ofBorrower’s principal places of business or the offices where it keeps itsrecords concerning accounts and contract rights.

** **

**26.          Tax Identification Numbers.**  Thefederal tax identification number for PDS Gaming Corporation is 41-1605970.  The federal tax identification number forPDS Gaming Corporation-Nevada is 88-0357859. The federal tax identification number for PDS GamingCorporation-Mississippi is 72-1379221.  The federal tax identificationnumber for PDS Gaming Corporation-Colorado is 88-0433506.

** **

**27.      Setoffs.**  Ifthe unpaid principal amount of the Loan, interest accrued thereon or any otheramount owing by Borrower under the Loan Documents shall have become due andpayable (by demand, acceleration or otherwise), Lead Lender shall have theright, in addition to all other rights and remedies available to it, withoutnotice to Borrower, to set off against, and to appropriate and apply to suchdue and payable amounts any debt owing to, and any other funds held in anymanner by Lead Lender for the account of, Borrower.  Such right shall exist whether or not Lead Lender shall have madeany demand hereunder or under any other Loan Document, whether or not such debtowing to or funds held for the account of Borrower is or are matured orunmatured, and regardless of the existence or adequacy of any collateral,guaranty or any other security, right or remedy available to Lead Lender.

** **

**28.      RemediesCumulative.**  Therights and remedies herein specified of the parties hereto are cumulative andnot exclusive of any rights or remedies, which the parties hereto wouldotherwise have at law or in equity or by statute.

** **

**29.      Integration;Conflicting Terms.**  ThisAgreement together with the other Loan Documents comprises the entire agreementof the parties on the subject matter hereof, supersedes, and replaces all prioragreements, oral and written, on such subject matter.  If any term of any of the other Loan Documents expresslyconflicts with the provisions of this Agreement, the provisions of thisAgreement shall control; provided, however, that the inclusion of supplementalrights and remedies of Lead Lender in any of the other Loan Documents shall notbe deemed a conflict with this Agreement.

** **

**30.      GoverningLaw; Construction.**  TheLoan Documents shall be governed by, and construed in accordance with Nevadalaw.  Whenever possible, each, provisionof the Loan Documents and any other statement, instrument or transactioncontemplated hereby or thereby or relating hereto or thereto shall be interpretedin such manner as to be effective and valid under such applicable law, but, ifany provision of the Loan Documents or any other statement, instrument ortransaction contemplated hereby or thereby or relating hereto or thereto shallbe held to be prohibited or invalid under such applicable law, such provisionshall be ineffective only to the extent of such prohibition or invalidity,without invalidating the remainder of such provision or the remainingprovisions of the Loan Documents or any other statement, instrument ortransaction contemplated hereby or thereby or relating hereto or thereto.  The parties shall endeavor in good-faithnegotiations to replace any invalid, illegal or unenforceable provisions with avalid provision the economic effect of which comes as close as possible to thatof the invalid, illegal or unenforceable provision.  The provisions of this Section are irrevocable and may not berescinded, revoked or amended without the prior written consent of LeadLender.  

 

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Borrower acknowledges thatLead Lender and each Participant has relied upon them in entering into the LoanDocuments.

** **

**31.      Waiverof Jury Trial.** Borrower hereby irrevocably waives any and all right to trial by jury inany legal proceeding arising out of or relating to this Agreement, the Note orany of the documents executed in connection therewith or the transactionscontemplated hereby or thereby.

** **

**32.     ****Lead Lender’sAcknowledgement of Gaming Requirements and Agreement to Cooperate****.**  LeadLender acknowledges that Borrower (and each of them, as applicable) holdsprivileged licenses that are necessary to the operation of its business and isrequested from time to time to provide information to government regulatoryagencies (“***GamingAuthorities***”), such as the Nevada State Gaming Control Board andNevada Gaming Commission.  Lead Lenderagrees to cooperate with Borrower (or any of them, as applicable) in providinginformation requested by any Gaming Authorities with respect to Lead Lender,any Participant, and/or the transaction contemplated by this Loan Agreement andagrees to notify Borrower upon receipt of any request for information made byGaming Authorities directly to Lead Lender. Borrower shall reimburse Lead Lender and any Participant, upondemand, for all costs and expenses incurred, including without limitation,reasonable attorney fees paid on incurred in connection with the foregoing.

** **

**IN WITNESS WHEREOF**, this Agreement has been duly executed and delivered by the properofficers thereunto duly authorized on the day and year first above written.

##### ** **

##### **“Lead Lender”**

 

**FIRST STATEBANK OF THERMOPOLIS**

 

 
| By:          | *s/ Brian Yarrington* |   |
|--------------|-----------------------|--------|
|         |                  |
| Print  Name: | Brian  Yarrington     |   |
|         |                  |
| Its:         | President             |   |
|              |                       |        |  |

 

 

**[Signatures continued on next page]**

 

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| **“PDS”**                 |                                     | **“PDS-MS”**                 |
|-------------------------------------|------------------------------------------|----------------------------------------|
|                                |                                     |                                   |
| **PDS GAMING CORPORATION**          |                                     | **PDS GAMING CORPORATION MISSISSIPPI** |
|                                |                                     |                                   |
| By:                                 | *s/ Joe S. Rolston IV*                   |                                   | By: | * s/ Joe S. Rolston  IV* |
|                                |                                     |                                   |
| Print  Name:                        | Joe  S. Rolston IV                       |                                   | Print  Name: | Joe  S. Rolston IV |
|                                |                                     |                                   |
| Its:                                | Exec.  Vice President & Gen. Counsel |                                   | Its:  | Exec.Vice  President & Gen. Counsel |
|                                |                                     |                                   |
| **“PDS-CO”**              |                                     | **“PDS-NV”**                 |
|                                |                                     |                                   |
| **PDS GAMING CORPORATION-COLORADO** |                                     | **PDS GAMING CORPORATION-NEVADA**      |
|                                |                                     |                                   |
| By:**                               | *s/ Joe S. Rolston IV*                   |                                   | By: | *s/ Joe S. Rolston IV* |
|                                |                                     |                                   |
| Print  Name:                        | Joe  S. Rolston IV                       |                                   | Print  Name: | Joe  S. Rolston IV |
|                                |                                     |                                   |
| Its:                                | Exec.  Vice President & Gen. Counsel |                                   | Its: | Exec.  Vice President & Gen. Counsel |
|                                     |                                          |                                        |  |  |  |  |

 

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